CERC Proposes Buyout Price Mechanism To Simplify Renewable Consumption Obligation Compliance

The Central Electricity Regulatory Commission (CERC) has proposed a new framework to make it easier for large energy consumers to meet their Renewable Consumption Obligation (RCO). The RCO, introduced by the Ministry of Power, requires electricity distribution companies, open access consumers, and captive users to obtain a certain portion of their electricity from renewable sources. This measure is a key part of India’s plan to install 500 GW of non-fossil fuel-based energy capacity by 2030.

To meet their RCO targets, designated consumers currently have three options. They can consume renewable electricity directly, buy Renewable Energy Certificates (RECs), or make a payment at a fixed “Buyout Price” as introduced in a September 2025 notification by the Ministry of Power. The third option, the buyout mechanism, is meant to serve as a last resort for those unable to meet their obligations through physical or certificate-based purchases.

CERC’s latest proposal focuses on defining this buyout option and setting clear pricing rules for it. The Commission observed that in the short term, especially in the next two financial years, some consumers may find it difficult to procure renewable energy or RECs due to the present pace of renewable capacity addition. To address this, the buyout mechanism is designed to provide temporary flexibility while still motivating consumers to prioritize clean energy procurement.

To discourage over-reliance on the buyout route, CERC has proposed linking the Buyout Price directly to the market price of RECs, with a small premium added. This approach ensures that paying the Buyout Price is slightly costlier than purchasing RECs, encouraging consumers to invest in actual renewable consumption or REC trading instead. The Commission clarified that the Buyout Price must reflect the value of renewable energy’s “green attribute,” similar to what RECs represent, but should remain high enough to make it the least attractive compliance option.

For the financial year 2024–2025, CERC has proposed an initial Buyout Price of Rs. 245 per megawatt-hour (MWh). This figure is based on the weighted average REC market price of Rs. 232.84 per MWh for the same period, plus a 5% premium. The Commission’s aim is to ensure that the pricing remains fair yet sufficiently high to nudge consumers toward cleaner choices.

Looking ahead, CERC plans to formalize a long-term formula for determining the Buyout Price up to 2029–2030. The proposed rule states that for each financial year, the Buyout Price will be set at 105% of the weighted average REC price from the previous year. The National Load Despatch Centre (NLDC) will publish this price annually based on verified REC transaction data.

Importantly, the funds collected under the buyout mechanism will not go unused. CERC has proposed that 75% of the total funds collected be transferred to State Energy Conservation Funds. These funds will be dedicated to promoting new renewable energy projects and energy storage systems, ensuring that even buyout payments contribute to India’s broader renewable transition goals.

The Commission has invited comments and suggestions from stakeholders on this proposal before it issues a final order. This initiative marks another step in India’s ongoing effort to simplify compliance while maintaining steady progress toward its renewable energy targets.