GUVNL Deserves Carbon Credit Share From RE Project: GERC

GUVNL Deserves Carbon Credit Share From RE Project: GERC

In an interesting case, the Gujarat Electricity Regulatory Commission (GERC) has ruled that wind energy generators must share the benefits of carbon credits with power distribution companies, regardless of the platform used. The order was passed in a case where the Power Purchase Agreement (PPA) was executed under a generic tariff arrangement.

The case emerged when Vayu (Project 1) Private Limited approached the state power regulator. The company operates four wind power projects in Kutch, Gujarat, with a total capacity of 150 MW. After the project’s commissioning, the wind power generator registered under the Clean Development Mechanism (CDM) of the UNFCCC (United Nations Framework for Climate Change) to sell its carbon credits.

As per the PPA between Vayu (Project 1) and GUVNL, the company was required to share 25 percent of the gross CDM benefit derived from these projects with GUVNL. However, in 2019, the company registered with Verra, an international non-profit organization, for trading carbon credits under the Voluntary Carbon Credit market.

GUVNL’s submissions

In its petition, the wind power generator argued that since the PPA mandated sharing only the carbon credit revenues from CDM, earnings from the voluntary carbon credit market were not subject to sharing with GUVNL. The company requested the state power regulator to prevent GUVNL from claiming any share of the carbon credits earned through Verra, asserting that the CDM and Verra regimes of carbon credit trading are fundamentally different.

GUVNL, in its submission, contended that under the norms, wind power generators are obligated to share the benefits of carbon credit trading in a generic tariff regime when preferential tariffs are determined by the commission, irrespective of the platform used for these trading.

“It cannot be accepted that the Generator will opt for a different mechanism to get carbon credits emanating from its Wind Project instead of CDM but will not pass on the same to GUVNL under a hyper technical argument that Article 12.12 of the PPA uses the term ‘CDM benefit’ only. This would be an incorrect way of reading the PPA especially when the entire cost and expenses incurred by the Petitioners in setting up the Wind Generators are being paid by GUVNL and the consumers in the State of Gujarat under a preferential tariff regime,” GUVNL stated.

GERC Ruling

In its ruling, GERC admitted the GUVNL’s submission, noting that at the time the Order was issued, CDM was the most widely accepted network for generators to receive carbon credits. Therefore, the terms “CDM projects” and “CDM benefit” were used in the Tariff Order’s contents.

“But the conclusive meaning of these words is to be drawn from the word ‘carbon credits’ utilized in the same paragraph of the Order. It is the ‘carbon credits’ which lead to certain benefits, which in common parlance and the primarily available network for availing benefits at the time of issuance of the Tariff Order, was termed as ‘CDM benefits.’ Thus, it can be concluded that the word ‘CDM benefit’ and the word ‘carbon credit’ were synonymous with each other at the time of issuance of the Tariff Order dated 11.08.2006,” the GERC order stated.

The regulator further noted, “It is also important to consider that the Commission has recognized that the wind power project will have benefits from the sale of carbon credits, and hence, there will be a reduction in the project developer’s costs. Since such a benefit was expected to be earned over the life of the project, and not at the time of its commissioning, the Commission considered it appropriate to stipulate that this benefit be shared with the beneficiaries during the project’s operation.”

In its final ruling, the GERC dismissed the petition filed by the wind power generator, stating, “We find that the Petition and I.A. are devoid of any merits, and the prayers sought in the Petition and I.A. are rejected. Accordingly, both the Petition and I.A. stand disposed of. The Petitioner is liable to share the benefits accrued from the sale of carbon credits on any platform with the beneficiary GUVNL for both past and future periods, in accordance with Article 12.12 of the PPAs.”