The Appellate Tribunal for Electricity (APTEL) has dismissed an appeal by the Hubli Electricity Supply Company (HESCOM) against an order of the Karnataka Electricity Regulatory Commission (KERC) in 2021 granting a tariff increase for a solar project to compensate for higher costs due to changes in tax laws.

APTEL upheld the Commission’s ruling, allowing an additional incremental tariff of ₹0.39 (~$0.005)/kWh for 22 years over the existing tariff of ₹2.91 (~$0.035)/kWh, ensuring recovery of ₹217.5 million (~$2.62 million) for the solar project.

Background

Karnataka Renewable Energy Development (KREDL) had floated a request for proposals to develop 1,200 MW of solar projects within the 2,000 MW Pavagada Solar Park. Adyah Solar Energy secured the project and signed a power purchase agreement (PPA) with HESCOM on April 28, 2018, to procure solar power at a tariff of ₹2.91 (~$0.035)/kWh.

However, in July 2018, the Ministry of Finance imposed the Safeguard Duty (SGD) and Integrated Goods and Services Tax (IGST) on imported solar modules to protect domestic manufacturers.

Adyah Solar, which relied on imported modules, filed a petition before KERC seeking a declaration of the SGD and IGST as “Change in Law” event. The company claimed ₹317.5 million (~$3.83 million) in additional costs and demanded a corresponding increase in tariff.

KERC ruled in favor of Adyah Solar in June 2021. The Commission determined that the imposition of SGD and IGST qualified as a “Change in Law” event. It awarded ₹217.5 million (~$2.62 million) as reimbursement and allowed a tariff hike of ₹0.39 (~$0.005)/kWh for 25 years.

The appellant, HESCOM, challenged this ruling, arguing that the parameters for tariff determination under Section 62 of the Electricity Act should not have been applied since the project’s tariff was initially set through competitive bidding under Section 63.

Section 62 of the Act authorizes the appropriate Commission to set tariffs for electricity generation, transmission, wheeling, and retail, regulating prices at all stages of supply and distribution. Section 63 allows the appropriate Commission to adopt electricity tariffs set through a transparent bidding process.

Tribunal’s Analysis

APTEL dismissed HECOM’s appeal, observing that KERC acted within its authority under Section 86(1)(b) of the Electricity Act, which empowers state commissions to regulate electricity procurement prices, including cases involving changes in the law. It held that KERC’s approach was legally sound since neither the bidding guidelines nor the PPA specified a mechanism to address changes in the law.

The Tribunal rejected HESCOM’s argument that compensation exceeding ₹673 million (~$8.11 million) over 22 years was excessive compared to the initial claim of ₹317.5 million (~$3.83 million). It reasoned that spreading compensation over 22 years accounted for the time value of money and ensured fair recovery for Adyah Solar without burdening consumers.

Recently, APTEL overturned an order passed by the Jharkhand State Electricity Regulatory Commission granting an exemption from renewable purchase obligations to Tata Steel.

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