Alternative Energy & Power 2019 Comparisons

Last Updated July 22, 2019

Contributed By J Sagar Associates

Law and Practice

Authors



J Sagar Associates is a leading national law firm in India, with offices in Ahmedabad, Bengaluru, Chennai, Gurgaon, Hyderabad, Mumbai, GIFT City and New Delhi. The firm is made up of more than 300 lawyers and consultants, and provides legal advice and services to international and domestic clients across diverse sectors of industry and services. JSA is the leading national practice in the energy sector, providing legal services at all stages of the value chain – across the spectrum of contractual, commercial, policy, regulatory and legal issues. It advises clients on all aspects of the establishment, procurement, operation and transfer of energy projects.

The Electricity Act, 2003 (Electricity Act) was enacted by the Indian Parliament and came into force on 10 June 2003. The Electricity Act is a central, unified and comprehensive piece of legislation, and is the main source of law and regulation in the electricity sector (along with the rules, regulations and policies made under the Electricity Act). The main objectives of the Electricity Act are as follows:

  • developing the electricity industry;
  • promoting competition;
  • protecting consumer interest;
  • supplying electricity to all areas;
  • rationalising tariffs; and
  • ensuring transparent policies regarding subsidies.

The Electricity Act recognises the following distinct activities: generation, transmission, trading (ie, the purchase of electricity for resale), and supply and distribution (ie, the retail supply and sale of electricity to consumers).

No licence is required for the generation of electricity (however, prior techno-economic clearance has to be obtained for hydroelectric power plants).

Transmission, trading, distribution and supply are licensed activities, in respect of which a licence has to be obtained from the electricity regulatory commission (ERC) concerned.

Currently, the activities of distribution and supply are clubbed together under a single licence. However, proposed amendments to the Electricity Act contemplate desegregating distribution and supply activities.

The electricity market had previously been dominated by state-owned vertically integrated electricity boards. However, post reforms and the enactment of the Electricity Act, the market has witnessed the unbundling of erstwhile state electricity boards, increased competition, and greater private sector participation. The electricity market is currently characterised by a mix of private sector and public sector players.

As noted above, the Indian electricity market is broadly divided into the following distinct types of activity:

  • generation;
  • transmission;
  • trading (ie, purchase of electricity for resale); and
  • supply and distribution (ie, retail supply and sale).

The principal players in the generation segment are:

  • NTPC Limited;
  • NHPC Limited;
  • Adani Power Limited;
  • Reliance Power Limited;
  • Tata Power Company;
  • Renew Power;
  • Sembcorp Power;
  • GMR group; and
  • GVK group.

The principal players in the transmission segment are:

  • Power Grid Corporation of India Limited;
  • Sterlite Power; and
  • Adani Transmission Limited.

Additionally, each state has a designated State Transmission Utility, which undertakes a large portion of transmission within the state.

In most states, distribution continues to be undertaken by state-run utilities, but it has been privatised in some states (eg, Maharashtra and Delhi).

Foreign investment in India is principally governed by:

  • the Foreign Exchange Management Act, 1999 and regulations issued under it, including the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000; and
  • policy announcements of the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

The extant framework contemplates two routes of foreign direct investment: the automatic route (ie, where no approval is required) and the approval route (ie, where prior approval of the government is needed). Proposals for foreign investment under the government route are considered by the respective administrative Ministry/Department on a case-by-case basis.

There are no investment limit thresholds for the power industry – foreign direct investment without prior government approval is permitted up to 100% in the generation (except atomic energy), transmission, distribution and trading of electricity. 

However, investment in the power exchanges is limited to 49% through the automatic route.

With regard to the power industry businesses' sale of assets, the Electricity Act mandates prior approval from the respective licensing authority (ie, the Central Electricity Regulatory Commission (CERC) or state electricity regulatory commission (SERC)) for a licensee to acquire (by purchase or takeover or otherwise) the utility of any other licensee or merge its utility with that of any other licensee. Such an approval is also necessary for the assignment of a licence or the transfer of a utility, or any part thereof, by sale, lease, exchange or otherwise. Any such arrangement will be void if the necessary approvals are not obtained. It should be noted that these requirements apply only to licensees and not to generators (which are unlicensed).

Additionally, the Companies Act, 2013 and the Competition Act, 2002 generally govern mergers and acquisitions in India.

Regional-level load despatch centres (in respect of the inter-state transmission system) and state-level load despatch centres (in respect of intra-state transmission systems) are responsible for the following:

  • optimum scheduling and despatch of electricity in accordance with contracts entered into with licensees or generating companies;
  • monitoring grid operations;
  • keeping accounts of the quantity of electricity transmitted through the grid;
  • exercising supervision and control over the transmission system; and
  • carrying out real-time operations for grid control and despatch of electricity within the region through secure and economic operation of the grid.

The Central Transmission Utility (in respect of the inter-state transmission system) and state-level transmission utilities (in respect of intra-state transmission systems) are responsible for planning and co-ordination relating to transmission, and for ensuring the development of an efficient, co-ordinated and economical system of transmission lines for the smooth flow of electricity from generating stations to load centres.

The Central Electricity Authority is responsible for formulating short-term and perspective plans for developing the electricity system, and for co-ordinating the activities of the planning agencies. The Central Electricity Authority also specifies the following:

  • technical standards for constructing electrical plants, electric lines and grid connectivity;
  • safety requirements for constructing, operating and maintaining electrical plants/lines;
  • grid standards for the operation and maintenance of transmission lines; and
  • conditions for installing meters for the transmission and supply of electricity.

The Electricity Act places a duty on distribution licensees to develop and maintain an efficient, co-ordinated and economical distribution system in its area of supply.

