1. Introduction
1.1 Context and significance
India’s Renewable Energy (“RE”) expansion is serving two national objectives simultaneously. Firstly, it is a grave matter of energy security as India Imports nearly 89% of its crude oil leaving the economy vulnerable to price volatility and geopolitical disruption whereas natural resources such as solar and wind are amply available. Secondly, it is India’s international climate commitments. At COP26 Summit held in Glasgow in year 2021, India’s Honorable Prime Minister Narendra Modi has presented five nectar elements, “Panchamrit” to deal with the challenge of climate change in India. The five panchamrit were:
* India will take its non fossil capacity to 500Giga Watt (“GW”) by 2030.
*India will meet 50% of its energy requirements from renewable energy by 2030.
*India will reduce the total projected carbon emissions by 1 billion tones from now till 2030.
*By 2030, India will reduce the carbon intensity of its economy by more than 45 percent.
*By the year 2070, India will achieve the target of Net Zero[1]
Achieving the above challenge is a major financial challenge of the country as it needs to spend about $385 billion to achieve the country’s target of 500 GW renewable energy capacity by 2030[2], a sum that cannot be met from public budgets. This sector is built predominantly by private developers selected through competitive auctions financed largely by debt: public financial institutions alone lent approximately Rs 16.92 Lakh crore to renewable energy between FY 14 to FY 26, while Foreign Direct Investment (“FDI”) in non – conventional energy reached about USD 22.33 billion over the same period under a 100% automatic route[3]. As renewable energy projects are capital intensive and their costs are being recovered through long term (25-35 years) PPA, investor confidence directly determines the cost of capital and in turn the tariff paid by consumers. Regulatory unpredictability, payment delays and uncertain insolvency outcomes raise risk premiums, divert capitals to other markets and push highly leveraged project companies towards default. Investment security is thus based on India’s policy objectives.
1.2 The research problem
RE projects in India are falling into financial distress despite the favorable and sustained policy support. Projects go to distress once competitive bidding has secured capacity at record low tariffs. Major reasons for the distress is transmission infrastructure which lags the generation i.e., solar and wind projects are built within 12-18 months while connecting transmission lines takes 24-36 months or longer and only about 12% of competitively bid transmission projects were commissioned on schedule upto March 2026. Commissioned projects faced severe curtailment, affecting upto 8GW of capacity in Rajasthan alone in 2025.DISCOM’s often delay signing power purchase agreements (“PPA”) at the time when tariff decreases, leaving awarded projects without assured buyers and without assured buyers, access to financing becomes difficult.
Many projects simply have too little margin to stay safe. In order to win government auctions, developers compete by offering the lowest possible price for their electricity i.e., solar tariffs fell from Rs 10.95 per unit in 2010 to a record low of Rs 1.99 per unit in 2020[4]. Thereafter the government raised import duties on solar panels and cells and increased GST on key equipments, together all of which has made project costlier to build. If the developer has signed a PPA, then they can recover the cost through their “Change in law” provision in PPA but they have to first spend the money and then wait for the regulator approval to get it approved in order to claim the cost under change in law.
On the positive side, After advent of Late Payment Surcharge Rules, 2022 state DISCOM now pay their bills more reliably and in a timely manner. Old unpaid dues fell from about Rs. 1.4 lakh crore to just Rs. 3,330 crore by March 2026[5]. The sector remains fragile as the main reason is borrowing. These projects are largely built on loans and if the income is disrupted whether by curtailment, higher costs or delayed claims, the company struggles to repay its lenders. These cases can quickly leads to default and may result in insolvency proceedings.
1.3 Research questions, scope and methodology
This article will focus on answering below mentioned questions:
- What regulatory challenges most threaten investment security in India’s renewable energy sector?
- How does Insolvency and Bankruptcy code 2016 applies to distressed renewable energy projects and where does it conflicts with Electricity Act 2003?
- How can the law balance the protection of investors with the interest of consumers and India’s climate goals
- What legal and policy reforms could better reconcile these objectives?
