Regional REC Dynamics: Why Some States Drive Demand While Others Lag

Renewable Energy Certificate (REC) demand in India isn’t uniform. Some states consistently drive trading activity, while others barely participate. The reasons behind this divergence go beyond the statistics. Regulatory enforcement, industrial structures and the evolution in the way state markets operate play a significant role.

A fragmented compliance landscape

RECs were designed to make Renewable Purchase Obligations (RPOs) more flexible. In theory, a national REC market should allow a shortfall in one state to be balanced by surplus renewable capacity in another. In practice, compliance has been patchy. As the Observer Research Foundation notes in its study on RPO compliance, states such as Himachal Pradesh and Uttarakhand have historically shown stronger fulfilment, while many larger states either delay compliance or depend on one-off interventions. This uneven participation is reflected in REC market liquidity, where demand tends to cluster around a handful of states rather than being uniform.

Why leaders like Maharashtra and Gujarat stand out

The difference is most visible when comparing high-demand states such as Maharashtra and Gujarat with slower adopters. Gujarat has steadily built one of the largest renewable energy bases in the country. It recently overtook other states to become number one in installed renewable capacity, supported by a proactive industrial base that uses RECs to meet both compliance and voluntary sustainability targets. Figure 1 below gives you some perspective:

Maharashtra shows another dimension: regulatory clarity. The Maharashtra Electricity Regulatory Commission (MERC) has consistently updated RPO regulations, issued amendments, and signalled that shortfalls must be addressed either through renewable procurement or REC trading. This active approach creates predictable demand and reassures obligated entities that non-compliance will not simply be ignored.

The enforcement gap

The real differentiator across states is not renewable capacity but the seriousness with which regulators enforce compliance. Where State Electricity Regulatory Commissions (SERCs) publish compliance reports, set timelines, and impose penalties, entities have little choice but to act. A CERC analysis on RPO and REC implementation makes it clear that weak enforcement in several states continues to undermine national REC liquidity. Without consistent monitoring and penalties, obligated entities in lagging states can defer compliance for years.

The evidence from trading patterns

REC trading volumes tell the same story. According to the CERC report on the Short-Term Power Market 2023–24, volumes rise sharply only when states or large buyers scramble to meet compliance deadlines, creating volatility in prices. This “stop-start” pattern reveals that demand in India is still episodic rather than structural. Without stronger and more consistent enforcement across all states, the market will remain vulnerable to these swings.

Lessons for building a deeper national market

If India wants RECs to evolve from a compliance backstop into a robust market instrument, three lessons stand out. First, harmonisation matters. A standardised approach to RPO tracking and enforcement across SERCs would reduce uncertainty and prevent lagging states from dragging down the system – the Forum of Regulators has already highlighted this need in its reports on RPO trajectories.

Second, demand needs to be smoothed. Instead of episodic compliance drives, obligated entities should spread their REC purchases across the year. The Renewable Energy Certificate Registry of India has often noted that seasonal spikes distort market liquidity.And third, voluntary demand must be nurtured. Clearer rules on how corporations can use and disclose REC-backed claims would reduce fears of double counting and expand the market. This aligns with the government’s work on a domestic carbon market framework, which is expected to integrate with instruments like RECs in the future.

A concluding thought

The REC mechanism remains a valuable tool, but it is only as strong as its weakest participants. Gujarat and Maharashtra demonstrate that with industrial demand, regulatory clarity, and enforcement, REC markets can thrive. States that take a hands-off approach, however, risk leaving both their own obligations and the national market underdeveloped. As India moves toward more ambitious renewable targets for 2030, the challenge is not just to increase renewable capacity but to ensure that the certificates representing this capacity are traded in a fair, liquid, and predictable market. That will require treating regional disparities as a policy problem to be solved, not an inevitability to be ignored.