The inability of state distribution utilities to fulfill their mandatory purchase of renewable energy certificates (REC) has caused price of these papers to fall and is threatening the viability of renewable energy sector.
State discoms, who are required to purchase 5 percent of their electricity from renewable energy sources, will have to buy these certificates in case of their failure to do so.
Renewable power sources like wind and solar plants are not evenly spread across the country and so these discoms are allowed to meet their obligations by buying RECs from the Indian Energy Exchange (IEX) or the Power Exchange India.
However, discoms are not actively buying these certificates and this has caused the prices of RECs to fall 45 percent in the past year, reports suggest.
RECs are tradable instrument each representing 1,000 units of power generated from renewable sources and sold to the grid.
The price of each certificate fell to Rs 1,500 last month compared with Rs 2,700 in October last year. Also, of the 8.51 lakh certificates on offer last month, only 1.32 lakh found buyers.
If energy certificates are not sold, their incentive for generating power declines. Media reports suggest that investment flows into the clean energy sector in India declined mainly because of lack of buyers in the REC market.
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