The Trajectory Of India's Energy Sector Opportunities For Transformation, Law, And Policy
India En Route To Becoming Green and Powerful Energy Experts Speaks
Green Hydrogen, Biofuels, Future Mobility, City Gas Distribution, LNG Ecosystem, Sustainable Aviation, Rural Renewables, Electric Vehicles, Carbon Utilisation Investment, and Real Estate Boom for EV Chargers and more.
The fast-evolving Energy sector, including the Green Energy space, is forming the crux of India’s growth economy. Leading Energy Sector Lawyers agree that the robust industrial activity in the country is pushing energy demand to record highs.
The statistics from last year, paint a ‘greener’ picture for the Power sector
The year 2023 for investors in the Indian power sector closed on a high note. The BSE Power Index posted more than 35 percent returns in 2023 while the Nifty Energy Index posted gains of over 27 percent. Power generation and distribution have seen a dramatic surge owing to high electricity demand across the country. Many more key indicators and plans are behind the sentiment that “India’s Decade has finally arrived!”
Dibyanshu, Partner, Khaitan & Co reflects, “As we study the trajectory of India’s energy sector, it is evident that 2023 marked a significant milestone in its growth journey. The clean energy domain has emerged as a frontrunner in recent years, propelled by India’s ambitious target of achieving 450 GW of renewable power by 2030. This focus on renewables underscores a fundamental shift in the sector’s dynamics.”
It is only a natural corollary that these progressive developments in the energy sector are coupled with the Government of India (GoI)’s initiatives around law and policy. That opens umpteen opportunities for lawyers in the sector. Dibyanshu, Partner, Khaitan & Co. agrees, “The government’s proactive approach in adapting policies to foster investment has been instrumental in creating a conducive environment for growth. Initiatives such as renewable purchase and generation obligations, waiver of transmission charges, general network access, and production-linked incentive schemes are indeed promising.
As the energy sector and the associated technologies around it undergo evolution globally, the legal framework is also adapting and aligning itself with international best practices to accommodate these changes.
This provides infinite opportunities to the lawyers, to diversify their practice and to opt for more niche practice areas. Lawyers will play a crucial role in navigating complexities surrounding the evolving energy sector, paving the way for a sustainable energy future.”
The role green hydrogen produced from renewable sources is a key highlight of India’s Energy Transformation Story 2024
A sustainable energy future is not just a buzzword anymore. As Pallavi Bedi, Partner, Phoenix Legal states data: “India has focussed on green hydrogen since August 2021 and realised then the role green hydrogen could play in India’s story of energy transformation. The GoI has taken several steps to formulate the regulatory and legal framework for the development of green hydrogen in the country, such as issuing the Green Hydrogen Policy (Policy) on February 17, 2022, and the National Green Hydrogen Mission (Mission) in January 2023.”
Pallavi Bedi, Partner, Phoenix Legal sheds light, “Post the issuance of the Mission, MNRE has issued many guidelines and schemes such as:
(i) guidelines for incentivising the indigenous manufacture of electrolysers to achieve lower levelised cost of hydrogen production (Scheme 1),
(ii) guidelines to maximise production of green hydrogen and its derivatives in India and enhance cost-competitiveness of green hydrogen and its derivatives vis-à-vis fossil-based alternatives (Scheme 2),
(iii) guidelines for the implementation of the second tranche of Scheme 1,
(iv) guidelines for setting up hydrogen hubs in India under the Mission,
(v) incentive scheme for green ammonia production and supply (under Mode 2A),
(vi) incentive scheme for green hydrogen production and supply (under Mode 2B),
(vii) guidelines for pilot projects for use of hydrogen in the shipping sector, and
(viii) guidelines for implementation of pilot projects for use of green hydrogen in the steel sector.
Additionally, in August, 2023, MNRE issued the Green Hydrogen Standard for India to define the non-biogenic greenhouse gas emission standards for green hydrogen produced through electrolysis and biomass.
Pursuant to the notification of Scheme 1 and Scheme 2, the Solar Energy Corporation of India (SECI) conducted bidding under Scheme 1 and Scheme 2 for the selection of electrolyser manufacturers and green hydrogen producers, respectively, which received an overwhelming response from the bidders. Further, pursuant to the notification of the second tranche of Scheme 1, SECI has initiated another round of bidding for the selection of electrolyser manufacturers.”
