Introduction

India’s clean energy landscape is witnessing a shift from voluntary sustainability measures to mandatory consumption-based accountability. One of the most significant policy tools leading this transformation is the Renewable Consumption Obligation (RCO), introduced under the Energy Conservation Act through the 2022 Amendment. Designed to complement the existing Renewable Purchase Obligation (RPO) under the Electricity Act, the RCO targets industries, commercial establishments, and other large consumers that rely heavily on energy from fossil fuel-based sources.

While the RPO compels distribution licensees and captive power producers to buy a specific percentage of renewable power, the Renewable Consumption Obligation focuses on the end users’ consumption patterns—mandating that a certain percentage of their total energy use comes from renewable sources. This distinction is vital, as it shifts responsibility from just the energy supplier to the actual consumer, marking a decisive step toward shared accountability in the decarbonization process.

What is the Renewable Consumption Obligation (RCO)?

The RCO is a regulatory mechanism that requires designated consumers—such as large industrial units, data centers, and commercial establishments—to ensure that a defined share of their total energy consumption originates from renewable sources. This can include electricity purchased from renewable generators, self-generation through solar or wind installations, or even renewable fuels like green hydrogen, green ammonia, and bioenergy.

The Ministry of Power (MoP), in consultation with the Bureau of Energy Efficiency (BEE), is responsible for defining the renewable consumption obligation targets, measurement criteria, and compliance framework. These targets will likely increase in phases, ensuring that industrial decarbonization progresses in alignment with India’s 2070 net-zero vision.

Evolution from RPO to RCO

To understand the Renewable Consumption Obligation, it is necessary to trace the evolution of India’s renewable energy compliance system. The Renewable Purchase Obligation (RPO) was introduced through the Electricity Act, 2003, and enforced by the Central and State Electricity Regulatory Commissions (CERC and SERCs). It required distribution companies (DISCOMs) and certain consumers to purchase a minimum percentage of power from renewable energy sources.

However, several limitations became evident over time:

1. Limited Coverage: The RPO framework applied mainly to electricity purchases, not to total energy consumption that could include fuels like coal, diesel, or gas.
   
   

2. Compliance Gaps: Many obligated entities failed to meet their RPO targets, citing operational constraints and lack of renewable availability.
   
   

3. Enforcement Issues: Penalties for non-compliance were often weak or inconsistently enforced across states.
   
   

The introduction of the RCO addresses these issues by expanding the scope from purchase to consumption, thereby encompassing all energy forms—electricity, fuels, and heat. This approach aligns with the broader objective of energy transition rather than focusing solely on power sector reform.

Legal Framework of the RCO

The Energy Conservation (Amendment) Act, 2022 laid the foundation for the RCO by inserting new provisions that empower the central government to specify a consumption-based renewable energy obligation. The key legal anchors include:

• Section 14A: Authorizes the government to mandate consumption of a minimum share of renewable energy for designated consumers.
  
  

• Section 26A: Empowers the BEE to monitor compliance and recommend penalties.
  
  

• Rulemaking Authority: The Ministry of Power, through subordinate legislation, is expected to issue detailed rules specifying RCO thresholds, eligible renewable sources, and verification mechanisms.
  
  

This statutory backing ensures that the renewable consumption obligation is enforceable and not merely advisory, setting a legal precedent for energy accountability across sectors.

Scope and Applicability

The RCO framework is expected to apply to:

• Designated Consumers: Large industries under the Perform, Achieve, and Trade (PAT) scheme, including cement, steel, fertilizer, aluminium, and textiles.
  
  

• Commercial Entities: Data centres, corporate parks, and large buildings with substantial energy consumption.
  
  

• Government and Public Institutions: Urban infrastructure projects, metro systems, and municipal corporations with significant power and fuel needs.
  
  

Unlike earlier obligations that focused on electricity procurement, the RCO also considers other forms of energy, such as heating, cooling, and transportation offering flexibility in compliance.

Mechanisms for Compliance

The Renewable Consumption Obligation offers multiple avenues for compliance, allowing entities to meet targets through diverse renewable strategies. These include:

1. Direct Procurement: Purchasing green power through bilateral contracts, power exchanges, or Green Open Access.
   
   

2. Self-Generation: Setting up rooftop solar, captive wind, or hybrid plants.
   
   

3. Renewable Energy Certificates (RECs): Trading RECs to bridge gaps in physical procurement.
   
   

4. Renewable Fuels: Substituting fossil-based fuels with green hydrogen, bio-CNG, or biomass-based energy.
   
   

5. Virtual Power Purchase Agreements (VPPAs): Financially settling renewable energy contracts without physical delivery.
   
   

By providing multiple compliance options, the RCO promotes both flexibility and inclusivity, encouraging innovation in renewable adoption strategies.

