India: Renewable energy in the Asia Pacific: a legal overview (3rd edition) - India

Carbon Markets and Renewable Energy Update (Australia)
Last Updated: 11 September 2013
Article by Stephen Webb

INDIA

OVERVIEW

JURISDICTION

LANGUAGE

Common law Hindi, English and regional languages


BUSINESS ENVIRONMENT

  • Ease of Doing Business Report 2013: 132 out of 185 (no change)
  • Global Competitiveness Index 2013: 59 out of 144 (down 3 rankings)
  • Index of Economic Freedom 2013: 119 out of 177 (up 4 rankings)
  • Corruption Perceptions Index 2012: 94 out of 176 (up 1 ranking)
POPULATION INCOME GNI PER CAPITA (PPP TERMS)
1.24 billion Lower middle $3,620

PROFILE

Led by Mohandas Gandhi and Jawaharlal Nehru, India gained its independence in 1947 after a long period of British rule. India is now the largest democracy in the world and regarded as a key emerging market given its enormous, youthful population and continued economic growth. Nonetheless, the Indian Government continues to face issues of widespread poverty, overpopulation, environmental degradation, corruption, energy shortages and continued tensions with neighbouring Pakistan.

ELECTRICITY INDUSTRY OVERVIEW

  • As at 30 April 2013, India's total installed electricity generation capacity was just over 223.6GW, of which:
    • coal (58.4%), oil (0.5%) and gas (9.0%) accounted for 67.9%;
    • hydropower accounted for 17.7%;
    • nuclear accounted for 2.1%; and
    • renewable energy (including small hydropower projects) accounted for 12.3%.
  • This reflects that as of April 2013, approximately 70% of the installed generation capacity is based on conventional sources of energy and 30% is based on non-conventional sources of energy.
  • In the 12th Plan (2012-2017), India has a capacity addition target of 72.34GW, 10.9GW, 5.3GW for the thermal, hydropower and nuclear sectors respectively.
  • The Indian National Electricity Policy 2005 (NEP), established under the Electricity Act 2003 (the Electricity Act), is the overarching policy for the development of India's energy sector. The NEP outlines the importance of meeting electricity demands, securing supply, mitigating climate change, promoting renewable energy sources and protecting the interests of consumers and stakeholders.
  • India is already the world's fourth highest energy consumer behind China, the US and Russia. However, electrification rates remain low, with about one-quarter of the population (roughly 400 million people) not having access to electricity.
  • With a rapidly expanding economy and an ever- increasing demand for electricity, India is facing significant energy security issues. Energy demand is expected to rise by 16GW each year until 2020.
  • Electricity prices are regarded by some analysts as unsustainably low. This has resulted in the poor financial positions of the state-owned distribution companies.
  • Theft of electricity is also prevalent, which reduces incentives for investment in the energy sector.

Generation

  • Just 31% of total installed electricity capacity is provided by the private sector in India, with central and state government entities dominating generating capacity.
  • The Central Government entities include the National Thermal Power Corporation, the National Hydroelectric Power Corporation Limited and the Nuclear Power Corporation of India Limited (NPC). Each state also has at least one generation company.
  • Entities are generally not required to have a licence to generate electricity except in relation to nuclear projects and certain hydropower projects. The private sector is able to commission coal, gas or oil, hydropower, wind, solar and other renewable energy-based projects of any size. However, only central government owned and controlled entities are permitted to build and operate nuclear energy stations. Currently, only the NPC generates electricity using nuclear energy.

