How it works
The Electricity Act lets each state commission require utilities to buy a share of their power from renewable sources. The obligation also applies to open-access consumers and to captive users above a size set by the state. The Ministry of Power publishes a national trajectory that rises each year, split into components such as wind, hydro, distributed renewables and other renewables. Amendments to the Energy Conservation Act added a parallel consumption obligation on designated consumers.
The obligation is a percentage of the entity's consumption in kWh, measured over a financial year. It can be met with renewable power from PPAs, open access, captive plants or the green day-ahead market. Renewable energy certificates can cover a shortfall. State agencies verify compliance. Shortfalls can be carried forward or penalised, though enforcement has historically varied between states.
Why it matters
For a large industrial buyer, the obligation sets a minimum renewable share, and the choice is how to meet it at least cost. Physical supply under open access often meets it and cuts the bill at the same time. Certificates are simpler but add cost without supplying any power. For developers, the obligation drives utility tenders and much of the industrial demand for renewable PPAs.
A worked example
A captive user consumes 50 million kWh a year, and suppose its obligation is 30%. It must source 50,000,000 × 0.30 = 15 million kWh from renewables. Its open-access solar supply provides 10 million kWh. The 5 million kWh shortfall equals 5,000 certificates of 1 MWh each. At an illustrative ₹400 per certificate, closing the gap costs 5,000 × ₹400 = ₹20 lakh, or ₹0.40 per kWh of shortfall.
Illustrative figures.
Across markets
The US equivalent is a renewable portfolio standard, set by individual states and placed on retail suppliers rather than on end consumers. Compliance runs through state-recognised RECs. Europe sets binding renewable targets at EU and national level and meets them mostly through auctions and support schemes. Some countries place certificate obligations on suppliers, but large consumers are rarely obligated directly.