Projects and Infrastructure | July – September 2023

Regulatory Updates

Amendments to the validity period and transferability of CRZ clearances

On 3 July 2023, the Central Government amended the Coastal Regulation Zone (“CRZ”) Notification, 2011. The key amendments include:

Increase in the validity period of CRZ clearances from 5 to 10 years, further extendable by a year on the application as per procedure;

The period from 1 April 2020 to 31 March 2021 will be excluded from the validity period of CRZ clearances, owing to COVID-19;

A CRZ clearance can be transferred during its validity, on original terms and conditions, upon approval from the relevant authorities;

A CRZ clearance can be divided among multiple legal entities entitled to undertake a project, and can be transferred during its validity after obtaining recommendations from the Coastal Zone Management Authority (“CZMA“) and the Expert Appraisal Committee (“EAC“); and

For projects requiring both environmental clearance and CRZ clearance, the validity period and transfer will be as per the Environment Impact Assessment Notification, 2006. Extension of validity period and transfer will require recommendations from the CZMA, and transfers shall additionally require recommendations of the EAC.

New Guidelines for Tariff Based Bidding for Grid Connected Wind Power Projects

The Ministry of Power on 26 July 2023 issued new Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Wind Power Projects (“Guidelines“). Some key features are below:

Applicability: To procurement of electricity by distribution licensee(s), their authorized representative, or an intermediary procurer, from grid-connected Wind Power Projects having (a) bid capacity of 10 MW and above for projects connected to intra-state transmission system; and (b) bid capacity of 50 MW and above for projects connected to inter-state transmission system.

Bid Structure: Bids are invited based on a minimum power capacity (MW). The tariff quoted shall be the bidding parameter, which shall not exceed the procurer specified benchmark tariff.

Term of PPA: The power purchase agreement must generally be 20 years from the scheduled commercial operation date but may also be set for a 25-year period.

Performance Bank Guarantee: Performance Bank Guarantee shall be the lower of 5% of the estimated capital cost for the project for the financial year in which bids are invited or the upper limit stipulated by the Ministry of Finance.

Deviation: Deviation of bid documents from the Guidelines requires Government approval.

Captive generation criteria and other provisions of Electricity Rules amended

The Ministry of Power has notified the Electricity (Second Amendment) Rules, 2023 on 26 July 2023 and Electricity (Third Amendment) Rules, 2023 on 1 September 2023 to further amend the Electricity Rules, 2005. The following are some of the important changes:

Subsidy Accounting and Payment: Rule 15 has been substituted with a new rule governing subsidy accounting and payment, which requires accounting of the subsidy payable under Section 65 of the Electricity Act, 2003 by the distribution licensee, in accordance with the standard operating procedures issued by the Central Government. The amendments also require submission of quarterly reports by distribution licensees for examination and issuance by State Commissions.

Framework for Financial Stability: New Rule 20 provides for a framework for financial stability which, amongst others, mandates that the Aggregate Technical and Commercial loss reduction trajectory to be approved by the State Commissions for tariff determination should align with the trajectory agreed by the respective State Governments and approved by the Central Government under any national scheme/programme.

Criteria of captive generating plant: The rules earlier stipulated that a power plant could only qualify as “captive generating plant” if not less than 26% of its ownership was held by a captive user. The term ‘captive user’ has been replaced with ‘captive user(s)’, and the proviso which required the affiliate company to hold not less than 51% of the ownership, for captive generating plant set up by affiliate company, has been removed. Further, consumption by a subsidiary/holding company of a company which is a captive user is now admissible for calculation of captive consumption by captive user.

Centralized verification of captive status: The captive status of generating plants, where the captive generating plant and its captive users are located in more than one state, shall be verified by the Central Electricity Authority as per the procedure issued by the authority with the approval of the Central Government.

No environmental clearance required for manufacturing of Green Ammonia/Green Hydrogen

On 28 July 2023, the Ministry of Environment, Forestry and Climate Change issued a clarification that standalone plants manufacturing green ammonia/green hydrogen shall not be required to obtain an environmental clearance (“EC”) under the Environment Impact Assessment Notification, 2006. However, any such plant being set up in the same premise as an existing unit (which otherwise requires an EC), will require an amendment to the EC to include the component of green ammonia/green hydrogen plant.

Guidelines for Medium and Long Term Power Demand Forecast

The Ministry of Power in July 2023 released the Guidelines for Medium and Long Term Power Demand Forecast (“Guidelines”). The Guidelines aim at providing a basic framework of medium term and long term power demand forecast for a Distribution Company/State/Union Territory. The forecast covers medium term (more than 1 year and up to 5 years) as well as long term forecast (next 10 years at least). The Guidelines require the detailed demand forecasting exercise to be undertaken in every 5 years. The forecast should be for at least 3 scenarios – optimistic; business as usual; and pessimistic.

Amendments to CERC (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2020

The Central Electricity Regulatory Commission (Sharing of Inter-State Transmission Charges and Losses) (First Amendment) Regulations, 2023 have been introduced on 3 August 2023 which shall come into operation with effect from 1 October 2023.

