The Supreme Court of India recently set aside the Appellate Tribunal for Electricity (APTEL) and State Commission orders that allowed wind developers to claim higher tariffs than mutually agreed in the power purchase agreement with Gujarat Urja Vikas Nigam (GUVNL).

The wind developers contented that the Central Electricity Regulatory Commission’s (CERC) amendment to the renewable energy certificate regulations in 2013 was a valid ground for amending the PPA.

GUVNL had filed an appeal with the Supreme Court challenging the decision of APTEL.

The respondents in the case were ReNew Wind Energy (Rajkot), Wind Independent Power Producers Association, Gujarat Electricity Regulatory Commission, and Wish Wind Infrastructure.

Background

On January 29, 2010, CERC issued the ‘Terms and Conditions for Recognition and Issuance of Renewable Energy Certificate (REC) for Renewable Energy Generation Regulations, 2010.’

A PPA, in terms of the REC Regulations 2010, was entered into between GUVNL and the wind power developers, including ReNew Wind Energy (Rajkot). The agreement provided a ceiling tariff of ₹2.64 (~$0.032)/kWh for 25 years.

In addition to the tariff, the wind power developers were eligible for the issue of RECs for each unit of electricity they generated and supplied to the distribution licensees.

The alternative route available for the wind developers when entering into the PPA was to sell electricity at a promotional tariff of ₹3.56 (~$0.043)/kWh as determined by the state regulator.

On July 11, 2013, CERC amended the REC Regulations 2010 and replaced “at a price not exceeding the pooled cost of the power purchase with at the pooled cost of power purchase.”

ReNew Wind Energy and Wind Independent Power Producers were aggrieved by the order and filed a petition before the State Commission arguing that the terms of the PPA had to be changed given the change in the REC regulations.

This petition was allowed by the State Commission, stating that the order of the Central Commission was general and applicable to all similarly situated wind power generators.

Aggrieved by order of the State Commission, GUVNL filed an appeal before APTEL, which was rejected.

Later, the power distribution companies (DISCOMs) of Gujarat filed a review petition against APTEL’s order which was also dismissed by APTEL.

The DISCOMs said that the State Commission had no jurisdiction to decide the tariff contrary to the agreement. Further, the Central Commission itself had clarified that regarding PPAs entered into before July 11, 2013, tariffs mutually agreed upon between the parties would be valid for the entire duration of the PPA and could not be substituted or re-determined by the State Commission.

It argued that the change in regulations, unless made specifically operable for a prior period, cannot be construed as retrospective. Thus, contracts concluded before the amendment cannot be governed by amended provisions.

The DISCOMs added that none of the wind power developers raised any issue on the tariff of ₹2.64 (~$0.032)/kWh for the entire duration of the PPA. It was only on December 10, 2013, the developers filed a petition claiming that the tariff should be the average power purchase cost (APPC) cost a year-on-year basis instead of a fixed ₹2.64 (~$0.032)/kWh.

In their submission, the developers added that the PPA tariff violated the principal regulation, which does not contemplate a fixed long-term tariff. It was, therefore, illegal and had to be aligned with the regulation.

Court’s analysis

The apex court observed that the approach in the matter had to consider the objective of the policy of promoting non-renewable sources of energy, the purpose of introducing RECs, and the progressive obligations placed upon DISCOMs, to ensure that they purchase energy from green or clean sources, in a viable manner.

It noted that the obligated entities (including DISCOMs) had to take steps to increase the purchase of power from renewable energy sources. To incentivize this, flexibility was granted; the power generators could either have the fixed tariff, according to the State Commission’s tariff determination order, or adopt another mechanism, i.e., the one contemplated in the REC Regulations.

The apex court rejected the claims of ReNew Wind Energy (Rajkot) and Wind Independent Power Producers that the PPA was unenforceable because the State Commission did not approve it.

Further, the Supreme Court added that the wind power developers chose the REC mechanism while entering into PPAs in these cases with GUVNL. As mutually agreed, the PPAs provided the fixed tariff of ₹2.64 (~$0.032)/kWh for the entire term (25 years). The preferential tariff determined by the State Commission for developers not opting for the REC Mechanism was ₹3.56 (~$0.043)/kWh. The developers were not entitled to additional REC benefits had they adopted the preferential tariff route.

This was an opportunistic attempt to derive advantage from the change brought about by the Second Amendment.

The Supreme Court noted that agreements, such as the PPAs in the present case, entered into voluntarily by the parties before the amendment, were not affected by its terms.

Also, APTEL, without considering anything, virtually upheld the State Commission’s findings on coercion regarding the parties entering into the PPA. There was no evidence or particularity of pleadings beyond a bare allegation of coercion alleged against GUVNL.

Considering the facts, the Court held that the orders of the State Commission and APTEL were unsustainable.

Earlier, CERC had relaxed the timeframe to apply for the issuance of RECs to a wind generator beyond six months for the energy injected into the grid.

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