This article adopts a doctrinal and analytical approach. It examines the Electricity Act 2003, the Insolvency and Bankruptcy code, 2016 related rules, judgements and government policy documents.
- The Legal and Regulatory Framework Governing Renewable Energy
2.1 Statutory foundation
The Electricity Act, 2003 is the main law governing India’s Power sector and it actively supports renewable energy. Section 7 of the said act allows a company to setup generating station ( Power plant) without obtaining a license under the act.
The Act further requires the regulators to give priority to green power. While framing the tariff rules for electricity regulators, the same should be based on, inter alia, encouragement of power produced from renewable sources (Section 61(h)). There are two methods of establishing tariffs. The regulator may determine the tariff based on costs (Section 62), or the regulator has to accept the tariff determined through a transparent bidding process, as per central government’s norms (Section 63). Most solar and wind projects are assigned through these bidding processes. Moreover, every state regulator must encourage renewable energy by ensuring grid access and purchase by DISCOMs of certain proportion of its requirement from renewable sources (Section 86(1)(e)).
This sector and their related laws is being governed by three bodies. The Central Electricity Regulatory Commission (CERC) regulates the inter-state matters and resolve disputes involving central generators ( Section 79). State Electricity Regulatory Commission( SERC) do the same within each state (Section 86). Appeals from both lie to the Appellate Tribunal for Electricity (APTEL) (Section 111) and from APTEL to Supreme court on question of law (Section 125).
2.2 Policy instruments
In addition to the Electricity Act 2003, the Central government formulates policies under Section 3 of the Act, mainly the National Electricity Policy (2005) and the Tariff Policy (2016). It provides guidance for the sector as to how it should develop e.g., encouraging renewable energy and competitive bidding and the regulators need to take them into account while setting tariffs.
The key instrument here is the Renewable Purchase Obligation (RPO) which obliges DISCOMS and some large consumers to obtain a certain percentage of their electricity from renewable sources. As per 2025 Notification under the Energy conservation Act, 2001(now known as Renewal Consumption Obligation) increases from 29.91% in 2024-25 to 43.33% in 2029-30 and imposed penalties on the shortcomings. Those who are unable to obtain required amount of green electricity themselves, may buy Renewable Energy Certificates (RECs).
However policies differ from statutes. In Tata Power Co. Ltd. (Transmission) v. Maharashtra Electricity Regulatory commission (2022)[6], the supreme court held that the Tariff policy is not strictly binding on the regulators but is a “material consideration” which must be followed while deciding.
2.3 Contractual architecture
These projects often are tied with 25 years Power Purchase Agreements (PPAs) at tariffs discovered through auctions. Often a central agency such as SECI or NTPC[7] buys the power from developer and resells it to state DISCOMs acting as a trusted middleman to attract investor trust. Moreover, Investors have protection through three measures. The “must-run” tag ensures that renewables will not be turned off due to commercial considerations, and compensations need to be paid if they are reduced. DISCOMs need to give letters of credit and payment security deposit, which is guaranteed by tripartite agreement between the Center, the states, and the RBI for SECI and NTPC deals. Change-in-law provisions ensure that developers are compensated for new taxes and duties after tendering.
- Regulatory Challenges Threatening Investment Security
The first and foremost risk to the security of investments in the electricity sector is the financial vulnerability of state DISCOMs. After the unbundling of State Electricity Boards over two decades ago, DISCOMs have had an inherently unviable structure. The states have postponed tariff hikes; the subsidies due from state budgets are either delayed or partly received; distribution losses continue to be high at around 15%.[8] While DISCOMs posted profits of ₹2,701 crore in FY25,¹ in recent years they have failed to pay their dues on time. In addition, renewable energy projects rely almost entirely on debt financing.
Political pressure to re-negotiate the terms of the signed contracts is another concern. In July 2019, the government of Andhra Pradesh formed a committee to negotiate revised tariffs for wind and solar power, and DISCOMs issued notices to the project developers to reduce tariffs or risk termination, despite warnings from the Centre regarding the binding[9] nature of the Power Purchase Agreements. In the meanwhile, the developers had been compensated at the rate of ₹2.44 per unit for solar power and ₹2.43 per unit for wind power. On 15th March 2022, the High Court of AndhraPradesh held that the Power Purchase Agreements cannot be revised unilaterally by any party, and that the fact that the DISCOM faces financial hardship is not a valid reason to revise tariffs.