These amendment regulations prescribe that the billing, collection, and disbursement for the billing period of October 2023 shall be undertaken in the billing month of December 2023, and for August 2023 and September 2023 shall be undertaken in the billing months of October 2023 and November 2023 respectively.

Remaining provisions of CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022, now effective

The Central Electricity Regulatory Commission (“CERC“) has, on 3 August 2023, notified that the remaining regulations of the Central Electricity Regulatory Commission(Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022 (“GNA Regulations“) (published on 19 July 2022) and the remaining regulations of the first amendment to the GNA Regulations (published on 6 April 2023) will come into effect from 1 October 2023.

New Electricity Grid Code notified

On 3 August 2023, Central Electricity Regulatory Commission (“CERC”) notified the CERC (Indian Electricity Grid Code) Regulations, 2023 (the “Grid Code”) which shall come into effect from 1 October 2023. The Grid Code applies to all users, State Load Despatch Centres, Renewable Energy Management Centres, Regional Load Despatch Centres, National Load Despatch Centre, Central Transmission Utilities, State Transmission Utilities, licensees, Regional Power Committees, Settlement Nodal Agencies, Qualified Coordinating Agencies and Power Exchanges to the extent applicable.

Further, it is expressly specified that the Grid Code or any amendments thereto shall not be treated as a “Change in law” in any of the agreements entered into by any of the users covered thereunder.

Rationalisation of Offences under various statutes

On 11 August 2023, the Ministry of Law and Justice introduced the Jan Vishwas (Amendment of Provisions) Act, 2023 (“JV Act”) to decriminalise and rationalise offences under various laws. Some of these statutes are the Indian Forest Act, 1927, the Industries (Development and Regulation) Act, 1951, the Merchant Shipping Act, 1958, the Marine Products Export Development Authority Act, 1972, and the Metro Railways (Operation and Maintenance) Act, 2002.

Further, in Air (Prevention and Control of Pollution) Act, 1981 and Environment (Protection) Act, 1986, contravention of provisions of the respective acts or rules, orders or directions thereunder (as applicable) for which no penalty was specified were earlier punishable with imprisonment or fine. Such contravention is now decriminalised and person in contravention is liable to pay increased penalty of minimum INR 10,000, extendable to INR 1.5 million and in case of continued contravention, an additional penalty extendable to INR 10,000 for each day during which the contravention continues.

MNRE strategy for establishment of Offshore Wind Energy Projects

Pursuant to the National Offshore Wind Energy Policy 2015, the Ministry of New and Renewable Energy (“MNRE“) has, on 17 August 2023 and 26 September 2023, proposed revisions to the models for development of offshore wind farms.

– This is to be followed for demarcated offshore wind zones for which MNRE/National Institute of Wind Energy (“NIWE”) has carried out or proposed to carry out detailed studies/surveys. MNRE or its designated agency will enter into a lease agreement for 35 years, and necessary central financial assistance in the form of Viability Gap Funding (“VGF”) would be available to achieve a pre-determined power tariff.

– To be followed for sites identified by NIWE, and proposed offshore wind sites will be demarcated and allocated on an exclusive basis for 5 years’ period on a lease. The power generated will be sold under open access/captive/third party sale mechanism without any central financial assistance. Benefits like provision of power evacuation infrastructure from off-shore pooling delivery point, waiver of transmission charges and additional surcharge, carbon credit benefits etc. will be applicable.

– In this model, developer may identify any offshore wind site within the Exclusive Economic Zone (EEZ) excluding the sites considered under Model-A & Model-B and carry out studies and surveys. Government will come up with bid for project development/seabed allocation including any of the following methods: (a) Bidding on lease/allocation fee or revenue sharing for open access/captive/third party sale; (b) Tariff based competitive bidding for power procurement by DISCOMs or central/state government; and (c) Any other transparent bidding mechanism. No central financial assistance will be available. MNRE or its designated agency will enter into the concession agreement and lease agreement for 35 years.

Release of Green Hydrogen Standard

For the purposes of the National Green Hydrogen Mission, the Ministry of New and Renewable Energy (“MNRE”) has, on 18 August 2023, introduced a standard to define “Green Hydrogen”, along with an emission cap of 2 kg CO2 equivalent/kg for Green Hydrogen produced through electrolysis or conversion of biomass. MNRE has specified that a detailed methodology for measuring, reporting, monitoring, onsite verification, and certification shall be released and that the Bureau of Energy Efficiency will be the nodal authority for accreditation of agencies for such monitoring, verification, and certification.

National Framework for Promoting Energy Storage

The Ministry of Power has issued the national framework for promoting energy storage in August 2023. Some matters for consideration as specified in the framework are as follows:

Viability gap funding is proposed for few initial battery energy storage systems of up to 40% of project’s capital cost, subject to commissioning within 18-24 months;

Sovereign green bonds may be used for funding green infrastructure and financial institutions may also extend long term loans to energy storage projects;

Connectivity of energy storage systems to the nearest inter-state transmission systems may be granted on a priority basis; and

New renewable energy projects (excluding hydro projects) with an installed capacity of over 5 MW or as specified by the Central Government may be mandated to install energy storage systems for minimum 5% of the renewable energy capacity.

