The Central Electricity Regulatory Commission (CERC) has declared a hike in Goods and Services Tax (GST) from 5% to 12% to 18% as a change in law event and allowed Beempow Energy, backed by O2 Power, to seek compensation.

Beempow can receive compensation up to ₹20 million (~$229,700), which will be paid at a discount of 9.12% for 15 years.

CERC also allowed carrying costs for the period against which Beempow paid the higher GST.

Background

Beempow Energy was awarded a 350 MW solar project by Rewa Ultra Mega Solar (RUMSL) inside Agar Solar Park in Madhya Pradesh.

The company signed two power purchase agreements (PPA) with the Madhya Pradesh Power Management Company and West Central Railways to supply power at a tariff of ₹2.4 (~$0.02756)/kWh in September 2021.

In the same month, the Union government increased GST from 5% to 12-8% effective from October 2021. As per the notification, the tax will be levied on renewable energy devices, i.e., photovoltaic cells, whether or not assembled into modules or made up into panels and solar power generators and parts for their manufacture.

The PPAs specified that the project must be completed within 19 months, and failure to do so could result in liquidated damages amounting to ₹3,467 (~$39.84)/MW/day duntil six months from the scheduled commercial operation date.

Beempow approached the Commission, asking to recognize the GST hike as a change in law event and seek compensation and carrying costs for the period.

Commission’s Analysis

The Commission recognized the GST hike as a change in law event. Based on the RE tariff order dated November 2022, it also added that the discount of 9.12% and annuity payment of 15 years would be used as the methodology for change in law compensation.

The Madhya Pradesh Power Management Company, West Central Railway, and Rewa Ultra Mega Solar must start paying the compensation within 60 days of the issue of the order.

Failure to make payments would result in late payment surcharges as per the PPAs.

The Commission said that a change in law provision existed as a risk allocation to ensure that the affected party was restored to the same position before the event.

The carrying costs will be paid at the rate of interest paid by Beempow for arranging funds or as per the rate of interest on working capital as per the RE tariff regulations or late payment surcharges, whichever is lower.

The CERC recently approved Solar Energy Corporation of India’s tariff of ₹2.48 (~$0.028)/kWh for 450 MW solar power projects.

Subscribe to Mercom’s real-time Regulatory Updates to ensure you don’t miss any critical updates from the renewable industry.