An analysis of the Electricity (Promoting Renewable Energy through Green Energy Open Access) Rules, 2022
By: Matrugupta Mishra (Managing Partner), Ishita Thakur (Associate)
Research assistance provided by Shiwangi Gopal
- The Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 (hereinafter, the ‘Rules’), notified by the Central Government under Section 176[1],[2] of the Electricity Act 2003 (hereinafter, the ‘Act’), have brought in some crucial changes to the legal framework governing the procurement of renewable energy.
- The Rules come as a relief for small consumers and MSMEs by reducing the minimum qualification of contracted demand or sanctioned load, for an entity desirous of procuring renewable energy through open access, from 1 MW to 100 kW.
- In addition to this, through these rules, the Central Government has also stipulated that there will be a uniform Renewable Purchase Obligation (“RPO”) on all obligated entities, within the area of a distribution licensee.
- The Rules have provisioned the setting up of a Nodal Agency to administer the green energy open access system for renewable energy and specific powers have been given to such agency formulated to manage the application process while also laying down provisions which ensure that the interests of Green Energy Open Access consumers are met
Entities eligible for availing green energy open access
A crucial change brought in by the Rules has been in eligibility for availing green energy open access, which now include any entity with contracted demand or sanctioned load of 100 kW or more. An exception to this qualification however is captive consumers. This definition, incorporated under Rule 2(1)(b), now permits smaller consumers, including MSMEs, to obtain renewable electricity through the open access system. Obtaining green energy through the open access system was only limited to larger consumers of electricity (i.e., those with contracted demand of more than 1 MW) until the notification of these rules.
Rule 2(1)(b) allows captive users i.e. consumers to procure energy by setting up a power plant to generate electricity for his own use or a power plant set up by a co-operative society or an association of persons for generating electricity for use of its members[3], to procure energy under green open access without any specified load limit.
Rule 2(1)(e) defines obligated entities to include distribution licensees, open access consumers, and captive users that are mandated to fulfil the RPO under Section 86(1)(e) of the Act, as mandated by the Appropriate Commissions. This implies that entities such as distribution licensees, open access consumers (from conventional sources) and captive consumers are “obligated” to promote the generation, sale and purchase of energy from renewable sources[4], in accordance with the provisions of these Rules and the Act.
Renewable Purchase Obligation (RPO)
RPO is the requirement specified by the State Commissions, under Section 86(1)(e) of the Act, for an entity to purchase electricity from renewable energy sources. While every state enforces a separate set of regulations governing RPO, restricted to that state, the Rules vide Rule 4(1) have now stipulated that there will be a uniform RPO on all obligated entities, within the area of a distribution licensee.
The implication of Rule 4(1) is that there now exists a statutory, uniform obligation arising from a Central Act that needs to be fulfilled by all entities, such as a distribution licensee, open access consumer and a captive consumer, to generate, purchase and consume a certain amount of renewable energy according to the prescribed methods.
Sources of procuring Renewable Energy
Rule 4(2) prescribes the sources through which an entity may elect to generate, procure and consume renewable energy. The following sources have been listed:
- own generation from renewable energy sources: no capacity limit for installation of power plants, from renewable energy sources by entities for their own consumption has been set down. The plants may be developed anywhere in the country and power generated shall be eligible for transmission through open access;
- by procuring Renewable Energy through Open Access from any Developer either directly or through a trading licensee or through power markets;
- by requisition from a distribution licensee: such requisition shall be at the tariff to be determined by the Appropriate Commission to cover the prudent cost of the distribution licensee. The Rules have also provided a protection to the interests of distribution licensees, vide Rule 4(C)(d), which states that any requisition for green energy from a distribution licensee shall be for a minimum period of one year;
- by consuming green energy from a captive power plant;
- by purchasing renewable energy certificates; or
- by purchasing green hydrogen or green ammonia.
Renewable Energy Certificates
A Renewable Energy Certificate (“REC”) is an instrument representative of one Megawatt-hour of electricity generated from renewable energy sources and injected into the grid[5], owned by the holder of the certificate. The concept of RECs has been existing in congruence with the fulfilment of the subjective RPOs of states. The certificates assist states, in meeting administrative requirements (like RPOs), that may have limited renewable potential on account of geographical restrictions.
With the Central Electricity Regulatory Commission (Terms and Conditions for recognition and issuance of Renewable Energy Certificate for Renewable Energy Generation) Regulations, 2010 repealed by Regulations of 2022, the certificates issued under the former shall remain valid until redeemed and shall be eligible for exchange.[6]
Under Rule 10 of the Rules, the distribution licensee is obligated to issue green certificate, on yearly basis, to the consumers for the green energy supplied by the licensee to the consumer on his request beyond the renewable purchase obligation of the consumers. However, there is ambiguity as to whether these ‘green certificates’ refer to RECs or not. Typically the REC is extinguished upon sale. This is not happening here.
