Akshay Shandilya is a IVth Year Student of B.A.LL.B. (Hons.) at Hidayatullah National Law University, Raipur. This article was submitted as a part of a blogging contest which may lead to his selection as an iPleaders Energy Law Fellow. The fellow will be selected on the basis on engagement on these posts as well as quality of writing and research. We emphasise on engagement because it shows one’s ability to generate interest in an otherwise arcane subject like energy laws. The selected fellow will receive a paid internship with a boutique energy law firm in Delhi (stipend of INR 7000), an opportunity to be mentored by very senior lawyers  and a free course worth INR 5000 from iPleaders. If you want to participate, write to r[email protected] for instructions.

Anyone with a genuine concern for environment, let alone people familiar with basic environmental law, would know the position of Kyoto Protocol in addressing the challenges posed by global warming.  The Protocol is both praised (for its time bound carbon reduction format) and condemned (for the difference between signatories and ratifications). Industrial countries have recently been making attempts to formally embrace the Protocol and India is one such country; which had ratified the Protocol way back in 2002. However, international commitments do not become obligatory for India even when the State has ratified the document containing them. This is due to the supremacy of Article 253 of the Indian Constitution.  The lucidly framed Article read with Entries 13 and 14 of Schedule VII empowers the Union legislature to statutorily implement those commitments made by the executive in order to fulfill the ratification process municipally. This is further confirmed by a Consultation Paper released by the Law Ministry in 2001 titled ‘Treaty-Making Power under our Constitution’. The paper states: “it cannot be disputed that the creation of the obligations undertaken in treaties and the assent to their form and quality are the function of the Executive alone.  Once they are created, while they bind the State as against the other contracting parties, Parliament may refuse to perform them and so leave the State in default.” Therefore, it becomes proper for Parliament to make law to implement treaties, agreements and international conventions. This marks an induction of international commitments into domestic framework for better execution.

Early this year, “The Compulsory Promotion, Utilization, Supply and Access of Renewable Energy Bill, 2014” (hereinafter Renewable Energy Bill, 2014) was introduced in the Rajya Sabha.[1] By means of the legislation, the law-makers intend to give effect to two international documents in the domestic framework namely, Kyoto Protocol (a certain part thereof) and a UN General Assembly Resolution. This is evident from a simple reading of the Preamble along with the Statement of Objects and Reasons of the Bill.

Preamble to the Bill 

The preamble of the Bill is divided into three sets:

1. The first is the broad intention to provide for the formulation of a comprehensive renewable policy in the country taking stock of the energy resources to facilitate sustainable and affordable energy planning.
2. The second recognizes the ratified Kyoto Protocol to reinforce the promotion of sustainable development and increased use of new and renewable forms of energy and of advanced and innovative environmentally sound technologies. It is Article 2(1) of Kyoto Protocol that commits Contracting Parties to promote sustainable development. Then Article 2(1)(a) lists the policies and measures that Contracting Parties shall implement or further elaborate in accordance with their national circumstances such as “Enhancement of energy efficiency” [sub-clause (i)] and “Research on, and promotion, development and increased use of, new and renewable forms of energy…and of and of advanced and innovative environmentally sound technologies” [sub-clause (ii)]. The Preamble restricts the scope of the Bill to these two parts of Kyoto Protocol and does not directly address other facets such as emission reduction, sustainable forms of agriculture However, the need of a special law to give effect to renewable energy policies domestically was certain. If policies are executed in accordance with a statute then an accountability system would also follow ensuring efficiency and success of the plan.
3. Third part mentions the UN Resolution A/RES/58/210 which recognizes the need for increased usage of renewable energy resource, more efficient use of energy and greater reliance on advanced and cleaner energy technologies.[2]

It can be deduced that the Bill is a conscious effort by the legislature to fulfill what India had signed up for more than a decade ago. This shows that the commitment is not only on paper or diplomatic level but the pursuit is active on a practical echelon as well.

According to Black’s Law Dictionary, “Preamble” to a statute is the introductory statement explaining its basis and objective; especially a statutory recital of the inconveniences for which the statute is designed to provide a remedy. When the Preamble is read with the Statement of Objects and Reasons, the inconvenience the Renewable Energy Bill, 2014 attempts to remedy is evident. While the Government has, throughout the last decade, been initiating plans, policies and schemes to promote renewable energy in the country, several factors have impeded their progress. These factors, as the Objects and Reasons of the Bill point out, are: lack of private financing, enforcement and compliance for renewable purchase obligation, lack of comprehensive renewable energy policies, rapid mechanism for setting standard industrial norms and monitoring the minimum compliance by organizations. Aimed at addressing and removing all the foregoing factors, or as the Bill likes to term it – “barriers” – the comprehensive legislation would be critical to build a strong institutional framework for utilization and development of renewable energy in the country.

