Energy Law Brief – March and April 2024

Greetings to you and your loved ones!

We extend a warm welcome as we reconnect with you through our newsletter for the months of March and April 2024. In our continuous commitment to keep you well-informed about the ever-evolving legal landscape of the energy sector in India, we have curated the latest updates which include regulatory and policy developments, and noteworthy judgments.

• Electricity Rules Regarding Late Payment Surcharges and Related Matters Amended

On February 28, the Ministry of Power (MoP) introduced the Electricity (Late Payment Surcharge and Related Matters) (Amendment) Rules, 2024, aiming to bolster the country’s electricity supply amidst escalating demand. This significant amendment concerns surplus power, which is generated but not requisitioned by distribution companies (DISCOMs). To optimize power utilization and address the issue of unused capacity, power generators failing to offer or supply surplus power will forfeit the right to claim capacity or fixed charges corresponding to that unused or surplus amount. Moreover, surplus power cannot be sold on the power exchange for more than 120 percent of the energy charge plus applicable transmission fees. These changes increase the likelihood of surplus electricity being purchased and utilized efficiently. Additionally, amendments align the rules with statutory provisions concerning access to the national power grid, facilitating expedited restoration of access for DISCOMs facing curtailment due to payment defaults once outstanding dues are settled.

•  MoP Extends Imported Coal Blending Advisory for Thermal Plants

On March 4, the MoP extended its directive for domestic coal-based thermal power plants to continue blending six percent of imported coal until June 2024, citing an anticipated record peak power demand of 250 GW in the upcoming summer. Originally issued on October 25, 2023, the directive aimed to address supply constraints and escalating electricity demand by increasing the blending proportion of imported coal from four percent to six percent. Despite efforts to enhance the loading of domestic coal rakes, logistical challenges within the rail network are expected to persist, constraining dry fuel supplies. To ensure uninterrupted power supply during the critical summer months, MoP emphasized the need for adequate coal reserves in domestic coal-based plants maintained by both Central/State Generating Companies and Independent Power Producers (IPPs). This decision follows a previous advisory in September 2023 for four percent blending, which was later revised to six percent due to a significant gap between coal supplies and consumption.

• Government of Uttar Pradesh Approves Green Hydrogen Policy

On March 5, the Uttar Pradesh Government has approved the green hydrogen policy aimed at transitioning from conventional hydrogen production methods to more eco-friendly alternatives. The initiative, endorsed during a cabinet meeting, targets an annual production of 1 MMT of green hydrogen by 2028. To foster the growth of green hydrogen industries, the state is offering incentives and subsidies totalling Rs 50.45 billion for businesses intending to establish operations within the next five years. These incentives include capital expenditure subsidies ranging from 10 percent to 40 percent for the initial five industries, along with full rebates on intrastate electricity charges and exemptions on transmission charges for interstate transactions. Additionally, there will be a complete exemption of electricity duty to further support the industry expansion.

• Central Government Initiates ₹5 Billion Program to Encourage Electric Mobility

On March 13, the Ministry of Heavy Industries introduced the Electric Mobility Promotion Scheme 2024, committing ₹5 billion (~$60.34 million) to promote electric two-wheelers and three-wheelers, including e-rickshaws and e-carts, over a period of four months commencing from April 01, 2024. With a focus on vehicles equipped with advanced batteries, the program allocates ₹4.93 billion for subsidies and incentives. Targeting 372,215 electric vehicles, the plan offers incentives ranging from ₹5,000 to ₹50,000 per kWh, with varying caps based on vehicle type and maximum ex-factory price. Original Equipment Manufacturers must register with the Ministry, and each model requires approval. Additionally, it includes a Phased Manufacturing Program to bolster domestic manufacturing and strengthen the EV supply chain, aligning with broader efforts to incentivize electric vehicle adoption in India.

• New Solar Energy Policy in Delhi Aims for 4.5 GW Solar Capacity by 2027

On March 14, the Department of Power of Delhi Government releasedthe DelhiSolar Energy Policy 2023, aiming to install 4,500 MW of solar capacity by 2027, with a significant focus on rooftop solar adoption and utility-scale solar outside the state. The policy, effective for three years, targets meeting renewable purchase obligation targets and applies to all electricity consumers and entities operating solar projects in Delhi. It offers capital subsidies for residential consumers undertaking solar projects and introduces alternative options like group net metering and community solar for those facing space constraints. Additionally, economic incentives like generation-based incentives and reduced energy bills are provided to encourage adoption. The policy mandates solar installations on existing state properties and new buildings, emphasizing solar deployment on agricultural land and promoting utility-scale solar procurement outside Delhi. Procedures are streamlined through a state solar portal, and an Apex Committee oversees policy implementation, reflecting the state’s commitment to promoting solar energy and achieving sustainability goals.