Surya Sreenivasan, Partner, Cyril Amarchand Mangaldas, “Green molecules (i.e. green hydrogen and its derivatives including green ammonia) is definitely an interesting area in India today.
India has been at the forefront of green and alternative forms of energy and has evolved a policy framework suitable to its peculiar requirements. Many ‘first-of-a-kind’ projects have been successfully implemented by Indian lawyers, such as project financing of the first Ultra Mega Power Project, the first foreign lending to a renewable energy project, etc.
There are a few first movers (AM Green, Hygenco, ACME, Adani Total) who are investing substantial capital into this space in India. Of course, since the “green” element in green hydrogen comes from renewable energy, the demand for renewable energy will only increase as the green molecules market grows.”
Expanding on the Government’s role, Santosh Janakiram, Partner (Head – Projects and Co-Head - Financial Institutions Group), Cyril Amarchand Mangaldas opines, “The Indian government has historically followed a ‘push and pull’ approach to incentivise green transition.
For instance, in the context of renewable energy, they created a demanding market by implementing renewable energy purchase obligations on distribution licenses with a simultaneous supply push with tax incentives, lucrative feed-in tariff, and Viability Gap Funding for renewable energy developers.
Similarly, the government has made an initial push for green hydrogen by notifying the National Green Hydrogen Mission as well as the SIGHT schemes for procurement of green hydrogen and electrolyser manufacturing.”
Anjan Dasgupta, Partner, DSK Legal adds, “To nurture potential, the government of India has come up with the Green Hydrogen Mission and set its vision on achieving 5 million metric tonnes of green hydrogen production capacity by 2030. In this regard, many policy initiatives have been rolled out, not only by the government of India but also by many state governments. Recently, notifications have been issued by MNRE allocating substantial funds for pilot projects across various sectors such as steel, transport, and shipping.
The multi-sectoral policy approach across key industries by the government will enhance hydrogen adoption and technology advancement. Bankable offtake agreements, demand side incentives by the government, and contract for difference schemes for price discovery and bridging the price gap are some of the critical aspects that must be borne in mind to develop large-scale green hydrogen projects.”
In 2024, green hydrogen, produced from renewable sources, is expected to become increasingly vital as an energy carrier. There will be advancements in electrolyser technology, resulting in more efficiency and cost reduction of green hydrogen production. That will expand green hydrogen’s viability across various sectors, including industrial processes and transportation.
Also, in 2024, India is expected to see the highest-ever renewable energy capacity additions at 19 GW including about 16-17 GW solar and 2-3 GW wind.
The rapid switch over to the Renewable Energy Sector, drives the legal industry to strengthen policies while looking after the overall financial health of India
With the potential diversification of renewable energy applications and the potential green hydrogen transition to sustainable energy systems, India’s energy sector lawyers and policymakers are placed at a critical juncture today to plug the gaps that demand attention to ensure that business, innovation, and economy flourish. As Santosh Janakiram, Partner (Head – Projects and Co-Head - Financial Institutions Group), Cyril Amarchand Mangaldas affirms, “Indian lawyers are well placed to deal with ‘firsts’ in an emerging economy like India, advising clients on risk mitigation and project implementation in this environment.”
Pallavi Bedi, Partner, Phoenix Legal elucidates the specific gaps that need plugging. “The biggest concern that remains, while many schemes/ guidelines have been issued, is that mandates for the shift to/use of green hydrogen have still not been issued. In the absence of offtake commitment being available, it would be very difficult for the green hydrogen development to pick up.
Some of the issues that require thought and action are:
i. the economic viability of production and storage of green hydrogen and the associated concern of bankability of green hydrogen projects;
ii. water availability for the production of green hydrogen. As a positive step in this direction, the Mission envisages optimisation of water requirements by using industrial or municipal wastewater;
iii. land allocation for the development of green hydrogen projects, especially in the context of land acquisition for project development has been a bane of the infrastructure sector for decades. While most state-level green hydrogen policies contemplate the provision of support for grant of land for green hydrogen projects, the timely implementation of these policies (and the incentives thereunder) would be imperative for the growth of this sector; and
iv. dedicated network of pipelines for transmission of green hydrogen.
