The Central Electricity Regulatory Commission (CERC), in a recent order, ruled in favor of a solar developer and directed the contracting parties to reconcile the additional expenses incurred due to the introduction of the Goods and Services Tax (GST) and the imposition of safeguard duty.

The Commission noted that both events came under the Change in Law clause of the power purchase agreement (PPA), and the solar developer was entitled to compensation for the invoices raised before the scheduled commercial operation date (SCOD) and post-commercial operation date toward additional expenses incurred because of both events.

It added that the developer was also eligible for the carrying cost from the date the actual payments were made to the authorities until the date of the order issuance.

The Commission further directed the Rajasthan Urja Vikas Nigam (RUVNL) to pay the Solar Energy Corporation of India (SECI) the reconciled claims, which would then be paid to the petitioner. However, payment to the petitioner by SECI would not be conditional upon the payment from RUVNL to SECI.

The Commission added that the directions issued for the post-commercial operation date period would not be enforced and would be subject to further orders of the Supreme Court on the issue.

SB Energy One (Now known as Adani Solar Energy Jodhpur Three), a special purpose vehicle formed by SBG Cleantech One, had filed a petition seeking relief for the increase of the capital cost due to the introduction of GST laws and the imposition of safeguard duty.

Background

Adani Solar Energy Jodhpur is a power-generating company that has set up three solar power projects at the Bahdla Solar Park in Rajasthan.

In November 2016, SECI issued a request for selection for setting up solar projects at the Bhadla Phase-III Solar Park in Rajasthan for an aggregate capacity of 500 MW. SBG Cleantech One quoted a tariff of ₹2.45 (~$0.033)/kWh, which was much lower than the ceiling tariff of ₹3.93 (~$0.054)/kWh.

In the auction conducted in May 2017, SBG Cleantech One was the successful bidder and was awarded three projects of 100 MW each.

On July 1, 2017, when GST came into existence, the developer requested that SECI acknowledge the GST law enactment as a Change in Law event.

Later the company filed a petition with the CERC seeking compensation for the increase in capital cost due to the imposition of GST laws and the imposition of safeguard duty.

The Commission, in its order, said that the liability of payment on account of GST Laws and imposition of safeguard duty on procurement of solar modules and associated equipment by the petitioners would lie with the respondents till the commercial operation date. There was no mention of the invoices raised after the commercial operation date.

Aggrieved by the order, the developer approached the Appellate Tribunal for Electricity (APTEL). APTEL held that the CERC order would not be enforced until the Supreme Court’s verdict on the issue of compensation for invoices raised after the project’s commercial operation date.

Commission’s analysis

The Commission observed that the directions related to compensation for the period post the commercial operation date would not be enforced and would be subject to further orders of the Supreme Court in the Telangana Northern Power Distribution Company Limited and  Parampujya Solar Energy case.

The Commission noted that the petitioner had submitted its bid on April 19, 2017, and the PPA was executed on October 6, 2017. Further, as per the PPA, the scheduled commercial operation date of the projects was September 16, 2018.

The GST laws were applicable from July 1, 2017, i.e., after the submission of the bid by the petitioner, and the safeguard duty was imposed on July 30, 2018, i.e., before the scheduled commercial operation date. Hence, the petitioner was entitled to relief under the Change in Law clause.

Citing APTEL’s judgment in the Parampujya case, the central regulator said that the solar developer was entitled to compensation (pre-commercial operation date and post-commercial operation date) toward additional expenditure on account of Change in Law event in terms of Article 12 of the PPAs. However, it would rely on the Supreme Court’s judgment on the issue.

Once the petitioner raises a supplementary bill in terms of this order, the provision of a late payment surcharge in the PPA would kick in if the respondents do not make the payment within the due date.

Accordingly, the Commission directed the contracting parties to carry out the reconciliation of additional expenditure along with carrying cost by exhibiting clear and one-to-one correlation with the projects and the invoices raised.

Last December, ruling in favor of a solar developer, CERC directed the Madhya Pradesh Power Management Company and Delhi Metro Rail Corporation to settle the balance GST claims along with the payment of the late payment surcharge.

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