The Ministry of Power, Government of India (MoP) recently issued a revised set of guidelines for the cross-border trade of electricity with a view to facilitating trade in electricity between India and neighbouring countries, evolving a dynamic and robust electricity infrastructure for trade, promoting transparency, consistency and predictability in the regulatory mechanism pertaining to cross-border trade, and ensuring the reliable grid operation and transmission of electricity for import and export. Please see 2.2 Imports and Exports of Electricity for more information on these guidelines.

MoP has also announced a set of measures to promote hydroelectric power, as follows:

  • large hydroelectric power projects (exceeding 25 MW) have been declared as ‘renewable energy’;
  • a distinct component for hydroelectric power will be carved out in the renewable purchase obligations – ie, the binding obligations on procuring entities to purchase a prescribed percentage of power from renewable energy; and
  • tariffs will be rationalised by permitting flexibility to determine tariffs by backloading tariffs after increasing project life to 40 years, increasing the debt-repayment period to 18 years, and introducing an escalating tariff of 2%.

It had earlier been clarified by MoP that no licence will be required for the purpose of providing charging services to electric vehicles. The clarification characterised charging as a service, and states that this activity does not fall under the activities of transmission, distribution or trading of electricity. In furtherance of this clarification, MoP has issued a set of guidelines for setting up such charging stations. These guidelines:

  • permit setting up charging stations without having to obtain a licence;
  • set out the minimum infrastructure requirements for charging infrastructure;
  • cap the tariff for the supply of electricity to charging stations (ie, average cost of supply plus 15%); and
  • set out the timeframe and modalities for the rollout of public charging infrastructure.

The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India or ‘FAME’ scheme envisages various incentives to promote electric and hybrid vehicles. The second phase of the scheme will be implemented over three years starting from 1 April 2019. The scheme restricts the eligibility of demand incentives to vehicles that use advanced batteries satisfying certain performance criteria.

Stricter emission norms for thermal power plants have been notified by the Ministry of Environment, Forests & Climate Change, pursuant to which all thermal power projects are required to install or upgrade various emission control systems by December 2022.

There is also a proposal to set up a national power distribution company to work jointly with state governments to implement various distribution projects and to serve as a nodal agency to competitively procure power on behalf of interested distribution licensees under back-to-back arrangements.

Another reform being mooted is the institution of a system of regional regulators to review the performance of SERCs and ensure they are independently and effectively discharging their functions, particularly with respect to the periodic redetermination of tariffs.

The Electricity Act is proposed to be amended by way of the Electricity (Amendment) Act, which will provide for the following, amongst other things:

  • the desegregation of distribution and supply activities – this will mean that distribution licensees will operate and maintain the distribution network, and supply licensees will be responsible for the supply of electricity to consumers;
  • a separate national-level policy for the promotion of renewable sources of energy and for measures to promote smart grid, ancillary services and decentralised distribution generation; and
  • a requirement for coal- and lignite-based thermal power plants set up after a certain date to establish a prescribed renewable energy generating capacity (which will not be less than 10% of the thermal capacity).

The Electricity Act mandates the formulation of a national tariff policy for the development of the power system, based on the optimal utilisation of resources. The policy may be revised from time to time. In this regard, it is understood that a new national tariff policy is also proposed, which contemplates the following:

  • emphasis on assured and stable 24x7 supply of electricity;
  • wider deployment of hydroelectric power;
  • net-metering for solar rooftop installations;
  • shifting towards a ‘pre-paid’ mode for electricity consumption; and
  • simplifying and rationalising the retail tariff categories.

The Indian electricity market has undergone significant evolution and reform in the past two decades. For much of the last century, the electricity market was dominated by state-owned vertically integrated electricity boards, which were responsible for supplying electricity within a state. In response to the poor credit-worthiness of these state-run utilities, a series of reforms were initiated with a view to liberalising the market.

Consequently, the market has witnessed a gradual shift away from public sector dominance towards increased competition and private sector participation. Furthermore, the industry has been placed under the regulatory oversight of independent statutory regulators, who are tasked with regulating entry and exit, determining tariffs, setting and enforcing standards of service, and resolving disputes. The post-reform electricity market is characterised by:

  • a mix of private sector and public sector players;
  • open access to the distribution and transmission networks (whereby consumers can exercise a choice of supplier); and
  • transparent and independent determination of tariffs.

The Integrated Energy Policy was issued by the Indian Government in 2006 and provides for the following:

  • competitive markets;
  • improved efficiencies in the energy supply chain;
  • transparent and targeted subsidies;
  • management reforms that create accountability and incentivise efficiency;
  • reflecting the externalities of consumption; and
  • pricing and resource-allocation determined by market forces.

The Indian power industry is distinguished by the presence of central-level and state-level independent regulatory bodies, viz. the CERC and SERCs. The CERC is responsible for:

  • regulating tariffs of generating companies that are either:
    1. owned or controlled by the Indian Government; and/or
    2. generating and selling electricity in more than one state;
  • regulating inter-state transmission and determining the tariffs in this regard;
  • issuing licences for inter-state transmission and trading;
  • adjudicating disputes involving generating companies or transmission licensees with regard to the above matters;
  • specifying the grid code, having regard to grid standards;
  • specifying and enforcing standards of service by licensees; and
  • fixing the inter-state trading margin (if considered necessary).

The SERCs are responsible for:

  • determining tariffs for intra-state generation, supply, transmission, and wheeling;
  • regulating the purchase and procurement of electricity by distribution licensees;
  • facilitating intra-state transmission and wheeling of electricity;
  • issuing intra-state transmission, distribution and trading licences;
  • promoting the co-generation and generation of renewable energy;
  • adjudicating on disputes between the licensees and generating companies; and
  • specifying the state grid code.

