Developer Allowed to Invoke Force Majeure for Delayed Solar Project Due to COVID-19

The Commission, however, added that force majeure could not be used to terminate the PPA


Amid the COVID-19 crisis, the Maharashtra Electricity Regulatory Commission (MERC) has exempted ACME Heergarh Powertech Private Limited from its contractual obligations under force majeure provision of its power purchase agreement with the Maharashtra State Electricity Distribution Company Limited (MSEDCL).

ACME, a special purpose vehicle (SPV) of ACME Solar Holding Limited, had signed a PPA with MSEDCL for setting up a 300 MW solar power project in Rajasthan’s Bhadla. The tender was floated in December 2018, and ACME solar had quoted the lowest tariff of ₹2.74 (~$0.038)/kWh in the auction.

The projects could be commissioned within 21 months from the date of execution of the PPA. However, for a capacity of 250 MW and above outside a solar park, the project could be commissioned within 24 months.

In its petition, ACME said that its obligations under the PPA were affected because of force majeure events. The company sought for the Commission to declare that both parties were discharged from their responsibilities and that the Commission should direct the DISCOM to return the developer’s performance bank guarantee (PBG). A ‘force majeure’ is declared in the event of unforeseeable circumstances that prevent parties from fulfilling a contract.

ACME said that the outbreak of the coronavirus in China led to supply chain disruptions, which prevented it from carrying out the project work.

To this, the MSEDCL argued that the company could have carried on project related work as the Indian government had allowed for renewable energy project construction and development during the lockdown.

ACME had also cited Rajasthan’s draft solar policy as an event to invoke force majeure as it led to a delay in land acquisition and financial closure of the project. The draft policy also mandated that projects supplying power to outside of the state should submit ₹500,00 ($6,595)/MW, making the project unviable for the developer.

The Commission said that ACME would not be eligible for force majeure on account of the draft policy as the state had not issued any notice for the same to MSEDCL. It noted that a draft policy could not be used as grounds for invoking the clause and rejected its claim for additional time on this account.

In its order, the Commission said that the supply chain disruption as a result of the COVID-19 outbreak can be considered a force majeure event and that ACME was exempted from its obligations without any tariff compensation.

In March 2020, the Ministry of New and Renewable Energy issued an official memorandum, which stated that the time extension in scheduled commissioning of renewable projects due to the disruption of supply chains would be treated as a force majeure event.

ACME further sought for the early termination of the PPA, stating that the repercussions of the coronavirus outbreak have made it impossible for it to fulfill its obligations within 24 months, or even within the maximum permitted extension of up to 30 months. It explained that the industry standards allowed for the termination of PPA if delays caused by force majeure events continue for over three months.

The MSEDCL opposed this claim, saying that there was no such clause for the early termination in the PPA. It added that if the Commission decided to allow the early termination, MSEDCL should be compensated for it appropriately. The developer, in return, alleged that not incorporating the clauses for the termination of a contract in exceptional circumstances in the PPA was a violation of bidding guidelines by MSEDCL.

The MERC said that while the COVID-19 outbreak constituted as a force majeure event, it cannot be used to terminate the PPA as sought by ACME. It said that there were no clauses for this in the PPA and as per its terms, the affected party can only be exempted from its obligations without any compensation in tariffs on account of the force majeure event.

The Commission also directed the MSEDCL to work out the details regarding the period of relief under the force majeure clause after the nationwide lockdown is completely lifted. It also directed that the timeline of financial closure and scheduled date of commissioning to be extended by 30 days after the lockdown ends, as mandated by the central government previously.

Earlier, Mercom reported that ACME Solar filed a petition before the Central Energy Regulatory Commission asking it to direct the Solar Energy Corporation of India and the Power Grid Corporation of India Limited to refrain from invoking its bank guarantees and letters of comfort.