THE AUTHORS:
Georg Scherpf, Head of Arbitration Germany at Clyde & Co
Dhanya T. Mallar, Advocate in Bangalore, India
India is a country with an estimated population of 1.4 billion. It is the most populous country in the world. With the increase in population, the demand for electricity is also increasing. It poses challenges such as power shortages in the country. In May 2024, India’s peak power demand for electricity touched 250 GW, which was an all-time high.
It is important for India to increase its power supply without compromising on climate change. In the National Action Plan on Climate Change 2008, the Government of India announced that the development of Renewable Energy (“RE”) will be one of its means for combating climate change. With wind energy technology being one of the sustainable means to achieve the increasing electricity demand, the Government of India is taking measures to tap into the significant wind energy potential of the Indian Coast. While India has a large-scale deployment of onshore wind energy technologies, there are no offshore wind farms in India yet. India has a wind power potential of 695.50 GW at 120m hub height. The states with high potential are Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, and Tamil Nadu. The Union Cabinet approved approximately $864.33 million USD Viability Gap Funding scheme to support offshore wind projects.
India has set a target of 30 GW of offshore wind installations by 2030. To aid India’s transition to sustainable technology, the European Union supported two projects: Facilitating Offshore Wind Energy in India (“FOWIND”) and First Offshore Wind Power Project in India (“FOWPI”). Also, the Indian Ministry of New and Renewable Energy, with the Danish Energy Agency, established the Centre of Excellence for Offshore Wind and Renewable Energy as a joint initiative. It aims to facilitate and accelerate the implementation of the Indian offshore wind strategy through various initiatives for spatial planning and permitting process, financial framework and auction design, grid and supply chain infrastructure, and technical standards and rules.
Based on the assessments, Gujarat and Tamil Nadu are states with the most potential for offshore wind energy development. As per the National Institute of Wind Energy (“NIWE”), Tamil Nadu has a potential of approximately 35 GW, and Gujarat has a potential of 36 GW.
Gujarat
Gujarat is a state located on the Western Coast of India. The Gulf of Khambhat in Gujarat is identified as a proposed location for the development of an offshore wind energy farm. In September 2024, the Solar Energy Corporation of India (“SECI”) launched a tender for a 500 MW offshore wind project off the coast of Gujarat.
Tamil Nadu
Tamil Nadu is a state located on the southern tip of the Indian Peninsula. The Gulf of Mannar is located within the territory of Tamil Nadu. NIWE aims to collect data (wind speed and direction, sea surface temperatures, and wave heights and directions) for the Gulf of Mannar to facilitate the development of offshore wind energy in this region. The National Institute of Wind Energy (“NIWE”) issued a tender for the supply and installation of a floating LiDAR buoy for this purpose.
Outlook
India has a coastline of approximately 7600 km and an untapped potential for offshore wind energy. India has successfully deployed onshore wind energy technology. It has the third and fourth largest onshore wind farms in the world. However, it requires land, which is an increasingly high-demand commodity. Thus, offshore wind energy technology is India’s way forward to harness wind energy and transition to clean energy.
Legal Framework
The legal framework is governed by several layers of laws and regulations, with certain aspects that are still not fully regulated. Below, we only provide an initial overview and point out potential pitfalls.
Legal Framework for the Development of Wind Energy
The Ministry of New and Renewable Energy (“Ministry”) creates policies and schemes for promoting electricity generation through renewable energy sources. The National Offshore Wind Energy Policy – 2015 (“Policy“) was released by the Ministry to ensure optimum exploitation of the offshore wind energy potential in India. Under the Policy, the National Institute of Wind Energy (“NIWE”) is responsible for calling for proposals regarding the development of offshore wind power projects through an open international competitive bidding process. It also states that a designated agency, a distribution utility or a private company may enter into a power purchase agreement with the offshore wind power developers as per the guidelines fixed by the electricity regulatory commissions.
The Central Government has notified the Offshore Wind Energy Lease Rules, 2023, which outline the leasing regulations for offshore areas designated for wind energy and wind transmission projects. The Ministry of New and Renewable Energy is the nodal ministry for the administration of these rules in line with the National Offshore Wind Energy Policy of 2015.
The Electricity Act, 2003 (“Electricity Act”) governs the generation, transmission, distribution, trading, and use of electricity in India. Compliance with technical standards prescribed by the Central Electricity Authority under the Electricity Act is necessary for the construction of power plants. The Electricity Act also establishes regulatory commissions at the central and state levels whose functions include regulating tariffs and transmission of electricity.
Overall, it is a complex legal framework that is still evolving and very much susceptible to unforeseen (political) changes. Against that background, effective dispute resolution and investment protection are essential when it comes to projects with state-owned actors.
Dispute Resolution
Apart from the courts of India, other dispute resolution mechanisms for renewable energy projects include:
Dispute Resolution Committee
The Ministry has designated different agencies as Renewable Energy Implementing Agencies (“REIA”) to oversee and facilitate the implementation of its RE schemes. These agencies also conclude contracts with RE developers for the purchase of power from power plants established on a build-own-operate basis. The Ministry has set up a Dispute Resolution Committee for resolving unforeseen disputes that may arise during the implementation of contractual agreements and also for dealing with issues which are beyond the scope of Contractual Agreements between RE Power Developers/ EPC Contractors and REIA.
For disputes that may arise between REIA and developers/EPC contractors, the developers/EPC contractors must submit an application regarding the dispute to the REIA and the REIA is then required to pass a speaking order (“recommendation”). If the developer is not satisfied with the REIA’s decision, he can appeal to the Dispute Resolution Committee. The Committee deals with disputes regarding the following:
- Requests for extension of time due to recognized ‘force majeure’ events.
