Electricity regulation in India: overview

A Q&A guide to electricity regulation in India.

The Q&A gives a high level overview of the domestic electricity market, including domestic electricity companies, electricity generation and renewable energy, transmission, distribution, supply and tax issues. It covers the regulatory structure; foreign ownership; import of electricity; authorisation and operating requirements; trading between generators and suppliers; rates and conditions of sale and proposals for reform.

This Q&A is part of the global guide to energy and natural resources. For a full list of content visit www.practicallaw.com/energy-guide.

Pallavi Bedi and Rohit Rajagopal, J Sagar Associates
Contents

Overview

Electricity market

1. Provide an overview of the electricity market in your jurisdiction, including recent trends over the last 12 months.

Overview

The installed capacity of power plants increased from 1,713 MW in 1950 to about 211,766 MW by December 2012. A robust inter-state and inter-regional transmission system has evolved over decades, which facilitates widespread reach of power across the country.

The per capita consumption of electricity also increased from about 15 kWh in 1950 to about 814 kWh in 2011. About 90% of the villages in India have electricity. Although there has been substantial growth in generation, transmission and distribution capacity over the last sixty years, growth in demand for power has always exceeded generation capacity. The per capita electricity consumption in India is 24% of the world's average, and 35% and 28% of China and Brazil respectively.

Recent trends in the electricity sector

The power sector continues to endeavour to provide adequate power, within the realms of sustainable development principles, to fuel the growing economy. Currently, the main issues include:

  • Fuel shortage (domestic coal). Coal production has not been keeping pace with the increasing demand of the electricity sector, mainly due to various delays in the development of coal mines in India. Due to this coal shortage, Coal India Limited (CIL) through its operating subsidiaries had not been issuing/signing letters of assurances/fuel supply agreements (FSAs) to power plant developers for supply of coal. The Ministry of Coal (MoC) therefore directed CIL to sign FSAs with power plants to supply a minimum annual contracted quantity of coal of at least 80%. It was also necessary to import coal due to the shortage. However, some FSAs have been signed although certain issues continue to need resolving.

  • Pooled pricing of coal. Pooled pricing of coal (domestic and imported) is necessary as the production of domestic coal is not adequate for the coal requirements of power plants (both existing and planned). The Central Electricity Authority (CEA) and CIL therefore propose to prepare a scheme of coal price pooling to be considered by the Ministry of Power (MoP).

  • Renegotiation of bid route purchase power agreements (PPAs) due to imported coal cost. Due to recent changes in the international coal market (specifically Indonesia), the prices of coal have substantially increased. This increase in fuel prices has substantially impacted the tariff initially bid by the project developers for coastal power plants in India (run on imported coal). Following this unexpected change, certain project developers have asked the Central Electricity Regulatory Commission (CERC) to intervene and approve a revised tariff for their power plants.

  • Environmental clearance and land related issues. Land allocation issues and obtaining environmental clearance for their projects continue to be issues for power project developers.

  • Tariff rationalisation. In a recent order, the Appellate Tribunal for Electricity (APTEL) issued directions to the State Electricity Regulatory Commissions (SERCs) to ensure that state distribution utilities file tariff petitions for annual review of tariffs. This order was consequent to a suo moto action taken by the APTEL (an action taken by the APTEL on its own initiative) following a letter received from the MoP. Most SERCs have therefore asked electricity distribution companies to file tariff petitions for increase of tariffs. In cases where the distribution companies had not filed tariff petitions for tariff increases, the SERCs have passed suo moto orders for increasing distribution companies’ tariffs.

  • Distribution reforms. The MoP identified the poor financial health of the distribution utilities in India as a major issue to be addressed to get the power sector back on track. Based on a high level panel report (popularly known as the Dr Shunglu Committee report), the government is considering schemes for financial restructuring of state distribution companies.

 

Regulatory structure

2. Describe the regulatory framework for the electricity sector, including the regulatory authorities.

Regulatory framework

The Constitution of India places electricity on the concurrent list, that is, both the centre and state legislatures are authorised to enact law and make policies to promote the electricity sector.

The Electricity Act 2003 (Electricity Act) framed by the central legislature covers major issues involving generation, distribution, transmission and trading of power.

The main regulatory authorities that regulate the tariff of generating companies are CERC and SERC.

CERC is responsible for:

  • Determining and regulating tariffs for generating companies owned or controlled by the central government.

  • Generating companies other than those owned or controlled by central government, if those companies have entered into a composite scheme for generation and sale of electricity in more than one state.

