Freedom to Seek Re-determination of Tariff by Renewable Generators Absent an Accelerated-Depreciation Commitment

1. Introduction

Case: Gujarat Urja Vikas Nigam Ltd. v. Green Infra Corporate Wind Power Ltd. & Ors., Civil Appeal Nos. 14098-14101 of 2015 (2025 INSC 922).

The Supreme Court of India (“the Court”) examined whether four wind-power producers that had already executed Power Purchase Agreements (“PPAs”) with Gujarat Urja Vikas Nigam Limited (“GUVNL”) at a fixed tariff of ₹3.56/kWh could nevertheless approach the Gujarat Electricity Regulatory Commission (“GERC”) for project-specific tariff determination on the ground that they ultimately did not claim the benefit of accelerated depreciation (“AD”) under the Income-tax Act, 1961.

The controversy lay at the intersection of:

Electricity tariff regulation under the Electricity Act, 2003;
The fiscal incentive of 80% accelerated depreciation for renewable assets under the Income-tax Act & Rules; and
State renewable-energy policy obligations imposed on a public distribution licensee such as GUVNL.

2. Summary of the Judgment

The Supreme Court dismissed GUVNL’s appeals and upheld concurrent findings of the GERC and the Appellate Tribunal for Electricity (“APTEL”). The Court held:

The levelised tariff of ₹3.56/kWh set out in GERC Order No. 1/2010 was expressly limited to wind projects that availed AD.
Absent any written commitment from the generators to avail AD, GUVNL could not contractually foreclose their statutory right under Sections 61, 62 & 64 of the Electricity Act, 2003 to seek a bespoke tariff once the AD election was finally made (i.e., when income-tax returns were filed).
PPAs executed by a State instrumentality must yield to the regulatory framework and broader public-interest objectives of promoting renewable energy; they are not purely commercial contracts immune from statutory override.
Consequently, the four respondent generators were entitled to approach the GERC for separate tariff fixation, and the Commission’s proceedings may now culminate in final orders.

3. Analysis

3.1 Precedents Cited and Their Influence

Gujarat Urja Vikas Nigam Ltd. v. EMCO Ltd. (2016) 11 SCC 182
– Concerned a solar project commissioned after expiry of the first control period, with two tariff orders in play.
– The Court in EMCO denied the developer the benefit of the later (and higher) tariff because its project fell within the earlier order and the PPA contained a specific “whichever is lower” clause.
– In the present case, the Supreme Court distinguished EMCO on facts: there is only one tariff order and the dispute stemmed from the AD option, not from overlapping control periods or a lower-of-two-tariffs clause.
Gujarat Urja Vikas Nigam Ltd. v. Tarini Infrastructure Ltd. (2016) 8 SCC 743
– Recognised that State Commissions retain power to re-determine tariff even after execution of PPAs if public-interest considerations so warrant.
– The present bench leaned heavily on Tarini to reaffirm that tariff clauses in PPAs are not unalterable where statutory policy or equity demands revision.

3.2 Legal Reasoning

The Court’s logic proceeds through five steps:

Statutory Superiority – Sections 61-64 of the Electricity Act command that tariffs be fixed by the “Appropriate Commission”. Any private or quasi-public bargain in a PPA is subservient to such regulatory fixation.
Conditional Nature of AD Election – Under Rule 5 of the Income-tax Rules, 1962, the assessee opts for AD while filing its first return after commissioning. Therefore, at the PPA-signing stage the election is still open; the PPA tariff must be read as conditional, unless there is a clear promise to claim AD.
No Evidence of AD Commitment – GUVNL failed to extract any undertaking that the respondents would claim AD. Absent such undertaking, the generators’ later decision to forego AD remained permissible.
Public-Policy Overlay – GUVNL, as a State entity, is duty-bound to implement Gujarat’s Wind Power Policies (2007 & 2013) that encourage investor-friendly incentives. Denying the higher non-AD tariff would thwart policy objectives.
Equitable Considerations – Labeling GUVNL’s insistence on the AD-based tariff as “Shylock-like”, the Court stresses fairness; the respondents should not be locked into a tariff designed for a different fiscal scenario.

3.3 Potential Impact

Drafting of PPAs: Distribution licensees must now incorporate explicit representations on whether the generator will or will not avail AD (or other fiscal incentives) if they wish to rely on an incentive-specific tariff.
Regulatory Filings: Generators are emboldened to seek tariff re-determination if subsequent tax elections or policy changes alter project economics.
Investor Confidence: The judgment reassures renewable-energy investors that statutory flexibility trumps contractual rigidity where fiscal incentives are uncertain at financial-closure stage.
Broader Renewable Push: By privileging policy over parochial commercial interests, the decision aids India’s renewable-capacity targets and may influence other States’ regulators.
Litigation Template: The reasoning will likely be invoked in biomass, small-hydro and solar contexts where similar AD or tax-holiday elections exist.

4. Complex Concepts Simplified

Accelerated Depreciation (AD): A tax mechanism allowing 80% of an asset’s cost to be written off in the first year, drastically lowering taxable income. Renewable developers may choose between AD or a normal (lower percentage) depreciation schedule.
Control Period: A defined time frame (commonly 3–5 years) during which a tariff order is applicable to projects commissioned within that period.
Levelised Tariff: A single fixed tariff representing the present value of all tariff payments over the project life, taking into account discounting and varying yearly tariffs.
Distribution Licensee: An entity authorised to supply electricity to end consumers within a particular area (e.g., GUVNL).
Power Purchase Agreement (PPA): A long-term bilateral contract between a generator and a distribution licensee detailing the terms of electricity sale, including tariff.

5. Conclusion

The Supreme Court’s ruling crystalises a vital principle: a renewable-energy generator that has not unequivocally committed to claiming accelerated depreciation retains the statutory right to approach the State Commission for a fresh tariff even after executing a PPA. The decision underscores the supremacy of regulatory oversight, the fluidity built into fiscal incentives, and the State’s obligation to nurture green energy. Expect PPAs to evolve with clearer fiscal undertakings, and regulators to remain receptive to tariff modifications that align with the overarching renewable-energy mandate.