APERC’s Landmark Ruling Balancing Regulatory Autonomy and Renewable Energy Goals

Precedent No. JB 2025 APERC OP 91

The APERC Headed by Hon’ble Sir P.V.R. Reddy, Member & Chairman (i/c) in his Orders in O.P. No. 91 of 2024 in between Southern Power Distribution Company of Andhra Pradesh Limited v. Axis Energy Ventures India Private Limited & Ors., dated May 2, 2025 sets a precedent affirming the Andhra Pradesh Electricity Regulatory Commission’s (APERC) autonomy in approving Power Purchase Agreements (PPAs) and determining tariffs under Section 62 of the Electricity Act, 2003, treating state government directives under Section 108 as advisory. It validates MoU-based PPAs for renewable energy projects with high Capacity Utilization Factors (CUF) and storage, approves fixed 25-year tariffs comparable to competitive bids, and mandates flexible peak-hour definitions and strict penalties to balance consumer and developer interests, while emphasizing the binding nature of Ministry of Power’s Renewable Purchase Obligation targets under the Energy Conservation Act, 2001, for evidence-based power procurement.

Key Facts

• Subject: Approval of four amended Power Purchase Agreements (PPAs) under
  Section 86(1)(b) of the Electricity Act, 2003, and Section 21 of the Andhra
  Pradesh Electricity Reform Act, 1998, for procuring 400 MW (100 MW each)
  from wind-solar hybrid pilot projects under the Bundling, Balancing, and
  Banking (BBB) scheme.
• Government Directive: The Government of Andhra Pradesh (GoAP) issued a
  directive under Section 108 of the Electricity Act, 2003, on September 24, 2024,
  urging APERC to approve the PPAs to honour prior commitments and support
  the state’s renewable energy goals.
• Objections: Stakeholders raised concerns about the non-competitive MoU route,
  high tariffs, regulatory independence, outdated policies, and the necessity of the
  power procured.
• Project Details: The projects aim for a 60% Capacity Utilization Factor (CUF),
  incorporate energy storage for peak-hour supply, and align with Andhra
  Pradesh’s 72.60 GW renewable energy target by 2030 and India’s 500 GW
  renewable energy goal.

