CERC Asks SECI to Compensate Solar Developer for Impact of Safeguard Duty

The Central Electricity Regulatory Commission (CERC), in a recent order, directed the Solar Energy Corporation of India (SECI) to compensate a solar developer for the increased cost incurred due to imposition of safeguard duty under the ‘Change in Law’ clause.
The Commission added that the petitioner’s compensation would not depend on the payment to be made to SECI by the Uttar Pradesh Power Corporation Limited (UPPCL).
The Commission asked SECI to pay the first installment of the claim within 60 days from the date of the order or from the date of submission of the claims by the petitioner, whichever is later. CERC has warned SECI that failing to meet the deadline would attract a late payment surcharge.
Further, the Commission said that the commercial operation date would be when the commissioning certificate was issued upon successful commissioning of the project. Accordingly, the liability of payment would be with SECI until the commercial operation date.
SBG Cleantech Projecto Five had filed a petition with the Commission, seeking compensation from SECI under the ‘Change in Law’ clause in the power purchase agreement (PPA) due to the imposition of the Safeguard Duty.
Background
SECI had issued a request for selection on January 5, 2018, to select developers for solar projects of a cumulative capacity of 200 MW (4×50 MW). On May 18, 2018, SBG Cleantech Projecto Five was declared the winner for developing a 200 MW project at the Pavagada Solar Park in Karnataka.
On July 30, 2018, the Government of India imposed a safeguard duty on the import of solar modules. In January 2019, the solar developer executed four power purchase agreements (PPAs) with SECI for 200 MW of solar projects. The agreed-upon tariff for the project was ?2.82 (~$0.038)/kWh. In December 2019, SECI signed the power sale agreement with UPPCL.
Later, in September 2020, SECI accepted and acknowledged the amount of ?1.04 billion (~$14.02 million) as an implication of safeguard duty imposition. SECI informed the developer that it would release the payments spread over 13 years at the annuity rate of 10.41% per annum.
The developer said that despite the reconciliation of the claim, SECI failed to release any amount toward the compensation.
The developer has demanded that the compensation be granted on account of additional non-recurring and recurring expenditure it had to incur as a result of ‘Change in Law’.
SECI replied that through its letters submitted to the developer and UPPCL, it had communicated the provisional reconciliation of the safeguard duty claims until the commercial operation date of the 200 MW projects established at the Pavagada Solar Park. UPPCL had also agreed to the reconciled amount of ?1.04 billion (~$14.02 million).
Commission’s Analysis
The Commission observed that the developer had submitted the bid on May 10, 2018, and the same was accepted and agreed upon after the e-reverse auction held on May 18, 2018. Since the safeguard duty notification was issued on July 30, 2018, the imposition qualified as ‘Change in Law’ under the PPAs under which the developer was entitled to the compensation.
The central regulator further noted that SECI had admitted that there was no dispute over the claimed amount. Further, the provisional settlement of the claims toward safeguard duty had been confirmed by UPPCL. Also, the developer had accepted the annuity rate of 10.41%, as suggested by SECI.
Taking cognizance of all the facts, the Commission directed SECI to pay the developer as per the terms of the mutually agreed payment mechanism on an annuity basis. The Commission clarified that the compensation was not conditional upon the payment to be made by the UPPCL to SECI.
Earlier, CERC had ordered compensatory relief to ACME Solar from the imposition of Safeguard Duty, citing the ‘Change in Law’ clause. The petition was filed for ACME Solar’s project in Madhya Pradesh’s Rewa Solar Park. The Commission had asked Madhya Pradesh Power Management Company and Delhi Metro Rail Corporation to pay the reconciled amount of ?471 million (~$6.28 million).
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