Distribution and transmission

  • The distribution and transmission system in India is a unique three-tier operation consisting of distribution networks, state grids and regional grids. In order to facilitate the transmission of power among neighbouring states, the state grids are interconnected to form regional grids. These regional grids are divided according to five geographical areas: western, northern, eastern, northeastern and southern.
  • Much like in China, the regional grids are being gradually integrated to form a national grid to enable inter-regional transmission of power.
  • A non-discriminatory open access obligation is imposed on the distribution and transmission entities to encourage competition among generators, distributors and traders in electricity from regions that have surplus electricity to regions with an electricity deficit.
  • The Power Grid Corporation of India Limited operates the 100,000km long inter-state transmission lines.
  • Each state-owned transmission entity has a monopoly over the intra-state electricity transmission system.
  • Engaging in transmission of electricity requires a licence from the Central Electricity Regulatory Commission(CERC) for inter-state transmission activity and the relevant State Electricity Regulatory Commissions(SERCs) for intra-state transmission activity. However, no licence is required for transmission of electricity in rural areas notified by the state government entities.
  • Transmission licensees are prohibited from engaging in the trading and distribution of electricity.
  • Distribution of electricity in India is controlled by the states. Public and private entities intending to engage in distribution of electricity are required to obtain a licence from the relevant SERC.

Regulatory bodies

  • The Ministry of Power has a number of regulatory functions, including:
    • administering the Electricity Act;
    • monitoring and updating the NEP;
    • setting the rural electrification policy and tariff policy in consultation with the state governments and the Central Electricity Authority (CEA); and
    • overseeing the Central Government entities in the electricity sector.
  • The CEA performs several functions, including:
    • advising the Central Government entities on matters relating to the NEP;
    • specifying the technical standards and safety requirements for construction, operation and maintenance of electrical plants and electric lines through regulations; and
    • promoting research in relation to matters affecting the generation, transmission, distribution and trading of electricity.
  • The CERC has a number of responsibilities, including:
    • making regulations in accordance with the grid standards specified by CEA (including the Grid Code);
    • enforcing standards of quality, continuity and reliability of service by licensees;
    • regulating the tariffs of central government entities and private entities engaged in sale of electricity in more than one state;
    • regulating the tariffs for inter-state transmission of electricity;
    • acting as a licensing authority for granting electricity transmission and trading licences regarding inter-state operations; and
    • adjudicating disputes involving generating entities and transmission licensees in respect of the aforementioned matters and referring any such dispute for arbitration.
  • The SERCs have responsibilities similar to the CERC, that is, they have the authority to make regulations, act as the regulator and also fulfil quasi-judicial functions concerning intra-state matters. The SERCs are also responsible for:
    • granting the electricity transmission, distribution and trading licences in respect of their intra-state operations;
    • stipulating the general and special conditions of the licence;
    • revoking licences or selling licences through bidding;
    • regulating the tariff of generating stations owned by a state government entity or by generating companies involved in generating electricity within a state;
    • regulating the intra-state transmission and supply of electricity; and
    • promoting co-generation and generation of electricity from renewable energy sources by providing suitable grid connectivity measures and regulating the sale of such electricity. In this respect, the SERCs are required to specify the renewable energy purchase obligation (RPO) for distribution licensees (both private and state-owned), open access consumers and captive power plants.

Electricity laws

  • The Electricity Act and the Energy Conservation Act 2001, as well as the rules and regulations made under those acts, primarily govern the legislative framework of the electricity sector in India.
  • The Atomic Energy Act 1962 (AE Act) regulates the generation of electricity from nuclear energy, among other matters. To the extent of any inconsistency between the Electricity Act and the AE Act, the provisions of the AE Act prevail.
  • The Electricity Act consolidates the laws relating to the generation, transmission, distribution, trading and use of electricity. The Electricity Act has a number of important features, namely it:
    • recognises and regulates generation, transmission, distribution and trading of electricity as separate activities;
    • removes the requirement for a generation licence for entities engaged in the generation of electricity (except for certain hydropower projects), provided that such entities comply with the technical standards regarding grid connectivity;
    • permits captive generation of electricity;
    • provides for private participation in the generation, transmission, distribution and trading of electricity;
    • requires the SERCs to set out a minimum percentage of electricity to be purchased from renewable sources by formulating regulations;
    • mandates control of the electricity supply through load despatch centres at inter-state and intra-state levels by the Central and State Government entities;
    • mandates a non-discriminatory open access regime for the transmission and distribution of electricity;
    • establishes the Appellate Tribunal for Electricity; and
    • makes provision for penal sanctions for the theft of electricity.

