Greetings to you and your loved ones!
We extend a warm welcome as we reconnect with you through our newsletter for the months of September and October 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 judgments.
- Amendment to the Electricity Rules, 2005
On September 1, 2023, the Ministry of Power (MoP) notified the Electricity (Third Amendment) Rules, 2023 wherein the words “captive user(s), and” substituted the words “captive user” under Rule 3(1)(a)(i) of Electricity Rules, 2005 (‘Rules’) and even omitted the Proviso of the same clause. Further, consumption by a subsidiary company or a holding company, of a company which is a captive user, shall now be deemed as captive consumption by the captive user as well. The Central Electricity Authority (‘CEA’) shall verify the captive status of captive generating plant and its captive user(s) when they are located in more than one state.
- National Framework for Promoting Energy Storage Systems
On September 1, 2023, the MoP issued the National Framework for Promoting Energy Storage Systems aimed at ensuring reducing emissions, ensuring a constant supply of renewable energy and lowering energy costs by reducing dependence on fossil fuel power plants and incentivizing deployment of energy storage systems (ESS). It also promotes battery and pumped storage systems, ESS innovation, fair access for all, and grid stability through policy, regulatory measures, and incentives. The framework has recognized ESS as part of the power system, and obligations for renewable-sourced power through ESS have been set.
- Draft rules for electricity distribution
On September 1, 2023, the MoP released the Draft Electricity Distribution (Accounting aspects of Specified Items & Additional Disclosure) Rules, 2023 and invited comments by September 8, 2023. These rules apply to specified entities (SEs) that currently include regulatory deferral account balances in their financial statements, following relevant accounting standards and guidance on rate-regulated activities. SEs must adhere to these guidelines for measuring and impairing such balances. When an SE initially recognizes a regulatory asset or liability and at the end of each subsequent reporting period, it should assess these balances based on its best estimate of future cash flows under the regulatory framework, considering recovery, refund, or adjustment. Additionally, SEs should review and update these estimates at least annually to reflect the current best estimate. SEs are also required to disclose how they initially measure regulatory deferral account balances and how they assess their recoverability, along with the allocation of impairment losses.
- Amendment to the Mineral Auction Rules
On September 1, 2023, the Ministry of Mines notified the Mineral (Auction) Amendment Rules, 2023, wherein, for Rule 5(2) and Rule 9, a proviso has been inserted which allows for the State Government to utilize details mentioned in either the Prime Minister Gati Shakti – National Master Plan for multi-modal connectivity platform, or land record portal of the State Government or any other government authority, for classification of land. The amendment also inserted two new rules, namely Rule 9B, which deals with conduct of auction of mining lease by the Central Government under Section 11D, and Rule 17B, which deals with conduct of auction of composite license by the Central Government under Section 11D. Section 11D of the Mines and Minerals (Development and Regulation) Act, 1957, deals with Central Government conducting an auction for grant of mining lease or composite license in respect of critical and strategic minerals specified in Part D of the First Schedule to the Act.
- Clarification on Discoms procuring electricity post PPA expiry
September 11, 2023, the MoP issued a clarificatory notification withdrawing the guidelines dated March 22, 2021 and clarification dated July 5, 2021 which dealt with distribution companies (discoms) drawing power after completion of the term of power purchase agreements (PPAs), and superseding them by the letter dated April 20, 2023 which implemented the scheme of pooling of tariff of plants with expired PPAs. This change addresses concerns from generating companies burdened with costly assets, as discoms often opted for cheaper electricity sources, leaving generating companies with more expensive assets. Both generators and buyers now have equal rights, and after a PPA expires, they are free from obligations to supply or purchase power from each other. They can enter into new agreements or make bilateral deals through exchanges, fostering a fair and competitive market. The government also plans to consolidate central generating stations and offer them for sale, ensuring transparent pricing for all buyers.
- Tamil Nadu proposes rules for Deviation Settlement Mechanism for Wind and Solar Projects
On September 11, 2023, the Tamil Nadu Electricity Regulatory Commission has released draft regulations regarding forecasting, scheduling, and deviation settlement for wind and solar energy generators. These regulations allow for a charge free deviation of 10% and 15% for the solar projects and wind projects, respectively. The regulations are applicable to all such generators (excluding rooftop photovoltaic solar power projects of capacity less than 1 MW) in Tamil Nadu connected to the intrastate transmission system or distribution system. Deviation charges will be applied for discrepancies in scheduled generation and interstate transactions must adhere to such generation. These regulations outline procedures, and metering and deviation accounting mechanisms have been established, with payment mechanisms for deviation charges. Comments and suggestions were invited from stakeholders till October 10, 2023.
