Caught between the RPO and RCO conundrum: The Institutional Fairness Challenge

Caught between the RPO and RCO conundrum: The Institutional Fairness Challenge

By – Asmita Narula

Table of Contents

Introduction

With the rapidly growing demand for electricity, coupled with continued dependency on fossil fuels, the need to improve energy efficiency and transition towards a more diversified and sustainable energy mix has intensified. In response to these challenges, the legislature enacted the Energy Conservation Act, 2001 (“Conservation Act”) to promote efficient energy use and reduce overall consumption. India’s aim is to increase the share of renewable energy sources and achieve about 50% of its installed capacity from non-fossil sources by the year 2030, and simultaneously reduce the emission intensity by 45% by the year 2030.1 The statutory framework under the Conservation Act was significantly expanded by way of an amendment in the year 2022 to achieve these goals, which included the introduction of the Renewable Consumption Obligation (“RCO”). At the same time, the Electricity Act, 2003 (“Electricity Act”) had already established an independent statutory mechanism for promoting co-generation and renewable energy, requiring distribution licensees to procure electricity from such sources as a percentage of their total procurement for distribution purposes i.e., the Renewable Purchase Obligation (“RPO”).

The coexistence of these two legislative regimes gives rise to significant institutional issues, regulatory overlaps and compliance concerns. Several State Electricity Regulatory Commissions (“SERCs”) have aligned their RPO targets with the RCO targets notified by the Central Government to avoid confusion however, there is a lack of overall harmonisation of the two regimes. What happens when the SERC, acting under the Electricity Act, relaxes the RPO targets, and at the same time, it is the adjudicating authority under the Conservation Act to adjudicate the penalty for non-compliance of the RCO targets? The answer raises fundamental questions of natural justice, regulatory neutrality, and constitutional fairness.

Note: For a detailed overview of the origin and structure of the RCO and RPO regimes, you may refer to our earlier article “RCO v. RPO: India’s Energy Law Explained”.

Framework of penalty for non-compliance

Section 14 (x) of the Conservation Act, inserted by way of the amendment in the year 2022,2 empowers the Central Government, in consultation with the Bureau of Energy Efficiency (“BEE”), to specify the minimum share of consumption of non-fossil sources by designated consumers as energy or feedstock i.e., RCO.

By way of the amendment in the year 2022, Section 26 was substituted to provide for stricter penalties for non-compliance of inter alia Section 14 (x) i.e., failure to meet the RCO targets notified by the Central Government.

Section 26 (3) of the Conservation Act provides for the quantum of the penalty to be imposed inter alia in case of failure to comply with the directions issued under Section 14 (x) of the Conservation Act i.e., a penalty not exceeding Rs. 10,00,000/- for each such failure. The proviso to Section 26(3) provides for an additional penalty not exceeding twice the price of every metric ton of oil equivalent (MTOE) prescribed under the Conservation Act, which is in excess of the prescribed norms. If not paid, such penalty can be recovered as if it were an arrear of land revenue.3 The penalty which can be imposed on the non-compliant designated consumer under Section 26(3) of the Conservation Act is evidently substantial.

Section 27, 27(A)4 and 28 of the Conservation Act provide a complete code for adjudication of the penalty under Section 26 of the Conservation Act. Section 27 (1) stipulates that the SERC, which is constituted under the Electricity Act, shall appoint any of its members to be the adjudicating officer to hold an inquiry in the manner prescribed by the Central Government for the purpose of imposing penalty under Section 26, after affording an opportunity of hearing to the concerned party. As per Section 27 (2), if such adjudicating officer is satisfied that there is a non-compliance, he has the discretion to impose such penalty as he thinks fit in accordance with the provisions of Section 26.

Section 26 (3) as well as the proviso thereto prescribe only the maximum penalty that can be imposed. Thus, Section 27 (2) read with Section 26 (3) gives sufficient discretion to the adjudicating officer to quantify the penalty, subject to the maximum penalty stipulated under Section 26 (3). The adjudicating officer is however required to give due weightage to the factors stipulated under Section 28 i.e., (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default, (b) the repetitive nature of the default, and (c) the loss caused to a consumer and amount of compensation thereof. Notably, Section 28 does not give any weightage to the reasons for the shortfall / deficiency, how so bona fide or legitimate the same are.

The power to adjudicate the penalty under the Conservation Act, which is vested in the adjudicating officer, thus includes determination of the liability / culpability i.e., whether there is any shortfall or deficiency in meeting the RCO target, and determination of the penalty for such shortfall / deficiency. The Ministry of Power issued a notification dated 27.09.2025 specifying the minimum share of consumption of non-fossil sources (renewable energy) by designated consumers as energy or feedstock5, in supersession of a previous notification dated 20.10.20236. The said notification dated 27.09.2025 states that any shortfall in meeting the RCO shall be treated as non-compliance and penalty may be imposed in accordance with Section 26 (3) of the Conservation Act. 

The Conundrum

Under the Conservation Act, the BEE is responsible for operationalizing and monitoring the RCO compliance with the prescribed targets. However, the BEE has no adjudicatory role in relation to the penalties arising from the non-compliance. This power squarely vests with the adjudicating officer appointed by the concerned SERC, thereby creating a bifurcated regulatory structure in which monitoring and enforcement are separated from adjudication.

In one of our earlier articles “RCO vs RPO: Muddling Regulatory Waters”, we examined the absence of broader harmonisation between the two regimes, which results in regulatory gaps and compliance issues. As discussed therein, the two frameworks operate under distinct legislations, are administered by different institutions, and are founded on different compliance mechanisms. Consequently, the two regimes may not always align seamlessly, often giving rise to regulatory gaps and practical compliance challenges.

