Alternative Energy & Power 2020 Comparisons

Last Updated July 22, 2020

Contributed By J. Sagar Associates

Law and Practice


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 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 distinct activities of 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.

The electricity market had previously been dominated by state-owned vertically integrated electricity boards. However, after 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;
  • 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. In some states (eg, Maharashtra and Delhi), the distribution of electricity has been privatised.

Foreign investment in India is principally governed by the Foreign Exchange Management Act, 1999 and regulations issued under it, including the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, and by 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 each 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, prior government approval is required for investment by an entity of a country that shares a land border with India, or where the beneficial owner of an investment into India is situated in or is a citizen of any such country.

Investment in the power exchanges is limited to 49% through the automatic route.

With regard to the sale of power industry assets of businesses, the Electricity Act mandates that a licensee must obtain prior approval from the respective licensing authority (ie, the Central Electricity Regulatory Commission (CERC) or state electricity regulatory commission (SERC)) in order to acquire (by purchase or takeover or otherwise) the utility of any other licensee or merge its utility with the utility 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 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:

  • ensuring the 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 the 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 (CEA) 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 CEA 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.

An amendment has been proposed to the Electricity Act pursuant to the draft Electricity (Amendment) Bill, 2020. The amendment, amongst other things, provides for the following:

  • improving the enforcement of contracts by setting up an Electricity Contract Enforcement Authority to ensure time-bound adjudication of disputes under PPAs/transmission-related contracts, and by providing for mandatory provision of a payment security mechanism for the scheduling or despatch of power;
  • the formulation of a National Renewable Energy Policy to promote renewable energy, and prescribing a minimum percentage of purchase of electricity from renewable energy sources;
  • a retail tariff to be determined based on the cost of the supply of power without accounting for subsidies, which if provided by the government should be credited directly to the consumer;
  • the distribution licensee is empowered to authorise a person as distribution sub-licensee to distribute power in its licensed area on its behalf without a separate distribution licence;
  • streamlining the appointment process of the Appellate Tribunal for Electricity and regulatory commissions by having a single selection committee; and
  • increased penalty amounts for non-compliance with orders and renewable purchase obligations.

The Ministry of Power has issued a revised set of guidelines for charging infrastructure for e-vehicles. These guidelines set out the minimum technical requirements, clarify that setting up a charging station is de-licensed, and stipulate that the relevant ERC will determine tariffs for supplying power to charging stations. A key change is that the ceiling on service charges levied by charging stations (as set by state nodal agency/state government/ERC) will apply only to installations that have relied on government incentives.

The CERC has issued regulations putting in place a framework for a real-time electricity market whereby buyers and sellers will be provided a platform (namely the existing power exchanges) for energy trade closer to real time.

The Ministry of Power has ordered load despatch centres not to despatch power to distribution licensees that fail to furnish the requisite payment security in terms of the power sale agreement, with the added condition that such licensees will continue to be liable to make payment to the generator even during such period of non-supply.

Parliament has passed the Mineral Laws (Amendment) Act, 2020 whereby commercial coal mining has been opened up to the private sector. This move is expected to boost domestic coal production, and address demand-supply gaps (particularly for coal-based thermal power plants).

The Government of India has proposed imposing a 25% customs duty on solar modules starting 1 August 2020, which can be raised to 40% from April 2022. On solar cells, it has proposed a 15% duty, rising to 25% in 2022, while a duty of 20% is proposed on solar inverters. This move has been mooted as part of India’s goal of becoming self-sufficient. The Government is also considering imposing a requirement for prior government permission for the import of power sector equipment from certain countries.

In 2015, the Ministry of Environment, Forest and Climate Change issued new emission norms for thermal power plants, pursuant to which thermal power plants were required to install a Flue Gas De-Sulfurisation system. Regulatory commissions have recently allowed the cost incurred by generating companies towards FGD systems to be passed through in tariff on account of the contractual relief mechanism of "Change in Law" contemplated in the power purchase agreements.

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. These electricity boards 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:

  • 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 – the CERC and SERCs. The CERC is responsible for the following:

  • 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 co-generation and the generation of renewable energy;
  • adjudicating disputes between 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.

