Analysis of Supreme Court Judgment on Applicability of Renewable Purchase Obligations

On May 13, 2015 the Supreme Court pronounced a landmark judgment on the applicability of Renewable Purchase Obligations (RPO) regulations. The case in question is Hindustan Zinc vs Rajasthan Electricity Regulatory Commission (RERC).

Background

In August 2012, the Rajasthan High Court had dismissed an appeal by Hindustan Zinc Ltd., Ambuja Cements Ltd., Grasim Industries Ltd. and 14 other companies that challenged RPO regulations enacted by the state regulator (Rajasthan Electricity Regulatory Commission; RERC).

The key points contested by captive (CPP) and open access (OA) users in the petition were:

  • RERC did not have the authority to pass the order of RPO and impose surcharge (penalty) as CPP and OA were completely de-licensed activities under the Electricity Act 2003 (EA 2003)
  • EA 2003 only allows RPO on the ‘total consumption in the area of the distribution licensee’ and therefore intends to apply RPO on distribution licensees only

The High Court rejected the petition stating:

  • The word ‘total consumption’ has been used in the EA 2003, and should be considered as total consumption in the area of distribution licensee in all modes. Total consumption has to be seen by consumers of distribution licensee, captive power plants and on supply through distribution licensee. It cannot be inferred by mention of area of distribution licensee that only consumers of the distribution licensee are included.
  • The objective behind imposition of RE obligation is in the greater public interest. The constitution casts duty on the Regulatory Commission to protect and improve the natural environment. This duty can be imposed on CPP and OA as well.

The above order of the Rajasthan High Court was challenged in the Supreme Court.

 

Order of the Supreme Court

In its order, the Supreme court dismissed the appeal of the petitioners, and upheld the RPO regulations made by RERC.

The court stated several important points in its judgment:

  • Imposing RPO is desirable in the larger public interest. The court observed that:

“…The Right to live with healthy life guaranteed under Article 21 of the Constitution of India, it has also been interpreted by this Court. It includes the Right to live in a pollution free environment and laid down the law in a catena of cases…”

and

“The impugned Regulations fall within the four corners of the Act of 2003 as well as Electricity Policy, 2005. The object of imposing RE Obligation is protection of environment and preventing pollution by utilising Renewable Energy Sources as much as possible in larger public interest.”

And further:

“The Coal dominates the Thermal Power Generation which results in Green House Gases resulting in global warming. The said facts were brought to our notice that the same would certainly justify the case of the RERC in framing the impugned Regulation to achieve the object of the Act and the Constitution by imposing RE obligation on the captive gencos.”

  • RPO applicability on captive and open access consumers is well within the ambit of the Electricity Act 2003.

“The High Court has considered the submissions of the appellants and has rightly rejected the same on the ground that the RE obligation imposed on the captive gencos under the impugned Regulations is neither ultra vires nor violative of the provisions of the Act of 2003 and cannot in any manner be regarded as a restriction on the fundamental rights guaranteed to the appellants under the Constitution.”

  • Cost of fulfilling the obligation cannot be held above the larger public interest.

“The purchase of nominal quantum of energy from renewable resources cannot adversely affect the cost effectiveness of the Captive Power Plant. Moreover, the object being reduction of pollution by promoting renewable source of energy, larger public interest must prevail over the interest of the industry….”

As a result of the above findings, the court dismissed the appeal.

“Upon consideration of the rival submissions by the well-reasoned order, the High Court has rightly upheld the validity of the impugned Regulation and we do not find any reason to interfere with the impugned judgment. All the appeals are dismissed as the same are devoid of merit.”

Implications of the order

This order is likely to have far-reaching implications on the enforcement of RPO regulations.

  • Stay by HC in various states may become redundant: Till date, the enforcement of RPO regulations has been lax due to various reasons. One of the reasons has been the stay granted by various High Courts like in the case of Gujarat (recently vacated), MP and Tamil Nadu, among others. With the Supreme Court now ruling in favour of imposition of RPO, the existing stay may become redundant.
  • Enable stronger enforcement: Further, the order is likely to provide support to the state electricity regulators to impose RPO regulations more forcefully and effectively.

Media coverage: Bloomberg & Business Standard.

For recent APTEL order on RPO click here.

Tripura SERC Proposes New RPO Targets

The Tripura Electricity Regulatory Commission (TSERC) in its recent notification has proposed new targets for Renewable Purchase Obligation (RPO). The commission in its notification dated 18th July 2014 also proposed draft for RPO targets.