Guidelines for Tariff Based Competitive Bidding Process for Grid Connected Wind Solar Hybrid Projects

On 21 August 2023, the Ministry of Power issued guidelines for competitive bidding for procurement of power from wind-solar hybrid projects (“HPPs”) by distribution licensees, their authorized representatives, or an intermediary procurer (“Procurer”) to promote consumer interests (“Guidelines“).

The Guidelines will apply for long term procurement of electricity through competitive bidding process by Procurers from HPPs of 10 MW capacity and above for intra-state transmission system or 50 MW and above for projects connected to inter-state transmission system, provided that at least 33% of the total contracted capacity of the project must come from either wind or solar sources.

The PPA period shall be for 20 years from Scheduled Commencement Supply Date (“SCSD“) quoted by the bidder, which can be extended up to 25 years. The generator will be compensated by the Procurer in case of inability to off-take scheduled power due to constraints as specified under the Guidelines.

The commencement of supply shall be: (a) for projects below 1000 MW capacity, within 24 months from the date of signing of PPA; and (b) for projects above 1000 MW capacity, within 30 months from the date of signing of PPA.

The Guidelines provide for encashment of performance bank guarantee on a per day basis for delay in commencement of power supply beyond the SCSD. Further, delay beyond 6 months, would result in a reduction of contracted capacity to the project capacity which has commenced power supply along with blacklisting.

Any deviation from the Guidelines requires government approval before initiation of bidding.

New conditions for exemption of certain activities from environmental clearance

The Ministry of Environment, Forest and Climate Change has, on 30 August 2023, amended the list of activities in the Environmental Impact Assessment Notification, 2006, that are exempt from environmental clearance, pursuant to the order of the National Green Tribunal in the case of Noble M Paikada vs. Union of India & Ors.

The amendments have made the exemption of (a) extraction or sourcing or borrowing of ordinary earth for linear projects such as roads, pipelines etc, subject to the compliance of standard operating procedures and environmental safeguards issued in this regard from time to time; and (b) dredging and de-silting of dams, reservoirs, weirs, barrages, river and canals for the purpose of their maintenance, upkeep and disaster management, subject to the compliance of environmental safeguards issued in this regard from time to time.

Direction to GENCOs for timely import of coal for blending and maximizing production

The Ministry of Power (“MoP“) issued a direction dated 1 September 2023, whereby, the mandatory blending rate of imported coal has been modified from 6% to 4% (by weight) for the remaining financial year 2023-2024. MoP has requested the central and state generation companies (“GENCOs“) to undertake necessary actions to import coal for blending at the new specified rate through a transparent competitive bidding process, to have comfortable coal stocks for smooth operations. Further, any shortfall in domestic coal supply will be shared by the GENCOs on a pro-rata basis and their share of domestic coal will be determined in a manner which ensures that their respective pit-head stations are provided 100% of their domestic coal requirement.

EPR Obligations on producers regarding metals recycled from e-waste

On 21 September 2023, a framework for generation of Extended Producer Responsibility (“EPR”) certificates was introduced wherein EPR certificates will be issued against key metals recycled from e-waste. The key metals are classified into 3 groups namely precious metals, non-ferrous metals, and ferrous metals. The framework specifies EPR obligations of producers basis this classification. EPR authorisation under E-Waste (Management) Rules, 2022 aims to channelise and manage a system of e-waste collection.

CERC removes difficulties in implementation of GNA Regulations

In its order dated 22 September 2023, Central Electricity Regulatory Authority (“CERC”) has issued clarifications on a few issues for removal of difficulties in implementation of CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022 (“GNA Regulations”). The clarifications, inter alia, pertain to transition from CERC (Grant of Connectivity, Long-term Access and Medium-term Open Access in inter-State Transmission and related matters) Regulations, 2009 to GNA Regulations, bank guarantees, transfer of connectivity, and treatment of cases requiring system augmentation for grant of additional general network access.

Case Summaries

MERC-determined tariff stayed for being higher than licensee-proposed tariff

In Tata Power Company Ltd. vs. Maharashtra Electricity Regulatory Commission, the Appellate Tribunal for Electricity (“APTEL”), vide its interim order dated 13 July 2023 granted an interim stay (pending disposal of main appeal) on the tariff schedule of Tata Power for FY 2023 -24 as approved by the Maharashtra Electricity Regulatory Commission (“MERC”), on account of such tariff being higher than that proposed by Tata Power. APTEL observed that the regulatory commission fixing a tariff, higher than that sought by the licensee, should be an exception, and not a norm or a matter of course, and such fixation can only be done after all factors under Section 61 of the Electricity Act, 2003 (such as factors which would encourage competition, efficiency and economic use of resources, safeguarding of consumers interests, etc.) have been taken into consideration. APTEL concluded that the increase in tariff, as approved by MERC, was prima facie unjustified and violative of Section 61(d) of the Electricity Act, 2003.

For more information contact:

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

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