Though it will take time to know the true impact of the pandemic, the Indian renewable energy sector has been impacted by the outbreak of the COVID-19 pandemic, like most industries. The nation has been under different stages of lock-down since 24 March 2020, abruptly halting production and supply chains. Renewable energy projects have been affected due to disruptions in the supply chain and restrictions on movement or assembly of people. However, to tackle the impact of the pandemic the government has taken many salutary measures, including:

  • declaring power an "essential service";
  • emphasising the "must-run" status of renewable energy projects, and ensuring regular payments to renewable energy generators and prohibiting any curtailment of renewable energy;
  • treating the lock-down due to COVID-19 as a force majeure event and granting extensions of time for commissioning renewable energy projects;
  • easing financial stress by allowing a moratorium on the payment of instalments of loans; and
  • announcing a fiscal stimulus package of close to USD260 billion to revive the economy.

In addition, the Ministry of New and Renewable Energy has clarified that the force majeure period for time extensions of renewable energy projects will be for the period of the lock-down (ie, 25 March to 31 May 2020).

The above measures will go a long way in providing relief to India’s renewable energy sector. The impact of the pandemic on a specific project will have to be evaluated based on factual circumstances and transaction documents underlying such project.

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; or
  • 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 the 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 tasked with 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 availing "open access" to the transmission/distribution network.

Power is also bought and sold on organised energy exchanges, 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. There are two existing power exchanges: Power Exchange India Ltd and the Indian Energy Exchange.

Cross-border trade in electricity is governed by the Guidelines for Import/Export (Cross Border) of Electricity, 2018 issued by the Ministry of Power in consultation with the Ministry of External Affairs, Government of India, and by the CERC (Cross Border Trade of Electricity) Regulations, 2019. A draft procedure titled Draft Designated Authority (Procedure for IECBE), 2019 for granting approvals of import/export of power has recently been issued by the CEA, an arm of the Ministry of Power.

India is currently the only country that is party to all cross-border power transactions in the South Asia region. India imports nearly 5000 MUs of electricity from Bhutan and exports power to Nepal, Bangladesh and Myanmar. It is a net exporter of power.

The primary transmission interconnections through which the import and export of power take place are as follows:

  • Nepal:
    1. Muzzaffarpur (India) – Dhalkebar (Nepal) 400 kV DC line (operating at 220 kV);
    2. Tanakpur (India) – Mahendranagar (Nepal) 132 kV Level;
    3. 13 interconnections at 11 kV, 33 kV and 132 kV along the borders of Bihar and Uttar Pradesh;
  • Bhutan:
    1. associated transmission systems have been implemented for evacuating power from the corresponding hydro power project from which power is exported to India – Chukha, Kurichhu, Tala, Dagachhu and Mangdechhu; and
  • Bangladesh:
    1. Baharampur (India) – Bheramara (Bangladesh) 400 kV D/C line;
    2. Surajmaninagar (India) – Comilla (Bangladesh) 400 kV D/C line (operating at 132 kV).

Tariffs for the import/export of electricity may be determined through mutual agreement at the inter-governmental level, through competitive bidding or negotiations between parties.

The total installed capacity of India as of May 2020 is 3,70,498.95 MW, of which renewable energy constitutes roughly 23.6%. The installed capacity comprises electricity generated from fossil fuels, nuclear power, hydroelectric power and renewable energy sources, as follows:

  • thermal: 2,30,635.72 MW;
  • nuclear: 6780.00 MW;
  • hydroelectric: 45699.22 MW;
  • small-hydro: 4683.16 MW;
  • wind: 37756.35 MW;
  • biomass/cogeneration: 9880.31 MW;
  • waste-to-energy: 148.84 MW; and
  • solar: 34915.36 MW.

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 ERC 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.

In addition, the Competition Act, 2002 is the primary Indian law regulating anti-competitive behaviour. The objectives of the Competition Act are to prevent practices having 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 and is assisted by its investigative arm, the Director General (DG), in investigating contraventions of the Competition Act. CCI and DG have the power to summon and enforce attendance; require the discovery and production of documents; receive affidavit evidence; issue requests for the examination of witnesses or documents; and requisition public records or documents from any office. The DG also enjoys powers of search and seizure.