The summary of the new targets proposed is given below:

The graphs below shows the RPO targets being proposed and finalized by the commission in its previous orders and the comparison of RPO targets with the targets defined under national tariff policy:

The TERC in its new proposed targets has significantly increased the RPO targets and are almost in line with the targets defined under National Tariff Policy.

The commission has proposed significantly higher targets for FY 15-16 onwards, but it is to be seen how RPO is enforced in the state.

The order can be accessed here.

Punjab Finalizes New RPO Targets

The Punjab Electricity Regulatory Commission (PSERC) has finalized the amendment to its RPO regulation 2011. The Amendment was notified on May 6, 2015. The new regulation will come in force from the  date of its publication in official gazette.

The new amendment to principle regulation defines new RPO targets for the upcoming years. The details of the new RPO targets are as below:

The targets defined by the commission are as same as the targets being proposed by the commission in its earlier draft notification in March 2015.

The graph above shows the comparison of the Punjab RPO targets with the RPO targets defined in the National Tariff Policy. The total RPO target year-on-year, seem to be nowhere close to NAPCC targets, and when compared to NTP targets, Non-Solar RPO targets fall considerably short while Solar RPO seem to be on track to meet NTP target by 2019-20. It is more important to observe whether PSERC ensures strict implementation in the future, or allows carry forward like the other states are doing.

The order can be accessed here.

TNERC proposes new RPO Targets for FY 15-16

The Tamil Nadu Electricity Regulatory Commission (TNERC) in its latest notification has proposed new RPO targets for the state. The proposed targets will be applicable during FY 15-16.

In the proposed draft notification the commission has proposed total RPO targets of 11%, out of which 10% is for non-solar and remaining 1% will be solar RPO percentage. A graph on the RPO targets given by the commission in its previous notifications is below:

The commission has also proposed that the RPO percentages defined for FY 11-12 by commission in its order dated 10th Aug 2011, should be applicable for the year 2012-13 and 2013-14 for the Distribution Licensee. The RPO targets for FY 11-12 were defined at total 9% out of which 0.05% was solar RPO and 8.95% was defined as non-solar RPO.

Apart from this the commission in the notification has mentioned that for the captive and open access Enforcement of Renewable Purchase Obligation is subject to outcome of the cases filed in the relevant judicial forums.

The commission has invited comments and suggestion from the interested stake holders on or before 25th May 2015.

The relevant draft notification can be read here.

ApTel directs SERCs to comply with RPO regulations

The Appelate Tribunal (ApTel) gave its judgment in a petition filed by various association asking the Aptel to give directions to the State Electricity Regulatory Commissions (SERCs) to comply with RPO regulations.

The order is likely to make the routine carry forward and waiver of RPO that has been observed in the last few years much more difficult.

The ApTel has observed that several SERCs are not complying with the RPO regulations. The order states:

“While we accept that a number of State Commissions have been monitoring the compliance of the RPO Regulations by the obligated entities as per their Regulations, in some States it is not being done regularly. We find that some State Commissions do not have compliance status even for FY 2012-13. Some State Commissions have not responded to the notice and have not filed any response. It is also borne out by submissions made by Ministry of New and Renewable Energy and the Central Commission that many obligated entities have not been fulfilling their RPOs and are also not resorting to purchase of REC which has been provided for in the Regulations as a valid instrument for fulfilling the RPO. Some of the State Commissions have been allowing carry forward of the RPO even though RECs are available, in violation of their own Regulations.”

 In the order, the ApTel gave several directions to the SERCs:

  • Directions have been given regarding the setting up of RPO and regular review of the same
  • Carry forward and review shall be done as per the RPO regulations. The order further states:

“If the Regulations recognise REC mechanism as a valid instrument to fulfill the RPO, the carry forward/review should be allowed strictly as per the provisions of the Regulations keeping in view of availability of REC”

and

“In case of default in fulfilling of RPO by obligated entity, the penal provision as provided for in the Regulations should be exercised”

  • Power to relax and remove difficult should be used judiciously. The order states:

“The provisions in Regulations like power to relax and power to remove difficulty should be exercised judiciously under the exceptional circumstances, as per law and should not be used routinely to defeat the object and purpose of the Regulations”

The ApTel order can be read here.

