Operating Business in Renewable Energy (RE) Sector: Applicable Laws to Consider

Rapid economic growth demands progressive measures in the Electricity or Power Sector. Power shortages and depletion of non-renewable energy resources coupled with distribution channel challenges have forced the economy to look forward to renewable energy creation and distribution. India’s commitment to United Nations Framework Convention on Climate Change on Intended Nationally Determined Contribution (INDC) is to achieve 40% of its power installed capacity from non-fossil fuel energy by 2030.  The power sector (Electricity) is a concurrent subject provided in the Seventh Schedule of the Indian Constitution and hence both Centre and State have the power to regulate this domain. The Central Electricity Regulatory Commission and the respective State Electricity Regulatory Commission govern this domain. Earlier the Electricity Sector only witnessed public participation but gradually private players have also started taking interest in the same.

Checklist of applicable laws:

The main legislation governing the energy sector are as follows:

1. Electricity Act, 2003:

The Electricity Act, 2003 (“Act”) is regarded as the main governing legislation in this domain inter-alia consolidating the laws relating to generation, transmission, distribution, trading, and use of electricity and generally for taking measures conducive to the development of electricity industry. Over the years, there has been a significant change in which the government functions making it merely a facilitator for licensing, control over transmission, capacity generation, and tariff fixation. The Electricity Commission (EC) established under the Act functions as a watchdog wherein it puts a tab on the cost of generation thereby regulating tariff and supply of electricity from a generating company to the licensed distributors. The Electricity Act, 2003 thus framed by the central legislature governs:

  • Generation: The Electricity Act, does not provide for a specific license for generation except where expressly provided. The generators are permitted to sell electricity to any trading and distribution licensee and to the consumer directly (subject to getting open access approvals).
  • Transmission is a regulated activity unless exempted. The Central Transmission Units (CTUs) and the respective State Transmission Units (STUs) are deemed transmission licensee. The transmission as an activity is heavily regulated and requires approval from the appropriate regulatory commission (Central Electricity Regulatory Commission (CERC) /State Electricity Regulatory Commission (SERC)) for the tariff. It must also adhere to Central Electricity Regulatory Commission (Indian Electricity Grid Code) Regulations 2010 and Central Electricity Authority (Grid Standards) Regulations 2010 along with the directions that may be issued by the National Load Despatch Centre, the Regional Load Despatch Centre or the State Load Despatch Centre to ensure availability of the transmission system is maintained. In addition to above laws, there are state-specific grid transmission and tariff laws for governing inter-state transmission.
  • Trading means the purchase of electricity for resale for any purpose and includes wholesale and retail supply. This is also a licensed activity and appropriate licenses have to be taken for CERC (for inter-state trading) and SERC (for intra-state trading).
  • Distribution and supply are regulated and a licensed activity but a holder of distribution and supply license can undertake to trade without any separate license. A license has to be obtained from CERC (for inter-state distribution and supply) and SERC (for intra-state distribution and supply).

2. Other Applicable Laws: In any of the abovementioned activities, in addition to license under the Electricity Act, 2013, the generator, transmitter, trader or the distributor or supplier has to ensure that their activities are compliant with other acts and statutes as well, these include:

  • Environmental Permits: in form and manner of licenses, clearance certificate, no objection certificates, compliance with waste disposal, record keeping etc.
    • Environmental clearance from the Ministry of Forest and Environment (MOEF) before a power plant is set up (except for solar power project). Clearance certificate has to be obtained from the Pollution clearance board of the state where the project will be undertaken.
    • Consent to establish from the respective state pollution control board (Section 25 of Water (Prevention and Control of Pollution) Act 1974and Section 21 of the Air (Prevention and Control of Pollution) Act 1981).
    • Other Clearances: i) Forest clearance, in case the developer wants to use forest land for non-forest purposes than the developer will have to obtain clearance from the forest department and ii) Coastal regulatory zone clearance if the project falls within the coastal regulatory zone. (Forest (Conservation) Act 1980, (Environment Protection Act 1986and Coastal Regulation Zone Regulations).)
  • Fire safety certificate to be obtained from the concerned source as stated by the fire department of the state.
  • Licenses for usage and storage of fuel oil storage tanks, explosive and inflammable liquids, and chemicals along with authorization for storage of hazardous waste. (Explosives Act 1884 read with Explosives Rules 2008, Petroleum Act 1934 read with Petroleum Rules 2002, Hazardous Waste (Management and Handling) Rules 1989). The Company may also need to check the applicability of the waste handling laws for proper disposal of hazardous waste.

3. Other Approvals: Based on the business model, there will be other ongoing labor, health and safety, environmental and land and construction approvals such as:

  • For acquisition of land: this largely depends on the type of land being acquired (that is government revenue land, forest land, agricultural land). Conversion of forest, agriculture land will require special clearance.
  • A no-objection certificate (NOC) from Gram Panchayat (village level entity)/local administrative body as may be required for the development of the power project (depending on the location of the project).
  • An allocation/approval of electric supply for bulk construction power supply.
  • An approval/NOC in accordance with the Electricity Act from the Chief Electrical Inspector of the respective state for plant layout for electrical equipment operational safety
  • There must also be adherence to respective technical and safety standards as prescribed for generation, transmission and distribution activities which include building the transmission, distribution and supply systems and laying electrical lines.

FDI and Import-Export

100% FDI under automatic route is permitted under the renewable energy sector subject to the provisions of Electricity Act, 2003 (except atomic energy). This includes generation, transmission, and distribution of electricity, as well as power trading.[1] Special license for PTC (Power Trading Corporation) is required to import electricity along with a trading license.[2] An Import-Export Code is required for import of equipment for the development of the power project.

Conclusion

The Regulatory framework for Electricity Sector is vast and scattered. The Renewable Purchase Obligation (RPO) notified under the National Tariff Policy, 2006 makes it’s obligatory for certain companies to meet part of their energy needs through green energy and therefore there is a great importance attached to promotion and development of the renewable energy sector. The government has also formulated the draft Renewable Energy Act, 2015 that provides for a clear institutional financial, structural and policy roadmap at a national level and renewable energy development coordination between State and Centre. The proposed enactment is significant in laying down mandatory national targets for RPO within one year of it coming into force and also provides for a centralized RPO compliance monitoring mechanism. The draft act also details penalties which can be imposed by the SERCs for non-compliance of RPO which includes a fine of up to 1 crore and/or imprisonment up to 3 months for each continuing contravention.

Please note that this post is a general overview of the laws applicable to the renewable energy sector for reference purposes only. Every business will require customized diligence on applicable laws and readers are requested to kindly seek professional advice in this regard.

[1] The Ministry of Power via a press release dated: 13th December 2012; available at:

http://www.pib.nic.in/newsite/PrintRelease.aspx?relid=90578

[2] Power Exchanges have permitted 49% FDI under automatic route available at http://pib.nic.in/newsite/PrintRelease.aspx?relid=87788

Power trading is the purchase of electricity for resale thereof, while a power trading exchange provides an organized platform for fair, neutral, efficient and robust price discovery; extensive and quick price dissemination; and price risk management for the generators, distributors, traders, consumers and other stakeholders in the power sector.

Authors:  Ms. Ayushi Singh, Associate at NovoJuris Legal and Ms. Sohini Mandal, Associate Partner at NovoJuris Legal.

Images Courtesy: Creative Commons

Advertisements