SERCs determine and regulate tariffs for intra-state generation, supply, transmission and wheeling of electricity in the relevant states. The Electricity Act governs the following, among other things:

  • Generation. Licensing requirements were removed for the generation of electricity (except for permission for certain hydro projects) (Electricity Act). Anyone can therefore develop a generating station in accordance with the applicable Indian laws. Generating companies are now permitted to sell electricity to any trading and distribution licensee and to consumers directly (subject to getting open access approvals).

  • Transmission. Transmission is a regulated activity that requires a licence from the appropriate regulatory commission (CERC or SERC), unless exempted in accordance with the Electricity Act or if deemed a licensee under the Electricity Act. Central Government must designate one government company as the central transmission utility (CTU), which would be deemed a transmission licensee (Electricity Act). Similarly, each state government designates one government company as a state transmission utility (STU), which would also be deemed as a transmission licensee. CERC and SERC are the regulators and licensors for anyone seeking to undertake transmission activities. CTUs are prohibited from generating electricity or trading in electricity (Section 38, Electricity Act). The prohibition on STUs, however, is only for engaging in trading in electricity. Transmission licensees can also engage in any other business in addition to transmission (except trading), provided prior notice is given to the appropriate regulatory commission (Section 41, Electricity Act).

  • Trading. Trading of electricity is a licensed activity, which is defined as the purchase of electricity for resale to any person (Electricity Act), which can involve either:

    • wholesale supply (that is, purchasing power from generators and selling to the distribution licensees); or

    • retail supply (that is, purchasing from generators or distribution licensees for sale to end consumers).

    The regulatory authorities responsible for granting a trading licence are CERC (if the trading is proposed to be inter-state) and SERC (if the trading is proposed to be intra-state). A trading licensee must keep the accounts of the trading business separate from any other business carried out by it.

  • Distribution and retail supply. The Electricity Act does not make any distinction between distribution and retail supply of electricity. Distribution is a licensed activity and distribution licensees are allowed to undertake trading without any separate licence. A distribution licensee can engage in any other business with prior notice to the appropriate commission (Section 51, Electricity Act).

Regulatory authorities

See box, The regulatory authorities.

 

Electricity companies

Main companies

3. What are the main companies involved in electricity generation, transmission, distribution and supply in your jurisdiction?

Generation

The main companies involved in electricity generation are the National Thermal Power Corporation, National Hydro Power Corporation, Damodar Valley Corporation, GMR Energy, Torrent Power, Essar Power, Tata Power, Reliance Power, Adani Power, Lanco Power and Jaypee Power Ventures.

Transmission

The main companies involved in transmission are the Power Grid Corporation of India (CTU), STUs (such as Delhi Transco), Powerlinks Transmission Pvt, Kalpataru Power Transmission, Sterlite Technologies and Isolux Infrastructures.

Distribution and supply

The main distribution and supply companies include Tata Power, BSES Rajdhani Power and BSES Yamuna Power.

 

Foreign ownership

4. Are there any restrictions concerning the foreign ownership of electricity companies in your jurisdiction?

The Foreign Direct Investment (FDI) Policy of India allows up to 100% investment in the power sector (except atomic energy) under the automatic route (that is, where specific approval of the government for the investment is not required). This includes generation, transmission and distribution of electricity, as well as power trading.

 

Import of electricity

5. To what extent is electricity imported in your jurisdiction and are there interconnection issues?

Electrical energy is a restricted item for imports and a specific licence must be obtained from the Director General of Foreign Trade (DGFT) (Indian Foreign Trade Policy (issued under the Foreign Trade (Development and Regulation) Act 1992)). In addition, an entity importing electricity requires a trading licence. India does not import a substantial amount of electricity and 3,900 MW was imported in April to September 2012. The generation target for 2012 to 2013 for imports from Bhutan is 5,480 MW.

In India, the Power Trading Corporation (PTC) is the main agency appointed to import power (currently from Nepal and Bhutan). Therefore, the authority of the entity importing power in to India and responsible for transmission of electricity from the delivery point to the closest grid needs consideration. In addition, the norms/guidelines for transmission of electricity, injections into the grid in India and the exporting country, must be examined to ensure that the two can be co-ordinated/paralleled to avoid conflicts, and so on.

 

Electricity generation and renewable energy

Sources of electricity generation

6. What are the main sources of electricity generation in your jurisdiction, excluding renewable sources?

The main sources of the total 185,895.58 MW of electricity generation are as follows:

  • Coal: 120,873.38 MW (65.02%).

