Energy laws update

As countries work towards transforming their power grids we focus on the efforts of two nations to regulate and navigate these changes

Tangled wires: Energy laws in India

India does not have a single codified law that caters for all energy sources. Instead, energy laws in India comprise multiple statutes, rules, regulations, government policies and directives at federal and state levels that govern the electricity, oil, gas and coal segments which, together, broadly constitute the energy basket.

This absence of a homogenous legislative and policy prescription for all energy sources is juxtaposed against India’s rapidly rising energy requirements and commitment to the cause of climate change. It is an intriguing situation and makes an interesting study. This article chronicles India’s recent legislative and policy developments in the energy sector.

POWER AND RENEWABLES

The Electricity Act, 2003 (EA03) is the principal legislation that deals with the functioning and administration of India’s power sector. EA03 is the governing statute for both conventional and renewable energy sources.

One of its focal aims is to encourage the generation of electricity from renewable sources. EA03 mandates that state-level electricity regulatory commissions fix targets from time to time, and distribution companies procure part of their power requirements from renewable energy sources. This is commonly referred to as a renewable purchase obligation (RPO).

Apart from distribution companies, the bulk procurement of renewable energy is carried out by entities such as Solar Energy Corporation of India (SECI) for different state utilities, to ensure economies of scale. Standard bidding guidelines and documents have been notified by the Ministry of Environment, Forest and Climate Change, and the Ministry of Power, for streamlining the competitive bidding process for such procurements.

The Indian government has also issued guidelines for renewable energy to be bundled with thermal generation by mandating that thermal generating stations either set up renewable capacity or procure renewable power from third parties to offset part of their thermal generation. Guidelines have also been issued to encourage procurement of power from wind-solar hybrid projects that offer stable, smoother and efficient generation profiles.

Apart from the sale of renewable energy, regulations issued by the national energy regulator, the Central Electricity Regulatory Commission (CERC), provide for renewable energy certificates (RECs) against renewable energy generation, to offset RPO requirements in states that are not well-endowed with renewable sources. RECs can be traded bilaterally or through power exchanges. Power exchanges, constituted under EA03, offer real-time, intra-day, contingent and term-based trading to bridge power requirements between buyers and sellers.

EA03 also encourages captive generation by exempting captive users from various charges, which consumers are otherwise required to pay to their local distribution company if they buy power from any non-captive source. Green energy open access (GEOA) rules were issued by the federal government and adopted by most state regulatory commissions. They allow open access to small consumers with demand above 100kW for buying renewable energy. Further, there is an increased impetus for development of different forms of energy storage systems.

To promote efficient and seamless use of the transmission network, General Network Access Regulations have been issued by the CERC to simplify the process of connecting to the national grid. Renewable projects operating at lower capacities up to 50MW are allowed to connect to the high-voltage national grid either by pooling capacities, or by connecting via an existing power plant.

On demand side management, initiatives taken under the Energy Conservation Act, 2001, provide for specifying norms for processes and energy consumption standards for any electrical equipment or appliance, energy conservation building codes, and give preferential treatment for the use of energy efficient equipment or appliances.

WASTE TO ENERGY

Initiatives have been taken under various state regulations and GEOA rules to bring waste to energy (WtE) plants up to par with renewable energy plants, in terms of priority for open access and exempting from various charges for supply from WtE plants. This will incentivise the setting up of more such plants in the country to address the menace of urban and solid waste. Compressed bio-gas (CBG) plants are being promoted to convert urban waste into CBG to be used in the domestic gas sector.

PETROLEUM AND GAS

The New Exploration Licensing Policy for exploration of oil and gas resources, introduced in the 1990s, has now been substituted by the Hydrocarbon Exploration and Licensing Policy (HELP) for streamlining licensing provisions for all kinds of hydrocarbon products, and incentivising exploration and production in the petroleum and gas sector.

This policy is based on a revenue- sharing contract, substituting the earlier production-sharing model and reducing government interference and micro-management. Other incentives include graded royalty rates, freedom of marketing and pricing of gas, exemptions on crude oil and custom duty applicable on equipment and services for exploration and production activities. The open acreage licensing policy under the HELP allows companies to explore and bid for any block not offered by the government. This is expected to increase gas production to meet the growing requirement of hydrocarbons in the country.

The laying, construction and operation of natural gas pipelines in India is authorised and supervised by the Petroleum and Natural Gas Regulatory Board, set up under the PNGRB Act. There is increased focus towards the use of piped natural gas and compressed natural gas for use in the domestic and transport sector.

Delhi was the first state to witness a complete transition of public vehicles including buses and cabs to a CNG-based fleet. Extensive regulations have been issued by the Petroleum and Natural Gas Regulatory Board, specifying the modalities of selection of entities through competitive bidding, for the development and operation of city and gas distribution networks.

