Generation Based Incentives for renewable energy are additional to, and not deductible from, determined electricity tariffs.

The Ministry of New and Renewable Energy (MNRE) introduced a Generation Based Incentive (GBI) scheme in 2009 to incentivize wind power generation by providing ₹0.50 per unit over the tariff approved by State Electricity Regulatory Commissions (SERCs)

The Andhra Pradesh Electricity Regulatory Commission (APERC) notified the 2015 Tariff Regulations, where Regulation 20 mandated that the Commission "shall take into consideration" any government incentive or subsidy availed by a generating company (GENCO) while determining tariff

In 2015 and 2016, APERC issued generic preferential tariff orders without factoring in GBI

Upon a petition by distribution companies (DISCOMs), APERC modified these orders in 2018, directing that GBI amounts be deducted from monthly bills to benefit consumers

The Appellate Tribunal for Electricity (APTEL) set aside this order, holding that "consideration" did not mandate "deduction" and that determined tariffs should not be lightly amended

The DISCOMs appealed to the Supreme Court.

1. Whether the State Electricity Regulatory Commission (SERC) possesses the power and jurisdiction to factor in Generation Based Incentives (GBI) while determining tariff, or if such incentives fall outside its regulatory province

2. Whether the regulatory power to determine tariff must be exercised in a manner that accounts for the underlying policy objectives of incentives granted by the Central Government

The Court relied on the Electricity Act, 2003, specifically Section 61 (guiding principles for tariff), Section 62 (determination of tariff), and Section 86 (functions of State Commissions), establishing the SERC as the exclusive authority for tariff fixation

It interpreted Regulation 20 of the APERC Tariff Regulations, 2015, which employs the word "shall" regarding the consideration of subsidies

The Court also referenced Articles 112, 114, and 282 of the Constitution of India concerning Parliamentary grants and Appropriation Bills

Furthermore, it applied the principle of "Regulation as an Enterprise," requiring regulators to work in coordination with national policy and environmental goals, such as India’s commitments under the Paris Agreement and Nationally Determined Contributions (NDC)

The Court held that the Electricity Act is a complete code, leaving no "unallocated regulatory residue" outside the SERC's jurisdiction

While GENCOs argued that GBI is a Parliamentary grant under Article 282 and cannot be diverted by a regulator, the Court clarified that factoring GBI into tariff calculations does not "alter the destination" of the grant; the money still reaches the GENCO, but the tariff paid by the DISCOM is adjusted

However, the Court distinguished between the existence of power and its exercise. It adopted the "Regulation as an Enterprise" model, where a regulator must act holistically rather than in a silo

Since the GBI was specifically designed as a "generator-focused incentive" to encourage investment in renewable energy and meet international climate obligations, a mechanical deduction of this incentive from the tariff would nullify the policy's intent

Therefore, "taking into consideration" under Regulation 20 does not mean an automatic pass-through or deduction if such action subverts the incentive’s purpose of promoting green energy

However, this power must be exercised as a "collaborative enterprise" that respects the object of the policy

Specifically, the GBI is intended to be a benefit to GENCOs "over and above the tariff" to promote renewable energy security; thus, it cannot be deducted to reduce the tariff for DISCOMs

The DISCOMs were directed to refund any amounts deducted for GBI adjustment.

The Supreme Court dismissed the appeal and upheld the APTEL’s decision, albeit with different reasoning.