SECI Asked to Compensate Solar Developer for GST, Safeguard Duty Imposition

The Central Electricity Regulatory Commission (CERC), in a recent order, ruled that Clean Solar Power (Bhadla), a subsidiary of Hero Solar Energy, was entitled to compensation for the additional expense incurred due to the imposition of safeguard duty. The Commission made it clear that the imposition of safeguard duty on the import of solar cells and solar modules constituted a ‘Change in Law’ event.
Also, the compensation was not dependent on the payment made by the Uttar Pradesh Power Corporation Limited (UPPCL).
The Commission, however, rejected the developer’s claims regarding the ‘carrying cost’ and said the power purchase agreements (PPAs) did not have a restitution clause.
Clean Solar Park (Bhadla) had filed a petition, seeking relief under the ‘Change in Law’ provision as safeguard duty was imposed on the import of solar modules after the bidding deadline, resulting in an alleged substantial increase in the cost.
Background
SECI had issued a request for selection (RfS) to develop 500 MW of projects in Bhadla Phase-III Solar Park in Rajasthan.
Hero Solar Energy had submitted three bids of 100 MW each for grid-connected solar projects. Later, Hero Solar was declared the successful bidder for the three projects for generating and selling power under the National Solar Mission (NSM), Phase-II, Batch-IV Tranche-XI.
The developer signed three PPAs with SECI on April 27, 2018, to set up and sell power from the three solar projects: Bhadla-I, Bhadla-II, and Bhada-III.
The Uttar Pradesh Power Corporation Limited (UPPCL) is the buying utility from SECI under the power sale agreement dated March 28, 2018.
As per the PPAs, the scheduled date of commissioning (SCoD) of the projects was April 27, 2019. However, the developer sought an extension of time, and SECI extended the SCoD of the projects to August 15, 2019. After that, it sought another extension of SCoD, and SECI accordingly revised the SCoD of the projects.
On July 30, 2018, the Ministry of Finance issued a notification, imposing safeguard duty on the import of solar cells whether or not assembled in modules or panels. Later, MNRE issued a direction to SECI, stating that the Commission had already passed orders stating that the imposition of safeguard duty was a ‘Change in Law’ event.
The developer, accordingly, provided the details of the total amount incurred on account of imposition of the safeguard duty and requested SECI to reimburse the said amount.
SECI confirmed the amounts of ?504.52 million (~$6.79 million) for Bhadla-I, ?492.71 million (~$6.64 million) for Bhadla-II, and ?393.29 million (~$5.31 million) for Bhadla-III towards compensation for the ‘Change in Law’ event and offered to make payment on an annuity basis spread over 13 years at the annuity rate of 10.41% per annum.
In its submission, Clean Solar Park (Bhadla) said that it was entitled to relief either in the form of a lump sum payment as a one-time compensation or tariff adjustment towards the import of 394.11 MW capacity (DC) solar modules as against the cumulative DC capacity of 452.23 MW, which was required to be installed for the 300 MW of contracted AC capacity.
Commission’s analysis
The Commission observed that SECI had written letters to UPPCL, requesting it to make payment of the reconciled safeguard duty claims of the petitioner.
The Commission noted that the SCoD of the solar projects was April 27, 2019, which SECI subsequently extended to February 18, 2020, for Bhadla-I, February 29, 2020, for Bhadla-II, and October 27, 2019, for Bhadla-III.
The state regulator also added that the petitioner had made available all relevant documents to settle its claim for compensation of ?1.39 billion (~$18.73 million) payable by SECI towards expenditure incurred by the developer due to imposing safeguard duty. SECI confirmed the amounts and offered to pay the said amounts on an annuity basis spread over 13 years at the annuity rate of 10.41% per annum.
The regulator further added that the compensation to be paid to the petitioner was not conditional upon the payment to be made by UPPCL to respondent SECI.
Also, the Commission added that the PPAs in the instant matter did not have restitution provisions. Therefore, the claim regarding ‘carrying cost’ was not admissible.
Further, the Commission added that as per the provisions of the PPAs, the commercial operation date meant the date on which the commissioning certificate was issued upon successful commissioning of the full capacity of the project or the last part capacity of the project. Accordingly, the Commission held that the liability of payment on account of the impact of GST on the procurement of solar panels and associated equipment would lie with the respondent until the commercial operation date only for the contracted capacity.
Last month, CERC directed SECI to compensate SB Energy One for the increased cost incurred as GST and safeguard duty were imposed. The Commission noted that the enactment of GST laws and the imposition of safeguard duty qualified to be processed under the ‘Change in Law’ clause.
In another similar order, CERC had directed SECI to compensate another solar developer for the increased cost incurred due to the imposition of safeguard duty under the ‘Change in Law’ clause. The Commission added that the petitioner’s compensation was not dependent on the payment to SECI by UPPCL.
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