Green energy developers flag risks in Centre’s proposed renewable buyout option

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• Clean energy firms warn buyout plan may weaken renewable compliance
• Buyout price close to REC rates could discourage REC purchases, firms say
• Industry calls for higher buyout price and stricter compliance verification.

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India’s leading clean energy firms have raised concerns over the Centre’s plan for a buyout mechanism as an alternative to meeting renewable consumption obligations (RCOs), warning it could undermine compliance and stall new investments.

In their submissions to the Central Electricity Regulatory Commission (CERC), Adani Green Energy and Tata Power, ReNew and Sembcorp  said the framework could make it easier for entities to avoid procuring renewable power or Renewable Energy Certificates (RECs) by opting for a monetary payment, potentially undermining the intent of the renewable consumption obligations (RCO) regime.

The proposed buyout mechanism would enable obligated entities, including state DISCOMs (power distribution companies), open-access consumers, and private buyers, to satisfy their RCOs by paying a set charge to a regulator instead of physically purchasing renewable electricity or  RECs.

The proposal, floated in October, positions the buyout mechanism as a third compliance route, alongside direct consumption of renewable electricity and the purchase or self-generation of RECs. The buyout price has been proposed at 105 percent of the weighted average price of RECs.

The relatively small premium over prevailing REC prices could make the buyout option a cheaper and administratively easier alternative to genuine compliance, they said.

In a letter to the regulator on November 21, Adani Green Energy said a narrow gap between REC prices and the buyout charge could discourage REC purchases altogether.

“There is only a small difference between the buyout price and the price of RECs. Consumers and DISCOMs are likely to avoid purchasing RECs, which would cause REC prices to fall further, making the effective cost of buying out even lower,” the company said in its submission.

This, it added, could allow non-compliant entities to continue reducing penalties through repeated buyouts, weakening the overall effectiveness of the RCO framework.

Tata Power said the proposal must clearly define how regulators would verify that all avenues for renewable power procurement and REC purchases had been exhausted before allowing a buyout.

The buyout price should be set high to ensure it is used as a last-resort compliance option and not as a mechanism for obligated entities to delay compliance in anticipation of falling REC prices, it said.

The debate comes at a time when nearly 40 gigawatts of awarded renewable energy projects are estimated to be stalled due to factors such as unsigned power purchase agreements and grid bottlenecks, according to industry estimates, even as India accelerates its clean energy transition.

The country has set a target of achieving 500 GW of non-fossil fuel-based energy capacity by 2030.

ReNew, one of India’s largest renewable energy companies by capacity, has proposed the introduction of a dynamic floor price for the buyout mechanism. Non-compliance should remain more expensive than meeting obligations through direct renewable power procurement or REC purchases.

Sembcorp has similarly called for a clearly defined methodology for fixing the buyout price, suggesting it should consistently remain well above prevailing REC prices.

The regulator is examining the feedback as part of the consultation process before finalising the framework.