The Regulatory framework for REC mechanism has been notified by CERC and the REC mechanism is being supported by MNRE and the Ministry of Power. REC mechanism is expected to bring new investments in renewable energy projects and help introducing market based competition in renewable energy sector.
A large part of our Renewable Energy potential is concentrated in few States and some of these States have achieved comparatively high levels of renewable electricity purchase as share of their total electricity consumption. The electricity from renewable energy being more expensive than the conventional electricity, these States are not willing to buy renewable based electricity any further. For example, Tamil Nadu has more than 10% of total electricity from renewable sources of energy but still has untapped wind energy potential. On the other hand, there are States like Bihar and Delhi which have very little renewable energy potential but are required by the National Electricity Policy to enhance the share of renewable electricity in their total electricity consumption.
To address this mismatch, the Electricity Regulatory Commissions have collectively evolved REC mechanism under which the green electricity is to be split into two components, i.e. electricity and the green attribute. The electricity component can be sold to local distribution utilities at a price of conventional electricity and the green attribute is converted into REC which the generator can sell to the utilities of States like Delhi. Such a utility can fulfill its renewable purchase obligations by purchasing RECs.