Recently, the Government of India scrapped the Uniform Renewable Energy Tariff (URET) mechanism and dissolved central pricing pools to expedite renewable energy deployment.

What was URET Mechanism?

• The URET mechanism, implemented from February 15, 2024 for three years, aimed to standardise renewable energy tariffs across India through centralised pricing pools.

Rationale Behind Scrapping URET Mechanism

• Concerns over Tariff Uncertainty: Developers and Renewable Energy Implementing Agencies (REIAs) raised concerns that fixed tariffs for three years created uncertainty for buyers and discouraged PSA signings.
• Reluctance in Power Sale Agreements (PSAs): State discoms and buyers were hesitant to enter into PSAs due to the rigidity of tariff commitments, stalling a large pipeline of renewable projects.
• Stalled Renewable Energy Capacity: Significant capacity remained stranded without PSAs, preventing developers from accessing financing and delaying project commissioning.
• Doubling of Stranded Renewable Capacity: Stranded projects more than doubled in nine months, largely due to incomplete transmission networks, legal disputes, and the inflexibility of URET provisions.
• Market-Driven Price Discovery Preferred: The government favoured open price discovery between producers and users, enabling faster agreements and reflecting true market conditions for renewable tariffs.

Significance for India’s Renewable Energy Sector

• Acceleration of Renewable Deployment: Ending the centralised tariff system will facilitate faster PSA and PPA signings, clearing the backlog of stranded renewable projects awaiting buyers.
• Support for 2030 Renewable Energy Target: The decision aligns with India’s target of 500 GW renewable energy capacity by 2030, complementing the existing 185 GW installed capacity (excluding large hydro).
• Flexibility for Investors and Developers: Market-driven tariffs will increase investor confidence, provide pricing flexibility, and encourage states and buyers to engage more actively in renewable procurement.

Conclusion

By addressing tariff rigidity and stalled agreements, the government aims to unlock stranded capacity and accelerate progress toward the 500 GW renewable target by 2030.

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