Producers of renewable energy would be entitled to a ‘green tag’ for every megawatt of electricity supplied to the national grid, which can be traded on a power exchange to be created by the Central Electricity Regulatory Commission (CERC).

According to draft regulations prepared by CERC, a producer of renewable energy would have the option to sell energy to power companies at the preferential rate, or at the normal rate and receive a green tag or a renewable energy certificate.

Power companies can just buy the green tags instead of electricity from renewable energy producers. According to the Electricity Act 2003, the utilities must buy a portion of their power from renewable energy producers.

The tags could be exchanged at a power exchange approved by CERC. The price discovery of the certificates would be based on demand and supply in the market, subject to a ceiling determined by CERC.

An owner of a certificate can claim to have generated energy through green technologies. Renewable energy includes solar, wind, biogas, small hydel, co-generation and waste energy.

The prime minister’s national action plan of climate change has set a target of five per cent renewable energy purchase in 2009-10. The target will increase by one per cent every year for the next 10 years. The total installed power capacity in the country is 140,000 mw, including 14,000 from renewable energy. However, the actual generation of renewable energy is only 4,900 mw. A five per cent target for renewables would mean 7,000 mw.

A suitable mechanism like the green tags was necessary to promote renewable energy sources on the scale envisaged in the national action plan, CERC said.

The certificates will also facilitate inter-state transaction of renewable energy sources and accelerate renewable energy development in the country.

“This mechanism entails model regulations to be adopted by state electricity regulatory commissions to recognise the certificates as a valid instrument for compliance under renewable purchase obligations,” according to the commission.

Though India has a huge potential in renewable energy, the gap between its gross renewable energy potential and cumulative installed capacity is still huge. Also the distribution of these renewable sources is not uniform across the country. Some states are rich in terms of renewable potential while others have very little potential to explore. These challenges restrict holistic development of renewable energy potential and demand suitable mitigating mechanism.

Under this mechanism, cost of electricity generation from renewable energy sources is classified as cost of electricity generation equivalent to conventional energy sources and the cost for environmental attributes. These environmental attributes can be exchanged in the form of certificates.

The certificate mechanism requires registering of generation agency and accrediting of generation plants with a central agency to be appointed by CERC. Once the central agency receives information about injection of renewable power by the accredited plants, the certificates will be credited to the registered account of the plant operator/owner.

In order to promote solar energy in the country, CERC also propose that there should be two categories of certificates - one for electricity generation from solar technologies called solar certificates and another for electricity from other renewable energy technologies called non-solar certificates.

These two categories of certificates cannot be exchanged. The installed capacity of renewable energy sources in India is dominated by wind, constituting around 70 per cent of the total renewable energy installed capacity. The contribution of solar energy is very small. The major reasons behind such low capacity are nascent stage of development for solar technology and its high cost compared to other green technologies.