Introduction
In an industry where dynamic policy changes and long-term contracts collide, Change in Law frequently turns into a battlefield for risk distribution. Due to its capital-intensive and policy-driven nature, India’s electricity industry regularly faces the consequences of legislative and regulatory changes. The risk of statutory or regulatory changes is significant because the stakeholders include generating companies, distribution licensees, transmission entities, and consumers who are bound by contracts that are 25 years or longer.

Any new legislation, legal amendments, modifications, repeals, reinterpretations, or policy developments by a government instrument, including statutes, rules, regulations, notifications, and judicial or quasi-judicial decisions that affect the viability or cost of electricity projects, are referred to as Change in Law. These might include changes to administrative processes, court rulings, environmental regulations, or tax regimes. In recent years, disputes surrounding compensation claims under Change in Law have escalated, especially in renewable energy and thermal power projects. The need to balance investor certainty and consumer protection makes this principle both complex and indispensable.

Before 2021, Change in Law relief depended exclusively on contract language interpreted by CERC/SERCs, and if on appeal, then by APTEL and the Apex Court. These situations consequently led to delays of 5 to 8 years, with carrying cost claims and compounding litigation. To overcome such drawbacks the legislature framed the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021, (“Rules”) which was made effective from 22^nd October 2021, and were promulgated to
(i) codify a broad definition of ‘Change in Law’,
(ii) require commissions to true-up tariffs within defined timelines,
(iii) permit provisional billing from the next monthly invoice, thereby easing cash-flow stress.

Statutory Foundation and Contractual Nexus
Decisions about tariffs and regulations are made following the general legal framework established by The Electricity Act, 2003 (“Act”). Section 61 of the Act requires the relevant commission to define terms and conditions for tariff determination while taking efficiency, competition, and protecting consumer interests into account. While Section 79 grants Central Electricity Regulatory Commission (“CERC”) authority over inter-state generating companies and transmission licensees. Section 62 and 63 deal with tariff determination through regulatory and competitive bidding routes, respectively.

In most Section 63 templates, the protected period starts seven days before the bid is submitted. However, the Rules seem to link compensation to the date when the tariff is approved, which can be several months after the bid. So, bidders should clearly mention the bid date as the cut-off point in their documents.

The Rules ensure that power generators and transmission companies are compensated fairly and promptly when unexpected changes in the law affect their costs. In simple terms, a Change in Law refers to any new law, amendment, court interpretation, or tax change (by central, state, or union authorities) that increases or decreases the cost of supplying or transmitting electricity. These Rules apply only when such changes occur after the tariff has been fixed under the Electricity Act, either through competitive bidding, i.e., Section 63, or regulatory approval, i.e., Section 62.

When such a change happens, the affected company must give a three-week advance notice to the other party (usually a distribution company) about the expected impact on the tariff. Then, within 30 days of the change (or end of the notice period), the company must provide a clear cost calculation. The cost adjustment will start from the next billing cycle. This adjustment can be done as a one-time amount, a monthly charge, or per unit cost based on what’s written in the contract. If the agreement does not have a formula, the Rules provide a standard one.

The Schedule of the Rules also sets a maximum recovery period of 180 months for one-time expenses or for as long as the recurring expense continues. Rule 3(8) of the Rules states that within 60 days, the Electricity Commission must review and approve the adjustment after receiving all supporting documentation.

Under this statutory framework, the CERC and SERC’s play an important role in deciding the claims brought under Change in Law. In long-term contracts like Power Purchase Agreements (“PPA”) or Transmission Service Agreements, there are usually clear rules about who can claim, how to give notice, and how compensation will work if a Change in Law happens.

Basically, the Change in Law clause helps share the risk between parties. It’s meant to protect the financial balance if a new court ruling or legal change affects the cost of the project.

If written clearly, this clause can avoid long court battles. But if it’s unclear or vague, it can actually make disputes worse.

Judicial and Regulatory Interpretation
The jurisprudence of Change in Law under the Electricity Act has evolved significantly.  In Energy Watchdog v. CERC (2017) 14 SCC 80, the Supreme Court made a distinction between force majeure and Change in Law, and ruled that both have to be interpreted in light of definite contractual definitions. Whereas force majeure pertains to external, unavoidable events, a Change in Law is an action by government or judiciary with economic effects.

