RCO Compliance: After Industry Feedback, CERC Revises 'Buyout Price'

The Central Electricity Regulatory Commission (CERC), in its latest suo motu order, has revised the ‘buyout price’ for Renewable Consumption Obligations (RCO) after seeking industry feedback on the methodology for calculating the price, which serves as a third compliance pathway for obligated entities. The mechanism creates an additional compliance option for distribution companies (Discoms), open access consumers and captive users to fulfil mandated green energy targets. 

In its earlier order, CERC had proposed a buyout price of ₹245/MWh. However, based on stakeholder recommendations and evolving market conditions, the regulator revised its methodology. In the final ruling, the Commission acknowledged that the initially proposed price did not reflect prevailing market realities and updated the calculation using a more recent 12-month dataset covering December 2024 to November 2025. 

This recalibration resulted in the buyout price being raised to ₹347/MWh for FY 2024-25 and FY 2025-26.To provide long-term predictability, the Commission also adopted the Ministry of Power’s recommendation to introduce a 5% annual escalation through FY 2029-30. Instead of revising the price annually, CERC decided to determine the entire price trajectory upfront, citing the need for regulatory certainty and to avoid yearly data reconciliation by the National Load Despatch Centre (NLDC). 

What Are Buyout Prices For RCO?

The order follows the Ministry of Power’s notification issued in September 2025 mandating a minimum share of renewable energy consumption for designated consumers. Under the framework, entities can comply through three routes:

• Direct consumption of renewable energy or storage-backed green power
  
  * Purchase or generation of Renewable Energy Certificates (RECs)
  
  * Payment of a CERC-determined buyout price
  
  

Revenue collected through the buyout route will be credited to the Central Energy Conservation Fund, with 75% of the proceeds to be transferred to State Energy Conservation Funds to support renewable energy infrastructure and storage deployment. 

Beyond the price determination, the Commission also reviewed several submissions from industry players and associations, accepting some recommendations while rejecting others. 

Transitional mechanism with sunset timeline

Responding to stakeholder requests, CERC agreed to treat the buyout route as a transitional compliance tool, confirming that the determined prices will remain in force only until FY 2029-30, unless reviewed earlier. The move effectively introduces a sunset timeline to ensure the mechanism does not become a permanent substitute for renewable procurement or REC trading.

Commission rejects calls for compliance hierarchy

Despite strong submissions from stakeholders including MNRE, IEX and Tata Power, CERC refused to classify the buyout route as a “last-resort” option. The Commission clarified that it does not have the mandate to create a hierarchy, reiterating that all three compliance pathways—renewable power procurement, REC purchases and buyout payments—remain equal and non-hierarchical choices under the Ministry of Power notification.

High premiums and sector exemptions ruled out

Several industry participants proposed significantly higher premiums—ranging from 10% to 25%, and in some cases up to 200%—to discourage reliance on the buyout route. CERC rejected these suggestions, opting instead for a market-linked weighted average approach to balance compliance costs, particularly for Discoms.

The Commission also declined requests for sector-specific concessions, including pleas from the fertilizer industry for lower or phased premiums due to its regulated cost structure. The buyout price will therefore apply uniformly across all designated consumer categories.

Scope limited strictly to price determination

CERC further rejected demands for a detailed procedural framework covering audits, declarations of intent and verification processes, stating that such measures fall outside its limited mandate of specifying the buyout price.

Similarly, suggestions related to the utilisation or redistribution of funds collected under the Central Energy Conservation Fund were deemed beyond the scope of the order.

Market-linked benchmark retained

Finally, the Commission rejected proposals to exclude bilateral trader-led transactions from the price calculation. It confirmed that both power exchange transactions and bilateral trades will continue to be included to maintain a broad-based and transparent market benchmark.

With the final order now in place, the buyout mechanism is set to operate as a time-bound compliance option aimed at supporting India’s renewable energy transition while ensuring cost predictability for obligated entities.