The Madras High Court has struck down a notification imposing a ₹5 million (~$58,812)/MW “resource charge” on new wind energy projects in Tamil Nadu connected to the central transmission network, deeming it arbitrary, illegal, and unconstitutional.

The court stated that the Tamil Nadu Green Energy Corporation (GECL), acting merely as a nodal agency, lacked the statutory authority to impose the resource charge. The court also noted that such a levy violated constitutional protections, including the prohibition against taxation without legislative authority.

The court emphasized that state entities could not impose levies on inter-state power sales, a domain regulated by the central government. Renewable energy generation, being a de-licensed activity, requires no licensing or additional permissions apart from location assessments. It further found the selective imposition of the levy on Central Transmission Unit (CTU)-connected projects discriminatory since it breaches the constitutional guarantee of equality under Article 14.

The court also dismissed the justification for the resource charge as baseless, highlighting that wind power projects do not deplete resources in a manner warranting such fees.

Background

In August this year, GECL issued a notification mandating a ₹5 million (~$58,812)/MW resource charge for wind energy projects with CTU connectivity. GECL defended the charge as a necessary administrative fee to recover costs and encourage developers to use the STU network.

The petitioners, who were independent power producers and renewable energy companies, contested the notification, arguing that the charge lacked any legal foundation. They argued that GECL, as a nodal agency, had no authority to impose such a charge under the Electricity Act. The petitioners contended that this amounted to a tax disguised as a fee, which only the legislature could authorize.

The petitioners also argued that the levy created an arbitrary and discriminatory distinction between CTU and STU-connected projects, failing to meet the standards of reasonable classification required under Article 14 of the Constitution. They contended that the resource charge increased project costs and hindered their competitiveness in the national electricity market. By imposing a financial burden solely on CTU-connected projects, the levy restricted inter-state trade, violating Article 301, which ensures the free flow of trade and commerce across India.

The petitioners argued that GECL’s subsequent application to the Tamil Nadu Electricity Regulatory Commission (TNERC) for approval to impose the charges undermined its claim of authority, as it was an admission that the levy lacked statutory backing.

The respondents, including the State of Tamil Nadu and GECL, argued that the charge was an administrative fee rather than a tax and was necessary to fund infrastructure development for renewable energy. They maintained that the charge was essential for aligning state energy policies with the Renewable Purchase Obligation (RPO) compliance. The respondents also argued that the TNERC, as the regulatory body under the Electricity Act, was the appropriate forum to address the dispute, questioning the maintainability of the writ petition.

Court’s Analysis

The High Court reviewed the issues, beginning with the legal foundation of the resource charge. It ruled that the levy constituted a “tax” under constitutional definitions, which required legislative authorization. GECL lacked statutory power, so it had no jurisdiction to impose such a charge. The court also observed that GECL’s application to TNERC for approval to impose the charge confirmed its lack of independent authority.

The court found classifying projects into CTU and STU categories arbitrary and discriminatory, violating Article 14. It noted that the distinction lacked any rational connection to the stated objectives of promoting renewable energy or RPO compliance. The selective burden on CTU-connected projects undermined their financial viability and created an uneven playing field.

Additionally, the court observed that as the levy imposes additional costs on CTU-connected projects, it restricts their competitiveness in the national electricity market, infringing the constitutional guarantee of free trade under Article 301.

The court rejected the argument that the resource charge was an administrative fee, emphasizing that wind power projects do not utilize resources in a manner justifying such charges. It concluded that the levy was baseless and constituted an overreach by GECL as it is limited to assessing and clearing locations for wind energy projects.

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