SUPREME COURT ORDERS STAY ON REC TRADING

After the Central Electricity Regulatory Commission’s (CERC) order dated 30th March 2017 on reduction of prices for RECs, many REC-generating companies had filed petitions stating that they had incurred a loss as vintage multiplier was not provided. They had first gone to Appellate Tribunal of Electricity (APTEL) to suggest a way to clear the existing REC stock. While the APTEL agreed to introduce a vintage multiplier, it refused to put a stay on the trading.  When the petition was taken to the supreme court, it not only put a stay on the trading, it has also stayed the new price regime which was introduced by the CERC.

 

The Business Standard article covering the same can be accessed here.

Our blog covering the reduction in the REC prices and our analysis of the same can be accessed here.

MPERC waives off past Solar RPO

In a recent order, MPERC has waived off past solar RPO for its Discom’s.

 

This comes despite ApTel’s judgment specifically disallowing waive-offs, and CAG’s remark about states not meeting RPO regulations.

 

Even more telling is the fact that India is playing a lead role at the ongoing international climate talks in Paris, and has been promoting its solar capacity additions as the most ambitious in the world.

 

However, MPERC’s decision goes contrary to all of the above. In its order, MPERC has said the following:

 

“The Commission also noted that respondents could not fulfill the Solar Renewable Purchase Obligations during the FY 2014-15 also. The Commission is monitoring the progress through the Suo-Motu petition no. 43/2015 regularly. The Commission also gone through the progress achieved by the respondents during the FY 2015-16 based on which, the Commission feels that the respondents may purchase more than the Solar Renewable Purchase Obligations fixed for the FY 2015-16. This may mitigate the default on the part of the respondents in fulfilling the statutory Solar Renewable Purchase Obligations in previous financial years. Under the above circumstances, the Commission is of the view that it would not be appropriate to impose any penalty at present on the respondents.” (emphasis supplied)

 

And further -

 

“The Commission is not in agreement with the views of the petitioner that the Solar Renewable Purchase Obligations during the FY 2015-16 should be cumulative as this will generate bad practices to accumulate the shortfall and to carry forward the targets.”

 

It is worthwhile to note that in its judgment on the same issue, dated 20/11/2013, MPERC had said the following:

 

“….Commission is constrained to express serious concern on the lack of effort on the part of the utilities in fulfilling their respective RPOs. More than four months of the current financial year still remain and the respondents are directed to pursue renewable energy procurement to the maximum so that the shortfall against the RPO is minimised. Continuous failure on the part of utilities in this regard cannot be allowed to go unpunished” (emphasis supplied)

 

In response the potential bad precedent, the Commission has instead decided to not impose past year obligations, and instead hopes that excess purchase of solar power in 2015 “may mitigate the default” of prior years.

 

REConnect Analysis:

 

This order sets a very bad precedent. Not only has MPERC clearly gone against the order of ApTel, it also goes against the government’s ambitious plans of developing solar energy and all the commitments that India is making at the international stage.

 

APTEL Directs DERC to adjust the PPAC (Hike in Tariff)

The Appellate Tribunal for Electricity (APTEL) in its judgment dated 25th May 2015 has directed the DERC (Delhi Electricity Regulatory Commission) to determine the Power Purchase Adjustment Cost (PPAC) for the 3rd and 4th quarter of the previous financial year (FY 14-15).

The Judgement came after Tata Power Delhi Distribution Ltd. Filed a petition in the tribunal requesting for directing the DERC to implement the PPAC for 3rd and 4th quarter of Financial Year 2014-15 immediately.

The tribunal after hearing both the parties, in its summary stated that:

“In the hierarchy of the Courts, there is a committing of discipline and such discipline should be maintained by all, otherwise that would lead to chaos in the whole Country particularly, in the Power Sector if such trend of slackness or arbitrariness is allowed to the State Commission like DERC in the present case”.

And the judgment:  

“We direct the Delhi Commission to determine the PPAC for the above said 3rd and 4th quarter within three weeks from today otherwise face the consequences and action will be taken by this Tribunal”.

This decision of APTEL has come as a relief for the distribution licensees, who have been facing financial crunches and revenue gaps. This move will result in increase in tariff hike in the state. The capital is likely to see tariff hike of 5% to 20%.

The order can be reached here.

Related article on Indian Express and NDTV

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.

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.

Analysis of Gujarat High Court judgment on co-generation and RPO

On 12th March, 2015, The Gujarat High Court gave its judgment in the case of Hindalco (Birla Copper), and others. This is a landmark judgment for two reasons:

-          It says that CPP and open access (OA) consumers are liable to fulfill RPO

-          It holds that the ApTel’s conclusion that co-generation power is different from renewable power as held in the case of Lloyds Metal & Energy prevails over the earlier decisions as the Lloyds Metal case we delivered by a full bench. It held that the pervious judgments on this matter (Century rayon, and various others) have “no significance and force of law in view of judgment dated 02.12.2013 rendered by the Full Bench of the APTEL”.

