India appears to be on the right track with respect to its ambitious goals and determined pivot towards renewable energy. Indeed, the country has positioned itself as one of the most attractive destinations for renewable energy projects in the world.
In light of such developments, we at S&R Associates are happy to present a quarterly roundup (January to March 2023) on renewable energy, including regulatory updates and legal insights on some key issues.
In February, SEBI released a consultation paper on disclosures, ratings, and investing related to ESG, pursuant to which an assurance-driven reporting regime based on key ESG attributes (“BRSR Core”) may be introduced soon.
BRSR Core is intended to represent a focused subset of the Business Responsibility and Sustainability Reporting (“BRSR”) framework, which SEBI had introduced in May 2021 as a voluntary disclosure regime in lieu of the erstwhile Business Responsibility Reporting (“BRR”) paradigm. The main motivation behind introducing the BRSR framework was to ensure quantitative, standardized disclosures on ESG-linked parameters. While until FY 21-22, the top 1,000 listed companies in India by market capitalization could make disclosures under this framework on a voluntary basis, such disclosures are compulsory from FY 22-23.
This article provides an overview of category-wise BRSR compliance requirements. Further, it highlights some of the benefits and opportunities, along with potential legal risks, associated with such disclosures. The article also discusses some of the concerns and innovations related to the BRSR Core framework, including in light of SEBI’s proposals with respect to adjusting intensity ratios for country-level purchasing power parity and extending disclosure requirements to corporate supply chains.
Given India’s climate ambitions, a national transition to green hydrogen (“GH”) appears to be a pressing requirement. In August 2021, India announced the launch of its ‘National Hydrogen Mission’ (“NHM”) to scale up GH production. In February 2022, the Ministry of Power (“MoP”) announced the Green Hydrogen Policy (“GHP”) as the first tranche of instruments to bolster efforts in this direction. Among other elements, the GHP included an understanding that the renewable energy (“RE”) consumed for the production of GH will count towards renewable purchase obligations (“RPO”) of the consuming entity. This January, India’s Union Cabinet approved the National Green Hydrogen Mission (“NGHM”). In February, the Budget confirmed an outlay of almost INR 200 billion for NGHM. While the NGHM aims to develop policies for establishing a viable GH ecosystem, a framework of standards and regulations is expected to be formulated soon.
However, given the government’s accelerated focus on transforming India into a global GH hub, it is unfortunate that the country does not yet have a supporting framework with respect to hydrogen certification. The proposed deployment and uptake of Indian GH will depend on the widespread acceptance of instruments which guarantee its origin. In addition, such a framework can facilitate the trading of hydrogen as a commodity on national and international markets. While national certification processes must align with international markets, tracking systems will be necessary to trace attributes across the value chain, including for the purpose of creating transparency and boosting demand. Furthermore, a robust certification framework can increase investments in RE for the purpose of producing low-carbon hydrogen.
The GH value chain includes production, transportation, storage, and end-use. Each of these activities involves several underlying processes, every one of which requires the use of energy – thus leading to emissions. These emissions can vary depending on the material and technology used. Although color schemes are popular to characterize different types of hydrogen, color-coding by itself fails to provide meaningful details about associated emissions. For instance, even post-production, GH can be involved in significant emissions by the time it reaches an end-use facility, especially if the energy required for constituent processes is not fully supplied through renewable sources.
While RE certificates (“RECs”) help consumers identify the renewable attributes of the energy purchased/used, being able to have the origin credibly certified enables them to make claims about a certain volume of RE generated. For the purpose of GH certification, in addition to RECs, India could draw on tracking templates for other energy products (e.g., biofuels). Further, given that hydrogen is not a primary source of energy (only a carrier), creating a proper link between GH certificates and RECs will be important. Such linkage is additionally necessary to avoid double-counting. Nevertheless, since GH markets are still at a nascent stage, a transitional period could be allowed during which the electrolyzers used to produce GH are enabled to utilize power from existing renewable plants, backed by RECs.
The global pivot on sustainable development has revitalized preferences among both occupiers and developers for certified green commercial buildings. Given emerging ESG trends, most MNCs looking to lease or set up offices in India are keen to occupy premises with green and/or sustainability ratings. This trend has created significant demand for commercial assets with energy-efficient ratings, which in turn has incentivized developers to upgrade and shift focus towards green buildings. Concomitantly, green financing may be on the rise, as domestic and offshore investors seek high-quality Grade A projects that are sustainable and ESG compliant. As part of their short-term ESG goals, listed developers may want to increase their green portfolio by the end of the decade, along with ramping up renewable energy deployment.
In this situation, it is useful to examine the cost of pursuing such green goals, given the existing housing demand in India in terms of both residential buildings and Grade A commercial/industrial assets. Emerging evidence suggests that green buildings are a higher-value, lower-risk asset than standard structures. Local developers are increasingly realizing that additional capital expenditure incurred upfront is likely to be offset by significant savings over the long term on operational costs.
