Karnataka High Court’s Decision on Green Energy Rules

Karnataka High Court's Decision on Green Energy Open Access Rules
Karnataka High Court’s Decision on Green Energy Open Access Rules

By – Sakya Singha Chaudhari, Avijeet Lala and Chandan Kumar

On December 20, 2024, the Karnataka High Court (“Hon’ble High Court”) declared the Electricity (Promoting Renewable Energy through Green Energy Open Access) Rules, 2022 (“Green Energy Open Access Rules”), ultra vires, striking down both the Central Government’s Green Energy Open Access Rules and the Karnataka Electricity Regulatory Commission (Terms and Conditions for Green Energy Open Access) Regulations, 2022 (“KERC GEOA Regulations”). This judgment not only impacts renewable energy (“RE”) consumers but also raises significant questions about regulatory jurisdiction under the Electricity Act, 2003 (“Act”).

Background

Banking of power is a mechanism whereby power generated under a power purchase agreement, is not utilized by the consumer and is banked with the local distribution company to be withdrawn at a later point of time. The distribution company levies a banking charge, usually as a percentage of the quantum of power banked. The period of banking is generally guided by applicable regulations framed by the concerned State Electricity Regulatory Commission (“SERC”).

Key Features of the Green Energy Open Access Rules (GEOA) and KERC GEOA Regulations

The Green Energy Open Access Rules introduced significant changes to the open access framework for the RE sector, two of which became most contentious issues: 

Reduced Banking Period: 

  • The banking period, which previously allowed RE generators to bank surplus power on an annual basis, was reduced to a monthly period under the new framework.
  • This reduction severely disrupted long-term financial and operational planning for RE projects. Annual banking provided flexibility to align energy generation, which often fluctuates seasonally, with consumer demand.
  • The shortened period forced developers to use or forfeit banked energy within a restricted timeframe, leading to potential losses and increased reliance on real-time energy scheduling.

Increased Banking Charges: 

  • Banking charges, which were previously minimal or nominal as part of incentivizing RE adoption, were significantly increased under the GEOA framework.
  • The new rates escalated operational costs for RE generators, particularly those reliant on banking as a mechanism to optimize surplus energy.
  • This disproportionately impacted smaller RE developers and consumers, who lacked the economies of scale to absorb or offset these heightened charges.

Context of Writ Petitions

The writ petitions were instituted before the Hon’ble High Court challenging the constitutional validity of the Green Energy Open Access Rules and the corresponding KERC GEOA Regulations. The writ petitions highlighted grievances, including:

  • The petitioners had pre-existing wheeling and banking agreements with transmission and distribution licensees that provided for annual banking with minimal charges. These agreements were central to the financial and operational planning of RE developers.
  • The advent of the Green Energy Open Access Rules and the KERC GEOA Regulations imposed additional burden with regard to green energy open access, including increased banking charges and a curtailed banking period of one month, allegedly breaching pre-existing contractual obligations and causing financial strain on the petitioners.
  • The petitioners argued that the Green Energy Open Access Rules encroached upon the exclusive regulatory domain of the SERCs as per the Act.

Issues/ Questions for Consideration:

The Karnataka High Court deliberated on several critical legal and regulatory questions:

  1. Whether the Act empowers the Central Government to frame the rules governing open access, a subject reserved for Electricity Regulatory Commissions (“ERCs”)?
  1. Whether the Central Government, by framing the Green Energy Open Access Rules, could direct the KERC to promulgate the KERC Regulations, 2022, thereby undermining KERC’s statutory autonomy function of being the regulator?
  1. Whether the consequential orders passed by the KERC fixing the charges for open access in exercise of its powers under said KERC Regulations, 2022 can be sustained?

Decision of the Court:

Legislative Competence

The Hon’ble High Court deliberated extensively on the various clauses of the Act to observe that the Act demarcates clear division of roles for various authorities under the Act, wherein the Central Government’s role is confined to policy formulation, leaving the task of regulation to ERCs. The Act explicitly empowers ERCs to regulate all aspects of electricity transmission, supply, distribution, and trading and neither the Central Government nor the State Governments are vested with regulatory powers in these domains. 

The Hon’ble High Court referred to Section 42 to point out that in the matter of distribution of electricity, especially regarding provision of open access, it is the exclusive responsibility of the SERCs to deal with all aspects of distribution, including open access. No other authority apart from the ERCs has been provided a role in the matter of distribution of electricity and open access. It indicates the legislative intent to vest ERCs with regulatory control in this regard. 

Section 86 further reiterates that the SERC is entrusted with the function of determining the tariff for generation, supply, transmission and wheeling of electricity. The proviso to Section 86 makes it clear that where open access has been permitted to a category of consumers under Section 42, the SERC is required to determine the wheeling charges and surcharge thereon. Therefore, all aspects of determination of tariff and regulation of electricity purchase and the facilitation of intra-State transmission is to be monitored by the SERC.

Role of State ERCs

The Hon’ble High Court observed that the fact that this task is entrusted to the ERCs ensures that there is no governmental interference of any kind in providing open access and levying a charge for availing open access. In essence, it is the deliberate statutory intent that neither the State nor the Central Government should have any role in the matter regarding the provision of open access. 

