Module 1

MODULE-I

INTRODUCTION TO ENERGY LAWS IN INDIA & IDENTIFICATION OF
SECTOR

With the advent of large scale industrialization in India, the dependence on machines, various
types of gadgets and electronics have increased and for enjoying the success of
industrialization the generation of power, energy and electricity is essential. In India there are
broadly three kinds of participants in the power generation sector namely the Central Sector,
State sector and private sector.1

Presently, we face both, an environmental crisis and a developmental crisis. On the one hand,
we are still struggling with the problems of inequality, poverty and improving human
development indicators. On the other, environmental pollution and ecological destruction is
now a runaway problem. Both these crises are also interacting and reinforcing each other.
This is best reflected in our energy sector.

India suffers from chronic energy poverty where officially, about 300 million people have no
access to electricity. If we consider the fact that about three-fourths of rural households
connected to the national grid have erratic and less than six hours of electricity supply, then
about 700 million people in the country can be termed as electricity poor. Similarly, about
700 million Indians use biomass such as dung, agricultural waste and firewood as their
primary energy resource for cooking. These fuels cause indoor pollution and increase the
burden of disease of the womenfolk. The estimated economic burden of using traditional
fuels, including health cost and lost economic opportunities due to poor education of girl
children, is estimated to be Rs 30,000 crore. About two-thirds of Indians, therefore, are still
deprived of modern energy services.2

It is pertinent to note that India is largely dependent on coal to meet its energy needs. Coal
meets more than 50 per cent of the current commercial energy needs and generates more than


1 The total installed capacity of Power Generation Stations/Utilities in India as of 31.05.2018 was 343,898.39
MW of which private sector is highest contributor with installed capacity of 155,511.02 MW; the State sector
has an installed capacity of 103,760.75 MW and the central sector has ann installed capacity of 84,626.63 MW.
There has been an increase in installed capacity from the 12th five-year plan ending on 31.03.2017. <available at
https://www.globallegalinsights.com/practice-areas/energy-laws-and-regulations/india> (last accessed on 12th
June 2019).
2 Chandra Bhushan, A renewable energy future for India, Down To Earth, Published on 23rd August 2016,
<available at https://www.downtoearth.org.in/blog/energy/a-renewable-energy-future-for-india-55363> (last
accessed on 15th June 2019).

70 per cent electricity. We are the third largest producer of coal in the world after China and
the USA, butthe energy from coal comes at a huge environmental and health cost.

The energy and climate debate perhaps no issue is more contentious than the degree to which
emerging economies should rely only on non-fossil fuel resources and energy efficiency to
meet their growing energy demand. Perhaps the greatest example of this debate can be
illustrated by the degree to which India confronts the dilemma of committing to a low-carbon
economy while at the same time steadfastly developing a robust energy sector through which
it plans to bring electricity access to all its citizens, including 300 million people currently
lacking access even to one electric light bulb.3 The one pressing concern would be finding
solutions to the alarming increase in unutilised capacity. While the majority of the
contribution to India’s energy mix continues to come from conventional energy sources, the
government remains keen on scaling up the Indian renewable energy market and has set a
target of 175GW of renewable energy capacity to be installed by 2022.4

As the Indian economy undergoes large-scale transformation across various key sectors,
energy security has emerged as one of the key thrust areas in unlocking the country’s
potential for meaningful development. Along with key policy changes, the government is
working towards improving the bankability of key energy assets by restructuring and
improving the financial health of distribution companies, along with continuing its efforts to
promote new areas of growth such as India’s offshore wind energy sector and the solar
rooftop segment.5

Amidst mounting fuel imports and energy demands, India’s energy sector has been unable to
deliver secure energy supply to the people resulting in large blackouts, one of which occurred
in the year 2012 leaving half of India in darkness. This can be viewed as an effect within the
charter of incomplete liberalization of energy market and incompetent policy design and its
implementation.


3Charles K. Ebinger, India’s Energy and Climate Policy Can India Meet the Challenge of Industrialization and

Climate Change?, June 2016, Policy Brief 16-01, <available at

https://www.brookings.edu/wp-content/uploads/2016/07/india_energy_climate_policy_ebinger.pdf> (last
accessed on 06th June 2019).
4 Neeraj Menon, Riyaz Bhagat, The Energy Regulation and Market Review, Edition-5, Published: August 2016,

<available at https://thelawreviews.co.uk/edition/the-energy-regulation-and-markets-review-edition-
5/1136412/india> (last accessed on 06th June 2019).
5 Neeraj Menon, Riyaz Bhagat, The Energy Regulation and Market Review, Edition-5, Published: August 2016,

<available at https://thelawreviews.co.uk/edition/the-energy-regulation-and-markets-review-edition-
5/1136412/india> (last accessed on 06th June 2019).

Critical to the ability to sustain this growth going forward is the availability and affordability
of energy. According to the report of the Expert Committee on Integrated Energy Policy, in
order to maintain a sustained growth of 8 percent through 2031 32, India needs to increase
its energy supply by a factor of three to four times and its electricity generation
capacity/supply by a factor of five to six of their levels in 2003 04. At the same time, there
is recognition of an imperative need to minimize spending on petroleum products, which are
progressively becoming costlier, and to increasingly rely on renewable energy sources.6

India’s energy strategy is important for any global discussion about lowering carbon
emissions. Most current plans focus on the low-hanging fruit of “cheap renewable energy.”
However, scaling renewable energy even further—towards deep decarbonization of India’s
energy system—is a much harder task, and will require a host of technical, policy, and
regulatory improvements.7

The regulators

The power sector is governed by the federal government through, primarily, the Ministry of
Power and the Ministry of New and Renewable Energy (the Renewable Energy Ministry).

