what are the Advantages of the REC Mechanism?
- Inter-state Operation: The electricity generated from renewable sources can be consumed locally and only RECs need to be sold to the obligated entities which can be located anywhere. This allows the State Commissions to set higher RPOs even in states with low RE potential and at the same time encourages companies to produce more RE power in high potential state, despite the high initial cost of generation.
- Promotion of stand-alone systems: Since transmission of electricity is independent from the REC, the additional revenue from sale of RECs could help improve viability of standalone systems. In usual scenario it may not be economical to transmit electricity from such regions.
- Increases Competitiveness of Renewable energy: Separating “RECs” from “electrical energy” and selling them separately eliminates the cost disadvantage of renewable energy technologies.
- Promoting green electricity: Environmentally conscious consumers may be willing to consume higher proportion of “green electricity” they can purchase RECs. Tradability of RECs allows wider participation by NGOs, development agencies as well as the corporate sector that may purchase RECs as a part of their social corporate responsibility.
- Promote Investment in Renewable Energy: The un-bundling of “RECs” from electricity and their competitive trading at power exchanges can allow investors in renewable energy technologies to use them to hedge electricity price risk. This should encourage investors to enter in the renewable energy generation.
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