Supreme Court Holds That Government Incentives/grants Can Be Considered By Electricity Regulatory Commissions While Determining Tariff, Subject To The Purpose Of The Incentives Not Being Defeated.

The Supreme Court of India, by way of its judgment dated 25.03.2026, in the matter of Southern Power Distribution Company of Andhra Pradesh Limited & Anr. v. Green Infra Wind Solutions Limited & Ors.¹, held that while State Electricity Regulatory Commissions (“SERCs”), in determining tariff under Section 62 of Electricity Act, 2003, can consider incentives/ grants offered by the Union Government to renewable energy generators, such power must not be exercised in a manner which defeats the purpose of the incentive scheme.

In the present case the Central Government introduced the Generation Based Incentive (“GBI”) scheme to promote renewable energy by providing incentive to wind power generators, intended to operate ‘over and above’ the tariff determined by SERCs. Pursuant to the same, Andhra Pradesh Electricity Regulatory Commission (“APERC”) initially issued levelized generic tariff orders dated 01.08.2015 and 26.03.2016 (“Tariff Orders”) for wind power projects without factoring in the GBI availed by generators. Subsequently, however, in a petition filed by Andhra Pradesh (“AP”) Discoms, APERC permitted deduction of GBI from tariff, relying on Regulation 20 of the APERC (Terms and Conditions for Tariff Determination for Wind Power Projects Regulations, 2015 (“Tariff Regulations 2015”), which provides for consideration of incentives extended by the Central / State Government while determination of tariff.

The Appellate Tribunal for Electricity (“APTEL”) set aside APERC’s order, holding that Regulation 20 merely requires ‘consideration’ of incentives such as GBI and does not mandate their deduction from tariff. Thus, APERC erred in treating its earlier omission to factor in GBI as a violation of the Tariff Regulations, 2015 and in amending the Tariff Orders on that basis.

In the Civil Appeal filed by the AP Discoms, the court observed that Regulation 20 obligates APERC to ‘take into consideration’ such incentives, which does not imply a mandatory deduction or an automatic pass through, but instead calls for a purposive interpretation. It further noted that schemes such as GBI are not intended as a ‘consumer subsidy’, but as a ‘generator-focused incentive’, integral to the fulfilment of national / international policy objectives. The court held that SERCs cannot exercise their regulatory authority in a manner that defeats the legislative intent or the purpose of such incentives, merely because the power to determine tariff is exclusively vested in them.

Footnote

1. Civil Appeal No. 4495 of 2025.

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