Renewable Energy Certificates (RECs)

Union Minister of Power and New & Renewable Energy, Shri RK Singh has given his assent to amendments in the existing Renewable Energy Certificate (REC) mechanism. The sales of Renewable Energy Certificates (RECs) rose over 79 % to 8.38 lakh units in March 2020 compared to 4.68 lakh in the same month a year ago owing to good supply.

Features of Renewable Energy Certificates (RECs) Mechanism

• Renewable Energy Certificates (RECs) is a market-based instrument to promote renewable sources of energy and the development of the market in electricity.
  • One REC is created when the one-megawatt hour of electricity is generated from an eligible renewable energy source.
• REC acts as a tracking mechanism for solar, wind, and other green energies as they flow into the power grid.
• RECs go by many names, including Green tag, Tradable Renewable Certificates (TRCs), Renewable Electricity Certificates, or Renewable Energy Credits.
• Under Renewable Purchase Obligation (RPO) bulk purchasers like discoms, open access consumers and capacitive users are required to buy a certain proportion of RECs. They can buy RECs from renewable energy producers.
  • RPO was instituted in 2011, it is a mandate that requires large power procurers to buy a predetermined fraction of their electricity from renewable sources.
• The proportion of renewable energy for utilities is fixed by the central and state electricity regulatory commissions.
• In India, RECs are traded on two power exchanges — the Indian Energy Exchange (IEX) and the Power Exchange of India (PXIL).
• The price of RECs is determined by market demand and contained between the ‘floor price’ (minimum price) and ‘forbearance price’ (maximum price) specified by the Central Electricity Regulatory Commission (CERC).

Central Electricity Regulatory Commission (CERC).

• CERC is a regulator of the power sector in India.
• It intends to promote competition, efficiency and economy in bulk power markets, improve the quality of supply, promote investments and advise the government on the removal of institutional barriers to bridge the demand-supply gap.
• It is a statutory body functioning with quasi-judicial status under the Electricity Act 2003.

Redesigned Renewable Energy Certificate (REC) Mechanism

Union Minister of Power and New & Renewable Energy, Shri RK Singh has given his assent to amendments in the existing Renewable Energy Certificate (REC) mechanism. The intent behind this decision is to align the ‘mechanism’ with the emerging changes in the power scenario and also to promote new renewable technologies.

The proposed changes will provide some flexibility to the players, additional avenues, and rationalization and also address the RECs validity period uncertainty issues. Extensive stakeholder consultations have been held towards drawing up these changes.

The Salient features of changes proposed in revamped REC mechanism are:

• The validity of REC would be perpetual i.e., till it is sold.
• Floor and forbearance prices are not required to be specified.
• CERC to have monitoring and surveillance mechanism to ensure that there is no hoarding of RECs.
• The RE generator who are eligible for REC will be eligible for issuance of RECs for the period of PPA as per the prevailing guidelines. The existing RE projects that are eligible for REC would continue to get RECs for 25 years.
• A technology multiplier can be introduced for the promotion of new and high-priced RE technologies, which can be allocated in various baskets specific to technologies depending on maturity.
• RECs can be issued to obligated entities (including DISCOMs and open access consumers) which purchase RE Power beyond their RPO compliance notified by the Central Government.
• No REC to be issued to the beneficiary of subsidies/concessions or waiver of any other charges. The FOR defines concessional charges uniformly for denying the RECs.
• Allowing traders and bilateral transactions in the REC mechanism.
• The changes proposed in revamped REC mechanism will be implemented by CERC through the regulatory process. To address the mismatch between the availability of RE sources and the requirement of the obligated entities to meet their renewable purchase obligation (RPO), Pan-India market-based Renewable Energy Certificate (REC) Mechanism was introduced in the year 2010.

What is Electoral Bonds Scheme?

• As per the scheme, Electoral bonds mean a bond issued in the nature of a promissory note which is a bearer banking instrument not carrying the name of the buyer or payee. They are used for making donations to political parties. Govt launched it on 2 Jan 2018.
• They are issued by Scheduled Commercial Banks upon authorisation from Central Govt (not RBI) to the donor, but only against cheques and digital payments (not cash). They are redeemable in a registered political party.
• Amendments to RBI Act, 1934 and RPA, 1951 were made through Finance Bill, 2017.
• It is an interest free banking instrument issued on a non-refundable basis and is not available for trading. Further, no loan would be provided against these bonds. Purchases need to have fulfilled KYC norms.
• Electoral Bonds would have a life of only 15 days during which they can be used for making donations only to the political parties registered under Section 29A of RPA, 1951. It will be encashed by them only through a designated bank account with the authorised bank.
• No payment shall be made to any payee political party if the bond is deposited after the expiry of the validity period and the bond deposited by any political party to its account shall be credited on the same day.
• The information furnished by the buyer shall be treated confidentially. No commission, brokerage or any charges for the issue of the bond shall be payable.
• The maximum amount of cash donation that a political party can receive is stipulated at Rs. 2000/- from 1 person. Political parties are exempted from Income tax.
• As per Section 29C (1) of RPA, 1951, the political party needs to disclose the details of Non-governmental corporations and persons who donate > 20000 to it.
• Issues:
  1. Donors are left anonymous. So Electoral bonds cannot be identified or associated with any particular buyer or political party.
  2. Election Commission argues that it does not allow to check violations of RPA.
  3. Declaration of sources of funding for political parties is given in Section 29 of RPA, 1951. Before 2017, they had to declare all donations made > 20000 but now they are out of this purview.
  4. Electoral Bods are exempt from Income Tax Act.
  5. Issue of corporate funding misuse to Political parties and lobbying.
  6. Issue of favouring the ruling party. As in 2017-18, 94.6% of bonds were given to the BJP.
  7. Foreign companies with a majority stake in Indian companies can invest in Electoral bonds. This allows unchecked foreign funding.
• Benefits
  1. It limits the use of cash in political funding.
  2. It curbs Black money as the payments are made only by Cash, DD, NEFT, RTGS.
  3. It protects donors from political victimization as they remain anonymous.
• 3 National Parties received 1931 crore in FY 19 through the Electoral Bond scheme which allows anonymous donations to political parties. BJP got the highest. Both EC and RBI are against it.

For analysis on Electoral Bonds: click here