India has witnessed a steady decrease in the demand-supply gap, in terms of both energy and peaking. It is expected that India will soon transition to an energy surplus state.

The Indian electricity market has evolved from a single-buyer model to a multi-buyer model. Power is ordinarily procured through long-term arrangements. Distribution licensees are responsible for supplying power to consumers in their licensed areas of supply, and procure electricity using the following routes:

  • competitive procurement (either from generators or through trading licensees), whereby tariffs are discovered through price-bidding; competitive procurement is conducted in accordance with guidelines issued by the Central Government;
  • bilateral procurement of electricity (either from the generators or through trading licensees), whereby tariffs are negotiated as per regulatory norms and stipulations; and
  • the purchase of electricity on a registered power exchange; India has two power exchanges – the Indian Energy Exchange and the Power Exchange India Ltd.

The procurement and purchase of power by distribution licensees is subject to regulatory oversight of the respective SERCs.

The Electricity Act also recognises the distinct activity of electricity trading, whereby trading licensees purchase power from generators and sell the power to consumers or distribution licensees at a margin. This margin can be regulated and varies depending on the state, the duration of the purchase arrangements, and whether it is inter-state or intra-state. 

Furthermore, the ERCs are responsible for the development of a market (including trading) in power, and are empowered to check abuses of dominant positions or combinations that adversely affect competition in the industry.

Additionally, as noted above, in certain circumstances and subject to the payment of the requisite surcharges, eligible consumers may bypass the distribution licensee to procure power directly at a mutually negotiated tariff by utilising ‘open access’ to the transmission/distribution network.

Power is also bought and sold on organised energy exchanges (Power Exchange India Limited Ltd and the Indian Energy Exchange), which have been set up pursuant to the mandate of the Electricity Act to promote the development of a market (including trading) in power, and the recognition of trading as a distinct activity.

India imports electricity from Bhutan in the region of roughly 5000 MU. India has also been exporting electricity to Nepal, Bangladesh and Myanmar.

Cross-border trade in electricity is governed by the Guidelines for Import / Export (Cross Border) of Electricity, 2018, issued by MoP in consultation with the Ministry of External Affairs, Government of India. These guidelines replace the earlier guidelines issued in 2016, and are supplemented by regulations issued by the CERC. The guidelines provide that:

  • cross-border trade of electricity between India and neighbouring countries is permitted through the following routes under the overall framework of agreements signed between India and the neighbouring countries and consistent with the laws of such countries:
    1. through bilateral agreements between the two countries;
    2. through the bidding route; and
    3. through mutual agreements between entities;
  • an entity may import or export electricity to or from India only with approval of a ‘designated authority’ appointed in this regard by MoP (the designated authority is the Central Electricity Authority). However, approval is not required if the import/export is under an inter-government agreement entered into between India and the neighbouring country for specific project(s); and
  • tariffs for the import/export of electricity are determined through a process of competitive bidding or through mutual agreement (unless the tariff for the import of electricity is mutually agreed by the Governments of India and the neighbouring country).

The total installed capacity of India as of April 2019 is 356100.19 MW, roughly 22% of which constitutes renewable energy. The installed capacity comprises electricity generated from fossil fuels, nuclear power, hydroelectric power and renewable energy sources, as follows:

  • thermal – 226279.34 MW;
  • nuclear – 6780.00 MW;
  • hydroelectric – 45399.22 MW;
  • small-hydro – 4593.15 MW;
  • wind – 35625.97 MW;
  • biomass/ cogeneration – 9103.50 MW;
  • waste-to-energy – 138.30 MW; and
  • solar – 28180.71 MW.

The share of renewables in energy generated has also increased in recent years, standing at roughly 8% of the total energy generated in April 2019 (ie, 118.83 BU).

There are no concentration limits regarding the percentage of electricity supply that is controlled in the market by any one entity. However, market activities are subject to laws governing anti-competitive behaviour. Please see 2.5 Agency Conducting Surveillance to Detect Anti-competitive Behaviour for more information in this regard.

The Electricity Act empowers the ERCs to issue such directions as it considers appropriate to a licensee or a generating company if such licensee or generating company enters into any agreement or abuses its dominant position, or enters into a combination that is likely to cause or causes an adverse effect on competition in the electricity industry.

The Competition Act, 2002 (Competition Act) is the primary Indian law regulating anti-competitive behaviour, and its objectives are to prevent practices that have an adverse effect on competition, to promote and sustain competition and markets, and to ensure freedom of trade.

The Competition Act recognises the following restrictive practices:

  • abuse of dominant position;
  • anti-competitive agreements causing or likely to cause an appreciable adverse effect on competition; and
  • combinations causing or likely to cause an appreciable adverse effect on competition in the relevant market.

The Competition Commission of India (CCI) is the primary regulatory authority responsible for enforcing the Competition Act. CCI is assisted by its investigative arm, the Director General (DG), in investigating contraventions of the Competition Act. CCI and the DG have the following powers:

  • to summon and enforce attendance;
  • to require discovery and production of documents;
  • to receive affidavit evidence;
  • to issue requests for the examination of witnesses or documents; and
  • to requisition public records or documents from any office.

The DG also enjoys powers of search and seizure.

An inquiry into anti-competitive behaviour is initiated by CCI on its own motion, or upon the receipt of information in the prescribed manner from any person, or upon reference by any statutory authority or the Central/State Government. If CCI is convinced there is a prima facie case of anti-competitive behaviour, it directs the DG to investigate. The DG submits a report on its findings and recommendations to CCI. Unless CCI seeks a supplementary report from the DG, or decides to carry out further inquiries by itself, the report is released to the parties (or referring authority) for their written submissions. Parties may also present oral arguments. CCI issues its final order after reviewing the written submissions and concluding the oral arguments. Appeals against this order can be brought before the National Company Law Appellate Tribunal, and further before the Supreme Court of India.

