In the second lecture on Renewable Energy, we are going to discuss about the policy structure that are there in place in order to promote renewable energy Before, we begin with the policy and the structure of the policies; let us start with the following question Why government support and policies are so, important in the context of renewable energy? And, the answer goes as follows There is a large volume of literature on sustainability transition, where the engineers and sociologist mainly and other social scientists work together, to understand the uptake of different technology at various points of time They also analyze the economy, the policy, the social barriers that are there in the uptake of a technology and this kind of studies frequently points out, that left to market selection alone the radical innovations delivering the sustainability gain, emerging as niches might lose momentum and die out, if they are not looked after at the initial phase This happens because there is always some kind of an incumbent technology, in our context that is the fossil fuel-based power generation and we have also seen that many of the technologies associated with renewable energies are yet to be matured So, if these technologies do not get government support in order to you know, upscale and embedding in the whole tech, whole technological domain, then it might face a severe challenge at the initial phase and there lies the important of government policies and support Other than that often this kind of new technology where the commercial viability is yet to be established they also face the challenge in the form of market failure Now, if you think about the renewable energy there are two types of market failure that we come across The first one is because of the absence of internalization of all externality that is being raised by the production of power through non-renewable or fossil fuel-based resources If, these kind of externalities are not internalized, then the cost that is there in the market that is the cost of output of fossil fuel based power generation, out there in the market that actually kind of, that sort of does not reflect all the costs that the, that the power generation sector has to take into account Let us have a quick look at the theory in order to understand, what do we mean by the internalization of externality? Now, this is something this we have already come across, in our previous lecture where we showed, that if you think about the production the prime objective of the producer is to maximize the profit, which is the difference between the revenue and the cost and if you can see here the cost is a function of Q that is the output produced which in turn is a function of the input that you are putting in the production process So, the profit indirectly is a function of the amount of you know, input that you are putting in the production and the price of those inputs Now, the firms profit maximization objective actually led us to the conditions where we found that the P that is the market price has to be equal to the marginal cost of the firm which is equal to the marginal revenue So, coming back to this particular diagram, this upward rising part of the marginal cost curve of the firm was the supply curve of the firm Now, see what happens, if this is the supply curve as well as the marginal cost curve, then if the firm has to you know, supply quantity equal to 50, that it can charge the price which is equal to 20 Now, what we are trying to say is that, this marginal cost curve or any other cost curves actually do not capture all the costs that the firm should have taken into account For example, if you think about Q, that is the output being produced What are the inputs that are taken into consideration? In case of power generation, the inputs that are taken into consideration must be the, you know, capital that is the machinery, labour, the energy that is the fuel that they are using for example, coal or oil or gas and there are service sector inputs, there are other material used etcetera What is not taken into account is the cost of environment? See, environment does not enter into the production function as an input but when the output is being produced, when the power is generated in a coal fired power plant, this plant is actually also using some atmospheric space as the input because it’s dumping the greenhouse

gas or the other pollutant that is being emitted as a by-product of the process in the atmosphere However, the firm is not, not paying anything for use of that atmospheric space So, some inputs are actually omitted from the production function As a result, the some costs are actually omitted from the cost function This is called the ignorance of the external cost, the externality that the firm is generating However, if this plant wants to internalize the external cost, that it is generating in terms of probably environmental degradation or greenhouse gas effect and so on, then what happens, the input goes up, the amount of, not the quantity of input but the variety of input that one needs to take into account to construct the production function that goes up Now, you have to incorporate environment as an input in your production function, you have to incorporate the cost of environment in your cost function So, your cost is going to go up If, your cost goes up then this dashed line is no longer is your marginal cost curve, your marginal cost curve goes up When you shift from this black dashed marginal cost curve to this orange continuous marginal cost curve then actually what you are saying is that to produce a particular quantity more cost needs to be incurred by the firm So, this dashed curve actually was under representating, under representating the cost of the firm Now, if this is the new cost curve, which actually takes into account the external costs as well, then the scenario changes What happens? In this case, if the firm wants to produce quantity which is equal to 50, which