Ministry of Power8

The Ministry is responsible for:

i) General Policy in the electricity sector and issues relating to energy policy;
ii) Matters relating to hydroelectric (except small/mini/micro hydro projects of
and below 25 MW capacities) and thermal power, and the transmission system
network;
iii) Research, development and technical assistance relating to hydro-electric and
thermal power, and the transmission system.
iv) Administration of the Electricity Act, 2003, the Damodar Valley Corporation
Act, 1948 and the Bhakra Beas Management Board as provided in the Punjab Re-
organisation Act, 1966;


6 <available at http://files.dlapiper.com/files/Uploads/Documents/india-energy-sector-overview.pdf,>, (last
accessed on 12th June 2019).
7 Dr Rahul Tongia, https://www.brookings.edu/blog/planetpolicy/2018/09/18/understanding-india-its-energy-
needs-and-ambitions-and-the-global-implications-for-carbon-emissions/,
8<available at https://powermin.nic.in/>, (last accessed on 12th June 2019).

v) Matters related to both the Central Electricity Authority and the Central
Electricity Regulatory Commission;
vi) (a) Rural Electrification, (b) Power Schemes in Union Territories, and issues
relating to power supply in the States and Union Territories;
vii) Administrative control of Public Sector Undertakings, Statutory and
Autonomous Bodies functioning under the Ministry;
viii) Other Public Sector Enterprises in energy except projects specifically allotted
to any other Ministry or Department;
ix) All matters concerning energy conservation and energy efficiency pertaining to
the sector.
Ministry of New and Renewable Energy (MNRE)9
MNRE is the nodal Ministry of the government of India for all matters relating to new
and renewable energy and the administrative ministry for policies and programs in
this area. The Ministry itself is organised into several divisions dealing with different
technologies and applications.
The programme of the ministry is largely implemented through State Nodal Agencies.
All major States have set up energy agencies for the non-conventional energy
programme.
Ministry of Coal10
The Ministry of Coal is responsible for development and exploitation of coal and
lignite reserves in India. It is responsible for policies and strategies with respect to
exploring and developing coal reserves, sanctioning important projects and deciding
related issues.
Ministry of Oil and Gas11The Ministry is allocated works including exploration and
exploitation of petroleum resources, including natural gas, production, supply
distribution, marketing and pricing of petroleum including natural gas and petroleum
products among others.

The Ministry is entrusted with administration of:-
i. Petroleum Act, 1934 (30-1934) and the rules made there under.
ii. The Oilfields (Regulation and Development) Act 1948 (53 of 1948).


9 <available at https://mnre.gov.in/ >, (last accessed on 12th June 2019).
10 <available at https://coal.nic.in/>, (last accessed on 12th June 2019).
11 <available at http://petroleum.nic.in/about-us/about-ministry>, (last accessed on 12th June 2019).

iii. The Petroleum pipelines (Acquisition of Right of User in land) Act, 1962 (50 of
1962).
iv. Kerosene (Restriction on use and fixation of price) Order, 1993.
v. Kerosene (Fixation of Ceiling prices) Order, 1970.
vi. Paraffin Wax (supply, Distribution and Price Fixation) Order, 1972.
vii. Light Diesel Oil (Fixation of Ceiling Price) Order, 1973
viii. The ESSO (Acquisition of Undertaking in India) Act, 1974 (4 of 1974)
ix. The Oil Industry (Development) Act, 1974 (47 of 1974) and Rules 1975.
x. Furnace Oil (Fixation of Ceiling Price and Distribution) Order, 1974.
xi. The Burmah-Shell (Acquisition of Undertaking in India) Act, 1976 (2 of 1976).
xii. The Caltex Acquisition of shares of Caltex Oil Refining (India) Limited and of the
Undertakings in India Caltex (India) Limited Act, 1977 (17 of 1977).
xiii. Domestic Gas Pvt, Limited and parcel Investment private Limited takeover of
Management Act, 1979.
xiv. Kosan Gas Acquisition Act. 1979.
xv. Lubricating Oils & Greases (Processing, Supply and Distribution) Regulation Order
1987.
xvi. Liquified Petroleum Gas (Regulation of supply and Distribution) Order, 1993.
xvii. Motor Spirit and High Speed Diesel (Prevention of Malpractices in Supply and
Distribution) Order, 1990.

Petroleum and Natural Gas Regulatory Board
The Petroleum and Natural Gas Regulatory Board Act, 2006 was enacted in April,
2006. Consequently, Government has set up in October, 2007, the Petroleum and
Natural Gas Regulatory Board (PNGRB) to regulate the refining, processing, storage,
transportation, distribution, marketing and sale of petroleum, petroleum products and
natural gas, excluding production of crude oil and natural gas. The aim is to protect
the interest of consumers and entities engaged in specific activities relating to
petroleum, petroleum products and natural gas and to ensure uninterrupted and
adequate supply of these products in all parts of the country and to promote
competitive markets and for matters connected therewith or incidental thereto.
Section 11 and 12 of the PNGRB Act, 2006 states the functions and powers
• Directorate General of Hydrocarbon
The Directorate General of Hydrocarbons (DGH) was established under the
administrative control of Ministry of Petroleum & Natural Gas by a Government of

India Resolution in 1993 to promote sound management of the Indian petroleum and
natural gas resources having balanced regard to the environment, safety, technological
and economic aspects of the petroleum activity and to review the exploration
programmes of companies and advise the Government on the adequacy of these
programmes.
Following are the functions of DGH :
(a) To provide technical advice to the Ministry of Petroleum and Natural Gas
(b) To review the exploration programmes of companies
(c) To reassess the hydrocarbon reserves discovered and estimated by the operating
companies in discussion with them;
(d) To advise the Government on the offering of acreages for exploration to
companies as well as matters relating to relinquishment of acreages by companies;
(e) to review the development plans for commercial discoveries of hydrocarbon
reserves proposed by the operating companies.
(g) To regulate the preservation, upkeep and storage of data and samples pertaining to
petroleum exploration, drilling, production of reservoirs etc12

