Gujarat Urja Vikas Nigam Limited v. Renew Wind Energy (Rajkot) Private Limited

6. The objective of the REC Regulations 2010 was to separate the physical electrical component and the environmental (renewable) component of the energy for issuance of RECs. This was an alternate mechanism developed for the sale of renewable energy at a preferential tariff to any licensee or directly to any consumer. The REC Regulations 2010 aimed at selling the renewable component through the RE Certificates containing promotional benefits of renewable energy while the physical electrical component was sold as any other conventional electricity. The REC Regulations 2010 also provided that generators based on the REC mechanism had the option to sell physical energy to the distribution licensee at a "price not exceeding the Average Pooled Power Purchase Cost” (hereinafter as “APPC”) of the distribution licensee[9]. This was to ensure that generators did not benefit twice over, by selling RECs and also selling physical energy at higher promotional tariffs or taking concessional benefits from the concerned distribution licensee.

7. Under the REC Regulations 2010, distribution licensees were not obliged to purchase the physical component of electricity from renewable energy generators set up under the REC mechanism since such REC based generators had alternative options with regard to the physical component of electricity, namely, (i) sale of electricity power exchanges (ii) wheeling of power for sale to third parties at mutually agreed rates or (iii) wheeling of power for their own consumption. In the case of the sale of the physical component of electricity, the price for the electrical component could not exceed average pooled cost of the distribution licensees. The regulations also provided that the generators (of renewable energy) were not eligible for any benefits including banking facilities, exemption from payment of cross subsidy surcharge etc. amongst other things. The stated promotional benefits were applicable only in terms of trading and selling of the RE Certificates.

8. The REC Regulations 2010 provided for floor price and forbearance price i.e. minimum price and maximum price respectively at which RECs could be traded in the power exchange. Those prices i.e. floor price and the forbearance prices were to be determined by the central commission for the entire country.

9. In the present case, the State Commission by its order10 determined the tariff for procurement of power by distribution licensees from wind energy generators and also ruled on other commercial issues for wind energy generators set up under a preferential tariff mechanism. The order provided for a preferential levelized tariff of 3.56 per kWh for the supply of energy to the ₹ distribution licensee for meeting it’s Renewable Power Purchase Obligation (RPO). The “control period” of the Order [dated 30.1.2010] was for the period 11.08.2009 to 10.08.201211. The order, inter alia, also provided the following promotional benefits for wind generators set up for third party sale under a preferential mechanism: (a) Exemption from cross subsidy charges for the sale of wind energy to open access users in the State. (b) Payment for excess (over and above that set off against monthly consumption in the 15 minutes time block) would be treated as a sale to

10 Dated 30.01.2010 in Order No 1/2010 11 The relevant provision of the Order reads as follows: “2.[2] Control period The Commission had, vide its Order No.2 of 2006 dated 11th August,2006, determined the Wind Energy Tariff for a period of three years, i.e. upto 10th August,2009. The draft for the present order was published on 17.05.2009 and it was proposed to be effective from 1st July, 2009.However, some of the objectors suggested that the present order be made effective from the end of previous control period. Since the previous control period expired on 10th August, 2009, the Commission decides that the control period for this order will be 3 (three) years w.e.f. 11th August, 2009.” the distribution licensee concerned at a rate of 85% of the preferential tariff determined by commission for such renewable energy sources.

10. On 17.04.2010, the State Commission notified Gujarat Electricity Regulatory Commission (Procurement of Energy from Renewable Sources) Regulations, 2010 (hereafter “State Regulations”). The State Regulations provided for the percentage of total consumption that distribution licensees were to purchase from RPOs and further recognized that RPO could be fulfilled by the purchase of such RECs. Further, obligated entities could fulfil their renewable purchase obligation through two sources: (a) Purchase of renewable energy directly (at preferential tariff determined by State Commission); and (b) Purchase of RECs at a market price between Floor Price and Forbearance price determined by Central Commission

11. A Power Purchase Agreement (hereafter “PPA”) in terms of the REC Regulations 2010, was entered into between the Gujarat Urja and the wind power developers (hereafter, “WPDs”) including respondent RWE on 29.03.2012. The agreement provided for a ceiling on tariff at ₹ 2.64 per unit for 25 years. In addition to the tariff, WPDs were eligible for the issue of RECs for each unit of electricity generated and supplied by them to the appellants. The alternate route available for the WPDs (such as RWE, Wish Wind etc.) at the time of entering into the PPA was to sell electricity at a promotional tariff of ₹

3.56 per unit - as determined by the State Commission. By choosing the option, the WPDs were ensured tariff at ₹ 2.64 per unit plus tradable RECs whose price was determined on the basis of the “weighted average pooled price”12. Distribution licensees were enabled to adjust such quantum of power purchased towards RPO specified under Section 86(1)(e) of the Act. Thus, the interests of both segments of the industry were taken care of.

12. The State Commission by its order dated 08.08.201213 determined the tariff at which the power could be procured by the distribution licensees and others from wind power projects commissioned in the control period from 11.08.2012 to 31.03.2016.