• CERCReleases New Tariff Regulations

On March 15, the Central Electricity Regulatory Commission (CERC) released the CERC (Terms and Conditions of Tariff) Regulations, 2024. According to the notification, the determination of the commercial operation date (COD) for generating stations or transmission systems will align with the provisions outlined in the CERC (Indian Electricity Grid Code) Regulations, 2023. Through this regulation, tariffs for generating stations, including emission control systems where applicable, may be determined for the entirety of the station or its units. Similarly, tariffs for transmission systems may encompass the entirety of the system, individual elements, or associated communication systems.

• Viability Gap Funding Scheme Released for Development of Battery Energy Storage Systems

On March 15, the MoP releasedoperational guidelines for a ₹94 billion program aimed at providing up to 40 percent viability gap funding (VGF) to develop 4,000 MWh of battery energy storage systems (BESS) nationwide over three years, starting from 2023-24. The program mandates projects to be commissioned within 24 months of agreement signing, with funds disbursed in five instalments contingent on meeting milestones like financial closure and commercial operations commencement. Project allocations will follow a tariff-based competitive bidding process, with developers vying for the lowest annualized fixed costs within tariff caps. Private sector involvement is permitted but with restrictions on maximum capacity awarded per developer and a minimum project capacity of 100 MWh. The National Load Dispatch Center (NLDC) will manage stress hours, while battery implementation agencies (BIAs) will procure electricity for charging BESS. Any revenue discrepancies will be managed by a BESS balancing pool overseen by a central agency, ensuring long-term viability for developers.

• Guidelines Released for Establishing Green Hydrogen Hubs Across India

On March 15, the Ministry of New and Renewable Energy (MNRE) released guidelines for establishing green hydrogen hubs as part of the National Green Hydrogen Mission, with MNRE and its nominated Scheme Implementing Agencies (SIAs) taking charge. The initiative aims to support the creation of necessary infrastructure at these hubs, including storage, transportation, development/upgradation of pipeline infrastructure, and refuelling stations, to boost large-scale hydrogen production. The mission targets the development of regions with high potential for hydrogen production, aiming to maximize green hydrogen production and its by-products within a set financial framework. It sets a goal of establishing at least two hubs by 2026, with a budget allocation of Rs 2 billion until fiscal year 2025-2026. The criteria for selecting hub locations, eligibility for financial assistance, and the phased distribution of the central financial assistance are outlined, emphasizing production capacity, technology, and financial commitment. The SIAs will oversee the projects, with central financial assistance provided in three phases, contingent on project milestones, aiming for completion by March 31, 2026.

• India’s Latest EV Policy Encourages Global Manufacturers to Engage in Local Production

On March 15, the Ministry of Heavy Industries notified a scheme to promote manufacturing of electric passenger cars in India aimed at positioning the country as a leading manufacturing hub for electric vehicles (EVs). Under this policy, global manufacturers are offered a discounted customs duty rate of 15 percent for five years, provided they invest a minimum of 41.5 billion rupees in establishing production plants within India. However, this concession applies only to EVs with a cost, insurance, and freight value exceeding $35,000. Presently, India imposes a 70 to 100 percent tax on imported vehicles based on their value. The incentive covers completely knocked down units, with an annual import cap of 8,000 units and provisions for carrying over unused import quotas. Companies have three years to establish manufacturing facilities and commence commercial production, with a requirement to achieve a domestic value addition of at least 25 percent during this period, escalating to 50 percent within five years. This policy aims to foster competition among EV manufacturers, boost domestic production, enhance the EV ecosystem, reduce reliance on crude oil imports, and mitigate urban air pollution.

• Central Financial AssistanceIntroduced for PM-Surya Ghar: Muft Bijli Yojana

On March 16, the MNRE committed an investment of Rs 750.21 billion to the PM Surya Ghar Muft Bijli Yojana program, aimed at offering free electricity through residential rooftop solar installationsto 10 million households. The program’s budget includes allocations for various components, such as central financial assistance for residential consumers, DISCOMs’ incentives, local bodies, model solar villages in each district, innovative projects, payment security mechanism, and capacity building and awareness programs. Implementation will be facilitated through a national portal, with subsidies applicable to applications submitted on or after February 13, 2024. Rooftop solar projects up to 2 kW in residential households are eligible for Rs 30,000 per kW, while additional capacity from 2 kW to 3 kW qualifies for Rs 18,000 per kW.

