Flight and Fall Transmitting Power: Judicial Initiative to Retain Ecological Balance in Society

The renewable energy sector, while promising an environment friendly production of clean electricity, has posed a threat to the environment in certain situations. Recently, a public interest litigation before the Supreme Court, brought forward one such environmental hazard posed by the sector. The overhead transmission lines installed around solar and wind power projects (“Projects”) are posing an extinction risk to endangered birds (such as (i) the Great Indian Bustard (GIB); and (ii) the Lesser Florican).

These Projects have attracted huge financial investments in recent times. Domestic and international lenders are eager to invest in such Projects. However, the surge in production of clean energy has resulted in frenzied downward tariff pricing, which project developers are compelled to quote in order to win a bid for a new Project. In an auction by Gujarat Urja Vikas Nigam (GUVNL) (Phase XI) for 500 MW of projects, a record low tariff of Rs 1.99 /kWh was quoted in December 2020. With this trend of downward tariff pricing, any adverse effect on the project cost is likely to have a severe impact on investments made by lenders/ investors in the Projects. While economic constraints are a factor in determining the future of clean and green energy, the environmental impact due to overhead transmissions from the Projects cannot be neglected.

It is in this context that a public interest litigation was filed before the Supreme Court of India (“Supreme Court”), seeking to protect certain endangered bird species, namely the GIB and Lesser Florican. On April 19, 2021, the Supreme Court passed a critical judgement to protect the endangered GIB and Lesser Florican from the risk of extinction due to death by collision with the overhead power lines in Rajasthan and Gujarat (“SC Order”). The main direction issued by the Supreme Court is set out as below:

  • for low voltage lines, “that all low voltage powerlines to be laid in the priority and potential habitats of GIB shall in all cases be laid underground in future. In respect of low voltage overhead powerlines existing presently in the priority and potential habitats of GIB, the same shall be converted into underground powerlines.” (para 14 of SC Order);
  • for high voltage power lines, “In respect of high-voltage powerlines in the priority and potential habitats of GIB, more particularly the powerlines referred in the prayer column of I.A. No. 85618/2020 and indicated in the operative portion of this order shall be converted into underground power line.” (para 14 of SC Order); and
  • In all cases where the overhead powerlines exist as on today in the priority and potential GIB area, the Respondents shall take steps forthwith to install divertors pending consideration of the conversion of the overhead cables into underground powerlines. In all such cases, where it is found feasible to convert the overhead cables into underground powerlines, the same shall be undertaken and completed within a period of one year and till such time the divertors shall be hung from the existing powerlines.” (para 18 of SC Order)

The SC Order not only acknowledges the importance of preserving endangered species, but also sets an example of how a progressive and fast developing nation should not overlook sustainable development. However, the Supreme Court also recognised that laying of underground power lines will depend on various technical parameters and the feasibility of the same will need to be determined on a case to case basis. The SC order provides that where it is found to be technically feasible: (a) all future Projects will have underground powerlines; and (b) projects with existing overhead power lines will be converted into underground lines. The apex court has set a period of 1 (one) year to ensure such conversions. Where it is not feasible to install or convert existing overhead power lines to underground lines, bird divertors are required to be installed immediately. It may be noted that the SC Order is only limited to priority and potential habitat locations and does not require all high voltage lines to be underground.

The direct consequence of the SC Order is an increase in the cost for installing/ converting overhead lines into underground powerlines and installing divertors in the priority and potential habitat area where the overhead powerlines are already in existence. The Supreme Court held that “where the power generators are required to bear the additional amount, adding to the cost of production, it would be open to regulate the manner in which the cost would be mitigated in accordance with contractual terms”, and has therefore, left it to the terms of contracts to determine the manner in which such additional costs are to be allocated among parties. Further, there may also be an increase in operational costs of the Project as maintenance and repair of underground power lines could involve higher downtime and other technical complexities.

The burden of the additional cost, as observed by the Supreme Court, will be left to be governed by the terms of the project documents entered into between the project developer, the procurer/offtaker and the respective contractors in relation to any Project. A typical power purchase agreement between the project developer and the procurer, contains a ‘change in law’ provision, which entitles the aggrieved party to claim a relief by way of filing a petition before the appropriate government authority (i.e. electricity regulatory commission). Considering a scenario where the relief has not been granted under the ‘change in law ’ provision or is still pending before such appropriate authority, pursuant to the terms of the contract, this increased cost will have to be borne by the project developer (i.e., borrower). It is inevitable that such additional liability to be borne by the project developer will impact its payment capacity, as a borrower, and it will have to include the additional cost as a part of the ‘project cost’ and/ or seek recourse from the cash flow of the Project.

