Why Madras High Court’s decision to strike down resource charges on wind power projects is a landmark one

In a landmark decision, the Madras High Court has quashed the Rs 50 lakh per megawatt (MW) ‘resource charges’ imposed by the Tamil Nadu Green Energy Corporation Ltd (GECL) on wind power projects connected to the Central Transmission Unit (CTU). The court declared the charges arbitrary, unconstitutional, and lacking statutory backing, marking a significant victory for renewable energy producers and the broader clean energy sector.

Delhi-based think tank Centre for Science and Environment (CSE), in its report, highlighted the challenges faced by wind energy developers in Tamil Nadu for Wind repowering projects. It stated:

Why the controversy

In August, GECL issued a notification mandating a ₹50 lakh/MW resource charge for wind energy projects connected to the CTU. This levy was introduced ostensibly to encourage developers to connect to the State Transmission Utility (STU) network, thereby aiding Tamil Nadu’s compliance with Renewable Purchase Obligations (RPOs).

The petitioners, including prominent renewable energy companies like Tata Power Renewable Energy Ltd, JSW Renew Energy Ltd, and the Wind Independent Power Producers Association, challenged the charge. They contended that the levy was illegal, discriminatory, and hindered the financial competitiveness of CTU-connected projects in the national electricity market.

The court examined several critical issues, ranging from the constitutional validity of the charges to their discriminatory nature and impact on inter-state trade.

It ruled that GECL, as a nodal agency, lacked the legal authority to impose such levies. It emphasised that, under Article 265 of the Constitution, taxes or levies can only be imposed with legislative backing, which GECL did not have.

Further, the court noted that inter-state electricity trade falls under the central government’s jurisdiction. Tamil Nadu’s attempt to tax power sold across state borders was an overreach of its authority.

The high court reiterated that renewable energy generation is de-licensed under Indian law. Wind energy developers do not require special licenses or permissions beyond initial site approvals. Additional charges or restrictions imposed by GECL were deemed unlawful and burdensome.

The charges were found to be discriminatory by the court. While CTU-connected projects faced the Rs 50 lakh per MW levy, STU-connected projects were exempt, creating an unfair distinction. This violated Article 14 of the Constitution, which ensures equality before the law.

The charges restricted renewable energy companies’ ability to do business freely, a right protected under Article 19(1)(g) of the Constitution. By significantly raising project costs, the levy hindered these companies’ competitiveness in the market.

GECL argued that the levy was a necessary administrative fee. However, the court dismissed this claim, noting that wind and hydro energy projects do not consume natural resources like coal or water. Thus, there was no justification for imposing such a charge.

What are the implications?

The judgment offers much-needed relief to renewable energy producers, who argued that the charges increased project costs and undermined their competitiveness in the national electricity market. By removing this financial burden, the court has strengthened the prospects for CTU-connected wind power projects, which play a critical role in India’s renewable energy transition.

Additionally, the ruling underscores the constitutional protections available to renewable energy companies. It sends a clear message to state entities that arbitrary levies and restrictions on inter-state electricity trade will not be tolerated, thereby ensuring a level playing field for developers.

While striking down the resource charge, the court recognised Tamil Nadu’s need to meet its Renewable Purchase Obligations (RPOs), which require a certain percentage of electricity to come from renewable sources. The court allowed GECL, in consultation with Tamil Nadu Generation and Distribution Corporation (TANGEDCO), to design fairer policies to ensure compliance with RPOs.

However, it warned against imposing unfair financial burdens on developers to achieve state-level renewable energy targets. Renewable energy policy, the court emphasised, should encourage rather than penalize project developers.

This ruling is a significant win for India’s renewable energy sector, particularly in the context of inter-state electricity trade. As more states attempt to impose charges or restrictions to meet their own goals, the judgment reinforces the central government’s authority over inter-state electricity sales.

It also highlights the need for state entities to respect constitutional safeguards and refrain from creating barriers that hinder renewable energy development.

Challenges ahead

The court has authorised TANGEDCO to devise a mechanism for ensuring that new renewable energy projects contribute to Tamil Nadu’s RPO compliance. This could include requiring developers to allocate a portion of their capacity to the state grid. However, such directives may face further legal scrutiny, as they could potentially create new barriers to inter-state trade.

Additionally, the judgment calls attention to the broader issue of states attempting to disincentivise CTU-connected projects. Industry stakeholders argue that such measures are counterproductive, as they undermine the central government’s efforts to promote renewable energy and ensure a seamless national electricity market.

The Madras High Court’s decision to strike down the Rs 50 lakh/MW resource charges on wind power projects is a landmark moment for India’s clean energy journey. By reinforcing principles of equality, free trade, and legal authority, the court has provided much-needed relief to developers and strengthened the renewable energy sector.

This ruling sends a strong message to state governments against imposing arbitrary levies and ensures that India’s clean energy transition continues unimpeded. As India works toward its ambitious renewable energy targets, protecting the rights of developers and promoting fair trade practices will be key to achieving sustainable growth.