The Maharashtra Electricity Regulatory Commission (MERC) has ruled that ReNew Solar Power Private Limited is eligible for claiming compensation for the additional expenses incurred due to the imposition of safeguard duty (SGD) on solar cells and modules.
The Commission stated that this issue fell under the scope of the ‘Change in Law’ provision of the developer’s power purchase agreement (PPA) with the Maharashtra State Electricity Distribution Company Limited (MSEDCL). The PPA was signed for setting up 250 MW of solar projects in Tamil Nadu.
ReNew Power won the capacity in the auction conducted for 1 GW of solar projects issued in April 2018. The safeguard duty was imposed by the central government in July 2018.
ReNew explained that this new duty on the import of solar cells and modules resulted in an increase in expenditure and affected the progress of the project. It filed a petition with the MERC seeking the approval and determination of compensation under the ‘Change in Law’ clause of its PPA with the MSEDCL.
It said that as a result of the duty being imposed, it incurred additional expenses to the tune of ₹1.25 billion (~$16.6 million) on the import of 362.5 MW of solar modules. The developer also said that it incurred carrying costs on this amounting to ₹83.9 million (~$1.11 million).
Further, it argued that since the event occurred after the bid submission date, ReNew Power was entitled to be restored to the same financial position before the imposition of the duty. ReNew explained that other companies like Azure Power, Tata Renewables, and Adani Renewables have previously approached the Commission with the same appeals and were granted compensation for additional costs on account of the imposition of the safeguard duty.
The Commission agreed with the claim and reiterated that the imposition of safeguard duty by the central government was a ‘Change in Law’ even as per the provisions of the PPA and that ReNew Power was eligible for compensation.
The MERC also said that based on the declared capacity utilization factor (CUF) of 28% and the awarded capacity of 250 MW, ReNew would be entitled to compensation for a maximum capacity of 368.42 MW. Considering this, Commission accepted ReNew Power’s request to be compensated for additional charges amounting to ₹1.25 billion (~$16.6 million) on the import of 362.5 MW of modules under the ‘Change in Law’ clause.
The Commission also directed for the carrying costs to be compensated at the rate of 1.25% above the one-year MCLR (marginal cost of funds-based lending rate) of the State Bank of India, which was the prescribed rate for late payment charges under the PPA. This is similar to ruling in the case of ACME Solar against MSEDCL.
It further stated that the MSEDCL has the option to pay ReNew Power the ascertained compensation either in one lump sum payment to avoid additional carrying costs or in equal installments over the tenure of the PPA with carrying costs.
It further directed ReNew to provide proof that all the modules installed at the project location were imported from countries subjected to the duty.
The MERC also directed the MSEDCL to use the documentary proof provided by ReNew power to calculate the compensation amount under the ‘Change in law’ provisions within 15 days of the issue of the order. It noted that this would be at the risk and cost of ReNew Solar.
Previously, the Ministry of New and Renewable Energy released a circular stating that Goods and Services Tax (GST) and safeguard duty compensation to solar project developers should be paid within 60 days. Mentioning the orders already passed by the Central Electricity Regulatory Commission (CERC) on the ‘Change in Law’ compensation, the ministry added that there is now no need for the developers to approach the CERC for each case individually.
In a similar petition filed recently, the MERC issued an order declaring that ACME Chittorgarh Solar Energy Private Limited (ACSEPL) was eligible for claiming compensation for additional expenses incurred due to the imposition of safeguard duty.