13. On 11.07.2013, Central Commission amended the REC Regulations 2010 (hereafter “Second Amendment”) and replaced "at a price not exceeding pooled cost of the power purchase “with" at the pooled cost of power purchase"14 along with the relevant statement of reasons for the said amendment. It was clarified in the amendment that PPAs already executed prior to this amendment at a tariff lower than APCC would not be affected. The first two respondents were aggrieved by the order of the Central Commission. They filed a petition15

12 See Explanation to Regulation 5 of the REC Regulations 2010 which defines average pooled price as follows: “the weighted average pooled price at which the distribution licensee has purchased the electricity including cost of self-generation, if any, in the previous year from all the energy suppliers long-term and short-term, but excluding those based on renewable energy sources, as the case may be.” 13 in Order No. 2/2012 14 The relevant amendment to Regulation 5 (c), reads as follows: “(2) In sub-clause (c) of clause (1) of Regulation 5 of the Principal Regulations, the words "at price not exceeding the pooled cost of the power purchase of such distribution licensee" shall be substituted with the words "at the pooled cost of power purchase of such distribution licensee as determined by the Appropriate Commission".”

15 Petition No. 1363 of 2013 before the State Commission arguing that the terms of the PPA had to be changed in view of the change in the REC regulations. This petition was allowed by the State Commission directing that the order of the Central Commission was general and was therefore applicable to all similarly situated wind power generators. Aggrieved by the order of the State Commission, Gujarat Urja had preferred an appeal16 before APTEL. This appeal was rejected by APTEL by order dated 06.12.2018. The appellants preferred review petition against APTEL’s order rejecting their appeal against State Commission’s order; that too was dismissed by APTEL vide order dated 24.07.2020. Arguments of the Appellant

14. The learned senior counsel for the appellant, Mr. C.A. Sundaram submitted that governing regulations for the PPAs in question were the CERC Regulations 2010. Therefore, the State Commission had no jurisdiction to decide the tariff contrary to the agreement. Further, counsel argued that Central Commission itself has clarified by the Second Amendment that in respect of PPAs entered into prior to 11.07.2013, tariffs mutually agreed upon between the parties would be valid for the entire duration of the PPA (i.e. 25 years) and they could not be substituted or re-determined by the State Commission. It was further argued that had the appellants known about the APPC on year-on-year basis at the time of signing the agreement, they would not have adopted the REC mechanism but instead would have availed a different method whereby

15. Reliance was placed on this court’s judgment in Gujarat Urja Vikas Nigam Limited v. Solar Semi-Conductors Power Limited Company (India) Private Limited17 to argue that if the State Commission re-determines the tariff amongst the parties, then the aggrieved party cannot be compelled to continue the said agreement or enter into a new agreement on such increased tariff.

16. The appellants further submitted that State Commission had no jurisdiction to reopen the PPA as the same was entered into in terms of the REC Regulations 2010 that was framed by the Central Commission and was within its exclusive jurisdiction. Moreover, it was argued that the appellants would fail in their duty towards their consumers if they cannot negotiate for a lower tariff or if they agree to purchase power at a higher tariff despite the availability of power at a lower tariff. In such an event, the higher cost of procurement of power so imposed would be ultimately passed on to the consumers which would be contrary to a specified public interest, under the Act.

17. The learned senior counsel argued that the definition of the “APPC” cannot be relied upon in the present case18 and the PPA in question provided for a tariff. There was consequently no bar in any law or regulations for the parties 17 (2017) 14 SCR 115 18 APPC as clause 1.[1] of the PPA is defined as: "Average Power Purchase Cost" means the weighted average pooled price at which the distribution licensee has. Purchased the electricity including cost of self-generation, if any, in the previous year from all the energy suppliers long-term and short-term; but excluding those based on renewable energy sources, as the case may be. Further, for this agreement, Average Power Purchase Cost for the term of the agreement shall be as per Article No. 5.[2] to agree to such tariff and in fact, REC Regulations 2010 itself recognized that the PPA can be “at a price not exceeding the pooled purchase cost”. Likewise, for the sale of such power to customers or the licensees, reference is made to “mutually agreed price” and therefore reference to “mutually agreed price” can mean that price can also be a fixed price and need not mean that it has to be dynamic and varying every year.

18. It was argued that the interpretation placed by APTEL is not founded on any express provision in the regulations, or anything arising out of necessary implication. The change in regulations, unless made specifically operable for a prior period, cannot be construed to be retrospective. Thus, contracts concluded prior to the entered into prior to the amendment [in 2013] cannot be governed by amended provisions. Doing so would not only be contrary to the express terms of the amended regulations but would also be contrary to the terms of the PPA which do not accommodate or provide for such change in regulations.

