When Regulators Overreach: Central Government Incentives, State Commissions, And The Limits Of Tariff Power After SPDC V. Green Infra Judgment

Background: Intersection of jurisdiction of SERCs qua policy incentives 

The Electricity Act, 2003, vests tariff determination authority exclusively in State Electricity Regulatory Commissions (SERCs), while the Central Government retains policy-making power at the central level which provides benefit to both i.e., state and central power utilities. This includes the authority to design financial incentives aimed at promoting specific generation technologies. The incentives provided in the electricity sector are policy mechanisms meant to drive technological adoption and infrastructural growth. 

However, in practice, a troubling pattern has appeared as much as the SERCs across multiple states have interpreted central government incentive schemes as inputs to be absorbed into tariff calculations, effectively clawing back benefits that generators were intended to retain. When a SERC deducts a central incentive from the tariff payable to a generating company (GENCO), it converts a generator-focused benefit into a consumer subsidy, a purpose the incentive was never designed to serve.  

Projects taken up by GENCOs generally operate over a 25-year time period. Consequently, when a regulator reduces the incentive amounts, if any, from the date tariff was determined, the same results in financial disadvantage for power generation projects which in-turn deters investment in the sector. 

The central incentive that is the point of discussion in this Article is the Generation Based Incentive (GBI) scheme introduced by the Ministry of New and Renewable Energy (MNRE) in 2009, which offered Rs. 0.50 per unit to wind power generators and was explicitly structured as a benefit “over and above” any tariff approved by SERCs¹. Particularly, Clause 4.6 of the GBI notification stated that the incentive would “not be taken into account” while fixing tariff by State Regulators. Yet the Andhra Pradesh Electricity Regulatory Commission (APERC) in 2018 directed that GBI amounts be deducted from monthly bills payable to GENCOs². This pattern of deduction has been seen across states thus reflecting a systemic problem. State neutralization of central incentives risks the policy architecture, signals uncertainty for investors and disrupts the financial flow.  

 A Parallel Concern: Green Energy Open Access and SERC Resistance 

A parallel pattern has emerged in green energy Open Access. The Ministry of Power issued the Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022, under Section 176(2)(f) of the Electricity Act 2003³. These Rules were meant to make renewable energy easier to use by cutting red tape and lowering costs. However, many SERCs have been slow to implement these rules, as some of them have kept high charges and tough conditions which go against the intent of the central government. 

The issue of SERCs’ exercise of jurisdiction creating impediments for Open Access is also becoming more explicit. The issue is very similar to that of GBI-tariff dispute in the context of wind power generators. The present judgment of the Hon’ble Supreme Court in the case of SPDC v. Green Infra comes into play in the context of these policy/regulatory conflicts. 

The present ruling and its significance 

The Hon’ble Supreme Court, vide its judgment dated 25.03.2026 in the case of Southern Power Distribution Company of Andhra Pradesh Limited v. Green Infra Wind Solutions Limited⁴, has taken the conflict head on and given a landmark ruling regarding the treatment of policy incentives by power sector regulators, thereby granting an opportunity for the GENCOs to receive their grants as desired by the policy makers.  

The GBI scheme of the MNRE, which is the subject matter of the present dispute, provided for Rs. 0.50 per unit to wind generators for the electricity put into the grid. The key part was that this incentive was “over and above” the tariff already determined by the concerned SERCs. In 2018, the APERC vide its order has made it so that the said amounts which were availed through the incentive by the wind power generators, were to be deducted from the tariff rates applicable to such generators. Reliance was placed by the APERC on Regulation 20⁵ which said that the regulator was obligated to take into account all the central incentives while determining tariffs. Upon appeal, the APTEL reversed this order in December 2024⁶, and ruled that Regulation 20 merely obligates the regulators to “think over” the policy-based incentives and not actually absorb or neutralize the said incentive through reduction in applicable tariffs. Both the parties challenged this decision before the Supreme Court 

Supreme Court resolved the dispute on two interlocking grounds. First, the Court affirmed that tariff determination is the exclusive domain of SERCs under the Electricity Act, 2003, a “complete code” with “no unallocated regulatory residue.” Second, the Court held that this plenary power must be exercised as a “collaborative enterprise,” giving effect to the policy goals behind central government incentives. Drawing on the regulatory theory of Paul Craig and Tony Prosser, the Court endorsed “regulation as enterprise” over “regulation as control” thereby holding that Indian electricity regulators are collaborative actors for whom efficiency and social goals, including climate commitments under the Paris Agreement, are inseparable. 

The Hon’ble Court distinguished the terms “consumer subsidy” and “generator focused incentive”.  Notably, GBI came into effect in order to attract investments in the wind energy sector and was linked to India’s international climate commitments, hence, APERC could not have treated it as a windfall to make tariff deductions for GENCOs. Accordingly, the appeal preferred by the DISCOMs was dismissed and the GBI was held to be payable to the GENCOs over and above the tariff already fixed by APERC.   

Post-Judgment Impact on SERCs qua Government Incentives  

 The decision of the Hon’ble Supreme Court demarcates a clear boundary wherein the determination of tariff is in the exclusive domain of the SERCs; however, the said power cannot be exercised in a manner so that it nullifies the legislative intent of the policy introduced by the government. The SERCs should be careful while distinguishing the incentives which are floated to reduce consumer tariffs and the incentives designed to boost generator’s investment. It is only the former that can be factored in by SERC while determining the tariff whereas the latter ought to be treated as a benefit which shall be given over and above the determined tariff.  

How SERCs Must Approach Central Government Schemes 

Hon’ble Supreme Court has now mandated the SERCs to treat central government policy instruments as a part of their own regulatory frameworks and not as mere executive actions subordinated to the regulatory framework. In fact, they must adopt a purposive interpretation giving effect to the policy objectives underlying such instruments. Where a notification expressly states that an incentive is “over and above” the tariff, the SERC is bound to respect that characterization. 

In conclusion, the SERCs should render their decisions within the four corners of the policy framework while considering India’s commitments towards international climate policies and treaties. By adhering to the same would not tarnish SERC’s independence, rather it will give more purposive independence to the SERCs. 

In so far as the electricity sector is concerned, this judgment clearly establishes that the targets qua India’s Clean Energy initiative legally bind the regulatory authorities and are not considered as mere optional goals. For developers, it is a reassurance that the policies focused on generator incentives shall not be taken away by enforcing regulations on them. And for regulators, the judgment is a reminder that absolute power shall be used with a specific goal. 

Footnotes

1 File No. 53/1/2008-WE; Generation Based Incentive Scheme dated 17.12.2009, Ministry of New and Renewable Energy, Government of India.

2 Andhra Pradesh Southern Power Distribution Company Limited and Anr. vs. M/s. Vijayaeebhava Enterprises Pvt Ltd & 43 Others (OP No. 1 of 2017)

3 Electricity Act 2003, Section 176 (2) (f)

4 Southern Power Distribution Company of Andhra Pradesh Limited v. Green Infra Wind Solutions Limited (2026 SCC OnLine SC 479)

5 Andhra Pradesh Electricity Regulatory Commission (Terms and Conditions for Tariff Determination for Wind Power Projects) Regulations 2015, Regulation 20

6 Green Infra Wind Solutions Limited vs. Andhra Pradesh Electricity Regulatory Commission and Others (APL No. 284 OF 2018)

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