  • Gas: 18,903.05 MW (10.16%).

  • Oil: 1,999.75 MW (1.07%).

  • Hydro: 39,339.40 MW (21.16%).

  • Nuclear: 4,780.00 MW (2.57%).

 
7. Are there any plans to build new nuclear power stations in your jurisdiction?

The Atomic Energy Act 1962 governs the development and regulation of nuclear energy. The projects currently under construction include the nuclear power plants of Koodankulam in Tamil Nadu, Jaitapur in the Maharashtra and Rawatbhata in Rajasthan.

Post Fukushima, there were mass protests against the French-backed 9,900 MW Jaitapur Nuclear Power Project in Maharashtra and the 2,000 MW Koodankulam Nuclear Power Plant in Tamil Nadu. There has been a mixed response to nuclear power, post Fukushima, at the state level. For example, the state of West Bengal refused permission to a proposed 6,000 MW facility near the town of Haripur that intended to host six Russian reactors. However, development of the Koodankulam nuclear power plant in Tamil Nadu continues, despite mass protests.

Also, post Fukushima, a Public Interest Litigation (PIL) against the government's civil nuclear programme was filed with the Supreme Court (currently pending). The petition was filed with a request to cancel "clearances given to proposed nuclear power plants and staying all proposed nuclear power plants" until satisfactory safety measures and cost-benefit analyses are completed by "independent" agencies.

 

Authorisation and operating requirements

8. What are the authorisation requirements to construct electricity generation plants?

The following addresses only the central authorisations/approvals. Other state-specific approvals (depending on the location of the power plant) may also be required.

Environment permits prior to construction

The authorisations generally required for constructing a power plant include:

  • Environmental clearance from the Ministry of Forest and Environment (MOEF) before the power plant is set up (EIA Notification 2006). Environmental clearance is not required for a solar power project.

  • Consent to establish from the respective state pollution control board (Water (Prevention and Control of Pollution) Act 1974 and Air (Prevention and Control of Pollution) Act 1981).

  • Forest clearance, if forest land is to be used for non-forestry purposes (Forest (Conservation) Act 1980).

  • Licences for usage and storage of fuel oil storage tanks, explosive and inflammable liquids, and chemicals under both the:

    • Explosives Act 1884 read with Explosives Rules 2008; and

    • Petroleum Act 1934 read with Petroleum Rules 2002, if applicable.

  • Coastal regulatory zone clearance, if the project falls within the coastal regulatory zone (Environment Protection Act 1986 and Coastal Regulation Zone Regulations).

  • Approval for use of boilers (Indian Boilers Act 1923).

  • Authorisation for storage of hazardous waste (Hazardous Waste (Management and Handling) Rules 1989).

Labour permits

The labour permits required include:

  • Registration under the Buildings and other Construction Workers (Regulation of Employment and Conditions of Service) Act 1996.

  • Registration of the proposed design and construction of the power plant under the Factories Act 1948.

  • Registration of all foreign nationals employed for construction/supervision activities for the project under the Registration of Foreigners Rules 1992.

  • If contract labour is to be employed at the project site for construction activities a certificate of registration must be obtained from the relevant Labour Department under the Contract Labour (Regulation and Abolition) Act 1970.

  • If a certain percentage of workers have been hired from outside the state where the power project is located, the generating company must acquire a registration under the Inter State Migrant Workmen (Regulation of Employment and Condition of Service) Act 1979.

In addition to these approvals, registration may be required under the Employees' Provident Funds and Miscellaneous Provisions Act 1952, Payment of Gratuity Act 1972, Maternity Benefit Act 1961, Employee State Insurance Act 1948, and so on.

Land and construction

The approvals/permits required for land and construction include:

  • For acquisition of land, the approvals/permits required depend on the type of land (that is government revenue land, forest land, agricultural land or privately held land). If the land where the project is to be situated is forest land, then approvals may be required under the Indian Forest Act 1927 from MOEF, and so on. For agricultural land, approvals may be required for using agricultural land for non-agricultural purposes, and so on.

  • A no-objection certificate (NOC) from Gram Panchayat (village level entity) may be required for development of the power project (depending on the location of the project).

  • An approval for use of water for the power plant (ground water or sea water).

  • An NOC from the Ministry of Defence if the power project is located near an international border or an airforce base.

  • A Civil Aviation Clearance for the height of the chimney (Civil Aviation Act 2000).

  • An allocation/approval of electric supply for bulk construction power supply.

