The Central Electricity Regulatory Commission (CERC) has approved a petition to amend Renewable Energy Certificate (REC) contracts, bringing about changes in the trading dynamics at the Indian Energy Exchange (IEX) and Power Exchange India Limited (PXIL). The move aims to bring REC contracts in line with the new rules for renewable energy certificates set out in 2022.
IEX and PXIL, the petitioners making the request, have asked for permission to adjust their internal rules and guidelines to match the new REC regulations from 2022. This is important to make sure they follow the regulations properly.
The key changes proposed by the petitioners are twofold. IEX seeks to enhance the efficiency of REC trading by introducing different types of contracts, offering flexibility for market participants to operate based on their requirements throughout the month. Currently, REC trading occurs once a month, specifically on the last Wednesday of the month. However, stakeholders have expressed the need for more frequent trading sessions to cater to evolving market dynamics.
The existing REC market operates through a double-sided closed-bid auction system, which lacks direct one-to-one matching. As a result, the origin of the renewable energy source can only be indicated on a pro-rata basis, leading to the issuance of certificates reflecting the percentage clearance of different types of renewable energy sources. This method may soon become redundant, as State Electricity Regulatory Commissions (SERCs) have specified separate Renewable Purchase Obligation (RPO) trajectories for different technologies, and trading licensees are equipped to provide source-specific RECs on a bilateral basis. The proposed changes are intended to modernize and streamline REC trading, making it more market-driven and efficient.
Another crucial aspect addressed in the petitions is the frequency of REC trading sessions. While the current monthly trading sessions have been the norm, the power exchanges have received requests to increase the frequency. GRID-India, a key stakeholder, argued that REC purchases primarily occur in the third and fourth quarters of the financial year to meet annual RPO targets. Increasing the frequency might not necessarily enhance liquidity in the market. Moreover, it could result in higher costs for participants, power exchanges, and the Central Agency.
In response to the proposed changes, the CERC directed the Central Agency to undertake a public consultation to gauge stakeholder opinions. The results of this consultation were mixed, reflecting varying viewpoints on the matter. After discussions between the power exchanges and the Central Agency, a compromise was reached. The Central Agency proposed increasing the frequency of trading sessions to a fortnightly basis for a trial period of six months. Based on market feedback and performance during this period, the frequency could then be adjusted, potentially leading to weekly or monthly sessions.
Ultimately, the CERC agreed with this approach. As a result, the trading sessions for REC contracts at the power exchanges will now be conducted on the 2nd and the last Wednesday of each month for the next six months. The Central Agency has been tasked with submitting a review report at the end of this trial period, incorporating feedback from power exchanges and stakeholders regarding the increased frequency of auctions.
To ensure compliance with this decision, the Central Agency will need to make suitable provisions in the Detailed Procedure, while the petitioners (IEX and PXIL) must align their Business Rules, Rules, and Bye-Laws accordingly and upload these revisions to their websites in advance. Market participants will be informed of the revised trade modalities through circulars.
In summary, the CERC’s decision to increase the frequency of REC trading sessions represents a significant step towards making India’s renewable energy market more dynamic and responsive to changing demands. The impact of these changes will be closely monitored during the trial period, and any necessary adjustments will be made to ensure that the new system aligns with regulations and market requirements. This development is expected to boost renewable energy adoption and facilitate the fulfillment of RPO targets in the country.
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