CERC Approves Compensation to Solar Developer in Change in Law Case

The compensation will be disbursed at a rate of 9%


The Central Electricity Regulatory Commission (CERC) has approved a plea by ReNew Sun Waves (RSWPL) to receive compensation, both before and after the commercial operation date (COD), to offset the financial impact of safeguard duty on solar cells or modules and increased customs duty on solar inverters.

The compensation will be disbursed at a discount rate of 9%, and the annuity period is set at 15 years. RSWPL will also be entitled to carrying costs from the date of actual payments made to the authorities until the issuance of this order.


RSWPL filed a petition under section 79 of the Electricity Act 2003 addressing the economic consequences of legislative changes and seeking approval for a “Change in Law” and a mechanism to offset the financial impact of safeguard duty on solar cells or modules and increased customs duty on solar inverters.

RSWPL signed a PPA with Solar Energy Corporation of India (SECI) for its 300 MW solar project in Mandhopura village in Jaisalmer, Rajasthan.

A power purchase agreement (PPA) was signed between RSWPL and SECI on August 13, 2019.

RSWPL sought several remedies in response to the imposition of safeguard duty on July 29, 2020, and the subsequent changes in customs duty and related charges on January 6, 2011.

The petitioner contended that both events qualify as a “Change in Law” and sought the establishment of a compensation mechanism to offset the increased costs.

In an additional affidavit, RSWPL noted that GST rates rose from 5% to 12% through a September 30, 2021, notification.

Commission’s Analysis

The Commission noted that the bidding by the petitioner occurred on February 15, 2019, the execution of the PPA took place on August 13, 2019, and the Scheduled Commercial Operation Date for the project was December 20, 2020. The project, however, achieved commissioning on October 05, 2021.

A new safeguard duty was imposed on July 30, 2020,  and new GST rates took effect from October 1, 2021.

Considering these developments, the Commission concluded that the mentioned notifications impacted the petitioner’s project. Consequently, the petitioner is entitled to compensation due to the Change in Law.

The petitioner contended that, during the bid submission, it factored in ‘interest on working capital’ and ‘return on equity’ based on the prevailing costs. With the subsequent increase in costs due to Change in Law events, the working capital requirement, and consequently, the interest on working capital, rose compared to the bid’s requirements.

ReNew sought interest on incremental working capital at a normative interest rate to restore the economic position as if no change in law occurred. It also funded safeguard duty and additional customs duty upfront from equity, which was not part of the project cost, and requested reimbursement of carrying cost.

It suggested an interest rate for carrying cost at 14% per annum, as allowed by the Commission’s regulation for renewable energy tariff. Alternatively, the petitioner should be granted a carrying cost interest rate equivalent to the interest rate specified in the late payment surcharge clause of the PPA.

SECI argues that if the Change in Law event occurred before the cutoff date, ReNew would have factored in higher costs in the tariff. The impact of Change in Law post the cutoff date can be handled through an annuity.

SECI proposed an interest rate of 9% and a 15-year term for loan repayment.

Bihar DISCOMs rejected the interest claim on working capital, stating the tariff is all-inclusive. They opposed an interest rate equal to the late payment surcharge clause of the PPA.

The Commission determined that a discount rate of 9% and an annuity period of 15 years are appropriate for Change in Law compensation. SECI/DISCOMs’ liability for monthly annuity payments starts from the 60th day after this order or the submission of claims, whichever is later.

Late payment surcharge will apply for delays beyond the 60th day.

Carrying Costs

ReNew asserted its entitlement to carrying costs.

SECI opposed it, saying that carrying costs should be limited to the financing cost of a prudent and efficient utility, reflecting the minimum interest rate at which such a utility can borrow money.

Bihar DISCOMs argued that relief beyond what is contemplated by the PPA is not admissible, emphasizing adherence to the PPA’s provisions.

Article 12.1 of the PPA outlines the definitions and relief for Change in Law events. It stipulates that if a Change in Law results in adverse financial loss or gain to the solar power generator, compensation is due to restore the party to the same financial position as if the Change in Law had not occurred.

The Supreme Court, in the Uttar Haryana judgment dated February 25, 2019, underscored the restitution principle in Article 13.2, requiring affected parties to be restored to the same economic position as if the Change in Law had not occurred.

Considering these, the Commission held that RSWPL is entitled to compensation (pre- and post-COD) for additional expenditure due to the Change in Law event, including carrying costs.

The Commission directed the contracting parties to reconcile additional expenditure and carrying costs, correlating them with projects and invoices. The DISCOMs are obligated to pay SECI the reconciled claims that SECI is required to pay to RSWPL. The payment to the petitioners by SECI is not contingent on payment from the DISCOMs to SECI.

Recently, CERC approved an annual transmission charge of ₹248.67 million (~$2.98 million) as per the final offer by Apraava Energy to acquire Fatehgarh IV Transmission.

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