19. The appellants further urged that the PPA was consciously entered into by the respondents on 29.03.2012, which was before the state commission’s tariff order dated 08.08.2012. The PPAs were signed by the respondents before 11.07.2013, (when the amendment was made to the REC regulations) voluntarily without any reservation. The terms of the PPA were binding and enforceable, unaffected by the Second Amendment, which applied prospectively. Learned counsel relied on the clarification by the CERC in the Statement of Reasons published in this regard.19

20. It is argued that the National Action Plan on Climate Change and the Union Ministry of Power resolution dated 28-01-2016 and Tariff Policy underline the necessity of the co-generation of renewable sources of energy, progressively, so that it reaches a greater proportion. The policy aims at increasing investment, and ensuring that viable units generating renewable energy are set up.

21. It was argued that the PPA was a commercial transaction, freely entered into between the parties. Neither the appellants nor the first Respondent was obliged to enter into the PPA nor agree to any specific terms or conditions. In case the terms were not acceptable, both parties had the freedom to reject the transaction and seek to sell or buy power through other alternative available options as provided under the REC Regulations 2010. Further at the time of signing the PPA, and even thereafter till the filing of the Petition before the State Commission in the month of December 2013 (i.e. more than one and half years after the execution of the PPA), the first respondent did not raise any objections or protest on being allegedly coerced or placed under duress to agree to the terms and conditions of the PPA. The terms of the PPA were fully in

19 Dated 10.07.2013, which inter alia, stated that “Some of the stakeholders have suggested to clarify as to whether the PPAs executed at price lower than APPC would become ineligible under REC Mechanism. It is felt that the tariff for electricity component lower or higher than APPC may lead to avoidable loss or profit to RE generator. The Commission would like to clarify that the intention is not to debar the projects that have executed PPA at tariff lower than APPC. This amendment will apply prospectively and as such will not affect the" already executed PPAs at lower than APPC.” compliance with the provisions of the REC Regulations 2010 as the restriction in those regulations was for the price not to exceed the Pooled Power Purchase Cost. The price agreed to between the appellant and Respondent No. 1 was ₹ 2.64/- per unit or Pooled Power Purchase Cost of the subsequent year, whichever was lower.

22. The appellants argue that till 11.07.2013 none of the WPDs/ respondents raised any issue on the tariff of 2.64/kWh for the entire duration of the PPA. ₹ It was only on 10.12.2013, the first two respondents filed Petition No.1363/ 2013 before the State Commission claiming that the tariff should be the APPC cost year-on-year basis instead of a fixed ₹ 2.64/kWh. This was contrary to the decision by CERC on the application of Second Amendment only prospectively -which is, for PPAs entered on or after 11.07.2013. The state commission by its order (dated 01.07.2015) allowed the respondent’s petition and further directed that the order is generic in nature and applicable to all similarly placed WPDswhich was affirmed by the first impugned order. The appellants argue that the governing Regulations for PPAs adopting the REC Mechanism are 2010 REC Regulations and the state commission cannot decide on tariff contrary to the same. When the Central Commission clarified that for PPAs entered into prior to 11.07.2013, the tariff mutually agreed is valid for the entire duration of the PPA (25 years), the state commission and APTEL fell into error in substituting a new tariff at the instance of the WPDs/Respondents. It is pointed out that Rule of the Electricity Rules, 2005, notified by the Central Government, is binding, and specifically provides that tariff determined by the Central Commission (CERC) shall not be subject to re-determination by the GERC/State Commission.

23. Learned senior counsel argued that if at the time of signing the PPAs WPDs-Respondents had sought for tariff at APPC on year-on-year basis, the appellants would not have entered into PPAs under the REC mechanism route and would have only adopted the alternate route where the price was fixed and in addition, the appellants would have been entitled to RPO benefits. This is also clear as the appellants did not sign any PPAs after the Second Amendment for procuring power under the REC mechanism. The appellants urge that the Impugned Order is contrary to the decision of this court in Gujarat Urja Vikas Nigam Limited v Solar Semi-Conductors Power Company (Pvt) Ltd (Supra) holding that if the state commission re-determines the tariff, it cannot force the appellants to continue the PPAs or enter into a contract based on such increased tariff. Furthermore, it is argued that the principle that WPDs having validly executed the PPAs cannot seek a modification to the tariff terms and conditions contained in the PPAs under a prevalent dispensation for an increase in the tariff or for any other terms and conditions: counsel referred to Transmission

20 Rule 8 reads as follows: "8. Tariffs of generating companies under section 79. –The tariff determined by the Central Commission for generating companies under clause (a) or (b) of subsection (1) of section 79 of the Act shall not be subject to redetermination by the State Commission in exercise of functions under clauses (a) or (b) of sub section (1) of section 86 of the Act and subject to the above the State Commission may determine whether a Distribution Licensee in the State should enter into Power Purchase Agreement or procurement process with such generating companies based,on the tariff determined by the Central Commission." Corporation of Andhra Pradesh Ltd v Sai Renewable Power Private Limited (hereafter “Transmission Corporation of Andhra Pradesh Ltd")21; Gujarat Urja Vikas Nigam Limited v EMCO Limited (hereafter “Emco Ltd”)22; and Gujarat Urja Vikas Nigam Limited v ACME Solar Technologies (Gujarat) Pvt Ltd & Others23 in support of the above contention.