earlier with this broken MC curve it was being able to supply in the market at the price P equal to 20, it will no longer be able to do that If, the firm has to produce Q equal to 50 and supply that in the market, then the price needs to go up from P equal to 20 to this point As a result, what we are trying to say that if all the external costs are internalized by the firm, then all the cost curves will actually shift upward leading to a situation where the price of output in the market rises Now, if you think about the renewable energy and the non-renewable or fossil fuel-based energy, we have already discussed that there is a gap between the price of output that these two, these two type of you know, fuel are generating So, the cost of, the cost of production of power through renewable is generally much higher as compared to the cost of production of power through conventional sources by the use of fossil fuel Now, what we can see is that, although that is that is what the market price signals us but we also know this market price is actually an underestimation of the true price of power that is being generated through non-renewable sources So, this is why, we say again, we come back to this point, in absence of internalization of all external costs the cost of energy generation from renewable remains high as compared to the fossil fuel in many cases and this is one reason of market failure attached to the renewable energy The second point is about the time of benefit If, the firms underestimate the future benefit of investment into the renewable innovation, then they will not be willing to invest too much of money from a macroeconomic perspective and there will be some under investment in the projects Now, why is that so? This is because the alternative to the renewable energy is the fossil fuel Now, fossil fuel is depletable in nature Now, the depletion will you know, take some period of time Once, we move on you know, you as we or as you just keep on using the fossil fuel, as we reach closer to the end of the stock of fossil fuel, it will become more and more expensive and probably at that point of time the, you know, value earned, the return from the renewable investment, investment will be much-much higher but that is not going to happen today or tomorrow or maybe in a decade’s time per say, right So, often times people do not understand the value that can be generated, the future stream of value that can be generating, generated by investing in renewable energy today So, this is the other reason behind market failure However, although these kind of challenges are there we have already seen, that the investment in renewable is rising continuously and the cost of renewable energy is actually coming down So, this is a good sign Although, there are a number of technology out there which are still to you know, experience

the maturity If, we really need, want to understand, whether these technologies worth maturing and this can deliver some sustainable development goals then it’s important that this kind of technology and the renewable technology should have some policy support and other support from the government So, there lies the role of the government However, you need to, also need to take into consideration this fact that there is not a single policy that can fit all side So, there is no such blanket policy available for the promotion of renewable energy The policies that are required for the promotion of renewable energy may vary from technology to technology So, the policy or the, you know, support that is required for solar, may not be similar to what is required for wind or may be very different from what is required for geothermal Also, it maybe, it may vary based on the location So, the kind of policy that you need in India may be very different as compared to the kind of policies that you need in New Zealand There can be an umbrella policy at the national level; however, there can be sub policies at the state levels as well depending upon the structure of the country So, there is a lot of complexity which is involved with the renewable power generation However, one thing to know at this point, although we are kind of arguing that it’s very important to shift from non-renewable to renewable power generation, it’s also important to understand that there are practical challenges associated with the production of power with the renewable energy beyond a certain point So, it requires space, it requires certain resources which may not be available all the time and renewable energy generation is also associated with some intermittency So the, you cannot expect to generate the same amount of power from the, you know, solar solar backed energy supply system, because the, you know, the amount of sunlight will vary not only during the day but also during the year So, there is some kind of intermittency associated with this kind of this renewable based energy and again to give a support to this intermittency you need some fossil fuel-based energy So, renewable energy, the shift to renewable energy should not be looked at as the only panacea of the whole problem This is one of the medicines that we can have but there are other things which needs to go hand in hand for example, energy efficiency On that note, let us look at the policies, the type of policies that we are going to discuss in this lecture We are going to talk about three types of policies; one is called command and control, the second one is the price instruments and the third one is the quantity instruments Although, they look like very you know, different three policies If, you look closely it’s basically the genesis is, genesis is you know, two, two types of policies; one is definitely the command and control and the other is market based So, given the method of implementation and execution these renewable energy policies can be categorized What does the command and control policy do? This is more like a mandate driven policy So, some mandate