  • An approval/NOC in accordance with the Electricity Act from the Chief Electrical Inspector of the respective state for plant layout for electrical equipment operational safety.

  • Adherence to the CEA (Technical Standards for Construction of Electrical Plants and Electrical Lines) Regulations 2010 while building the power plant.

  • Adherence to the CEA (Safety Requirements for Construction, Operation and Maintenance of Electrical Plants and Electrical Lines) Regulations 2011 while building the power plant.

  • Prior concurrence of the CEA (only for hydro power) may be required (Section 8, Electricity Act).

  • An Import-Export Code is required for import of equipment for the development of the power project (Foreign Trade (Development and Regulation) 1992).

 
9. Are there any requirements to ensure new power stations are ready for carbon capture and storage (CCS) technology, or requiring a plant to retrofit CC technology once this is ready?

Currently, there are no CCS requirements for power plants. India has decided to adopt a low carbon generation strategy to reduce energy intensity and promote sustainable development. Some of the steps being taken to achieve this aim include:

  • Harnessing of renewable resources to the extent possible.

  • Promotion of hydro and nuclear generation.

  • Enhancing efficiency of the existing power plants.

  • Creating indigenous manufacturing capacity for super critical equipment such as boilers and turbines that operate at higher temperatures resulting in higher efficiency.

CCS is considered a primary technology, however, it is difficult to store carbon and CCS is, among other things:

  • Energy intensive.

  • Expensive.

 
10. What are the authorisation requirements to operate electricity generation plants?

The main authorisations to operate electricity generation plants include:

  • Approval for a generator from the appropriate regulatory commission (CERC/SERC) for the tariff.

  • Consent to operate under the Water (Prevention and Control of Pollution) Act 1974 and Air (Prevention and Control of Pollution) Act 1981 from the respective state pollution control boards.

  • Approval by the relevant state transmission licensee/distribution licensee for the power evacuation arrangements and grid interfacing plan for the project.

  • Compliance with ongoing labour and environment approvals. Most approvals (see Question 8) generally provide for a validity period and following the expiry of the validity period need to be renewed during the operation of the power plant.

  • Adherence to CERC (Indian Electricity Grid Code) Regulations 2010 and CEA (Grid Standards) Regulations 2010.

 
11. What are the main ongoing requirements?

Some of the main ongoing safety requirements are set out in the CEA (Safety Requirements for Construction, Operation and Maintenance of Electrical Plants and Electrical Lines) Regulations 2011 and the CEA (Measures relating to Safety and Electric Supply) 2010. Conditions that must be complied with in accordance with these regulations include:

  • Obtaining accreditation of electric plants and lines with IS-18001 certification within two years of the construction commencement date.

  • Setting up a sound and scientific safety management system to:

    • include a safety manual and an emergency management plan, for example; and

    • identify hazards that could give rise to injury, impairment, and so on.

  • Appointing a safety officer.

  • Reporting accidents and outages to the CEA.

  • Setting up medical facilities at the power plant.

 
12. What requirements are there concerning interconnection of generation to the transmission grid?

Generating companies must:

  • Get approval from CTU/STU for access to the transmission system, interconnection to the grid.

  • Enter into a connectivity agreement with the CTU (for connection to the inter-state transmission grid) or the respective STU (for connection to the intra-state transmission grid). This must be done in accordance with CERC (Grant of Connectivity, Long-term Access and Medium-term Open Access in Inter-State Transmission and related matters) Regulations 2009 or under the relevant SERC regulations.

 

Renewable energy

13. Are renewable sources used to generate electricity in your jurisdiction?

Renewable energy is an important focus of the Indian Government. The main sources of renewable energy are wind, solar, bio power (biomass power, bagasse cogeneration (fibrous matter that remains after crushing sugarcane or sorghum stalks), urban and industrial waste to energy) and small hydro. Currently, renewable sources contribute about 12.25% of the total electricity generated as follows:

  • Wind: 69.9%.

  • Small hydro: 15.7%.

  • Bio power: 14.2%.

  • Solar: 0.2%.

 
14. Are there government policies and/or incentives in place to encourage the use of renewable energy?

Government policies/incentives

The policy measures in place to encourage the use of renewable energy include:

  • The Electricity Act which, among other things, provides for ways to accelerate the development of renewable sources of energy as follows:

    • the central government in consultation with the state government must formulate a National Electricity and Tariff Policy based on optimal utilisation of resources including renewable sources of energy (Section 3, Electricity Act);

    • the SERCs functions will include promoting co-generation and generation of electricity from renewable sources of energy (Section 86, Electricity Act).