To secure a planned growth of network and returns to developers of city gas distribution (CGD) networks developers, exclusivity is provided for specified periods for both network infrastructure and marketing rights. Setting up of LNG stations for dispensing liquefied natural gas have been allowed in addition to CGD services. The government is considering promoting LNG as a more efficient form of fuel for long-haul transportation in terms of truck and railways, apart from industrial use.

India’s first gas exchange was set up in 2020 under the supervision of the PNGRB to promote and sustain an efficient gas market and encourage gas trading. The exchange involves multiple buyers and sellers trading gas on various spot and forward contracts. The contracts traded in the exchange are for physical delivery and settlement of the trade. It is not a market for derivatives.

There has been an increasing participation both in terms of participants and volume in the exchange, which is expected to see heightened activity during the summer months when the government has directed all gas-based plants to be ready for operation due to projected heat waves across India.

To streamline the growing demand of natural gas in the country, saving of forex and achieving net zero emissions, the Indian government launched an initiative called Sustainable Alternative Towards Affordable Transportation (SATAT) from 2018. SATAT’s aim is to promote production of compressed biogas (CBG) and its use along with natural gas.

The Indian government has issued guidelines for mixing CBG with domestic gas for the transport and domestic sectors, with the introduction of mandatory blending of CBG in CNG (transport) and PNG (domestic) segments from FY 2025-26 in a graded manner up to 5% CBG. Further, with a view to boost ethanol production and also to address pollution, the central government has, under the Essential Commodities Act, mandated the sale of ethanol mixed petrol in various states.

COAL

In 2014, the Supreme Court of India cancelled all coal mines/blocks that had been allocated to various government and private companies since 1993, due to irregularities in the allocation process. The Coal Mines (Special Provisions) Act, 2015, was enacted to reallocate the coal blocks through competitive bidding. Allocation of coal mines in general is carried out under the MMDR Act, which has been amended from time to time to transition from project-based mining to commercial mining of coal.

India stands at the crossroads. The focus of the government and industry is to develop a heterogeneous, robust and efficient mix of energy sources so as to secure energy security that will aid the ambitious economic march of the country.

Back to top

Regulatory developments for renewables in the Philippines

Pursuant to heightened calls to reduce greenhouse gas (GHG) emissions and to increase the use of renewable energy, the present Philippine administration has recently implemented key reforms affecting the sector.

LIFTING NATIONALITY RESTRICTIONS

In September 2022, the Department of Justice (DOJ) issued DOJ Opinion No. 21, which held that the 40% foreign equity limitation under article XII, section 2 of the 1987 Philippine Constitution shall not apply to solar, wind, hydro and ocean, or tidal energy resources, which are deemed as inexhaustible natural resources.

Not long after the issuance of the DOJ opinion, the Department of Energy (DOE) issued Department Circular No. 2022-11-0034, lifting the foreign equity limitation in the renewable energy sector in line with the DOJ issuance.

Pursuant to DOJ Opinion No. 21 and DOE Department Circular No. 2022-11-0034, foreign renewable energy developers may now be allowed to undertake renewable development through renewable energy service (or operating) contracts in excess of the 40% foreign equity limitation prescribed under the 1987 Philippine Constitution.

Notably, there has been no case so far filed challenging the validity of DOJ Opinion No. 21 and DOE Circular No. 2022-11-0034.

Absent a decision of the Philippine Supreme Court in an actual case or controversy ruling on the validity and constitutionality of these administrative issuances, these policies stand and foreign investors may rely on them.

GREEN ENERGY AUCTION

The Green Energy Auction Programme (GEAP) is a market development support programme introduced by the DOE aimed to support the government’s efforts in increasing the share of renewable energy in the Philippines, and increasing private sector participation in renewable energy generation.

Through the GEAP, the government can auction off a limited number of megawatts to renewable energy suppliers annually.

Renewable energy developers qualified to participate in the GEAP must have no legal impediments, which include having existing power purchase agreements or purchase supply agreements with any distribution utility or any end user. All qualified suppliers may register their intention to participate in the auction with the Green Energy Auction Committee (GEAC), which shall declare the winning bidders after the auction.

Any distribution utility then would have the option to procure energy from the GEAP pool of winning bidders. Auction rounds are conducted via an electronic bidding platform operated by the DOE. A Green Energy Auction Reserve Price (GEAR price) is set by the Energy Regulatory Commission, which shall be the maximum price offered in Philippine pesos per kWh. The GEAR price varies depending on the type of renewable energy resource.

The DOE conducted the first round of the GEAP in June 2022, with 1,866.13MW of renewable energy (solar, biomass, wind, and hydropower) auctioned off. In July 2023, 3,440.756MW of renewable energy (solar and wind) was auctioned off in the second round.

