The Central Electricity Regulatory Commission (CERC) has allowed most of the changes and additions proposed by Rewa Ultra Mega Solar Limited (RUMSL), Madhya Pradesh Power Management Company Limited (MPPMCL), and West Central Railway in the bidding guidelines for 1,500 MW of grid-connected solar projects.
RUMSL, MPPMCL, and West Central Railway had filed a petition with the Commission requesting certain deviations in the guidelines in the bid process initiated for the 500 MW grid-connected solar projects in Neemuch Solar Park; 450 MW grid- solar projects in Shajapur Solar Park, and 550 MW grid-connected solar projects in Agar Solar Park.
The petitioners had requested the Commission’s approval for fifteen deviations to the solar bidding guidelines, including payment security mechanism, notification of ‘force majeure’ event, offtake constraints, default and termination consequences, and the event of default on account of the developer’s failure to supply energy as per the power purchase agreement (PPA) among others.
They also pursued the inclusion of ‘epidemic, pandemic, quarantine, lockdown or similar action ordered by any government authority as force majeure events, termination due to a non-natural force majeure event, quantum and mechanism for ‘change in law’ relief to be included in the draft request for proposal (RfP) and the PPAs.
Payment Security Mechanism
The Commission observed that the ‘letter of mandate’ issued directly to the Reserve Bank of India (RBI) would provide payment security and serve as an adequate substitute for a letter of credit or a payment security fund to be maintained with a scheduled bank. The Commission agreed to this change in the bidding guidelines.
The petitioners proposed that the Indian Railways authorize RBI to unconditionally debit the Indian Railways account maintained once a debit claim from the developers is received through the letter of mandate.
Regarding notification of the ‘force majeure’ event, the regulator noted that the petitioners were suggesting changes to give sufficient time to notify all the effects of force majeure. As per the existing bidding guidelines, the affected party had seven days to give notice to the other party in case of a ‘force majeure’ event. The petitioners were asking for 15 days in place of seven days. The Commission agreed to provide more time as requested.
Generation Compensation in Case Transmission Infrastructure is Not Ready
In a case where the solar project is ready but the transmission infrastructure is not, leading to constraint in power evacuation; earlier, the compensation mechanism suggested generation loss be compensated by the excess generation by the developer in the succeeding three contract years. The procurer would buy such excess generation at the PPA tariff to offset the loss.
The new suggestions for generation compensation include four points:
- Developers will be compensated by providing a day-to-day extension to the scheduled commissioning date.
- Developers will be compensated by the procurers for the generation loss suffered.
- Developers will be compensated offtaking the excess generation beyond what is guaranteed in the PPA until it is fully compensated for the generation loss. In the case of Indian Railways, the excess generation purchased can be limited to 10% in a year, failing which MPPMCL will procure such excess generation to compensate the developer’s generation loss.
- If the transmission infrastructure is not ready even after the long stop date specified in the PPA, developers can terminate the PPA. RUMSL will be liable to refund all charges received from developers under the ‘Implementation Support Agreement’ until the termination, including the project development fees.
The Commission has agreed to all the four points suggested for generation compensation.
For calculating losses due to grid unavailability, the exiting guidelines consider generation loss = [(average generation per hour during the contract year) × (number of hours of grid unavailability during the contract year)]. To offset this loss, excess generation by the developer equal to this generation loss was to be purchased by the procurer at the PPA tariff in the succeeding three contract years.
Now, the petitioners propose that the developers should be compensated for losses on account of grid unavailability:
- For a period exceeding 50 generation hours in a contract year by the procurers by purchasing excess generation, i.e., energy beyond guaranteed energy offtake. This must be to the extent of the generation loss at 110% of the PPA tariff in the following contract year.
- In case the developers do not produce enough excess electricity, then the developers would be compensated by the procurers for the balance generation loss at the PPA tariff at the end of the contract year.
- Ensure risks of developers beyond 50 generation hours are covered.
On the point of compensating for grid unavailability, the Commission agreed with the proposed changes.
Based on the past data on the availability of the central transmission utility (CTU) system, the petitioners had stated that it was unlikely that there would be a generation loss beyond 50 hours in a contract year due to CTU system unavailability.
Events of Default and Termination Consequences
The petitioners submitted that the proposed changes in the provisions relating to the termination consequences under the bidding guidelines were necessary to implement the two-procurer structure proposed for the projects.
Termination Consequences for Developer’s Default:
The petitioners proposed that in the case of the developer’s default, the procurers would have the right to terminate the PPAs under which the developer should be liable to pay damages as per the bidding guidelines.
The petitioners said that MPPMCL should have the right to pay the developer’s termination compensation equal to 90% of the debt due, upon payment of which, the developer would transfer the unit to MPPMCL. However, if MPPMCL decided not to exercise this right, Indian Railways would have the right to acquire the unit by paying the same termination compensation as payable by MPPMCL. However, if neither MPPMCL nor Indian Railways chose to exercise their rights, then RUMSL would have the right to pay the same termination compensation as payable by MPPMCL or Indian Railways to acquire the unit.