Thirdly, governments have been known to reduce the use of renewable energy despite their being classified as “must-run”, in most cases, in order to source cheaper electricity from somewhere else. In August 2021, APTEL noted that the reduction of electricity generated by the solar energy plants in Tamil Nadu was based on the financial considerations of DISCOM and not on grid security. The compensation is 75% of the PPA rate, plus interest.[10]Curtailment arises mainly from inadequate transmission, as discussed below.
Fourthly, change-in-law cases have been recognized yet take time to settle. There has been acceptance by regulators of GST and safeguard duty as change-in-law cases.[11] However, it may take years before there is settlement of the claim. A safeguard duty that was implemented in July 2018 was even under litigation in 2025. The decision was by APTEL which stated that compensation must be provided to developers for their actual cost of financing the projects.[12]
Lastly, there are physical limitations causing stress. Solar and wind installations require a construction period of 12-18 months, while transmission requires 24-36 months or more, thereby ensuring that completed projects do not generate their full capacity.[13] Litigation is another threat. The Supreme Court, in 2021, directed that all overhead power lines of nearly 99,000 sq km of Great Indian Bustard’s habitats in the states of Rajasthan and Gujarat have to be underground. The court amended its order in 2024 and then finally decided upon smaller priority zones in December 2025, where no wind turbines or large solar parks can be installed. Prior to that decision, nearly 9 GW of solar power capacity was waiting for transmission clearance.
4. Insolvency Challenges for Renewable Energy Projects
When the regulatory challenges discussed above crystalize, it lead to the defaulting of the highly leveraged renewable projects companies and their entry into Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code of 2016 (IBC).[14]The renewable projects company is different from ordinary corporate debtors. They are normally special purpose vehicles that own only one plant and whose value is mostly in the one long term PPA. With the absence of that PPA, it is simply the land and equipment without any buyer.
Protection of the PPA becomes the main concern in an insolvency process involving a renewable projects company. Most PPAs have an “ipso facto” clause which enables the buyer to terminate the contract due to the insolvency of the generator. In the recent judgment in the case of Gujarat Urja Vikas Nigam Ltd v Amit Gupta (2021), the Supreme Court has allowed the order passed by the NCLT that restrains the DISCOM from terminating a solar PPA. It ruled that the NCLT was entitled to pass the order since it was based on Section 60(5)(c) of the IBC as the termination was based only on the insolvency, and the loss of the PPA was going to end its existence as a business.[15]But it is limited in scope. The court did not rule on the issue of whether ipso facto clauses are void as it was for Parliament.[16]
Moratorium under Section 14 of the IBC Act is also an important safeguard, because it stops the enforcement proceedings against the debtor, while Section 14(2A) ensures that the supplies are not stopped by the resolution professional as being necessary for operations. But moratorium under Section neither includes licenses nor government permissions. This has been clarified by the Supreme Court in Embassy Property Developments v State of Karnataka (2019).[17]
This causes an overlap of jurisdiction between NCLT and electricity regulators. Section 238 of IBC as well as Section 174 of Electricity Act are both provisions that purport to supersede other Acts. The line of demarcation drawn in practice is as follows: disputes resulting from the insolvency proceedings will be heard by NCLT, whereas other disputes relating to tariff, change in law, and curtailment will continue to be heard by CERC/SERC/APTEL.[18]
The uncertainty is also present in the resolution process. A resolution plan which gets an approval from the committee becomes binding on all the creditors, including the government, however, the question of whether a DISCOM needs to agree to a change in its ownership on the existing terms of PPA is yet to be tested. The claims of the government have also been put into a doubt. In State Tax Officer v Rainbow Papers (2022), Supreme Court held statutory dues to be a secured debt, putting the government’s claims above that of lenders.[19]
The uncertainty regarding the resolution process is also evident. The resolution plan duly accepted will be binding upon all the creditors including the government, however, whether the DISCOM will have to accept the new owner on the same PPA conditions has yet to be determined. The government claims have also been uncertain. The Supreme Court has held in State Tax Officer v Rainbow Papers (2022) that the statutory dues shall be deemed to be secured debt; this has created an apprehension that government claims will take precedence over creditors’ claims.
