Renewable Consumption Obligation Framework

Syllabus: GS3/ Energy

Context

• The Union Ministry of Power, under the Energy Conservation Act (2001), has released a revised draft notification introducing the Renewable Consumption Obligation (RCO).
  • It marks a paradigm shift from the earlier Renewable Purchase Obligation (RPO) that focused on procurement, to binding consumption-based renewable targets.

What is Renewable Consumption Obligation (RCO)?

• Binding Targets: It requires distribution companies (discoms), open access consumers, and captive power users to source 29.91%–43.33% of energy from renewables by 2030.
• Categories Covered:
  • Distributed renewable energy (rooftop solar, virtual net metering, behind-the-meter installations).
  • Wind energy.
  • Hydro energy (including projects abroad, with approval).
  • Other renewables ( biomass co-firing, municipal solid waste).
• Differentiated Targets: For hilly & Northeastern states, distributed renewable energy targets are set at half the national rate, recognising geographical constraints.
• Compliance Mechanisms:
  • Direct renewable energy consumption.
  • Purchase of Renewable Energy Certificates (RECs).
  • Buyout option: A consumer can pay a buyout price fixed by the Central Electricity Regulatory Commission (CERC). However this acts like a penalty payment, but it does not lead to any actual renewable energy being generated.

Significance of the RCO Framework

• Shift from Procurement to Consumption: Ensures actual renewable energy use rather than symbolic compliance.
• Distributed Energy Emphasis: Targets for rooftop solar and small-scale projects to  rise from 1.5% in 2024-25 to 4.5% by 2029-30, potentially democratising energy production by involving households, local communities, and smaller developers.
• Investment Certainty: Creates predictable demand for renewable developers, likely to attract investment.
• Climate Commitments: Aligned with India’s target of achieving 50% cumulative electric power from non-fossil fuel-based energy resources by 2030.
• Consumer Coverage: Over 100 discoms and thousands of captive/open access users included, bringing wide compliance scope.

Legal and Structural Challenges

• Weak Enforcement in past: In past RPO audits, only 6 of 24 states imposed penalties despite significant non-compliance.
  • It suggests systemic reluctance by regulators to enforce penalties on powerful discoms/industries.
• Unclear Legal Authority of CERC in Buyout Clause: The RCO framework allows consumers to “buy out” their obligation by paying a price set by the Central Electricity Regulatory Commission (CERC).
  • However the Energy Conservation Act, 2001, under which RCO is notified, does not give CERC any role. The CERC’s powers come from the Electricity Act, 2003.
• Overlapping Enforcement Authorities: The framework allows three different authorities to take action in case of non-compliance, which can create confusion, duplication, or conflict in enforcement.
  • Bureau of Energy Efficiency (BEE) at the central level.
  • State Designated Agencies (SDAs).
  • Other state-appointed officers/persons.
• Reporting and Timeline Gaps: While RCO requires submission of energy accounts and compliance reports, there are no strict penalties for late reporting. This creates room for administrative delays and weakens accountability.
• The buyout mechanism essentially creates a permanent “pay-to-pollute” option without sunset clauses, undermining the objective of actual renewable energy consumption. 

Way Ahead

• Legislative Clarity: Amend the Energy Conservation Act, 2001 or issue joint notification with the Electricity Act, 2003 to explicitly empower CERC.
• Unified Enforcement Authority: Establish a single nodal body to avoid fragmented enforcement.
• Strengthen Penalties: Mandate strict financial penalties for delayed compliance and non-reporting.
• Support Mechanisms: Expand Green Energy Open Access Rules and financing for rooftop solar and small projects.
  • Provide incentives for industries adopting behind-the-meter renewables.
• Monitoring Transparency: Publicly disclose annual compliance data of discoms and industries to enhance accountability.

Source: DTE