‘Change in Law’ Clause in PPAs Signed by Small Scale Distributed Solar Projects Approved
A petition was filed in this regard by the Gujarat Urja Vikas Nigam and Gujarat DISCOMs
The Gujarat Electricity Regulatory Commission (GERC) has approved the incorporation of ‘change of law’ in the proposed power purchase agreements (PPAs) by the Gujarat Urja Vikas Nigam.
These PPAs are to be executed by the state DISCOMs with project developers under the ‘Government of Gujarat’s Policy for Development of Small Scale Distributed Solar Projects – 2019.’
GUVNL filed the petition along with Madhya Gujarat Vij Company (MGVCL), Uttar Gujarat Vij Company (UGVCL), Paschim Gujarat Vij Company (PGVCL), Dakshin Gujarat Vij Company (GDVCL), and Gujarat Energy Transmission Corporation (GETCO).
The Gujarat Government notified the ‘Policy for Development of Small Scale Distributed Solar Projects – 2019’ for procurement of power from projects of 0.5 MW to 4 MW capacity.
Under the policy, any individual, company or body, corporate or association or body of individuals, co-operative society of individuals/farmers whether incorporated or not or artificial juridical person can set up small-scale solar projects.
Such projects are set up exclusively for sale to obligated entities, i.e., DISCOMS, to fulfill their RPO (renewable purchase obligation). The policy also states that the obligated entities must buy solar power under the Government of Gujarat’s Policy of 2019 for meeting their RPO.
Subsequently, the Gujarat government notified the guidelines under the policy. A draft PPA to be executed with such small-scale solar project developers was also released.
However, certain provisions in the standard PPA executed by the petitioners under competitive bidding were not incorporated in the draft PPA to be executed with small-scale solar project developers.
Provisions regarding liquidated damages, performance bank guarantee, timelines of commissioning and submission of land documents, term of PPA, replacement of modules, change in ownership of PPA, and termination compensation were kept in alignment with the provisions of the Government of Gujarat Policy and Guidelines for Small Scale Distributed Solar Projects 2019.
The draft PPA also provided for the provision of change in law, allowing the project developers to approach the regulatory commission for relief for specific change in law events covering modifications in taxes, surcharge, and cess levied on generation or sale of electricity.
However, it was felt that change of law provisions are more relevant to the competitive bidding projects where the bidders need to quote the most competitive tariff, duly factoring the implications, if any, on legal and taxation changes structure of the economy.
Accordingly, the provision for change in law incorporated by the petitioners in its recent solar competitive bids providing for pass-through of changes in the rates of safeguard duty, anti-dumping duty, customs duty after bid submission deadline was not incorporated in the PPA proposed to be executed by the DISCOMs under the Small Scale Distributed Solar Projects, 2019.
The petitioners stated that any enactment that results in any change concerning any tax or surcharge or cess levied or similar charges by the government on the generation of electricity (leviable on the final output in the form of energy) or sale of electricity should be considered a change in law.
Apart from this, introduction or changes in the rates of safeguard duty, anti-dumping duty, and customs duty, including surcharge, which directly affect the cost of solar PV modules, should also be considered a change in law.
According to the petitioners, state DISCOMs received a total of 12,404 applications totaling 7,959 MW of capacity. Out of these applications, GETCO had issued a technical feasibility report (TFR) for 7,361 applications aggregating to 4,646 MW of capacity. The applicable tariff for the PPAs to be executed by the DISCOMs from October 1, 2020, up to March 31, 2021, is ₹2.83/kWh.
The incorporation of the change in law provision in the PPA is intended to keep the small-scale projects on an equal footing with the projects awarded under competitive bidding and passing on the impact on account of duties including surcharge occurring after the date of signing of PPA.
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Rahul is a staff reporter at Mercom India. Before entering the world of renewables, Rahul was head of the Gujarat bureau for The Quint. He has also worked for DNA Ahmedabad and Ahmedabad Mirror. Hailing from a banking and finance background, Rahul has also worked for JP Morgan Chase and State Bank of India. More articles from Rahul Nair.