Distressed renewable energy assets also tend to receive poor bids. The buyer would be unsure of whether the PPA would still be in force, the condition of the plant’s equipment, and curtailment issues and disputes with regulations. Here, Section 32A of the Insolvency and Bankruptcy Code comes in handy since it provides that upon acceptance of the resolution plan, the successful resolution applicant and the property of the debtor shall be discharged of any offence committed by the previous management.
5. Balancing Investment Security and Policy Objectives
The problems described above indicate an inherent conflict of interests. The developers and financial institutions wish the contracts be fulfilled, payments be made on time and the investment be safe. DISCOMs, which are usually financially fragile, are interested in flexibility. Consumers prefer low tariffs and the state prefers to achieve its emissions targets. These interests do not necessarily align and when the state of Andhra Pradesh decided to lower the contractual tariff in order to save its DISCOMs, it faced a choice between the immediate benefit of consumers and investors’ confidence.
However, security of investments and low tariffs are not contradictory goals. As renewable energy projects do not incur fuel costs, the rate of borrowing becomes the major factor in determining the tariff of the plant. Each renegotiation, default on payments or lawsuit increase the risk premium that will be taken by financial institutions in any further project and consumers will ultimately pay for this.
The bigger question is whether the IBC is appropriate for this area. The IBC is creditor-centric, with lenders controlling the process and aiming to maximise their recoveries. Electricity, on the other hand, is a public utility, and the value of a renewable plant is also derived from the clean power it provides to the grid. A solely creditor-driven approach may prioritise liquidation or asset stripping over keeping the plant operational. There is a strong justification for making continuity of supply a recognised goal while also respecting creditors’ rights.
Other jurisdictions have faced this tension. When the energy supplier Bulb failed in November 2021, the UK government implemented a special administration system to keep its roughly 1.5 million customers supplied. It later sold the company to Octopus Energy, and taxpayer money of approximately £3 billion is projected to be mostly returned. In the United States, the Sixth Circuit ruled in FirstEnergy Solutions (2019) that a bankruptcy court can enable a debtor to reject electricity contracts only after considering the public interest, including the impact on consumers, rather than adopting the standard business test.
Two lessons are transferable to India. First, energy insolvencies may warrant a specialised procedure that prioritises continuity of operation. Second, insolvency tribunals should be required to consider public-interest factors, with formal input from electricity regulators, when deciding the fate of PPAs.
6. Recommendations and Way Forward
Lasting investment security requires reform on three fronts. First, DISCOM finances must be fixed at their root. States should pay electricity subsidies on time and revise tariffs regularly to reflect costs, while the payment discipline introduced by the Late Payment Surcharge Rules, 2022 should be made permanent. To prevent repeats of the Andhra Pradesh episode, the Electricity Act should expressly bar unilateral renegotiation of approved PPAs. Any genuine claim of excessive tariffs should go before an independent regulator rather than be decided by the state government.
Second, insolvency law should recognise the special nature of energy assets. A dedicated chapter within the IBC for power projects could make continuity of operation a stated objective, protect PPAs from termination during insolvency, and require the NCLT to seek the views of the relevant electricity regulator before deciding tariff or PPA-related questions. Pre-packaged insolvency, currently confined to MSMEs, could also be extended to renewable project companies, allowing a quick, lender-led rescue before value is lost.
Third, contracts and institutions can absorb more risk. Model PPAs issued by the Ministry of Power should clearly prohibit termination solely on insolvency grounds, give lenders step-in rights to replace a failing developer, and allow a PPA to be transferred to a new owner on the same terms. SECI’s role as intermediary could be strengthened with a dedicated payment security fund, while credit guarantees and green bonds can lower borrowing costs and attract long-term capital.
