Market-based model in the works for renewable energy

The government is examining a radical shift in its renewable energy programme by moving to a market-based mechanism where generators will sell their contracted capacity every day in power exchanges and distribution companies will settle the differential.

Future renewable bids are proposed to be based on the 'renewable contracts' mechanism followed widely across the globe, while the existing renewable contracts will have an option to shift, a senior government official said.

As per the proposal, selected developers in an auction will start selling renewable energy on day-ahead markets of power exchange to recover market price. The differential will be settled on a monthly basis by the agency which calls the bids.

The proposal aims at bringing in competition in green energy space while ensuring investment security, promoting new technologies, and giving access to willing renewable energy consumers, the official said.

“The market design shall balance interests of discoms and developers and also foster technological innovations in bringing renewable energy to market,” the official said.

The rapid pace of renewable energy development and falling tariffs is increasingly making discoms averse to signing long-term PPAs with renewable energy generators for want of more market-based mechanisms, he said.

“The aim of the proposed mechanism is continuance of market support and price security to developers to raise financing. The proposal will also ensure more off-take of renewable power with multiple options to drive renewable contracts and is expected to be more beneficial for discoms than power purchase agreements,” he said.

Unlike the present system of long-term power contracts of 25 years, the renewable contracts will be for 15 years between discoms or traders and generators.

The Union power ministry on Tuesday also issued a discussion paper on revised Renewable Energy Certificates proposing to remove validity period and floor and forbearance price of the instruments. The term of the RECs has been reduced to 15 years in sync with the Renewable Contracts proposal. The paper also mooted that only obligated entities be issued RECs for purchase beyond their obligation.

“The REC validity period may be removed. Thus, the validity of REC would be perpetual i.e. till it is sold. As RECs are perpetually valid then the floor and forbearance prices are not required to be specified as RECs holders would have the complete freedom to decide the timings to sell,” the draft said.

It said the Central Electricity Regulatory Commission (CERC) will be required to have monitoring and surveillance mechanism to ensure that there is no hoarding of the RECs and creation of artificial price rise in the REC market. CERC may intervene if such a case of malpractice is observed in the REC trading, it said.