Greetings to you and your loved ones!
We extend a warm welcome as we reconnect with you through our newsletter for the month of June 2023. 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 includes regulatory and policy developments and noteworthy judgements.
REGULATORY UPDATES
- Market Coupling
On June 2, 2023, the Ministry of Power (MoP) gave its approval to the Central Electricity Regulatory Commission (CERC) to commence the process of market coupling and implement a construct which shall ensure uniformity in the price discovery of energy at the power exchanges. Market coupling involves aggregating buy and sell bids from all power exchanges to determine a uniform market clearing price. The aim of this move is to transition electricity trading from long-term power purchase agreements (PPAs) to exchanges and shorter PPAs and set the stage for electricity derivatives in the market. The implementation of market coupling is expected to enhance liquidity, increase competition among exchanges and potentially reduce power tariffs in the long run.
- APERC (The Grid Interactive Solar Rooftop Photovoltaic System under Gross/Net Metering) Regulations, 2023
On June 6, 2023, Andhra Pradesh Electricity Regulatory Commission (APERC) issued a draft APERC (The Grid Interactive Solar Rooftop Photovoltaic Systems under Net/Gross Metering) Regulations, 2023, inviting comments, suggestions and objections from the stakeholders and interested persons, on or before July 4, 2023. The said regulation shall be applicable to all the Grid-Interactive Solar Rooftop Photovoltaic systems with or without Battery Energy Storage Systems, installed and commissioned in the areas of Distribution licensees in Andhra Pradesh.
- Mission on Advanced and High-Impact Research (MAHIR)
On June 7, 2023, the MoP in collaboration with the Ministry of New and Renewable Energy (MNRE) launched the Mission on Advanced and High-Impact Research (MAHIR) to leverage emerging technologies in the power sector to develop them indigenously for deployment within and outside India. MAHIR will be financed by MoP, MNRE and Central Public Sector Enterprises under these two ministries, with additional funding from Government’s budgetary resources, if needed. MAHIR will have a two-tier structure consisting of a Technical Scoping Committee and an Apex Committee supervising the implementation of MAHIR.
- Guidelines for Tariff Based Competitive Bidding Process for Procurement of Firm and Dispatchable Power from Grid Connected Renewable Energy Power Projects with Energy Storage Systems
On June 9, 2023, the MoP released the Guidelines for Tariff Based Competitive Bidding Process for Procurement of Firm and Dispatchable Power from Grid Connected Renewable Energy Power Projects with Energy Storage Systems. These guidelines aim to provide a transparent and standardized procurement framework through tariff-based competitive bidding while encouraging healthy competition and ensuring compliance with Section 63 of the Electricity Act, 2003. The bidding process includes technical and financial evaluation rounds, with a minimum bid quantum of 50 MW. The objective of these guidelines is to facilitate renewable capacity addition and provide reliable power at competitive prices while ensuring reasonable returns to investors.
- CERC (Sharing of Inter-State Transmission Charges and Losses) (Third Amendment) Regulations, 2023
On June 12, 2023, CERC issued a draft CERC (Sharing of Inter-State Transmission Charges and Losses) (Third Amendment) Regulations, 2023, inviting comments from the stakeholders, on or before July 12, 2023. It proposed for a new proviso to be inserted in Clause (3) (d) of Regulation 5 of the principal regulation, which provides that, in terms of clause (1)(a) of regulation 6, the yearly transmission charge shall be 30% or more. Another proviso is proposed to be inserted in Clause (1) (a) of regulation 6 of the principal regulation, which provides for the formulae for calculating the percentage Yearly Transmission Charges for an interregional High Voltage Direct Current transmission system when it operates in reverse to meet system requirements.
- Electricity (Rights of Consumers) Amendment Rules, 2023
On June 14, 2023, the MoP enacted the Electricity (Rights of Consumers) Amendment Rules, 2023 to introduce Time of Day Tariff and rationalizing smart metering provisions. Under the Time of Day Tariff system, tariff during solar hours shall be 10-20% less than the normal tariff while the tariff during peak hours shall be 10-20% higher. This tariff is effective immediately after installation of smart meters for commercial and industrial consumers having maximum demand of above 10 KW from 1st April 2024 and for other consumers, except agricultural consumers, from 1st April 2025. This will not only improve management of renewable generation fluctuations but also incentivize consumers to shift portion of their loads to off-peak hours, which shall in turn improve the system load factor. Further, penalties for an increase in consumer’s demand beyond maximum sanctioned load or demand have been reduced to avoid inconvenience to the consumers.
- Advanced Industrial Technology Demonstration Centre
On June 26, 2023, the Bureau of Energy Efficiency set up Unnat Takniki Pradarshan Kendra or Advanced Industrial Technology Demonstration Centre, a dedicated centre of excellence to accelerate industry adoption of clean technologies. This Centre shall serve as the primary reference and resource institution on industrial energy-efficient technology as well as a one-stop solution for energy professionals across the country. The estimated number of energy professionals to be trained at this Centre in the next five years is more than 10,000.
- Guidelines for Resource Adequacy Planning Framework
On June 28, 2023, the MoP, in consultation with the Central Electricity Authority, released the Guidelines for Resource Adequacy Planning Framework. These guidelines shall establish an institutional mechanism for resource adequacy, ranging from the National level to DISCOM level, which shall ensure an availability of resources at each level to meet the demand. The guidelines propose that a significant portion of long-term contracts, around 75%, should be utilized to meet the capacity required by distribution companies, with medium-term and short-term contracts filling the remaining demand. The National Load Dispatch Centre shall procure any shortfall in capacity through bidding processes.