7. Conclusion
India’s solar and wind expansion rests on a strong statutory and policy foundation, yet the legal protection it offers investors is firmer on paper than in practice. The sector’s difficulties stem less from an absence of legal rights than from weak enforcement. Financially fragile DISCOMs, political attempts to reopen concluded contracts, curtailment, slow recovery of change-in-law costs, and transmission and environmental bottlenecks all erode the returns that investors were promised. Reforms such as the Late Payment Surcharge Rules, 2022 show that well-designed rules can restore discipline, but they have shifted rather than removed the underlying risks.
When these risks push highly leveraged project companies into insolvency, the IBC offers only partial answers. It was built for ordinary businesses, not single-asset companies whose value lies almost entirely in one long-term PPA. Amit Gupta protects such contracts, but only narrowly, and the boundary between the NCLT and electricity regulators remains unsettled.
Investment security and consumer welfare are ultimately complementary, since lower risk brings cheaper capital and, in turn, lower tariffs. India has so far struck this balance only partially. Courts have largely upheld contracts, but the delay in reaching those outcomes has itself weakened investor confidence.
What India needs is a coordinated legal framework that bars unilateral PPA renegotiation, introduces an energy-specific insolvency chapter prioritising continuity of supply, and strengthens model contracts. Future research should examine actual recovery rates in renewable insolvencies, the practical effect of the IBC (Amendment) Act, 2026, and whether hydro and storage projects require distinct treatment.
[1]mea.gov.in/speeches-statements?dtl/34466/National+Statement+by+Prime+Minister+Shri+Narendra+Modi+at+COP26+Summit+in+Glasgow
[2]https://www.fortuneindia.com/enterprise/india-needs-385-bn-to-meet-500gw-renewable-energy-target/117087
[3]https://psuwatch.com/newsupdates/psu-banks-nbfcs-have-deployed-rs-1692-lakh-crore-in-renewable-energy-since-fy14-mos-naik
[4]https://renewablewatch.in/2022/06/17/rising-pv-prices/
[5]https://www.outlookbusiness.com/economy-and-policy/discoms-legacy-dues-reduce-to-3300-cr-from-139-lakh-cr-in-4-years-power-min
[6]https://www.verdictum.in/court-updates/supreme-court/state-electricity-commissions-autonomy-1449811
[7]https://jmkresearch.com/renewable-sector-published-reports/indias-power-sale-agreement-psa-hold-up-fixing-a-renewable-energy-bottleneck/
[8]https://www.downtoearth.org.in/energy/discoms-post-rare-profit-but-questions-remain-over-sustainability-and-accounting-reforms
[9]https://indianinfrastructure.com/2022/04/04/ppas-rule/
[10]https://trilegal.com/knowledge_repository/aptel-grants-deemed-generation-compensation-for-arbitrary-backdown-instructions
[11]: https://renewablewatch.in/2023/07/18/cerc-provides-compensation-to-solar-developers-for-gst-law-change/.
[12]https://solarquarter.com/2025/09/16/aptel-upholds-full-carrying-cost-compensation-for-solar-projects-amid-change-in-law/.
[13]https://www.downtoearth.org.in/energy/renewable-developers-seek-rs-3000-crore-as-grid-delays-mount
[14]https://www.downtoearth.org.in/energy/renewable-developers-seek-rs-3000-crore-as-grid-delays-mount
[15]https://www.livelaw.in/law-firms/articles/disputes-amenable-jurisdiction-of-electricity-commission-ppas-moratorium-171606
[16]https://lawbhoomi.com/embassy-property-developments-p-ltd-v-state-of-karnataka/.
[17]https://lawbhoomi.com/embassy-property-developments-p-ltd-v-state-of-karnataka/.
[18]https://www.livelaw.in/law-firms/articles/disputes-amenable-jurisdiction-of-electricity-commission-ppas-moratorium-171606
[19]https://www.mondaq.com/india/insolvencybankruptcy/1802402/castle-to-queue-how-the-2026-ibc-amendment-dethrones-land-authorities-in-the-insolvency-waterfall.
