MERC Approves ₹491.2 Million Compensation for Tata Power for GST Hike
The compensation order for GST ‘Change in Law’ impact excludes carrying charges
The Maharashtra Electricity Regulatory Commission (MERC) has directed the Tata Power Company Limited – Distribution (TPC-D), a distribution company (DISCOM), to compensate Tata Power Green Energy (TPGEL) ₹491.2 million (~$5.89 million) against the costs incurred due to the hike in Goods and Service Tax (GST) rate for its wind-solar hybrid and wind project.
MERC accepted TPGEL’s petition, noting the absence of objections from the TPC-D.
TPGEL was the successful bidder in Tata Power Company Distirbution’s auction for 225 MW solar-wind hybrid power at Noorsar village, in Bikaner, Rajasthan, and wind (98.05 MW) in Maharashtra for 25 years.
Consequently, TPGEL committed to supplying 225 MW of blended wind-solar hybrid power at ₹2.59 (~$0.031)/kWh. MERC adopted the tariff on August 10, 2020.
However, the Ministry of Finance initiated a subsequent change in the law as of September 30, 2021, which resulted in a substantial increase in the GST on supply and civil works/service contracts from 8.9% to 13.8%.
In response, TPGEL filed a petition requesting compensation of ₹491.2 million (~$5.89 million), along with ₹4.68 million ($56,168) as carrying costs due to the hike in GST rates.
MERC emphasized the choice between a lump-sum payment and a per-unit basis over the power purchase agreement period, offering flexibility to TPGEL and TPC-D. Generators are encouraged to consider voluntary discounts on lump-sum payments.
The Commission highlighted the need to determine the total compensation along with carrying costs at 1.25% above the Marginal Cost of Funds Based Lending Rate (MCLR) per annum of the State Bank of India.
MERC delineated the compensation process when spread over the PPA period, with an annual per-unit rate calculation. This includes computing carrying costs for deferred payment and factoring in energy supply based on the Capacity Utilization Factor (CUF), ensuring transparent and systematic distribution.
It directed TPC-D to communicate its choice of compensation payment—lump-sum or per unit—within two weeks.
At the end of the financial year, TPGEL and TPC-D were directed to reconcile the per-unit charge against the recoverable amount. Over-recovery would be adjusted in March, while any under-recovery due to lower generation will carry forward without additional carrying costs, payable from excess generation above the declared CUF. Unrecovered compensation at the end of the PPA tenure will be reconciled and paid in the last month without additional carrying costs.
The effective date, signifying when the alteration of the GST rate took effect, would guide the implementation of compensation and adjustments within the PPA, as directed by MERC.
In May, MERC directed Maharashtra State Electricity Distribution Company to compensate Juniper Green Field with ₹406.44 million ($4.92 million) for increased Basic Customs Duty on solar inverters and higher GST on renewable energy devices.
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