Additional Costs Borne by Solar Developers Due to GST Imposition to be Reimbursed

In a recent order, the Central Electricity Regulatory Commission declared that the introduction of Goods and Services Tax (GST) fell within the scope of the “Change in Law” clause for power purchase agreements (PPAs).

The Commission passed its ruling in the case of petitions filed by two solar developers against the Solar Energy Corporation of India (SECI), the Ministry of New and Renewable Energy (MNRE), and the Grid Corporation of Odisha (GRIDCO).

Sadipali Solar Private Limited and Jyoti Solar Solutions Private Limited, both solar power project developers, had filed petitions seeking the CERC to acknowledge the enactment of GST laws as “Change in Law” and asking them to direct the respondents to reimburse additional charges incurred as a result of the GST imposition. The developers stated that after the enactment of GST, they incurred additional non-recurring expenditure on their solar power projects in the state of Odisha. The companies also claimed for carrying costs to be reimbursed.

Jyoti Solar claimed ₹75.51 million (~$991,065) for 10 MW of solar ground-mounted projects at Ganjaudar Village, Patnagarh Town, Bolangir district in the state. Sadipali Solar claimed ₹25.9 million (~$339,936) for 20 MW of solar projects at Kalahandi in the state of Odisha. The effective dates of the PPAs for both these projects were December 12, 2016. GST was enacted on July 1, 2017.

In its response, the CERC said that since the enactment of GST took place after the execution of the PPA and all conditions dealing with “Change in Law” according to article 12 of the PPA have been met with, and the developers are entitled to relief under the clause.

Concerning the reimbursement of the additional non-recurring expenditure incurred by the company because of the Change in Law, it stated that both the developers would have to submit proof of these charges along with supporting invoices raised by the supplier of goods and services, along with an auditor’s certificate. After the approval, SECI would be liable to pay the petitioner regardless of whether GRIDCO pays SECI or not. The Commission, however, noted that SECI would be eligible to claim the same from GRIDCO.

The Commission stated that the payments must be made within 60 days from the date of the issue of the order or from the submission of claims by the petitioner, whichever comes later. Failure to make the payments on time would attract a late payment surcharge, as specified in the respective power sale or purchase agreements.

CERC noted that the petitioner and respondents could also choose to mutually agree on a mechanism for the payment of these charges on an annuity basis spread over the PPA term as a percentage of the agreed-upon tariff. It, however, denied the developer’s claim for reimbursement of carrying costs.

Recently, Mercom reported that the Central Electricity Regulatory Commission (CERC) ruled that the introduction of GST fell under the scope of the “Change in Law” clause of PPA in the case of the petition filed by Clean Solar Power against SECI and the Gulbarga Electricity Supply Company Limited (GESCOM).

A similar petition was filed by Azure Power against the NTPC and SECI requesting reimbursement of the incremental cost of project construction and O&M due to the introduction of GST Laws and the claim of carrying cost for the delay in reimbursement. The Commission had dismissed this claim.

Meanwhile, the Ministry of New and Renewable Energy has released a circular stating that GST and Safeguard Duty compensation to solar developers should be paid within 60 days. Mentioning the orders already passed by the Central Electricity Regulatory Commission (CERC) on the ‘Change in Law’ compensation for GST and SGD, the ministry added that there is now no need for the developers to approach the CERC for each case individually.