Recently, the Supreme Court of India (SC)1 upheld the
validity of the Rajasthan Electricity Regulatory Commission
(Renewable Energy Obligation) Regulations, 2007 (2007 Regulations)
and the Rajasthan Electricity Regulatory Commission (Renewable
Energy Certificate and Renewable Purchase Obligation Compliance
Framework) Regulations, 2010 (2010 Regulations) (together, the
Regulations), with regard to the renewable energy purchase
obligation (RPO) and the obligation to pay surcharge in the event
of a shortfall in meeting the RPO imposed on captive generation
power plants and other obligated entities.
The High Court of Rajasthan (High Court)2 had held
that the Rajasthan Electricity Regulatory Commission (RERC) has
been empowered to frame the Regulations in exercise of the powers
conferred under Sections 61, 66, 86(1)(e) and 181 of the
Electricity Act, 2003 (2003 Act) and that the Regulations do not
contravene the provisions of the 2003 Act, Articles 14 and 19(1)(g)
of the Constitution of India, the National Electricity Policy, 2005
or the Tariff Policy, 2006, as contended by the petitioner,
Hindustan Zinc Limited (HZL) before the High Court.
The main points of contention raised by HZL against the validity
of the Regulations are as follows:
The 2003 Act, National Electricity
Policy, 2005 and the Tariff Policy, 2006 had envisaged the
promotion of captive generation of electricity, which is being
curtailed by the Regulations through the RPO, thereby resulting in
a lower production of energy by the captive power plants;
The jurisdiction of the RERC to
impose such obligations on HZL was contended, since captive power
plants have been shielded from all licensing and regulatory regimes
under the 2003 Act;
The RPO can be imposed by the RERC
under Section 86 (1) (b) of the 2003 Act on distribution licensees
alone and not on a captive power plant, being a generator of
Further, the imposition of surcharge
in case of shortfall in meeting the RPO, is contrary to Article 265
of the Constitution of India.
Description of the SC's order
The SC, while examining the contentions raised by HZL, stated
that the Regulations framed by the RERC were to achieve the
constitutional duties of the State under Article 48A read with
Article 51A (g) of the Constitution of India and is in consonance
with the principles enshrined in the 2003 Act, the National
Electricity Policy, 2005 and the Tariff Policy, 2006, to effectuate
the objective of promotion of electricity from renewable sources as
against polluting sources of energy.
Further, the Regulations contain a mechanism for the purchase of
renewable energy certificates from energy exchanges, thereby not
adversely affecting the effectiveness of the captive power plants
by requiring a lower generation of electricity. The RERC has been
empowered to frame the Regulations under Section 181 (1) of the
2003 Act which provides that the State Commissions may promulgate
regulations consistent with the 2003 Act, which in this case is to
effectuate the provisions of Section 86(1)(e) read with Section
86(4) of the 2003 Act- to promote power generation from renewable
sources, guided by the National Electricity Policy, 2005, National
Electricity Plan and Tariff Policy, 2006.
The SC has also gone on to examine the penalty imposed by way of
a surcharge under Regulation 9 of the 2010 Regulations, stating
that the penalty imposed is not in the nature of a 'tax'
but is to achieve the object of the 2003 Act, in case the obligated
entity defaults in fulfilling the RPO.
It was also noted that the mere fact that no licence is required
for the establishment, operation and maintenance of a captive power
plant does not imply that it cannot be subjected to the regulatory
jurisdiction of the State Commission and required to purchase
certain quantum of energy from renewable sources. The RPO has been
imposed upon the consumption of electricity whether purchased from
the distribution licensee or consumed from its own captive power
Therefore, the Regulations cannot in any manner be regarded as a
restriction on the fundamental rights guaranteed under Articles 14
and 19(1)(g) under the Constitution of India to HZL.
This decision emphasizes the object of the 2003 Act and the
National Electricity Policy to promote renewable sources of energy.
This decision of the SC should strengthen the renewable energy
market given the increase in offtake certainty (as most obligated
entities have still not met their RPO). Finally, the SC order is
likely to provide impetus to the State Electricity Commissions to
effectively enforce the RPO regulations.
1. Hindustan Zinc Limited v Rajasthan Electricity
Regulatory Commission (Civil Appeal No. 4417 of 2015)
2. Writ Petition No. 10911 of 2012
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).