RENEWABLES INDUSTRY OVERVIEW

  • The Ministry of New and Renewable Energy (MNRE) promotes renewable technologies and renewable energy use in India.
  • The MNRE has estimated that the country has potential for 90GW of power generation from renewable sources. A total of 87GW of renewable power capacity is expected to be reached by 2022. However, in 2012, 22 out of India's 29 states failed to meet their respective RPOs.
  • During the 12th Plan (2012/13 to 2016/17), MNRE intends to oversee the installation of 29.8GW of gridinteractive renewable power comprising 15GW from wind power, 2.1GW from small hydropower projects, 10GW from solar power and 2.7GW from biomass/biogas sources.
  • In its 11th Plan (2007/08 to 2011/12), India exceeded its original goal of adding 3.5GW of renewables capacity. The Government revised its goal at the time to 14GW by 2012, backed largely by an increase in wind energy capacity.
  • As at 31 March 2013, the installed capacity from renewable energy sources (including small hydropower projects) was approximately 29GW. Of this amount:
    • wind power accounted for 65%;
    • biomass and bagasse accounted for 14%;
    • small hydropower projects accounted for 13%;
    • solar and balance through urban/industrial waste accounted for 5%; and
    • other sources of renewable energy accounted for the remaining 3%.

Hydropower

  • The overall installed hydropower capacity as at 31 April 2013 was approximately 39.5GW.
  • Hydropower projects up to a capacity of 25MW are classified as small hydropower projects (SHP). MNRE is vested with the responsibility of developing SHP projects and has earmarked 5,718 sites for these projects. The estimated potential for SHP projects is over 15GW.

Wind energy

  • Despite lower than average wind speeds by international standards, wind power has been the most successful renewable energy source in India.
  • Installed wind capacity grew 10% from 2011/12 to 2012/13.
  • The Centre for Wind Energy Technology estimated a technically feasible wind energy potential of 49GW.
  • The MNRE has removed the regulatory requirement that allowed wind installations at sites with a minimum wind power density of 200W/m2 at a hub height of 50m. This change is expected to give impetus to small wind power projects.
  • Nearly 85% of India's wind power is generated by just five of India's states.
  • In May 2013, the MNRE released a draft national offshore wind policy which stated that offshore wind energy is now cost-competitive with fossil fuelgenerated energy.

Solar energy

  • According to the MNRE, as at March 2013, solar PV power had a total installed capacity of approximately 1.6GW.
  • High solar radiation levels, particularly in the western half of India, make solar energy an attractive option. The Jawaharlal Nehru National Solar Mission 2009 (JNNSM) aims to increase solar deployment to 20GW by 2022. The plan under JNNSM involves three phases targeting solar power development as follows:
    • the phase throughout 2012/13 will have a target of up to 1.1GW;
    • the phase from 2013 to 2017 will have a target of up to 10GW; and
    • the phase from 2017 to 2022 will have a target of up to 20GW.

Geothermal energy

  • Geothermal power use is limited in India and solely limited to private, direct use. The Geological Survey of India suggests that roughly 10GW of geothermal energy is possible in India.

Biomass energy

  • Fuelled by its agriculture base, India has great potential in biomass energy, however generation of biomass energy is also limited.
  • The MNRE estimates that India has the capacity for approximately 18GW of biomass power generation from agricultural residues, 5GW from raising dedicated plantations on about 2 million hectares of forest and non-forest degraded lands and an additional 5GW from bagasse produced by about 550 sugar mills.

CURRENT ISSUES IN THE RENEWABLES INDUSTRY

  • The unprecedented black-outs of July 2012 that left approximately 640 million people without power, initially raised concerns that the Government will seek a quick fix to energy shortages by pushing fossil fuels and nuclear energy rather than to continue substantial renewable energy investments. However, in April 2013, India's Prime Minister Manmohan Singh affirmed India's prior commitment to more than double renewable energy capacity to 55GW by 2017.
  • The vast amounts of land needed for viable renewables projects has emerged as a significant issue for renewable energy projects given the high competition for land in India.
  • Analysts point to general problems with India's electricity industry, such as fuel shortages and ailing distribution companies, as disincentives for renewable energy developers.
  • In May 2013, the MNRE revealed that seven solar projects with a capacity totalling 470MW, have been delayed due to a lack of water, financing difficulties and equipment shortages.