The petitioners further noted that in a scenario wherein MPPMCL, Indian Railways, and RUMSL chose not to exercise their rights to acquire the unit, the developer would have the right to retain the unit and sell the entire capacity under the PPA to a third party.
Termination Consequences for MPPMCL’s Default:
The petitioners submitted that in the case MPPMCL defaults:
- Subject to the developer’s acceptance, Indian Railways would have the first option to get the MPPMCL PPAs replaced with a new one in its favor.
- If Indian Railways refused to exercise its option, then MPPMCL and RUMSL would have the option to arrange for an alternate buyer acceptable to the developer who is ready to offtake the entire contracted electricity.
In the case, the Indian Railways refused to sign a new PPA, and MPPMCL and RUMSL failed to provide for an alternate buyer, then the developer may choose to ask MPPMCL to pay termination compensation equivalent to 100% of the debt due and 110% of the adjusted equity less insurance cover, upon which payment the developer would transfer the unit to MPPMCL.
Alternatively, the developer may choose to retain the unit and elect not to receive termination compensation. MPPMCL would be liable to pay damages, computed at a rate of applicable tariff for the energy quantum equivalent to the minimum supply obligation for six months, or balance PPA period, whichever is less.
In the case of default by Indian Railways, the same as above would be followed, replacing MPPMCL with Indian Railways.
The Commission observed that in case of a default by the developer, including failure to commission the unit or supply power in terms of the PPAs, effecting a change in shareholding of its promoters, the developer would be liable to pay damages to the procurer equivalent to six months or balance PPA period, whichever is less, of charges for its contracted capacity. Further, the damages payable can be recovered by the procurer by way of forfeiture of the bank guarantee. The Commission allowed for the deviation suggested by the petitioners in this context.
Default on Account of Developer’s Failure to Supply Energy as per the PPA
Another provision proposed was to incorporate that if the developer failed to supply energy up to their yearly minimum supply obligation, the developer would be liable for payment of damages. Further, in the event the developer failed to supply energy up to their yearly minimum supply obligation for a continuous period of three contract years, then the procurers would have the option to:
- Treat such failure of the developer as an event of default and terminate the PPA.
- Reduce the developer’s yearly minimum supply obligation upon payment of lump-sum damage.
In addition, the petitioners proposed to treat the developer’s inability to meet 50% of its minimum supply obligation in the first operational year as an event of default.
The Commission allowed for this deviation.
Extension of Commissioning Timelines
The petitioners proposed that the prescribed commissioning timelines should be extended to 19 months to ensure that the synchronization of the unit with the evacuation infrastructure would be completed along with the commissioning of the unit. As per the existing provisions, the timeline was 15 months. The Commission approved this change request.
Additional Conditions for RUMSL
The petitioners also proposed certain conditions to be achieved by RUMSL to be incorporated in the PPAs:
- RUMSL would obtain Stage-2 connectivity required for the solar parks following the CERC Regulations, 2009, within 15 days of signing the PPAs.
- RUMSL would obtain long-term access required for the solar parks per the CERC Regulations, 2009, within 90 days of signing the PPAs.
- RUMSL would give the ‘notice to proceed’ to the contractors constructing the internal evacuation infrastructure, to the extent such a payment would be required to be released under the contract entered into by RUMSL to construct the internal evacuation infrastructure within 105 days of the signing of the PPAs.
- RUMSL would ensure the erection of at least 50% of the transmission towers required for laying the internal transmission lines within eight months of the signing of the PPAs and commence slinging of the internal transmission lines within 14 months of the signing of the PPAs.
The Commission allowed for the deviation.
Inclusion of ‘Epidemic, Pandemic, Lockdown, or Similar Actions’ as ‘Force Majeure’
The regulator said that the expression ‘pandemic’ or ‘epidemic’ without a qualification defining inability of the developer to execute the project needed to be restricted to – pandemic resulting in lockdown or similar action ordered by any government authority, as force majeure. Accordingly, the Commission allowed for the modification to read, ‘pandemic resulting in lockdown or similar action ordered by any government authority.’
Termination Due to Non-Natural ‘Force Majeure’ Event
The Commission also allowed the petitioners’ request that upon the occurrence of a non-natural force majeure event, the developer should have the right to terminate the project 365 days from the date of the force majeure notice. As per the existing provisions, it was 180 days from the issuance of the ‘force majeure’ notice.
In 2018, RUMSL had tendered 1,500 MW of grid-connected solar projects to be developed across three solar parks in Madhya Pradesh.
RUMSL is a joint venture of the Solar Energy Corporation of India Limited and Madhya Pradesh Urja Vikas Nigam Limited.
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