The Energy Conservation (Amendment) Act, 2022 (“EC Amendment”) has included large residential buildings under its regulatory regime, along with enhancing the scope of the Energy Conservation Building Code (“ECBC”). Further, the EC Amendment has introduced the idea of sustainability, where a new building code related to energy conservation will provide norms for the use of renewable sources and green buildings. While the ECBC applies to a specified category of commercial buildings only, the new code will apply to office and residential buildings as well. Nevertheless, future digitalization may expand opportunities further. The diffusion of internet-connected devices in the residential and commercial sectors may allow added integration across demand and supply, such as by meeting India’s large-scale tri-generation requirements (cooling, heating, and power) through smart cities and district energy systems involving ‘cooling as a service’ (CaaS).
Recent studies find that a steady rise in temperature across India will significantly impact socioeconomic productivity and GDP growth. Importantly, heat-related stress produces corresponding cooling demands. In this regard, the World Bank recently identified opportunities for the India Cooling Action Plan (ICAP) to encourage private investment in key sectors, such as space cooling in buildings, cold chain and refrigeration, passenger transport air-conditioning, as well as refrigerants. Nevertheless, such investments may be constrained by the country’s international obligations, such as those in respect of HCFCs and HFCs. Besides, India’s climate mitigation strategy, including its thrust towards renewable energy and decarbonization, remains inadequate by itself. Emissions from short-lived climate pollutants (SLCPs) need to be addressed as well. Accordingly, strategic investments in innovative ventures, such as seaweed start-ups that focus on reducing agricultural methane, can be explored further. In addition, the waste and agricultural commodities sectors, along with their critical interface with technology, may be significantly scaled up in the next few years.
The Indian government has shown a continued commitment to its national mission on e-mobility and battery storage, including with respect to establishing a comprehensive roadmap for the increased adoption of electric vehicles (“EVs”) in the country. However, unlike the impressive roll-out of Chinese EV charging infrastructure, India’s has lagged. Further, with respect to EV battery production, India remains heavily reliant on Chinese imports to satisfy domestic demand for lithium and lithium-ion, as well as other raw materials. Nevertheless, several new laws and policies, formulated by various ministries and government departments over the past few months, have provided the necessary impetus towards an improved ecosystem – including through initiatives by the Ministry of Heavy Industries & Public Enterprises, the Ministry of Power, the Ministry of Housing & Urban Affairs, the Ministry of Road Transport and Highways, the Bureau of Indian Standards, the Ministry of Environment, Forest and Climate Change, as well as NITI Aayog. This note provides a snapshot of some such key government initiatives.
Over the last few years and months, several policies and laws related to electric vehicles (EV) have been introduced in India, spanning several discrete pivots, such as in respect of: (1) local manufacturing, (2) emissions and waste reduction, and (3) charging infrastructure and batteries. This note aims to highlight some of the key initiatives undertaken by the government in the Indian EV sector, along with existing concerns and future opportunities.
India’s debut issuance of sovereign green bonds by auction provides a significant opportunity to ascertain the current market appetite for such sustainability-linked initiatives, including among institutional investors. Indeed, such bonds have been successful in the past in the context of an eclectic set of sovereign issuances. Among other things, standards established by such issuance may lead to welcome improvements in the Indian bond market in general terms. For instance, Indian companies may want to ride on enhanced credibility standards, as applicable, and seek to better address persistent concerns related to greenwashing. Such broad advantages notwithstanding, in this piece, we look at some of the finer details related to India’s debut sovereign green bond issuance.
In the US and elsewhere, ‘virtual’ power purchase agreements (VPPAs) have appealed to a wide variety of corporate buyers, including for the purpose of meeting renewable energy (RE) targets quickly. Further, compliance with ‘green’ mandates by procuring renewables through a VPPA has become an important element of business branding across the world. With regard to India, too, recent reports suggest that VPPAs are essential to meet corporate needs and wants, particularly in the country’s expanding commerce and industry (C&I) segment.
However, in response to investor demand with respect to environment, social, and governance (ESG) standards, if a company seeks to shift completely to RE, it may not be able to do so for various reasons, including on account of inherent risks in RE generation. Further, ‘physical’ PPAs are not viable for projects below a logistical minimum. Accordingly, C&I consumers with lower load requirements and/or fragmented demand may not yet have a cost-effective mechanism to procure RE, despite India’s newly democratized ‘open access’ regime. In this regard, VPPAs may still be the answer.
Nevertheless, given that your company needs/wants to acquire or generate RE – should, and can, you enter into a VPPA in India?
Consistent with India’s ambitious climate-related targets, significant investments are being made in the domestic renewable energy sector, driven largely by private sector activity. Acquisitions and bonds represent a large portion of this capital, along with foreign equity, traditional loans, and mezzanine financing. Enabled by an encouraging FDI regime as well as locally-targeted regulatory schemes – such as incentives introduced by the government to bolster domestic capacity and manufacturing – self-sufficiency and foreign capital now constitute an integrated ecosystem. Along with conventional means of financing, newer frameworks such as infrastructure investment trusts specifically set up in the renewables space could be better explored in the future, especially in light of the urgency with which India needs to catch up towards its climate targets. Legislative changes in respect of the power markets – such as those related to trading in renewable energy certificates (RECs) – may also be curated by appropriate regulatory bodies to expand upon existing revenue streams.