RCO Compliance for Indian Industry: Are You Obligated, and What Happens If You Miss?

If your plant runs on captive power or buys through open access, and your annual energy consumption crosses your sector’s threshold, you have a statutory renewable obligation. It is no longer your DISCOM’s problem. It is yours.

Most industrial managers we speak to still call it RPO — the Renewable Purchase Obligation that used to sit with distribution licensees. That framework has been superseded. The Renewable Consumption Obligation now applies directly to designated consumers, was notified under the Energy Conservation Act rather than the Electricity Act, and carries penalties administered by your State Electricity Regulatory Commission.

This is the operator’s guide. What follows is what an obligated plant actually has to do.

The instrument

The RCO was notified by the Ministry of Power as gazette notification S.O. 4421(E) dated 27 September 2025, in supersession of the earlier notification of 20 October 2023. Its statutory hook is Section 14(x) of the Energy Conservation Act, 2001, inserted by the Energy Conservation (Amendment) Act, 2022. It is deemed effective from 1 April 2024, with compliance monitored from FY 2024-25.

Critically, RPO has been subsumed, not merely renamed. The Bureau of Energy Efficiency’s operational guidelines state that for designated consumers, no additional Renewable Purchase Obligation applies under the Electricity Act, and state-level RPO targets are subsumed within RCO targets.

Are you an obligated entity?

Two classes are obligated:

1. ‍All electricity distribution licensees.
2. All designated consumers who consume energy from a captive power plant or through open access — obligated only to the extent of that consumption.

That second class is the one industrial readers need to test themselves against.

“Designated consumer” is not one threshold. It is sector-specific annual energy consumption, measured in metric tonnes of oil equivalent. From the schedule to the Act:

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Note the thresholds relevant to Gujarat’s industrial base: textiles and chemicals at 3,000 MTOE, forging at 1,500, dairy at 2,500. These are not large numbers for a mid-sized plant.

One carve-out and one trap.

The carve-out: thermal power plants are designated consumers but RCO targets do not apply to them, because they generate for sale rather than consumption.

The trap, in BEE’s own words: RCO applies “irrespective of whether the respective DCs are registered under PAT or CCTS schemes or not, and also irrespective of whether or not the respective DCs have been assigned a registration number.” A great many industrial consumers assume that no PAT registration number means no obligation. It does not.

The targets

For distribution licensees, the obligation is split across sources:

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For captive and open access designated consumers — which is you — only the total applies. BEE is explicit: such consumers must meet the specified total RCO “regardless of the eligible non-fossil energy source.” The wind, hydro and distributed sub-targets do not bind you.

So the number to plan against is straightforward: 35.95% in FY 2026-27, rising to 43.33% by FY 2029-30.

Two adjustments: hilly and north-eastern states and UTs get half the distributed component, and exclusively-urban distribution licensees get 75% of it, with the remainder shifting to “Other.”

On fungibility — wind, hydro and other are mutually fungible. A distributed RE surplus can cover the others, but a distributed shortfall can only be met by distributed RE, RECs or buyout. Distributed RE means eligible non-fossil generation of 10 MW or less installed capacity, including net, gross, virtual net and group net metering, and behind-the-meter systems.

That last definition is worth pausing on. A rooftop solar system on your own factory is distributed RE, and it counts.

How you comply

Seven routes, and their limits:

Own captive generation from eligible non-fossil sources. Counts fully.

Renewable energy through open access. Counts. Where you requisition green power from your DISCOM under the Green Energy Open Access Rules, you need an NOC from the licensee confirming the quantum and that it has no claim over that green energy — the anti-double-counting mechanism.

Energy storage. Eligible only to the extent the stored energy was generated from an eligible source, and only the energy actually consumed after deducting storage losses. Storing it is not enough.

Renewable Energy Certificates, bought on an exchange or through a trader, or self-retained. One important limit: energy from a project registered under the REC mechanism or another energy attribute certificate mechanism is not separately countable toward RCO. You cannot claim the generation and sell the certificate.

Virtual PPAs. Recognised, but they deliver compliance through RECs rather than as a standalone route.

Green hydrogen and green ammonia — but only as energy, not as feedstock, computed per the prescribed annexure and requiring a dedicated energy meter on the electricity used in production. Most industrial green hydrogen use cases are feedstock and will not qualify.

Buyout. See below.

Nuclear is not eligible for compliance but is excluded from the denominator — so it neither helps nor hurts.