In an infringement of the Competition Act, CCI is empowered to issue cease and desist orders, modify the concerned agreements and impose monetary penalties, as follows: 

  • for anti-competitive agreements, CCI can penalise the parties up to 10% of their average turnover from the infringing products/services in the past three financial years; and
  • for cartels, CCI can impose a penalty of up to three times the cartel’s profits for each year the agreement continued, or up to 10% of its average relevant turnover for the previous three financial years, whichever is higher.

The Electricity Act features provisions relating to renewable energy and the promotion of environment-friendly practices, as follows:

  • in specifying the terms and conditions for the determination of tariffs, the ERCs must be guided, amongst other things, by the promotion of the generation of electricity from renewable sources of energy; and
  • SERCs are required to promote the generation of electricity from renewable sources of energy by:
    1. providing suitable measures for connectivity with the grid and sale of electricity to any person; and
    2. for the purchase of electricity from renewable sources, specifying a percentage of the total consumption of electricity in the area of a distribution licensee.

In addition, India is party to the United Nations Framework Convention on Climate Change, 1992, and has adopted the Paris Agreement under said framework. In this regard, it is notable that the courts in India, including the Supreme Court of India, have interpreted and given effect to rights and obligations of parties under Indian law in the context of treaty obligations.

India also has manifold domestic climate change laws and/or policies, including the following:

  • the Environment (Protection) Act, 1986 provides for the protection and improvement of the environment. Various rules and regulations have been issued under this act, concerning amongst other things:
    1. the reduction of emissions;
    2. the regulation of ozone depleting substances; and
    3. the management of plastic, construction, solid and hazardous waste;
  • the Water (Prevention and Control of Pollution) Act, 1974 provides for the prevention and control of water pollution and the maintaining or restoring of the wholesomeness of water;
  • the Air (Prevention and Control of Pollution) Act, 1981 provides for the prevention, control and abatement of air pollution;
  • the Wildlife (Protection) Act, 1972 provides for the protection of wild animals, birds and plants;
  • the Forest (Conservation) Act, 1980 sets out provisions relating to the conservation of forests; and.
  • the Energy Conservation Act, 2001 sets out provisions relating to the efficient use of energy and its conservation.

There are no laws and/or policies relating to the early retirement of carbon-based generation, but emissions norms have been made stricter in recent years. These stricter norms are applicable to existing as well as future power plants.

However, the Central Electricity Authority has periodically been identifying old and inefficient government-owned thermal generating units for retirement, either on account of their age, or due to their inability to comply with new emission norms.

There are a number of incentives at both the central and state levels that are aimed at encouraging the use of electricity generated from renewable energy:

  • the ERCs have determined preferential tariffs for electricity generated from renewable sources of energy;
  • SERCs, which are responsible for promoting the generation of renewable energy, have specified legally binding ‘renewable purchase obligations’ (ie, annual targets for purchasing renewable energy):
    1. the quantum of these obligations may vary from state to state, but the obligations ordinarily extend to distribution licensees, consumers availing energy through open access, and users of captive power plants (plants primarily for self-use);
    2. the SERC can penalise any failure to adhere to these targets by imposing monetary fines; and
    3. a ‘renewable energy certificate’ regime has also been introduced whereby tradable certificates are issued in respect of renewable energy injected into the grid – obligated entities can purchase these certificates (in lieu of renewable energy) towards meeting their obligations; and
  • exemptions from payment of duties and levies such as transmission charges, electricity duties, wheeling charges, etc (this varies from state to state).

Pursuant to its commitments under the Paris Agreement, the Central Government is targeting achieving 40% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030. This target is intended to be achieved through various means, including:

  • continuing on-going interventions;
  • enhancing existing policies; and
  • launching new initiatives to promote renewable energy generation.

Additionally, the Government of India has set a target of installing 175 GW of renewable energy capacity by 2022, which includes 100 GW from solar, 60 GW from wind, 10 GW from biopower and 5 GW from small hydro power.

The generation of electricity in India is a delicensed activity – ie, a developer may establish, operate and maintain a generating station without obtaining a licence. However, the construction of generation facilities is subject to obtaining a number of approvals and consents from the relevant state, central and statutory authorities, which may vary for each power project depending on its type and location. The approvals and the corresponding authorities with respect to thermal power projects are as follows: 

  • approvals from the district administration under laws relating to land acquisition (eg, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013 – the LARR Act); 
  • approvals from the Ministry of Environment, Forests and Climate Change and Pollution Control Boards under environment-related laws;
  • approvals from relevant authorities under laws relating to the establishment of factories, the use of boilers and the regulation of labour;
  • approvals from relevant authorities under laws relating to industrial safety – eg, to store petroleum, or possess and use explosives; 
  • clearance from the Airports Authority of India for the height of chimneys; and 
  • projects based on domestic coal are required to obtain coal linkage (assurance of supply of coal from Coal India Limited and its subsidiaries) or a captive coal mine. 

Approvals required for renewable energy projects vary from state to state. Hydro projects above 25 MW are required to obtain a techno-economic clearance from the Central Electricity Authority (CEA) prior to construction, but solar, wind and mini hydel projects (less than 25 MW) are exempted from obtaining environmental clearance. 

Nuclear power projects, which can be established, owned and operated only by the government by itself or through an authority or corporation established by it or by a government company, are required to obtain approval from the Atomic Energy Regulatory Board. 