24. Mr. Sundaram argued – for the appellants that the plea of coercion or duress or unequal bargaining etc, raised by the WPDs was patently erroneous for the following reasons: (a) the petition before the state commission was filed only by the first two Respondents; therefore, it cannot be a ground for alleging coercion against all WPDs; (b) the allegations by the said two Respondents were vague and unsubstantiated, and an afterthought as no such plea was raised till December 2013, i.e., till after the amended CERC Regulations; and (c) as held by this Court such plea of coercion had to be specifically pleaded and proved. In this regard, reliance was placed on Transmission Corporation of Andhra Pradesh Ltd (Supra).

25. It is further argued that there is no Regulation of the state or central commissions prohibiting a term being incorporated in PPA which permits an option to either party to switch from REC mechanism to Preferential Tariff Mechanism. The impugned order had not considered judgments referred to by the appellants on clauses granting power to one party to cancel the contract. In 21 (2010) 8 SCR 636 22 (2016) 1 SCR 857 this regard, reliance is placed on Central Bank of India v Hartford Fire Insurance Co. Ltd24; and Her Highness Maharani Shantidevi P Gaikwad v Savjibai Haribai Patel & Ors25. Respondents’ Submissions

26. Mr. Shyam Divan and Mr. Dhruv Mehta, learned senior counsels appearing for the first two respondents urged that State Commission had jurisdiction in the present case. Reliance was placed on the definitional clause of the PPA (Article 1.1) to submit that commission meant ‘State Commission’. It was urged that in terms of the extant regulatory framework, (which provided for regulatory oversight by the appropriate commission), PPAs executed by generating companies and distribution licensees necessarily required approval by the appropriate commission. Firstly, Section 86(1)(b) of the Act specifically vests the State Commission with the power to regulate the electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies. This provision empowers the state commission to modify, alter or vary the terms of PPAs, to ensure their compliance in accordance with the regulatory framework. Secondly, under the Multi Year Tariff Regulations, 2011 (hereafter “GERC (Multi Year Tariff) Regulations”) notified by the State Commission,, PPAs are to be mandatorily approved in order for them to be considered effective and

25 2001 (5) SCC 101 enforceable. Learned counsel relied on provisions of the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2019, (Regulation 21); Delhi Electricity Regulatory Commission Comprehensive (Conduct of Business) Regulations 2001 (Regulation 45) and Andhra Pradesh Electricity Regulatory Commission (Distribution Licensee) Regulations, 2013 (Regulation

36) to support the contention that prior filing and approval of PPAs is necessary and was not undertaken in this case, which undermines its legal efficacy.

27. It was submitted that pooled purchased cost of power to be taken into consideration under the REC mechanism has to be the APPC of the previous financial year- which has to be modified / increased on a regular basis. When pooled purchase cost increases, the floor price of REC will decrease as the floor price and forbearance price of RECs are subject to fluctuation, at the end of each control period. Thus, wind power projects under the REC mechanism will be viable, only when the realization from the power component increases to compensate for the reduction in prices of RECs. It was submitted that if the APPC computed is lower than what has been taken by the CERC for the determination of the REC price band, there could be a viability gap problem for RE generators under the REC mechanism, especially in cases where the price discovered in the power exchange is closer to the floor price.

28. It was further submitted that the Second Amendment to REC regulations specifically replaced the words “at a price not exceeding” to “at the pooled cost”, which meant that the cost of electricity purchased could neither be lower nor higher than the power purchase cost. Counsel further placed reliance on Statement of Reasons dated 10.07.2013 issued by the Central Commission regarding the Second Amendment to contend that REC contracts cannot be fixed price contracts as they would affect the viability of REC projects as the price band (floor price / forbearance price) are subject to periodic revision. Relevant extracts of the said statement of reasons are reproduced below: “4.[3] Analysis and decision Some of the stakeholders have suggested to clarify as to whether the PPAs executed at price lower than APPC would become ineligible under REC Mechanism. It is felt that the tariff for electricity component lower or higher than APPC may lead to avoidable loss or profit to RE generator. The Commission would like to clarify that the intention is not to debar the projects that have executed PPA at tariff lower than APPC. This amendment will apply prospectively and as such will not affect the already executed PPAs at lower than APPC. Regarding suggestion received that PPA of electricity component should be a fixed price long term contract (without escalation) since Commission has assumed fixed price while determining REC price bands in its methodology, it is clarified that the price band is subject to periodic revision; hence fixed APPC or long-term contract without escalation might affect viability of RE Projects. In any case proposed amendment provides that APPC would be determined by the Appropriate Commission”

29. Counsel appearing for the association submitted that in terms of the regulatory framework, PPAs executed by generating companies and distribution licensees have to be approved by the appropriate commission; and that the PPA in question was never approved by State Commission nor did the appellants approach the State Commission for such approval. It was further submitted that floor price and forbearance price are to be determined guided by various principles, inter alia, variations in APPC across the states, (which is revised on an annual basis). Hence, the APPC cannot be a static concept else variation in floor price or forbearance price would lead to under recovery to generators.

