ACME Solar has filed a petition before the Central Energy Regulatory Commission (CERC), asking it to direct the Solar Energy Corporation of India (SECI) and the Power Grid Corporation of India Limited (PGCIL) to refrain from invoking its bank guarantees and letters of comfort.
ACME Deoghar Solar Power Private Limited and ACME Dhaulpur Powertech Private Limited, along with their parent company ACME Solar Holdings Limited, filed the petition citing the termination of a power purchase agreement (PPA) they had signed with SECI for 600 MW of solar projects, a part of SECI’s 3 GW solar tender.
In 2018, Mercom had reported that ACME was the lowest bidder by quoting a tariff of ₹2.44 (~$0.0355)/kWh to develop 600 MW in SECI’s 3 GW solar auction. This is the lowest solar tariff discovered in a reverse auction to date in India.
ACME has terminated the PPAs on May 4, 2020, citing force majeure events which started with a high court stay order on the land where the sub-station had to be constructed. Subsequently, the Coronavirus crisis and its impact on manufacturing facilities of suppliers since December 2019, including the lockdown in China and India. Added to this was the delay in commissioning of associated transmission network by other transmission service providers.
The PPAs allowed for a maximum extension of six months from the scheduled commissioning date, or a total of 30 months from the effective date of the agreements. The entire capacity was required to be commissioned by May 8, 2021, considering the extension of six months from the scheduled commissioning date of November 8, 2020.
However, it said that the projects have already been delayed by 15 months and would continue to be delayed indefinitely on account of the COVID-19 crisis.
It explained that because of this, it would be unable to execute the projects within the stipulated period, adding that consequently, its obligations under the PPAs have become impossible and, therefore, void.
Further, ACME argued that the PPAs could stand terminated if force majeure event or its effect continues for more than three months. So, the developers have validly terminated the PPAs. Since the force majeure event releases the parties from their obligations, no amount is due to either SECI or PGCIL, the petition added.
Citing these reasons, ACME noted that it is absolved from its obligations and requested SECI and PGCIL to return its bank guarantees and letters of comforts without encashing them.
On the other hand, SECI’s legal counsel submitted that the termination of the contract by ACME on the grounds of force majeure was unilateral and that it has not been accepted by SECI. Further, SECI said that ACME Solar did not claim the sustained force majeure for the termination of PGCIL connectivity and the delay in construction of sub-station until after the event was already over.
SECI disputed ACME’s force majeure claims and said that there were no events that prevented them from implementing the projects. It sought the bank guarantees and letters of comforts to be kept valid throughout the duration of the petition. SECI also added that it had no intent to encash or appropriate the bank guarantee if the issues can be resolved by mutual discussion.
The PGCIL, on the other hand, submitted that the petitioners could not be allowed to escape the liabilities under the contracts under the guise of force majeure.
The Commission heard the submissions of all the involved parties and admitted the petitions. It directed the respondents to file revised memos by May 28, 2020. These include the distribution licensees who were to buy the solar power from this project; BSES Rajdhani Power Limited, Tata Power Delhi Distribution Limited, BSES Yamuna Power Limited, Government of Puducherry, Haryana Power Purchase Center, and South Bihar Power Distribution Company Limited.
It has also directed SECI and the PGCIL to not take any coercive action against ACME until the next hearing and directed ACME to keep the letters of comfort and bank guarantees valid.
A legal expert that Mercom spoke to said, “it will be interesting to see the fate of the litigation. The bare perusal of the clauses of the PPA suggest that the petitioners can terminate the PPAs if force majeure event or its effect continues for more than three months. Further grounds of occurrence of force majeure claimed by ACME such as High Court order, Covid-19, and others appear to be a valid reason for claiming force majeure. If ACME will be successful in establishing continuity of these events for three months, CERC may provide certain relief to ACME. The fate of this litigation will also give a ray of hope to other developers who are facing an uphill task in completing the project within the timeline and on the price discovered in the bid.”
The October 2019 amendments to the guidelines for the tariff-based competitive bidding process for procuring grid-connected solar PV projects details the force majeure event as:
Last year, the CERC ruled in favor of three independent power producers for the payment of their performance bank guarantee to the tune of ₹255 million ($3.7 million). In its order, the commission ruled that the retention of the performance bank guarantees by NTPC is illegal and arbitrary.
Recently, the PGCIL filed an instant application requesting the CERC to provide clarity on the exemption of construction phase bank guarantee for an applicant (ACME Solar) who fulfills the exemption eligibility criteria for long-term access of power. The Commission told the PGCIL that the construction phase BG cannot be waived off for ACME Solar since it did not fulfill the conditions.
According to Mercom India Solar Project Tracker, ACME has approx 2.1 GW of large-scale operational solar projects, and has ~1.8 GW of large-scale projects under development pipeline.
Nithin is a staff reporter at Mercom India. Previously with Reuters News, he has covered oil, metals and agricultural commodity markets across global markets. He has also covered refinery and pipeline explosions, oil and gas leaks, Atlantic region hurricane developments, and other natural disasters. Nithin holds a Masters Degree in Applied Economics from Christ University, Bangalore and a Bachelor’s Degree in Commerce from Loyola College, Chennai.