- Carbon Credit Trading Scheme, 2023
On June 28, 2023, the MoP notified the Carbon Credit Trading Scheme, 2023 to incentivize power generators to adopt cleaner technologies and reduce greenhouse gas emissions. The program allows power generators to earn carbon credits by reducing their emissions, which can then be traded on the market. This market-based mechanism aims to create a financial incentive for power generators to invest in cleaner technologies and contribute to India’s renewable energy targets. The MoP has released guidelines and procedures for participants to register, generate, and trade carbon credits, including criteria for eligibility and verification of carbon reduction projects. The introduction of the program aligns with India’s commitments under the Paris Agreement and reflects its efforts to transition to a low-carbon economy.
- Draft Electricity (Amendment) Rules, 2023
On June 28, 2023, the MoP issued the Draft Electricity (Amendment) Rules, 2023. One notable proposal is the exemption of transmission licenses for dedicated transmission lines connecting large consumers like green hydrogen producers and energy storage systems. The draft rules also aim to streamline open access charges by providing a methodology for their calculation. Additionally, the rules seek to prevent the creation of revenue gaps or regulatory assets except in exceptional circumstances, and they introduce a time-bound liquidation process for existing gaps. The draft rules also suggest the requirement of upfront part payment of dues before filing an appeal, aiming to discourage frivolous litigations. The MoP has invited comments and suggestions on the draft rules until July 28, 2023.
- Report of the Committee on the Identification of Critical Minerals
On June 28, 2023, the Ministry of Mines released Report of the Committee on Identification of Critical Minerals, under which 30 critical minerals have been identified, which are essential for both the economic development and the national security of India. In November 2022, the Ministry had set up a seven-member committee to identify a list of critical minerals, which it did after a comprehensive three stage process. The first stage involved a study of critical mineral strategies of various countries like Australia, USA, Canada, UK, Japan and South Korea. The second stage involved an inter-ministerial consultation with various ministries viz., MoP, MNRE, as well as suggestions from departments of Atomic Energy, Fertilizers, Pharmaceuticals, and NITI Aayog. Whereas the third stage involved deriving an empirical formula for identifying the list of critical minerals.
- Electricity (Amendment) Rules, 2023
On June 30, 2023, the MoP notified the Electricity (Amendment) Rules, 2023 whereby it increased the requirement of ownership of a captive user in a captive generating plant if such captive generation plant has been set up by an affiliate company, from 26% to 51%. The amendment has also introduced that power consumption by subsidiaries of the captive consumer too shall be considered for the purposes of calculation of captive consumption. Revised language of Rule 3(1)(a)(i) has also caused some confusion as to whether the revised norms stipulate 26% ownership by each captive consumer in the captive generating plant, although a view can be taken that such is not the intent of the revised rules. Further, new rules related to the period of licenses granted under the Electricity Act, 2003 (Act) have been introduced according to which the duration of licenses granted by the Appropriate Commission will be as per the terms and conditions specified in the license. Deemed licenses under specific provisions of the Act will have a duration of 25 years from the Act’s enforcement date. The rules state that licenses granted by the Appropriate Commission and deemed licenses will be considered renewed unless revoked.
JUDICIAL UPDATES
- Maharashtra State Electricity Distribution Company Limited v. GMR Energy Trading Limited & Ors., Petition No. 83/MP/2019, Central Electricity Regulatory Commission
In this case, the Maharashtra State Electricity Distribution Company Limited (MSEDCL) floated and issued certain tenders on the DEEP (Discovery of Efficient Electricity Price) portal for 500 MW on RTC. Tata Power Trading Company Limited (TPTCL) participated in the bid, pursuant to which, three Letters of Intent (LOI) were issued by MSEDCL. GMRETL and TPTCL, while not having accepted the LOI dated 09.10.2018 and 25.10.2018 on the ground that the issue of the said LOI were in deviation of the Bidding Guidelines, nevertheless took part in the bid process and were issued LOI. MSEDCL alleged that due to the stoppage of supply of power by GMRETL and TPTCL, and their source generators, there was a failure to discharge contractual obligations, and MSEDCL had to procure power from Power Exchanges at a very high rate. The CERC looked into – (a) whether MSEDCL is entitled to damages or compensation for short or non-supply of power by traders or source generators? and (b) whether MSEDCL has made out a case for initiating proceedings to revoke GMRETL’s trading license? The CERC held that MSEDCL is entitled to receipts from the forfeiture of earnest money deposit only for those LOI which have not been acknowledged, since there was no concluded contract due to two LOI not being acknowledged by TPTCL. In respect of the third LOI, which was accepted by TPTCL, MSEDCL is entitled to receive liquidated damages. Moreover, given the inability to prove beyond reasonable doubt the willful and continuing default of GMRERTL, no case has been made for revoking their trade license.
- Satia Industries Limited v. National Faceless Assessment Centre, New Delhi, T.A. No. 193/Asr/2022, Income Tax Appellate Tribunal, Amritsar Bench
In 2017-18, the MNRE issued transferable and saleable credit certificates under the Electricity Act, 2003, also known as Renewable Energy Certificates (RECs). In the same financial year, the assessee claimed that the amount it earned from the sale/transfer of RECs was a benefit for capital receipts, while the Department contended that it should be classified as an income from business. ITAT held that Carbon Credits, Renewable Energy Certificates and Energy Saving Certificates are all incentives to reduce Carbon Footprints. The credits obtained from these three modes are not generated due to carrying on any business, therefore, there is no element of profit/gain, and hence, the said amount is not liable to tax under any head of income.
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. Until then, stay safe and stay healthy!