Niharika PuriPartner
Astha SrivastavaSenior Associate
Charulatha JagadishAssociate
The first quarter of 2022 saw welcome regulatory developments and budgetary allocations in the power sector. There has been a significant thrust in India to boost the development of green hydrogen projects, keeping with growing global interest in this area. Separately, given the need for flexibility and stability in India’s power system operations, the recently issued guidelines for battery storage systems were also overdue. This past quarter also saw increased budgetary allocations for domestic production linked incentives and a preference for domestic modules in open access solar power projects, through an approved list of module manufacturers which comprises mostly domestic manufacturers. 2022 has also seen continued M&A activity, with interest in the oil and gas sector poised to pick up, given the 61 geographical areas recently bid out by the Petroleum and Natural Gas Regulatory Board for city gas distribution.
Key Developments
-
Andhra Pradesh High Court decision on re-determination of tariff
The re-determination of tariff under existing wind and solar power purchase agreements (PPAs) in Andhra Pradesh has been a contentious issue since 2018. Then, distribution companies (Discoms) filed petitions before the Andhra Pradesh Electricity Regulatory Commission (APERC) to reduce the preferential feed-in tariff determined under section 62 (for wind PPAs) and tariffs discovered through competitive bids under section 63 (for solar PPAs) of the Electricity Act, 2003 (Electricity Act). This was on the grounds that the tariff discovered in other states through competitive bidding was lower than the preferential tariff fixed by the APERC and otherwise discovered through competitive bidding processes in Andhra Pradesh. The APERC proceedings were challenged by various solar and wind power developers before the Andhra Pradesh High Court, but the High Court directed the matter, without giving substantive relief, to the APERC for their decision. However, the High Court directed the Discoms to pay an interim tariff, which was lower than the tariff under the PPAs, to the wind and solar power generators until the matter was adjudicated by the APERC.
Aggrieved developers filed writ appeals before the Division Bench of the High Court. After a lengthy 3-year process, the Division Bench determined several long-standing issues, providing significant relief to power generators in the state. It held that:
- the tariff under concluded PPAs cannot be re-negotiated;
- financial difficulty of Discoms is not a ground to permit non-performance of PPAs nor to reduce tariffs set out in the PPAs;
- tariffs determined through a competitive bidding process under Section 63 of the Electricity Act cannot be re-determined; and
- since renewable energy plants operate on a 'must-run basis', any arbitrary curtailment of power by the state load despatch centre, without prior notice and not based on grid security or safety reasons, is illegal.
This important decision, in addition to reaffirming the sanctity of contract and the validity of duly executed PPAs, will hopefully serve as a precedent to prevent other Discoms re-opening tariffs under concluded PPAs.
Please click here to read our detailed update on this development.
-
Electric vehicle charging guidelines
On 14 January 2022, the Ministry of Power (MoP) issued the ‘Revised Guidelines and Standards for Charging Infrastructure for Electric Vehicles (EVs)’, to promote faster adoption of EVs in India. Key features of these guidelines are set out below:
- Individual owners can charge their EVs at their residence/offices using existing electricity connections.
- Any individual/entity can set up public charging stations (PCSs) without requiring a license (subject to compliance with prevailing technical standards).
- Discoms have been directed to provide electricity connection to PCSs within 7 days (in metro cities), 15 days (in other municipal areas), or 30 days (in rural areas) of request.
- Incentives such as concessional tariff rates and land on a revenue share model have been included.
Given that these guidelines deal with issues ranging from public charging stations to the tariff for supply of electricity, these could play a significant role in facilitating and accelerating the e-vehicle transition in India.
-
Green Hydrogen Policy
On 17 February 2022, the MoP issued the ‘Green Hydrogen Policy’ (Policy), which defines green hydrogen and green ammonia as hydrogen and ammonia produced from biomass or by the electrolysis of water using renewable energy, including renewable energy that has been banked. The Policy provides for certain incentives for renewable energy projects set up to manufacture green hydrogen and green ammonia, including:
- Priority in grant of connectivity to the inter-state transmission system.
- Waiver of inter-state transmission charges for 25 years for projects commissioned before 30 June 2025.
- Grant of open access within 15 days of receipt of the application.
- Banking facility of 30 days for the renewable energy used for producing green hydrogen or green ammonia, at banking charges fixed by the appropriate state commission.