National Renewable Energy Policy

Section 3 of the Bill specifies the formulation of a National Renewable Energy Policy. The Central Government, with consultation from State Governments, is tasked with formulating the Policy within one year of the Bill becoming an Act. It would stipulate national renewable energy targets in terms of total renewable energy generation for the next 20 years with a 5 yearly break-up of the targets. The Central Government would also define and set up what has been termed as the “renewable energy quota”. Finally, the progress of the policy provisions, targets and issues would be reviewed annually by a review panel established under the Section.

The system of postulating renewable energy targets is nothing new. The government had been doing it vide Five Year Plans but their inconsistency and lack of achievement is also well known. The other event was when the UPA government released the National Action Plan for Climate Change in 2008.[3] Though it did not spell out the exact percentage of renewable energy targeted out of the total energy mix, simple mathematics revealed that a share of 15% was envisaged by 2020. The National Renewable Energy Policy, on the other hand, indicates that the target stipulation should span a period of 20 years with 5 yearly break-up of the targets. The break-up mechanism is installed as a means to secure better target achievement.

On another note, reading clauses (2) and (3) under Section 3, I strongly believe that the words “sub-section (2)” should be substituted by “sub-section (1)”. This is because of the fact that the power to issue notifications to change targets is laid down in sub-section (1) but the same is wrongly mentioned as being under sub-section (2). This is not merely a misprint as it appears twice and should be rectified.

National Committee on Renewable Energy

Section 4 of the Bill requires the appropriate government to establish a National Committee on Renewable Energy “for the purposes of advising the government on all matters related to renewable energy including those referred to in or arising from the implementation of this Act.” The Section does not lay down the maximum number of members in the Committee but states that it shall have the following as its constituents:

1. A Chairperson with “special knowledge in the field of renewable energy development and climate change issues”.
2. One member each, representing the “Central Electricity Regulatory Commission and the State Electricity Regulatory Commission”. This clause also raises a particular doubt. Presently, there are 28 State Electricity Regulatory Commissions (SERCs) in operation in the country. Since the proposed Committee is to be a “National Committee”, established by the Central Government at the national level, then one member each from every SERC need be present. So the provision should end with “State Electricity Regulatory Commissions” rather than just “State Electricity Regulatory Commission”. Probably this was what the law-makers intended but couldn’t convert the intention accurately in the Bill, which cannot be overlooked.
3. At least two members with judicial The term “at least” has left the cap open-ended on the number of such members who can be nominated once the two seats are filled.
4. A member representing the Union Ministry of New and Renewable Energy.
5. A member representing the Bureau of Energy Efficiency (BEE).
6. Two members representing NGOs working in the field of renewable energy and climate change.

Except the members from CERC and SERC, all other members are stipulated to be nominated by the Central Government. This raises another doubt as to whether the Boards would refer the names of the persons to the government or the Central Government would nominate them. The provision needs to see a clarification on this issue.

Renewable Energy Obligations

Section 14 talks about the renewable energy obligations as laid under Electricity Act, 2003, (hereinafter as EA Act, 2003) and obligates the appropriate Commission to ensure its compliance.[4] Section 86 of the EA Act, 2003, requires SERCs to promote generation of electricity from renewable sources. It further requires state commissions to set targets for obligated entities to purchase a certain percentage of their total power requirement from renewable energy sources. This is called as Renewable Energy Purchase Obligation or simply as Renewable Purchase Obligation (RPO). However, the EA Act, 2003, does not spell out the RPO in numeric terms but calls for SERCs to indicate the same. This means that there can be as many RPOs as there are SERCs and this is where the problem stems out from.

Consequently, different state commissions fix different purchase obligations. This creates a disparity as the regulations also differ in each case.[5] Obligated entities, which are legally obligated to meet RPO terms, in some States claim that the renewable energy capacity in the State is not adequate to even meet the RPO. For eg. Delhi, which does not have enough renewable energy output potential. The concern is amplified by the fact that there is no mechanism for procurement of renewable energy generated outside the State for fulfillment of RPO compliance. Existing RPO regulations across SERCs recognize procurement from only within the State. Under this plea, some electricity tribunals either allow Distribution Companies (DISCOMs) to carry forward their RPO from last year or refrain from imposing penalties. This is causing serious injury to the government and the policy goals are not being achieved.

