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Power & Carbon MarketsIndia’s REC Market and RCO Compliance: What Industrial Consumers Must Understand About RECs, Physical RE, and the CCTS Scope 2 Boundary
India’s Renewable Energy Certificate market cleared at Rs 340 per MWh in March 2026, with 187.20 lakh certificates traded across FY2025-26 — the highest-ever annual volume on IEX, 5% above FY2024-25. Industrial consumers operating under the Renewable Consumption Obligation face a rising mandatory renewable share, from 29.91% of total electricity consumption in FY2024-25 to 43.33% by FY2029-30, and can satisfy this obligation through physical RE procurement, RECs, or a CERC-determined buyout payment. But there is a boundary that every CCTS-covered plant and every CBAM-exposed exporter must understand clearly: RECs satisfy the RCO, but they do not reduce Scope 2 GEI under India’s Carbon Credit Trading Scheme, and they are not recognised as reducing embedded Scope 2 emissions under CBAM. The CCTS gate-to-gate methodology counts the actual electricity consumed at the actual emission factor of the source — not the certificate purchased to represent it. For an aluminium smelter or steel plant that needs to resolve three regulatory obligations simultaneously, physical renewable electricity is not merely preferable to RECs; it is the only instrument that does all three jobs at once.
India’s REC market traded 187.20 lakh certificates in FY2025-26 — the highest annual volume ever recorded on IEX, a 5% year-on-year increase. The March 2026 sessions (11th and 25th) cleared at Rs 340 per REC. Q4 FY26 registered the highest-ever quarterly REC trade at 71.70 lakh certificates. One REC represents 1 MWh of electricity generated from renewable sources. Under the CERC Terms and Conditions for REC Regulations 2022, floor and ceiling prices were removed; prices are now fully market-determined through a double-sided closed auction on IEX, PXIL, and HPX, held twice per month on the 2nd and last Wednesday, with a bidding window of 13:00–15:00 hours.
The Renewable Consumption Obligation, notified under the Energy Conservation (Amendment) Act 2022 through revised guidelines issued on 27 September 2025, supersedes the earlier Renewable Purchase Obligation for all designated consumers. The RCO applies to electricity distribution licensees, open access consumers, and captive power plant users — bringing India’s energy-intensive industries (steel, aluminium, cement, fertilisers, railways) directly into a binding national renewable mandate for the first time. The RCO trajectory rises from 29.91% in FY2024-25 to 43.33% by FY2029-30, with the total composed of wind (3.48%), hydro (1.33%), distributed RE (4.5%), and other renewable sources (34.02%). Non-compliance is punishable under Section 26(3) of the Energy Conservation Act, with a penalty of up to Rs 10 lakh plus Rs 10,000 per day of continued non-compliance.
Three compliance routes exist under the RCO framework. Direct consumption of physical renewable electricity — self-generated or procured through captive, group captive, or green open access channels — is the first route. Purchasing Renewable Energy Certificates from the exchange, including through Virtual Power Purchase Agreements, is the second. Paying the CERC-determined buyout price — proposed at Rs 245/MWh for FY2024-25 and 105% of the weighted average REC price thereafter — is the third. The buyout proceeds flow to the Central Energy Conservation Fund, with 75% transferred to State Energy Conservation Funds for renewable and storage development. Only the first route — physical RE — simultaneously satisfies the CCTS Scope 2 GEI boundary and the CBAM embedded Scope 2 emission calculation.
The CCTS gate-to-gate GEI methodology covers Scope 1 (direct fuel combustion and industrial processes) and Scope 2 (indirect emissions from electricity consumption) at the facility boundary. The Scope 2 GEI contribution is calculated as: electricity consumed in MWh per tonne of product, multiplied by the applicable emission factor — either the CEA grid emission factor (currently 0.710 tCO₂/MWh for FY2024-25) or the captive power plant emission factor. A REC represents that somewhere on the grid, 1 MWh of renewable electricity was generated. It does not change the emission factor of the electricity the obligated entity actually consumed. A smelter that buys RECs but draws its electricity from a coal CPP at 0.9 tCO₂/MWh will still report 0.9 tCO₂/MWh as its Scope 2 emission factor under CCTS. Only the physical delivery of renewable electricity — with its near-zero emission factor measured at the consumption boundary — reduces CCTS Scope 2 GEI.
