Renewable Purchase Obligations (RPOs): Exploring the legal framework that mandates obligated entities to procure a certain percentage of their energy from renewable sources and the penalties for non-compliance.

Introduction

Renewable Purchase Obligations or RPOs as the name suggests are statutory mandates laid down by the Ministry of New and Renewable Energy (MNRE) as well as the State Nodal Agencies (SNAs). According to the obligations, it is mandatory for all licensees of electricity distribution to purchase or produce a specified quantity of their electricity stock in form of renewable energy resources. Moreover, the onus of fixing the minimum benchmark of renewable energy stock is fixed by the State Electricity Regulatory Commissions (SERCs), as laid down by the Indian Electricity Act, 2003.

Renewable Energy Certificates or RECs are the tools that, determine and encourage the usage and growth of renewable energy in the market. It is calculated as equivalent to one megawatt – hour of renewable energy using permissible sources of renewable energy.

Legal Framework Governing Renewable Purchase Obligations

Since the Renewable Energy Certificates have an instrumental impact on the energy distribution and policy requirements of every state, there are various notifications and rules set by every SERC to govern the production and distribution of renewable energy. Since its inception in the year 2011, renewable energy certificates have been traded in two leading power exchange centres across the country which are the Indian Energy Exchange (IEX) and the Power Exchange of India (PXIL).

In the exercise of powers under Section 86(1)(e) of the Electricity Act 2003 and National Tariff Policy, the renewable purchase obligation targets for each category are specified by the respective SERC, including solar and non – solar energy. Moreover, the concept of obligated entities has also been included which refers to all captive power producers, open access consumers and other energy producers and intermediaries.

There are various objectives of renewable purchasing obligations which include establishing an effective monitoring system at the central level for web-based monitoring of RPOs across the states and union territories, creating user interfaces for eligible entities for keeping a check on their compliances, preparing database systems for analytical modules enabling states to track the effectiveness of their programmes and many other functions. Moreover, there is a huge emphasis on the enforceability mechanism of Renewable Energy Certificates and Renewable Purchase Obligations since the effectiveness of this program depends particularly upon the adherence by the states and union territories.

For the same purpose, it has been mandated by the central government that every state and Union Territory must set up a control room in order to effective tracking of the compliance by various stakeholders with such Renewable Purchase Obligations, along with submitting an annual report to the central government and the ministry by the end of each financial year.

Various industries and business houses have claimed that though renewable energy has been given priority status by the government over conventional sources of energy like thermal power, there is an increased deduction of plant load factor, higher cost of production, increased inefficiency in turn, leading to increased cost to consumers which would lead to an increased burden in the market.

Penal Consequences For Non-Compliance

It is essential to develop a proper framework for ensuring compliance and attaching penal consequences for non – compliance in order to give teeth to the REC and RPO mechanism. The Electricity Regulatory Commission of each and every State and Union Territory has been empowered to ensure compliance and frame rules attaching penal consequences for non – adherence.

However, there are various broad penal guidelines that have been inculcated by every state, which are as follows:

1. A penalty of 10% of the weighted average REC price has been imposed upon obligated entities not complying with the RPO targets found out post – compliance at the power – exchange centres for the year in question.
2. The SERC’s regulations would also be empowered to carry over the penalty amounts to subsequent years whenever there is a default in one or more consequent years.
3. In case of absolute non-compliance involving fraudulent activities or altering of accounts, the SERC’s are also empowered to impose fines up to Rs. 1/- per kilowatt – hour shortfall by the obligated entities.

Moreover, there are various other deterrent provisions in the same regard which may include the initiation of proceedings against delinquent enterprises, with increasing rates of penalties for subsequent non – compliances. This penal consequence has also acted as a deterrent in the market scenario with various entities taking such provisions seriously and ensuring that complete and robust compliance checks in order to prevent penalties. Due to this, the compliance rate has risen from 52% to 60% across the country in the past year.

Conclusion

The motive of the government to facilitate shifting from conventional sources of energy, such as fossil fuels, to cleaner and more sustainable sources of energy is an instrumental first step towards ensuring sustainable development and meeting global standards for pollution control policies.

The REC and RPO obligations have played a pivotal role in acting as a positive step towards fulfilling the sustainability commitments made by the government and ensuring the accountability of various entities and intermediaries, thereby nudging the market towards renewable and sustainable sources of energy.

However, there still exist a number of issues that need to be addressed in order to ensure stricter compliance mechanism for these projects so that the coverage across the country is fulfilled properly.

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