Sections 107 and 108 of the Act allow the Central and State Governments, respectively, to issue directions to ERCs. However, the Hon’ble High Court clarified that these directions are merely advisory and non-binding, further safeguarding the autonomous functioning of ERCs. This legislative scheme ensures that the function of the ERCs is to act as a neutral body and ensure that the interests of all the stakeholders are safeguarded.

Invalidity of Green Energy Open Access Rules

Section 181 of the Act empowers the ERCs to frame regulations in respect of charges for transmission, open access and the charges for wheeling and surcharge. In this background, the Hon’ble High Court held that since all aspects relating to open access are conferred exclusively on the SERCs under Sections 42(2) and 181 of the Act, all aspects of open access lie within the exclusive domain of the SERC. The Central Government, in the guise of exercising its residual power under Section 176(2) of the Act, does not have the power to frame any rules in this regard otherwise, it would amount to usurping the substantive powers of the ERCs. The Green Energy Open Access Rules were accordingly struck down on the above considerations. Further, the KERC GEOA Regulations framed pursuant to the provisions of the Green Energy Open Access Rules were also declared illegal.

The Hon’ble High Court has allowed KERC to frame appropriate regulations, if it desires, concerning the grant of open access to green energy generators and consumers as an independent exercise. Alternatively, KERC may continue to operate under the extant KERC (Terms and Conditions for Open Access) Regulations, 2004.

Implications and Analysis

Implications for Renewable Energy Stakeholders 

The Green Energy Open Access Rules having been struck down by the Hon’ble High Court, its effect is not limited to the territorial limits of the state of Karnataka. The judgment will raise issues of validity of similar regulations that have been framed by other ERCs pursuant to the provisions of the Green Energy Open Access Rules. One of the key changes introduced by the Green Energy Open Access Rules was the provision allowing small consumers, with a consumption threshold of 100 kilowatts or above, whether in a single premise or aggregate across multiple premises in the same area, to avail GEOA. This would have allowed such smaller consumers to source power from renewable sources at cheaper costs. The striking down of the Green Energy Open Access Rules reverses this progressive position, making it more challenging for small consumers to access cost-effective green energy.

Broader Policy Implications

The judgment raises questions about the future of open access for renewable energy, particularly for small consumers. With the Green Energy Open Access Rules invalidated, a cohesive and legally compliant framework will need to be developed to balance the interests of all stakeholders. The judgment sets a precedent for regulatory disputes in other states, as stakeholders in jurisdictions that adopted GEOA-based frameworks may now challenge similar rules. This could lead to increased legal scrutiny of regulatory measures nationwide, potentially delaying progress in the renewable energy sector. Nonetheless, the fact remains that there is an administrative discipline that has to be maintained to ensure the supremacy of the Rule of Law – the price for non-compliance being the invalidity of the act not matter how noble the purpose. Where the law enacted by the Parliament provides for something to be done in a particular manner, the same cannot be by-passed through administrative or quasi-legislative machinery.

FAQs

  1. What is Green Energy Open Access (GEOA) Rules?

    Open access means the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation of electricity. The Ministry of Power, Government of India has issued rules dealing specifically with the treatment of open access for consumers availing supply from renewable generation sources. These Rules are called the Green Energy Open Access Rules.

  2. What does it mean when a rule is struck down for being ‘ultra vires’?

    Any rule has to be made in accordance with the rule making powers of the concerned authority. Once a rule has been made, it has the force of law and is binding in nature. Where a rule is struck down as ultra vires, it means the rule is declared as illegal by a court, since it has not been made as per the rule making powers. The rule once struck down, ceases to exist.

  3. How does the judgment affect existing green energy consumers and producers?

    One of the important changes introduced by the Green Energy Open Access Rules was the ability of small consumers having consumption above 100 kilowatts, whether in a single premise or in aggregate of different premises in the same area, to avail green energy open access. This allowed such smaller consumers to source electricity from renewable sources at cheaper costs, and encouraged many developers to set up renewable generating plants to meet the requirements of such consumers. Many of the State Electricity Regulatory Commissions adopted the same approach. This position will stand reversed with the striking down of the Green Open Access Rules.

  4. What is the role of the Electricity Regulatory Commissions according to the Electricity Act, 2003?

    The State Electricity Regulatory Commissions are required to frame regulations to lay down the ground rules for implementation of open access. The Commissions are required to frame regulations in accordance with the provisions of the Electricity Act, 2003 and any Rules issued by the Central Government.

  5. Can the Central Government appeal this decision?

    Yes, the Central Government can challenge the decision before the appropriate appellate court.

  6. What alternatives are available for green energy consumers post-judgment?

    Majority of State Electricity Regulatory Commissions have allowed open access to Consumers having contract demand of more than 1 MW. This threshold was reduced to 100 kW for green energy open access by the Green Energy Open Access Rules. Once the Green Energy Open Access Rules and GEOA Regulations by State Commissions are held to be illegal, open access for green energy will be available to consumers as per the earlier general rules of open access.

  7. Are there similar cases or judgments from other states?

    Some of the rules issued by the Central Government under Electricity Act, 2003 have been challenged in other states. However, there are no other judgments on the validity of Green Energy Open Access Rules from any other court. 

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