Dear Colleagues.
Can any one give some inputs on the accounting treatment of Renewable Energy Certificates ( RECs ) which are being sold by Power Generating Companies.
Similar to CERs, and in line with Electricity Act 2003, to promote /increasing the share of renewable in the generation capacity in the country, the concept of REC (Renewable Energy Certificate) has evolved over the period of time in India. In order to increase the renewable energy off take various SERCs (State Electricity Regulatory commissions) have made it obligatory for state utilities (obligated entities) to buy renewable energy to meet their renewable purchase obligations (RPO). This had lead to introduction of Renewable Energy Certificate (REC) mechanism which is a market based instrument to promote renewable energy business and facilitate buying renewable energy.
REC is a paper/electronic instrument which represents the property rights to the environmental, social, and other non-power qualities of renewable energy generation.
One number of REC is issued for 1000 KW (i.e. 1 MW) of power generated and sold by the Power generating Company / Entity. These RE Certificates are tradeable and can be sold on power exchange at market determined price. As per the current regulations, the non-solar RECs can be traded at a floor price of Rs 1500 and a cap price of Rs 3300. The exact price for REC (between the floor and cap prices) functions of demand and supply, i.e. it is determined by market forces. These RE Certificates are bought by the State Electricity Utilities or Obligates Entities to meet their RPO as mentioned above. These are being sold by Power generation companies who are in renewable energy sector.
There are no separate guidelines issued by the institute of accounting treatment of RECs, hence many companies in the Power generation business follow different accounting policy for sale / accrual of RECs and the relevant disclosure is made is made in the financial statements. There is one view that the guidance note issued by the Institute on CER is to be applied for RECs also. But there are basic differences between RECs and CERs. There is no uniform practice followed for RECs accounting treatments.
Would like to have your views on this.
CAclubindia