  • The central government to promote solar power generation framed the Jawaharlal Nehru National Solar Mission (JNNSM). The objective of JNNSM is to establish India as a global leader in solar energy by creating policy conditions for its diffusion across the country.

  • In addition to the national policies, the states have their own policies to encourage the use and development of renewable energy, including for example, the Madhya Pradesh State Solar Policy 2012, the Gujarat Solar Policy 2009 and the Gujarat Wind Power Policy 2007.

The incentives provided under these policies and other relevant legislation include:

  • Feed in tariffs. SERCs must set preferential tariffs for procurement by distribution companies of power generated from renewable energy sources (Tariff Policy 2006). CERC has also issued the levellised tariff for renewable projects (that is, the average fixed and variable tariff over the entire term of the Power Purchase Agreement adjusted for inflation). The generic levellised tariff for solar projects are (CERC (Terms and conditions for tariff determination from renewable energy sources) Regulations 2012):

    • solar PV: up to INR10.39/kWh without claiming accelerated depreciation and INR9.35/kWh after claiming accelerated depreciation; and

    • solar thermal projects: INR12.46/kWh without claiming accelerated depreciation and INR11.22/kWh after claiming accelerated depreciation.

  • Accelerated depreciation. Generating companies can avail of accelerated depreciation, which allows greater deductions in the earlier years of the life of an asset. This allows developers to reduce taxable profits (Section 32, Income Tax Act). This benefit is not available if the generator avails of the generator based incentive and may be withdrawn with the proposed direct tax code coming into effect.

  • Generation based incentives. Output oriented incentives are also given. For example, for wind energy, a Generation Based Incentive (GBI) of INR0.50 per unit of electricity over and above the tariff approved by SERC is allowed.

  • Customs and excise duty exemption. Customs duty exemption is granted to solar project developers for importing equipment required for the initial setting up of a solar power project, subject to compliance with certain prescribed conditions. Also, specified renewable energy equipment (for example, solar PV modules and water pumping windmills) is granted excise duty exemption under section 5A(1) of the Central Excise Act 1944.

  • Clean development mechanism (CDM) benefits. The emission-reduction projects (for example, renewable energy projects) in developing countries are entitled to earn certified emission reductions. Revenue generated from the sale of certified emission reductions has created a potential market for significant additional capacity in renewable energy based projects.

Renewable energy targets

To promote generation of electricity from renewable resources, the SERCs must fix a minimum percentage for purchase of energy from renewable energy sources in the distribution licensee's area (Section 86(1)( e), Electricity Act; Clause 5.12.2, National Electricity Policy 2005; and Clause 6.4, Tariff Policy 2006). Renewable Energy Certificates (RECs) are issued in accordance with CERC (Terms and Conditions for recognition and issuance of RECs for Renewable Energy Generation) Regulations 2010. These are valid instruments for the discharge of renewable purchase obligations.

 
15. What are the main obstacles to the development of renewable energy in your jurisdiction?

The main obstacles to the development of renewable energy include:

  • Lack of co- ordinated policy. Renewable energy development has been largely driven by separate and not fully co-ordinated central and state policies.

  • Project financing. Securing timely financing for the projects has been one of the main challenges for this sector. Higher interest rates and shorter loan terms has increased the cost of power projects.

  • High investment cost. Projects in this sector are capital intensive requiring high capital investment. In addition, declining tariffs prove to be a challenge.

  • Lack of infrastructure. Inadequate evacuation infrastructure and grid interconnections are one of the biggest barriers to harnessing renewable energy potential.

  • Renewable purchase obligations (RPO) enforcement. Currently, the enforcement of RPOs across states is inconsistent and a number of state distribution utilities have failed to honour their RPOs.

  • REC regime. The REC market has not been successful to date.

 

Electricity transmission

Authorisation and operating requirements

16. What are the authorisation requirements to construct electricity transmission networks?

The main central authorisations to construct electricity transmission networks include:

  • Licence to engage in the activity of inter-state transmission in accordance with CERC (Procedure, Terms and Conditions for grant of Transmission Licence and other related matters) Regulations 2009. If the transmission is proposed to be intra-state then the licence must be obtained in accordance with the relevant SERC's regulations.

  • Adherence to the CEA (Technical Standards for Construction of Electrical Plants and Electrical Lines) Regulations 2010 while building the transmission system and laying electrical lines.

