CERC Allows Compensation for Renewable Energy Developer Due to GST Rate Change

The company was also deemed eligible for carrying costs from the date of actual payments

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The Central Electricity Regulatory Commission (CERC) has allowed a renewable energy developer to claim compensation to offset the financial and commercial impact of change in law events on account of an increase in the rates of goods and service tax (GST).

It said the developer is also eligible for carrying costs calculated at the lowest of the actual interest rate, the renewable energy tariff regulations rate, or the late payment surcharge rate in the power purchase agreement (PPA).

Background

Ostro Energy, a subsidiary of ReNew Power Services, develops, operates, and maintains utility-scale grid-connected solar power projects for wind power generation.

The PPA for the 50 MW wind energy project was signed with Solar Energy Corporation of India (SECI) on October 25, 2019. The Scheduled Commercial Operation Date was April 18, 2021. The 2021 GST Notification changed rates from October 1, 2021.

The company filed a petition on June 12, 2022, for compensation to mitigate the financial impact of changes in law events due to the GST rate increase from 5% to 12%.

The petitioner requested the respondent to provide compensation, either as a one-time lump sum payment or through tariff increment, for the rise in the GST tax rate.

It also sought interest or carrying costs from the date of incurring the expense until the Commission’s order.

The respondents in this case are SECI and Uttar Pradesh Power Corporation (UPPCL).

Commission Analysis

The Commission observed that Article 12 of the PPAs specifies that any statutory change in tax structure affecting the wind power project constitutes a change in law.

It acknowledged that the GST rates changed after the scheduled commercial operation date.

Given that the notifications were issued after the petitioner’s bid submission on April 12, 2019, and considering the principle that change in law compensation should not result in profit, the Commission decided that the discount rate and annuity period would be the appropriate methodology for change in law compensation.

The Commission determined that the respondents’ liability for monthly annuity payment begins from the 60th day from the date of the order or the date of claim submission by the petitioner, whichever is later. In case of delayed monthly annuity payments beyond the 60th day, a late payment surcharge is applicable.

It also ruled that Ostro Energy was eligible for carrying costs at the lowest of the actual interest rate paid or the rate of interest on working capital as per applicable renewable energy tariff regulations or the late payment surcharge rate per the PPA.

Recently, CERC ruled that the delay in adopting the tariff order by the Uttar Pradesh Power Corporation is a valid reason to claim an extension in the commissioning date for a wind energy project.

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