will come from the state or from the regulatory authority and if the, you know, entity who is supposed to comply to that mandate fails to do so, they have to pay a penalty So, there is of course, the penalty structure associated with that, either you comply you don’t pay the penalty or you don’t comply and you end up paying a penalty The other thing is the market-based mechanism In that case there is no hard and fast rule or there is no sort of penalty structure which is created What does it do? It creates sort of market incentive so that the, you know, the producers and the users of renewable energy automatically go for increased supply and increased demand for renewable Now, under the market-based policies there can be two types of policies; one is supply one, I am sorry, so one is price incentive Under the market-based policies there can be two varieties; one is the quantity-based policies and the other is the price-based policies We start with the command and control policy So, there are certain mandates that are fixed and it’s legally binding So, this is the important it’s legally binding for the obliged stakeholders to comply with those kind of mandates Then we can come across, I mean if we go through, a lot of, there are lot of policies you know, that actually try to promote renewable and which are of this command and control type If, you have a closer look at that you will see that there are two types of policies under the command and control What are they? The first one is, are those policies, which provide direct support to renewable energy

It actually leads to removal of all non-economic barriers and increases the demand for renewable, the examples are as follows So, as we have said that you know, this energy policies to promote the renewable energy, can actually span from all India level to the state level, to even at a, you know, sub state level We are going to discuss one policy, which is a mandatory renewable energy generation policy under ECBC 2017 This is the Energy Conservation Building Code and this comes in the form of a national policy We are also going to look at some of the state policies regarding the solar hot water mandates When we have this discussion it’s also important to know that, although you know, this command and control the price instrument and the quantity instrument look like disjoint policies they are not, usually the policies have more than one component So, in our later discussion we will see that the policies that we are trying to discuss under the, you know, the quantity instrument has a kind of mandatory component in that as well So, often times you will see that the policies are mix of one or two domains So, we start with the mandatory renewable energy generation provision under the ECBC 2017 So, the Energy Conservation Building Code, ECBC was designed to provide the minimum requirement for the energy efficient design and construction of buildings in India It was introduced in 2007 and after that many changes and updates, you know, have come up as new knowledge has been gained Now, these code is usually applicable to the commercial buildings or the building complexes with a connected load of 100 kiloWatt or greater or a contract demand of 120 kVA or greater So, these kind of building codes they are applicable majorly in the context of big commercial buildings like hospitals or hotels or commercial area, things like that It is yet to be implemented in the context of the residential sector Now, what does ECBC 2007 say? It says that the buildings, the new buildings that are coming up and is of a particular format, that is of a particular size and has a particular level of energy consumption They have to comply with this code and they have to have a provision of generation of renewable electricity in the building So, it does not say that you start generating renewable energy in the building but its mandates having the provision of it for the future So, there comes the mandatory part If, they do not have that, they do not, do not have this you know, future facility, then they do not comply with the Energy Conservation Building Code of 2017 in India The implementing agency of this program is the Bureau of Energy Efficiency We have already come across this agency, which is under the Ministry of Power and this is one of the nodal agencies when we start discussing about, you know, energy efficiency or in some cases also about renewable power If you want to know more about this program, you visit the BEE website, I have provided the link here Before we move on to the other program just to have a quick point here, you see the Energy Conservation Building Codes are designed mostly to promote energy efficiency, right So, although it may seem that promotion of renewable energy is a different agenda as compared to energy efficiency altogether it is not so So, all the energy policies they all come under the umbrella energy policy of a nation and they kind of go hand in hand This is actually an excerpt from the model building by laws by Ministry of Urban Development, Government of India, which was published in 2006 If, you look at this document and you see point number 10.2.4, it actually lays down the points related to installation of solar assisted water heating system in the buildings and you see there are from this a to g there are different types of building that are defined For example, hospital and nursing home, hotels, lodges, then you have hostels, then you have barracks etcetera the community centre and so on Here, what it is saying that for this kind of building which has a particular area and also have a particular load they have to install, mandatorily install, the solar assisted water heating system for future use Again, they do not have to you know, immediately start for, but over a period of time, it is mandatory that they start using the solar water heating system Now, for solar water heating system, what are the problems? Why is it so important to have a policy in place?

