Renewable purchase obligations apply to electricity cogeneration

In a decision that will have far-reaching consequences for cogeneration plants, the Appellate Tribunal for Electricity (APTEL) has held that a state electricity regulatory commission is empowered to fasten renewable purchase obligations (RPO) on cogeneration plants. In Tata Steel Limited v OERC and Anr, the APTEL upheld the OERC’s RPO regulations that imposed such a requirement.

Tata Steel operated a captive power plant in Odisha that had a total capacity of 323MW. Of this, 258MW was dedicated to cogeneration and the remaining 65MW constituted a coal-based captive generating plant. Tata Steel was required to comply with RPOs under the Odisha Electricity Regulatory Commission (Procurement of Energy from Renewable Sources and its Compliance) Regulations, 2021. It challenged those regulations on the grounds that they violated section 86(1)(e) of the Electricity Act, 2003 (act), which placed an onus on the state commission to promote cogeneration and the generation of electricity from renewable sources. The OERC was of a contrary view, ruling against Tata Steel’s argument and holding them accountable for RPOs even for the cogeneration plant under the regulations. Tata Steel appealed against this decision to the APTEL.

The appeal sought support from the APTEL’s decisions in Century Rayon v MERC and JSW Steel Limited v TNERC. These rulings suggested that cogeneration plants, regardless of their fuel source, would not be subjected to RPO obligations if their electricity generation surpassed presumptive RPO targets as that would defeat the object of section 86(1)(e).

Resisting the appeal, the OERC relied on the interpretations of the act by the Supreme Court in Hindustan Zinc Limited v RERC and by APTEL in Lloyds Metal & Energy Limited v MERC and Ors.

In Century Rayon, APTEL treated cogeneration and renewable generators on an equal footing, holding that giving one preference over the other defeated the purpose of the act. In Lloyds Metal, the tribunal held that state commissions could prescribe RPO targets only from the generation and cogeneration of electricity from renewable sources and not from cogeneration based on fossil fuels. In JSW Steel, the APTEL had held that the Lloyds Metal case had only set aside that part of the Century Rayon order, which compelled distribution companies to procure electricity from fossil fuel-based cogeneration plants against their RPOs. In Hindustan Zinc, the Supreme Court recognised the power of a commission to impose RPOs on captive consumers.

In the present case, the APTEL held that the principle enunciated in Lloyds Metal overruled Century Rayon and that all decisions following Century Rayon were wrong in law. It held that cogeneration constituted a process of electricity generation distinct from other forms of energy and separate from renewable energy sources. Relying on the Supreme Court’s decision in PTC India Limited v CERC, the APTEL held that it did not have the power of judicial review to decide the validity of statutory regulations made under section 181 of the act. The APTEL left it open for the concerned parties to apply to the appropriate court, that is the high court exercising its writ jurisdiction to seek judicial review of the regulations.

At base, the APTEL upheld the applicability of RPOs to captive power consumers, even those operating cogeneration plants. It determined that these obligations could not be offset against power consumption from fossil fuel-based cogeneration plants.

This decision has far-reaching consequences for the viability of cogeneration. The interpretation adopted by the APTEL that cogeneration and generation from renewable sources are distinct categories under section 86(1)(e) may well be open to question. It is not in doubt that the provision does require the state commission to promote both, but whether the legislative intent enables it to promote one at the cost of another is less certain. The APTEL was aware that it was not the appropriate forum to undertake a judicial review of the regulations to determine whether they are ultra vires the parent legislation. It remains to be seen if the APTEL’s word is final, with the matter only to be settled by the appropriate judicial body that has the jurisdiction to do so.

Abhishek Tripathi is the managing partner and Rahul Bangia is a senior associate at Sarthak Advocates.