Key Differences Between RPO and RCO

This structural shift from purchase-based to consumption-based accountability makes the renewable consumption obligation a more holistic policy instrument, extending India’s energy transition beyond the grid.

Industry Implications

The RCO introduces a paradigm shift in corporate sustainability and energy planning. For industries that rely heavily on thermal energy or captive generation, compliance will require substantial operational and investment changes. Key implications include:

1. Cost Optimization through Renewables: While initial setup costs for solar or wind assets may be high, the long-term savings on energy bills and carbon credits can outweigh them.
   
   

2. Green Supply Chain Integration: Companies may start preferring suppliers that also comply with RCO targets, creating a ripple effect across value chains.
   
   

3. Enhanced ESG Credibility: Meeting RCO norms will strengthen environmental disclosures under SEBI’s Business Responsibility and Sustainability Reporting (BRSR) framework.
   
   

4. Data and Reporting Challenges: Entities will need digital monitoring systems to track multi-source energy data accurately.

Challenges and Concerns

Despite its forward-looking goals, implementing the Renewable Consumption Obligation presents several challenges:

• Measurement Complexity: Calculating renewable energy share in total consumption can be complex, especially for multi-site industries.
  
  

• Double Counting Risks: Distinguishing between renewable power purchased and credits already claimed under RPO could lead to duplication.
  
  

• Infrastructure Constraints: Limited grid connectivity and renewable availability in certain regions may hinder compliance.
  
  

• Policy Overlap: Possible overlaps with existing RPO and Energy Efficiency norms could create confusion for obligated entities.
  
  

• Financial Impact: Transition costs might affect small and medium-sized industries if adequate incentives are not provided.
  
  

To address these, the government may introduce transitional mechanisms, such as phased targets, standardized energy accounting systems, and tradable credits for renewable consumption.

Opportunities in the RCO Framework

For forward-thinking businesses, the RCO is more than a compliance challenge—it is a strategic opportunity. Early adopters can benefit from:

• Corporate PPAs: Long-term agreements with renewable developers ensure predictable costs.
  
  

• Green Hydrogen Integration: Large industries can meet RCO targets through partial fuel substitution with green hydrogen.
  
  

• Carbon Market Participation: Surplus compliance can translate into tradable credits under India’s emerging carbon market.
  
  

• Innovation in Renewable Tech: Incentives for waste heat recovery, biofuel blending, and hybrid energy models.
  
  

In effect, the renewable consumption obligation serves as a bridge between India’s renewable energy targets and its carbon neutrality commitments.

The Way Forward: Policy Recommendations

To ensure smooth and effective implementation, policymakers and industry stakeholders should focus on:

1. Clear Target Setting: Define sector-specific benchmarks and gradually tighten them to ensure feasibility.
   
   

2. Unified Monitoring: Create a centralized digital platform for data submission, verification, and tracking compliance.
   
   

3. Financial Incentives: Offer tax benefits, accelerated depreciation, or low-interest green loans to promote investment.
   
   

4. Synergy with RPO and REC: Align RCO credits with the existing REC framework to enable liquidity and trading flexibility.
   
   

5. Capacity Building: Train industrial energy managers on renewable accounting and verification processes.
   
   

If executed effectively, the RCO could replicate the success of India’s energy efficiency programs like PAT while setting new global benchmarks for consumption-based renewable obligations.

Conclusion

The Renewable Consumption Obligation represents a transformative shift in India’s clean energy policy—from procurement-based mandates to consumption-based accountability. By compelling designated consumers to integrate renewable sources directly into their energy mix, the RCO strengthens India’s commitment to sustainability, enhances corporate responsibility, and drives innovation across sectors.

For businesses, compliance will no longer be an optional ESG checkbox—it will be a legal, financial, and reputational necessity. As industries prepare for the upcoming RCO notification and target frameworks, the key will be proactive planning, strategic partnerships, and a strong understanding of how energy consumption aligns with long-term decarbonization goals.