It’s not only for this, for many other you know, technology as well We have already discussed about a concept which is called the return of on investment, what was that? So, return on investment was basically the net cash flow of the company divided by the investment multiplied by 100 It actually gave us the number of years that are required in order to recover the investment in a very crude manner Now, if the you know, return of on investment time period is very long, it actually shows that if I invest my money today, I might get some benefit but it will take me years in order to recover that investment and this return on investment for the solar heating you know, solar heating systems are quite high Therefore, you see that there is a general inertia from the part of private investment to come for the solar water heating system and there comes the role of the government It can either make it mandatory or it can also create certain kind of incentive If you look at the, this solar water heating mandates at different countries or different state, you will see that this is, although this is a mandatory policy, it comes along with some kind of economic instruments like tax credit or direct subsidies etcetera So, the quick information here is that Cyprus is the world leader in terms of capacity of solar water heating system per capita followed by Israel This is not only because of the fact that they get you know, direct sunlight and radiation for a very significant, which is very significantly high but it’s also because of the fact that they have a very favorable policy regime and economic incentives in order to promote the solar water heating More than 90 percent households are equipped with the solar water heating system in Cyprus, okay The next policy that we are going to look at is the indirect support to renewable This is, this is generated by putting some sort of a restriction on the fossil fuel based power generation and one classic example is the coal cess in India which was launched in the year of 2010 So, India has a fund which is called the National Clean Energy Fund whose objective is to fund the research and innovative projects in clean energy technology by levying a clean energy cess on coal So, it works in this way So, the indirect support that you get actually increases the cost of generation, cost of power generation from non-renewable sources and it tries to you know, create a level playing field between the renewable and non-renewable sources Now, if you think of the coal cess what is it doing, it’s actually increasing the price of coal, which is the primary input of the power generation in the thermal power station Now, if the input price goes up, the cost is going to go up and therefore, the price of electricity that is generated out of coal is also going to go up and therefore, it’s not doing anything directly to the renewable energy But, in a way it is reducing the gap between the price of renewable and non-renewable energy Now, why is it so important to have this kind of you know, a structure in place? This can be legitimized, legitimized in terms of, in terms of the following argument that we have seen in most of the cases, the lower cost of fossil fuel-based power is due to the fact that they do not internalize the negative externality that they are creating Now, this kind of a cess is actually the price that was missing from the cost structure of the firm So, you can think that this the coal producer is you know, paying this cess because they are producing something which in future is going to occupy, I mean the emission that will be generated from the production process of power from this particular coal which is actually going to use some kind of an atmosphere space and this is the price for that This diagram actually shows that graphically So, you see if this is the, without the coal cess if this is the price of the renewable, if this is the cost of the renewable power which is being generated and this is the cost of the coal fired power plant and therefore the price of the electricity generated from the coal fired power plant You see that the price is that we are getting for the power that is being generated out of renewable is almost double that we are getting for coal Once the coal cess is in place the price of coal is going to go up As a result, nothing although is happening to the renewable energy, the gap between the price of the electricity produced through the renewable and fossil fuel-based energy, this is going to be decreased

Some fact about the coal cess in India as I have mentioned that it was implemented in the year 2010 at rupees 50 per tonne; however, overtime equals increase to rupees 400 per tonne During the period of 2010-11 to 2017-18 the total collection out of this coal cess is rupees 86,440 crore and out of which only less than 30,000 crore has actually been transferred to this National Clean Energy Fund The amount financed from National Clean Energy Fund for the projects is only 18 percent of the total amount that is collected as a coal cess Rest of the fund is actually somewhat idle or not has been used in for the proper purpose There are also latest recommendation from the expert committee which suggested that, you better use the fund which is available with the National Clean Energy Fund in order to compensate the states for any GST related loss and also to support the gas based power generation in the country So, their argument is that, since this is a clean energy, this is a clean energy fund and you know, gas is much cleaner as compared to coal, maybe it’s not as clean as renewable but it’s much cleaner than coal because it has a low carbon content Therefore, and there