All power projects are also required to obtain approvals in relation to technical standards relating to the construction, safety, operation and maintenance of power plants (from the Central Electricity Authority), commissioning (from the Electrical Inspector), connection and the evacuation of power from the project to the grid (from the Central/State Transmission Utilities).

All power projects are also required to comply with requirements relating to undertaking business under corporate and tax laws.

The process for obtaining approvals for the construction and maintenance of generating facilities (as discussed above) may be broadly classified in two categories: approvals required prior to construction, and approvals required prior to operation. The various approvals under each of these categories may be applied for simultaneously or in a sequence. Many states now offer single-window clearance portals, particularly for renewable energy projects. Typically, the process for obtaining approvals prior to construction is as follows: 

  • application to the Ministry of Corporate Affairs online or offline for incorporation of the company; 
  • the procurement of clear title of land through lease or sale; in this process, considerations for approval may differ from state to state on different parameters, such as the payment of compensation, conversion of land use, rehabilitation, and restrictions, if any, on land held by scheduled tribes/castes; 
  • application to the municipal administration/local authority for the approval of building plans, and to the CEA for the approval of design/drawings of the generating station, where permission will depend on compliance with the applicable local and central laws; 
  • application to the labour department for approvals under labour laws;
  • application for environmental clearance, forest clearance, clearance from the wildlife board, and Consent to Establish – these are granted subject to terms and conditions, as discussed in the subsequent section; and 
  • application to the state nodal agency for setting up a solar/wind project. 

Key approvals required prior to operating a generating facility are as follows:

  • approval for Consent to Operate from the relevant state pollution control board;
  • approval for commissioning the project from the Electrical Inspector under the Electricity Act and regulations framed thereunder; approval is subject to compliance with the Grid Code and technical standards prescribed by the CEA; and
  • application to the State/Central Transmission Utility for connectivity and short/medium/long-term open access to the transmission network for the evacuation of power from the project. 

Public participation is a mandatory aspect for acquiring land for a project. It may be noted that Right of Way is a challenge commonly faced by many developers. The LARR Act sets out a detailed procedure relating to conducting public hearings, and stipulates the minimum compensation required to be paid while establishing a project. 

As mentioned above, although renewable power projects are exempted from obtaining environmental clearance, the construction and operation of thermal power projects are subject to stringent environmental norms and impact assessments. 

Most approvals are required to be renewed from time to time and are subject to terms and conditions, some of which are discussed in the next section.

Common terms and conditions subject to which approvals to construct and operate generation facilities are granted include the following: 

  • land is used for the purpose for which it was allotted, or conversion charges were paid;
  • environmental clearance is subject to conditions relating to emissions norms, the usage of groundwater, water treatment, waste management, the percentage of ash content, ambient noise levels, disaster management, biodiversity conservation, development of green belt, etc; 
  • commissioning of the power project as per its scheduled commercial operation date; 
  • undertaking tests and maintaining equipment as per the applicable technical standards and norms; 
  • adhering to norms relating to grid safety and conditions of the Grid Code;
  • adhering to conditions of the power purchase agreement; 
  • renewal of approvals prior to their expiry; 
  • payment of applicable fees and charges, and submission of payment security (such as letter of credit, or bank guarantee) for the relevant approval; and 
  • compliance with emission standards and national air quality standards. 

It is relevant to mention that, in recent years, strict norms have been passed with respect to emission standards for thermal power plants. The Ministry of Environment, Forests & Climate Change notified the Environment (Protection) Amendment Rules, 2015 on 7 December 2015, introducing revised emission standards for thermal power plants. Pursuant to this notification, all thermal power projects are required to install or upgrade various emission control systems by December 2022. It is noteworthy that the revised environmental norms have been recognised as a ‘change in law’ event under power purchase agreements that were executed before the revised environmental norms were notified. Accordingly, costs arising with respect to the installation of emission control systems in compliance with revised environmental norms will be allowed as pass through in tariff for the respective power plant. 

The process to seek relaxation of a particular term or condition is generally provided in the specific clearance, or under the relevant statute.

Right to property is a legal right under the Constitution of India, and can only be restricted by law. A developer may procure land for constructing a generation facility, by allotment of land from the government in cases where the government owns the land, or may acquire land through sale or on a long-term lease basis from the owner of a private property. 

The acquisition of land in India is governed by the LARR Act, which permits both government and private parties to acquire land for ‘public purpose’, subject to the payment of compensation to land owners and the provision of rehabilitation and resettlement to affected persons in terms of the legislation. As such, the principle of eminent domain, condemnation or expropriation as traditionally understood is not applicable with respect to obtaining surface rights and access by private entities. 

The LARR Act regulates the acquisition of multi-crop irrigated areas and mandates a social-impact assessment before acquisition of the land. Furthermore, the acquisition of land by private companies will require consent of 80% of the people affected. 

The minimum compensation to be paid to the landowners is determined by the Collector on the basis of a multiple of market value of the land and a combination of other factors, as provided in the LARR Act. 

Notably, delays in the acquisition of land have resulted in delays in the commissioning of many power projects. One of the ways the government has tried to address this issue, particularly with respect to renewable energy projects, is by setting up solar and wind parks, a concentrated zone of solar/wind power projects, where land is pre-identified by the government and the area is equipped with basic infrastructure and amenities to minimise project risks. 

A generating facility may be decommissioned by the developer of such facility informing the CEA of such decision. Written notice must be accompanied by a copy of the board approval (board resolution) approving the decision to decommission the plant. Thereafter, the capacity of the project is deleted from the national database of installed capacity maintained by the CEA, followed by a notice from the CEA to the developer to this effect.

