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Renewable Energy Certificates (RECs)

Topics Covered:

  1. Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

 

Renewable Energy Certificates (RECs)

 

What to study?

For Prelims and Mains: REC_ what is it, need and significance, why GST on them and what needs to be done?

 

Context: Renewable Energy (RE) companies have moved the Delhi High Court, seeking an exemption for Renewable Energy Certificates (RECs) under the GST.

 

What are Renewable Energy Certificates (RECs)?

Renewable Energy Certificates (RECs), also known as green energy certificates or tradable renewable certificates are proof that energy has been generated from renewable sources such as solar or wind power. Each REC represents the environmental benefits of 1MWh of renewable energy generation. When you purchase RECs, renewable energy is generated on your behalf.

 

Significance:

  • It is a market based mechanism which will help the states meet their regulatory requirements (such as Renewable Purchase Obligations (RPOs)) by overcoming the geographical constraints on existing renewable potential in different states.
  • RECs unbundle the electricity component (commodity) from the green/environmental attributes of the power generated from renewable sources. Both the components can then be traded separately.
  • Thus, RECs help in incentivizing the production of renewable energy over and above the RPO state limit as tradable certificates are not constrained by the geographical limitations of commodity electricity.

 

Need for removal of GST:

RECs are being charged GST, while bundled power (RECs plus electricity, irrespective of source) or even just electricity are devoid of the same.

  • Cost of electricity generation from renewable energy sources is classified as cost of electricity generation (equivalent to conventional energy sources) and the cost of environmental attributes. REC is the environmental attribute of the electricity derived from RE.
  • As per regulations, RPO compliance through REC is at par with sourcing electricity directly from RE. Therefore, GST applicable on the sale of RECs negatively affects its parity with similar electricity sale alternatives, be it conventional or renewable.
  • Moreover discoms, the major buyer of RECs (around 50-60 per cent), do not get GST credit; and the increase in their cost of RPO compliance will translate to increased tariff for the end consumer.

 

Sources: down to earth.