  • Adherence to the CEA (Safety Requirements for Construction, Operation and Maintenance of Electrical Plants and Electrical Lines) Regulations 2011 while building the transmission system and laying electrical lines.

  • Adherence to the Work of Licensees Rules 2006.

  • Approval from central or state government for placing overhead transmission lines (Section 68, Electricity Act).

  • Clearance from Indian Railways (in accordance with the Regulation for Electrical Crossing of Railway Tracks 1963) for power lines crossing railway tracks.

  • Labour approvals may also be required (see Question 8).

 
17. What are the authorisation requirements to operate electricity transmission networks?

A transmission licensee:

  • Requires approval from the appropriate regulatory commission (CERC/SERC) for the tariff.

  • Must adhere to CERC (Indian Electricity Grid Code) Regulations 2010 and CEA (Grid Standards) Regulations 2010.

  • Must comply with directions that may be issued by the National Load Despatch Centre, the Regional Load Despatch Centre or the State Load Despatch Centre to ensure availability of the transmission system is maintained (Rule 5, Electricity Rules 2005).

 
18. What are the main ongoing requirements?
 

Rates

19. How are the rates and conditions for the transmission of electricity regulated?

The transmission licensee must make an application to the CERC or the SERC (as relevant) to fix the tariff. The CERC regulates the tariff for inter-state transmission of electricity through CERC (Terms and Conditions of Tariff) Regulations 2009. These CERC regulations are also a guiding factor for SERCs when they determine the tariff for intra-state transmission.

The relevant commission is guided by the following principles, among other things (Section 61, Electricity Act):

  • Generation, transmission, distribution and supply of electricity are conducted on commercial principles.

  • The factors that encourage competition, efficiency, economical use of resources, good performance and optimum investments.

  • Safeguarding consumers' interest and also ensuring recovery of the cost of electricity in a reasonable manner.

  • Incorporating principles that reward efficiency in performance.

  • Multi-year tariff principles.

Private companies that are not generating companies setting up dedicated transmission lines, are granted a transmission licence only if they are selected through competitive bidding in accordance with CERC (Procedure, Terms and Conditions for grant of Transmission Licence and other related matters) Regulations 2009. If an entity is granted a transmission licence due to participation in the bidding process, the tariff quoted as a part of the bid is adopted by the CERC.

 

Electricity distribution

Authorisation and operating requirements

20. What are the authorisation requirements to construct electricity distribution systems?

The main central authorisations to construct electricity distribution systems include:

  • A distribution licence under section 14 of the Electricity Act in accordance with the relevant regulations issued by the SERC for granting distribution licences.

  • Adherence to the CEA (Technical Standards for Construction of Electrical Plants and Electrical Lines) Regulations 2010 while building the distribution system.

  • Adherence to the CEA (Safety Requirements for Construction, Operation and Maintenance of Electrical Plants and Electrical Lines) Regulations 2011 while building the distribution system.

  • Adherence to the Work of Licensees Rules 2006.

Labour approvals may also be required (see Question 8, Labour permits).

 
21. What are the authorisation requirements to operate electricity distribution systems?

A distribution licensee requires approval from the appropriate SERC for retail sale of electricity tariffs.

The distribution licensee must continuously comply with the electricity supply code issued by the SERC (Section 50, Electricity Act), which, among other things, provides for:

  • Recovery of electricity charges.

  • Disconnection of supply for non-payment.

  • Measures for preventing tampering.

 
22. What are the main ongoing requirements?
 
23. How are the rates and conditions for the distribution of electricity regulated?

The distribution licensee must make an application (in the form of a petition) to the appropriate SERC to fix a tariff. The public (end consumer) has a right to raise objections to this petition. The distribution tariff is determined by the relevant SERC in accordance with the principles and methods prescribed by it (Section 45(2), Electricity Act). The SERC is guided by the principles set out in section 61 of the Electricity Act (see Question 19).

 

Electricity supply

Authorisation and operating requirements

24. What are the authorisation requirements to supply electricity distribution systems?

The Electricity Act does not make a distinction between distribution and retail supply of electricity. For authorisation requirements to construct electricity distribution systems see Question 20.

 
25. What are the main ongoing requirements?
 

Trading between generators and suppliers

26. How is electricity trading (between generators and suppliers) regulated?

Anyone wishing to trade in electricity must obtain a trading licence from CERC (if inter-state trading is proposed) and SERCs (if only intra-state trading is proposed). The procedure for obtaining the trading licence, and the terms and conditions of the trading licence are regulated by CERC (Procedure, Terms and Conditions for grant of Trading Licence and other related matters) Regulations 2009. The holder of an inter-state trading licence granted by CERC can also engage in intra-state trading of electricity without need of a separate licence for such transactions (Rule 9, Electricity Rules 2005).