Exclusions that reduce your obligation

These matter and are routinely missed:

• ‍Waste-heat and waste-energy recovery self-consumed power is 100% excluded including blast furnace gas, coke oven gas and flare gas
• ‍50% of self-consumed fossil-fuel cogeneration is excluded
• ‍50% of fossil electricity in an aluminium smelter is excluded
• Auxiliary consumption of captive plants, proportionately

What is not excluded: power used for non-designated-consumer operations — mining, marketing, staff colony, canteen. All of it sits in the denominator.

For a steel, refinery or cement client, running these exclusions properly can move the obligation materially before a single unit of renewable energy is procured.

The buyout — and why the range you have seen is wrong

CERC fixed the buyout price by suo-motu order in Petition No. 12/SM/2025, dated 18 February 2026:

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You will see “₹347–421/MWh” quoted as though it were a range for a single year. It is not. It is a year-by-year escalating schedule, derived from a weighted average REC price of₹346.74/MWh across trades on IEX, PXIL, HPX and licensed traders between December2024 and November 2025, with 5% annual escalation approved from FY 2026-27.

Proceeds go to the Central Energy Conservation Fund, with 75% transferred to State Energy Conservation Funds for renewable and storage projects.

Three honest criticisms, because you should know the ground you are standing on:

1. ‍A legal-vires question. The Energy Conservation Act does not mention CERC or confer authority on it — CERC’s powers derive from the Electricity Act. Whether the buyout mechanism withstands challenge is genuinely open.
2. ‍It is not a last resort. CERC expressly rejected pleas to make buyout available only after exhausting renewable procurement and RECs, holding the three routes are non-hierarchical. At roughly 5% above the average REC price, several stakeholders argued it will suppress REC demand and discourage long-term PPAs.
3. ‍There is no sunset. Critics have described it as a permanent pay-to-pollute option that generates no equivalent clean energy, unlike a REC.

The commercial reading for a plant manager is simpler. At ₹364/MWh for FY 2026-27, buyout is cheap compared with the cost of failing. It is also cheap compared with nothing — which is why treating it as a fallback rather than a plan is the sensible posture.

Penalties

The provision is Section 26 of the Energy Conservation Act, 2001, as substituted by the 2022 amendment. Two distinct failures:

• Non-submission of compliance details is a prima facie violation attracting penalty under Section 26(4)
•  Failure to meet the obligation, once assessed, attracts penalty under Section 26(3)

The formula under Section 26(3) and its proviso: a penalty of up to ₹10,00,000 for each failure, plus an additional penalty of up to twice the price of every metric tonne of oil equivalent of energy consumed in excess of the prescribed norms.

Adjudication is by an officer appointed by your State Electricity Regulatory Commission. BEE and State Designated Agencies initiate proceedings under the Energy Conservation (Compliance Enforcement) Rules, 2025.

One useful piece of context: historically, only 6 of 24 audited states ever imposed RPO penalties despite significant shortfalls. Enforcement culture may change under the new framework — but the honest position is that it has not been tested yet.

The filing calendar

Counting from the end of the target year (T = 31 March):

Verification is by a BEE-empanelled Accredited Energy Auditor for all designated consumers other than distribution licensees. BEE may run a check-verification within six months of certification, on its own motion or on complaint.

On deadlines — the first year has slipped repeatedly. FY 2024-25 compliance ran from a May 2025 deadline, to September, to March 2026, and then by Ministry order dated 16 April 2026 to 31 May 2026. We could find no confirmation of any extension beyond that date, and BEE’s national compliance portal was still described as under development as of early March 2026. Plan against the calendar above; do not plan against another extension.

What to do in the next quarter

1. Establish whether you are designated. Your sector’s MTOE threshold against your annual energy consumption. If you are close, get it computed properly.
2. Compute your obligation base. Captive plus open access consumption, less the exclusions above. The exclusions are where the money is.
3. Model the cheapest compliant mix — own generation, open access, RECs, buyout — against a 35.95% target for FY 2026-27 and 43.33% by FY 2029-30.
4. Check whether rooftop on your own sheds is the cheapest unit. It usually is, it counts as distributed RE, and it needs no open access approval.
5. Appoint your Accredited Energy Auditor early. The Form A deadline is four months after year end and auditors get busy.

For a plant in Gujarat, Maharashtra or anywhere in our footprint, send us twelve months of bills and your captive or open access position and we will model the least-cost compliance mix — including telling you if buyout is the rational answer for a given year.

