Renewable Purchase Obligation and Renewable Energy Certificates

In one line

Thirty two words in section 86(1)(e) created a compulsory buyer for renewable electricity, and a tradable certificate turned that obligation into a market.

The words that do the work

Section 86(1)(e) requires the State Commission to promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee.

Read the clause as two limbs, because they do different things.

The promotion limb is about access: connectivity with the grid and the ability to sell to any person. Without it a renewable generator would be stranded at the plant gate.

The percentage limb is about demand: the Commission must specify a percentage of the total consumption of electricity in the area of a distribution licensee to be purchased from those sources. That is the renewable purchase obligation.

The obligation is created by a State regulation, not by the Act. The Act commands the Commission to specify a percentage; the number is in the regulations, and it therefore differs from State to State. A candidate who quotes a national percentage has misunderstood the architecture.

Section 61(h) supplies the price, and section 86(1)(b) the regulation of the licensee's procurement. Three provisions working together are what make renewable generation bankable: a buyer, a price and a regulated procurement process.

Who is obliged, and the case that decided it

The Act names the distribution licensee's area of supply, and the natural reading is that the licensee is the obligated entity. But the State regulations reached further, to captive generators and open access consumers, and the question went to the Supreme Court.

In Hindustan Zinc Ltd v. Rajasthan Electricity Regulatory Commission, decided on 13 May 2015, the Supreme Court upheld a renewable purchase obligation imposed on captive generating plants and open access consumers.

Facts. Companies producing zinc and other non-ferrous metals had built their own captive generating plants under the Act. The Rajasthan Commission, acting under sections 61, 66, 86(1)(e) and 181, made the Renewable Energy Obligation Regulations of 2007 and the Renewable Energy Certificate and Renewable Purchase Obligation Compliance Framework Regulations of 2010, which obliged captive generators and open access consumers to buy a minimum quantity from renewable sources and to pay a charge on any shortfall. The companies argued that the Act had deliberately delicensed generation under section 7 and freed captive generation under section 9, so the Commission had no jurisdiction to impose a compulsory purchase on them, and that the Regulations offended articles 14, 19(1)(g) and 265. The Rajasthan High Court dismissed their writ petitions on 31 August 2012.