is a you know, large capacity of gas-based power plants, which is idle in the country, where the investment is sitting unproductive due to non-availability of domestic gas Why don’t we use this money to import gas from other countries and you know, revive these gas-based power generation So, this is kind of debated and there are arguments in favor of these, there are arguments against this but this is one of the one of the proposals that has been put forward Next, we move on to the quantity-based instrument As, I have already mentioned that quantity-based instruments and the price-based instrument both of them they are market instruments Let us have a quick look what, why this price and quantity instruments cannot be implemented together So, either the government fixes the price and let the market decides the quantity of renewable energy that is being generated or on the other hand, it fixes the quantity or mandates the quantity and let the, you know, market come up with the, discover the price Now, the question is why can the government not mandate both price and quantity? The answer is as follows Again, we go back to this previous diagram Here you see what is happening this broken line is upward rising line, is the marginal cost curve of the firm as well as this is the supply curve of the firm Now, if the government actually says that the renewable so, if we assume that this is the supply of the renewable energy by the, by the firm, then if the government fixes the price of renewable energy or fixes the electricity produced from renewable energy at rupees 20 then given the supply curve the firm will produce and supply quantity is equal to 50 measured in suitable units However, the government cannot simultaneously decide some price equal to 20 and some quantity which is other than 50 Then, the, you know, the firm has to deviate from its supply curve, which will actually violate their profit maximization, maximizing condition and that’s not quite an optimum situation for them Therefore, the government’s interest is that it’s going to fix the prince at 20 and let the market discover the quantity, which is eventually going to be equal to 50 or it can also say that at the end of the day I want to produce renewable power which is equal to 50 in some suitable units and let the market discover the price and given the supply curve the market discovered price will be P equal to 20 So, this is the reason why in the market-based instruments, you see either the price is fixed or the quantity is fixed So, we start with the quantity-based instruments, where the targets, where the targets are in terms of absolute quantity of the renewable energy production Here, we are going to discuss about 3 types of policy instruments, the first one is called the Renewable Purchase Obligation RPO This is also known as Renewable Portfolio Standards or RPS depending on the geographical location of the countries Usually the Renewable Purchase Obligation or the RPS, it is implemented along with another instrument which is called the Renewable Energy Certificates or REC There is a third kind of policy that will also have a quick look at, this is called

the Renewable Regulatory Fund, this is not exactly you know, same as quantity instrument, but it also addresses the quality issue of power supply So, we start with the Renewable Purchase Obligation This is one of the major instruments, renewable energy policy instruments that are implemented in India This is sometimes this is called to be the backbone of the policy instruments of Indian renewable energy system What does it do? It basically mandates the introduction of a certain percentage of absolute quantity of renewable energy capacity or generation at some unspecified price So, therefore, it may or may not be technology specific So, it can either say that this kind of you know, this certain percentage of absolute quantity of renewable energy, sometimes it mentions that it has to come from you know, solar or it has to come from wind or sometimes it’s pretty general and it says that it has to come from the renewable So, what does it exactly mean? It means for example, that 20 percent of renewable standard or 20 percent of Solar Purchase Obligation implies that, energy suppliers or all energy suppliers, they have to provide power to grid to meet such standard in order to ensure that whatever power they are supplying to grid, 20 percent of it is coming from the green sources, 25 20 percent of it is coming either from the solar or from in case of Solar Purchase Obligation or from any renewable sources from the Renewable Purchase Obligations Now, if all energy suppliers, they have to comply to this kind of a policy it looks more like a command and control policy because there is no market element that you can see Now, what will these people do? They have to probably set up a small solar plant somewhere and you know, produce the solar energy and supply it to the grid but it might be very-very expensive for them As a result, this kind of inflexibility which is a typical feature of the command and control policy leads to certain kind of you know, sort of inefficiency in the whole system, if RPOs are implemented as the stand-alone instrument The source of inefficiency arises out of the fact that this policy if operated alone has less flexibility and Renewable Energy Certificate is the complimentary instrument that is provided or implemented along with RPO to get rid of this kind of inflexibility of the system So, what does the Renewable Energy Certificate do? The Renewable Energy Certificate will do the following; these are the features of renewable energy certificates If, I get one Renewable Energy Certificate it