Recent Developments in the Indian Energy Sector

1. Tamil Nadu’s Wind Resource Charge Struck Down by Madras High Court

The Madras High Court recently ruled that Tamil Nadu’s plan to impose a wind resource charge of Rs 50 lakh per MW on wind power projects was illegal. The court argued that this charge was unfair and violated constitutional principles, including equality and freedom of trade. The charge unfairly targeted projects connected to the Central Transmission Utility (CTU), while excluding those linked to the State Transmission Utility (STU), creating an unequal playing field. The court also emphasized that state governments cannot impose taxes on electricity generation without legal authority.

This decision follows similar challenges to resource-based levies in other states, such as Himachal Pradesh, where a water cess on hydroelectric projects was also struck down.

2. Arbitration in the Power Sector – APTEL Revisits the Law

The Supreme Court has upheld a recent decision by the Appellate Tribunal for Electricity (APTEL), which clarifies the role of arbitration in resolving disputes in the power sector. For over a decade, a key judgment has stated that certain disputes between electricity companies should be resolved by the State Commission or through an arbitrator appointed by it. However, APTEL recently explained that only disputes related to tariffs (prices charged for electricity) fall under the State Commission's jurisdiction. Other disputes, like contract breaches or terminations, can be handled through arbitration, as long as they don’t affect tariffs directly.

3. Andhra Pradesh’s Wind Power Tariff Controversy

The APTEL also ruled on a case involving Andhra Pradesh’s decision to change the tariff (price) for wind power. The Andhra Pradesh Electricity Regulatory Commission (APERC) had amended the tariff midway through the contract, which the wind power companies challenged. APTEL found that this change went against the regulatory principles of stability and predictability, which are essential for promoting renewable energy. As a result, the court ordered the Andhra Pradesh government to return the amounts collected from the tariff change, with interest.

4. Karnataka High Court Overturns Green Energy Open Access Rules

In 2022, the Indian government introduced rules to promote renewable energy through open access to the grid. However, the Karnataka High Court recently declared these rules unconstitutional, arguing that the central government doesn’t have the authority to make such regulations. The court also said that state commissions, like Karnataka’s, should independently regulate the electricity sector. This ruling may affect other national regulations in the future.

5. Andhra Pradesh High Court Clarifies GST on Solar Projects

The Andhra Pradesh High Court clarified that solar power projects are not considered immovable property and should be taxed at a 5% GST rate, rather than the 18% rate for works contracts. This ruling helps clarify the tax treatment of solar projects, which had been a point of confusion. The government later clarified the issue in 2018 by updating the GST rate schedule.

6. CERC Rejects SECI’s Proposed Tariff for Battery Storage Projects

The Central Electricity Regulatory Commission (CERC) recently rejected a proposal from the Solar Energy Corporation of India (SECI) to adopt the tariffs for a large battery energy storage system (BESS) project. The reason for rejection was a significant delay in signing contracts and falling market prices for battery systems. CERC ruled that adopting the previously agreed tariffs would unfairly benefit the developers, as they did not reflect the current market rates. This decision is still under review by APTEL.

7. Amendments to Cross-Border Trade of Electricity Regulations

The Central Electricity Regulatory Commission (CERC) has proposed changes to its regulations on cross-border electricity trade, aiming to simplify the process for companies seeking to connect with neighboring countries’ energy markets. These amendments will make it easier for Indian generators to build dedicated transmission lines for exporting electricity and streamline the application process for cross-border electricity transactions.

These developments reflect ongoing efforts to improve and regulate India’s energy sector, ensuring fairness, stability, and alignment with market conditions and constitutional principles.