Another concern that the stakeholders looking to invest in this sector continue to grapple with is the short-term policy commitments currently being offered. Currently, under the Mission, commitments only for 5-7 years are being offered for such capital-intensive long gestation projects. Issuance of the policy framework and incentives for the useful life of the project (i.e., 15-25 years) may be an approach worth considering.”
Indeed, as Pallavi Bedi, Partner, Phoenix Legal affirms, “The growth of the green hydrogen sector in India is intrinsically dependent on the GoI working along with all relevant stakeholders to address some of the concerns discussed above. With the experience of the last decade for growth of renewable energy installations in the country, all the relevant stakeholders and the GoI are well placed to address the concerns and achieve the envisaged growth of green hydrogen.” Even globally, activity in the clean hydrogen sector is surging, fuelled by maturing policies in Europe and the US, in addition to early commercial-scale projects in the Middle East, Australia, and Africa.
Promising new use cases for hydrogen consumption, the surge in clean hydrogen project approvals, global auctions and grants, etc. will shape up the key aspects of the emerging clean hydrogen sector.
As well as pricing dynamics, technological advancements, and the eventual victors and contenders in this transformative landscape, lawyers, policymakers, and regulators cannot be far behind but need to become equal partners in this transformation. Surya Sreenivasan, Partner, Cyril Amarchand Mangaldas makes a pertinent observation in the India context, “The main question on green hydrogen/ammonia today remains a viable use case and the existence of a robust market in India. Currently, most of the demand for green hydrogen/ammonia (apart from smaller-scale in situ projects) comes from Europe. Therefore, while no hydrogen/ammonia purchase obligation has yet been implemented, we anticipate that a demand push will be created by the government.
Since green hydrogen/ammonia production requires a long-term predictable supply of renewable energy, the government will push on energy storage to reduce the intermittency of renewable energy. We are already seeing this in the government’s pumped storage guidelines as well as in the RTC / peak power bids issued by nodal agencies such as SECI and NTPC from time to time which now exceed standalone solar/wind bids. Energy storage bids are also being issued by distribution licensees, with a pilot bid for standalone BESS projects being awarded earlier this month.”
Setting sights on the decade ahead, Anjan Dasgupta, Partner, DSK Legal envisions, “Over the next decade or two, green hydrogen could significantly change the global energy trading and security landscape. Given its vast renewable energy resources, India could become a major player in this by becoming a net exporter of energy, as opposed to currently being a net importer of energy.”
DSK Legal has taken a couple of initiatives. Anjan Dasgupta, Partner shares, “We, at DSK Legal, along with some global law firms, have partnered with GH2 Organisation, a not-for-profit organisation headquartered in Switzerland, to assist in the development of the global green hydrogen ecosystem, thereby fostering the ability of the green hydrogen sector to realise its potential as a sustainable alternative to fossil fuels. As part of this endeavour, we are working to establish good contracting standards and practices in the green hydrogen industry.
We have also been looking at the structuring of offtake agreements to find ways to distribute risk between the seller and the buyer of green hydrogen in a way that gives confidence to market players.”
Corporate investment in renewable energy is expected to rise significantly in 2024
More leading companies in key business sectors like food and beverage, textile, pharma, automotive, and logistics are committing to renewable energy targets and investing in green energy projects as part of their sustainability strategies. Some of India’s big corporations are committing to decarbonisation agendas such as Adani Green Energy, UltraTech Cement, etc.
The cross-border trends to watch in the renewable energy space are catching the attention of our domestic energy sector legal practitioners. For instance, when considering the American market, some of 2024 trends are Rural Renewables, Electric Vehicles, Carbon Utilisation Investment, and Real Estate Boom for EV Chargers. Dibyanshu, Partner, Khaitan & Co, notes this trend, “Over the years we have been observing a shifting landscape of investment preferences in the energy sector, it’s clear that clean energy remains the top contender, drawing considerable attention from investors and catalysing transformative endeavours.”