Applicability of RPO on CPP and OA:

The Gujarat HC has considered various aspects and submissions on this topic. It has held that captive generation, while de-licensed activity, does not make a CPP outside the preview of the Electricity Act.

It also held that RPO regulations, made with the intent of greater social good, are applicable on “total consumption by all modes”. The judgment says:

“The fact remains that the area would always be of distribution licensee as the transmission lines and the system is of distribution licensee and, therefore, the phrase ‘total consumption’ is seen by consumers of distribution licensee, captive power plants and on supply through distribution licensee. Thus, the total consumption in the area of distribution licensee would be total consumption in all modes, otherwise serious consequences would follow.”(emphasis added)

In the above findings, the Gujarat HC is in line with the judgment earlier of the Rajasthan HC. In fact, that judgment has been relied upon to a great degree.

 On co-generation 

On the question of co-generation power being exempt from RPO as per the ruling of ApTel, the court has observed the following:

“That contention of Mr. S.N.Soparkar that co- generation plant of petitioners of Special Civil Application No.791 of 2011 that it is based on fossil fuel and is non-conventional in view of decision in the case of Lloyds Metal & Energy Ltd. [supra] of APTEL, though appears to be attractive on first blush but non-conventional energy cannot be equated always with renewable source of energy.”

and

“….. co-generation provided under Section 86(1)(e) of the Act, 2003 is not co-generation stand alone, but it is co-generation and generation of electricity from renewable sources of energy. Thus, a source or input of energy may be non-conventional in the sense that CGP or co- generation following innovative or advanced technology, which may be eco-friendly and reducing carbon credit, but only on that ground is not not the same renewable source of energy like hydro, wind, solar, biomass, bagasse, etc. That non-conventional energy always and for all purposes cannot be equated with non-renewable sources of energy.” (emphasis added)

The HC further added that the most recent judgment of the ApTel on the issue of RPO applicability on co-gen power – in the case of Lloyds Metal and Energy – prevails as it was rendered by the full bench of the ApTel, and therefore:

“Thus, judgment dated 26.04.2010 in Century Rayon [supra] [Appeal No.57 of 209]; judgment dated 17.04.2013 in IA 262 of 2012 in RP (DFR) No.1311 of 2012 in Appeal NO.57 of 2009 filed by Gujarat Electricity Regulatory Commission; judgment dated 30.01.2013 in Appeal No.54 of 2012 filed by M/s. Emami Paper Mills; judgment dated 31.01.2013 in Appeal no.59 of 2012 filed by M/s. Vedanta Aluminium Ltd. [VA]; and judgment dated 10.04.2013 in Appeal NO.125 of 2012 filed by M/s. Hindalco Industries Limited, all delivered by the APTEL have no significance and force of law in view of judgment dated 02.12.2013 rendered by the Full Bench of the APTEL in Appeal No. 53 of 2012.” (emphasis added)

Impact of the judgment

 The judgment is likely to have significant impact in many ways. Some key impacts are:

-          RPO applicability on CPP and OA in Gujarat – As of now, the RPO regulations of Gujarat are not notified with respect to CPP and OA. This was due to the pending court case. Now that the judgment is delivered, these regulations are likely to be made applicable to CPP and OA.

-          While the petitioners have the option to approach the Supreme Court, in our opinion this is likely to have minimal impact. This is because in a very similar case of the judgment of the Rajasthan HC, the Supreme Court has refused to give a stay on the judgment.

-          The judgment with respect to RPO on co-generation power is also likely to have far-reaching impact, as it clearly establishes the view that RPO can be made applicable on co-generation power. The court has held that as per Sec 86(1)(e) of the Electricity Act, co-generation should not be considered “stand-alone” because only on the basis of being co-gen it is “not the same as renewable sources of energy”

Our previous blog post on Rajasthan HC order for RPO enforcement can be read here.

And a previous post on ApTel order for Lloyd metals & Energy (RPO Petition) can be read here.

KERC (Karnataka) Revises Wind Tariff dated 10.10.2013

The Karnataka Electricity Regulatory commission (KERC) has revised its wind tariff on 24th Feb 2015. The new tariff will replace the tariff calculated in KERC order dated 10th October 2013.

The new tariff has been calculated at Rs. 4.50 per unit, which was Rs 4.20 per unit calculated by KERC in its earlier  order dated 10th October 2013.

The new tariff will be applicable for the projects established during the control period of five years commencing from 10th October, 2013. For the projects which have already entered into PPAs with ESCOMs from 10th October, 2013 and up to the date of this Order, the tariff as determined in this Order will be applicable.

The revision in tariff has taken place after honorable APTEL (Appellate Tribunal for Electricity ) in a hearing of a petition filed by Indian Wind Turbine Manufacturers Association (IWPA) found some irregularities (mistakes) in tariff calculation and directed the commission to revise the tariff determined.