Transmission is a regulated activity requiring a licence, unless it is exempt or falls within the purview of deemed licensees under the Electricity Act. To construct and operate an ‘inter-state transmission system’ (ie, a transmission system for conveying electricity from one state to another), a licence is required to be obtained from the CERC, while a licence must be obtained from the SERC for an intra-state transmission system. No transmission licence is required in respect of a dedicated transmission line – ie, a supply line used to connect a power plant to the transmission network, substation or load centre.

A transmission licensee is governed by the terms of its licence, the Electricity Act, and rules and regulations framed thereunder. Furthermore, transmission project developers are required to obtain many approvals, consents and clearances from various state, central and statutory authorities. The authorisation requirements may vary between inter-state transmission systems and intra-state transmission systems, and further from state to state. The key authorisations required to construct and maintain a privately developed inter-state transmission network include the following:

  • application to the Ministry of Corporate Affairs online or offline for the incorporation of the company;
  • approval to lay overhead lines from the Ministry of Power; 
  • approval for right of way without prior approval from landowners from the Ministry of Power;
  • clearance for laying transmission lines in forest areas from the Ministry of Environment, Forests and Climate Change;
  • clearance for laying lines through wildlife sanctuaries from the Chief Wildlife Warden;
  • approval for the charging of a transmission line/element of the transmission system from Central Power & Telecommunication Co-ordination Committee (PTCC);
  • no objection with respect to the height of transmission towers;
  • approval for energisation from the Chief Electrical Inspector; and 
  • approval to create security over the assets in terms of the financing/security documents from the CERC.

An application for a transmission licence is required to be made and is granted as per the procedure for the grant of such licences prescribed by the respective regulatory commission. As a part of the process, a transmission licensee is required to enter into a Transmission Service Agreement with the transmission customers, setting out the terms on the basis of which the transmission licensee will provide its services. 

In order to obtain approval to lay overhead lines, an application is required to be made to the CEA setting out the scope of works. Typically, the scope of works is discussed in regional standing committee meetings and, accordingly, approval is granted. Once the preliminary approval to lay overhead lines is obtained, the next step is to file an application for right of way under Section 164 of the Electricity Act. The application process requires the applicant to publish the transmission scheme in two local newspapers, providing two months for any interested person to make any representation with respect to the scheme. The applicant is obliged to take into consideration the objections received before finalising the route alignment. Along with the application, the applicant is also required to submit the newspaper publication of the scheme, maps showing the route alignment and justification for the same to the CEA. Approval for right of way, therefore, requires the developer to engage with the public that will be affected by the project, and to develop the transmission route considering their grievances and pay compensation, as discussed in 5.1.4 Proponent's Eminent Domain, Condemnation and Expropriation Rights.

A transmission licensee is required to comply with the Electricity Act, the rules and regulations made thereunder (particularly the standards of performance and grid code issued by the ERC, and the technical standards for operation and maintenance specified by the CEA), and the terms and conditions laid down in the transmission licence. The ERC may specify any general or specific conditions, which shall apply either to a licensee or to a class of licensees. The ERC is also vested with the power to amend the licence or to revoke it in certain stipulated circumstances, if public interest so requires. 

Common terms and conditions imposed upon transmission licensees include the following: 

  • to plan and co-ordinate functions with the Central Transmission Utility/State Transmission Utility, generating companies, regional power committees, etc;
  • to commission the project on time in an efficient, co-ordinated and economical way; 
  • to provide non-discriminatory open access to the transmission system as per the Electricity Act and regulations thereunder;
  • to not engage in the business of trading in electricity;
  • to pay the transmission licence fee in accordance with the regulations and the transmission licence;
  • to comply with the directions of the load despatch centre for maintaining availability of the system;
  • to not undertake any business other than transmission business without prior permission from the ERC;
  • to obtain prior approval from the ERC before undertaking any transaction relating to mergers or acquisitions, or assigning its licence; 
  • to comply with the metering regulations issued by the CEA; and 
  • to not use assets of the transmission business for any purpose other than the transmission business without prior permission from the ERC.

Transmission lines that intersperse through forest areas are given right of way for a prescribed area, depending on the voltage of the transmission line. In such cases, the felling of trees is subject to permission from the local forest officer to maintain electrical clearance, and natural regeneration is to be allowed after stringing. Furthermore, only insulated conductors are to be used for transmission lines that pass through national parks/wildlife sanctuaries.

A transmission licensee may obtain easement rights over lands for constructing and operating transmission lines in two ways: in terms of Section 67 of the Electricity Act, where prior consent will have to be obtained from the owner of the land for the right of way, or under Section 164 of the Electricity Act, where right of way may be obtained without prior consent from the land owner or occupier. 

In both these cases, the landowners are required to be compensated fairly. Under Section 67, compensation will be determined by the district magistrate or commissioner of police. With respect to Section 164, the central government has issued guidelines for the payment of compensation to landowners for obtaining right of way. The guidelines are applicable for transmission lines of a voltage of 66 kV and above. As per the guidelines, compensation payable will be equal to 85% of land value as determined by the district magistrate for the land required for the construction of the tower base area. Furthermore, a maximum of 15% of land value will be payable as compensation for the diminution of land value in the width of the right of way corridor, due to construction of the transmission lines.

One of the key features of the Electricity Act is to promote competition in the electricity sector, including transmission. There is no legal provision that allows a transmission project developer to have monopolistic rights over a geographical territory; the licence issued for constructing a transmission project only sets out the geographical scope of the project. Given the significant cost involved and the economies of scale associated with transmission projects, transmission companies are ‘natural monopolies’. However, as discussed in the preceding section, transmission is a licensed and highly regulated activity and hence a regulated monopoly in India. Furthermore, a transmission licensee is also required to provide non-discriminatory open access to its transmission system for use by any licensee, generating company or consumer; see 5.2.3 Open-access Transmission Service, below.