Planning Commission13

The Power and Energy, Energy Policy and Rural Energy Division of the Planning
commission guides the energy policies of the country. The Government of India, in
keeping with its reform agenda, constituted The National Institution for Transforming
India, also called NITI Aayog via a resolution of the Union Cabinet on January 1,
2015, to replace the Planning Commission instituted in 1950. This was done in order
to better serve the needs and aspirations of the people of India. An evolutionary
change from the past, NITI Aayog acts as the quintessential platform of the
Government of India to bring States to act together in national interest, and thereby
fosters Cooperative Federalism.14

at
12 Ms. Sakshi Parashar, Legal Aspect Of Oil And Gas Sector, <available
https://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=3b9928f3-1807-4916-b783-
33b3c38992db&txtsearch=Subject:%20Oil%20And%20Gas> (last accessed on 16th June 2019)
13 <available at http://planningcommission.gov.in/index_oldpc.php>, (last accessed on 16th June 2019)
14 <available at https://niti.gov.in/content/overview>, (last accessed on 16th June 2019)

Central Electricity Authority (CEA)15

Central Electricity Authority (CEA) is an organization originally constituted under
Section 3(1) of the repealed Electricity (Supply) Act, 1948, since substituted by
Section 70 of the Electricity Act, 2003. It was established as a part-time body in 1951
and made a full-time body in 1975. The functions and duties of CEA are delineated
under Section 73 of the Electricity Act, 2003.16 To ensure reliable 24x7 power supply
of adequate quality to all consumers in the country. Central Electricity Authority
seeks to achieve the vision by performing its statutory function by providing technical
support base to all stakeholders in the power sector, to support Ministry of Power for
forming policies in the power sector, to make technical standards & regulations, to
carry out project monitoring, to disseminate power sector information, to upgrade
skills of human resources in the power sector of the country.

Sectors Involved:

A. Non-Renewable Energy

Non-renewable energy sources diminish over time, and are not able to replenish themselves.
In other words, they are finite, and once they are used, they are effectively gone because they
take so long to reform.17

The four non-renewable energy sources are coal, oil, natural gas, and nuclear which are
referred as fossil fuels.

1. Oil & Gas

Oil & Gas sector has a long history in India. The first time oil was struck at Makum
near Margherita in Assam in 1867. The first commercial oil discovery was made in
Digboi in 1889. During the pre-independence period, the Assam Oil Company in the
northeastern and Attock Oil company in northwestern part of the undivided India
were the only oil companies producing oil in the country, with minimal exploration
input. Consequently, while framing the Industrial Policy Statement of 1948, the


15 <available at http://cea.nic.in/>, (last accessed on 16th June 2019)
16<available at http://cea.nic.in/aboutus.html>, (last accessed on 15th June 2019).
17Renewable and Non-Renewable Energy, EM SC 240N
Energy and Sustainability in Contemporary Culture, PennState College of Earth and Mineral Sciences,
<available at https://www.e-education.psu.edu/emsc240/node/506>, (last accessed on 16th June 2019).

development of petroleum industry in the country was considered to be of utmost
necessity.

Oil and Natural Gas Commission was formulated in 1956. The liberalized economic
policy, adopted by the Government of India in July 1991, sought to deregulate and de-
license the core sectors (including petroleum sector) with partial disinvestments of
government equity in Public Sector Undertakings and other measures. The
Indian oil and gas sector is one of the six core industries in India and has very
significant forward linkages with the entire economy.

More than 70% of the crude oil in India is imported. Oil imports during November,
2010 were valued at US $ 7725 million which was 2.31 per cent higher
than oil imports valued at US $ 7550.4 million in the corresponding period last year18

India is the third largest consumer of crude oil and petroleum products. Domestic
production only accounts for 19% of crude oil requirements and India is dependent on
imports for the remaining 82% of its crude oil requirements.
Domestic production accounts for 56% of natural gas requirements. India is
dependent on imports for the remaining 44% of its natural gas requirements.19
Over the years various policies have been implemented by the Government to regulate
and develop the oil and gas sector. The Petroleum Act to control issues relating to
import, transport, storage, production, refining and blending of petroleum was already
in place since 1934. Further, the Oil Fields (Regulation and Development) Act, 1948
and the Petroleum and Natural Gas Rules, 1959 provided regulatory framework for
domestic exploration and production of Oil & Gas.
Hydrocarbon Vision
The Hydrocarbons Vision 2025 lays down the framework which would guide the
policies relating to the hydrocarbons sector for the next 25 years. Issues such as E&P,
refining, marketing, external policy, oil security, tariff and pricing, and restructuring
and disinvestment are addressed by the Group, to ensure that an optimal mix of
energy resources are made available to the consumer at the right price. The


18 Ms. Sakshi Parashar, Legal Aspect Of Oil And Gas Sector, <available at
https://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=3b9928f3-1807-4916-b783-
33b3c38992db&txtsearch=Subject:%20Oil%20And%20Gas>
19Dibyanshu and Prateek Bhandari, Oil and gas regulation in India: overview, <available at
https://uk.practicallaw.thomsonreuters.com/4-635-
5648?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1>, (last accessed
on 15th June 2019).