CERC is empowered to fix the trading margin for inter-state trading of electricity (Section 79(i) ( j), Electricity Act). CERC (Fixation of Trading Margin) Regulations 2010 (Margin Regulations) regulate the sale prices of a trading licensee to a distribution licensee. The Margin Regulations only apply to short-term contracts for inter-state sale of electricity (that is, for a period less than one year) by the holder of an inter-state trading licence granted by the CERC. Intra-state sale of electricity by the holder of an inter-state trading licence granted by CERC is not governed by the Margin Regulations; however, intra-state trading is subject to regulation by the SERCs. SERCs are empowered to fix the trading margin for intra-state trading of electricity (Section 86(i) ( j), Electricity Act).

The Margin Regulations prescribe that the trading margin for inter-state short-term sale of electricity must not exceed:

  • INR0.07/kWh if the sale price exceeds INR3/kWh.

  • INR0.04/kWh where the sale price is less than or equal to INR3/kWh.

This margin includes all charges, except the charges for scheduled energy, open access and transmission losses.

 

Rates and conditions of sale

27. How are the rates and conditions of sale regulated at the consumer and wholesale level?

Consumer

For consumer sales, a trader purchases electricity from a generator or distribution licensee for onward sale to end consumers. Tariffs for retail sale of electricity are determined by the relevant commission (CERC or SERC) (see Question 23).

Wholesale

Sale at wholesale level is when a trader purchases electricity from a generator to sell to a distribution licensee. The issue of whether any commission (CERC or SERC) will have the power to regulate the wholesale tariff is currently before the courts.

 

Tax issues

28. What are the main tax issues arising on electricity, generation, distribution and supply?

The project developer needs to consider the allocation of the following taxes, among other things, with its contractors (Engineering-Procurement-Construction (EPC)/Operation and Maintenance (O&M)):

  • Central sales tax/VAT on the inter-state sale of goods and services under the Central Sales Tax Act 1956.

  • Service tax on any services rendered or received in India in accordance with the Finance Act 1994.

  • Customs duty on the import of goods under the Customs Act 1962 and Customs Tariff Act 1975.

Changes in tax issues must be considered by the project developer (for example, if full pass through of additional costs in tariff is allowed, and so on).

 

Reform

29. What reform proposals are there for the regulation of the electricity sector?

The following are proposed in relation to regulation of the electricity sector:

  • Model state electricity distribution responsibility bill. The central government proposes to introduce a model State Electricity Distribution Responsibility Bill. This Bill proposes to hold state distribution licensees accountable for implementing the power reforms introduced under the newly approved debt restructuring financial package for distribution companies.

  • Dedicated transmission lines. As generation is a de-licensed activity, generation companies that construct dedicated transmission lines are not currently governed by the Work of Licensee Rules 2006 applicable to transmission and distribution licensees. There is a proposal to amend the Electricity Act so that the Work of Licensee Rules 2006 also applies to generation companies that build dedicated transmission lines.

  • Model PPA based on a design, build, finance, operate and transfer (DBFOT) model. The MoP is in the process of revising its standard bidding documents for procurement of power by distribution licensees. In this regard MoP had issued a draft Model Power Purchase Agreement for Public Private Partnership in generation of electricity on a DBFOT model. In this regard, CERC has suggested that the model be based on a build, own, operate (BOO) model rather than a DBFOT model (see www.cercind.gov.in/2012/Advice_Gov/26oct12.pdf).

  • Viability gap funding. The policy document for Phase-II of the JNNSM proposes to subsidise solar energy projects through viability gap funding (as an upfront capex subsidy, that is, a subsidy on the capital proposed to be incurred for setting up the project). Viability gap funding is being introduced in the solar energy sector for the first time (see http://mnre.gov.in/file-manager/UserFiles/draft-jnnsmpd-2.pdf).

  • Suo moto revision of tariff. There is a proposal to amend section 64 of the Electricity Act to empower the regulatory commissions for suo moto revision of consumer tariffs.

  • Tariff determination by regulators. A state distribution company can procure power (Electricity Act):

    • through a Memorandum of Understanding (MoU) route (that is, a negotiated PPA under section 62 of the Electricity Act); or

    • by seeking competitive bids from generation companies (Section 63, Electricity Act). The Tariff Policy provides that all future requirement of power should be procured competitively by distribution licensees.