The same logic applies to CBAM. The EU CBAM requires importers to submit the verified embedded Scope 1 and Scope 2 emissions of their goods. For aluminium, CBAM covers both Scope 1 and Scope 2; for steel, CBAM currently covers Scope 1 only but Scope 2 inclusion is expected in the medium term. Embedded emissions must be verified by an accredited third-party verifier using the EU’s implementing acts’ methodology, which calculates electricity-related Scope 2 emissions at the actual emission factor of the source powering the production process. RECs are not recognised as reducing embedded emissions under the EU CBAM verification framework. Only physically sourced renewable electricity — with a documented, verifiable zero or near-zero emission factor — reduces CBAM certificate cost proportionally.
The REC market — structure, pricing, and what the FY2026 surge means
India’s Renewable Energy Certificate mechanism was established to decouple the renewable attribute of electricity from its physical delivery. A renewable generator that is not selling electricity under a preferential tariff can earn one REC for every MWh fed into the grid. Buyers — distribution companies, open access consumers, captive users, and voluntary purchasers — acquire RECs to meet their RPO or RCO obligations, or for voluntary sustainability reporting.
Under the CERC Terms and Conditions for Renewable Energy Certificates Regulations 2022, which took effect at the end of 2022, floor and ceiling prices were removed for the first time. Prior to this, RECs had a floor of approximately Rs 1,000 per MWh (for non-solar) and a ceiling of Rs 3,900/MWh. Market-clearing prices dropped sharply after deregulation, settling in the Rs 300–500 range and reflecting a market where renewable generation has grown rapidly on the supply side but RPO compliance gaps at the state level constrain demand.
The FY2025-26 REC market showed a significant increase in volume: 187.20 lakh certificates traded over the year, up 5% from FY2024-25, which was itself a record. The surge in Q4 FY26 (71.70 lakh RECs, highest-ever quarterly volume) and particularly in March 2026 (28.94 lakh RECs, 119.9% year-on-year increase) reflects year-end compliance demand as industrial consumers and distribution companies settled their RCO obligations for FY2024-25, with the compliance report deadline of 31 March 2026.
The CERC has proposed a buyout price of Rs 245 per MWh for FY2024-25, rising to 105% of the weighted average REC price thereafter. This is designed to sit below the market REC price to make direct REC purchase preferable to payment, while providing a structured safety valve for entities that cannot source physical RE or RECs in time. The buyout payment flows to the Central Energy Conservation Fund, with 75% allocated to state funds for renewable and storage development.
The RCO framework — what industrial consumers are obligated to do
The Revised Renewable Consumption Obligation Guidelines, notified on 27 September 2025, supersede all earlier RPO notifications for designated consumers. The RPO under the Electricity Act 2003 and the RCO under the Energy Conservation (Amendment) Act 2022 now run in parallel for distribution licensees, but the Ministry of Power has clarified that for open access consumers and captive users, earlier RPO notifications are superseded. Industrial consumers operating captive power plants or procuring through green open access are primarily subject to the RCO framework.
| Financial Year | Total RCO target | Of which: Wind | Of which: Hydro | Of which: DRE | Of which: Other RE |
|---|---|---|---|---|---|
| FY2024-25 Current baseline | 29.91% | 0.81% | 0.43% | 1.40% | 27.27% |
| FY2025-26 | 31.38% | 1.05% | 0.63% | 2.10% | 27.60% |
| FY2026-27 | 33.23% | 1.54% | 0.77% | 2.80% | 28.12% |
| FY2027-28 | 35.78% | 2.10% | 0.91% | 3.22% | 29.55% |
| FY2028-29 | 38.95% | 2.45% | 1.12% | 3.85% | 31.53% |
| FY2029-30 Full target | 43.33% | 3.48% | 1.33% | 4.50% | 34.02% |
For a captive power plant user — the dominant electricity procurement model for large aluminium smelters, steel plants, and cement manufacturers — the RCO applies to the share of total electricity consumption procured through CPP or open access, not to electricity drawn from the grid through a discom. This means a plant with 80% CPP-sourced power and 20% grid-sourced power applies its RCO target to 80% of its consumption. A smelter consuming 14 MWh per tonne of aluminium entirely through captive coal power must ensure that 29.91% of that — approximately 4.19 MWh per tonne — comes from renewable sources to meet the current year’s RCO. At the full 43.33% target in FY2030, this rises to approximately 6.07 MWh per tonne.