Hydrocarbons Vision 2025, no doubt, spells out the government's strategy and
operational style with regard to this vital industry.
NELP (New Exploration Licensing Policy )
Prior to the NELP, the Oil fields (Regulation and Development) Act, 1948 and
Petroleum and Natural gas Rules, 1958 regulated the issue of license and PSU's.
ONGC and OIL were the only public sector companies involved in exploration and
production till 1997 while IOCL was the primary entity concerned with refining and
processing oil after extraction. "The discoveries made under the NELP have resulted
in in-place hydrocarbon reserve accretion of a staggering 642 million tonnes
of oil and oil equivalent gas, a total of 87 oil and gas discoveries have been made in
26 blocks under NELP during this period.
The main features of the terms offered by the Government inter alia include - no
signature, discovery or production bonus by the bidder; income tax holiday for seven
years from the start of commercial production, no customs duty on imports required to
be payable for petroleum operations, biddable cost recovery limit up to 100 per cent,
royalty to be payable by the contractor on ad voleram basis, freedom to the contractor
for marketing of oil and gas in the domestic market, fiscal stability provision in the
contract and incentive for deepwater exploration with only half of the royalty payable
in the initial seven years from the beginning of commercial production. Eight rounds
of NELP have been completed till now and the Ninth Round has recently started in
2010. As on January 1, 2010, private and foreign investment in NELP blocks stood at
around $14.8 billion.
Two major discoveries such as production by Reliance Industries' (RIL) KG-D6 basin
and crude oil production in Barmer (Rajasthan) by Cairn India are the result of
NELP.20

2. Coal
Coal is the largest source of electricity in the world. Coal-fired plants generate 72% of
India’s electricity. This, combined with the growth of coal-consuming industrial
sectors like steel, is why the solid fuel source will continue to be integral to India’s

at
20 Ms. Sakshi Parashar, Legal Aspect Of Oil And Gas Sector, <available
https://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=3b9928f3-1807-4916-b783-
33b3c38992db&txtsearch=Subject:%20Oil%20And%20Gas>

economy in the next couple of decades. This is despite the government’s ambitious
plans to increase generation of renewable energy. 21
According to BP Energy Outlook 2019, coal’s share in India’s primary energy
consumption will decline from 56% in 2017 to 48% in 2040. But that is still nearly
half of the total energy mix and way ahead of any other source of energy. Oil’s share,
the second largest, will decline from 29% to 23%, and the contribution of renewables
will rise fivefold to 16%. Even the NITI Aayog, which replaced the Planning
Commission, in a 2017 report estimated the share of coal in the energy mix in 2040 to
be atleast 44%.
3. Nuclear Power
Nuclear power accounts for a small fraction of the total commercial primary energy
consumed within India. Nuclear power constitutes approximately 16% of the world’s
electricity. In the year 2009 alone more than 15% of the world’s electricity came from
nuclear power. Used for generating electricity, nuclear power accounts for a very
negligible amount of the total electricity generated within India. In spite of its small
current contribution, nuclear power has the potential to offer India ‘energy
independence’ beyond 2050 and hence its development is seen as crucial. However,
India is endowed with low concentrations of poor quality uranium ores but with large
quantities of thorium ores. Consequently, India’s nuclear-generation programme is
based on a three-stage plan-(i) Pressurized Heavy Water Reactors, (ii) Fast Breeder
Reactors; and (iii) Reactors based on the Uranium 233-Thorium 232 cycles- aimed
eventually at the exploitation of the country’s vast thorium reserves. However, as a
non-signatory to the nuclear Non-Proliferation Treaty (NPT) and having conducted
nuclear tests in 1974 and 1998, India has been under international sanctions to access
its nuclear materials and technology from abroad. The future development of nuclear
power within India is dependent on civilian nuclear commerce with the international
community. The International Atomic Energy Agency (IAEA) was established in
1956 with the main objective of encouraging and facilitating the spread of nuclear
power. It was presumed that atomic energy would contribute to ‘peace, health and
prosperity’ throughout the world. According to the objectives of IAEA health and


21Geeta Seetharaman, Coal here to stay despite India's ambitious goals for renewable energy, Published on 12th
May 2019, <available at
//economictimes.indiatimes.com/articleshow/69286279.cms?from=mdr&utm_source=contentofinterest&utm_
medium=text&utm_campaign=cppst>, (last accessed on 15th June 2019).

environmental risks would be managed by various legal systems themselves by
formulating rules and regulations taking into account guidelines on safety measures
set up by IAEA.22
A new chapter about nuclear power has been written in the last 10-15 years. Increased
competition over fossil fuels, and global concerns over climate change have prompted
many legal systems to shift to nuclear energy. Indeed, the World Nuclear Industry
Status Report 2010–2011 states that there were more nuclear reactors under
construction worldwide in 2010 than in any year since 1988. Whereas in 2014, the
number of operational reactors in the world has dropped by 39 (9 percent) from 427 in
July 2013 to 388 in July 2014, this is 50 fewer than at the peak in the year 2002. The
shift to nuclear energy is particularly strong in the energy-starved but fast-growing
economies of China, India and South Korea. In fact, India has drawn up an ambitious
plan to reach a nuclear power capacity of 63,000 MW in 2032 and it has been
repeatedly asserted by the Indian Government that nuclear energy will play an
important role in the country’s quest for a clean and environmentally friendly energy
mix. However, even as the global nuclear energy industry and the Asian countries
have been bracing for this renaissance, the recent accident at Fukushima in 2011 has
served a stark reminder of the capacity of nuclear power to inflict catastrophic
damage and the need for stringent safety norms. Not surprisingly, scholars and experts
have accorded considerable attention to formulation of appropriate safety regulation
for civil nuclear installations.
India has achieved a healthy economic rate and in order to sustain this growth rate, the
country requires emphasis on creation of infrastructure and enhanced supply of input
(such as energy). Over the years, most of the energy that is produced in India is from
hydropower stations coupled with thermal power stations. At the same time, energy
production from nuclear power stations witnessed a negative growth even though the
National Electricity Policy, 2005 portrays a need for increase in the share of nuclear
power significantly by enhancing public sector investments. According to the official
report, India has an ambitious plan to reach a nuclear power capacity of 63,000 MW
by 2032.