The issue of state distribution companies having the continued right to do negotiated PPAs has been litigated. The ability to do MoU route PPAs was upheld at the APTEL, however, the matter is currently pending before the Supreme Court (which has not stayed the order of the APTEL). There is a proposal to amend sections 62 and 63 of the Electricity Act to clarify the position in this regard.

 

The regulatory authorities

Ministry of Power (MoP)

W http://powermin.nic.in/JSP_SERVLETS/internal.jsp

Main activities. MoP is the umbrella ministry for the regulation and development of the electricity sector.

Ministry of New and Renewable Energy (MNRE)

Address. Block-14, CGO Complex, Lodhi Road, New Delhi 110 003
W www.mnre.gov.in

Main activities. MNRE is the umbrella ministry for the regulation of new and renewable energy.

Central Electricity Regulatory Commission (CERC)

Address. 3rd and 4th Floor, Chanderlok Building, 36, Janpath, New Delhi 110 001
T +91 11 2335 3503
F +91 11 2375 3923
W www.cercind.gov.in
E info@cercind.gov.in

Main activities. CERC is responsible for:

  • Regulating the tariff of generating stations owned by the central government, or those involved in generating or supplying in more than one state.
  • Regulating inter-state electricity transmission.
  • Adjudicating disputes between generating companies and licensees.

State Electricity Regulatory Commission (SERCs)

Each state has its own SERC.

W www.gercin.org (Gujarat)

W www.mercindia.org.in (Maharashtra)

W www.mperc.nic.in (Madhya Pradesh)

W www.derc.gov.in (Delhi)

W www.tnerc.tn.nic.in (Tamil Nadu)

Main activities. The SERCs regulate intra-state transmission and supply of electricity within the jurisdiction of each state.

Central Electricity Authority (CEA)

W www.cea.nic.in
Address. Sewa Bhawan, Rama Krishna Puram, New Delhi 110 066
T +91 11 2610 8889

Main activities. The CEA is responsible for the technical co-ordination and supervision of programmes/policies and is also entrusted with a number of statutory functions under the Electricity Act.

Appellate Tribunal for Electricity (APTEL)

W http://aptel.gov.in
Address. 7th Floor, CORE 4, Scope Complex, Lodhi Road, New Delhi 110 003
T +11 2436 1518

Main activities. APTEL has been set up as an appellate body for appeals against the orders of the commissions (CERC and SERCs).

National Load Despatch Centre

W www.nldc.in
Address. B-9, Qutab Institutional Area, New Delhi
T +91 11 2653 6832

Main activities. The National Load Despacth Centre schedules and despatches electricity over inter-regional links in accordance with grid standards.

Regional Load Despatch Centre

W www.nrldc.org

W www.erldc.org

W www.nerldc.org

W www.srldc.org

W www.wrldc.com

Main activities. Each region (northern, eastern, north eastern, southern and western) has its own regional despatch centre, which is responsible for the integrated operation of the power system in its own region.


Online resources

W www.powermin.nic.in

Description. MoP's website contains information about generation, distribution, transmission and trading statistic and all relevant legislation (Central Acts).

Wwww.mnre.gov.in

Description. MNRE's website contains information about new and renewable energy in India, and all policies, schemes, notifications, and so on, for renewable energy.

W www.cea.nic.in

Description. CEA's website contains the latest information about the technical details of the Indian Electricity Sector. It also contains the relevant regulations/guidelines issued by the CEA.

W www.cercind.gov.in

Description. The CERC's official website contains the policies issued under the Electricity Act. It contains all existing, repealed and draft regulations, and tariff orders issued by the CERC. The website is periodically updated.

W www.gercin.org

Description. Official website of the SERC of Gujarat.

W www.derc.gov.in

Description. Official website of the SERC of Delhi.

W http://dipp.gov.in

Description. The Department of Industrial Policy and Promotion website contains information about FDI Policy and enabling statutes.

W www.dgft.gov.in

Description. The DGFT website contains information about Foreign Trade Policy and enabling statutes.

W www.dae.gov.in

Description. The Department of Atomic Energy website contains information about nuclear power in India.

W http://labour.nic.in/content

Description. The Ministry of Labour and Employment website contains the text of all relevant labour legislation in India.

W http://envfor.nic.in

Description. The MOEF website contains the text of all relevant labour legislation and notification in India.

W http://aptel.gov.in

Description. The APTEL website contains orders and judgments passed by it.

 
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