Legal Considerations for Investing in Renewable Energy Projects in India
With a population of over 1.3 billion and an installed energy capacity of over 4 lakhs MW, India has become a power surplus nation. India is committed to advancing renewable energy and combating climate change, with ambitious goals to increase the capacity of renewable energy sources, reduce emissions, and reach Net Zero Emissions by 2070. The ambitious goal of India to generate 450 GW of renewable energy capacity by 2030 gives significant prospects for renewable energy investment.1
The Government of India ("GOI") has been actively promoting renewable energy to meet the country's growing energy demands while reducing greenhouse gas emissions. Before investing in renewable energy efforts in India, the regulatory framework that controls the sector must be thoroughly examined. This article discusses the most important legal considerations for investors interested in India's growing renewable energy industry.
Electricity is listed on the concurrent list in India, allowing both the national and state governments to create legislation affecting this industry. The fundamental statute controlling India's electricity sector is the Electricity Act, 2003. It establishes the legal foundation for the expansion, regulation, and effective management of the power sector, including renewable energy initiatives.
The Ministry of New and Renewable Energy ("MNRE") is in charge of formulating and implementing renewable energy policies and strategies for the country. The Ministry of Power ("MoP") is in charge of regulating the energy sector, which includes renewable energy. The MNRE have designated the NTPC Limited and Solar Energy Corporation of India Limited ("SECI") to implement its schemes and policies. For example, The National Solar Mission is one of several renewable energy initiatives spearheaded by SECI. These bodies are in charge of overseeing the implementation of several MNRE programmes, including the viability gap funding programmes for large-scale grid-connected projects, the programmes for solar parks and ultra-mega solar power projects, the programmes for grid-connected solar rooftops, and the programmes specifically designed for the military and canal tops.
The MNRE also manages the Indian Renewable Energy Development Agency ("IREDA"). It offers financial assistance to energy efficiency and renewable energy initiatives, hence supporting their expansion. The MNRE has also established the National Institute of Solar Energy, the National Institute of Wind Energy, and the National Institute of Bioenergy. These are the main national R&D organisations in the fields of solar energy, wind energy, and bioenergy, respectively.
The GOI has established several schemes and incentives to attract private sector involvement in renewable energy projects and to support renewable energy efforts. The Renewable Purchase Obligation ("RPO") and Competitive Bidding Guidelines for grid-connected solar and wind generation ventures demonstrate this. These programmes are meant to provide long-term investors in the renewable energy sector with visibility and assurance.
Additionally, the GOI releases the National Electricity Plan periodically, which provides a short-term framework for the electricity sector. The GOI also released the draft National Electricity Policy 2021 recently. Furthermore, the Electricity Act requires the government to establish a National Tariff Policy. The National Tariff Policy was updated in 2016. It emphasised the importance of boosting electricity generation from renewable energy sources and encourages private sector engagement in the construction of renewable energy facilities.
Both the central and state governments are involved in India's regulatory framework for renewable energy initiatives. The Central Electricity Regulatory Commission ("CERC") is in charge of pricing control and ensuring that tariffs for renewable energy initiatives are set fairly and transparently. The CERC has enacted laws such as the Central Electricity Regulatory Commission (Terms and Conditions for Tariff Determination from Renewable Energy Sources) Regulations, 2017 to specify renewable energy tariff structures. At the state level, States have the State Electricity Regulatory Commissions ("SERCs"). They are critical in the development and promotion of renewable energy initiatives within their respective jurisdictions.
Per CERC regulations, the CERC establishes the prices for renewable energy plants. SERCs employ generic criteria or cost aspects to calculate tariffs during public hearings. Generators can enter into power purchase agreements ("PPAs") and negotiate pricing with distribution licensees/procurers. PPAs are presented for approval to the SERCs. The commissions authorize the agreed-upon tariff and licensee-generator contract in the event of competitive bidding. The PPA establishes a secure payment mechanism through a letter of credit by the procurer.
The Appellate Tribunal for Electricity ("APTEL") is India's appeal tribunal for the electricity industry. APTEL hears appeals from regulatory commissions and other authority's orders. In the event of a legal disagreement or challenge, investors can seek a settlement through APTEL.
Opportunities and Challenges
India's renewable energy sector offers appealing investment potential; however, it has certain challenges. The involvement of state governments in controlling land laws and electricity rates might cause project delays. Even though some jurisdictions have streamlined the property buying process, there are still challenges with land distribution, dispersed ownership, and contested titles.
Additionally, State governments and public utility corporations attempt to renegotiate PPAs to lower tariffs, raising contract and non-payment risks. Further Political shifts may compel such renegotiations, emphasizing the importance of state-level political risks. Payment delays and bankruptcies have occurred as a result of the COVID-19 pandemic's impact on the public budgets of various governments, forcing the application of force majeure provisions.
Another issue that generates social and environmental issues for large-scale solar projects is the lack of environmental assessments and public outreach. When choosing locations, failure to regard local environments and livelihoods can lead to operational and reputational challenges, community unrest, and legal issues.
Engaging in renewable energy businesses in India necessitates a thorough knowledge of the legislative structure, political initiatives, and regulatory environment. Despite the industry's immense promise, investors must be prepared to encounter difficulties and unknowns. By completing extensive due diligence and getting the necessary legal documents. Investors must do extensive due diligence, including legal and regulatory study, to navigate the complicated environment and mitigate potential risks in India's renewable energy market. Policy shifts and approval delays can have a substantial impact on a project's timeframe and financial sustainability.
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.