22 Gurmanpreet Kaur, Nuclear Energy Law in India: An Analysis of Environmental Perspective, Jamia Law
Journal Vol 1, 2016, <available at http://docs.manupatra.in/newsline/articles/Upload/A4A3C2EC-3ADC-4524-
BCB5-EE0F6350C5A3.pdf>, (last accessed on 15th June 2019).

Operators of nuclear establishments are liable as per law for any damage caused by
them. The liability of operators is not based on fault principle but on the principle of
no fault or strict liability, regardless of fault. This damage will have its impact not
only in the country of the disaster but also in the neighbouring countries as well.
Normally to certain extent the operators of the plants/nuclear establishments are made
liable for the damage, which they may pay through insurance. Beyond that, according
to international law and practice, states accept responsibility as the insurer of the last
resort. India is only a signatory to the Convention on Supplementary Compensation
for Nuclear Damage along with few bilateral agreements with other countries,
including USA, UK, Russia, France, and Canada. The India-France bilateral
agreement explicitly states that India has to create a civil nuclear liability regime for
compensating damage caused by incidents involving nuclear material and nuclear
facilities.
The Civil Liability for Nuclear Damage Act, 2010 received the president’s assent on
21st September 2010. The main purpose of this legislation is to provide for civil
liability for nuclear damage and give prompt compensation to the victims of a nuclear
incident through a no-fault liability regime channeling liability to the operator and
also on the State. This Act also aims at appointing a Claims Commissioner and
establishment of a Nuclear Damage Claims Commission. It is also stated that it is
being enacted to provide for liability arising out of a nuclear incident, and also due to
the “necessity of joining an international liability regime. The Act applies to nuclear
damage suffered in or over the maritime areas beyond the territorial waters of India,
in or over the exclusive economic zone, on board or by a ship registered in India or on
or by an artificial island, installation or structure under the jurisdiction in India. At the
same time it applies only to the nuclear installation owned or controlled by the Central
Government either by itself or through any authority or corporation established by it
or a government company.

B. Renewable Energy & Conservation

Development of renewable energy

The regulatory environment increasingly seeks to incentivise renewable energy, with
favourable tariff regimes established by SERCs. The Electricity Act, the National Electricity
Policy and the Tariff Policy encourage private sector participation in renewable energy

through measures such as providing for feed-in tariffs, fixing minimum RPOs for distribution
utilities and captive power users and providing incentives such as accelerated depreciation
schemes, excise duty exemptions and reduced customs duty on renewable energy equipment.
In addition, a renewable energy project developer is also entitled to receive RECs if it does
not opt for preferential feed-in tariffs. Several states have put in place specific policies to
promote renewable energy development, however, incentives and policies are not always
consistent between states and developers often shop around based on the policy that best suits
their financial model and operational expertise. Consequently, the development of renewable
energy in India is geographically skewed.

Onshore and offshore wind power

Wind energy accounts for a substantial portion of the installed renewable capacity in India.
Wind power policies vary from state to state and policies in certain states are rated more
highly for the incentives they provide and availability of a (more or less) single-window
clearance mechanism. Wind-power projects can claim either accelerated depreciation of up to
80 per cent or generation-based incentives (i.e., a monetary entitlement per unit of electricity
fed into the grid).

The government issued the National Offshore Wind Energy Policy in September 2015 with
the aim of promoting the country’s offshore wind energy potential. The principal agency
charged with the development of the sector is the National Institute of Wind Energy (NIWE).
Under this policy blocks are to be allocated through a competitive bidding route and
developers are required to enter into seabed lease agreements with NIWE. The criteria for
selection of developers has also been set out in the policy, which includes various factors
such as tariff, total cost of project, sharing of production benefits or revenue and rate of lease
of land, etc. In additional to allocation of blocks, NIWE is also required to carry out the initial
wind resource assessment and assist the project developers in obtaining clearances. As a part
of the planned off-take arrangement, NIWE or the respective state distribution utilities will
sign power purchase agreements. Transmission utilities owned by the government will
provide the onshore infrastructure required to evacuate power generated from these projects.
Offshore power evacuation infrastructure up to the first onshore substation will have to be
constructed by developers at their own cost. Currently, offshore wind power projects with a
capacity of approximately 300MW are planned to be set up in two states as demonstration
projects.

Solar energy

Solar plants can be set up under the Renewable Energy Ministry’s National Solar Mission
(NSM, previously the Jawaharlal Nehru National Solar Mission), as well as under state
policies. Important incentives such as accelerated depreciation of 80 per cent continue to be
allowed on solar assets.

After successfully implementing both batches of Phase I, and Batch I and II of Phase II of the
NSM, the Renewable Energy Ministry has issued final guidelines for Batch III of Phase II of
the NSM, which propose to add capacity aggregating 2,000MW in solar parks to be
purchased by the respective states. In a departure from Batch II Phase II (but similar to Batch
I Phase II), solar power in Batch III is proposed to be procured under the viability gap
funding (VGF) scheme, where the tariff is predetermined and bidders are selected on the
basis of the quantum of discount they are willing to accept on the VGF to be provided by the
government. Like Batch II of Phase II, solar capacity under this batch is sought to be
installed, within solar parks to be delineated by state governments, who will independently
invite tenders under the NSM. Solar parks are essentially tracts of land delineated for the
purpose of setting up the plants of multiple developers along with appropriate evacuation
infrastructure, which aims to solve two of the most pressing concerns in the solar sector: the
availability of land and the setting up of evacuation infrastructure. The solar park concept has
gained traction in the country with various states signing up to the government’s solar park
scheme.