The Ministry of Power, Government of India, has issued “Guidelines for Encouraging Competition in the Development of Transmission Projects”, to encourage competition and private sector participation in the transmission sector. The Central Transmission Utility at the central level and the State Transmission Utility at the state level are responsible for network planning and development, while an Empowered Committee constituted by the Ministry of Power identifies projects to be developed under a Scheme. A developer may propose the construction of a line that is not a dedicated transmission line, which may be developed after being included in the network plan. 

Although transmission has been open for private sector participation, government-owned company PGCIL holds a majority share of the inter-state transmission network, and plays a dual role of transmission planning (as Central Transmission Utility) and execution of inter-state transmission projects. However, the government has been taking many initiatives to encourage private sector participation, including encouraging the introduction of electronic competitive bidding for transmission projects and a viability gap funding model on a PPP structure for setting up intra-state transmission networks. Additionally, initiatives such as the National Smart Grid Mission, the green corridor project, and connecting the southern grid to the national grid have been taken to strengthen and expand India’s transmission networks.

As mentioned in 5.1.1 Regulations of Construction and Operation of Transmission Lines and Associated Facilities, transmission business is primarily governed by the Electricity Act and the rules and regulations framed thereunder. Depending on whether the project is an inter-state transmission project or an intra-state transmission project, it will also be governed by regulations issued by the respective ERC. Furthermore, the terms of service of a transmission project developer are also subject to its licence conditions and regulations issued by the CEA. 

Transmission charges may either be determined by the appropriate ERC or discovered through a competitive bidding process. The tariff determined by the ERC is to be in accordance with the Electricity Act and the regulations notified by said ERC. The general principles for the determination of tariff are as follows:

  • the generation, transmission, distribution and supply of electricity are conducted on commercial principles;
  • the factors that would encourage competition, efficiency, economical use of the resources, good performance and optimum investments;
  • safeguarding of consumers' interest and, at the same time, recovery of the cost of electricity in a reasonable manner; 
  • rewarding efficiency in performance; 
  • multi-year tariff principles;
  • that the tariff progressively reflects the cost of the supply of electricity and also reduces and eliminates cross-subsidies within the period to be specified by the state or central electricity commission, as the case may be;
  • the promotion of the co-generation and generation of electricity from renewable sources of energy; and
  • the National Electricity Policy, 2005 and Tariff Policy, 2016.

If the project is being developed under a competitive bidding process, the tariff discovered through such bidding is adopted by the respective ERC under Section 63 of the Electricity Act.

As mentioned above, the transmission tariff may be either discovered through a competitive bidding process, which is required to be adopted by the relevant ERC, or determined by the appropriate ERC (the CERC in the case of inter-state transmission and the relevant SERC in the case of intra-state transmission). The relevant ERC determines the tariff in accordance with the tariff regulations issued by it and considers factors including return on equity, interest on loan capital and working capital, depreciation, operation and maintenance expenses, and allowances for any renovation and modernisation.

In the case of inter-state transmission projects, once the charges are determined or discovered, the CERC adopts a ‘point-of-connection’ method for calculating charges to be paid by each user in the transmission system, based on the actual usage. The objective of the ‘point-of-connection’ method is to develop a uniform transmission charge-sharing mechanism among grid constituents. To encourage the deployment of renewable energy, wind and solar projects have been exempted from the payment of transmission charges. However, with a declining tariff of renewable energy, the government is gradually scaling back some of the benefits extended to promote renewable energy. In the above context, exemptions from payment of the inter-state transmission charges have been limited to projects being commissioned before 31 December 2019 and supplying power to distribution companies.

For determination of the tariff, the transmission licensee is required to file an application in the prescribed format before the appropriate ERC, which issues a tariff order considering the proposal made by the licensee, and suggestions and objections received in response to the public notice. A tariff order issued by an ERC may be challenged in appeal before the Appellate Tribunal for Electricity.

A transmission licensee is required to provide non-discriminatory open access to its transmission system for use by any licensee, generating company or consumer. Open access is to be provided upon the payment of transmission charges. The application for open access is required to be made to the Central Transmission Utility/State Transmission Utility as per the regulation issued by the appropriate ERC in this regard. An applicant is first required to apply for connectivity to the transmission network, and then makes an application for small/medium/long-term open access depending upon the duration for which access to the transmission network is required. The application for open access is required to be processed within the time frame provided in the regulations. An open access customer may relinquish its access rights before the expiry of its term by giving notice and paying compensation for stranded capacity, as provided in the regulations. 

Distribution is primarily governed by the Electricity Act and the rules and regulations framed thereunder (particularly the standards of performance, grid code and the electricity supply code issued by the SERC). 

A licence is required for undertaking distribution activities (with the exception of the distribution of electricity in rural areas notified by the relevant state government, and the distribution by notified exempted entities such as local authorities and non-governmental organisations). Such a licence will be issued by the appropriate SERC, and the distribution licensee is required to comply with the conditions of the licence. 

Other approvals may also be required for the construction and operation of distribution facilities, including: 

  • approval for laying overhead lines from the appropriate state government; 
  • a grant of connectivity to the transmission network;
  • a grant of open access/permission to use the transmission network;
  • approval from the electricity inspectorate for the energisation of electricity installations;
  • approvals for electrical installation under the Central Electricity Authority (Measures relating to Safety and Electric Supply) Regulations 2010; and
  • approval relating to land acquisition under the LARR Act.