One such challenge arises where an entity is compliant under one regime but non-compliant under the other. This possibility is not merely theoretical. It may arise, for instance, where a SERC, exercising its powers under the Electricity Act and the regulations framed thereunder, relaxes RPO targets or modifies the manner in which those obligations are to be fulfilled. In such a scenario, the same entity may nevertheless remain liable for failure to meet the RCO targets prescribed under the Conservation Act.

This creates a deeper institutional concern. If the adjudicating officer appointed by the SERC is then called upon to determine whether penalties ought to be imposed for non-compliance with RCO targets under the Conservation Act, a structural conflict of interest may emerge. The concern is particularly critical because the SERC, under the RPO regime, may itself have previously granted exemptions, relaxations, or deferred compliance obligations that materially affect the entity’s ability to satisfy the RCO targets.

In practice, SERCs have frequently recognised the commercial and operational realities faced by obligated entities in meeting RPO targets. Accordingly, several SERCs have permitted carry-forward of RPO shortfalls to subsequent financial years, granted exemptions where power is sourced from cogeneration captive generating plants, or relaxed strict compliance timelines in light of market constraints, lack of renewable energy availability, or other peculiar facts and circumstances of a case.

However, where an obligated entity under the Electricity Act is also a designated consumer under the Conservation Act, such regulatory relief may create an unintended inconsistency. An entity exempted from achieving RPO targets in a given financial year may nonetheless find itself unable to meet the RCO thresholds for the same period, thereby exposing itself to penal consequences under the Conservation Act.

The adjudicating authority tasked with determining culpability and imposing penalty in such a case would be an officer appointed by the very same SERC that granted the exemption or relaxation under the Electricity Act framework. This concentration of functions raises a serious concern of conflict of interest and undermines the settled principle of natural justice that no person should be a judge in their own cause (nemo judex in causa sua).

The concern, therefore, is not one of personal bias, but of institutional independence and fairness. Where one authority regulates the compliance and grants exemptions under one statutory regime, and appoints the officer who determines liability under another statutory regime, the perception of independence and impartiality may itself stand impaired.

Conclusion

As India advances toward an increasingly stringent renewable energy compliance framework, the legitimacy of enforcement mechanisms will be as important as the ambition of the targets to be achieved themselves. While the objectives underlying the RCO regime are unquestionably laudable, regulatory design must also satisfy the standards of institutional fairness, neutrality, and independence.

With expanding renewable energy obligations across multiple legislative frameworks, harmonisation between the RPO and RCO regimes is no longer merely desirable, it is essential. Without clearer statutory coordination and independent adjudicatory safeguards, obligated entities may remain exposed to conflicting mandates and overlapping liabilities, potentially creating uncertainty in implementation.

Where the same authority grants exemptions under one statutory framework and appoints the officer adjudicating penalties under another overlapping framework, concerns may arise regarding institutional fairness and consistency. A clearer legislative harmonisation between the RPO and RCO regimes, coupled with an independent and transparent penalty mechanism, would be essential to ensure that India’s clean energy transition is driven not only by compliance, but by credible and just governance.

FAQs

  1. How does the Energy Conservation Act, 2001 define and enforce Renewable Consumption Obligation (RCO)?

    Renewable Consumption Obligation (RCO) is a mechanism under which certain specified consumers i.e., designated consumers, are obligated to consume a  certain percentage of non-fossil sources as energy or feedstock. It is operationalised and monitored by the Bureau of Energy Efficiency (BEE). Further, non-compliance with the specified targets attracts penal consequences under Section 26 (3) of the Conservation Act.

  2. What is the penalty framework for non-compliance with RCO under the Conservation Act?

    A penalty not exceeding Rs. 10,00,000/- for each failure can be imposed. An additional penalty not exceeding twice the price of every metric ton of oil equivalent (MTOE) can further be imposed. If the penalty imposed on the designated consumer is not paid, it can be recovered as if it were an arrear of land revenue.

  3. What role do State Electricity Regulatory Commissions (SERCs) play in adjudicating RCO violations?

    The concerned SERC is required to appoint one of its members as the adjudicating officer to conduct an inquiry into the alleged non-compliance of RCO to determine the shortfall and the quantum of penalty, if any.

  4. How can regulatory overlap between RPO and RCO create compliance conflicts for obligated entities?

    RPO and RCO operate under separate statutes, institutions, and compliance systems. An entity which is compliant under one regime can be non-compliant under the other. For instance, where a SERC, exercising its powers under the Electricity Act and the regulations framed thereunder, relaxes RPO targets for an entity, the same entity may still have to comply with RCO targets under the Conservation Act.

  5. What kind of regulatory relaxations under RPO can lead to unintended non-compliance under RCO?

    Subject to the relevant RPO Regulations, regulatory relaxations can be in the form of (a) carry-forward of RPO shortfalls to future financial years, (b) exemptions where power is sourced from cogeneration captive generating plants, (c) relaxation of compliance timelines due to market constraints or insufficient renewable energy, and (d) case-specific exemptions based on operational or commercial hardship.

References –

  1. https://beeindia.gov.in/show_content.php?lang=1&level=1&ls_id=186&lid=291
  2. Energy Conservation (Amendment) Act, 2022
  3. Section 26 (5) of the Conservation Act
  4. Inserted by way of the Energy Conservation (Amendment) Act, 2022
  5. Notification No. 4421(E) dated 27.09.2025
  6. Notification No. 4617(E) dated 20.10.2023

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