Therefore, it will not only affect the project cost, but also the cash flow of the Project, which is the  primary source to service the loans availed by the project developer (borrower) from various lenders/ financial institutions to develop the Project. The lenders, in order to hold themselves good from these contingencies, may consider including a covenant on the promoter and/or the borrower group to bear the increase in project costs until the issue(s) resulting in such increase in project costs and/or such adverse impact on the Project have been mitigated to the satisfaction of the lenders. This implies additional burden on the power developers in an already wafer-thin profit market.

In the context of mobilising resources for funding the implementation of the SC Order, the Supreme Court observed that under Compensatory Afforestation Fund Act, 2016, (CAF), substantial funds are available with the national and state authorities. Further, it was noted that the State of Rajasthan had already set up a Compensatory Afforestation Fund Management and Planning Authority (CAMPA) in 2009 and had received a significant portion of the CAMPA funds for afforestation Projects. The rules made thereunder permit the use of the state fund to conserve wildlife and improve wildlife habitat. Although, the Supreme Court has suggested access to CAMPA funds, the lenders to a Project may not have direct access to these and as a matter of abundant caution, may consider including suitable covenants under financing documents to avoid any adverse effect on Project cashflows and/ or debt servicing capabilities of the project developer.

Further, it was contended that converting high voltage transmission lines into underground lines adds lots of technical challenges to the project developers and the technical team associated with such Projects. In this regard, the Supreme Court stated that “laying of high voltage underground power line would require expertise to assess the feasibility of the same.”(SC Order, p. 18, para 15)”. For the said purpose of assessing the technical feasibility of laying high voltage underground power lines, the Supreme Court has formed a specific committee, comprising of scientists from the Ministry of New and Renewable Energy, the Wildlife Institute of India and the Corbett Foundation. The committee will evaluate the same on a case to case basis. The SC Order states that for all cases (for both low and high voltage overhead lines that are already in existence), where it is found feasible to convert overhead lines to underground lines, the same shall be completed within a time period of 1 (one) year. However, there are no specific timelines mentioned under the SC Order for the committee to undertake and complete its assessment and to resolve any issues relating to the laying of underground power lines. This may vary on a case to case basis. From a practical perspective, if the committee takes more than a year to resolve such issues, there are no penal/punitive punishments mentioned under the SC Order.

At this juncture, the lenders and investors may take a pre-emptive step to protect themselves from any future contingencies and determine allocation of increased costs within the Project and financing documents itself. This is particularly critical in the case of under-construction Projects, wherein delay in commercial operation date or cost overrun will result in financial remodeling and will lead to event of default under the power purchase agreement and the financing documents. Focus may be placed while undertaking review and diligence of project documents, especially in relation to clauses on ‘limitation of liability’, ‘change in law’ and ‘increase cost’ and appropriate provisions may be built in the documents in this regard, whether with contractors or lenders. However, it may be noted that while recourse like liquidated damages and compensation for change in law are provided for in such project documents, given the financially stressed situation of most buying utilities, even in the case of compensation being awarded due to change in law, realisation of such payment takes huge amount of time and that adds to the financing/ working capital cost of the project developers and would likely affect the viability of Projects.

In its judgement, the Supreme Court said “there cannot be disagreement whatsoever that appropriate steps are required to be taken to protect the said species of birds”. Likewise, there cannot also be a disagreement that appropriate steps would need to be taken to determine the change in project costs and the additional construction that would need to be undertaken to meet the requirements of the SC Order. While recommendation for undergrounding of lines in potential habitats, which cover a large swathe of Rajasthan with huge renewable energy development potential, may come with its own set of challenges and reservations, and alternatives like installation of diverters in potential areas or studying the impact for a period before asking for undergrounding may have been considered in the SC Order. This SC Order is indeed a positive outlook by our judiciary for protecting and conserving wildlife and an attempt toward maintaining the ecological balance. It would be equally important to appropriately apportion the additional costs and risks of meeting the requirements of the SC Order, so as to not unduly burden any single party and hamper the growth of the renewable energy sector.