Recent modifications in modalities of REC Trading

Introduction:

In the face of escalating global warming concerns, the quest for alternative, eco-friendly solutions has gained momentum as the detrimental effects of conventional energy sources become more apparent. A significant stride in this direction is the introduction of Renewable Energy Certificates (RECs) in India, marking a commitment to encourage and support clean energy generation. This initiative provides a tangible means of tracking and verifying renewable energy production and serves as a catalyst for further investments in sustainable technologies.

What are RECs:

Renewable Energy Certificates represent a pivotal market-based mechanism in transitioning to sustainable energy practices. These certificates are tangible proof that the holder owns one megawatt-hour (MWh) of electricity generated from a renewable energy source.[1] The process involves power providers feeding the energy produced from renewable sources into the grid, after which they are issued RECs corresponding to the amount generated. These certificates, in turn, can be traded on the open market as a distinct energy commodity. The flexibility of RECs extends beyond the energy market, as entities with excess certificates can sell them to other organisations seeking to offset their carbon emissions. By functioning as a form of carbon credit, RECs facilitate a broader environmental responsibility initiative, encouraging a symbiotic relationship between renewable energy producers and businesses looking to mitigate their environmental impact.

Recent Modification in REC Trading:

The recent order from the Central Electricity Regulatory Commission (CERC) dated 8 October 2023[2], as outlined in IEX Petition no. 375/MP/2022 significantly impacts the Renewable Energy Certificate (REC) market.[3] One notable directive from the Hon’ble CERC is discontinuing the interim arrangement involving pro-rata allocation of RECs based on the buyer’s preference. Instead, the Commission has mandated a transition to a more streamlined approach where single technology-agnostic RECs will be permitted through power exchanges starting next month. This shift signifies a move towards a more uniform and versatile REC system, where the emphasis is placed on the technology-agnostic nature of these certificates.

The contractual symbol for RECs remains unchanged, denoted as “REC.” A significant shift is observed in the allocation methodology, with RECs now being assigned to buyers through a double-sided uniform price auction matching mechanism. Notably, there will no longer be a segregation of the allocated quantity of RECs based on the source of origin in the REC Purchase Certificate issued by the Exchange. Additionally, the previously adopted interim arrangement involving the consideration of buyer preferences for Solar and Non-Solar types, along with the subsequent allocation based on these preferences, has been discontinued.

Conclusion:

RECs are a mechanism to trace and account for the energy injected into the system. This tracking tool not only aids in differentiating clean energy contributions but also facilitates trading these certificates, incentivising renewable energy production and allowing businesses to showcase their commitment to sustainability by offsetting their carbon footprint by purchasing RECs. The recent modifications underscore a commitment to streamlining and enhancing the efficiency of the REC trading process, aligning it with the technology-agnostic approach mandated by the CERC and fostering a more unified and accessible renewable energy market.

[1] https://www.iexindia.com/products.aspx?id=5%2FPXgqPnjo0%3D&mid=IT8b%2BZM5cBA%3D

[2]https://www.iexindia.com/Uploads/CircularUpdate/10_10_2023Circular%20No.%201026%20Modification%20in%20REC%20Trading%20Days.pdf

[3]https://www.iexindia.com/Uploads/CircularUpdate/03_11_2023Circular%20no.%20%201077%20Modification%20in%20modalities%20of%20REC%20Trading%20from%20November%202023.pdf