30. It was further contended that APPC along with REC pricing, together, are the tariff determined and approved for the supply of power. That is to say that APPC and REC pricing are two halves of the same whole which constitutes the overall tariff which a generating company registered under the REC mechanism is entitled to receive. APPC along with REC pricing is what was intended to be incorporated as part of the tariff clause in the PPA. If either of the components is pegged or capped artificially, and without the approval of the State Commission, it would lead to a skewed application of the REC mechanism to the detriment of generating company, leading to under-recovery and unviability of the RE generator.

31. It was argued that Regulation 9(2) of REC Regulations 2010 provides for the determination of the floor price (minimum price) and the forbearance price (maximum price) within which the RECs can be traded in power exchanges. The floor price and the forbearance are to be determined by CERC for the entire country guided by various principles, inter alia, variations in APPC across the States, which is revised on an annual basis. Therefore, if APPC is made static then variation in Floor Price/ Forbearance price would lead to under recovery to generators.

32. The APPC to be taken into consideration under the REC mechanism must be dynamic and must be revised on a regular basis. When APPC is increased, the floor price of REC comes down and vice versa and the same is subject to change every year. The APPC along with REC pricing, together, are the tariff determined and approved for the supply of power. In other words, the APPC and REC pricing are two halves of the same whole, which constitute the overall tariff which a generating company registered under the REC mechanism is entitled to receive. APPC along with REC pricing is what was intended to be incorporated as part of the tariff clause in the PPA. If either component is pegged or capped artificially, and that too without approval from GERC, the same would lead to a skewed application of the REC mechanism to the detriment of the generating company, leading to under-recovery and unviability of the RE Generator.

33. It was submitted that the tariff in the PPA was in violation of the principal regulation, which does not contemplate a fixed long-term price/ tariff. It is, therefore, illegal and had to be aligned with the regulation. The APTEL correctly aligned the tariff to the regulation. The regulation has not been challenged and it has the force of statute and it mandates that PPAs should be aligned to the regulations. Reliance is placed on PTC India Ltd. v. CERC (hereafter “PTC India”)26.

34. Counsel for the third respondent argued that there could not be a tariff between a generating company and a distribution licensee in a PPA which was not in line with the CERC Regulations and tariff orders issued by the State 26 (2010) 3 S.C.R. 609 Commission. It was further contended that the court cannot enforce a contract where unequal bargaining power exists amongst the parties. It was further submitted that State Commission has rightly observed that the fixed tariff of ₹ 2.64/unit for a period of 25 years by the parties violates not only the provisions of the Act but also the National Electricity Policy and tariff policy as notified under Section 3 of the Act which promotes renewable energy sources through preferential pricing.

35. Counsel for Wish Wind submitted that it cannot be bound by the onerous terms of the PPA as it was never approved by the State Commission and thus not in consonance with the statutory procedure prescribed under the Act. Learned counsel also submitted that present proceedings are not a case where a contract has been interdicted by the State Commission but rather where a contract has been aligned with the relevant regulatory regime in the exercise of the regulatory power vested by the Act. In response to Gujarat Urja’s argument that State Commission has no jurisdiction to reopen the PPA, it was submitted that Section 86(1)(b) of the Act places an obligation upon distribution licensees to get PPAs (executed by them) approved by the State Commission and in the present case, state commission never had the opportunity to verify/regulate such PPAs in accordance with the law.

36. It was also submitted that Section 86(1)(b) of the Act empowers the state commission to modify, alter or vary the terms of the agreement of PPAs, to ensure their compliance in accordance with the regulatory framework established under the Act. It was further submitted that taking into consideration the definition of APPC, it is evident that floor price and forbearance price are dynamic in nature and APPC being associated with the floor price and the forbearance price is also required to be determined on a year-to-year basis so that the guaranteed return to the generators is not affected. Analysis and Findings

37. The crisis arising out of, and the enormous environmental cost involved in the continued use of fossil fuels has led governments, world over, to promote alternative and renewable sources of energy. The rapid growth of renewable energy over the decade and a half has witnessed that solar and wind power are now the cheapest sources of energy in many countries in the world. Once green energy was an expensive alternative, however, it is now helping to reduce energy bills.