means that I have produced 1 unit that is 1 megawatt hour of electricity and I have generated it using the renewable energy This is a non-tangible and non-tradable commodity at the first place So, if I produce the renewable energy, I am going to get Renewable Energy Certificate from the, from the authority right Now, you see this Renewable Energy Certificate it has two attributes present in that; one is that 1 mega Watt power has been generated and the other attribute is that it has been generated from renewable energy Now, these two attributes are called the, now these two attributes can be bought and sold together or they can be bought and sold separately So, if I am producing 1 unit of energy with the help of, 1 unit of energy with the help of some renewable technology, then what I can do, either I can sell some of the DISCOMS both these attributes together So, this DISCOM has to comply with the target of 20 percent renewable purchase obligation So, what I can do, I can, you know, sell both these attributes, this 1 megawatt of power as well as this renewability attribute to the, to the DISCOM However, it might also be the case that the DISCOM doesn’t want to buy the electricity, it has enough electricity it doesn’t want to buy the electricity, what it wants to buy is only the renewability attribute? So, that is also possible So, I can sell only the renewable attribute to the DISCOM and the power that I have generated, I can sell it to the grid or I can just sell it to some other consumers So, that is possible, this kind of disjointment is possible If, this kind of a policy is there so, that is, if the Renewable Energy Certificates are introduced along with the RPO, it gives the flexibility in the system and it sort of ensures that the same target has been achieved at the least cost possible

So, here I would like you to you know, stop for a while and think about the policy that we have also discussed with respect to industries, which is the Perform Achieve and Trade Now, what was there, there the government mandated certain energy efficiency the specific energy consumption targets for the industries and the industries have to achieve those specific energy consumption target This is more like a mandatory policy without any market instrument, which resembles the functioning of RPO Here also the energy suppliers, they have to achieve some target, some compliance, 20 percent of power you know, from the renewable sources However, PAT was not only about achieving a particular threshold of specific energy consumption it was also about certain kind of market mechanism So, if you recall the discussion there we said that if a particular industry fails to comply, I mean fails to reach achieve the target of specific energy consumption, which may happen when the industry finds it to be very-very costly to you know, upgrade the technology in a more energy efficient manner and it may well find, that it’s better not to invest in energy efficiency but it’s much you know, cost effective to buy the certificates from the overachievers under the Perform Achieve and Trade Exactly the same thing is happening here Although the target is to supply 20 percent of renewable energy, it’s not mandating in a sense saying that you, yourself don’t have to produce this amount of renewable energy If you, if you find it cost effective you can produce it on yourself or if you don’t find it very cost effective then you can buy it from somebody else as well through the Renewable Energy Certificates So, you see this Renewable Energy Certificate, the ECERs that we have been discussing they all have sought of a similar property So, it kind of gives the flexibility and cost effectiveness in a mandatory policy, okay So, this is the combination, in a way you can say that RPO is basically a command and control policy but RPO along with REC, this is the combination of command and control policy with and combination of command and So, what we can say that when implemented together this renewable purchase obligation and REC, it’s a mix of command and control policy and the market driven policy Let us have a quick look to understand in more details, how the Renewable Energy Certificate works? So, here I have chalked out some 5 stakeholders; one is the conventional energy producer, the second is the renewable energy producer Both of them, they can provide electricity to the grid There is a regulator who is actually issuing the energy, the RECs that is Renewable Energy Certificates and there are customers of the DISCOMS So, how does it happen, I mean, how does the function of Renewable Energy Certificate happen? Once, the renewable energy producer produces electricity, the regulator issues the energy, Renewable Energy Certificates Now, it has two attributes, the orange line actually represents the attribute of electricity and the green line attributes the, green line reflect the attribute of renewability So, it’s, it has generated certain amount of energy and from renewable sources So, these two attributes are bundled and given to the renewable energy producer So, what does the renewable energy producer do along with the conventional energy producer, it can supply the power to the grid So, this is one option The renewable producer can also supply the power directly to the customers but this is the one of the examples From grid, this, as they sell the electricity to the grid, the DISCOMS actually selling this to the customer from the grid Now, see that this renewable energy producers, once they have sold the power to the grid they are left with the one attribute only, they are left with the renewability attribute Whom do they sell the renewability attribute? They have multiple options depending upon the exact design of the policy If the conventional producers, you know, are forced to show that a part, they are also producing from renewable sources, then they can sell it to the conventional energy producer, which is often time not the case In other cases, the DISCOMS may be under obligation that they have to show that 20 percent or 25 percent of what they are selling is coming from renewable energy So, this renewability attribute, they can sell directly to the DISCOMS or they can sell directly it to the consumer who wants to comply to such kind of offer mandate