- Telangana issues draft Intrastate Open Access Regulations
The Telangana State Electricity Regulatory Commission have released draft Intra-state Open Access Regulation, allowing consumers with a contract demand or sanctioned load of 100 kW and above to procure renewable power through open access. Captive consumers using open access won’t face power availability restrictions and consumers with a contracted capacity of over 1 MW can benefit from open access as well. The State Load Dispatch Centre and state transmission utility will act as nodal agencies for short-term and medium/long-term green energy open access, respectively. Users will cover wheeling and transmission charges, and a 50% cross-subsidy surcharge will apply for 12 years after project commissioning, with exceptions for certain scenarios. Standby charges won’t apply with prior notice, and 8% of stored energy will be available monthly for open access green energy customers, with a minimum of 30% banked energy relative to monthly discom consumption required. Wheeling schedules must be submitted for each 15-minute block covering a full day.
- Central Electricity Regulatory Commission releases Draft Regulations for conducting business in 2023
The Central Electricity Regulatory Commission (CERC) has issued draft CERC (Conduct of Business) Regulations for 2023. These regulations outline various aspects of conducting business within the commission, including the location of the commission’s offices, appointment of key personnel, and procedures for filing petitions and conducting proceedings before the commission. The regulations aim to provide a framework for the efficient functioning of the commission and the conduct of its business.
- Government issues warning to states over concealed charges on electricity production
MoP has issued a warning to states, emphasizing that the imposition of additional fees on electricity generation from various sources under the guise of development fees or charges is illegal and in violation of the Constitution. This includes fees on thermal, hydro, wind, solar, and nuclear power generation. The MoP clarified this stance in response to some states imposing water tax or cess. The Constitution restricts states from imposing taxes or duties on electricity production, as electricity generated within one state can be used in others, and prohibits taxation on the supply of goods or services outside the state. Stakeholders have criticized such state-specific levies on renewable energy projects as unfair.
- Grid India issues Guidelines for Uniform Renewable Energy Tariff (URET)
The Grid Controller of India has introduced guidelines for the implementation of a uniform renewable energy tariff (URET) for projects connected to interstate transmission systems (ISTS) and integrated into the central pool. These guidelines align with the Ministry of Power’s 2022 proposal to create central pools for ISTS-connected renewable energy sources. These pools can be used by intermediary companies to purchase power at a uniform tariff and distribute it across states. The central agency will calculate the URET monthly, and distinct pools will be established for various renewable energy sources. These central pools will operate for five years, incorporating eligible capacity with valid power sale agreements. No new capacity will be added after the initial five years.
- Ministry of Power unveils Renewable Purchase Obligations for 2024-2030
MoP has issued guidelines outlining the minimum share of renewable energy from April 2024 to March 2030, in line with the Energy Conservation Act, 2001. These rules apply to designated consumers, including captive users, open-access consumers, and energy distribution licensees. A new category called distributed renewable energy has been introduced under renewable purchase obligations. In hilly and North-Eastern regions, the allocation for distributed renewable energy will be reduced by half, with the remainder falling under other renewable energy sources. Wind energy requirements must be met through operational wind power projects, while hydro energy should come from hydro power projects, including pump storage projects and small hydro projects. Distributed renewable energy must come from projects with a capacity of less than 10 MW, while the remaining portion can be fulfilled by various renewable energy projects commissioned before April 1, 2024. In cases where data is unavailable, a conversion factor of 3.5 units per kW per day should be used. The guidelines allow flexibility in using surplus energy from one renewable source to compensate for deficiencies in another and mandate open-access consumers and captive power plant owners to meet their renewable energy targets, with the option of using renewable energy certificates for compliance. Failure to meet these targets will result in penalties under the Energy Conservation Act, 2001.
