CERC Directs Solar Developer to Approach SECI for 'Change in Law' Claims

The Central Electricity Regulatory Commission (CERC) recently directed a solar project developer and the subsidiaries to approach Solar Energy Corporation of India (SECI) for ‘Change in Law’ claims due to the increase in customs duty on solar inverters.

The Commission noted that the compensation should be computed as per Rule 3(5) of the ‘Change in Law’ rules which provides that the calculation will be as per the formula mentioned in the agreement. However, if the agreement does not lay down any formula, it would be in accordance with the formula given in the ‘Change in Law’ rules.

Background

Azure Power and two of its subsidiaries had filed separate petitions seeking an appropriate mechanism for the grant of compensation to offset the financial impact of the increase in the customs duty on solar inverters and treat the event as ‘Change in Law.’


Earlier this year, the Ministry of Finance had raised the customs duty on solar inverters from 5% to 20% to encourage domestic manufacturing.

The petitioners contended that the ‘Change in Law’ rules had a prospective application, and the ‘Change in Law’ event had occurred before the notification of the rules.

In October this year, the Ministry of Power had notified Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021. As per the 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. It said that the appropriate Commission would verify the calculation and adjust the amount of the impact in the monthly tariff or charges within 60 days from the receipt of the relevant documents.

Commission’s analysis

The Commission observed that the affected parties should settle the ‘Change in Law’ claims mutually and approach the Commission only regarding Rule 3 (8) of the ‘Change in Law.’

Rule 3 (8) of the ‘Change in Law’ states that the appropriate Commission should verify the calculation and adjust the amount of the impact in the monthly tariff or charges.

The Commission observed that ‘Change in Law’ rules will apply unless otherwise defined in the power purchase agreement (PPA). It cannot be construed to mean that the ‘Change in Law’ rules will apply only to those agreements that do not have the ‘Change in Law’ provisions. The phrase “unless otherwise defined in the agreement” has been used in the context of the definition of ‘Change in Law’ and not in the context of the applicability of the ‘Change in Law’ rules.

The central regulator said that the petitioners had not pointed out any specific provision in the ‘Change in Law’ rules which prevented them from recovering the additional amount incurred due to the increase in customs duty on solar inverters under ‘Change in Law.’

The ‘Change in Law Rules’ have been framed to facilitate timely recovery of costs due to ‘Change in Law’ events. Accordingly, the petitioners would have to approach SECI for tariff adjustment.

In August this year, CERC directed SECI to compensate a solar developer for the additional cost incurred due to the imposition of the Goods and Services Tax (GST) on an annuity basis.

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