These policy incentives come at a time when interest in green hydrogen is growing globally. However, the Policy leaves key questions on modalities and processes unanswered. Nevertheless, it has led to considerable interest in the sector, with several large state-owned and private corporations expressing serious intentions to take the sector forward.
-
Guidelines to procure power from battery energy storage systems
On 11 March 2022, the MoP issued the ‘Guidelines for the Procurement and Use of Battery Energy Storage Systems (BESS)’ (BESS Guidelines) which outline the bidding process for storage projects across India. The BESS Guidelines prescribe minimum project capacities for BESS projects (i.e., 1 MW for intra-state projects, and 50 MW for inter-state projects), a minimum term of 8 years for battery energy storage purchase agreements (BESPA), timelines for achieving financial closure (i.e., 12 months from execution of the BESPA), and restrictions on dilution of controlling shareholding up till commissioning of the storage projects.
The BESS Guidelines provide welcome clarity on the manner of procurement of BESS and enhance the bankability of BESS projects.
-
Bidding guidelines for hybrid projects
On 9 March 2022, the Ministry of New and Renewable Energy (MNRE) amended the ‘Guidelines for tariff-based Competitive Bidding Process for Procurement of Power from Grid Connected wind-solar hybrid projects’ (Hybrid Guidelines). Under them, commissioning timelines have been increased from 18 to 24 months from the later of the date of the PPA or power sale agreement. Further, the amended Hybrid Guidelines also contemplate Discoms conducting bid processes through authorised agencies/representatives, in line with the competitive bidding guidelines for solar and wind projects, also issued by the MNRE.
While the extension to project commissioning timelines is good for developers facing challenges in procuring raw material as a result of global delays, some industry stakeholders feel that this relief will have an adverse impact on project economics due to the resultant increase in interest during construction.
-
Clarification to the Change in Law Rules
In February 2022, the MoP clarified that the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021 (Change in Law Rules), which set out the mechanism for tariff adjustments pursuant to change in law events, would not have retrospective effect and will apply to change in law events that occur on or after the date of notification of the Change in Law Rules i.e., on or after 22 October 2021. The MoP also clarified that change in law events which occurred prior to 22 October 2021 would be adjudicated in accordance with the prevalent dispensation or rule position at the time of occurrence. As a result, any change in law claims arising prior to such date will not get the benefit of the streamlined processes set out under these rules.
-
Approved list of modules and manufacturers
On 13 January 2022, the MNRE issued a notification requiring solar projects applying for open access or net-metering after 1 October 2022 to use solar PV modules and cells included in the 'Approved List of Modules and Manufacturers' list issued by the MNRE. This list primarily comprises domestic manufacturers.
While domestic manufacturers are happy, many stakeholders believe that this will limit the choice of modules and cells available and will encourage inefficient, competition-insulated production in India. Further, since domestic producers currently lack sufficient production capacity, this order will likely increase the demand-supply gap. The domestic production linked incentive scheme for high-efficiency solar modules (launched in April 2021) may help bridge this gap.
-
Deviation settlement
The Central Electricity Regulatory Commission (CERC) issued the CERC (Deviation Settlement Mechanism and Related Matters) Regulations, 2022 on 14 March 2022, which provide for deviation charges payable by wind and solar power generators for over-injection and under-injection beyond prescribed thresholds – however, these are yet to come into effect.
Given India’s COP26 commitments, the Union Budget introduced various measures aimed towards sustainability and ease of doing business in India. The enhanced outlay for the production linked incentive scheme to increase local manufacturing of solar cells and modules, coupled with the focus on domestic content use in Indian power projects, should increase domestic manufacturing capabilities – however, the gaps (such as no incentives linked to innovation, research and development) cannot be ignored. Similarly, a separate policy for electric vehicle battery swapping and the creation of special mobility zones exclusively for electric vehicles was announced as part of the budget and is scheduled to be notified in the next quarter. While these are signs that India is keen to create a domestic market for zero-emission vehicles, it is hoped that the proposed policy will be in line with market expectations and contribute to India's target of making EV at least 30% of private car sales by 2030. However, while there have been significant allocations towards large-scale infrastructure projects, including ambitious road targets and river-linking projects, the budgetary allocation towards climate action is notably inadequate at a meagre INR 30 crore (USD 3.9 million).
