Limited use of the principle

Regulatory certainty is akin to the more established principles of legitimate expectations of investors and promissory estoppel (which prevents governmental action reversing a previous promise which has already been relied on by an investor).

On the converse, it is a well-established principle of law that there is no strict right against changes in laws and regulations. Therefore, despite its statutory recognition in the power sector, regulatory certainty has only been sparingly applied as a standalone principle of law.

Judicial hesitation is clear. For instance, in 2019, the APTEL reversed an order of the Karnataka Electricity Regulatory Commission that brought about a change to the regime governing ‘banking’ of power – which forms an important business consideration for Generating Companies (‘Gencos’). Gencos can notionally ‘bank’ power generated by them with distribution companies and can subsequently withdraw the same (paying necessary charges in relation to this facility) for supplying power to procurers under PPAs through the open-access regime. Illustratively, banking allows Solar projects (which cannot generate power during the night), to supply uninterrupted power, thus forming a crucial element of their project operations and revenues.

In assessing such overhaul to the regulations, the APTEL observed that “any order of the regulatory body reversing or doing away with established principles i.e. concept of banking of power on annual basis with no restrictions on drawal of banked energy … undermines the principle of regulatory certainty and adversely impacts the economic viability of the Projects.”

However, in its conclusion, the APTEL relied on the principles of legitimate expectations, natural justice and promissory estoppel while setting aside the order of the KERC.

As indicated above, the hesitation in relying solely on a standalone principle of “regulatory certainty” stems from the fact that the law as it stands currently does not provide a blanket protection against regulatory changes. It would be usually difficult to either demonstrate a promise made by a regulator to ensure certainty of a specific regulation or justify a legitimate expectation by an investor that regulations would remain unchanged over the life of a project.

For instance, in a decision in 2023, the APTEL did not consider a change in regulations as being problematic, observing that it is “difficult to say that any promise was held out…that the terms of the PPAs/WBAs would remain totally unchanged for the period of 20 years.”

A more recent illustration of this hesitation in applying regulatory certainty as an independent principle is evident from a December 2024 ruling of the APTEL. The APTEL dealt with the issue of whether tariff payable to power generation companies could / should be re-opened and reduced on account of a subsequent governmental subsidy. While referring to the principles of regulatory certainty, legitimate expectation and promissory estoppel, the APTEL ultimately decided in favour of the Gencos on an interpretation of a particular clause of the regulations in question.

Need for emergence as an independent principle

As evident from the above, “regulatory certainty” has largely been used as a tool of advocacy, instead of more widespread of application by courts to grant reliefs to the sector players.

It therefore becomes necessary that “Regulatory certainty”, be separately treated as an independent legal principle, especially in context of regulation of power sector – which requires massive investment in the form of capital expenditure. This is more so since regulatory certainty as a concept stands recognized explicitly in the NTP and in the objects of several regulations.

The principle of regulatory certainty can also derive sustenance from the principle that state actions are susceptible to challenge in Writ proceedings as being manifestly arbitrary and can therefore be held unconstitutional. The 2016 decision of the Supreme Court in the context of certain telecom regulations is an illustration of such a possibility. The Supreme Court set-aside the regulations imposing penalties on service providers on account of call-drops. While not referring to the concept of regulatory certainty per se, the Supreme Court found such regulation to be arbitrary for failing to consider stakeholders’ submissions that call drops were not always attributable to service providers. The Supreme Court found the regulation to be “manifestly arbitrary, not being based on any factual data or reason”.

Similarly, in the context of fiscal incentives under investment promotion policies, the Supreme Court has held that delegated legislations, such as notifications and regulations, cannot have retrospective “or retroactive” effect, in the absence of specific statutory provisions. It is thus arguable that even when ERCs exercise regulatory powers under the Electricity Act, new regulations cannot be made “retroactively” applicable to power projects that have already been set up under a particular regulatory framework.

Again, in the context of a challenge against regulatory changes impacting the tariff of a wind power project, the Andhra Pradesh High Court in 2021 also considered “policy uncertainty discouraging the investors, including global investors to come forward for development of renewable energy”.

In another decision, the Supreme Court has also pegged certainty as an “essential ingredient of rule of law” – the violation of which would therefore make regulatory action susceptible to challenge as being arbitrary and therefore contrary to the Constitution of India.

Conclusion

Policy flip-flops chill capital, crimp India’s clean-energy targets, and undercut the very goals regulators pursue. Regulatory certainty therefore deserves promotion from rhetorical flourish to standalone legal shield.

Reluctance in recognising the “regulatory certainty” as an independent concept clashes with constitutional doctrine. The rule of law and the constitutional guarantee against arbitrary action impacting investments already made, will therefore likely contribute to the emergence of regulatory certainty as an independent legal principle.

Courts need not promise investors fossilized rules; they must only insist that material changes apply prospectively, and respect settled expectations for projects already built. Treating certainty as an independent principle would protect billions from being sunk capital, reinforce the rule of law, and accelerate the energy transition India has pledged to lead.

This article was originally published in Energetica India on 04 August 2025 Co-written by: Aashish Gupta, Partner; Puneeth Ganapathy, Principal Associate; Chiranjeev Singh, Associate. Click here for original article

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