Wind energy may greatly benefit from a judicial mix of renewable purchase obligations and renewable energy certificates in India, says Dr S Gomathinayagam.
Renewable purchase obligations (RPOs) and renewable energy certificates (RECs) have certainly steered the growth of capacity addition in the wind energy sector significantly in recent years. The percentage of renewable energy to be used by distribution licensees in the respective states needs to be clearly specified and the percentage applicable is also linked to the control period, necessitating an enforcement mechanism. Various states have issued RPO orders/regulations, specifying the percentage for mandatory renewable energy procurement of electricity by the various state electricity regulatory commissions (SERCs). The specified percentage levels of RPOs and their control periods vary significantly in each financial year.
In 2009, the percentage declared in 17 states from Andhra Pradesh to Himachal Pradesh ranged from 1-20 per cent and most of these RPO percentage requirements in some states were also divided among the various renewables. A few states have retained a fixed percentage for a long control period and most other states declared that the renewable energy (RE) procurement depends on real achievements so that they can reach the declared RPO percentage levels.
Tamil Nadu gives a uniform percentage which is steadily increasing from 10-14 per cent. Since power is a dual subject of the Centre as well as state governments and the tariff suggested for wind energy by the Central Electricity Regulatory Commission (CERC) cannot be implemented uniformly in all states by the SERCs, more than 18 out of 25 SERCs have issued generic tariffs for wind energy.
In principle, since wind energy is site and state specific, it may be justified by different states to have varying RPO percentages. Recently notified (18 November 2010) renewable energy certificates allow utilities such as state electricity boards that are engaged in renewable energy generation in different states to deal with the mismatch of renewable resource availability. As of today, the REC model may be viewed as a model with reasonably attractive returns with the possibility of multiple revenue streams—pooled power purchase cost in the case of sale to discoms, bilaterally negotiated prices for the sale of electricity to an open access user or trader and market determined REC price discovery with the support of floor price. However, in terms of revenue certainty over a longer tenure, there is uncertainty in the extent of minimum assured/floor price for RECs, compliance of RPO targets by obligated entities and implementation of the enforcement mechanism. While the model may be perceived as a risky proposition by some developers or lenders today, it may have the potential to turn into the most promising market model with the necessary implementation support in place.
It is expected that implementation of the REC mechanism will essentially overcome geographical constraints to harness the available RE sources and also aim to reduce the cost associated with RE transactions to meet RPO obligations. RECs are expected to provide an increased flexibility for obligated entities to fulfil their purchase obligations and may create competition among different RE technologies.
Since wind is a mature technology and comparatively cost-effective, it may greatly benefit from a judicial mix of RPOs and RECs in India, thus realising the goals set out by the National Action Plan for Climate Change (NAPCC).
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