66. Competition Law And Distributed Generation

Detailed Explanation With Case Laws

1. Introduction

Distributed generation means producing electricity through relatively small or decentralised generating units located close to consumers. Examples include rooftop solar systems, small wind turbines, biomass plants, battery-linked generation and community energy systems.

Distributed generation can change the traditional electricity model in which large generators produce electricity and consumers receive it through centralised grids. It can create more market participants and increase consumer choice. At the same time, it can create new competition-law concerns involving utilities, distribution companies, technology providers and decentralised energy platforms.

In India, these issues are mainly governed by the Competition Act, 2002, together with the Electricity Act, 2003 and regulations governing distributed energy.

2. Competition and Decentralisation

Traditional electricity markets may contain substantial concentration because electricity networks require significant infrastructure investment.

Distributed generation can potentially reduce dependence on a limited number of large generators by allowing:

Households to generate electricity;

Businesses to produce their own power;

Communities to develop renewable projects;

Consumers to sell surplus electricity;

Independent producers to enter electricity markets.

From a competition perspective, increased entry can create greater competitive pressure.

3. Relevant Market

Under competition law, the first question is often identifying the relevant market.

A distributed-generation dispute could involve markets such as:

Electricity generation;

Rooftop-solar equipment;

Electricity distribution;

Grid-balancing services;

Energy-storage services;

Renewable-energy services.

The Competition Commission of India (CCI) considers factors such as substitutability, geographic conditions and market characteristics when determining the relevant market.

4. Abuse of Dominant Position

Section 4 of the Competition Act prohibits abuse of a dominant position.

A distribution licensee or infrastructure operator could potentially possess significant market power in a particular geographic area because electricity distribution networks are often natural monopolies.

Potential concerns could include:

Unreasonable denial of grid access;

Discriminatory connection conditions;

Excessive charges;

Unfair technical requirements;

Discriminatory treatment of distributed generators;

Restricting consumers from switching or self-generating.

Dominance itself is not prohibited; the legal concern is abuse of dominance.

5. Electricity Act and Open Access

The Electricity Act, 2003 provides a specialised regulatory framework for electricity markets.

Open-access provisions are important because they allow eligible users and generators to use transmission or distribution systems subject to statutory conditions.

For distributed generation, access to the grid can determine whether small producers can compete with established electricity suppliers.

Therefore, competition law and electricity regulation may overlap.

6. CCI and Sectoral Regulators

Electricity is a technically regulated sector. CERC and SERCs have specialised authority under the Electricity Act.

The Supreme Court's decision in CCI v. Bharti Airtel Ltd. (2019) is particularly relevant to the relationship between competition law and sector-specific regulation.

The Court recognised that where specialised regulatory questions must first be determined under sectoral legislation, the specialist regulator's role may need to be considered before the CCI proceeds on related competition questions.

This principle can become important when a distributed-generation dispute involves both electricity-grid rules and competition law.

7. Anti-Competitive Agreements

Section 3 of the Competition Act prohibits agreements that cause or are likely to cause an appreciable adverse effect on competition.

Participants in distributed-generation markets could potentially engage in:

Price fixing;

Market sharing;

Bid coordination;

Customer allocation;

Agreements to restrict supply.

For example, competing solar developers agreeing not to offer electricity below a particular price could raise cartel concerns.

In Excel Crop Care Ltd. v. CCI (2017), the Supreme Court considered cartel and bid-rigging principles. Although it concerned a different industry, its competition-law principles are relevant to procurement and tendering in distributed-energy projects.

8. Vertical Agreements

Distributed generation involves relationships between manufacturers, installers, developers, aggregators and consumers.

Potentially problematic vertical arrangements may include:

Exclusive supply;

Exclusive distribution;

Tie-in arrangements;

Refusal to deal;

Resale-price maintenance.

For example, an equipment manufacturer requiring consumers to purchase only its associated electricity services could raise questions under Section 3, depending upon its competitive effects.

9. Mergers and Acquisitions

The distributed-energy sector may experience consolidation as larger energy companies acquire:

Rooftop-solar businesses;

Battery companies;

Energy-management platforms;

Virtual power-plant operators;

Distributed-energy aggregators.

The CCI may examine qualifying combinations for their effect on competition.

Particular attention may be required where an acquisition combines businesses controlling important technology, customer data or energy infrastructure.

10. Access to Distribution Networks

Distribution networks can become an important competitive bottleneck.

A distributed generator may require:

Grid connection;

Metering;

Power evacuation;

Backup arrangements;

Net-metering or other approved settlement mechanisms.

If established network operators impose discriminatory or unnecessarily restrictive conditions, competition concerns may arise, subject to the applicable electricity regulations.

11. Consumer Choice

Distributed generation can transform consumers into prosumers—persons who both consume and generate electricity.

Competition law can support a market structure in which consumers have meaningful choices among:

Grid electricity;

Rooftop solar;

Community generation;

Storage;

Aggregated distributed-energy services.

However, consumer choice also depends on electricity regulations, technical standards and tariff structures.

12. Important Case Laws

CCI v. Bharti Airtel Ltd. (2019)

Important for understanding the relationship between the CCI and specialised sectoral regulators. Its reasoning is relevant where electricity competition issues overlap with technical regulatory questions.

Excel Crop Care Ltd. v. CCI (2017)

Important for cartel and bid-rigging principles. It can provide guidance when distributed-generation companies participate in competitive procurement.

Competition Commission of India v. Steel Authority of India Ltd. (2010)

The Supreme Court examined the CCI's statutory jurisdiction and investigative framework. It provides general principles relevant to competition-law enforcement.

Tata Power Co. Ltd. v. Reliance Energy Ltd. (2009)

The Supreme Court considered issues involving electricity regulation and competition. It demonstrates the importance of interpreting competition within the specialised electricity framework.

13. Major Challenges

Competition regulation of distributed generation faces several challenges:

Natural-monopoly characteristics of distribution networks;

Unequal bargaining power between utilities and small generators;

Grid-access restrictions;

Rapid technological development;

Market concentration in batteries and solar technology;

Complex tariff structures;

Data and digital-platform concerns;

Coordination between CCI and electricity regulators.

14. Conclusion

Competition law can play an important role in ensuring that distributed generation develops in an open and competitive environment. The Competition Act, 2002 addresses abuse of dominance, anti-competitive agreements and combinations, while the Electricity Act, 2003 provides the specialised regulatory framework for electricity generation and network access.

The cases CCI v. Bharti Airtel, Excel Crop Care, SAIL and Tata Power demonstrate important principles concerning competition enforcement, sectoral regulation and electricity markets.

Effective regulation should therefore prevent exclusionary conduct while allowing rooftop solar, community generation, storage, independent producers and prosumers to participate in India's evolving electricity market.