ApTel order on waiver of RPO by GERC

In its order pertaining to FY 2012-13, GERC had waived or exempted obligated entities from RPO. In doing so, GERC has ignored the availability of RECs, and also reduced RPO differentially for each obligated entity, to the extent met by them. In earlier years, GERC had rolled-forward the RPO.

The Aptel found several inconsistencies with the approach of GERC. In the order it stated:

  • RPO can be revised, but effort to comply has to be demonstrated. The order states:

“The State Commission can revise the RPO before or during a year or after passing of year under Regulation 4.2 of RE Regulation 2010 as explained under paragraphs 47 to 51 above. If the distribution licensee has not made efforts to procure requisite renewable energy to fulfill the RPO and also has not procured REC, the State Commission should not revise RPO under Regulation 4.2. However, while revising the RPO targets, the State commission has to ensure that such revision should not defeat the object of the Electricity Act and the Regulations.”

  • If RPO are revised due to inadequate capacity addition in the state, such revision has to be uniform for all obligated entities.
  • RPO cannot be carried forward when RECs are available. The order states:

“…before exercising power order Regulation 9, the State Commission has to satisfy itself that there was difficulty in meeting the RPO from purchase of REC. Therefore, non-availability of REC is a pre-conditition for carry forward under Regulation 9.”

The detailed order can be read here

Analysis of Amendments Proposed in the National Tariff Policy

The Ministry of Power has proposed several changes to the National Tariff Policy. Some changes are significant, like the proposal to substantially increase solar RPO (from 3% by 2022 to 8% by 2019), to remove inter-state transmission charges on RE power and curtailing cross-subsidy to 15% of applicable tariff.

Key points in the amendments to the National Tariff Policy:

  • The SERCs and CERC shall necessarily be guided by the National Tariff Policy
  • Promotion of renewable energy has been added as an objective of the policy
  • In the tariff policy, the word ‘Non-conventional’ is sought to be replaced with Renewable energy
  • For RPO, long term trajectory to be provided by Ministry of Power (MoP), in consultation with MNRE and keeping in view the objectives of NAPCC
  • Solar RPO targets to be ramped up more aggressively – the exisiting policy provids for reaching 3% by 2022, the proposals to increase this to 8% by 2022.
  • The policy envisages a REC multiplier to differentiate between technologies, and to accommodate changes in price (through a ‘vintage multiplier’)
  • The tariff policy envisages that procurement of renewable energy, as far as possible, will be done on a competitive bidding basis. Further, “an appropriate bid-based tariff framework for renewable energy, allowing the tariff to be increased progressively in a back-loaded manner over the life cycle of such a generating plant” is planned. The back-loaded manner could imply costs are kept low at present so as to minimize cost burden on the Discom’s, to be increased over the life of the project.
  • For a new coal/ lignite based plant, RE capacity to the extent of 10% of thermal generation capacity will have to build. This will be allowed to be bundled with the conventional power.
  • No inter-state transmission charges for RE power
  • Time differentiated tariff to be implemented for large consumers (>1MW) within one year, and for all consumers within 5 years
  • In calculating the cross-subsidy surcharge (CSS) a change in the methodology is proposed. At present, cross subsidy is calculated by using the cost of marginal power (top 5% power at the margin). Instead the weighted average cost of power including transmission and wheeling losses and charges, and the cost of carrying regulatory assets is proposed to be used.
  • Further, the provision requiring gradual reduction of cross-subsidy to a maximum of 20% of its opening level is proposed to be deleted.
  • A new provision limited the CSS to 15% of the applicable tariff category has been proposed.

Conclusion –

The changes proposed in the Tariff Policy are welcome, and in line with the government’s objective to promote RE power. However, the effectiveness of the same remains a question mark. Several provisions in the existing policy (of January 2006) remain only on paper. A good example of this is the requirement that “Availability Based Tariff (ABT) is to be introduced at State level by April 2006”. In several states this still remains a distant dream 9 years after the deadline.

Similarly, the ability of reaching 8% solar RPO remains doubtful when several states did not even follow the minimum requirement of 0.25% as per the existing policy. Also, the intent and conduct of SERCs in enforcing RPO regulations has been a big question mark.

It is noteworthy that the Electricity Act 2003 says that the Appropriate Commissions ‘shall be guided’ by the Tariff Policy in tariff determination. The proposed amendment to the EA says the provisions of Tariff Policy shall be followed by the Appropriate Commission for the purpose of Tariff determination.”

