Recently, the Supreme Court of India (SC)[1] upheld the validity of the Rajasthan Electricity Regulatory Commission (Renewable Energy Obligation) Regulations, 2007 (2007 Regulations) and the Rajasthan Electricity Regulatory Commission (Renewable Energy Certificate and Renewable Purchase Obligation Compliance Framework) Regulations, 2010 (2010 Regulations) (together, the Regulations), with regard to the renewable energy purchase obligation (RPO) and the obligation to pay surcharge in the event of a shortfall in meeting the RPO imposed on captive generation power plants and other obligated entities.

The High Court of Rajasthan (High Court)[2] had held that the Rajasthan Electricity Regulatory Commission (RERC) has been empowered to frame the Regulations in exercise of the powers conferred under Sections 61, 66, 86(1)(e) and 181 of the Electricity Act, 2003 (2003 Act) and that the Regulations do not contravene the provisions of the 2003 Act, Articles 14 and 19(1)(g) of the Constitution of India, the National Electricity Policy, 2005 or the Tariff Policy, 2006, as contended by the petitioner, Hindustan Zinc Limited (HZL) before the High Court.

The main points of contention raised by HZL against the validity of the Regulations are as follows:

  1. The 2003 Act, National Electricity Policy, 2005 and the Tariff Policy, 2006 had envisaged the promotion of captive generation of electricity, which is being
  2. curtailed by the Regulations through the RPO, thereby resulting in a lower production of energy by the captive power plants;

  3. The jurisdiction of the RERC to impose such obligations on HZL was contended, since captive power plants have been shielded from all licensing and regulatory regimes under the 2003 Act;

  4. The RPO can be imposed by the RERC under Section 86 (1) (b) of the 2003 Act on distribution licensees alone and not on a captive power plant, being a generator of electricity; and

  5. Further, the imposition of surcharge in case of shortfall in meeting the RPO, is contrary to Article 265 of the Constitution of India.

Description of the SC’s order

The SC, while examining the contentions raised by HZL, stated that the Regulations framed by the RERC were to achieve the constitutional duties of the State under Article 48A read with Article 51A (g) of the Constitution of India and is in consonance with the principles enshrined in the 2003 Act, the National Electricity Policy, 2005 and the Tariff Policy, 2006, to effectuate the objective of promotion of electricity from renewable sources as against polluting sources of energy.

Further, the Regulations contain a mechanism for the purchase of renewable energy certificates from energy exchanges, thereby not adversely affecting the effectiveness of the captive power plants by requiring a lower generation of electricity. The RERC has been empowered to frame the Regulations under Section 181 (1) of the 2003 Act which provides that the State Commissions may promulgate regulations consistent with the 2003 Act, which in this case is to effectuate the provisions of Section 86(1)(e) read with Section 86(4) of the 2003 Act- to promote power generation from renewable sources, guided by the National Electricity Policy, 2005, National Electricity Plan and Tariff Policy, 2006.

The SC has also gone on to examine the penalty imposed by way of a surcharge under Regulation 9 of the 2010 Regulations, stating that the penalty imposed is not in the nature of a ‘tax’ but is to achieve the object of the 2003 Act, in case the obligated entity defaults in fulfilling the RPO.

It was also noted that the mere fact that no licence is required for the establishment, operation and maintenance of a captive power plant does not imply that it cannot be 

subjected to the regulatory jurisdiction of the State Commission and required to purchase certain quantum of energy from renewable sources. The RPO has been imposed upon the consumption of electricity whether purchased from the distribution licensee or consumed from its own captive power plant.

Therefore, the Regulations cannot in any manner be regarded as a restriction on the fundamental rights guaranteed under Articles 14 and 19(1)(g) under the Constitution of India to HZL.

Khaitan Comment

This decision emphasizes the object of the 2003 Act and the National Electricity Policy to promote renewable sources of energy. This decision of the SC should strengthen the renewable energy market given the increase in offtake certainty (as most obligated entities have still not met their RPO). Finally, the SC order is likely to provide impetus to the State Electricity Commissions to effectively enforce the RPO regulations.