The commission earlier through notification invited comments and suggestion on the issues of revising tariff for wind energy, which after the hearing held on 7th January 2014 has been finalized.

The KERC Order can be accessed here.

Our Previous blog post on APTEL directing KERC can be read here.

APTEL directs NLDC to issue RECs from COD

Appellate Tribunal of Electricity (APTEL) in its order dated 28.11.2014, has directed NLDC to issue Renewable Energy Certificates (RECs) from the date of commercial operation (COD).

As per the recent CERC amendment dated 10.07.2013 to REC Regulation, which specifies that the renewable generating plant would be eligible for issuance of RECs from COD or from the date of registration whichever is later. The said amendment is as follows:

“10 (1) After registration, the renewable energy generation plant shall be eligible for issuance of Certificates under these Regulations from the date of commercial operation or from the date of registration of such plant by the Central Agency whichever is later.”

However, the main regulation also quotes:

“7 (1) The eligible entities shall apply to the Central Agency for Certificates within three months after corresponding generation from eligible renewable energy projects.”

The language used is ‘eligible entities’ and not ‘registered entities’. Irrespective of the date of registration, an eligible entity is entitled to apply for RECs within three months from the date of commissioning and generation of electricity as Regulation 7 (1) has not been made subject to Regulation 5 (1) of the REC Regulations which describes only the eligibility and registration for certificates.

A perusal of the above regulation does not show that there is limit to RECs being issued against generation only after the date of registration since the registration process is merely procedural with a view to verify and confirm that the substantive conditions under the REC Regulations have been fulfilled. But, fulfillment is not from the date of registration, but from when the generation of electricity commences.

The APTEL has held that the regulations has to be interpreted and applied in the light of the object to promote the renewable generators and not in a restrictive manner to deprive the generators of any benefit that may be available to them.

As a result, the APTEL has said that Appellants would be entitled to the REC for the electricity generated from COD and the same ought not to be postponed to the generation after completion of the procedural formalities of registration.

The order may only have a small positive impact in number of RECs issued, and issuance of RECs will not be affected by delays in registration process by SNAs.

The order can be accessed here.

Contributed by Venkataramana Mutharasu

APTEL directs KERC to revise Wind Tariff in Karnataka

The Appellate Tribunal for Electricity (APTEL) has found calculation errors in the tariff defined by Karnataka Electricity Regulatory Commission (KERC) for Wind generators, in its order dated 10.10.2013.

In a hearing of petition filed Indian Wind Power Association & Indian Wind Turbine Manufacturer’s Association, the tribunal has directed the state commission to re-determine the levellized tariff for useful life of the project.

The Appellants had earlier raised some issues regarding the determination of the tariff by KERC, and requested before the tribunal to direct the state commission to re-determine the tariff.

After hearing both the parties and their respondents and analyzing the facts, the tribunal found that the state commission has made some errors during computation of the tariff, and has thus directed the state commission to re-determine the wind tariff in the state within 3 months of the date of this order.

In our analysis the re-determination of the tariff will result in the little higher tariff compared to the current tariff of Rs. 4.20/unit.

The order can be accessed here.

Our Previous blog post on KERC draft for RE Tariff can be read here.

Contributed by Dheeraj Babariya

REC Market anticipates strict directions from APTEL

India’s REC (Renewable Energy Certificate) Market is facing a huge backdrop as no strict guidelines are given by state regulators to ensure the compliance of Renewable Obligation defined under RPO Regulation 2010.

In the recent REC trade session held on 24th September 2014 only 22650 Non-Solar REC’s and 1363 Solar REC’s were sold, were as available non-solar REC’s for sale was 90 Lacs and the same in case of Solar was 3.70 lacs. Out of 93 Lac REC’s, which were available for sale, only 24 thousand REC’s were redeemed which is barely close to .25%.

The current scenario of REC market is quite uneventful, REC inventory is racing to new highs, while there is very little response from the buyers (Mainly distribution companies). The absence of strict RPO enforcement is leading to poor trading and reduction in the interests of RE Generators, especially Solar.

In order to bring this issue in to the light, the Indian Wind Energy Association and the Indian Wind Turbine Manufacturers Association, through a petition, have requested before the APTEL (Appellate Tribunal for Electricity) to direct the state regulators to issue strict guidelines for RPO compliance, and ensure rigid timelines for compliance. The response of APTEL is to be watched, as the REC Market clings on the edge, hoping for demand to rise in the forthcoming months.

Recently though, state regulators of Uttarakhand, Gujarat and Punjab have taken a stern stand for the RPO compliance, while in some other states there is no mention of RPO compliance. If the market does not revive soon, there is a chance of it to fall in the wrong lines of the CDM market.

Relevant media article can be read here.

Our blog post on Sep 2014 REC Trade Session can be read here.

Contributed by Dheeraj Babariya.

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