Green Energy Open Access
Rule 5 provides for Green Energy Open Access wherein Sub-rule (1) dictates that the Appropriate Commission may, if necessary, amend the relevant regulations made by it and such regulations have to be in consonance with the Rules.
Nodal Agency
The Central Government, under Rule 6(1) of the Rules, is to set up a Central Nodal Agency for the operation of a single window green energy open access system. A centralised registry for all Green Energy Open Access consumers shall be administered in this regard and all green energy open access applications shall be submitted on the portal. The applications will subsequently get routed to the concerned nodal agency notified by the Appropriate Commission for grant of green energy open access.
Under Rule 6(3) of the Rules, the Appropriate Commission will notify the appropriate Load Despatch Centre as the nodal agency for grant of green energy open access for short term, to be defined by the Appropriate Commission. Consequently, the State or Central Transmission Utility, as the case may be, will be notified as the nodal agency for grant of Green Energy Open Access, for medium and long term.
Rule 5(2) states that all applications for open access of green energy shall be allowed by the nodal agency within a period of fifteen days. The proviso to the Sub-Rule also mandates that only consumers who have contracted demand or sanctioned load of 100 kW and above shall be eligible to take power through Green Energy Open Access while there will be no limit of supply of power for the captive consumers taking power under Green Energy Open Access. Further, Rule 7(5) lays down that no application for open access shall be rejected unless the applicant has been given an opportunity of being heard in the matter and all orders denying open access shall be speaking orders. The rejection of such an application is also appealable before the Appropriate Commission, as laid down in Rule 7(6).
Charges levied for open access
The Rules, vide Rule 9(1), postulate that there shall be four different types of charges to be levied on Green Energy Open Access Consumers, namely- Transmission, Wheeling, Cross-Subsidy Surcharge and Standby Charges.
While, as per Rule 9(2), the Cross-Subsidy Surcharge shall be charged as per the provisions of tariff policy notified by the Central Government under the Act, a limit has been provided on the escalation of such charges, through the proviso contained in this Rule, for the protection of Green Energy Open Access consumers. The proviso states that the cross-subsidy surcharge for Green Energy Open Access Consumer purchasing green energy, from a generating plant using renewable energy sources, shall not be increased, for twelve years from the date of operating of the generating plant using renewable energy sources, by more than fifty percent of the surcharge fixed for the year in which open access is granted. Such a limitation will ensure that the charges being imposed do not disincentivize the Green Energy Open Access Consumers.
A uniformity has also been provided for the levy of the Open Access charges, through the provision laid down in Rule 12. Rule 12(1) stipulates that the forum of regulators will prepare model regulations on methodology for calculation of open access charges, as well as banking charges within a period of four months from the date of commencement of the Rules.
Critical Analysis
The above Rules have been made by the Central Government in the exercise of its power under Section 176(1) read with 176(2)(z) of the Act. Section 176(2)(z) is residuary and generic in nature. The expression used is ‘any other matter which is required to be, or may be, prescribed’. The Central Government under Section 176(1) is required to make rules for carrying out the provisions of the Act. Now the question arises as to the very essence of the Rules at hand and the objective that the Central Government tends to achieve by formulating these rules.
The following aspects may be taken into consideration while looking at the Rules as a consolidated effort to bring reform in Green Energy Open Access Consumption:
Language, Subject Matter, and the Timing
- What was the imminent requirement of these Rules when the said subject matter was already covered by regulations passed by the respective State Commissions as well as the Central Commission. If the Central Government was willing to ensure uniformity, a concept note for the purpose of acting as a guide for the forum of regulators would have sufficed, rather than coming up with such Rules, when the jurisprudential evolvement through a delegated piece of legislation in the form of regulations, have already advanced;
- The language used in the Rules are neither legislative nor sectoral, which would be amenable to more ambiguity than bringing any certainty to the sector. The choice of the terms and expressions could have been borrowed from the Regulations as well as the terms ordinarily used in the sector, whereas the framers of the Rules have taken deliberate departure, thereby creating enormous ambiguity in terms of the substance as well as the consequential effect of such provisions; and
- Reference can be made to expressions like ‘Green Energy’, ‘own generation from renewable energy sources’ and also the manner in which the provisions have been made are a departure from the legislative drafting prevalent in the country. These may not seem to be per se invalid or illegal, however, the same may give rise to various anomalies and ambiguities, which could have been curtailed by adhering to a certain legislative style of drafting;
- There is no road map or provisioning w.r.t. the redeemability of the green certificate as contemplated under Rule 10 and also no clarity as to the mechanism of rating provided under Rule 11 of the Rules, 2022.
Renewable Purchase Obligation under Rule 4
- There was no requirement of such a heading when the entire provision is dealing with RPO as well as procurement of power from renewable energy sources, beyond RPO. There is no stipulation as to how a uniform RPO would be fixed, which shall have to be followed across the length and breadth of the country;
- It is also not indicative as to whether the RPO targets are going to be fixed as per the category or not;
- There is as such no difference between Rule 4(2)(A) and (D), the very existence of both the clauses are creating ambiguity. As a standard practice of legislative drafting, repetitive clauses are always avoided which are amenable to creating ambiguity between clauses, since it is presumed that the legislator or the executive, as the case may be, would not intend to repeat itself, without indicating different implication under the varied clauses.
