Renewable Energy and Policy Mechanisms : A Case Study of Renewable Energy Certificates in India

Renewable energy and environmental sustainability has emerged as a policy objective in the developing world with varying degrees of action, policy effectiveness and efficiency, and sustainable growth in the infant renewable energy industry. The policy mechanisms discussed include renewable energy certificates (REC) and price limitations in the form of a price ceiling and floor, respectively. Renewable energy certificates are contractual agreements on behalf of solar energy generators and participants in the Indian Energy Exchange. In 2008, India's National Action Policy on Climate Change set a target of Renewable Purchase Obligations (RPO's) to produce 15% of the country's electricity with renewable energy sources by 2020. RPO's are obligations put forth by the national government that state that electricity generators must contract a percentage of their electricity volume from renewable energy sources rather than conventional sources such as hydropower or nuclear facilities. For example, a electricity generator or distributor may have an RPO of 5%; thus, they need to enter the Indian Energy Exchange to purchase on a given day 5% of their estimated retail load responsibility (volume) in REC's as to contractually bind the agreement between electricity generators and distributors and renewable energy generators to guarantee production and meet the RPO. For the purposes of this paper, REC's for solar energy will only be considered for analysis as non-solar REC's are aggregated regardless of type into a non-solar REC category