Maharashtra Commission Rejects Wind Generator’s Plea for Termination of PPA

The Commission rejected Inox Wind's pleas to invoke the force majeure clause

December 13, 2022

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The Maharashtra Electricity Regulatory Commission (MERC) rejected Inox Wind’s request to nullify the power purchase agreement (PPA) signed with the Maharashtra State Electricity Distribution Company (MSEDCL), saying that there were not enough grounds to invoke the force majeure clause for delay in commissioning the project.

It said that the wind generator was not entitled to get a refund of the performance bank guarantee (PBG) invoked by MSEDCL.

Inox Wind had filed a petition seeking cancellation of the PPA with MSEDCL as it argued that the relevant project was delayed due to unforeseen reasons.

It further pleaded that the Commission should protect its bank guarantee of ₹100 million (~$1.21 million), which had been invoked by MSEDCL citing PPA terms.

Background

In 2017, MSEDCL had issued a tender which was won by Inox Wind. Inox signed a PPA for the supply of 50 MW of wind power at a tariff of ₹2.86 (~$0.035)/kWh in July 2018.

The generator intended to develop a wind power project on around 25 hectares of land in the Kutch district of Gujarat, which was in the legal possession of Inox Wind Infrastructure, a wholly-owned subsidiary of Inox Wind, on a lease basis from the Gujarat government.

Inox Wind, in its submission, stated that it could not achieve financial closure and commissioning of the project within the stipulated deadlines because of force majeure events.

It added that land acquisition was delayed due to a change in land allotment policy in Gujarat.

Additionally, Inox Wind said MSEDCL failed to provide clarity on moving the project to Maharashtra and extension of timelines for achieving financial closure and the commissioning date, which caused further delays.

The wind generator added that it had become impossible to set up the project under the timelines provided in the PPA. So, the PPA stood invalid in terms of the provisions of the India Contract Act 1872.

Further, Inox Wind argued that the onset of the COVID-19 pandemic also affected the project commissioning timeline.

MSEDCL, in its reply, said that neither of the factors — the change in Gujarat’s land policy and grid connectivity issues — could be cited as force majeure events requiring MSEDCL to grant any extension.

The state DISCOM noted the generator was merely making excuses in citing COVID-19 as a reason for the delay so that it could resile from its obligations.

It clarified that the PPA between the parties was signed based on the location of the wind power project in Gujarat, which was the fundamental basis of the PPA. It could not have been changed as soon as the financial closure for the project was achieved.

Commission’s analysis

The Commission observed that Inox Wind, for the first time on February 09, 2019, addressed MSEDCL, indicating its plan to shift the project from Gujarat to Maharashtra. After that, on March 15, 2019, Inox Wind submitted documents for demonstrating the financial closure, wherein documents related to land in Gujarat were submitted to show the land’s possession.

Thus, in a month, the wind generator again shifted its project to the original location in Gujarat.

The Commission concluded the MSEDCL could not be blamed for not providing clarity to the developer as the latter had failed to provide sufficient time to the DISCOM.

Also, Inox Wind had not issued any notices under the force majeure clause regarding the change in land allotment policy in Gujarat, the delay in development permission by GEDA, and the delay on the part of MSEDCL. A notice was mandatory to claim benefits under the clause.

Further, the state regulator added that the scheduled commissioning date of the project was January 17, 2020, which was before the imposition of a COVID-related lockdown in March 2020. Hence, the pandemic could not be considered a force majeure event.

Also, as per the provisions of the PPA, if the project got delayed beyond 27 months after the signing of the PPA, the contract capacity stood terminated, and the entire PBG could be encashed.

MERC noted that in the present case, the PPA was signed on July 17, 2018, and MSEDCL had encashed the PBG after 48 months. MSEDCL had provided sufficient time to Inox Wind to execute the project.

The Commission upheld MSEDCL’s encashment of PBG as consistent with the provisions of PPA.

Accordingly, the Commission ruled that Inox Wind had not performed its obligation under the PPA within the timelines. Therefore, it was not entitled to get a refund of the performance bank guarantee invoked by MSEDCL.

Earlier, MERC had asked MSEDCL to extend the financial closure and scheduled commissioning dates of a wind project. The project was developed by Clean Wind Power (Bhavnagar), the special-purpose vehicle of independent power producer Hero Future Energies.

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