Projects and Infrastructure | October – December 2024

Regulatory Updates

Scheme of Central Financial Assistance towards equity participation by State Governments for Hydro Electric Projects in the North Eastern Region

On 8 October 2024, the Ministry of Power approved the scheme of Central Financial Assistance (“CFA“) for equity participation by state governments in hydroelectric projects in the North Eastern Region (“NER“). This scheme aims to develop around 15,000 MW of hydroelectric capacity through collaboration between Central Public Sector Undertakings (“CPSUs“) and state governments.

Key provisions of the scheme include forming a single joint venture (“JV“) for all projects of a CPSU with the state government, with the CPSU nominating the chairman of the board and CEO, and board members being nominated by the JV partners based on their equity shareholding. The Ministry of Power shall appoint a nominee director. The CFA for each project is capped at 24% of equity, subject to the upper limit of INR 7.5 billion though case-by-case deviations are permissible. In case of cost escalation, the increased equity contribution will be shared by the CPSU and the state government, with the CPSU covering any shortfall if the State does not contribute. The scheme targets only viable projects, which requires States to waive/stagger free power and/ or reimburse state goods and services tax.

The total outlay for the scheme is INR 41.36 billion, funded through the Ministry’s Gross Budgetary Support (“GBS“) for the NER, and will be implemented from Financial Year 2024-25 to 2031-32.

Penalty and Inquiry framework introduced under the Environment (Protection) Act, 1986

Vide notification dated 4 November 2024 the Ministry of Environment, Forest and Climate Change issued the Environment Protection (Manner of Holding Inquiry and Imposition of Penalty) Rules, 2024 (“Rules“). The Rules prescribe a structured procedure for filing complaints before the adjudicating authority and hearing of such complaints.

The need for the Rules can be understood against the backdrop of the Jan Vishwas (Amendment of Provisions) Act which removed the previous penalty of imprisonment under the Environment (Protection) Act, 1986 (“Act“) and prescribed only a fine between INR 10,000 INR 1,500,000.

Some key features of the Rules are as follows:

The Rules comprehensively outline the process for filing and adjudicating complaints regarding environmental violations. It allows authorized environmental authorities through their authorized officers, or any other person, to file complaints in prescribed form with an adjudicating officer alleging contraventions of the Act such as excessive emissions, mishandling of hazardous substances, non-compliance with emission standards, and obstruction of official searches, seizures, and sampling.

Upon receiving a complaint, the adjudicating officer must issue a show cause notice within 30 days. Upon considering the cause, the adjudicating officer shall initiate an inquiry if such officer is of the opinion that an inquiry should be held.

In taking evidence from the person under inquiry, the adjudicating officer is not bound by the procedures of the Bharatiya Sakshya Adhiniyam, 2023.

After concluding the hearing, if a contravention is established, the officer must issue a penalty order that includes a reasoned explanation. The penalty determination considers factors such as the project’s location, size, industry type, the nature and impact of the contravention, and any undue benefits derived from it.

The Rules mandate that the completion of proceedings within 6 months from issuance of notice to the opposite party. The adjudicating officer is however permitted to extend such period, by reasons recorded in writing, where the delay or failure to act, is justified.

Enhancement of sanctioned load up to and inclusive of 10 kW for SRTPV Consumers in Karnataka

Karnataka Electricity Regulatory Commission(“KERC“) has issued an order on 5 December 2024 facilitating the adoption of solar rooftop photovoltaic (SRTPV) systems for consumers with a sanctioned load of up to 10kW. This initiative aligns with the Electricity (Rights of Consumers) Amendment Rules 2024 which allowed automatic acceptance of SRTPV applications up to 10kW without requiring a technical feasibility study. The key aspects of this order are listed below:

Capacity Enhancement: Consumers can install SRTPV systems up to 10 kW even if their current sanctioned load is lower. The sanctioned load will be automatically increased to match the system capacity, and distribution licensees shall augment the capacity of distribution lines and transformers, if required.

