In recent days REC (Renewable Energy Certificates) route have got a great investor interest, as the bidding route to put up a solar plant provides a highly competitive tariff (of the order of about 8 Rs/kWh). REC is a relatively new concept adopted by many countries now including USA and Europe. It proves that a RE generator has produced RE based power and in conjunction with RPO (Renewable Portfolio Obligation) it offers a robust market based instrument to trade green attributes of electricity. In India the RPO targets are mandatory and regulators have specified state specific targets to solar and non solar specific targets. As per the tariff policy there is a need of achieving 0.25% of Solar RPO by distribution licensees as well as captive generators by the end of first phase of JNNSM. As per our estimate if we consider that only distribution licensee comply to RPO the total Solar electricity installed capacity needs to be of the order of 1367 MW.
The obligatory parties (distribution licensees and the captive generators) have two options to meet the RPO targets.
A. by signing a bilateral PPA
B. Through purchase of RECs.
C. Purchase of solar bundled electricity (such as NVVN sale of electricity).
If we consider that by end of thirteenth five year plan Government of India will achieve 3% electricity from Solar, the total electricity installed capacity requirement will be of the order of 30000 MW. The JNNSM has a target of 20000 MW of solar electricity by end of third phase (2022). In order to facilitate grid connected solar power generation in the first phase, a mechanism of “bundling” relatively expensive solar power with power from the unallocated quota of the Government of India (Ministry of Power) generated at NTPC coal based stations, which is relatively cheaper, has been proposed by the Mission. This “bundled power” would be sold to the Distribution Utilities at the Central Electricity Regulatory Commission (CERC) determined prices.
As of April 2012, most of the states have specified their solar RPO targets. After completion of one year, these targets have significantly remained un-achieved. The major concern of Government of India is to enforce these targets on Distribution licensees as well as on the captive generators. The distribution licensee can deny these targets specified by the regulators as the regulators allow the cost of compliance as a pass through cost in ARR. Obviously there is an extra cost to the captive generators 1MW and above capacity to meet the RPO compliance. As the process of RPO is in its beginning, it will take some time to establish the RPO mechanism.