GERC Asks Firm To Share Carbon Credit Proceeds With GUVNL
The Gujarat Electricity Regulatory Commission (GERC) has dismissed a petition filed by Hindustan Zinc Limited (HZL), ruling that the company is obligated to share proceeds from all carbon credit mechanisms—including Verified Emission Reductions (VERs)—with Gujarat Urja Vikas Nigam Limited (GUVNL), not just those from the Clean Development Mechanism (CDM).
In a ruling with implications for renewable energy contracts, the regulator upheld GUVNL’s move to deduct ₹1.03 crore in interest and ₹85.9 lakh in VER proceeds from HZL’s energy invoices, affirming the distribution company’s right to recover delayed payments tied to carbon credit benefits.
Dispute Over VERs vs CDM
The dispute centred on the interpretation of Article 12.12 of the Power Purchase Agreements (PPAs) signed between HZL and GUVNL in 2007–08 for three wind projects in Gujarat with a combined capacity of 88.8 MW. HZL argued that the clause applied only to CDM benefits, specifically Certified Emission Reductions (CERs), and did not extend to VERs, which are traded on voluntary markets and governed by standards such as the Verified Carbon Standard (VCS).
HZL said GUVNL’s demand for VER sharing in 2017—seven years after the credits were sold—was unjustified, and that calculating interest from 2010 lacked legal basis. The company also argued that no such demand had been raised earlier, and claimed its contract made no mention of VERs.
GUVNL’s Broader Interpretation Backed
GUVNL countered that the term “CDM benefits” in the PPAs should be interpreted broadly to mean all forms of carbon credits, including those from voluntary mechanisms. It argued that the Commission’s 2006 Tariff Order intended for all environmental benefits—regardless of the market they originated in—to be shared with consumers, especially as GUVNL pays a cost-plus tariff covering all generator expenses.
The state utility also pointed to HZL’s past communications, including internal approvals for VER transfers, as evidence of the company’s prior acceptance of sharing these benefits.
Commission’s Findings
In its ruling, the Commission agreed with GUVNL, stating that the phrases “CDM projects,” “carbon credits,” and “CDM benefit” used in the 2006 Tariff Order were functionally interchangeable at the time, as CDM was the dominant framework. It held that the underlying intent was to ensure sharing of all benefits from greenhouse gas emission reductions, regardless of the certifying body.
“CDM, VCS, and Gold Standard are functionally similar carbon crediting mechanisms,” the Commission noted, rejecting HZL’s claim that VERs should be treated differently for revenue-sharing.
On the interest issue, the Commission said HZL had failed to provide necessary information on VERs in a timely manner, and that interest was justified due to the loss of the time value of money. HZL’s contention that there was no obligation to share VERs was described as a “clear afterthought.”