Consumer Responsibilities: Consumers whose sanctioned load is enhanced as above must pay applicable charges, deposit additional security, and enter into a power supply agreement for the increased load before commissioning their SRTPV system. This shall be done in accordance with the Conditions of Supply of Electricity of Distribution Licensees in the state of Karnataka and other applicable regulations issued by KERC.

Capacity Tolerance: A tolerance of up to 10% is allowed for the applied capacity of SRTPV systems (DC). However, the AC capacity of the inverter cannot exceed the sanctioned load.

Central Electricity Regulatory Commission (Deviation Settlement Mechanism and Related Matters) (First Amendment) Regulations, 2024.

The Central Electricity Regulatory Commission (“CERC“) has, vide notification dated 17 December 2024, notified the amendments to the Central Electricity Regulatory Commission (Deviation Settlement Mechanism and Related Matters) Regulations, 2024 (“Principal Regulations”) termed as the Central Electricity Regulatory Commission (Deviation Settlement Mechanism and Related Matters) (First Amendment) Regulations, 2024, effective from 23 December 2024. Some of key amendments are as follows:

The definition of ‘Available Capacity’ has been limited to “the Quantum of Connectivity Granted”. Accordingly, even if the rated capacity of the wind turbines or solar inverters is higher, the ‘Available Capacity’ will be limited to the capacity granted under the connectivity approval.

The definition of ‘Contract Rate’ has been extended to include sellers of wind/solar/hybrid of wind-solar generating stations and municipal solid waste based generating stations, who sell power through open access to a third party, where the weighted average area clearing price of the Integrated-Day Ahead Market segments of all power exchanges for the respective time block will be considered as the ‘Contract Price’. This is used for calculation of the deviation charges, and the amendment brings such open-access power plants at par with captive generating stations.

The definition of ‘Reference Charge Rate’ has been amended to include a seller in case of generating station other than from wind/solar//hybrid of wind-solar resources, who sells power through open access to a third party. The ‘Reference Charge Rate’ inter alia is used for calculating deviation charges in case of drawal of start-up power or power to run the auxiliaries during the shut-down.

In respect of over-injection of scheduled infirm power, deviation charges have been waived if the system frequency, f > 50.05H.

Central Electricity Regulatory Commission (Indian Electricity Grid Code) (First Amendment) Regulations, 2024

The Central Electricity Regulatory Commission (“CERC“) has, vide notification dated 23 October 2024, notified the amendments to the Central Electricity Regulatory Commission (Indian Electricity Grid Code) Regulations, 2023 (“Principal Regulations”) termed as Central Electricity Regulatory Commission (Indian Electricity Grid Code) (First Amendment) Regulations, 2024. All provisions come into force from 23 October 2024, except the amendment to Regulation 45(12) which has come into force from 1 April 2024. Key amendments to the Principal Regulations are as follows:

The period for which renewable energy generating stations (“REGS“) and energy storage systems (“ESS“) (except hydro PSP ESS), are permitted to interchange power with the grid (for injection of infirm power), has been changed to a maximum of 45 days from the date of first time energization and integration approval, instead of the earlier timeline of up to one year from the date of first synchronization.

Extensions for period of injection of infirm power by REGS and ESS (except for hydro PSP ESS) which may be granted, has now become more prescriptive with regional load despatch centres (“RLDCs“) now having the authority to grant initial extensions i.e. (a) such extension may be allowed for a period up to 3 months by RLDC on application by the relevant generating station along with detailed reasons, at least 10 days in advance of the completion of the stipulated period, and (b) such extension for a period beyond 3 months, may be allowed by CERC on application by the relevant generating station along with detailed reasons, at least 15 days in advance of the completion of the stipulated period.

Guidelines for trial runs of pumped storage plants, have been amended to provide for achievement of COD (commercial operations date) after demonstration of capabilities at available water drawing levels in case of insufficient reservoir levels, subject to certain conditions.

Scheduling of power by a generating station is now permitted from 0000 hours of D+2 (‘D’ being the date of intimation by the generating station of commercial operations or unit thereof) or the commercial operation date declared by the generating station or unit thereof, whichever is later.