38. The rapidly changing economics of such sources has led, the Union government to realize that solar and other renewables can potentially transform the energy landscape, increase access and help India meet its climate change objectives. Grid transmission capacity has been a barrier; however, distributed and off-grid solar solutions provide a viable solution for increasing energy access. Being dependent primarily on cheap coal-based power generation, traditional thinking on energy has been that increase in renewable energy’s share of electricity generation would further impair local distribution companies’ poor financial situation. Over the years, India has established a comprehensive policy and regulatory frameworks to encourage renewable energy development. India began its development of wind power in the 1990s and has significantly increased its capacity over the last few years. Compared to established countries with wind energy capacities like the USA or Denmark, India is a latecomer. Yet, its support for wind power, through its policies has resulted in India becoming the producer with the fourth largest installed wind power capacity, in the world; wind power accounts for 10% of India’s total installed power capacity. As of February 2023, the installed capacity of wind power in India was 42,015 megawatts (MW).27

39. Section 86 of the Act enumerates the functions of state commissions; Section 86 (1)(e) reads as follows: “Section 86(1): The State Commission shall discharge the following functions, namely: ****************** ***************** (e) promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee;”

40. State Commissions have placed significant emphasis on the last part of this important clause while developing regulations for Distribution Licensees

27 Physical Progress (Achievements) Ministry of New and Renewable Energy, Govt. of India. https://mnre.gov.in/the-ministry/physical-progress, visited on 06.04.2023 at 20:30 hours. under their jurisdiction. The National Tariff Policy, issued by the Central Government in terms of Section 3 of the Act states as follows: “Clause 6.4: Non-conventional sources of energy generation including co-generation: (1) Pursuant to provisions of section 86(1)(e) of the Act, the Appropriate Commission shall fix a minimum percentage for purchase of energy from such sources taking into account availability of such resources in the region and its impact on retail tariffs. Such percentage for purchase of energy should be made applicable for the tariffs to be determined by the SERCs latest by April 1, 2006.” By virtue of Regulation 4 (1) of the REC Regulations 2010, there are two categories of RECs: solar and non-solar. Regulation 4 (2) mandates that “nonsolar certificate shall be sold to the obligated entities to enable them to meet their obligation for purchase from renewable energy sources other than solar.” Regulation 5 (1) of the REC regulations (extracted earlier) spells out the eligibility conditions for renewable energy generating companies to apply and seek registration for certificates; these are that the company should have: (a) obtained accreditation from the State Agency; (b) it does not have any power purchase agreement for the capacity related to such generation to sell electricity at a preferential tariff determined by the Appropriate Commission; and (c) it sells the electricity generated either-(i) to the distribution licensee of the area in which the eligible entity is located, at a price not exceeding the pooled cost of power purchase of such distribution licensee, or (ii) to any other licensee or to an open access consumer at a mutually agreed price, or through power exchange at market determined price. What is meant by “pooled cost or purchase” is elaborated in the Explanation (to Regulation 5) to mean “the weighted average pooled price at which the distribution licensee has purchased the electricity including cost of self-generation, if any, in the previous ·year from all the energy suppliers long-term and short-term, but excluding those based on renewable energy sources. as the case may be.”

41. The objectives of the REC Regulations 2010 were described in the judgment of this court, reported as Hindustan Zinc Ltd. v. Rajasthan Electricity Regulatory Commission,28

42. The approach of this court, therefore, has to consider the objective of the policy of promoting non-renewable sources of energy, the purpose of introducing RECs, and the progressive obligations placed upon licensees, to ensure that they purchase energy from such “green” or “clean” sources, in a viable manner. In the present case, the obligation to procure renewable energy, is located in the Gujarat Electricity Regulatory Commission (Procurement of Energy from Renewable Sources) Regulations, 2010 (hereafter 28 (2015) 7 S.C.R. 1104 the “Renewable Sources Regulations”). Regulation 4 (1) of the said Renewable sources Regulations reads as follows: “4. Quantum of Renewable Purchase Obligation (RPO) 4.[1] Each distribution licensee shall purchase electricity (in kWh) from renewable energy sources, at a defined minimum percentage of the total consumption of its consumers including T&D losses during a year. Similarly, Captive and Open Access user(s) / consumer(s) shall purchase electricity (in kWh) from renewable energy sources, at a defined minimum percentage of his/her total consumption during a year. The defined minimum percentages are given below in the Table 1. If the above-mentioned minimum quantum of power purchase from solar and other renewable energy sources is not available in a particular year, then in such cases, additional wind or other energy, over and above that shown in column 3 and 5, shall be utilized for fulfillment of the RPO in accordance with column 2. Provided further that such obligation to purchase renewable energy shall be inclusive of the purchases, if any, from renewable energy sources already being made by the obligated entity concerned: Provided also that the power purchases under the power purchase agreements for the purchase of renewable energy sources already entered into by the distribution licensees shall continue to be made till their present validity, even if the total purchases under such agreements exceed the percentage as specified hereinabove.”

43. In terms of Regulation 9 (1) of the Renewable Sources Regulations, if an obligated entity29 (such as the present appellant) does not fulfil the renewable purchase obligation as provided in the regulations during any year and also does not purchase the certificates, the State Commission may direct the obligated entity to deposit into a separate fund, to be created and maintained by such obligated entity, such amount as the State Commission may determine. Thus, obligated entities, (distribution licences included) had to take steps to progressively increase the purchase of power from renewable energy sources. To incentivize this, flexibility was granted; the power generators could either have the tariff fixed, according to the State Commission’s Tariff determination order, or adopt another mechanism, i.e., the one contemplated in the REC Regulations.