Mr. Anjan Dasgupta, Partner, DSK Legal adds, “The shift towards sustainability is massive, attracting investors and worldwide attention. India ranked 4th on the list of countries to make significant investments in renewable energy by allotting USD 77.7 billion between 2015 and 2022. Corporate investments in renewable energy clearly present exciting opportunities for the legal industry, and overall, the legal profession is well-positioned to partner in the growth of the renewable energy sector.”
Also, the market for green bonds and Environmental, Social, and Governance investments is anticipated to experience significant growth in 2024. This trend is indicative of a broader shift in the investment community towards sustainability and social responsibility.
Pallavi Bedi, Partner, Phoenix Legal explains the legal and regulatory catalysts around this. “The regulatory push towards green mandates is due to renewable purchase obligations (RPOs), domestically and Renewable Energy 100 (abbreviated as RE100), internationally.
The Electricity Act, 2003 mandates the state electricity regulatory commissions to promote cogeneration and generation of electricity from renewable sources of energy and specify a percentage of electricity that needs to be purchased by certain designated customers (i.e., distribution licensees, open access consumers, and captive users), in the area of a distribution licensee, from renewable energy sources i.e., RPO. The Ministry of Power, GoI, has, pursuant to its notification dated October 20, 2023, specified the minimum share of consumption of renewable energy by designated consumers, as energy or feedstock, up to the year 2030.
Such mandates have pushed corporates towards green procurements, and legal professionals in this regard certainly have a role to assist and guide such corporates on the regulatory framework for procuring green power along with the contractual framework required for such procurement.
In India, green bonds and ESG investing have gained a lot of traction recently. The regulatory framework, for green bonds and ESG in India, is staggered and not structured and streamlined. Rather, it has evolved over a period of time through different circulars. The Securities and Exchange Board of India (SEBI), in 2017, issued a circular on disclosure requirements to be followed for green bonds listed on the Indian stock exchange. This circular was superseded on August 10, 2021, by the ‘operational circular for issue and listing of non-convertible securities, securitised debt instruments, security receipts, municipal debt securities and commercial paper’ (Operational Circular) read with the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.
SEBI, in February 2023, updated the Operational Circular inter alia as regards the disclosure requirements for the issuance and listing of green debt securities and mandated third-party review of certain processes (such as project evaluation and selection criteria), and pursuant to the issuance of a circular on ‘dos and don’ts relating to green debt securities to avoid occurrences of greenwashing’ (i.e., making false, misleading, unsubstantiated or other incomplete claims about the sustainability of a product, service or business operation), guided avoidance of green-washing.
More recently, in April 2023, the Reserve Bank of India (RBI) released the ‘Framework for acceptance of Green Deposits’ (Green Deposit Framework) (effective from June 1, 2023), which allows certain RBI-regulated entities (including scheduled commercial banks) to accept green deposits. Relatedly, the GoI, in November 2022, released a framework for sovereign green bonds, which inter alia sets out the obligations of the GoI as the issuer of green bonds for mobilising resources for green infrastructure.
With respect to ESG requirements, the GoI issued the ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business’ in 2011. These guidelines set out the framework for responsible business action. Subsequently, SEBI, in August 2012, made it mandatory for the top 100 entities listed on the Indian stock exchange based on market capitalisation to include business responsibility reports as part of their annual reports which would describe the initiatives taken by them from an ESG perspective. This requirement was subsequently subsumed under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), and was extended to the top 500, and thereafter top 1,000 listed entities.
Pursuant to an amendment of the LODR Regulations in June 2023 read with a circular issued by SEBI in July 2023, the concept of business responsibility reports was replaced with that of business responsibility and sustainability reports, mandating the top 1,000 listed entities based on market capitalisation to make ESG disclosures.
Further, the concept of business responsibility and sustainability report core was introduced, which is a subset of business responsibility and sustainability report, and consists of a set of key performance indicators/ metrics under 9 ESG attributes (such as greenhouse gas footprint, water footprint, etc.).”