The Renewable Energy Bill, 2014, seeks to plug this valve as well. Section 14(1)(a) of the Bill specifies that the RPO target shall be fixed at 5% in the initial year and increased by 1% in every successive year. Commissions are also empowered to determine a mechanism whereby increased penalties and stricter regulations are prescribed for RPO non-compliance. SERCs are statutorily obliged to ensure the timely and firm implementation of this penalty mechanism.  Section 14(2) further compels Central and State generators of conventional thermal power plants to generate a particular amount of renewable energy during a specified period. This would be called as Renewable Generation Obligation and the targets thereof would be fixed by the appropriate Government. Such a target would be increased by 0.5% every successive year. The Renewable Energy Certificate mechanism resolves the issue of lack of green energy potential in a State.

Renewable Energy Certification

Section 15 of the Renewable Energy Bill, 2014, states “the appropriate Commission shall promote the obligated entities to use the current Renewable Energy Certificate mechanism for meeting their RPO targets”. It goes on to further state that it shall also promote Government Organizations, Public Sector Undertakings (PSUs) and private companies to undertake voluntary purchase of RECs.

The EA, Act, 2003 contained two provisions Section 66 and Section 178(2)(y) which when read together empowered the Central Commission to make appropriate regulations to develop the power market, including trading thereof. The Renewable Energy Certificate era was launched in this way. The CERC (Terms for Issuance and Recognition of Renewable Energy Certificate for Renewable Energy Generation) Regulations, 2010 contained detailed rules for the same.

Under the REC system, when a generator of renewable energy generates electricity, the obligated entities have an option of purchasing a certain quantum of commodity electricity directly or purchasing a certain amount of Renewable Energy Certificates. These certificates represent the environmental attributes of electricity generated from renewable energy sources and are thus, unbundled from the physical electricity. For every 1 MWh generated the Central Agency (designated to issue the certificates) would issue 1 REC in electronic, dematerialized form. So a REC is market based instrument which provides evidence that a generator has produced a certain amount of electricity from a renewable energy resource.[6] Therefore, it is not actual physical electricity which is purchased but signifies an environmental attribute of renewable energy. RECs can then be traded in the market to meet Renewable Purchase Obligation (RPO), which can be fulfilled by purchasing commodity electricity too. The two categories of certificates are: (1) “solar certificates”, issued to eligible entities for generation of electricity based on solar source and; (2) “non-solar certificates”, issued to eligible entities for generation of electricity based on renewable energy sources other than solar. This means that the obligated entities have to purchase either power from solar power projects or RECs generated by them.

However, the REC sector did not flourish as expected as state distribution utilities failed to honour their purchase obligations, putting entrepreneurs and investors of green energy at risk.[7] While supplies run high, the paucity of buyers and consequent lack of demand compels green companies to drop prices. The Renewable Energy Bill, 2014, intends to revive the promising sector and provide a surge to investments in green energy. Section 15(1) of the Bill allows the Central Commission to define REC in a comprehensive manner. This means that the sector could see a new and improved regulation addressing the loopholes in the present framework.

Investments in Renewable Energy

The Bill provides a safety net to the sector by obliging the Centre and the State Governments under Section 16 to “ensure availability of adequate funding options, incentives and financing means for renewable energy projects to attract private sector investments.” It states further “the financial instruments shall also be promoted to mobilize funds from institutional and retail investors.” Section 17 empowers the appropriate Government to “specify a percentage of electricity supply to be drawn from renewable energy sources as mandatory for private sector companies”. Such companies can meet this obligation by either setting up captive renewable energy plants at their site, purchasing commodity electricity or RECs, or allocate CSR funds for renewable energy installations. Moreover, Section 15 of the Bill empowers the appropriate Commission to introduce renewable energy purchase as a specific activity under the list of Corporate Social Responsibility (CSR) activities. Appropriate Government is authorized to punish non-complying private companies vide Section 17 (2) with monetary penalty, increased targets in successive years and withdrawal of financial benefits and amount so collected shall be contributed to the state clean energy funds.

The provisions further requires the Government to publicly recognize private sector companies which surpass their renewable energy obligation targets and incentivize them through various schemes and rebates. This will encourage capital hungry private corporations to readily outperform when it comes to green energy. Section 17(5) calls for the Government to give priority to products from such companies in case of usage or consumption in Government projects and schemes. The companies would happily oblige because it would not only put them at good terms with the Government but also with the public, as they are reducing the carbon footprint in the environment.

