Quick Facts
What an REC is
A Renewable Energy Certificate (REC) is a market-based instrument that represents 1 MWh (1,000 kWh) of electricity generated from a renewable energy source and fed into the grid. The REC separates the green or renewable attribute of the energy from the energy itself, allowing the two to be sold independently.
A solar generator that does not have a power purchase agreement can sell its electricity into the wholesale market at the prevailing pool price. The same generator can also issue RECs that represent the renewable character of the electricity, and sell those RECs to obligated entities needing to meet Renewable Purchase Obligation. The two revenue streams together compensate the generator for its renewable-cost premium.
The mechanism is regulated by the Central Electricity Regulatory Commission (CERC) and administered through the National Load Dispatch Centre (NLDC), State Load Dispatch Centres, and the two power exchanges authorised for REC trading.
How RECs work
The lifecycle of an REC involves multiple stages.
Registration: A renewable generator registers as an eligible plant with the SLDC/NLDC framework. Registration requires technical and commercial documentation.
Generation reporting: The generator’s monthly renewable generation is reported to the SLDC. The SLDC verifies the generation against meter data.
REC issuance: The NLDC issues RECs to the generator based on the verified generation, at the rate of 1 REC per 1 MWh.
Sale on exchange: The generator submits RECs for sale on IEX or PXIL during the monthly trading session.
Bidding and clearing: Obligated entities submit buy bids; the exchange matches buyers and sellers at the prevailing market clearing price.
Redemption: Once purchased, RECs are credited to the buyer’s compliance account, satisfying RPO obligations.
Validity: Each REC is valid for 7 years from issuance under the current framework.
Solar and non-solar RECs
The REC market is split into two categories.
Solar RECs: Issued by solar generators (photovoltaic and solar thermal). Used to meet the solar component of RPO.
Non-solar RECs: Issued by wind, biomass, small hydro, and other non-solar renewable generators. Used to meet the non-solar component of RPO.
Obligated entities cannot use solar RECs to meet non-solar RPO or vice versa. The two markets operate independently with their own demand-supply dynamics.
REC prices
CERC sets the floor price and forbearance (maximum) price for RECs through periodic orders. Within these bounds, RECs trade at market-clearing prices determined by exchange auctions.
As of recent CERC orders:
| Category | Floor Price (Rs/REC) | Forbearance Price (Rs/REC) |
|---|---|---|
| Solar | 1,000 | varying by tranche |
| Non-solar | 1,000 | varying by tranche |
Actual clearing prices fluctuate with demand and supply. In periods of strong RPO enforcement, prices rise toward the forbearance level. In periods of weak enforcement, prices drop to the floor or RECs trade at the floor with limited volumes.
REC eligibility
To issue RECs, a renewable generator must meet specific criteria:
The generator must be commissioned after the cut-off date specified by CERC.
The generator must not have a long-term PPA with an obligated entity at a tariff that includes the renewable premium. Plants selling power to DISCOMs through bundled PPAs cannot also issue RECs for the same energy.
The plant must be registered with the SLDC and NLDC.
Generation must be metered and reported through approved meters.
The capacity must meet minimum thresholds defined by CERC.
For most utility-scale solar projects in India, the PPA structure is incompatible with REC issuance. RECs are most relevant for plants selling power at average pool price, plants under captive consumption that do not need the renewable attribute, or plants in specific commercial arrangements.
RECs and RPO compliance
Obligated entities use RECs as one of three RPO compliance options.
Direct purchase of renewable power through PPAs.
Self-generation through captive renewable plants.
Purchase of RECs from the market.
For most DISCOMs, direct PPAs are the primary mechanism. RECs fill residual gaps.
For C&I consumers with limited access to renewable power (because of state policy or grid constraints), RECs can be an essential compliance tool.
The relative economics depend on REC price versus the renewable energy cost premium. When RECs are cheap, they are an attractive way to meet RPO. When RECs are expensive (or unavailable in adequate volume), direct procurement becomes preferable.
The 2020 REC framework reform
CERC undertook a significant restructuring of the REC framework in 2020. Key changes:
Validity extended from 1095 days to 7 years.
Floor and forbearance prices revised.
Eligibility criteria broadened to include certain captive and group captive plants.
Trading rules refined for greater clarity.
The reform aimed to revive a market that had become moribund in the late 2010s. Activity has improved since, though not back to peak 2014 levels.
Voluntary RECs versus compliance RECs
In addition to compliance RECs used for RPO, India has voluntary REC mechanisms for corporates pursuing ESG and net-zero goals beyond regulatory requirements.
International RECs (I-RECs) and Green-e certified instruments are used by Indian subsidiaries of multinational corporations for global sustainability reporting. These do not satisfy Indian RPO but are valid for international ESG metrics.
The two markets coexist. Many large Indian companies engage in both compliance REC purchase and voluntary REC activity.
Common mistakes with RECs
Treating RECs as the cheapest RPO compliance route. Direct PPAs and captive generation are usually cheaper for sustained compliance.
Assuming RECs are interchangeable. Solar and non-solar RECs are not.
Forgetting that RECs have validity periods. RECs older than 7 years cannot be used for compliance.
Confusing compliance RECs with voluntary RECs. Each serves different purposes.
Counting REC revenue without accounting for transaction costs and exchange fees.
Best practices
For long-term RPO planning, build a compliance strategy that combines direct procurement, self-generation, and RECs rather than relying on RECs alone.
Monitor REC market prices and CERC order updates regularly.
Engage CERC stakeholder consultations when the framework is being revised.
For renewable generators considering REC issuance, evaluate whether the unbundled REC model produces better returns than a bundled PPA at the available tariff.
Document all REC transactions thoroughly for audit and compliance verification.
Standards and references
The REC mechanism is regulated under the CERC (Terms and Conditions for Recognition and Issuance of Renewable Energy Certificate for Renewable Energy Generation) Regulations 2010, as amended (most recently in 2020 and subsequent years). Trading happens on IEX and PXIL under CERC supervision. The NLDC manages the central registry.
Related glossary terms
- Renewable Purchase Obligation
- Open Access Solar
- Power Purchase Agreement
- DISCOM
- CERC
- SERC
- MNRE
- Feed-in Tariff
Key takeaways
Renewable Energy Certificates (RECs) are tradable instruments representing 1 MWh of renewable energy fed into the grid. They separate the green attribute from the energy itself, allowing obligated entities to meet Renewable Purchase Obligation by buying RECs on regulated exchanges. CERC regulates the mechanism with floor and forbearance prices. The market has had a mixed history, with reform in 2020 aimed at reviving activity. RECs are one of three RPO compliance routes alongside direct PPA procurement and self-generation.