Key Issues

1. Legality and Binding Nature of GoAP’s Directive: Whether the GoAP’s
   directive under Section 108 of the Electricity Act, 2003, is binding on APERC
   or constitutes an overreach into its regulatory domain.
2. Validity of Outdated Policies and Agreements: Whether the 2018 MoU, 2019
   Scheme Implementation Agreement (SIA), and 2019 Wind-Solar Hybrid Policy
   remain relevant given the 2024 Andhra Pradesh Integrated Clean Energy Policy.
3. Necessity of Power Procurement: Whether the 400 MW from the proposed
   projects is necessary, considering load forecasts, Renewable Purchase Obligation
   (RPO) targets, and potential grid management issues.
4. Appropriateness of Procurement Route: Whether the MoU-based PPA route,
   using the Average Pooled Purchase Cost (APPC) tariff, is legally and
   economically justified compared to competitive bidding.
5. PPA Amendments: Whether the PPAs require amendments to address
   stakeholder concerns, such as peak-hour definitions and storage provisions.
6. Tariff Determination: Whether the proposed fixed tariff of Rs. 4.60/kWh for 25
   years is just and appropriate compared to competitive bidding rates and other
   renewable energy projects.
   Legal Principles and Findings
7. Regulatory Independence and Section 108 Directives:
   o Principle: Section 108 of the Electricity Act, 2003, allows the state
   government to issue policy directives, but these are advisory, not binding,
   on State Electricity Regulatory Commissions (SERCs). SERCs retain
   statutory independence to evaluate PPAs and determine tariffs based on
   regulatory principles and consumer interests.
   o Finding: APERC acknowledged the GoAP’s directive as valuable
   guidance but emphasized its duty to independently assess the PPAs on
   merits, ensuring no precedent for undue governmental influence (Para
   14). The Commission clarified that its decision is case-specific and does
   not obligate future approvals based solely on government directives (Para
   34).
8. Validity of Prior Agreements:
   o Principle: Agreements executed under valid policies at the time of
   signing remain enforceable, even if subsequent policies supersede earlier
   ones, unless explicitly invalidated. Court commitments, such as those in
   affidavits, further reinforce their enforceability.
   o Finding: The 2018 MoU, 2019 SIA, and 2019 Wind-Solar Hybrid Policy
   were valid when executed. The 2024 Integrated Clean Energy Policy
   allows migration but does not invalidate prior agreements. APERC noted
   GoAP’s High Court commitment in WP No. 9680 of 2021 to honour such
   agreements, but it assessed the PPAs independently (Para 15, 35).
9. Need for Power Procurement:
   o Principle: Power procurement must align with load forecasts, RPO
   targets, and grid stability requirements. Renewable energy with storage
   enhances grid reliability and supports national and state renewable energy
   goals.
   o Finding: APERC confirmed the need for the 400 MW based on projected
   energy shortages during peak hours (FY 2027-28 onwards), RPO
   shortfalls (12,619 MU by FY 2029-30), and MoP’s binding RPO targets
   under the Energy Conservation Act, 2001 (29.91% to 43.33% by FY
   2029-30). The projects’ high CUF and storage capabilities address
   intermittency, justifying their necessity (Para 16, 36).
10. PPA vs. Competitive Bidding:
    o Principle: Sections 62 and 63 of the Electricity Act, 2003, provide
    alternative tariff determination methods. Competitive bidding is not
    mandatory for renewable energy projects if PPAs are approved under
    Section 62 and relevant regulations. Long-term PPAs ensure price
    stability and project viability.
    o Finding: APERC upheld the MoU-based PPA route under Regulation 5
    of 2022, which permits APPC-based tariffs for renewable energy projects.
    The Supreme Court’s ruling in CA No. 1933 of 2022 supports Section 62
    as a valid alternative to Section 63. The fixed 25-year tariff and high CUF
    outweigh competitive bidding concerns, with deviations justified under
    Clause 10.2 ofEdit: Regulation 5 of 2022 (Para 17, 38-40).
11. PPA Amendments:
    o Principle: PPAs must include clear provisions for storage, peak-hour
    supply, and flexibility to adapt to changing grid dynamics, ensuring
    consumer protection and operational efficiency.
    o Finding: APERC directed amendments to include a flexible peak-hour
    definition (5 AM–9 AM, 7 PM–11 PM, subject to APSLDC and APERC
    approval) and confirmed provisions for early payment rebates (2% for
    LC, 1% otherwise) and energy storage commitments by AEVIPL (Para
    19, 43).
12. Tariff Determination:
    o Principle: Tariffs must balance developer viability and consumer
    interests, considering project-specific benefits like high CUF, storage, and
    exemption from Inter-State Transmission System (ISTS) charges.
    o Finding: The fixed tariff of Rs. 4.60/kWh for 25 years was approved as
    it is lower than the current APPC (Rs. 5.12/kWh), comparable to FDRE
    bid tariffs (Rs. 4.64–4.89/kWh plus ISTS charges), and offers stability
    against future APPC increases. Additional benefits include 50:50 REC
    sharing and stringent penalties for CUF and peak-hour shortfalls (Para 20,
    21, 45).
    Decision

• Approval: APERC approved the four PPAs for 400 MW wind-solar hybrid
  projects, subject to amendments regarding peak-hour definitions and tariff
  conditions.
• Tariff: Fixed tariff of Rs. 4.60/kWh for 25 years, with deemed banked energy
  provisions for pre-COD energy at 50% of the annual APPC rate or third-party
  sale options.
• Amendments: APSPDCL to submit amended PPAs within 30 days,
  incorporating flexible peak-hour definitions and confirming storage and rebate
  provisions.
  Precedential Scope
• Regulatory Independence: Reinforces SERCs’ autonomy in tariff
  determination and PPA approvals, treating Section 108 directives as advisory.
• PPA Route: Validates MoU-based PPAs under Section 62 for renewable energy
  projects when aligned with regulations, especially in the absence of competitive
  bidding guidelines.
• Tariff Stability: Supports fixed long-term tariffs for renewable energy projects
  to ensure price stability and project bankability, particularly for high-CUF
  projects with storage.
• RPO Compliance: Emphasizes the binding nature of MoP’s RPO targets under
  the Energy Conservation Act, 2001, and the role of hybrid projects in meeting
  them.
• Consumer Protection: Mandates strict penalties and equitable benefit-sharing
  (e.g., RECs) to safeguard consumer interests in renewable energy PPAs.