The revised 2025 framework introduces three significant changes that industrial planners must register. First, Virtual Power Purchase Agreements are formally recognised — a VPPA allows a corporate to enter a financial contract with a renewable generator whereby the electricity is sold to the grid at market prices and the corporate receives the REC. VPPAs allow companies with constrained capex or limited site space to access renewable attributes without owning physical generation assets. Second, group-level aggregation is permitted — companies under common control can meet RCO on a consolidated basis, allowing a parent company to use surplus RE procurement at one plant to offset a deficit at another. Third, electricity storage is formally included — self-generated RE stored in battery systems and later consumed at the plant counts toward RCO compliance, for the first time providing a pathway for behind-the-meter storage to contribute to the mandate.
The critical boundary — why RECs satisfy RCO but not CCTS or CBAM
This is the most commercially consequential distinction in India’s renewable energy compliance landscape, and it is widely misunderstood. Many industrial sustainability teams treat REC purchase as a single instrument that resolves all renewable energy obligations simultaneously. For RCO compliance alone, this is correct. For CCTS GEI reduction and CBAM embedded emission calculation, it is wrong.
Why RECs do not reduce CCTS Scope 2 GEI: The CCTS gate-to-gate GEI methodology, as specified in the Detailed Procedure published by BEE, calculates Scope 2 emissions as: (total electricity consumed at the plant boundary in MWh per tonne of product) × (the applicable emission factor of the electricity source). The applicable emission factor is either the CEA Weighted Average Emission Factor for grid electricity (currently 0.710 tCO₂/MWh) or the specific emission factor of the entity’s captive power plant. A REC certifies that 1 MWh of renewable electricity was generated and fed into the national grid somewhere. It does not change what electricity the plant consumed, nor the emission factor of the source that supplied it. If the plant consumed electricity from a coal CPP at 0.9 tCO₂/MWh, that is the emission factor that goes into the CCTS GEI calculation — regardless of how many RECs the plant purchased and retired. Physical renewable electricity, delivered to the potline or blast furnace, carries a near-zero emission factor and therefore directly reduces the Scope 2 contribution to the plant’s GEI.
Why RECs do not reduce CBAM Scope 2 embedded emissions: The EU CBAM requires verification of embedded Scope 1 and Scope 2 emissions in the goods imported. The European Commission’s implementing acts specify methodologies for calculating embedded emissions, which for Scope 2 electricity require identification of the actual electricity source and its emission factor through facility-level verification by an accredited third-party verifier. RECs — whether Indian RECs or international I-RECs — are not recognised under CBAM’s embedded emission verification methodology as reducing the Scope 2 emission factor of the production process. Only the physical delivery of renewable electricity, with a documented and verifiable near-zero emission factor, reduces the verified embedded Scope 2 emission and therefore the CBAM certificate cost.
The comparison above sets up the strategic decision clearly. For a plant with no CBAM exposure (no EU exports) and whose CCTS GEI is comfortably below target, purchasing RECs is a rational and cost-efficient way to meet RCO. For an aluminium smelter exporting to the EU with a tight CCTS target, the economics point overwhelmingly toward physical RE — the Rs 7.88/kWh of regulatory value recovered from physical RE exceeds the Rs 4.30–5.50/kWh landed cost, meaning physical RE is not just a compliance tool but a positive-return investment.
Virtual Power Purchase Agreements, formally recognised in the 2025 REC framework amendment, provide a middle path for companies with constrained physical procurement options. In a VPPA, the corporate agrees to purchase renewable electricity from a generator at a contracted strike price. The electricity is sold to the grid at market prices; the corporate pays or receives the difference. The corporate also receives the RECs generated by the project, which can be used for RCO compliance. A VPPA satisfies RCO compliance. However, VPPAs do not deliver physical RE to the plant — they deliver RECs. This means a VPPA, like REC purchase, does not reduce CCTS Scope 2 GEI (which is measured at the consumption boundary) and does not reduce CBAM embedded Scope 2 emissions (which require physical delivery of low-carbon electricity). For companies whose primary objective is RCO compliance and corporate sustainability reporting for non-CBAM purposes, VPPAs are a flexible and often cost-effective instrument. For plants under CCTS GEI pressure or CBAM Scope 2 exposure, VPPAs provide only partial relief — the RCO piece — without addressing the more financially consequential CCTS and CBAM obligations.