Inquiries into anti-competitive behaviour are 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. DG submits a report on its findings and recommendations to CCI. Unless CCI seeks a supplementary report from 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 lie before the National Company Law Appellate Tribunal, and further to the Supreme Court of India.

In the case of an infringement of the Competition Act, CCI is empowered to issue cease and desist orders, modify the agreements concerned 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 promotion of environment-friendly practices, as follows:

  • in specifying the terms and conditions for the determination of tariffs, the ERCs must be guided by the promotion of the generation of electricity from renewable sources of energy, amongst other things; 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. specifying, for the purchase of electricity from renewable sources, 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:

  • 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 the following, 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 restoration 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 specific laws and/or policies relating to the early retirement of carbon-based generation. However, emissions norms have been made stricter in recent years; these stricter norms are applicable to existing as well as future power plants.

However, the CEA 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.

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. To achieve this, 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.

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. 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 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
  • there are exemptions from the payment of duties and levies such as transmission charges, electricity duties, wheeling charges, etc (this varies from state to state).

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. The approvals and consents required may vary for each power project depending on its type and location. The following is an indicative list of approvals and the corresponding authorities with respect to thermal power projects:

  • 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, use of boilers and regulation of labour;
  • approvals from relevant authorities under laws relating to industrial safety – eg, to store petroleum, or to 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 the 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 CEA prior to their construction. Solar, wind and mini hydel projects (less than 25MW) are exempt from having to obtain 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 CEA), commissioning (from the Electrical Inspector), and the connection and evacuation of power from the project to the grid (from the Central/State Transmission Utilities).

In addition, all power projects are 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 in 4.1 Principal Laws Governing the Construction and Operation of Generation Facilities) may be broadly classified into 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 the incorporation of a company;
  • procurement of clear title of land through lease or on sale. In this process, considerations for approval may differ from state to state according to different parameters, such as 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 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 wildlife board, and Consent to Establish. These are granted subject to terms and conditions, as discussed in 4.3 Terms and Conditions Imposed in Approvals to Construct and Operate Generation Facilities; 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, 2003 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, though renewable power projects are exempt 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 4.3 Terms and Conditions Imposed in Approvals to Construct and Operate Generation Facilities.

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/conversion charges were paid;
  • environmental clearance is subject to conditions relating to emissions norms, the usage of groundwater, water treatment, waste management, 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 the 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, which can only be restricted by law. A developer may procure land for constructing a generation facility, by the allotment of land from the government, in cases where the government owns the land, or by acquiring land through a 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 providing 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 the 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 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, a delay in the acquisition of land has resulted in a delay 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 informing the CEA about such decision by the developer of such facility. The written notice must be accompanied by a copy of the board approval (board resolution) of 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 exempt or falling within the purview of deemed licensees under the Electricity Act, 2003. 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 also from state to state. The key authorisations required to construct and maintain a privately developed inter-state transmission network include the following:

  • an application to the Ministry of Corporate Affairs online or offline for the incorporation of a company;
  • approval to lay overhead lines from the Ministry of Power;
  • approval for right of way from the Ministry of Power, without prior approval from landowners;
  • 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 the works. Typically, the scope of the 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 in two local newspapers the transmission scheme, providing two months to 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 required to submit the newspaper publication of the scheme, maps showing the route alignment and justification for it to the CEA. Approval for right of way, therefore, requires the developer to engage with the public that will be affected by the project, to develop the transmission route considering their grievances and to pay compensation, as discussed in 5.1.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights.

A transmission licensee is required to comply with the Electricity Act, and 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 that will apply either to a licensee or to a class of licensees. The ERC is also vested with the power to amend the licence and also to revoke it in certain stipulated circumstances, if public interest so requires.