Section 17(6) allows the Government to make it mandatory for SEZs, industrial clusters and upcoming projects to procure a percentage of their energy requirement, if not entirely, by utilizing clean and renewable energy. Before clearing and certifying any project, the Government must also ensure that all avenues of using clean and renewable energy are exhausted. Further, sub-section 7 links the grants and benefits to non-governmental individuals or bodies, by the Government, to their utilization of clean and renewable energy for meeting requirements of the energy component of their projects. So the Bill guarantees enough security to green energy sector by statutorily maintaining a market for renewable energy.

Rural Energy Supply

Finally, the Bill also serves the purpose of providing a roadmap to electrify rural areas by utilizing renewable energy sources. Under Section 18, the appropriate Government is obligated to include a detailed, time bound plan for ensuring energy access and supply to un-served and underserved rural areas and people with the help of clean and renewable energy sources. As a pre-requisite to the same, the sub-section suggests that the household level electrification and energy supply status in the entire country shall be mapped within six months of the coming into force of the Act. Practically, this is a difficult task and the time period is insufficient to match the enormity and the scale of the job. Maybe an amendment could give more flexibility in terms of the time period so that the job can be done efficiently.

The Government is also to promote renewable energy based electrification in local areas and take necessary steps for the same as outlined in Section 20 of the Bill. One of the steps is to “promote innovative business models and support local entrepreneurs through appropriate incentives as may be prescribed by the Central Government”. This step is in complete compliance with point no. 5 in the UN Resolution A/RES/58/210 which is mentioned in the Preamble to the Bill. The point reads “[The General Assembly] Recognizes that rural energy services, including their financing, should be designed to maximize local ownership, as appropriate”. The Government must also ensure that all regional rural banks mandatorily allocate a certain percentage of their funds for lending to the off-grid renewable energy systems.

Conclusion

The Renewable Energy Bill, 2014, is a game changer for companies generating renewable energy. It is slated to provide a steady market for green electricity so that the demand never goes down. This was a major issue which impeded the growth of the sector ever since it was embraced via Electricity Act, 2003. The Government intends to make procurement of renewable energy mandatory in many cases and Commissions have the power of notifying a better mechanism to promote renewable energy. This framework is unique in the sense that it is a mixture of both the worlds. On one hand, India progresses on an ambitious nuclear energy expansion roadmap, on the other; it promotes green energy to the maximum extent possible and inducts stricter penalties for non-compliance with renewable energy obligations. It is a determined act of the Government wherein it recognizes not only its concern to achieve energy security via all possible means but also to maintain adherence with its international commitments to reduce its carbon footprint. Sustainable development is key to active policy planning today, and India cannot take the excuse of being a developing country, disregard all concerns to reduce pollution and industrialize mindlessly. The Statement of Objects and Reasons of the Bill rightly concludes: “Clean and Renewable Energy is no longer an option but the need of the hour.” At the Stockholm Convention Indira Gandhi was quoted as saying “poverty is the worst form of pollution”. Her words have been consistently manipulated to shift the focus of responsibility for environmental degradation on to the world’s poorest people. But in fact it is the poorest who continue to be its worst sufferers. It is as much the responsibility of the State to emancipate the poor as it is its duty to protect them from the perils of pollution and environmental degradation. The enactment of “The Compulsory Promotion, Utilization, Supply and Access of Renewable Energy Bill, 2014” shall go a long way to prove that India is a progressive State with a passionate policy of energy generation which not only seeks to honor its international commitments but also provides a better standard of life for its people.

[1] The full draft of the Bill is available at http://164.100.47.4/BillsTexts/RSBillTexts/asintroduced/Renewble-E.pdf.

[2] Available at: http://www.un.org/en/ga/search/view_doc.asp?sym-bol=A/RES/58/210.

[3] National Action Plan on Climate Change, Government of India, http://www.moef.nic.in/sites/default/files/Pg01-52_2.pdf.

[4] Electricity Act, 2003, http://www.cea.nic.in/reports/electricity_act2003.pdf.

[5] Report on ‘Conceptual Framework for REC Mechanism in India’, ABPS Infrastructure Advisory Pvt. Ltd., June 2009,  http://mnre.gov.in/file-manager/UserFiles/MNRE_REC_Report.pdf.

[6] Trading Renewable Energy Certificates (REC), Power Exchange India Ltd., http://www.powerexindia.com/PXIL/rec.aspx.

[7] Debjoy Sengupta & Peerzada Abrar, Renewable energy certificate market crashes as state distribution utilities fail to meet norms, Economic Times, November 22, 2012, http://articles.economictimes.indiatimes.com/2012-11-22/news/35300733_1_energy-certificates-solar-power-producer-renewable-energy.