CERC Declines to Review Discount Rate of Annuity Payments to Solar Developers

The Central Electricity Regulatory Commission (CERC), in a recent order, rejected the request of the Madhya Pradesh Power Management Company Limited (MPPMCL) seeking to review the Commission’s earlier ruling, in which it had set the discount rate for annuity payments as 10.41%.

While hearing the earlier petition filed by the Solar Energy Corporation of India (SECI), CERC had decided the case by arriving at a rate of interest of 10.41% as annuity payments towards the expenditure incurred as a result of ‘Change in Law.’


MPPMCL, in its submission, said that in the earlier order, the issue which was based on the settlement of claims in 13 years with annuity payment split on a monthly basis with floating annuity rate average of last six months SBI MCLR (one-year tenure) plus 250 basis points, had not been considered.

The petitioner further added that there was no justification for ACME Jaipur Solar Power to seek 560 basis points as the loans taken were in the range of 9.25% to 9.75%, which provided that interest up to the commercial operation date was 9.75%, and after that, it was 9.25%.

The solar developer, in its submission, said that the Commission had already considered the points raised by MPPMCL in its earlier order.

Commission’s analysis     

CERC, in its earlier order, had said: “As the actual deployment of capital by way of debt or equity and their cost in terms of rate of interest or return, respectively, is unknown, the rate 10.41% can be taken as the uniform rate of compensation for the entire expenditure incurred on account of GST Laws or Safeguard Duty. The Commission believes that the compensation for ‘Change in Law’ cannot be a source for earning profits, and therefore, there cannot be any higher rate of return than the prevailing normative cost of debt. Accordingly, we hold that 10.41% should be the discount rate of annuity payments towards the expenditure incurred on GST or Safeguard Duty by the solar developer.”

The Commission observed that the points raised by the solar developer and MPPMCL had already been considered in its earlier order. The Commission had taken a conscious decision that 10.41% should be the discount rate of annuity payments towards the expenditure incurred on account of ‘Change in Law.’

CERC further added that the MPPMCL had failed to point out any arithmetical mistakes in the earlier order, which the Commission may at any time correct. The petitioner had also failed to point out any reasons for invocation of Regulation 103A of the CERC (Conduct of Business) Regulations, 1999.

It stated that there was no ground for reviewing the earlier order, as it covered all the points raised by the petitioner.

Last October, the Ministry of Power notified Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021. As per the proposed rules, the power generating companies or transmission licensees affected by a ‘Change in Law’ event must be restored to the same economic position as before the event by way of adjustments to the monthly tariff.

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