Frequently asked questions

1. What is the Renewable Consumption Obligation?

A statutory obligation, notified as S.O. 4421(E) on 27 September 2025 under Section 14(x) of the Energy Conservation Act, requiring obligated entities to meet a rising share of their electricity consumption from eligible non-fossil sources. It supersedes the earlier RPO framework for designated consumers.

2. Is RCO the same as RPO?

No. RPO sat with distribution licensees under the Electricity Act. RCO applies directly to designated consumers under the Energy Conservation Act, and BEE’s guidelines confirm state-level RPO targets are subsumed within RCO targets, with no additional RPO applying to designated consumers.

3. Does RCO apply to my factory?

It applies if you are a designated consumer and you consume energy from a captive power plant or through open access. “Designated consumer” is a sector-specific annual energy consumption threshold in MTOE — 3,000 for textiles and chemicals, 20,000 for iron and steel, 1,500 for forging, and so on.

4. We aren’t registered under PAT. Are we still obligated?

Potentially yes. BEE states that RCO applies irrespective of whether a designated consumer is registered under PAT or CCTS, and irrespective of whether a registration number has been assigned. Registration status does not determine the obligation.

5. What is the RCO target for FY 2026-27?

35.95% total for both distribution licensees and captive/open access designated consumers. For distribution licensees it is further split into wind 1.97%, hydro 1.34%, distributed RE 2.70% and other RE 29.94%. Captive and open access consumers meet the total regardless of source.

6. What is the RCO target by 2030?

43.33% in FY 2029-30, with the distributed RE component for distribution licensees rising to 4.50%.

7. Do the wind and hydro sub-targets apply to my plant?

No. Sub-targets bind distribution licensees. Captive and open access designated consumers are required to meet the specified total RCO regardless of the eligible non-fossil source.

8. Does rooftop solar on my own factory count?

Yes. Eligible non-fossil generation of 10 MW or less installed capacity qualifies as distributed RE, expressly including behind-the-meter systems. For most plants, rooftop on your own sheds is the cheapest compliant unit and needs no open access approval.

9. Can I use Renewable Energy Certificates to comply?

Yes, purchased on an exchange or through a trader, or self-retained. But energy from a project registered under the REC mechanism or another energy attribute certificate mechanism is not separately countable toward RCO — you cannot count the generation and sell the certificate.

10. Do virtual PPAs count?

Yes, but indirectly. A virtual PPA delivers compliance through the RECs it generates rather than as a standalone route.

11. Does green hydrogen count?

Only as energy, not as feedstock, computed per the prescribed annexure, and requiring a dedicated energy meter on the electricity used in production. Most industrial green hydrogen applications are feedstock and will not qualify.

12. What is the RCO buyout price?

₹347/MWh for FY 2024-25 and FY 2025-26, then ₹364, ₹382, ₹401 and ₹421/MWh for the following four years, fixed by CERC order dated 18 February 2026 with 5% annual escalation. It is a year-by-year schedule, not a range for one year.

13. Is buyout a last resort?

No. CERC expressly rejected making it a fallback available only after exhausting procurement and RECs, holding the three compliance routes are non-hierarchical. That decision has been criticised on the basis that a cheap buyout suppresses REC demand and discourages long-term PPAs.

14. What is the penalty for missing RCO?

Under Section 26(3) of the Energy Conservation Act, a penalty of up to ₹10,00,000 for each failure, plus an additional penalty of up to twice the price of every metric tonne of oil equivalent consumed in excess of the prescribed norms. Non-submission separately attracts penalty under Section 26(4).

15. Who imposes the penalty?

An adjudicating officer appointed by your State Electricity Regulatory Commission, with BEE and State Designated Agencies initiating proceedings under the Energy Conservation (Compliance Enforcement) Rules, 2025.

16. What do I have to file, and when?

Form A with an RCO audit report verified by a BEE-empanelled Accredited Energy Auditor, four months after year end. The compliance window to buy RECs or pay buyout closes nine months after year end, on 31 December. Further forms and BEE certification follow through to eleven months.

17. Which consumption is excluded from my obligation?

Waste-heat and waste-energy recovery self-consumed power is entirely excluded, including blast furnace gas, coke oven gas and flare gas. Fifty per cent of self-consumed fossil-fuel cogeneration is excluded, as is fifty per cent of fossil electricity in an aluminium smelter, and auxiliary consumption of captive plants proportionately. Power for mining, marketing, staff colony and canteen is not excluded.

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