Legal options available to a renewable generator when the distribution licensee does not pay – By Surabhi Pandey

Despite the mandate to promote clean energy, renewable generators have not been paid dues running into several hundred crores by distribution companies.

India has emerged as a key player in the world’s quest for cleaner energy. We have set an ambitious target of 450 GW of renewable energy capacity by 2030. With the promise of a growing market and a statutorily organised regulatory framework, we have succeeded in gaining the private sector’s trust and thereby the investment. The Electricity Act, 2003 and the policies thereunder, with the objective to promote a clean environment, mandate that all distribution licensees (discoms) procure a specified percentage of power requirements from renewable energy sources. However, like leprechaun’s gold, India’s plan to promote renewables may amount to nought if the State-owned discoms do not pay the generators.

The non-payment of dues running into hundreds of crores has put the entire market at unease and created a trust deficit especially when Power Purchase Agreements (PPA) are executed mostly pursuant to competitive bidding processes and always with the approval of the regulatory commissions. 

The aggregate losses of the discoms in India are amongst the highest in the world. The fate of the private investors is intertwined with that of the financially distressed discoms. The government, conscious of the problem, is making efforts to remedy the situation. It has recently notified the Electricity (Late Payment Surcharge) Rules, 2021, to provide enhanced rate of Late Payment Surcharge (LPS) for each succeeding month, debarment of the discoms from procuring power from a power exchange till payment of unpaid bills after the expiry of seven months from the due date and for adjustment of all payments made by the discoms firstly towards LPS.

The Government is also proposing to amend The Electricity Act inter alia to delicense the discoms, mandate a payment security mechanism to the generators, and provide a much higher penalty for non-compliance of directions of the regulatory commissions. 

Given that the amendments have not yet been notified, let’s examine the current legal remedies available to the generators. 

The Electricity Act has created specialized forums, State Electricity Regulatory Commissions (SERC) in the States, which have wide powers to regulate the sale and purchase of electricity and to enforce its orders and directions. However, despite the specific timelines provided in the PPAs as stipulated in the Tariff Orders, the discoms have failed to make payments. In almost all cases, the discoms insist on making payments only after the generators waive off the LPS amounting to several crores. Such waivers besides defeating the purpose of LPS provision in the Tariff Orders and the PPAs, bolster continuous defaults. 

The SERCs customarily do not take stringent action against discoms. Even where penalties are imposed, they are usually nominal even in cases of continuous non-compliance. One Commission has even transferred such disputes to arbitration, prolonging the delay in recovery of admitted dues, spooking the investors. The generators tied to the discoms by PPAs for terms ranging between 10 to 25 years do not press for harsh sanctions to avoid provoking the discoms. 

In such a scenario, the SERCs ought to come to the rescue of the generators and perform their mandate to promote renewables and ensure compliance with the PPAs executed between the generators and the discoms in terms of the Tariff Orders. Recently in petitions filed by a multitude of RE generators against the discom for non-payment of dues and for non-payment of the LPS in terms of the PPAs, the Rajasthan Electricity Regulatory Commission (RERC) has directed the discoms to make arrangements to discharge their liabilities under the contracts. The order has resuscitated the confidence of renewable generators in the State regulator.

One option the generators could take recourse to is approaching the Appellate Tribunal of Electricity (Tribunal) in appellate proceedings challenging the SERCs’ orders in case the orders have proved ineffectual in the recovery of dues. The recent orders of the Tribunal indicate that it is unlikely to accept discoms’ financial difficulty as a justification for non-payment of admitted dues. Once the Tribunal passes directions reprimanding such delays, all Commissions will be bound to adjudicate similar matters in terms of the law settled by the Tribunal. 

The Tribunal can also be petitioned to direct all SERCs to perform their functions under the Act. The generators may seek directions to the SERCs to inquire whether the funds allocated for the purchase of renewable power in the orders approving annual revenue requirements of the discoms have been utilized for that purpose. With assistance from the SERCs, the Tribunal may formulate a scheme to prevent future delays in payments by the discoms.

The discom’s action of prioritizing payments to thermal generators, even to those from which no energy is being drawn, over the renewables, fails the test of reasonable classification and is likely to be found to violate Article 14 of the Constitution. In view of the same, the generators could consider approaching the High Courts which have wide powers under writ jurisdiction, but given the high pendency of matters, the High Courts may be inclined to send the generators to the SERCs being the alternative remedy.

Generators would do well to remember that the way out of this labyrinth is not through the beguiling short cuts but by patiently following the flaxen thread of remedies given in the Electricity Act.

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The author is a Senior Associate at Urja Law Chambers. She has experience in the energy sector and has mostly been representing generators in State Commissions/ Central Commissions, APTEL, and the High Courts. She also handles the firm’s arbitration matters. 

Disclaimer: The views or opinions expressed are solely of the author.