The auction for the third round
(GEA-3) has been set for 21 August 2024 to push for the increased use of renewable energy and attainment of energy security and reliability. GEA-3 will cater to both: (1) Non-feed-in-tariff (Non-FIT) eligible renewable energy technologies (geothermal, impounding hydro and pumped-storage hydro); and (2) FIT-eligible renewable energy technology (run-of-river hydro).

STRENGTHENING CARBON CREDIT

The global carbon market has experienced substantial interest in recent years. A report by the Asian Development Bank (ADB) on National Strategies for Carbon Markets under the Paris Agreement explains carbon markets as mechanisms that enable participating entities such as governments and private companies to trade GHG emission reductions and carbon credits, internationally or domestically.

A carbon market can either be a compliance market or a voluntary market. The compliance market is regulated by national, regional or international reduction regimes, and is used by governments and companies that, by law, have to account for their GHG emissions. This market usually covers energy-intensive enterprises and sectors.

In the EU, for example, energy-intensive sectors involved in oil and gas must participate in the EU Emissions Trading System. In contrast, the exchange of carbon credits in the voluntary market is not legally required or regulated. It is done on a voluntary basis outside of compliance markets, where private companies seek to voluntarily offset their emissions.

At present, the Philippines has yet to establish an enabling law that will serve as a framework for governing carbon markets. While previous efforts to strengthen carbon trade were initiated pursuant to the Clean Development Mechanism of the Kyoto Protocol under the UN Framework Convention on Climate Change, these efforts have yet to result in the passage of local legislation.

The lack of an enabling law notwithstanding, in 2021, the Philippine Department of Environment and Natural Resources (DENR) issued Administrative Order No. 43, which established a carbon accounting, verification and certification system for forest carbon projects to encourage and support investments in carbon sequestration activities.

This DENR administrative order, however, has been criticised for failing to establish comprehensive parameters for carbon credits. In 2022, DENR Secretary Maria Antonia Yulo-Loyzaga announced a legislative initiative to institutionalise a carbon credit system as part of its efforts to strengthen existing environmental laws.

In March 2023, House Bill No. 7705, or the Low Carbon Economy Act of 2022, was filed to encourage a just transition to a low-carbon economy and support the country’s national development objectives and priorities. The bill introduces the Philippine Greenhouse Gas Inventory Management and Reporting System, with the Climate Change Commission (CCC) in charge as the overall lead in its implementation.

House Bill No. 7705 will also allow for the trading of carbon credits to cushion the impact of the annual GHG emissions cap, which under the proposed law shall be set for covered entities by the DENR on the recommendation of the Nationally Determined Contribution steering committee, and in consultation with the industrial sector. The emissions trading mechanism proposed in the bill will create a pseudo-financial market, as entities with excess GHG emissions can buy allowances from the market, while entities with less GHG emissions may sell their allowances to the market.

While the establishment of a carbon credit system is still in its initial stages, carbon credits have already been referenced in the Public-Private Partnership (PPP) Code of the Philippines, and the Renewable Energy Act (RE Law). Under the PPP Code, PPP projects may be financed through alternative financial instruments including green financing (carbon credits). Under the RE Law, all proceeds from the sale of carbon emission credits shall be exempt from all taxes.

The Philippine government has also entered into agreements with private entities to lay the foundations for the development of a carbon credit system. In February 2023, the DENR entered into an MOU with Marubeni Corporation, Dacon Corporation and the University of the Philippines College of Forestry and Natural Resources to develop a carbon credit programme focused on carbon absorption and sequestration by forests.

Another MOU was entered into in November 2023 between the CCC, Maharlika Carbon Technologies and LMC Consultancy. Under this MOU, Maharlika Carbon and LMC will assist the Philippines in setting up its carbon registry, and enable the Philippines to participate in the trading of sovereign carbon credits and voluntary carbon credits.

In 2024, the DENR plans to further develop the Philippines’ carbon policy framework and implement programmes in partnership with institutions such as the UN Development Programme (UNDP), the ADB and the World Bank. In particular, the DENR intends to launch the country’s registry and platform for carbon credits and is working with the ADB and the UNDP to encourage foreign investment in voluntary carbon markets. In parallel, the Department of Finance is working with the World Bank to explore the feasibility of carbon pricing instruments and the development of policies on pricing and carbon taxes.

Pending the enactment of a law that will provide a more stable framework for regulation, the above-mentioned initiatives are concrete steps in the right direction to operationalise a carbon market framework. Proper policy guidance and institutional mechanisms must be established to regulate how carbon credits will be traded, sold and purchased. Given its vast potential for growth, private investors are closely monitoring the developments in the field of carbon credits in the Philippines.

The above-mentioned discussions are not meant to be exhaustive. Parties to transactions related to renewable energy should seek professional advice to ensure full regulatory compliance.

Back to top