Renewable Energy Certificate (REC)

A Renewable Energy Certificate (REC) is a tradeable market instrument that represents the environmental attributes, the "greenness", of one megawatt-hour (MWh) of electricity generated from a renewable energy source such as solar, wind, small hydro, or biomass. RECs allow electricity generators and consumers to separately transact the clean energy credentials of power, enabling companies and government entities to meet their renewable energy obligations without needing physical connection to a renewable energy plant.

What is a Renewable Energy Certificate (REC) in government procurement?

India's REC mechanism was established by the Central Electricity Regulatory Commission (CERC) in 2010 under the Electricity Act 2003. It was designed to help electricity distribution companies (DISCOMs) and captive consumers meet their Renewable Purchase Obligations (RPOs), the minimum percentage of electricity that regulated entities must source from renewable energy, mandated by state electricity regulatory commissions.

The mechanism works as follows. A renewable energy generator registers with CERC and the Central Agency (NLDC, National Load Despatch Centre). For every MWh of renewable electricity they inject into the grid, they earn one REC. The generator sells the electricity at normal grid rates (separating the financial benefit of energy from the environmental attribute). The REC, representing the environmental attribute, is then sold separately on the Indian Energy Exchange (IEX) or Power Exchange India (PXIL) on defined trading days.

Buyers of RECs, typically DISCOMs, industrial consumers, and government captive consumers, purchase RECs to meet their RPO compliance without the need to physically source renewable electricity or build their own renewable plant. For every REC purchased and surrendered to the state regulatory authority, the entity fulfils the equivalent RPO quantum.

Government procurement intersects with RECs in two ways. Government-owned power utilities (NTPC, state electricity boards, DISCOMs) are among the largest RPO-obligated entities and regularly purchase RECs to meet compliance shortfalls. Separately, RECs are sometimes used in energy service agreements for government facilities, where an Energy Service Company (ESCO) provides clean electricity sourced from renewable plants to government buildings, with RECs as the instrument of attribution.

Why it matters for bidders

For renewable energy developers, RECs provide a revenue stream separate from electricity sale, allowing projects in locations with good wind or solar resource but poor grid offtake prices to remain commercially viable. A developer who sells electricity at the prevailing grid rate and earns RECs on top can achieve project IRRs that would not be possible from electricity revenue alone.

For REC trading intermediaries and brokers, the IEX and PXIL platforms provide a regulated exchange on which RECs trade at prices determined by market supply and demand, historically ranging from Rs 1,000 to Rs 3,000 per REC depending on energy source and market conditions.

Companies providing energy management services to government facilities, helping departments comply with Green Building norms or public sector sustainability targets, use RECs as part of their energy compliance offering. Government departments with net-zero or renewable energy commitments can use RECs to substantiate claims without installing on-site renewable capacity.

Example

A state electricity distribution company (DISCOM) has a 12% Solar RPO obligation under its state electricity regulatory commission order for the financial year. Its own solar power purchase agreements cover 9%, leaving a 3% deficit. To avoid regulatory penalties, the DISCOM purchases RECs equivalent to 3% of its annual consumption on the IEX exchange trading session. It buys 85,000 solar RECs at Rs 2,200 each, spending Rs 18.7 crore. These RECs are surrendered to the state commission's compliance registry. The DISCOM fulfils its Solar RPO without building additional solar capacity or signing new PPAs in the current year.

Key rules / thresholds

RECs are valid for 1095 days (3 years) from the date of issuance. RECs not surrendered within the validity period expire without value. CERC fixes floor and ceiling prices for RECs, the floor ensures minimum revenue for generators, the ceiling caps compliance cost for buyers. The current floor and ceiling prices are revised by CERC periodically based on market conditions. Under the Electricity (Amendment) Act 2022, the RPO trajectory for renewables has been significantly increased through 2030, guaranteeing long-term demand for RECs.