In order to obtain a distribution licence, an application must be filed before the appropriate SERC as per the regulations framed by such SERC. The application would typically require details regarding the area of distribution, the capital proposed to be expended for the business, the annual accounts of the applicant, details of the promoters, the experience of the company, etc. The application is required to be accompanied by the applicable fee. 

The applicant is required to issue a public notice regarding the application in widely circulated newspapers, and any person may file objections in this regard to the SERC. Another public notice is required to be published by the SERC before the grant of the distribution licence.

General and specific conditions may be imposed upon a distribution licensee. The typical terms and conditions imposed in approvals to construct and operate electric distribution facilities include the following:

  • the licensee will procure power in an economical manner and as per the applicable regulations;
  • the licensee will require prior approval before:
    1. engaging in any other business;
    2. holding any beneficial interest in a trader;
    3. making any loans;
    4. merging with any other utility;
    5. acquiring or taking over the utility of any other licensee;
    6. transferring or assigning its licence; or
    7. creating any encumbrance on the assets of the licensed business;
  • the licensee will supply electricity in accordance with the regulations specified by the CEA; and
  • the licensee will make applications seeking the determination of tariffs in accordance with the regulations issued by the SERC.

A distribution licensee does not have condemnation or expropriation rights to obtain surface rights. In terms of Section 67 of the Electricity Act, read with the Works of Licensees Rules, 2006, a distribution licensee is required to obtain prior consent from landowners/occupiers of a land to place electric supply lines, and must pay the requisite compensation or annual rent as determined by the District Magistrate. 

If the distribution licensee seeks to acquire land to construct electric distribution facilities, such acquisition will be subject to provisions of the LARR Act – see 4.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights, above.

A distribution licence is granted for a demarcated geographical area, as per the Electricity Act, but may be granted to two or more persons for the distribution of electricity within the same area. The grant of such licence is subject to the applicant complying with additional requirements (including the capital adequacy, credit-worthiness, or code of conduct), as may be prescribed. While no applicant will be refused a distribution licence on the grounds that there is already a licensee in the same area for the same purpose, there is ambiguity regarding whether parallel distribution licensees are required to set up their own distribution system to distribute electricity in their licensed area. In 2012, the Appellate Tribunal for Electricity held that a parallel distribution licensee is obliged to lay down a distribution network to supply electricity to consumers. However, the requirement of laying a parallel network was subsequently relaxed by the Appellate Tribunal for Electricity in 2014, when it held that, in view of right of way constraints and techno-economic feasibility, the use of other licensees' wires is permitted and the laying of a network is warranted in the case of a new connection or to improve the reliability of the existing distribution network.

It may be noteworthy that the draft amendment to the Electricity Act, presently pending before the Parliament, proposes to segregate distribution and supply activities. When the amendment comes into force, distribution licences will be required to operate and maintain the distribution network, while the supply licensees will be responsible for the supply of electricity to consumers.

As discussed in 6.1.1 Principal Laws Governing the Construction and Operation of Electricity Distribution Facilities, the distribution of electricity is governed by the Electricity Act and the rules and regulations framed thereunder, such as the Indian Electricity Grid Code, the Electricity Supply Codes issued by the SERC, the terms of the distribution licence, etc. Besides the guiding principles set out under the Electricity Act, distribution charges are determined as per the regulations framed by the respective SERCs in this respect. The terms of service of the distribution licensee are as per the provisions of the Electricity Act, which include the following: 

  • to develop and maintain an adequate and efficient distribution system in the area of supply;
  • to establish a forum for the redressal of consumer grievances; 
  • to provide open access and supply on request, as per Sections 42 and 43 of the Electricity Act; 
  • to pay the requisite distribution licence fee; and
  • the power to recover charges in lieu of supply.

The tariff for electricity distribution is a mixture of wheeling charges and cost of supply, and is determined by the relevant SERC by the issuance of multi-year tariff orders. In addition, the distribution licensees are required to file tariff petitions before the respective SERCs. These petitions include an analysis of previous years’ tariff regulations, a review of the performance of distribution licensees, and the approval for the revenue requirement of the distribution licensee for the upcoming year. On the basis of this petition filed by the distribution licensee, the relevant SERC may alter the tariff mentioned in the tariff order. Tariffs are determined in accordance with the regulations issued in this regard. For principles that are considered in tariff determination, please see 5.2.1 Principal Laws Governing the Provision of Transmission Service, Regulation of Transmission Charges and Terms of Service. Tariff petitions filed by the distribution licensees are uploaded on the SERC’s website, seeking objections and suggestions from consumers and other stakeholders. Tariff orders are passed after conducting a prudent check of the claims made by the distribution licensee and taking into consideration objections received by the SERC. Distribution tariffs can differ based on the following:

  • the consumer's load factor;
  • the power factor;
  • voltage;
  • the total consumption of electricity during a specified period;
  • the time at which supply is required;
  • geographical location;
  • the nature of the supply; and 
  • the purpose for which the supply is required.

A tariff order issued by an ERC may be challenged in appeal before the Appellate Tribunal for Electricity.

J Sagar Associates

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J Sagar Associates is a leading national law firm in India, with offices in Ahmedabad, Bengaluru, Chennai, Gurgaon, Hyderabad, Mumbai, GIFT City and New Delhi. The firm is made up of more than 300 lawyers and consultants, and provides legal advice and services to international and domestic clients across diverse sectors of industry and services. JSA is the leading national practice in the energy sector, providing legal services at all stages of the value chain – across the spectrum of contractual, commercial, policy, regulatory and legal issues. It advises clients on all aspects of the establishment, procurement, operation and transfer of energy projects.

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