Karnataka DISCOMs Asked to Compensate Solar Developer for Safeguard Duty Imposition

The Karnataka Electricity Regulatory Commission (KERC) has recently ruled that five special purpose vehicles (SPVs) of ACME Solar were entitled to levelized incremental tariffs to compensate for the additional cost incurred from the imposition of safeguard duty on imported solar modules.
The incremental tariff would be applicable on the volume of minimum contracted energy to be supplied to the Bangalore Electricity Supply Company (BESCOM) and the Hubli Electricity Supply Company (HESCOM) from the commercial operation date until the expiry of the power purchase agreements (PPAs).
The Commission asked the distribution companies (DISCOMs) to clear the supplementary bills in three equal monthly installments.
ACME Siddhalgatta Solar Energy, ACME Kittur Solar Energy, ACME Guledagudda Solar Energy, ACME Hukkeri Solar Energy, and ACME Sandur Solar Energy had filed petitions requesting the Commission for recovery of the additional cost incurred by the developers due to the imposition of safeguard duty.
The Commission also directed the developers to abide by the affidavit dated July 5, 2021, to reimburse the amount received from the DISCOMs if the Supreme Court order sets aside the safeguard duty notification regarding ‘Change in Law.’
It asked the parties to submit the supplementary power purchase agreement for approval. However, it dismissed the claims of carrying cost on additional working capital.
Background
The Karnataka Renewable Energy Development Limited (KREDL) invited bids to develop 860 MW of solar projects in 43 taluks of Karnataka on December 7, 2017. ACME Solar was selected as one of the successful bidders.
KREDL allotted 20 MW capacity to ACME Siddhalagatta, 15 MW to ACME Kittur, 15 MW to ACME Guledagudda, 15 MW to ACME Hukkeri, and 20 MW to ACME Sandur. On February 8, 2018, the petitioners entered into PPAs with BESCOM and HESCOM.
The tariff discovered in the bidding was in the range of 2.97 (~$0.039)/kWh to ?3.09 (~$0.041)/kWh.
After the PPAs were signed in 2018, the Ministry of Finance imposed a safeguard duty on the import of solar modules from China and Malaysia.
Despite the ‘ Change in Law ‘ eventuality, the petitioners commissioned the projects within the scheduled commercial operation date (SCOD) of November 4. 2019.
The Commission had already declared the safeguard duty imposition as a ‘Change in Law’ event on September 17, 2019.
The DISCOMs argued that the petitioners’ claims for reimbursement of the additional expenses could have been avoided had they imported solar modules from countries that did not attract safeguard duty. The petitioners were therefore not entitled to any relief.
The DISCOMs added that the developers had imported more modules than was necessary for the generation capacity
BESCOM, in its objection, contended that the amount stated in the bill of entry and the documents submitted did not support the amount claimed by the petitioners.
Commission’s analysis
The Commission observed that the decision on the validity of the safeguard duty notification considered ‘Change in Law’ was pending before the Supreme Court of India. However, it had not issued any direction to the Commission not to hear the claims in this regard.
The Commission noted that the DISCOMs had not denied recognizing the imposition of safeguard duty notification as a ‘Change in Law’ event.
The regulator said that the developers had imported solar modules from China and incurred additional expenditure due to the imposition of safeguard duty between July 30, 2018, and July 29, 2019.
However, the Commission held that the petitioners’ claims for grant of carrying cost on additional working capital were not sustainable and liable to be rejected.
It said that no reimbursement of safeguard duty could be allowed on additional modules as it was a commercial decision of the project developers.
KERC stated that the petitioner was allowed reimbursement of additional capital cost during the term of the PPA, by way of incremental tariff, on the minimum contracted energy per year and was limited to the minimum contracted energy only.
The Commission determined the amount of reimbursement to the developers for the additional capital cost incurred due to the imposition of safeguard duty for the minimum contracted capacity through incremental tariffs for the five projects.
The developer is entitled to raise the supplementary bill for the amount outstanding in incremental tariff from the SCOD until the date of this Order. The Commission directed the DISCOMs to reimburse the amount due under the supplementary bill in three equal installments.
In July this year, KERC ruled that Fortum Solar India was entitled to compensation for the additional cost incurred due to the imposition of safeguard duty through incremental tariffs.
KERC had also ruled that Adyah Solar Energy, a subsidiary of ReNew Solar, was also entitled to compensation due to the imposition of safeguard duty.
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