Tangled wires: Energy laws in India

India does not have a single codified law that caters for all energy sources. Instead, energy laws in India comprise multiple statutes, rules, regulations, government policies and directives at federal and state levels that govern the electricity, oil, gas and coal segments which, together, broadly constitute the energy basket.

This absence of a homogenous legislative and policy prescription for all energy sources is juxtaposed against India’s rapidly rising energy requirements and commitment to the cause of climate change. It is an intriguing situation and makes an interesting study. This article chronicles India’s recent legislative and policy developments in the energy sector.

POWER AND RENEWABLES

The Electricity Act, 2003 (EA03) is the principal legislation that deals with the functioning and administration of India’s power sector. The EA03 is the governing statute for both conventional and renewable energy sources.

One of its focal aims is to encourage the generation of electricity from renewable sources. The EA03 mandates that state-level electricity regulatory commissions fix targets from time to time, and distribution companies procure part of their power requirements from renewable energy sources. This is commonly referred to as a renewable purchase obligation (RPO).

Apart from distribution companies, the bulk procurement of renewable energy is carried out by entities, such as the Solar Energy Corporation of India (SECI) for different state utilities, to ensure economies of scale. Standard bidding guidelines and documents have been notified by the Ministry of Environment, Forest and Climate Change, and the Ministry of Power, for streamlining the competitive bidding process for such procurements.

The Indian government has also issued guidelines for renewable energy to be bundled with thermal generation by mandating that thermal generating stations either set up renewable capacity or procure renewable power from third parties to offset part of their thermal generation. Guidelines have also been issued to encourage procurement of power from wind-solar hybrid projects that offer stable, smoother and efficient generation profiles.

Apart from the sale of renewable energy, regulations issued by the national energy regulator, the Central Electricity Regulatory Commission (CERC), provide for renewable energy certificates (RECs) against renewable energy generation, to offset RPO requirements in states that are not well-endowed with renewable sources. RECs can be traded bilaterally or through power exchanges. Power exchanges, constituted under the EA03, offer real-time, intra-day, contingent and term-based trading to bridge power requirements between buyers and sellers.

The EA03 also encourages captive generation by exempting captive users from various charges, which consumers are otherwise required to pay to their local distribution company if they buy power from any non-captive source. Green energy open access (GEOA) rules were issued by the federal government and adopted by most state regulatory commissions. They allow open access to small consumers with demand above 100kW for buying renewable energy. Further, there is an increased impetus for the development of different forms of energy storage systems.

To promote efficient and seamless use of the transmission network, General Network Access Regulations have been issued by the CERC to simplify the process of connecting to the national grid. Renewable projects operating at lower capacities up to 50MW are allowed to connect to the high-voltage national grid either by pooling capacities, or by connecting via an existing power plant.

On demand side management, initiatives taken under the Energy Conservation Act, 2001, provide for specifying norms for processes and energy consumption standards for any electrical equipment or appliance, energy conservation building codes, and give preferential treatment for the use of energy efficient equipment or appliances.

WASTE TO ENERGY

Initiatives have been taken under various state regulations and GEOA rules to bring waste to energy (WtE) plants up to par with renewable energy plants, in terms of priority for open access and exempting from various charges for supply from WtE plants. This will incentivise the setting up of more such plants in the country to address the menace of urban and solid waste. Compressed bio-gas (CBG) plants are being promoted to convert urban waste into CBG to be used in the domestic gas sector.

PETROLEUM AND GAS

The New Exploration Licensing Policy for exploration of oil and gas resources, introduced in the 1990s, has now been substituted by the Hydrocarbon Exploration and Licensing Policy (HELP) for streamlining licensing provisions for all kinds of hydrocarbon products, and incentivising exploration and production in the petroleum and gas sector.

This policy is based on a revenue-sharing contract, substituting the earlier production-sharing model and reducing government interference and micro-management. Other incentives include graded royalty rates, freedom of marketing and pricing of gas, exemptions on crude oil and custom duty applicable on equipment and services for exploration and production activities. The open acreage licensing policy under the HELP allows companies to explore and bid for any block not offered by the government. This is expected to increase gas production to meet the growing requirement of hydrocarbons in the country.

The laying, construction and operation of natural gas pipelines in India is authorised and supervised by the Petroleum and Natural Gas Regulatory Board, set up under the PNGRB Act. There is increased focus towards the use of piped natural gas and compressed natural gas for use in the domestic and transport sector.

Delhi was the first state to witness a complete transition of public vehicles including buses and cabs to a CNG-based fleet. Extensive regulations have been issued by the Petroleum and Natural Gas Regulatory Board, specifying the modalities of selection of entities through competitive bidding, for the development and operation of city and gas distribution networks.

To secure a planned growth of network and returns to developers of city gas distribution (CGD) networks developers, exclusivity is provided for specified periods for both network infrastructure and marketing rights. Setting up of LNG stations for dispensing liquefied natural gas have been allowed in addition to CGD services. The government is considering promoting LNG as a more efficient form of fuel for long-haul transportation in terms of truck and railways, apart from industrial use.

India’s first gas exchange was set up in 2020 under the supervision of the PNGRB to promote and sustain an efficient gas market and encourage gas trading. The exchange involves multiple buyers and sellers trading gas on various spot and forward contracts. The contracts traded in the exchange are for physical delivery and settlement of the trade. It is not a market for derivatives.

There has been an increasing participation both in terms of participants and volume in the exchange, which is expected to see heightened activity during the summer months when the government has directed all gas-based plants to be ready for operation due to projected heat waves across India.

To streamline the growing demand of natural gas in the country, saving of forex and achieving net zero emissions, the Indian government launched an initiative called Sustainable Alternative Towards Affordable Transportation (SATAT) from 2018. SATAT’s aim is to promote production of compressed biogas (CBG) and its use along with natural gas.

The Indian government has issued guidelines for mixing CBG with domestic gas for the transport and domestic sectors, with the introduction of mandatory blending of CBG in CNG (transport) and PNG (domestic) segments from FY 2025-26 in a graded manner up to 5% CBG. Further, with a view to boost ethanol production and also to address pollution, the central government has, under the Essential Commodities Act, mandated the sale of ethanol mixed petrol in various states.

COAL

In 2014, the Supreme Court of India cancelled all coal mines/blocks that had been allocated to various government and private companies since 1993, due to irregularities in the allocation process. The Coal Mines (Special Provisions) Act, 2015, was enacted to reallocate the coal blocks through competitive bidding. Allocation of coal mines in general is carried out under the MMDR Act, which has been amended from time to time to transition from project-based mining to commercial mining of coal.

India stands at the crossroads. The focus of the government and industry is to develop a heterogeneous, robust and efficient mix of energy sources so as to secure energy security that will aid the ambitious economic march of the country.