Guidelines have been introduced for adjustment of schedule below minimum turndown level for regional entity generating stations, for off-peak and peak hours.

Case Summaries

APTEL upholds termination by power producer of PPA for payment default

In the matter of Southern Power Distribution Company of Andhra Pradesh Limited (“Appellant”) & Ors. v. Vaayu (India) Power Corporation Pvt. Ltd. & Anr. (“Respondents”),the Appellate Tribunal for Electricity (“APTEL”), by its judgment dated 19 December 2024, upheld the decision of Andhra Pradesh Electricity Regulatory Commission (“APERC”) and validated the termination of power purchase agreements (“PPAs”) by the Respondents for the Appellants’ persistent failure to make timely payments.

The key findings of the judgment are as follows:

Persistent delays in payment as grounds for termination & non-retroactive cure of defaults: APTEL upheld APERC’s findings that persistent and long-term delays in payment, even after receiving preliminary default notices, constituted clear breaches of PPAs and justified their termination by the Respondents. It further held that payments after expiry of the 30 (thirty) days cure period did not retroactively cure the defaults, as the PPAs explicitly required timely monthly payments.

Blemish-free conduct as pre-requisite for specific performance: APTEL observed that the Appellant failed to demonstrate blemish-free conduct by making interim payments only after legal actions commenced. The tribunal emphasized that such conduct is necessary to enforce specific performance of contract under Section 16(c) of the Specific Relief Act, 1963 (“Act”), which relief was in effect sought by the Appellant. APTEL also ruled that an injunction to prevent termination, under Sections 41(e) and 42 of the Act, could also not be granted in light of the Appellant’s breaches of the PPA ruling out specific relief in its favour in the first place.

Failure to seek consequential relief: APTEL also held that the appeals seeking termination notices to be declared invalid was unsustainable because the Appellants failed to seek consequential relief under section 34 of the Act for specific performance. APTEL noted that equitable reliefs cannot be granted when one party persistently fails to honour its obligations and stated that, “It is a rule of law that a court cannot grant relief where the party has only sought mere declaratory relief and not consequential relief.”

Continuing supply due to lack of alternatives cannot act as waiver of right to terminate: APTEL rejected the Appellant’s argument that Respondents had waived their right to terminate by continuing supply of power and held that the continuing supply was not voluntary as the Appellant neither granted a no dues certificate nor issued clearance for sale through open access under the PPA, leaving the Respondents with no alternative.

APTEL rules for individual assessment of 51% consumption criteria for every captive power plant

The Tamil Nadu Generation & Distribution Corporation Ltd. (“TANGEDCO”) challenged the decision of Tamil Nadu Electricity Regulatory Commission (“TNERC”) dated 13 July 2023, in APTEL, concerning the captive generating plant (“CGP”) status of Chettinad Cement Corporation Private Limited (“2nd Respondent”). The core dispute revolved around whether consumption of power by the same captive user from three power plants of the 2nd Respondent, on an aggregate basis, satisfied the requirement under Rule 3 of the Electricity Rules, 2005, to consume at least 51% of the electricity generated by its plants for its own use.

APTEL examined the definition of “captive generating plant” under Section 2(8) of the Electricity Act, which describes a CGP as a captive plant primarily established for the generator’s own use. Rule 3 mandates that a captive user must own at least 26% of the plant and consume at least 51% of its generated electricity for captive use. APTEL emphasized that the use of singular terms in Section 2(8) and Rule 3 suggests that the CGP criteria should be independently applied to each plant rather than aggregated across multiple plants. APTEL referred to its judgment in Jayaswal Neco Industries Ltd. v. Chhattisgarh Electricity Regulatory Commission (Judgement in Appeal No. 77 of 2010 dated 18 February 2011), which held that CGP status must be assessed individually for each plant under Rule 3, and accordingly the fact that the three plants in the present case belonged to the same entity was immaterial. APTEL ruled that aggregation of generation and consumption across multiple plants was impermissible under Rule 3 and set aside TNERC’s order.

For more information contact:

Jhinook Roy
Practice Head – Projects & Infrastructure
jhinook.roy@veritaslegal.in

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