Renewable Energy Certificates (RECs), also known as green energy certificates or tradable renewable certificates, are proof that energy has been generated from renewable sources such as solar or wind power. One REC is created when one megawatt hour of electricity is generated from an eligible renewable energy resource. When you purchase RECs, renewable energy is generated on your behalf.

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Significance:

• It is a market based mechanism which will help the states meet their regulatory requirements (such as Renewable Purchase Obligations (RPOs)) by overcoming the geographical constraints on existing renewable potential in different states.
• RECs unbundle the electricity component (commodity) from the green/environmental attributes of the power generated from renewable sources. Both the components can then be traded separately.
• Thus, RECs help in incentivizing the production of renewable energy over and above the RPO state limit as tradable certificates are not constrained by the geographical limitations of commodity electricity.
• Stand-alone projects built independent of the well-established auction regime have little incentive and a high risk perception, lacking purchase guarantees and payment default protections.
• The income generated from trading RECs will bolster such independent projects.
• REC market would provide appropriate opportunities     for     development     of renewable    energy    based    electricity      This would   also   allow   investors   in   renewable   energy technologies to hedge electricity price risk through electricity futures.
• RECs issued for quantum of electricity generated from renewable sources do not require scheduling    over    long        Such electricity can be consumed locally and only RECs need   to   be   transferred   to   the   obligated   entities.

Need for RECs:

• India has been richly endowed with renewable resources. Since the    cost    of    electricity generated  from  such  resources  is  expensive,  large  scale development  of  renewable  resources  did  not  take 
• Concern about  climate  change  and  concerted  action  to reduce  green  house  gas  emissions  are  powerful  drivers for   renewable  
• There is an uneven distribution of renewable energy in India with certain states generating a high percentage of electricity from renewable sources while others are not meeting the minimum percentage.
• Renewable Energy Certificates (RECs) would help make the renewable electricity market stable by maximizing the benefits while reducing the costs.

Conclusion:

The REC mechanism is a market based instrument, to promote renewable sources of energy and development  of  market  in  electricity,  leading  to  the sustainable  development  of  the  country.