- Central Electricity Regulatory Commission issues Second Amendment to Inter-State Transmission Charges and Losses Regulations for 2023
CERC has issued the CERC (Sharing of Inter-State Transmission Charges and Losses) (Second Amendment) Regulations, 2023. These amendments specify that inter-state transmission licensees will receive 50% of their yearly transmission charges (YTC) for the first six months from the deemed commercial operation date (COD) or until actual power flow begins, whichever comes first. After the initial six months, if power flow hasn’t commenced, they will receive 100% of their YTC. These regulations will be effective from November 1, 2023.
- Ministry of Power introduces Process for validating the Captive Status of Power Projects
MoP has introduced a draft procedure for verifying the captive status of multi-state power-generating projects. These regulations define the ownership and usage criteria for captive power projects in India. A captive project must meet the ownership and usage conditions, with a minimum of 26% ownership by benefiting users and 51% of the electricity generated reserved for these users. If a captive project fails to meet the required conditions in a financial year, it will lose its captive status, and users will cease to be considered captive. Verification of captive status will be performed by the CEA, and stakeholders have until December 1, 2023, to provide feedback on the draft proposal.
- Central Electricity Regulatory Commission introduces amendment to Transmission Charges and Losses Regulations
CERC has issued the CERC (Sharing of Inter-State Transmission Charges and Losses) (Third Amendment) Regulations, 2023. The amendment addresses scenarios where an inter-regional high voltage direct current (HVDC) transmission system, originally designed to supply power to a specific region, is utilized to transmit power in the opposite direction due to system requirements. In such cases, the amendment specifies that 30% or more of the yearly transmission charges for these transmission systems should be considered as part of the national component, aligning with the relevant regulation clause.
- ACME Solar Holdings Private Limited v. Power Grid Corporation of India Limited & Ors., Central Electricity Regulatory Commission (CERC), Petition No. 199/MP/2023
ACME Solar sought relaxation of certain provisions of the CERC (Connectivity and General Network Access to the Inter-State Transmission System) Regulations, 2022 (GNA Regulations). ACME Solar had commissioned a 300 MW solar power project but was unable to schedule power under Medium Term Open Access (MTOA) or Long-Term Access (LTA) due to their non-operationalization, leading to significant Deviation Settlement Mechanism (DSM) penalties under Short-Term Open Access (STOA). The Commission decided that the requirement for connectivity bank guarantees (Conn-BGs) is linked to the effectiveness of LTA or MTOA and not the commercial operation date (COD) of the generation project. ACME Solar was allowed to transition MTOA to GNA with Conn-BG3 and transition LTA to GNA without additional Conn-BG3. Conn-BG3 submitted for MTOA transition would also be considered for transitioning LTA. Since COD had been achieved, ACME Solar was required to deposit Conn-BG3 in a phased manner based on the time elapsed after COD, as per Regulation 16 of the GNA Regulations. For example, 4/5th of the required Conn-BG3 amount should be deposited if one year had elapsed after COD.
- M/s. Dakshin Gujarat Vij Company Limited v. M/s. Gayatri Shakti Paper and Board Limited and Anr. (“Dakshin Gujarat”)
In the landmark Dakshin Gujarat Judgment, the Supreme Court resolved complex legal issues surrounding captive generation and electricity surcharge exemptions, specifically addressing the interpretation of Rule 3 in the Electricity Rules 2005. The Court clarified two critical aspects of captive power plants (CGPs). Firstly, to qualify as a CGP, the captive user must own a minimum of 26% of the CGP and consume at least 51% of the generated electricity, with two distinct scenarios for registered cooperative societies and associations of persons. For the former, requirements are collectively met by society members, while the latter must collectively hold 26% ownership and ensure proportionate consumption within a 10% variance. Secondly, the judgment underscored that ownership transfer after CGP establishment is permissible, and eligibility criteria, both in ownership and consumption, must be maintained throughout the entire financial year.
The Dakshin Gujarat Judgment also explored the definition of “association of persons,” highlighting that companies and entities can establish special purpose vehicles (SPVs) to become captive users. These SPVs qualify as “associations of persons” within the Act and Rules and must adhere to Rule 3’s eligibility criteria, ensuring consistent compliance with shareholding and consumption requirements. This landmark decision brings much-needed clarity to the interpretation of Rule 3, settling longstanding legal debates and paving the way for a more structured and consistent application of captive generation regulations.
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 firstname.lastname@example.org.
We will be back next month with another update. Thank you for reading!