Renewable energy certificate markets in India—A review

Abstract

In India, the National Action Policy on Climate Change (NAPCC)11List of abbreviations: Australia Securities Exchange (ASX); Average Purchase Pooled Cost (APPC); Central Electrical Authority (CEA); Central Electricity Regulatory Commissions (CERC); Chicago Climate Futures Exchange® (CCFE); Feed-in-Tariffs (FIT); Forum of Regulators (FOR); Generation Based Incentives (GBI); Indian Energy Exchange (IEX); Jawaharlal Nehru National Solar Mission (JNNSM); National Action Policy on Climate Change (NAPCC); National Load Dispatch Center (NLDC); Power Exchange of India Limited (PXIL); Renewable Energy Certificates (REC); Renewable Portfolio Obligation (RPO); Renewable Portfolio Standard (RPS); State Electricity Regulatory Commissions (SERC); State Load Dispatch Center (SLDC). has set a target of 15% of electricity via renewable energy sources by 2020. To reach these ambitious targets, in March 2011, the Government of India launched the renewable energy certificates (REC) – a market based mechanism – to drive renewable energy development and spur further investments. However, a look into the actual performance of REC market trading during the first year of operation shows that, though volume of trading steadily increased, the number of accredited certificates issued was less than 2.5% of the technical REC demand potential, indicating that the full potential of the REC markets was far from being realized.We critically examine the design and implementation of the REC market in India as well as its effectiveness in meeting the desired objectives in the context of international best practices. Our analysis of REC market best practices reveals that, though forward markets, banking and price bounds are recommended for stable markets, best-of-class methods for determining the optimal length of banking, the level of floor and forbearance prices, and the values of credit/vintage multipliers are not fully established. We then establish that the main issues with the Indian REC markets appear to be demand uncertainty resulting from lack of long term targets, absence of clarity on compliance, and near-absence of long-term price signals to investors. Finally, we present an analysis of other important features of the Indian REC market in the context of well-functioning REC markets, such as credit-multipliers/set-asides, vintage multipliers, and voluntary markets.