Compliance deadlines and reporting — the operational calendar
The RCO compliance calendar for industrial consumers has two key dates. Certified energy accounts must be submitted by 31 July each year, or by 31 October 2025 for FY2024-25. Compliance reports, after addressing any shortfalls through RECs or buyout, must be submitted by 31 March 2026 for FY2024-25, and by 31 December in subsequent years. These submissions go through BEE’s web-based monitoring tool, which is operational for designated consumers.
The interaction with CCTS’s compliance calendar is worth noting. CCTS GHG reports must be submitted within four months of the financial year end — approximately 31 July 2026 for FY2025-26. An industrial consumer submitting its GHG report for CCTS at the end of July 2026 is reporting actual Scope 2 electricity consumption data that was already measured and reported under RCO. The two compliance frameworks — RCO through BEE and CCTS through BEE — share the same energy consumption measurement boundary. This means a single measurement and monitoring system, properly implemented, can produce the data required for both compliance reports simultaneously, reducing administrative duplication. Companies that treat RCO and CCTS as separate reporting workstreams with separate data collection processes are missing an efficiency gain that is available to any plant with a properly configured energy management system.
The CERC has scheduled REC trading sessions twice per month — currently on the 2nd and last Wednesday. The next sessions after April 10, 2026 are April 29, 2026, and then fortnightly thereafter. For companies that need to purchase RECs for FY2024-25 compliance (deadline March 31, 2026), those sessions have already passed; late purchasers will need to engage the CERC’s buyout mechanism or seek carryforward provisions under state regulations. For FY2025-26 compliance (deadline December 31, 2026), there are multiple trading sessions remaining across the year.
Frequently Asked Questions
Does purchasing RECs reduce a plant’s GEI under CCTS?
No. The CCTS gate-to-gate GEI methodology calculates Scope 2 emissions as electricity consumed (in MWh per tonne of product) multiplied by the actual emission factor of the electricity source — either the CEA grid emission factor (0.710 tCO₂/MWh for FY2024-25) or the captive power plant emission factor. A REC certifies that 1 MWh of renewable electricity was generated somewhere on the grid. It does not change the emission factor of the electricity the plant actually consumed. A smelter drawing power from a coal captive power plant at 0.9 tCO₂/MWh will report that factor in its CCTS GEI calculation regardless of RECs purchased. Only physical renewable electricity — delivered directly to the plant with a near-zero emission factor — reduces CCTS Scope 2 GEI. This distinction is explicitly maintained in the BEE Detailed Procedure for GEI calculation.
What is the current REC clearing price in India and how is it set?
The most recent clearing price was Rs 340 per REC (1 MWh) at both IEX sessions in March 2026. Over FY2025-26, prices ranged from approximately Rs 333 to Rs 370 per REC. Since the CERC removed floor and ceiling prices in December 2022, REC prices are set through a double-sided closed auction on IEX, PXIL, and HPX, held on the 2nd and last Wednesday of each month. Price depends on supply-demand balance, which is influenced by the pace of renewable capacity additions (supply), compliance gap among distribution companies and industrial consumers (demand), and year-end settlement patterns. The CERC has proposed a buyout price of Rs 245/MWh for FY2024-25 as a compliance safety valve, rising to 105% of the weighted average REC price in subsequent years.
What is the difference between RPO and RCO for industrial consumers?
The Renewable Purchase Obligation was defined under Section 86(1)(e) of the Electricity Act 2003 and applied primarily to electricity distribution companies. The Renewable Consumption Obligation is defined under the Energy Conservation (Amendment) Act 2022 and specifically targets “designated consumers” — a category that explicitly includes energy-intensive industries such as steel, aluminium, cement, fertilisers, and railways, in addition to distribution companies. The Ministry of Power clarified in April 2025 that all earlier RPO notifications for open access consumers and captive users are superseded; these entities now operate under the RCO framework. For DISCOMs, both RPO and RCO run in parallel but states are progressively aligning RPO targets to avoid confusion. The compliance mechanism, reporting format, and penalty structure under RCO are governed by BEE under the Energy Conservation Act, whereas RPO compliance was regulated by State Electricity Regulatory Commissions under the Electricity Act. The RCO trajectory is nationally uniform, while RPO targets varied by state — a significant simplification for multi-state industrial consumers.