• MNREPermits Installation of Solar Mini Grids in Tribal Settlements

On March 26, the MNRE revised its guidelines for the implementation of solar power programs targeting particularly vulnerable tribal group (PVTG) habitations/villages under the Prime Minister’s Jan Shakti Nidhi (PM JANMAN) initiative. The initiative, with a budget of ₹5.15 billion, aims to provide clean electricity to underserved PVTG communities via solar mini grids. Amendments to the guidelines focus on expanding electrification scope, allowing for the installation of solar mini grids to power clusters of households instead of individual solar home lighting systems. Each unelectrified household under the mini grid can receive financial support of up to ₹50,000 from MNRE. Additionally, the guidelines now offer flexibility in implementation modes, permitting both Capital Expenditure (CAPEX) and Renewable Energy Service Company (RESCO) modes for mini-grid deployment. MNRE will continue to provide financial support to households under both modes, ensuring equitable access to subsidized solar power solutions.

• Approved List of Models and Manufacturers (ALMM) Reinstated in April, Exclusions Removed for Open Access Solar Ventures

On March 29, the MNRE announced the continuation of the Approved List of Models and Manufacturers (ALMM) regulation, which eliminates exemptions previously granted to projects under open access and rooftop solar by private entities, surprising many industry stakeholders who expected the continuation of the relaxation promised earlier. MNRE clarified that the ALMM order 2019, suspended for the financial year 2023-24, will become effective on April 1, 2024. This list was updated on April 10, 2024, and then on April 29, 2024.

• Meghalaya Permits Green Energy Open Access for Consumers with 100 kW Load

On April 03, the Meghalaya State Electricity Regulatory Commission (MSERC) republished the MSERC (Terms and Conditions of Green Energy Open Access) Regulations, 2023, under the Green Energy Open Access (GEOA) scheme, allowing consumers with a minimum contracted demand of 100 kW to access green energy. These regulations align with guidelines set by the MoP and specify eligibility criteria based on voltage levels. Consumers must apply through the designated portal and pay application fees and State Load Dispatch Centre (SLDC) charges. The regulations outline procedures for short-term, medium-term, and long-term access, with the State Nodal Agency responsible for processing applications. Banking facilities for surplus energy, open access charges including transmission, wheeling, and cross-subsidy surcharges, and other related charges are also detailed in the regulations. Additionally, the regulations define the roles of different agencies and provide a mechanism for appeals against decisions made by the State Nodal Agency.

• CERC Releases Preliminary Rules Regarding Charges for Regional Load Despatch Centres

On April 04, the CERC released theCentral Electricity Regulatory Commission (Fees and Charges of Regional Load Despatch Centre and other related matters) Regulations, 2024, outlining fees and charges for Regional Load Despatch Centres (RLDCs) and other users, effective from April 1, 2024. These regulations concern generating companies, distribution companies, bulk consumers, inter-state transmission licensees, and other entities. The regulations entail a registration process mandating users to sign up with RLDCs at least 30 days before grid access. Power exchanges and trading licensees must register with the NLDC within the same period. Fees for registration vary based on the entity’s type and capacity, with DISCOMs, bulk consumers, and transmission licensees paying one-time fees ranging from ₹75,000 to ₹1.5 million. Functions of RLDCs and NLDCs include market and system operation functions, with responsibilities ranging from assisting new entities in grid access to operational planning and dispatch. RLDCs and NLDCs will maintain a Load Despatch Centre Development Fund for specific purposes, funded by various charges, including registration fees and interest earned. Additionally, RLDCs and NLDCs may earn performance-linked incentives based on achieving predefined performance indicators, with the potential to recoup up to 12% of their Annual LDC Charges for exemplary performance.

• MoP Allows Power Generators to Trade Excess Power in the Market

On April 22, the MoP issued a clarification emphasizing that power stations must maintain readiness to dispatch power as per the Tariff Policy 2016. This directive aims to ensure optimal utilization of power generation capacity by allowing surplus power to be sold in the market. Despite existing provisions allowing generators to sell surplus power, concerns have arisen regarding restrictions in agreements such as Fuel Supply Agreements and SHAKTI (Scheme for Harness and Allocating Koyala Transparent in India) B (ii) agreements for IPPs. In response, the MoP clarified that generating companies, including those with long-term coal linkages, can offer surplus power in the market. This move aligns with the goal of promoting a dynamic electricity market and minimizing resource wastage.

• CERC Issues Draft Regulations on Deviation Settlement Mechanism

On April 30, the CERC introduced the draft CERC (Deviation Settlement Mechanism and Related Matters) Regulations, 2024, with the objective to ensure that entities connected to the grid adhere to their scheduled electricity drawl and injection, promoting grid security and stability through a commercial mechanism. Applicable to all grid-connected regional entities and those involved in inter-state electricity transactions, the regulations mandate adherence to grid codes and discourage deviations from schedules. Deviations are to be managed primarily through ancillary services, with provisions outlined for computation, charges, and associated matters concerning such deviations.