In addition to issuing notification of the guidelines for Batch III of Phase II, the government
recently issued revised draft guidelines for procurement of solar power through a competitive
bidding route. With the aim of making projects under the NSM more bankable, under the
revised draft guidelines, the government has introduced the concepts of deemed generation
payments (if the evacuation grid is unavailable for more than 175 hours in a year) and
termination compensation. Termination compensation amounting to six months of generation
payments is payable by the procurer and, in certain cases of termination, the power procurers
are required to repay the balance of the debt due from the project developer, and take over the
project. The government’s decision to put forward these concepts is reassuring for the
developer and lender community, which has been demanding these provisions in the PPAs.

However, it remains to be seen whether these provisions will be included as is when
notification of the final guidelines is issued.

On the domestic manufacturing front, the sector suffered a setback earlier this year when the
World Trade Organization (WTO) ruled against the inclusion of certain domestic content
requirements (DCR) in the tenders under the NSM. The guidelines under the NSM had
prescribed certain DCR to meet the twin objectives of promoting local manufacturing
capability and attracting efficient and advanced technology. In response, the United States
raised a dispute at the WTO following failed consultations regarding the domestic content
requirements for solar cells and modules (having once challenged the requirements under
Phase I as well). It has claimed that the requirements (although for a portion of the total
capacity) are in violation of India’s international trade obligations, as they discriminate
against foreign suppliers. The WTO in its findings stated that India’s DCR are trade-related
investment measures, thereby violating the Trade Related Investment Measures Agreement
and provisions of the General Agreement on Tariffs and Trade (GATT) by providing less
favourable treatment within the meaning of GATT. India has, however, decided to appeal the
WTO’s decision before the WTO Appellate Body.

While there is a view that the government’s aim of developing domestic manufacturing
capacity can also be achieved by other means such as providing specific subsidies to
domestic solar manufacturers and providing low-cost financing, others believe that a fair
balance of the content requirements strikes a safe middle ground. Further, while tariffs for
purchase of solar power currently offered under the NSM are inching towards grid parity, the
tariffs announced by certain state governments (e.g., Rajasthan, Karnataka, Punjab and
Gujarat) continue to be more attractive. In another related development, the government has
rejected a proposal to implement anti-dumping duties against imported solar cell technology.
This decision of the Renewable Energy Ministry acknowledging that the current capacity of
domestic manufacturing is inadequate to meet the targets for solar capacity addition, and
focusing on growing the market first before promoting domestic manufacturing, has been
hailed as highly pragmatic and investor-friendly.

In addition to setting up solar generation capacity through solar power plants and solar parks,
various states are also looking to promote the setting up of both grid-connected and off-grid
solar rooftop systems. The government recently launched a US$750 million subsidy scheme
for rooftop solar projects, which aims to provide close to 30 per cent of the capital subsidy

required. Solar Energy Corporation of India, which is a central government company under
the administrative control of the Renewable Energy Ministry, is in the process of concluding
the award of rooftop solar projects to developers with a cumulative capacity of 750MW. In a
further boost to the sector, the government is currently in talks with various multilateral
funding agencies with a view to tying up close to US$3 billion in financing for the sector.
Additionally, recent trends show that state governments are promoting the installation of such
systems by introducing enabling legislation, such as net metering regulations. That said, the
regulations for solar rooftop systems are not comprehensive, and there is ambiguity as to
whether such systems will be treated as captive generating plants under the Electricity Act
and rules, which are typically exempt from the payment of cross-subsidy surcharges,
transmission or wheeling charges, or open access charges.

Bio-power and waste-to-energy projects

The Renewable Energy Ministry has proposed to launch the National Bioenergy Mission
(along the lines of NSM) to boost power generation from biomass by facilitating capital
investments.

In the context of municipal waste-to-energy projects specifically, there is significant scope in
Indian cities for business; however, several challenges are being faced by ongoing projects.
While there is opposition on account of environment and health hazards for the communities
living in proximity to these projects, the government is trying to promote schemes to
encourage cities and municipalities to take up waste-to-energy projects in PPP mode (such as
the Pune Municipal Corporation’s project of producing energy by utilising unsegregated
waste). As a protective measure, stringent regulations allow use of only those technologies
that are duly approved by the Central Pollution Control Board.

Hydro-electricity

A fast growing power sector is crucial to sustain India’s economic growth. India has an
assessed hydropower potential to the tune of 84,000 MW at 60% load factor; out of this only
about 20% has been developed so far.

The power sector was opened up for private sector participation in generation in 1991 with a
view to bring in additional resources for capacity addition including in hydropower. Since the
liberalization measures did not provide expected impetus to hydropower development; it also
did not generate much interest in private sector participation in hydropower development.

Based on a review of the situation, the Government brought out a policy on hydropower
development in 1998, which, inter alia, laid down several policy instruments like full
budgetary support to ongoing projects, establishment of a power development fund, a
mechanism to resolve interstate issues, favorable tariff formulation, etc. The policy also
outlined that the selection process of private developers would be such that for projects up to
100 MW in capacity, the memorandum of understanding (MOU) route would be adopted,
whereas for projects above 100 MW capacity a competitive bidding process would be
adopted.

