Open access triumph for renewable energy projects

By Sitesh Mukherjee, Shailendra Kumar Singh and Nayantara Nag, Trilegal
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In a nutshell, open access is the use of transmission lines or a distribution system by any operator for moving electricity from the point of generation to the point of use.

The Electricity Act, 2003, gives generating companies (including non-conventional energy generators) absolute freedom to sell the electricity they produce to any consumer they wish to reach, whether situated within or outside the state of generation, by using open access.

Facilitative provisions

In order to promote the development of renewable energy (RE) projects, the act mandates the state electricity regulatory commissions (SERCs) to ensure grid connectivity.

Sitesh Mukherjee Partner Trilegal
Sitesh Mukherjee
Partner
Trilegal

The Central Electricity Regulatory Commission (CERC) has framed regulations for facilitating inter-state open access, while many SERCs have done the same to enable intra-state open access.

Because generation from RE projects such as wind power schemes is often variable in nature and therefore difficult to schedule, most SERCs have exempted such projects from the scheduling provisions which are otherwise mandatory under intra-state open access regimes.

To further fulfil the mandate of the act, the RE policies of most state governments allow non-conventional energy generators to sell electricity to any entity within the state.

Stumbling blocks

In contrast to the theory of open access propounded in the act, in practice the grant of open access to RE projects is fraught with difficulty. State transmission utilities (STUs) and state electricity boards (SEBs) often wish to retain electricity within the state and are therefore reluctant to permit its export.

The STUs and SEBs retain the mindset that any electricity generated within the state should be directed exclusively to consumers in that state. As a result, the grant of open access to RE projects is often obstructed on flimsy grounds, with the intent of forcing energy generators to sell the power locally. The result is that developers are effectively denied the freedom to select the entity to which they wish to sell electricity.

RE project developers generally perceive the preferential tariff offered by the SERCs for purchase of power by local distribution utilities as inadequate, in relation to the investment costs of such projects.

Further, the lack of open access prevents RE producers from selling electricity to their chosen customers at negotiated prices, which in most circumstances are higher than the tariff offered by the host distribution utility.

The absence of such an opportunity makes investment in RE projects a relatively less attractive proposition. There has been a spate of cases recently in the CERC where such denial of open access has been a serious issue.

A breakthrough

The unreasonable and obstructive behaviour of the STUs and SEBs has been severely criticized by the CERC in a recent order. The particular case involved a company that had entered into an arrangement with an inter-state electricity trader for the sale of power generated from its wind energy plant in Rajasthan, yet was denied open access by the Rajasthan STU.

Shailendra Kumar Singh Senior associate Trilegal
Shailendra Kumar Singh
Senior associate
Trilegal

The application for open access was rejected on various technical grounds, such as non-communication of generation data and non-disclosure of details of the sale to the authorities concerned. The CERC decided in favour of the company, dismissing the technical objections of the STU and directing it to compensate the company’s commercial losses on the deal.

In deprecating the conduct of the Rajasthan STU, the CERC highlighted the importance of open access to RE projects, and stated two guiding principles for the granting of open access by STUs to the users of the state transmission system. First, an appropriate metering system must be installed at the generator’s facility, and second, transmission capacity must be made available.

Through this landmark judgment, the CERC has set a judicial precedent for allowing inter-state open access to the users of state transmission facilities. It is a positive step towards ensuring that RE producers have the freedom to sell power to any entity of their choice.

This judgment should not only act as a deterrent for potentially obstructionist STUs and SEBs, it should also help bridge the gulf between the theory and practice of open access to RE projects.

Sitesh Mukherjee is a partner at Trilegal in Delhi where Shailendra Kumar Singh is a senior associate and Nayantara Nag is an associate. The firm has offices in Delhi, Mumbai, Bangalore and Hyderabad and has over 100 lawyers, some of whom have experience with law firms in the US, the UK and Japan.

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