The Appellate Tribunal for Electricity (APTEL) has ordered the distribution companies (DISCOMs) in Karnataka to refund safeguard duty and Integrated Goods and Services Tax (IGST) expenses incurred by a solar project developer on excess modules installed before the project commissioning date.

It also awarded carrying costs for the additional modules installed. The carrying costs will be computed from the date of imposition of safeguard duties and IGST, ie, 2018, until reimbursement is issued.

The Tribunal reasoned that the developer can claim carrying costs for the expenses incurred in purchasing excess modules in a change in law event since the modules were installed before the project commissioning date.

Background

The Karnataka government initiated the development of 1,200 MW solar power projects in the 2,000 MW Pavagada Solar Park.

Following this, the nodal agency, Karnataka Renewable Energy Development (KREDL), floated a tender to develop 50 MW projects in 24 blocks on a build-own-operate basis.

KREDL awarded the 50 MW solar project to the petitioner, Adyah Solar, a special purpose vehicle of ReNew.

In 2018, a power purchase agreement (PPA) was executed between Bangalore Electricity Supply Company (BESCOM) and the petitioner, which was approved by the Karnataka Electricity Regulatory Commission (KERC).

After the PPA was signed, the Central government imposed a safeguard duty in 2018 on the import of solar cells, including those assembled in modules. The imposition of safeguard duties caused the petitioner to incur additional expenses.

The PPA included a provision for BESCOM to provide relief through appropriate tariff adjustments in case of a change in law related to taxes and duties.

The petitioner approached KERC, seeking compensation for a change in law event.

The Commission ruled that the imposition of safeguard duties and IGST constituted a change in law event under Article 15 of the PPA.

KERC provided relief for safeguard duties and IGST imposed on the imported modules needed to meet the guaranteed capacity utilization factor (CUF).

However, the Commission denied the petitioner compensation for the working capital incurred in purchasing modules that exceeded the guaranteed CUF. It reasoned that the PPA did not mention any explicit or implicit provision to grant relief in such cases.

Under the PPA’s contractual obligations, the petitioner had to generate a minimum of 69.07 million units (MU) with a CUF of at least 15.76%. The petitioner imported 60,647 excess modules for the power project. The Commission ruled that the petitioner failed to provide documentary evidence to justify the excess imports.

Based on the additional capital expenditure resulting from the change in law event, the Commission granted an incremental tariff of ₹0.44 (~$0.0051)/kWh, calculated based on a minimum CUF of 15.76% to generate 69.07 MU of energy.

The petitioner declared a CUF of 27.76% at a tariff of ₹2.91 (~$0.033)/kWh, which is higher than the normative CUF of 19%. It also highlighted that excess modules had to be installed to meet the higher CUF.

It approached the Tribunal seeking reimbursement of the safeguard duty and IGST for the excess module used. The petitioner also demanded carrying costs for the safeguard duty and IGST, as well as the issuance of an incremental tariff proportional to the declared CUF of the project.

Tribunal’s Analysis

APTEL concluded that since the excess modules were installed before the project commissioning date, the reimbursement for the excess modules used is permissible. It added that claims for change in law events could also be extended to excess modules purchased, corresponding to the DC capacity of the project.

The Tribunal also said that claims related to the change in law events need not be limited to the period before the project’s commissioning.

It stated that developers have the right to install additional modules corresponding to the maximum CUF, nameplate, or its DC capacity.

The Tribunal noted that KERC must provide relief in such cases.

It added that the petitioner is eligible for carrying costs due to additional expenditure incurred to meet the maximum CUF. However, the grant of carrying costs is subject to the Supreme Court’s approval.

The Tribunal upheld KERC’s decision not to increase the incremental tariff based on the declared CUF. It held that the incremental tariff must be calculated based on the guaranteed CUF under the PPA.

In February 2024, APTEL dismissed an appeal by the Hubli Electricity Supply Company against a KERC order in 2021 granting a tariff increase for a solar project to compensate for higher costs due to changes in tax laws.

In May 2025, APTEL set aside a KERC order rejecting Hero Future Energies’s petition to extend the PPA execution date.