The link to the main document is here.

 

REC Trade Results April 2015

We are pleased to share the Result of REC trading for the month of April-15.

  • Solar RECs – Overall market clearance remained poor this time, with very low demand at both exchanges. Demand saw a dip from 68,982 last month to 8,522 this time, and this was expected in the first month trading of FY 2015-16. Market clearing ratio was very low, 0.68% in IEX and 0.23% in PXIL, with overall clearing ratio standing at 0.48% compared to 0.54% during April-14.
  • Non Solar REC market expectedly dipped from 654,985 last month to a very low figure of 55,612 RECs this month. The clearing ratio was good relatively better on IEX, but the overall market clearing ration of 0.52% stood well below 1.4% during April-2014.

The REC trade results in the FY 2014-15 is summarized below for your reference.

Non-Solar

Solar

 

Team REConnect

MERC relaxes RPO compliance for BEST

MERC had notified the Maharashtra Electricity Regulatory Commission (Renewable Purchase Obligation, its Compliance and Implementation of Renewable Energy Certificate Framework) Regulations, 2010 (‘RPO-REC Regulations’) on 7 June, 2010. As per this regulation, following are the RPO targets for all obligated entities;

Non-Solar*:  The regulation also states that, all obligated entities shall on mandatory basis, purchase from Mini Hydro or Micro Hydro power projects, to the tune of 0.1 % of Non-Solar RPO from FY 2010-11 to FY 2012-13 and 0.2% from FY 2013-14 to FY 2015-16.

BEST has fulfilled its Non-Solar (including Mini Hydro or Micro Hydro) RPO compliance cumulatively till FY 2013-14 showing a small surplus, however it has a huge shortfall of close to 59.46% in meeting its Solar RPO target cumulatively till FY 2013-14.

The commission has appreciated the suggestion of PXIL for quarterly fulfillment of RPO, but has gone ahead in stating that it is currently considering shortfalls on merit basis by allowing fulfillment on cumulative basis by the end of FY.

Earlier in Case No.181 of 2013, the commission had given BEST a relaxation by not imposing Regulatory Charges on BEST for their Solar RPO shortfall during FY 2010-11 to FY 2012-13 and had relaxed/waived Solar RPO targets for FY 2010-11 and FY 2011-12. Similarly, they have decided that Regulatory Charges shall not apply on BEST for FY 2013-14, and that all cumulative shortfalls should be fulfilled by 2015-16, i.e. by 31st March 2016.

Considering 4900 MUs to be the average consumption for BEST, for FY 2014-15 and FY 2015-16, the cumulative Solar RPO target for FY 2014-15 & FY 2015-16, including the cumulative shortfall of 36.08 MUs till FY 2013-14, should stand somewhere around 85 MUs.

For more details on the order click here.

JERC Grid Connected Solar Power Regulation 2015

Joint Electricity Regulatory Commission (for the State of Goa and Union Territories) has notified the new regulation for Grid connected Solar Power projects to promote the development of Solar Energy. This regulations will apply only to the Grid Connected Solar Power Projects, whether Ground Mounted or Rooftop mounted, and will be applicable to the grid connected solar PV and solar thermal projects.

Key Points of the regulation –

  • Solar PV and or Solar Thermal power projects of capacity equal to or more than 500 kWp, and Rooftop projects of capacity equal to or more than 1 kWp but not more than 500 kWp, higher capacity can be allowed by licensee under stable system condition.
  • Consumers can opt either Net metering scheme or gross metering scheme.
  • Open access is allowed for third party owned projects  generating Solar Power Units.
  • The regulation will remain in force for three years.
  • The solar power generators  has been be exempted from charges in respect of electricity banking, wheeling, line losses and cross subsidy to the extent of Energy produced.
  • Consumer can avail the options of either settling excess energy at preferential tariff at the end of each billing cycle or carrying it forward until the end of the settlement period.

Solar RPO Applicability

  • Net Metered or Gross Metered Consumer: All energy produced by the solar project (self consumption and excess) shall be accounted towards RPO of the Discom.
  • Open Access Consumer: In case the consumer is an OA consumer and also a generator of Solar power, then the quantum of energy generated by the project will be accounted towards his own RPO.

Eligibility for REC’s

  • Net-metering injection is not eligible for REC.
  • Sale of power to Discom at APPC will be eligible for REC, as per CERC REC regulation 2010 and JERC regulations.

The regulation can be read here.

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