RENEWABLES LAWS

  • There is no national, unified framework for renewable energy. Promotion of renewable energy is included in the general Electricity Act, however there is no national "renewable energy act" as such.
  • The Energy Conservation Act 2001 gives state governments and the Central Government powers to pursue energy efficient practices.
  • The National Action Plan on Climate Change (2008) seeks to promote sustainable growth for India to ensure the protection of poor and vulnerable sections of Indian society whilst also achieving national growth objectives. The plan sets out a number of ways to promote energy efficiency in the commercial and residential markets.

GOVERNMENT INCENTIVE PROGRAMS

  • The Government has set out a number of tax incentives for renewable energy investors, including concessions on customs duties for imports of renewable energy equipment and a 10 year tax holiday for renewables companies.
  • There are also generation-based incentives for wind and solar producers.
  • State governments provide support by way of energy buy-back schemes, power wheeling and banking facilities, sales tax concession benefits, electricity duty exemptions and capital subsidies.
  • Various state governments offer preferential tariffs for wind power producers or small hydropower projects. Almost all state governments have announced a RPO on buyers of electricity (including Himachal Pradesh, Rajasthan, Tamil Nadu, Karnataka Maharashtra and Gujarat).
  • The Indian Renewable Energy Development Agency provides loans for renewable energy projects.
  • The accelerated depreciation incentive for wind power projects was withdrawn in 2012. Despite government reassurances that various incentives will be reintroduced, no such policies have been forthcoming.

MAJOR PROJECTS/COMPANIES

  • In May 2013, Spanish manufacturer Gamesa was awarded a contract to deliver and install 130MW for China Light & Power India and 100MW for Greenko Wind Power in wind turbines. The turbines will be installed in the states of Karnataka and Andhra Pradesh.
  • Godawari Power's 50MW solar thermal plant is expected to be operational mid-2013.
  • AllGreen is investing in 10 biomass gasification plants in India.
  • A 35,000 km2 section of the Thar Desert in Rajasthan has been set aside for solar projects. The Thar Desert is seen as an ideal location for solar plants as it has a solar intensity level of approximately 6kW/m2 per day and sun availability of over 345 days annually
  • The Subansiri 2GW hydropower plant is the largest in India.

FOREIGN INVESTMENT/OWNERSHIP

  • A non-resident entity (including investment by a citizen or entity of Pakistan, with Indian Government approval) can invest in India.
  • There are two routes for investment in India:
    • the "automatic route" where up to 100% foreign ownership is permissible in certain sectors; or
    • the "government route" which requires prior government approval for sectors not mentioned in the "automatic route" or for investments in certain sectors beyond the permissible limits.
  • Joint ventures with local companies are a common way to enter the Indian market.
  • Investment in both electricity infrastructure and renewable energy is actively encouraged by the Indian Government under the "automatic route". The Government also promotes renewable energy-based power generation projects on a build, own and operate basis.
  • According to the Department of Industrial Policy and Promotion, foreign direct investment inflows from nonconventional energy sources during 2012/13 were worth US$414 million.

RELEVANT INTRNATIONAL TREATIES

  • India is party to the United Nations Framework Convention on Climate Change, which it signed in 1992 and ratified in 1993. India later ratified the Kyoto Protocol in 2002. As a developing nation, India has no binding targets, but it has supported a number of initiatives through its National Action Plan on Climate Change.
  • India has added over 2,000 renewable energy projects classified as clean development mechanisms under the Kyoto Protocol.
  • While per capita greenhouse gas emissions are extremely low, India is already the third biggest emitter in total, accounting for about 5% of global emissions. Its anticipated rise in greenhouse gas emissions make it a key third party (after the US and China) for binding climate change targets.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com

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