Green attribute of power
- Both in the domestic as well as international market, renewable energy or green power is recognized through its green attributes and in the absence of which, the power even if sourced from renewable energy source, yet the same is considered as conventional power;
- A very peculiar situation has been given rise to under Clause 4(2)(C)(f). For the ready reference, the said clause is extracted:
“The green energy purchased from distribution licensee or from Renewable Energy sources other than distribution licensee in excess of Renewable Purchase Obligation of obligated entity shall be counted towards Renewable Purchase Obligation compliance of the distribution licensee;”
Therefore, any person or entity which shall obtain green energy, over and above the RPO obligation, if any, is deprived from the benefit of the green attributes since the Discom is going to claim compliance of RPO against such renewable power procured by the procurer. Both the generator as well as the procurer are deprived of the green attributes of the power procured over and above the RPO. In many cases the consumer would not have any RPO and may be procuring the Green Power to fulfil its internal, voluntary objectives and/or to claim the attributes for its corporate disclosures, third party/ international commitments etc.;
- In this scenario how the procurer/ consumer can have a PPA for the purchase of 100% renewable power, when the green attributes of such power are taken away by the Discom. This aspect is required to be looked into, which would be a matter of concern for the consumers willing to procurer renewable power for their entire requirement or for that matter, over and above the RPO;
- Furthermore, with these Rules coming into force from 06.06.2022, even the attributes on existing projects, from the effective date would effectively belong to the DISCOMs and contribute towards their RPO. Accordingly, any claims towards being green consumers would be vitiated. Large investments have been made by consumers and developers till date and what would be the status of those contracts and their enforceability.
CSS and Additional Surcharge
- The Rules, vide Rule 9(2), provide that CSS shall be levied as per the provisions of tariff policy notified by the Central Government under the Act. This very premise is in violation of the power of the appropriate commissions to make regulations prescribing the methodology through which CSS shall be computed. It has been settled that the formula under the tariff policy becomes binding only when there are no regulations made by the State Commissions, otherwise the regulators are bound by their own regulations. The entire settled position cannot be disturbed;
- Further under the 2nd proviso to Rule 9(2) is an example of the excessive exercise of delegated power. When the Act itself does not make any distinction between green energy and conventional energy, so far as, levy of additional surcharge is concerned, how can the Central Government through the instrument of a delegated legislation, make provision for non-applicability of additional surcharge if fixed charges are being paid by such consumer. Further, there is no definition of fixed charges, and the expression is used in a casual manner. The Act uses the expression ‘fixed cost’ under Section 42(4) and such fixed cost shall have to be specified by the State Commission. Therefore, the 2nd proviso is an absolute depiction of excessive exercise of delegated power, being invalid and ultra vires to the provisions of the Electricity Act, 2003.
Central Nodal Agency vis-à-vis State Nodal Agency
- There is no clear-cut modus operandi for coordination between the central agency and the nodal agency (State) and there is a requirement for bifurcation of the scope and ambit of function to be discharged by such agencies. Both Rules 6 and 7 are indicative in nature, without affording sufficient clarity on the functions to be discharged by the agencies.
Banking
- Whether the provision as to banking has completely put all the banking-related regulations to nullity. The banking mechanism on a monthly basis at a fixed applicable charge may in a way discourage banking transactions by the entities/ consumers. Further, the provision that the permitted quantum of banked energy by the Green Energy Open Access consumers shall be at least thirty percent of the total monthly consumption of electricity from the distribution licensee by the consumers, may face challenges from DISCOMs or consumers, depending upon who is more affected in the particular state. There was no requirement of touching upon banking transactions, which are purely governed by the respective regulations/policies prevalent in each and every State.
Applicability
- There is no clarity as to when the provisions of the Rules are applicable and which all transactions are going to be affected by the provisions of the Rules. In the absence of changes in regulations, how can the Rules have a PAN India applicability which would eventually bring regulatory uncertainty and much ambiguity with regard to the transactions taking place in the country. The central Government should not have shown such a haphazard attitude in bringing these rules and the best course, at this point of time, would be to recall the rules, rather than awaiting the writ courts to put the rules to strict test of ultra vires and arbitrariness.
[1] The Electricity Act, 2003, No. 36, Acts of Parliament, 2003 (India), Section 176(2)(z).
[2] Ibid, Section 176(1).
[3] Ibid, Section 2(8).
[4] Ibid, Section 86 (1) (e)
[5] Central Electricity Regulatory Commission (Terms and Conditions for recognition and issuance of Renewable Energy Certificate for Renewable Energy Generation) Regulations, 2022, (India) Regulation 12(1).
[6] Ibid, Regulation 19(2)(b).