44. The relevant conditions and stipulations set out in the PPA in this case, are extracted below: “RATES AND CHARGES 5.[1] Monthly energy charges: the GUVNL shall pay for the delivered energy as certified by the SEA of Gujarat SLDC, for the term of this agreement from the commercial operation date of signing of power purchase agreement whichever is later, to the power producer every month. The tariff payable by GUVNL for energy purchased shall be as per clause 5.[2] herein.

29 An “obligated entity” is defined in Regulation 2 (k) as “the entity mandated under clause (e) of subsection (1) of section 86 of the (Electricity) Act to fulfil the renewable purchase obligation and identified under clause 3 of these Regulations.

5.2. GUVNL shall pay a fixed rate of Rs. 2.64 per KWh (average power purchase cost for previous FY i.e. 2010-11) during the term of this agreement for delivered energy certified by Gujarat SLDC in the monthly State energy Account (SEA): a) In case in any subsequent FY the APPC goes below the APPC goes below the APPC of FY 2010-11, the applicable tariff for ensuring. FY shall be such lower APPC of the previous year. b) Power producer and power procurer both have option to switch over from REC mechanism to preferential tariff after 10 years from commissioning of the 23.10 MW WTGS. In case either party exercises the option, the tariff shall be Rs. 3.56 per KWh (as determined by GERC through order no. 1 of 2010 dated 30.1.2010) for balance term of the agreement. Further, power producer shall submit documentary evidence to GUVNL for de-registration of wind project from REC mechanism in case either party ·exercise. Option to switch over from REC to preferential tariff. 5.[3] For each KVRAH drawn from the grid, the Company shall pay at the rate of as determined by the Commission to GETCO from time to time for each KARH drawn. 5.[4] Till the intra-State ABT is implemented, the certificate issued by GEDA for generation share of wind turbine shall be acceptable for monthly energy bill. The other provisions of intrastate ABT and Open access regulations appearing in this agreement shall also be applicable only after the intra-State ABT is implemented. ************************ **************** ARTICLE 9 TERM, TERMINATION AND DEFAULT 9.[1] Term of the agreement: This agreement shall become effective upon the executive and delivery thereof by the parties hereto and unless terminated pursuant to other provisions of the agreement, shall continue to be in force for such time until the completion of a period of 25 (twenty five) years from the commercial operation date.” ……………………….. Did the PPA in the present case, require prior approval of the state commission

45. RWE and the other respondents urge that the PPA was unenforceable because it was not approved by the State Commission. This court is of the considered view that the argument is unmerited and insubstantial.

46. The State Commission’s regulations (Renewable Sources Regulations) relating to procurement of energy from Renewable Sources, provides, inter alia, pertinently, as follows:

47. From a reading of the above provision, it is evident that there was never any provision, which mandated prior approval by the state commission, of PPAs entered into, by parties, in exercise of their free choice, in relation to renewable energy sources. As a matter of fact, in the case of renewable power, the state commission had approved a model PPA. Further, the tariff terms and conditions to the extent decided are by the Central Commission and not by the State Commission. These are incorporated in the model PPA. Neither the commission, nor the contesting respondents, during the hearings in the present appeals, were able to point out any provision in the PPA in the present case, which conflicted with any provision of the model PPA, or any express regulation. Furthermore, it was not established how in the absence of any reference to the Multi Year Tariff Regulations, they were applicable to PPAs relating to renewable energy sources.

48. This court is also of the considered view, that in the absence of specific norms prescribing prior approval of PPAs like in the case of provisions of Regulation 21 of the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2019; Regulation 45 of the Delhi Electricity Regulatory Commission Comprehensive (Conduct of Business) Regulations 2001 and Regulation 36 of the Andhra Pradesh Electricity Regulatory Commission (Distribution Licensee) Regulations, 2013, the respondent’s arguments on this aspect cannot be accepted. In these circumstances, the findings of APTEL, not based on any stipulated obligations under provisions of the state regulations, requiring approval of the state commission, for its operation, cannot be sustained. Whether change in the REC Regulations obliged revision of the PPA in this case

