On 29 September 2017, the Central Electricity Regulatory Commission (CERC) in Power Grid Corporation of India Limited v. Green Infra Renewable Energy Limited and others, Petition No. 145/MP/2017, had issued directions and clarified the terms for grant of connectivity and whether connectivity approval granted to a company could be utilised by its wholly owned subsidiaries (Order).

Background

The Power Grid Corporation of India Limited (PGCIL), notified as the Central Transmission Utility under the Electricity Act, 2003 discharges functions of coordination and planning for the inter-State transmission of electricity. It is also the nodal agency for grant of connectivity and access to inter-state transmission system. PGCIL was faced with a situation wherein several wind power project developers with connectivity to the grid had not developed any project for transmission through the grid and the wind power project developers who were awarded projects had no connectivity to the grid, resulting in under-utilisation of bays. Such under-utilisation had resulted in delays in granting connectivity for developers who had been awarded projects.

Additionally, several companies who had received connectivity approval were developing the projects through wholly owned subsidiaries incorporated for such purpose as permitted under the Request for Selection/ tender documents issued by Solar Energy Corporation of India Limited for setting up of Inter-State Transmission System (ISTS) - Connected Wind Power Projects.The Central Electricity Regulatory Commission (Grant of Connectivity, Long-term Access and Medium-term Open Access in inter- State Transmission and related matters) Regulations, 2009 (CERC Connectivity Regulations) define the applicant (for the purposes of connectivity) as one of the following: (a) generating station with installed capacity of 250 MW and above; (b) hydro-generating station or generating station using renewable source of energy, of installed capacity between 50 MW and 250 MW; (c) one of the hydro-generating station or generating station using renewable source of energy, having less than 50 MW installed capacity, but collectively having an aggregate installed capacity of 50 MW and above; (d) a bulk consumer; (e) any renewable energy generating station of 5 MW capacity and above but less than 50 MW capacity developed by a generating company in its existing generating station; and (f) an authorized Solar Power Park Developer.

For the purposes of long term access or medium term access, the CERC Connectivity Regulations define Applicant as a generating station including a captive generating plant, a consumer, an electricity trader or a distribution licensee, or a solar power park developer (for long term access only). Further, there is no provision for transfer of connectivity to any other entity under the CERC Connectivity Regulations.

Order                                                       

The CERC observed that while there was no provision in the CERC Connectivity Regulations that permits transfer of connectivity to any other entity, keeping in view that creation of a special purpose vehicle was an option permitted under the request for selection/tender documents and several companies are executing the projects through creation of 100% owned subsidiaries, 100% subsidiary companies should be allowed to utilise the connectivity granted to the parent company.

CERC additionally added a caveat by specifying that in order to prevent trading of connectivity approval, any sale in shares of the 100% subsidiary shall be allowed only after one year of the commencement of supply of power from the subsidiary. Further, in case of more than one subsidiary, the lock-in period specified shall apply from the commencement of supply of power from the last subsidiary.

In all such cases, the parent company with the connectivity approval is required to act as principal generator and undertake all operational and commercial responsibilities for the renewable energy generating station(s), and if the parent company wishes to exit and handover the connectivity to its subsidiaries, one of the subsidiaries shall have to take over as lead generator and be responsible for all such responsibilities.

Comment

The Order has clarified the position for a wholly owned subsidiary / special purpose vehicle (SPV) to utilise the connectivity granted to the parent company keeping in view the usual project structures and the flexibility provided under the tender documents to execute the project through an SPV. In view of the CERC Order restricting any sale of shares in the subsidiary company(ies) for a period of one year of the commencement of supply of power from the last SPV, the lock in restriction will need to factored in by the relevant stakeholders intending to utilise the connectivity of a parent company.

The CERC in this Order has issued directions for examination and suggesting amendments to CERC Connectivity Regulations in view of issues raised in the petition including recognition of model of wind park developer in line with that of a solar park developer and review of the connectivity granted, which is expected to aid the wind power project developers and streamline the process of grant of connectivity approvals.