So, this is how it works Once, this renewability see, once the power is sold, it’s sold, right anyway it’s not there with you So, once the renewability component or renewability attribute is also sold, that is the time where the Renewable Energy Certificate actually retires So, it’s no longer in existence when both the attributes are sold in the market Let us have a quick look at two of the policies related to this RPO and REC So, in India State Electricity Regulatory Commissions usually implement the, this SPO which are the Solar Purchase Obligation So, instead of calling it RPO we are calling it SPO because this is specific to a technology So, the obligation is that 20 percent has to come from solar solar power So, it cannot be wind or something else If, you look at the, you know, the policies of Tamil Nadu, you will see that Solar Purchase Obligation that is SPO is mandatory at 5 percent for heavy energy users such as the Special Economic Zones, the information technology park, the telecom towers, the educational institutions, the industries, who are guaranteed with 24*7 power supply and the buildings which are much bigger with the buildup area of 20,000 square feet or more So, all these entities who are bigger energy consumers they have to comply with the mandatory target that 5 percent of their energy has to come from renewable not only renewable, from the Solar Purchase Obligation If, you look at the Maharashtra Renewable Energy Policy 2015, you will see that a total of 5,000 mega Watt capacity of wind energy project was planned to be commissioned under this policy Out of that, it was decided that initial 1500 mega Watt hour would be used to fulfill the Renewable Purchase Obligation of distribution companies and the rest of 3500 mega Watt capacity of wind project can be utilized for open access for interstate or captive consumption or for REC as well So, once the power is produced in the winds wind by the wind in the wind mills, the initial 1500 will actually go to fulfill the Renewable Purchase Obligation There are 4 stages of this Renewable Energy Certificate mechanism, the accreditation, the registration, the issuance and the redemption So, designated state agencies they have to accredit and recommend the renewable energy project for registration Once, they get the recommendation, they go for registration after verification of all the documents and everything, the central agency registers this renewable energy projects Once, they are registered and once they produce the renewable energy within 3 months duration of the production of renewable energy, they have, they are eligible to apply for the Renewable Energy Certificates So, the same central agency will issue the Renewable Energy Certificate to these eligible entity, after verifying the claims made by them The final stage is redemption where they can sell these two attributes as we have discussed the electricity, as well as the renewability attribute So, this is usually, this usually takes place on the power exchanges there are two power exchanges These are the same power exchanges that dealt with the buying and selling of ECerts in the context of PAT So, this is the Indian Energy Exchange and the Power Exchange India Limited So, these are the four stages, how it goes on it’s everything goes on online and the system is being more and more customer friendly as we move on The final one under the, this particular instrument is the Renewable Regulatory Fund This is not directly associated with the RPO or REC obligation this is a different kind of policy instrument that is often implemented This is basically a penalty and incentive structure, which is created in order to you know, create or ensure the stability of power supply through the renewable sources This is specially applicable in the context of wind and solar power projects in India See this has a context, I mean, when we talk about the renewable energy, this comes with certain amount of intermittency and there are certain uncertainty with regard to how much energy will be supplied by this renewable energy projects on a day to day basis But this is a very important information that the DISCOMS need to know, that how much power will be there in the grid? So, what they are asked under this RRF this specific, I mean, the bigger wind and solar generators are mandated to undertake the forecasting and give schedule of their generation on one day ahead So, they are responsible for forecasting with an accuracy of at least 70 percent

So, whatever they forecast if they are within a 30 percent limit of that up and down then there is no penalty applied So, the forecast is assumed to be pretty much accurate However, if there forecast you know, goes beyond the, this deviation of plus minus 30 percent of the schedule, then there is a penalty structure which is applicable So, what does this instrument do? This actually provides the kind of stability to the power supply system in order to achieve the quantity targets If, you want to know more about this Renewable Regulatory Fund, I will encourage you to go to this website and check this content