49. In Emco Ltd (supra), the parties had entered into a PPA on 09.12.2010 for the sale and purchase of solar power. The PPA was modified on 07.05.2011 in view of certain difficulties in the location of the unit. When the PPA was entered into, the tariff order was applicable. The PPA was thus entered into during the control period of the first tariff order. The second tariff order came into force on 27.01.2012. It granted certain concessions to purchase and availing of the benefit of accelerated depreciation under the income tax and did not grant such benefits to purchasers and tariff payable to power purchasers which did not avail of the benefit of accelerated depreciation. The respondent Emco had not availed accelerated depreciation. Despite that, it approached the Gujarat State Commission, seeking a determination of the tariff afresh, contending that the position had changed. This court noticed that the power purchaser had contended that notwithstanding that it entered into a PPA during the control period, it was not obliged to sell power to the distributor for a price specified in the PPA and was legally entitled to seek fixation of separate tariff. The Court rejected the contention after noticing the arguments. The relevant extracts of the judgment (In Emco Ltd.) are as below: “11. The case of the first respondent is that notwithstanding the fact that it entered into a PPA during the "control period" specified in the First Tariff Order, it is not obliged to sell power to the appellant for the price specified in Article[5].[2] of the PPA and is legally entitled to seek (from the second respondent) fixation of a separate tariff. It is the further case of the first respondent that under the PPA, the appellant is under an obligation to procure the power from the first respondent for a period of 25 years if the first respondent commences the generation of power within the "control period" and is also obliged to pay for the power procured by it at the rates specified in Article 5.[2] of the PPA. But the obligation of the first respondent to sell power generated by it to the appellant at the rates specified in Article 5.[2] of the PPA comes into existence only on the happening of the two contingencies i.e. the first respondent (i) commencing the generation of power within the "control period" stipulated under the First Tariff Order; and (ii) choosing to avail the "benefit of accelerated depreciation" under the Income Tax Act. According to the first respondent, the stipulation under the First Tariff Order that the tariff fixed there under is not applicable to those Projects which "do not get such benefit, the Commission would on a petition in that respect determine a separate tariff taking into account all the relevant facts from not" would only imply that tariff fixed under the First Tariff Order is not applicable to those Projects/power producers which do not avail the "benefit of accelerated depreciation" under the Income Tax Act. xxxxxx xxxxxx xxxxxx

13. We have already noticed that the first respondent did not commence generation of power within the "control period" stipulated under the First Tariff Order and also did not avail the "benefit of the accelerated depreciation" under the Income Tax Act. It is admitted on all hands that the "benefit of accelerated depreciation" mentioned in the First Tariff Order and the PPA is the stipulation contained in Section 32(1)(i) of the Income Tax Act read with Rule 5(1-A) of the Income Tax Rules. They provide for the method and manner in which depreciation of the assets of an assessee is to be calculated. xxxxxx xxxxxx xxxxxx

26. Apart from that, the conclusion of the Tribunal in the instant case is wrong. First of all the PPA does not give any option to the respondent to opt out of the terms of the PPA. It only visualises a possibility of the producer not commissioning its Project within the "control period" stipulated under the First Tariff Order and provides that in such an eventuality what should be the tariff applicable to the sale of power by the first respondent. Secondly, the PPA does not "entitle" the first respondent to the "tariff as determined by the" second respondent by the Second Tariff Order. On the other hand, the PPA clearly stipulates that in such an eventuality: "Above tariff shall apply for solar projects commissioned on or before 31-12-2011. In case, commissioning of solar power project is delayed beyond 31-12-2011, GUVNL shall pay the tariff as determined by the Hon'ble GERC for solar projects effective on the date of commissioning of solar power project or abovementioned tariff, whichever is lower." (emphasis supplied)”

50. In Transmission Corporation of Andhra Pradesh Ltd (Supra), the state commission had, by an order dated 20.06.2001 directed generators of nonconventional energy to supply power exclusively to the A.P. Transmission Corporation. Energy developers were not permitted to sell power to third parties. The Commission also approved the rate prevailing earlier for supply @ 2.25/- per unit with a 5% escalation per annum from 1994-1995 being the ₹ base year. The parties entered into PPA after the passing of the Regulatory Commission’s order. The PPA embodied or reflected the tariff @ 2.25/- per ₹ unit with escalation @ 5% per annum having 1994 as the base year to be revised annually upto 2003-04. After that, the purchase price was to be decided by the state commission. The stipulation also provided that further review of the purchase price on the completion of 10 years from the commissioning of the project would be made.

51. The A.P. Transmission Corporation’s functions devolved upon discoms by operation of law. In this background, the state commission exercised suo motu powers to revise non-conventional energy purchase tariffs. The APTEL rejected the appeal of the A.P. Transmission Corporation. This court held that once agreements were signed and were enforceable in law, such enforceable obligations could not be frustrated. The court also negatived the arguments on behalf of the power generator that they had been subjected to coercion or duress. The observations of this court in this regard are pertinent in this regard and are extracted below: “39. [..] In the present case the order dated 20-6-2001 was fully accepted by the parties without any reservation. After the lapse of more than reasonable time of their own accord they voluntarily signed the PPA which contained a specific stipulation prohibiting sale of generated power by them to third parties. The agreement also had a renewal clause empowering TRANSCO/ APTRANSCO/Board to revise the tariff. Thus, the documents executed by these parties and their conduct of acting upon such agreements over a long period, in our view, bind them to the rights and obligations stated in the contract. The parties can hardly deny the facts as they existed at the relevant time, just because it may not be convenient now to adhere to those terms. Conditions of a contract cannot be altered/avoided on presumptions or assumptions or the parties having a second thought that a term of contract may not be beneficial to them at a subsequent stage. They would have to abide by the existing facts, correctness of which, they can hardly deny. Such conduct, would be hit by allegans contraria non est audiendus.”