Another landmark was witnessed in Parampujya Solar Energy (P) Ltd. v. CERC, 2022 SCC OnLine APTEL 80, wherein the Appellate Tribunal for Electricity (“APTEL”) held that the enactment of GST laws and protection duty on solar cells imported would constitute a Change in Law under the PPA. These events increased the cost of setting up solar projects, and the Tribunal agreed that developers were entitled to compensation for the additional financial burden. However, the Tribunal upheld CERC’s decision that unless the PPA explicitly includes a restitution clause, which is a provision stating that the affected party must be restored to the same economic position, developers cannot claim carrying costs. Carrying cost refers to interest or the time value of money. Simply proving a financial loss is not sufficient; the contract must specifically support the claim.

The Tribunal emphasized that relief under the Change in Law clause must be based strictly on the terms of the PPA, and not on broader principles of equity or general legal doctrines. Therefore, developers operating under standard PPAs that do not contain restitution clauses may be entitled to cost compensation, but not to carrying costs.

In addition, CERC’s Tariff Regulations for the years 2019 to 24 have also enacted some of these principles by including express mention of statutory amendments, environmental charges, and court directions as compensable occurrences.

Contemporary Challenges and Sectoral Trends
In this modern world, with dependency on renewable energy and supply chains, the complexity around the Change in Law clauses has grown, too. For example, customs duties imposed on solar modules that were imported from China have hugely affected the project costs for those solar developers who used to bid aggressively during competitive tariffs.

Apart from these, regulatory risks which come with environmental clearances, policy reactions emanating from the pandemic, such as deferment of construction timelines, which resulted in various litigations, and growing Ministry of Environment, Forest and Climate Change policies. Although the pandemic of COVID-19 is mainly regarded as a force majeure event but it has initiated related policy shifts that fall under the Change in Law.

The second point of contention of disagreement is who will bear the burden of the amount of expenses. Generators pass the expenses to DISCOMS, citing cost neutrality by way of tariff adjustments. On the other hand, DISCOMS oppose compensation, citing the rigidity of tariffs and consumer burden.

During gauging the banking feasibility of the Projects, investors and lenders always consider the enforceability and clarity of Change in Law clauses. Also, uncertainty and a slow adjudication process catalyze costs and consequently investment declines.

Policy Gaps and Recommendations
Although there have been landmark legal developments in this area of power sector but still policy gaps can still be perceived even with the naked eye. The first one is ambiguity around the Change in Law clauses used in contracts. These clauses do not follow a single standard format or a particular predefined definition. Although to drive off these ambiguities, from time-to-time Ministry of New and Renewable Energy keeps releasing Model Bidding Standard Documents, which prescribe some standardization. However, it can be seen that the differences still exist between different states across various technologies in interpretation of Change in Law.

Second, is the continued delays caused by the APTEL and Electricity Regulatory Commissions in the resolution of disputes, which consequently lead to huge delays in the grant of compensation. And so, the whole purpose of the clause is defeated. To deal with these there a smooth well-functioning system must be established.

The third one is the uncertainty regarding Change in Law around financial relief or compensation. There are few remedies which can be used to overcome these uncertainties, like annuity-based compensation plans, ESCROW mechanisms, and payment security funds.

Apart from the above-mentioned recommendations, one can also work on establishing dispute resolution mechanisms like fast-track Arbitration and Panel of Experts, which will expediate the adjudication process and thus, in this way, one can lessen the workload on Electricity Regulatory Commissions and appellate forums.

Conclusion
Stakeholders in the power sector must increasingly view the ‘Change in Law’ provision not as a mere legal formality, but as a critical commercial safeguard shaped by evolving regulatory realities. As electricity projects often take several years to start their commercial operation, meanwhile, laws keep evolving. The stakeholders of the power sector must view the concept of Change in Law not as a risk factor but as an in-built part of the regulatory framework. To overcome these drawbacks and limitations, the 2021 Rules were introduced, which consequently brought more clarity, consistency, and defined timelines for how such claims should be compensated and dealt with. However, how much these rules and regulations will succeed still depends upon how PPAs are drafted, contracts are written, how strictly the prescribed timelines are followed, and how actively regulatory authorities monitor the process.

The main lesson for developers, transmission entities, and distribution companies is the importance of predictability and enforceability. Inaccurate or carelessly drafted contracts or sluggish court rulings can result in costly disputes and reduce the appeal of future investments. For this reason, a proactive strategy that incorporates appropriate financial and institutional safeguards with unambiguous legal drafting becomes crucial. The strength of the power sector will ultimately depend on how justly and effectively legal and regulatory changes are handled, in addition to the availability of electricity. Instead of causing uncertainty, a change in the law can contribute to stability with the correct foresight.