- Requests for extension of time not covered under the terms of contract.
- All disputes other than disputes relating to the extension of time between REIA and developers.
The dispute resolution committee, after hearing the dispute, submits its recommendations regarding the dispute to the Ministry. The recommendations of the dispute resolution committee, along with the observations of the Ministry, are then submitted to the Minister for New and Renewable Energy for a final decision. It is expected that the local courts will address issues likely arising due to competing jurisdiction of the other agreed dispute resolution mechanisms such as arbitration as well as possible appeal mechanisms in the future.
Commercial Arbitration
Commercial arbitration is often considered the gold standard for resolving complex disputes between international parties, often also involving several contractual layers. India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (1958) (the “New York Convention”). It is also possible to initiate arbitration against state and state-owned entities. Sovereign immunity is not extended to state entities in purely commercial disputes.
It must be noted that party autonomy to choose arbitration as a means of resolving disputes in the power sector is limited by the Electricity Act. The regulatory commissions adjudicate disputes pursuant to Section 79(1) (f) and Section 86(1) (f) of the Electricity Act. Under both these provisions, the Regulatory Commissions may, at their discretion, either adjudicate the disputes themselves or refer the disputes to arbitration. The orders of the commissions can be appealed before the Appellate Tribunal for Electricity (“APTEL”). APTEL’ decisions are appealable before the Supreme Court of India. In simple terms, only disputes that do not fall within the jurisdiction of the Regulatory Commissions under the Electricity Act can be directly referred to arbitration, if agreed.
Investment Arbitration
Complex energy projects often involve large upfront capital investments with third-party financing. Such investments are often based on a regulatory framework in place at the time of the investment. However, the regulatory framework is susceptible to political interference and changes to that framework can render investments unprofitable or even threaten existing business models and financing. Investment protection under international treaties can offer protection against discriminatory and arbitrary action, among others, whilst providing the possibility to commence arbitration directly against the host state.
Until 2015, India had Bilateral Investment Treaties (“BITs”) and agreements in place with 83 nations. However, India published a Model BIT in 2015 and terminated existing (old) bilateral investment treaties with 77 nations. The investments made prior to the termination are governed by sunset clauses under some of those treaties. India is currently negotiating new BITs.
Article 15 of the India Model BIT (2015) retains investment arbitration as an option only after domestic remedies are exhausted. Further, it does not provide Fair and Equitable Treatment (“FET”) as a standard of protection and, hence, also no protection of investor’s legitimate expectations.
Enforcement of investment arbitration awards is also a challenge in India. India is a not party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (“ICSID Convention”). Moreover, India has signed the New York Convention with the ‘commercial reservation’. There are conflicting decisions regarding the applicability of the Arbitration and Conciliation Act 1996 (“Arbitration Act”) to investment arbitration. While the High Court of Delhi, in Vodafone v. India (I), Judgment of the High Court of Delhi Vacating Order, 7 May 2018 and in KHML v. India, Order of the Delhi High Court, 29 January 2019, excluded the application of the Arbitration Act to investment arbitrations stating they are not commercial in nature, the High Court of Calcutta in the Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS applied the Arbitration Act to investment arbitration. Due to such conflicting decisions, enforcement of investment arbitration awards in India poses several challenges.
For investors, the dispute resolution committee and commercial arbitration remain the recommended mechanisms for dispute resolution also with state entities. Investment protection in India is limited due to the restricted wording of the new model treaties and the termination of many existing treaties. For certain investments, it might well be advisable to conclude stabilisation agreements with the state to ensure sufficient protection against a detrimentally evolving regulatory framework in the absence of sufficient protection under BITs. Given that many treaties have been terminated, structuring your investment through countries that still have existing (old) BITs with India may be advisable and, in some cases, feasible. There are certain limits to treaty structuring that also need to be taken into account. In particular, restructuring an investment after a dispute is already “on the horizon” could be considered an abuse of process, potentially restricting access to investment arbitration.
We recommend investors to always assess whether adequate investment protections (BITs, stabilisation clauses) and sufficient arbitration mechanisms are in place before making an investment or concluding a contract. If need be, effective treaty structuring prior to the investment might be advisable. Moreover, complex energy investments with several contractual layers and subcontractors can benefit from arbitration clauses that also provide for the involvement of “third parties” in order to cover recourse claims. The legal and dispute resolution framework currently foreseen for renewable investments in India is protracted and not without contradictions. We advise investors to tread carefully.
ABOUT THE AUTHORS
Georg Scherpf is Head of Arbitration Germany at Clyde & Co. He advises both private and state parties on complex commercial and investment arbitrations and cross-border litigations. His commercial arbitration experience covers a broad range of legal issues and sectors, including international trade (CISG), corporate disputes, such as joint venture/post-M&A, and energy. In the energy sector, Georg has considerable experience in handling arbitrations involving renewable energy sources (PV, CSP, hydropower, wind) as well as conventional sources, such as nuclear, coal, oil & gas. Georg also sits as an arbitrator and on Dispute Adjudication Boards (“DABs”). He regularly publishes and speaks on dispute resolution in the energy sector.
Dhanya T. Mallar is an Advocate in Bangalore, India. She has expertise in shipping, electricity, and commercial laws and has represented clients before various High Courts, CESTAT, NCLT, and in ad-hoc arbitration. She also sits as a mediator in creditor-debtor disputes. She holds a BA LL.B. from Symbiosis Law School, Pune, and an LL.M. in Arbitration from Bucerius Law School, Hamburg. She is also admitted as a Solicitor in England & Wales. Dhanya is a member of the Task Force for Women in Maritime constituted by the Directorate General of Shipping, India, and is a steering committee member of the Indian Women in International Arbitration.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
