Trading in renewable energy certificates (RECs) will begin in the next few months under a scheme implemented by the Central Electricity Regulation Commission.
Renewable energy generators will be able to either sell their energy at a preferential tariff fixed by the government, or sell the electricity and environmental benefits associated with the renewable energy generation separately, for which they can receive RECs in exchange.
Each REC's value will be equal to 1MWh of electricity fed into the grid from renewable energy sources.
The generators can sell RECs to utilities, distribution companies and captive power plants, which are obligated to buy some of their electricity based upon renewables.
Utilities or power plants that exceed their renewable energy targets will be able to sell surplus certificates to utilities that fail to meet their goals to help encourage a market for renewables in all India's states.
The National Load Despatch Centre will act as the central agency, running the scheme nationally.
The Ministry of New and Renewable Energy will provide grants to help states invest in the information technology infrastructure and manpower to implement the scheme.
Seven early adopter states with established renewable energy generation include Gujarat, with its wind power assets, and Maharashtra.
The RECs scheme is the latest effort by a country intent on reducing reliance on coal and boosting renewable energy capacity to 25GW in the next few years.
It launched a feed-in tariff in 2009 and is rolling out a generation-based incentive (GBI) to encourage continued investment in wind power.
The GBI, managed by the Indian Renewable Energy Development Agency, is in addition to the tariff fixed by the state regulatory commissions for purchase of wind generated electricity.
Industry observers agree that a national-level REC scheme is a crucial addition for sustaining long-term demand.
India's wind industry, with over 11GW of wind capacity, is the fifth-largest wind energy generator in the world and by far the country's largest source of renewable energy, which stands at a total capacity of 16.8GW.
Wind will continue to be a major contributor to India's renewable energy capacity in the next decade, though the country is also investing heavily in solar energy, aiming to increase generation to 20GW by 2022.