India’s Renewable Energy Goals through Technology led Energy Markets

The renewable energy sector in India is undergoing rapid changes and now contributes a significant portion to India’s energy mix. This can be substantiated by the government’s commitment towards a target of 175 GW of renewable energy capacity by 2022. India can become a global renewable energy hub with its high aspiration to accomplish 450 GW by 2030.

To seize the opportunity there are many challenges attached with renewables that need redressal. An obvious one being - its variability with weather, geographies and many other uncertainties which call for market-based introduction of renewable energy trading and enabling infrastructures and regulations. There are several States that have an abundance of renewable sources but they can’t step up renewable energy generation due to evacuation as well as integration constraints within the state.

MNRE’s prompt understanding of these challenges prompted the need of launching of market enabled Renewable Energy Certificates (REC) trade on power exchanges in March 2011. The States with low renewable energy potential could access the market to purchase REC to meet their Renewable Purchase Obligation (RPO) while States with high potential are encouraged to generate more green energy and sell the RECs. Similarly, in the case of corporates, RECs give them a way for counteracting the carbon footprint as well as meeting the RPO. Each REC implies1 MWh of renewable energy injected into the grid.

The REC market has been seeing challenges over the last few years. Since March 2018, the market has been seeing high demand along with sell-side inventory constraints. There are a few key reasons for this inventory shortfall. Firstly, the REC market has seen only a few new projects and limited investments largely due to financing concerns. Secondly, many states who exceeded the RPO trajectory specified by the government have not been issued the RECs. Both these reasons have led to shortfall on the supply side, leading to prices hitting the ceiling price specified by CERC. Prior to March 2018, for six long years the REC market saw excess on the inventory side and challenge on the demand side leading to trade on the floor price specified by the regulator.

Since inception in 2011 over the last 9 years, the REC market has made a significant contribution to build the renewable energy economy in the country and has seen a total trade of about 586 lac RECs with 474 lac of non-solar RECs and 112 lac of solar-RECs. The IEX has consistently been a market leader over the years seeing maximum trading volume on its platform in both solar and non-solar categories.

Presently, REC is the only market-based instrument. It is thus important to ensure that demand and/or supply side constraints are addressed in a time bound manner and a liquid and vibrant market is built where price discovery is a reflection of true demand and supply. However, the current supply side crunch due to unwieldy investments in the past and hardly any new investments being made now resulting into low issuance of new RECs. The ripple effect of this can be observed in all time high REC prices, making it further difficult to not just meet RPO but to contribute to a greener future.

Besides addressing REC market constraints, at Indian Energy Exchange, we also believe that along with mechanisms like RPO, there should be RTO - Renewable Trade Obligation on the renewable energy generation. This concept would essentially promote trade in physical renewable energy through an exchange market in a competitive and transparent way. RTO would lead to price discovery and efficient integration while creating ground for further investments in green energy. Early in year 2005, to create the power market, the Government of India in its National Electricity Policy specified that all generators may sell 15% capacity through the market to create competitive market framework in India. A similar prescription is also needed to accelerate renewable energy aspirations.

Going forward, we also foresee propagation of distributed ecosystem of renewable energy where transmission would occur through microgrids and trading would be through peer to peer platforms. This may lead to a complete transformation of the way we produce and consumer energy. This is already being seen in many developed countries in Europe as well as in US and Australia.

The future indeed looks green, digitalized and consumer centric!