Common terms and conditions to be imposed upon a transmission licensee are as follows:

  • to plan and co-ordinate its 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 the availability of the system;
  • to not undertake any business other than transmission business without obtaining prior permission from the ERC;
  • to obtain prior approval from the ERC before undertaking any transaction relating to mergers and 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 obtaining 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 obtaining 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 passing 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, 2003, where prior consent will have to be obtained from the owner of the land for the right of way, or obtaining approval under Section 164 of the Electricity Act, 2003, 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, the 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 the land value will be payable as compensation for any diminution of land value in the width of right of way corridor, due to construction of the transmission lines.

One of the key aims 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 5.1.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights, 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 any consumer. See 5.2.3 Open-Access Transmission Service for more detail.

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 (which is not a dedicated transmission line), which may be developed after it is included in the network plan.

Although transmission has been open for private sector participation, government-owned company PGCIL, which holds a dual role of transmission planning (as Central Transmission Utility) and execution of inter-state transmission projects, holds a majority share of the inter-state transmission network. 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, a green corridor project 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 Principal Laws Governing the Construction and Operation of Transmission Facilities, transmission business is primarily governed by the Electricity Act, 2003 and 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 tariffs 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;
  • the safeguarding of consumers' interest and, at the same time, recovery of the cost of electricity in a reasonable manner;
  • the principles rewarding efficiency in performance;
  • multi-year tariff principles;
  • that the tariff progressively reflects the cost of 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 co-generation and the generation of electricity from renewable sources of energy; and
  • the National Electricity Policy, 2005 and Tariff Policy, 2016.

In the case of the project 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 in 5.2.1 Principal Laws Governing the Provision of Transmission Service, Regulation of Transmission Charges and Terms of Service, transmission tariffs 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 interstate 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 declining tariffs of renewable energy, the government is gradually scaling back some of the benefits extended to promote renewable energy. In the above context, exemption from the payment of inter-state transmission charges have been limited to projects being commissioned before 31 December 2019 and supplying power to distribution companies.

For the determination of tariffs, the transmission licensee is required to file an application in the prescribed format with the appropriate ERC, and to publish it. The ERC 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 any 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, followed by submitting an application for small/medium/long-term open access, depending on the duration for which access to the transmission network is required. The application for open access is required to be processed within the timeframe provided in the regulations. An open access customer may relinquish its access rights before the expiry of its term by giving notice, and upon the payment of compensation for stranded capacity, as provided in the regulations.

Distribution is primarily governed by the Electricity Act and 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 (other than for the distribution of electricity in rural areas notified by the relevant state government and for 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.

For the purpose of obtaining a distribution licence, an application is required to 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, annual accounts of the applicant, the details of the promoters, and the experience of the company. 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 engaging in any other business, holding any beneficial interest in a trader, making any loans, merging with any other utility, acquiring or taking over the utility of any other licensee, transferring or assigning its licence, or creating any encumbrance on the assets of the licensed business;
  • electricity must be supplied in accordance with the regulations specified by the CEA; and
  • applications must be made 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 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 the provisions of the LARR Act. For further details regarding the procedure under the LARR Act, please see 4.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights.

A distribution licence is granted for a demarcated geographical area, as per the Electricity Act, but a licence 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 any additional requirements that may be prescribed, including the capital adequacy, credit-worthiness, or code of conduct. While no applicant will be refused the grant of a distribution licence on the ground 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, which 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 it comes into force, distribution licences will be required in order 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, 2003 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 according to 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, 2003, which include the following:

  • the licensee must develop and maintain an adequate and efficient distribution system in his area of supply;
  • the licensee must establish a forum for the redressal of consumers' grievances;
  • there is a mandatory requirement to provide open access and supply on request, as per Sections 42 and 43 of the Electricity Act, 2003;
  • the requisite distribution licence fee must be paid; and
  • there is power to recover charges in lieu of supply.

The tariff for electricity distribution, which is a mixture of wheeling charges and cost of supply, is determined by the relevant SERC through 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 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. Please see 5.2 Regulation of Transmission Service, Charges and Terms of Service regarding the principles that are considered in tariff determinations. Tariff petitions filed by distribution licensees are uploaded on the SERC’s website, inviting objections and suggestions from consumers and other stakeholders. Tariff orders are passed after a prudence check of the claims made by the distribution licensee is carried out, and taking into consideration any 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 the supply is required;
  • the 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.

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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.