JUDICIAL UPDATES

• MK Ranjitsinh v. Union of India, Supreme Court of India, W.P. (C) No. 838/2019

In the present case, a writ petition was filed in 2019 before the Supreme Court concerning the protection of the Great Indian Bustard (GIB) from extinction, particularly due to the threat posed by overhead power lines. The petition highlighted the need for measures such as predator-proof fencing, controlled grazing, and the prohibition of certain infrastructure installations in critical GIB habitats. Additionally, the petition called for the installation of divertors for power lines to mitigate bird fatalities.Following directives from the Supreme Court, regarding the installation of divertors and consideration of converting overhead cables into underground power lines in GIB areas, the Union Government submitted an interim application in 2021. This application raised concerns about the practicality of undergrounding all power lines, suggesting a need to reassess the blanket directive for undergrounding.

The key issue at hand was the legal feasibility of protecting the GIB while advancing solar power initiatives and fulfilling international obligations regarding transmission line setup for solar energy. In response, the Supreme Court modulated its previous judgment and established an expert committee to assess the feasibility and extent of overhead and underground electric lines in GIB priority areas. This committee is tasked with identifying measures to ensure GIB survival and proposing sustainable alternatives for future power line development, aiming to strike a balance between conservation efforts and renewable energy commitments.

• Altilium Energie Private Limited v. Union of India & Ors., High Court of Karnataka, W.P. No. 24239/2023

The case involved petitions filed by Captive Generating Companies and a Licensed Trader challenging the State Government of Karnataka’s Order mandating all electricity generators in the state to operate at Maximum Exportable Capacity and supply electricity exclusively to the State Grid. The petitions raised concerns regarding the legality of the State Government’s jurisdiction under Section 11 of the Electricity Act, 2003, particularly in matters of inter-state power transmission.

The court deliberated on whether to adhere to the Division Bench’s decision in GMR Energy Limited v. Government of Karnatakaregarding the Central Government’s jurisdiction over inter-state power transmission under Section 11 of the Electricity Act, 2003. It also considered whether the State Government had the authority for inter-state power transmission under the Electricity Act, 2003 given the Supreme Court’s ruling in Energy Watchdog v. Central Electricity Regulatory Commission and Others. The court held that the State Government lacked jurisdiction under Section 11 of Electricity Act, 2003 for inter-state transmission, as per the precedent set by M/s Energy Watchdog, thus deeming the State Government’s order invalid.

Despite the State Government’s attempt to regulate inter-state electricity transmission through its order, the court intervened based on jurisdictional grounds, citing the Supreme Court’s ruling in M/s Energy Watchdog. The court concluded that the State Government’s directive for inter-state electricity providers to supply exclusively to the state grid exceeded its jurisdiction under the Electricity Act 2003. The subsequent action taken by the Karnataka Power Transmission Corporation Limited (KPTCL), by approaching the Karnataka Electricity Regulatory Commission instead of the appropriate Central Electricity Regulatory Commission, was deemed a misapplication of regulatory jurisdiction. Therefore, the State Government’s order was invalidated.

• Adani Power Rajasthan Limited (APRL) v. Rajasthan Electricity Regulatory Commission (RERC) & Ors., Appellate Tribunal for Electricity (APTEL), Appeal No. 237 of 2023

APRL had filed an appeal before the RERC, seeking determination of compensation/tariff adjustment under Section 86 of the Electricity Act, 2003. RERC disallowed the claims relating to levy of GST on coal, and levy of GST on transportation of goods by rail, as they were not contested. It was further held that to claim compensation for a change in law event, APRL had to establish the actual impact as to how it has been affected, and thus, the claims for both levy of GST on transportation of goods by a vessel from a place outside India up to the customs clearance point in India, and imposition of evacuation facility charges (EFC) by Coal India (imposed by Coal India Limited with effect from December 20, 2017), were both disallowed, and both the events were not held to be “change in law” events.

Aggrieved by the above order of the RERC, ARPL filed this appeal before the APTEL, seeking – (a) the setting aside of the aforementioned order, (b) to hold that levy of EFC is a change in law event, and (c) the grant of cost for change in law reliefs at the rate of late payment surcharge. The APTEL held that ARPL shall be entitled for the benefit of change in law event on account of EFC from the date on which it was made applicable to them by Coal India Limited. While not granting carrying costs to ARPL, the APTEL held that ARPL shall be given credit for Rs. 5,00,000/- paid by them earlier as a condition for condonation of delay in filing the appeal, since they are now being denied carrying cost.

DISCLAIMER

The content provided in this newsletter is intended for general awareness and should not be considered as legal advice. Readers are advised to consult with a qualified legal professional regarding any specific issues mentioned herein. If you have any questions about any of these developments or would like to see something different next month, reach out to us at knowledge@sarthaklaw.com.

We will be back next month with another update. Thank you for reading!