In the past, various factors such as the dearth of adequately investigated projects,
environmental concerns, resettlement and rehabilitation issues, land acquisition problems,
regulatory issues, long clearance and approval procedures, power evacuation problems, the
dearth of good contractors, and in some cases, inter-state issues and law and order problems
have contributed to the slow pace of hydropower development.23 In May 2003, the Prime
Minister of India launched a 50,000 megawatt (MW) hydro initiative. Under this scheme,
detailed project reports (DPRs) are being prepared for 73 schemes, which have an indicative
first year tariff below Rs2.50. This would provide a shelf of fairly well investigated low tariff
projects to prospective developers. Risk perceptions in taking up the projects and the
possibilities of time and cost overruns are also expected to get minimized. Of these schemes
(total about 32,000 MW), 70 are located in the Brahmaputra, Indus and Ganga basins in the
north and north-eastern part of the country. 24

Rapid economic growth demands progressive measures in the Electricity or Power Sector.
Power shortages and depletion of non-renewable energy resources coupled with distribution
channel challenges have forced the economy to look forward to renewable energy creation
and distribution. India’s commitment to United Nations Framework Convention on Climate
Change on Intended Nationally Determined Contribution (INDC) is to achieve 40% of its
power installed capacity from non-fossil fuel energy by 2030. The power sector (Electricity)
is a concurrent subject provided in the Seventh Schedule of the Indian Constitution and hence
both Centre and State have the power to regulate this domain. The Central Electricity


23Murari Ratnam, Chitra R, Manish Gupta, Current Status and Future Scenarios of Hydropower Development
in India, <available at
https://www.academia.edu/6348484/Current_Status_and_Future_Scenarios_of_Hydropower_Development_in_I
ndia> (last accessed on 16th June 2019).
24 K. Ramanathan, P. Abeygunawardena, Hydropower Development in India: A sector Assessment, Asian
Development Bank, <available at http://indiaenvironmentportal.org.in/files/file/ADB-Hydropower-
Development-in-India.pdf>, (last accessed on 17th June 2019).

Regulatory Commission and the respective State Electricity Regulatory Commission govern
this domain. Earlier the Electricity Sector only witnessed public participation but gradually
private players have also started taking interest in the same.25

Checklist of applicable laws:

The main legislation governing the energy sector are as follows:

The Petroleum Act, 1934
The Act deals with import, transport, storage, production, refining, and blending of
petroleum. The Act is one of the oldest acts in the oil and gas sector. Earlier to this act
the rules regarding the above specified activities were separate for separate States.
This Act brought about uniformity in this field.

The Petroleum Minerals Pipelines (Acquisition of Right of users in Land) Act,
1962
An Act to provide for the acquisition of right of user in land for laying pipelines for
the transport of petroleum and minerals. Section 3 of the Act provides for Publication
of notification for acquisition, and Section 5 provides for Hearing of objections.

Oilfields (Regulation and Development) Act, 1948
Basic enabling statute for licensing and leasing of petroleum and gas blocks by the
appropriate government. Covers mineral oils which are defined as including
natural gas and petroleum [S.3(c)]. Mining lease is defined exhaustively to cover all
forms of exploring and exploiting mineral oils and all purposes connected thereto
[S.3(d)]

Empowers central government to make rules with regard to mining leases [S.5]

Also empowers central government to make rules for the development of
mineral oil [S.6]26
Petroleum and Natural Gas Rules, 1959
Rules provide framework for grant of exploration licenses and mining leases


25 Operating Business in Renewable Energy (RE) Sector: Applicable Laws to Consider, <available at
https://novojuris.com/tag/laws-relating-to-renewable-energy/> (last accessed on 16th June 2019).
26 Ms. Sakshi Parashar, Legal Aspect Of Oil And Gas Sector, <available at
https://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=3b9928f3-1807-4916-b783-
33b3c38992db&txtsearch=Subject:%20Oil%20And%20Gas> (last accessed on 16th June 2019).

Salient features of the Rules :

o Prohibition on prospecting and mining except under a license or lease granted
under the rules [Rule 4]

o Central Government has the power to grant licenses or leases in respect of any
land vested with it or minerals underlying the ocean within the territorial
waters or the continental shelf [Rule 5(i)]

o State government has power to grant license or lease over lands vested with it
[Rule 5(ii)]

o Person obtaining exploration license obtains the exclusive right to a lease for
producing (i.e. extracting) oil/gas over any part of area covered in license

Territorial Waters, Continental Shelf, Exclusive Economic Zone And Other Maritime
Zones Act, 1976

Article 297 of the Constitution vests resources found in these areas with Central
government. No exploration in the Continental shelf and exclusive economic zone
permitted without Central Government's permission

Energy Conservation Act 2001
To institutionalise energy conservation efforts, the Energy Conservation Act 2001
was enacted and the Bureau of Energy Efficiency (BEE) was established under the
Ministry of Power in 2002. Periodic energy audits have been made compulsory for
power-intensive industries under the Energy Conservation Act.27

Electricity Act, 2003:

The Electricity Act, 2003 is regarded as the main governing legislation in this
domain inter-alia consolidating the laws relating to generation, transmission,
distribution, trading, and use of electricity and generally for taking measures
conducive to the development of electricity industry. Over the years, there has been a
significant change in which the government functions making it merely a facilitator
for licensing, control over transmission, capacity generation, and tariff fixation. The
Electricity Commission (EC) established under the Act functions as a watchdog
wherein it puts a tab on the cost of generation thereby regulating tariff and supply of
electricity from a generating company to the licensed distributors. The Electricity Act,
2003 thus framed by the central legislature governs:


27 Sumit Kumar, Energy Conservation Act 2001, <available at
http://indianpowersector.com/home/2010/10/energy-conservation-act-2001/> Published on 2nd October 2010,
(last accessed on 16th June 2019).

1. Generation: The Electricity Act does not provide for a specific license for generation
except where expressly provided. The generators are permitted to sell electricity to
any trading and distribution licensee and to the consumer directly (subject to getting
open access approvals).

2. Transmission is a regulated activity unless exempted. The Central Transmission
Units (CTUs) and the respective State Transmission Units (STUs) are deemed
transmission licensee. The transmission as an activity is heavily regulated and
requires approval from the appropriate regulatory commission (Central Electricity
Regulatory Commission (CERC) /State Electricity Regulatory Commission (SERC))
for the tariff. It must also adhere to Central Electricity Regulatory Commission
(Indian Electricity Grid Code) Regulations 2010 and Central Electricity Authority
(Grid Standards) Regulations 2010 along with the 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. In
addition to above laws, there are state-specific grid transmission and tariff laws for
governing inter-state transmission.

