Tradeable Renewable Energy Credit Markets: Lessons from India

India has undergone a significant energy mix transformation over the past decade, with renewables accounting for 30% of installed grid capacity and almost 14% of electricity generation today. These achievements, however, fall short of the ambitious targets set for 2030. The policy package for renewables includes a market-based instrument of tradeable renewable energy certificates (RECs), which provide a channel for an alternative valuation of the green attribute of electricity generation in the country. It also provides for spatial flexibility in green power generation in resource-rich areas and compliance with renewable portfolio obligations through REC purchases by states with shortfalls. This paper analyzes the REC market experience over the past decade and examines the implications of changes in trading rules during that time. It highlights that although the renewable certification rate initially rose sharply from 2% in 2011–12 to 15% in 2014–15, it steadily declined to 3–6% during 2017–21 as REC market prices plummeted and unsold RECs accumulated. While the certification rate has picked up following an REC market design overhaul in 2022, problem of unsold RECs inventory persists. The author concludes that the problems of target underachievement and non-compliance with state renewable purchase obligations must be tackled through deep reforms in the functioning of power distribution companies rather than the REC mechanism per se.