The Maharashtra Electricity Regulatory Commission (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 (SGD).

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) for setting up solar projects in Rajasthan. The MSEDCL had issued a tender for the purchase of power on a long term basis from 1,000 MW grid-connected solar photovoltaic power projects (Phase – II) in December 2018.

ACME Chittorgarh Solar, a wholly-owned subsidiary of ACME Solar Holdings Limited, had filed a petition with the Commission seeking the reimbursement of ₹1.05 billion (~$13.87 million) incurred as a result of the imposition of the safeguard duty. The safeguard duty was imposed by the government in July 2018 on the import of solar cells. The effective rate of duty then was 25%.

The company had submitted bonds to the customs department against the safeguard duty for the import of 319.16 MW of solar modules. ACME also sought the reimbursement of carrying costs incurred in the form of interest rates on these bonds. It said that these costs amounted to ₹58.19 million (~$769,122), based on its calculations using the MERC’s tariff regulations.

The solar developer said it used the state’s regulations to calculate the per-unit impact of these additional charges. It said that the annuity payment based on the model was ₹177 million (~$2.34 million) for 25 years or ₹0.4439 (~$0.00587)/kWh towards safeguard duty, which the MSEDCL claimed was not justifiable.

Instead, the MSEDCL stated that late payment surcharges at the rate of 1.25% in excess of the State Bank of India’s marginal cost of fund-based lending rate (MCLR) were the only applicable compensation. To this, the ACME argued that this was not the same as additional costs incurred as a result of a change in law event.

In its analysis, the Commission declared that the imposition of safeguard duty constituted a change in law event and that the developer was eligible for reimbursement of ₹1.05 billion (~$13.87 million) in additional costs incurred.

The Commission also noted that the ACME’s decision to execute the bonds with the customs department for the import of solar modules was its own decision and that this was still a financing cost that needs to be borne by them.

“Bonds were signed by ACSEPL as it chose to defer the payment of safeguard duty to get the solar panels released from customs. The procurer (MSEDCL) cannot be expected to cover the financing cost and the liabilities, if any, to the concerned authorities for the handling of imported panels at the port,” the Commission said.

The MERC, however, rejected the ACME’s request for the reimbursement of ₹58.19 million (~$769,122) in carrying costs and prescribed its methodology for calculating these costs.

It directed for the carrying costs to be calculated as proposed by the MSEDCL, based on the deferred recovery part (average of opening and closing balance) of total compensation at the simple interest rate of 1.25% in excess of one-year MCLR of the State Bank of India, which was the prescribed rate for late payment charges under the PPA.

In its order, the Commission ruled that the ACME was eligible for compensation for the entire amount of ₹1.05 billion (~$13.87 million) spent on the import of 319.16 MW of solar modules as a result of safeguard duty being implemented. It directed the developer to provide proof that all the modules were installed at the project sites for supplying power to the MSEDCL that were imported from countries subjected to the duty.

It also directed the MSEDCL to ascertain this compensation amount based on the change in law provisions provided in the PPA within 15 days from the date of its order.

Additionally, the ACME had proposed three options for the MSEDCL to reimburse its additional expenses – a lumpsum payment, payment at equal monthly installments, or a revision in tariff as per the tariff regulations. In its order, the Commission allowed for the MSEDCL to decide on the mode of payment based on its discretion.

This is the first order wherein the reimbursement has been allowed for a bond furnished by the developer.

Earlier, Mercom reported that the Central Electricity Regulatory Commission ordered compensatory relief to ACME Solar from the imposition of the safeguard duty citing the change in law clause. The petition was filed for ACME Solar’s project in Madhya Pradesh’s Rewa Solar Park.