3. Trading means the purchase of electricity for resale for any purpose and includes
wholesale and retail supply. This is also a licensed activity and appropriate licenses
have to be taken for CERC (for inter-state trading) and SERC (for intra-state trading).

4. Distribution and supply are regulated and a licensed activity but a holder of
distribution and supply license can undertake to trade without any separate license. A
license has to be obtained from CERC (for inter-state distribution and supply) and
SERC (for intra-state distribution and supply).

Petroleum and Natural Gas Regulatory Board Act, 2006

The Act provides for the establishment of Petroleum and Natural Gas Regulatory
Board to protect the interests of consumers and entities engaged in specified activities
relating to petroleum, petroleum products and natural gas and to promote competitive
markets and for matters connected therewith or incidental thereto

Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013, replaced the Land acquisition Act,
1894

Consent: For government projects, no consent is required while consent of 70 per cent
of landowners is required for Public-Private Partnership (PPP) projects and 80 per cent
for private projects.

Social Impact Assessment: In the case of a land acquisition (irrespective of the
ownership of project), Social Impact Assessment is necessary unless and until there is
an urgency. If the project is for irrigation, then Environmental Impact Assessment is
required.

Irrigated multi-cropped land: In case the land in question is irrigated multi-cropped,
it cannot be acquired beyond a limit specified by the state government.28

Other Applicable Laws:

In any of the above mentioned activities, in addition to license under the Electricity Act,
2003, the generator, transmitter, trader or the distributor or supplier has to ensure that
their activities are compliant with other acts and statutes as well, these include:

Environmental Permits: in form and manner of licenses, clearance certificate, no
objection certificates, compliance with waste disposal, record keeping etc.
Environmental clearance under the Environment Impact Assessment (EIA)
Notification 2006 from the Ministry of Forest and Environment (MOEF) before a
power plant is set up, Offshore and onshore oil and gas exploration29 and Oil & gas
transportation pipe line30, River Valley projects31, Thermal Power Plants32, Nuclear
power projects and processing of nuclear fuel33 (except for solar power project).
Clearance certificate has to be obtained from the Pollution clearance board of the state
where the project will be undertaken. Consent to establish from the respective state
pollution control board (Section 25 of Water (Prevention and Control of Pollution)
Act 1974and Section 21 of the Air (Prevention and Control of Pollution) Act 1981).


28 What is 2013 Land Acquisition Act and why social activists filed a petition against state amendments to the
law, <available at https://www.indiatoday.in/education-today/gk-current-affairs/story/what-is-2013-land-
acquisition-act-and-why-social-activists-filed-a-petition-against-state-amendments-to-the-law-1407978-2018-
12-12> (last accessed on 16th June 2019).
29 Item 1 (b) of the EIA Notification 2006
30 Item 6 (a) of the EIA Notification 2006
31 Item 1 (c) of the EIA Notification 2006
32 Item 1 (d) of the EIA Notification 2006
33 Item 1 (e) of the EIA Notification 2006

Other Clearances:

i) Forest clearance, in case the developer wants to use forest land for non-
forest purposes than the developer will have to obtain clearance from the
forest department under Section 2 of the Forest (Conservation) Act
1980and

ii) Coastal regulatory zone clearance if the project falls within the coastal
regulatory zone as defined under the Coastal Regulation Zone Regulations
2011 amended on 18th January 2019.

iii) Fire safety certificate to be obtained from the concerned source as stated
by the fire department of the state.

iv) Licenses for usage and storage of fuel oil storage tanks, explosive and
inflammable liquids, and chemicals along with authorization for storage of
hazardous waste. (Explosives Act 1884 read with Explosives Rules 2008,
Petroleum Act 1934 read with Petroleum Rules 2002, Hazardous Waste
(Management and Handling) Rules 2016).

v) The Company may also need to check the applicability of the waste
handling laws for proper disposal of hazardous waste.

Other Approvals: Based on the business model, there will be other ongoing labor, health
and safety, environmental and land and construction approvals such as:

For acquisition of land: this largely depends on the type of land being acquired
(that is government revenue land, forest land, agricultural land). Conversion of
forest, agriculture land will require special clearance.
A no-objection certificate (NOC) from Gram Panchayat (village level
entity)/local administrative body as may be required for the development of
the power project (depending on the location of the project).
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
There must also be adherence to respective technical and safety standards as
prescribed for generation, transmission and distribution activities which

include building the transmission, distribution and supply systems and laying
electrical lines.

FDI and Import-Export
100% FDI under automatic route is permitted under the renewable energy sector
subject to the provisions of Electricity Act, 2003 (except atomic energy). This
includes generation, transmission, and distribution of electricity, as well as power
trading.Special license for PTC (Power Trading Corporation) is required to import
electricity along with a trading license. An Import-Export Code is required for import
of equipment for the development of the power project.
The National Electricity Policy
The National Electricity Policy affords high priority to energy conservation and
demand-side management through the BEE. To further enhance efficiency in thermal
power projects, the Revised SBDs specify the station heat rate at which the power
stations must be operated, failing which the developer is heavily penalised by a
decrease in the fixed charge. Additionally, the CERC tariff regulations provide for
operational norms such as reduction in heat rate for existing bigger units, linking of
allowable heat rate to design heat rate, tightening of working capital norms, and
norms on reduction in secondary fuel oil consumption.

Technological developments
The National Electricity Policy envisages special efforts being made for research,
development demonstration and commercialisation of non-conventional energy
systems. Further, it envisages the gradual introduction of efficient technologies (such
as super-critical technology and integrated gasification combustion cycle) for
generation of electricity. It also requires cost-effective technologies to be developed
for high-voltage power flows over long distances with minimum possible
transmission losses.