Indeed, legal professionals as business enablers, strategic thinkers, and nation builders have a role to play in this space. Santosh Janakiram, Partner (Head – Projects and Co-Head - Financial Institutions Group), Cyril Amarchand Mangaldas sees huge potential in contracting structures such as vPPAs or carbon credits. “Growth in the C&I market no longer simply means physical capacity addition for use in industrial and commercial establishments. Significant time and energy will be spent by corporates and lawyers on exploring alternative ways for industries to meet their net-zero commitments, whether it is through contracting structures such as vPPAs or carbon credits.
vPPAs are quite common in mature markets such as the United States of America but have been the subject matter of regulatory uncertainty in India. This uncertainty was to a large extent addressed by the Supreme Court’s decision, but industry has been slow to act since the regulators have not unequivocally confirmed that they have no further steps/checks to add. Since a key consideration for the stakeholders here is the regulatory risk allocation, lawyers will play a crucial role in enabling this market. There is room for interpretation to enable genuine business use of vPPAs by industry participants.
As ESG investments grow, the key challenges for such investors – due diligence, traceability, and greenwashing – also come to the forefront. This is a space where professionals such as lawyers and ESG consultants must build capacity to meet the requirements of the investor community.”
Anjan Dasgupta, Partner, DSK Legal throws light on the spectrum of opportunities for lawyers towards helping companies decarbonise. “As a regulated sector, lawyers play a significant role in renewable energy by developing and implementing such decarbonisation solutions, thereby contributing to the overall decarbonisation goals.
There are multiple corporate decarbonisation solutions available in the market today, like hybrid & RTC power PPAs, green attributes, and virtual PPAs. Procuring power from solar and/or wind plus storage power plants at fixed long-term prices and contracts for differences agreements linked to merchant market prices are enabling large corporates to transition to renewable energy at scale. There is a spectrum of power purchase options available from solar, wind, and hybrid power plants for such corporates. Corporates can reduce consumption from the grid using cheap renewable energy under the captive open access arrangement, thereby reducing power costs making significant savings, and offsetting CO2 emissions. With such arrangements, corporates stand to save staggering amounts on power bills over 15 to 25 years.”
The M&A activity in the green energy market is promising
The M&A trend seen in the last few years globally is now primed to cross over into the oil & gas supply chain sector too, in 2024. As interest rates stabilise, or even fall, elevated cash flows will encourage suppliers to explore strategic acquisition opportunities to grow capacity inorganically. This will be true for the oilfield services and clean energy markets, where organic capacity expansion may not be the most efficient option, given the peak activity in O&G in 2024 and excess capacity within low-carbon sectors.
Pallavi Bedi, Partner, Phoenix Legal opines, “The M&A activity in the renewable energy sector has been fairly high in India for the last few years. Large oil and gas players’ keenness to enter the clean energy market, the private equity investors looking to exit after the initial investment timeframe, and aggressive bidding by some bidders are some of the reasons behind this.
This year as well it appears that the activity in this space would continue; which offers for all stakeholders several opportunities. From a legal perspective, the role would be to evaluate assets to undertake risk assessment and for appropriate evaluation of renewable energy assets.”
As on date, we join Dibyanshu, Partner, Khaitan & Co. in applauding the ongoing work and support from the Government. “The government’s proactive stance in promoting policies aimed at fostering cleaner fuel alternatives to combat climate change is commendable.
With India’s Green Hydrogen Mission garnering international attention, the sector is poised to be a key focal point in the upcoming years.
Moreover, with an intensified focus on initiatives surrounding biofuel and compressed biogas, the bio-gas/fuel sector will also be one to look out for.
The momentum gathering within the Indian carbon market indicates promising prospects, and with the launch of the Carbon Credit Trading Scheme 2023, which inter alia provides a framework for regulating carbon credit trading in India, we can expect more domestic and international stakeholders participating in carbon trading within India, ultimately driving down emissions.”
The legal industry is poised for the opportunities
It will be interesting to see how the role of tax, M&A, and general corporate lawyers in the energy space pans out with new opportunities for legal and regulatory gamut in India.
Coupled with the explosion of investments and interest in the green energy sector, regulation, when done properly, can serve as a driver of the level of innovation needed for the green transition. The approach of modern-day regulators for the energy sector would ideally be flexible to stimulate creativity and innovation while ensuring unequivocal requirements to protect human health and the environment.