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A Trail Guide to Legal Aspects in the Power and Energy Industry in India
Introduction to the Power & Energy Industry
India proudly stands as one of the most diversified nations in the world when it comes to power generation, utilizing both conventional and non-conventional sources. Conventional sources in India include natural gas, hydro power, nuclear power, lignite, petroleum, and coal, while non-conventional sources encompass tidal energy, geothermal energy, solar energy, wind energy, and agricultural and domestic waste. The country has made tremendous progress in this industry, acknowledging the growing demand for energy across all sectors.
As of October 2015, India’s thermal installed capacity reached 195.6 GW, with hydro and renewable energy installed capacities totaling 42.5 GW and 36.5 GW, respectively. Notably, the country’s nuclear energy capacity increased to 5.8 GW, a significant rise compared to 2010.
Government of India Initiatives
Recognizing the importance of the power and energy sector, the Government of India has taken several key initiatives to ensure the sector’s growth:
- The Minister of State for Power, Coal, New and Renewable Energy, Mr. Piyush Goyal, committed to providing electricity to every village in India by the end of 2016.
- From February 15–21, 2016, over 258 villages were electrified. Furthermore, the Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY) aims to electrify over 18,452 villages lacking electricity.
- The government is working on establishing over 10,000 solar, wind, and biomass power projects in the coming five years, with an average capacity of 50 kilowatts per project, which will add 500 megawatts to the total installed capacity.
- As part of a divestment plan, the government plans to sell a 5% stake in the National Thermal Power Corporation (NTPC), India’s largest power producer. The sale is expected to raise ₹5000 crore (approximately US$733.6 million).
- The Ministry of New and Renewable Energy (MNRE) has introduced guidelines allowing state governments to use non-agricultural land for solar parks, reducing the need for private land acquisition.
These initiatives reflect the government’s commitment to advancing the power and energy sector, which is crucial for India’s overall economic development.
Governing Law
The Central Electricity Regulatory Commission (CERC) plays a pivotal role in overseeing and regulating the power and energy sector in India. The core legislation governing this sector is the Electricity Act, 2003, which consolidates the laws related to the generation, transmission, distribution, and trading of electricity. The Act is designed to promote competition, protect consumer interests, and ensure the rationalization of tariffs. It also aims to promote efficient and environmentally friendly policies, establish regulatory commissions, and set up an appellate tribunal.
In December 2014, the Union Cabinet approved amendments to the Electricity Act through the Electricity (Amendment) Bill 2014. These amendments propose to dismantle the monopoly of power distribution companies by separating the carriage (distribution network) from the content (electricity supply), thereby promoting competition and improving efficiency in the distribution sector.
Legal Challenges in the Power Sector
Like any other industry, the power and energy sector faces legal challenges. Companies such as TATA Power, Adani Power, and Reliance Power often encounter hurdles during their incorporation, governed by the Companies Act, 2013.
One of the major legal concerns in the power sector relates to contracts. Power companies frequently enter into contracts with other companies and government agencies, which play a significant role in the functioning of the industry. Notably, the Power Purchase Agreement (PPA) is a critical contract that ensures a payment stream for Build-Own-Transfer (BOT) or concession projects for Independent Power Producers (IPPs). PPAs are typically signed between the purchaser (often a state-owned utility) and the privately-owned power producer. Other essential contracts include concession agreements, operations and maintenance agreements, financing and security documents, environmental and regulatory compliance agreements, and EPC (Engineering, Procurement, and Construction) contracts.
Given the complexity and potential disputes in these agreements, legal counsel often advises opting for negotiation and alternate dispute resolution (ADR) methods rather than taking legal matters directly to court.
India’s power sector has a rich history with nuclear power and an ambitious future. With the recent developments in the nuclear industry and the adoption of the Civil Liability for Nuclear Damage Act, India is poised to participate in international nuclear trade. This development presents significant opportunities, requiring specialized legal knowledge and expertise, particularly in nuclear law.
As the country continues to develop, the demand for skilled lawyers will only grow, whether for documentation, arbitration, or court proceedings. With expertise in equity, justice, and the good conscience of the law, these legal professionals will play a crucial role in the power and energy sector’s continued success.
