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CERC Drafts Buyout Price Rule for Renewable Consumption Obligation (RCO) DRAFT RULES Photograph: (Archive)
The Central Electricity Regulatory Commission (CERC), in a suo motu order, has formulated a proposal to build a mechanism to determine a “buyout price” for obligated consumers. Under the mechanism, they can pay an amount as an alternative to meeting their Renewable Consumption Obligation (RCO) through renewable energy usage or the purchase of certificates.
This comes within a month of the Ministry of Power’s notification, which framed rules for the implementation of the RCO. Under this regime, obligated entities such as discoms, open access consumers, and captive users have to ensure the consumption of a minimum quantum of electricity from renewable sources of energy.
Three Ways For RCO Compliance
As per the rules framed by the ministry, any consumer can meet their RCO in three different ways — either through direct consumption of renewable energy (including storage-based supply), the purchase of Renewable Energy Certificates (RECs), or payment of a buyout price. The onus for determining the RCO buyout price was given to the CERC.
CERC said that the first two options clearly lead to investment and, in turn, the establishment of renewable energy capacities and should definitely be the preferred options for RCO compliance. It is only when either of these two options is exhausted that the designated consumers should rely on the third option for RCO compliance.
“The Commission is of the opinion that there might be a requirement for the Designated Consumers to fall back on the third option, i.e. buyout price for the fulfilment of the RCO for the next two financial years,” it said.
Buyout Price Calculation
CERC said that the cost for the buyout price should also reflect the green attribute cost and electricity component cost separately in an unbundled form. The obligated entity seeking to adopt a buyout price would pay this price, which would represent a green attribute equivalent to the REC price, it said. In addition, CERC said that such an obligated entity will have to meet its energy requirements by purchasing the electricity separately.
“As such, it appears logical to link the buyout price to the REC price. However, in order to encourage obligated entities to choose between option one and option two, it is important that the buyout price be fixed at a premium over and above the REC prices,” it added.
Final Price Discovery
While fixing the buyout price, CERC said, “The weighted average price of REC for FY 2024-2025 works out to be Rs. 232.84/MWh. In view of the above, it is proposed that the buyout price for FY 2024-2025 be fixed at Rs. 245/MWh, which is about 5% above the weighted average REC price for FY 2024-2025.”
It also added, “The buyout price for a financial year shall be fixed at 105% of the weighted average REC price of that financial year. By 30th April of every financial year up to 2029-30, the National Load Despatch Centre (NLDC) shall publish the weighted average price of REC and the buyout price for the previous financial year, based on the above principles.”