The Karnataka Electricity Regulatory Commission (KERC), in a recent order, ruled in favor of a solar developer and directed four distribution companies (DISCOMs) of the state to compensate the developer for the additional cost incurred due to the imposition of the goods and services tax (GST) laws under the ‘Change in Law’ clause.

Adani Green Energy (UP), a subsidiary of Adani Green Energy, has four projects of 20 MW capacity each in Karnataka. In four separate petitions filed by Adani Green Energy (UP), it requested to be compensated for the increase in cost due to the imposition of the GST laws as per the terms of the PPA.

The developer had also requested the Commission to restore it to the same economic position as before the ‘Change in Law’ event.

Background 

In 2016, the Karnataka Renewable Energy Development Limited (KREDL) had invited bids to set up 290 MW of solar power in 17 taluks of Karnataka. Adani Green Energy (UP) won the bid to develop four solar projects in the Kolar, Mysuru, and Haveri districts of Karnataka.

The developer signed a PPA with the Mangalore Electricity Supply Company (MESCOM) for setting up a 20 MW solar power project in Malur taluk of Kolar district on June 29, 2016, at a tariff of ₹4.89 (~$0.065)/kWh.

For a 20 MW project in Narasipura taluk of Mysuru district, the developer signed a PPA with the Chamundeshwari Electricity Supply Corporation (CESC) at a tariff of ₹4.79 (~$0.064)/kWh on June 28, 2016. For the third 20 MW project in Periyapatna taluk of Mysuru district, the developer signed a PPA with the Gulbarga Electricity Supply Company (GESCOM) at a tariff of ₹4.93 (~$0.066)/kWh on June 28, 2016.

Similarly, the developer signed a PPA with the Hubli Electricity Supply Company (HESCOM) at a tariff of ₹4.79 (~$0.064)/kWh for a 20 MW project in Byadagi taluk of Haveri district on June 28, 2016.

The developer, in its submission, said that it had incurred an additional cost of ₹20.28 million (~$270,150), ₹50.07 million (~$666,984), ₹43.47 million (~$579,065), and ₹86.31 million (~$1.15 million) for the projects in Kolar (Malur taluk), Mysuru (Narasipura and Periyapatna taluks), and Haveri (Byadagi taluk) districts, respectively.

The developer added that the O&M services were outsourced to third parties to ensure industry standards for maintenance as a general practice.

Adani Green Energy (UP) argued that the imposition of the GST laws qualified as a ‘Change in Law’ event as per the provisions of the PPA.

The DISCOMs contended that the developer had executed the PPA and started implementing the project before the GST laws were introduced. Hence, the developer was not entitled to relief under the ‘Change in Law’ provision.

Also, the claim made towards purchasing excess solar modules could not be allowed since purchasing additional modules was a purely commercial decision. The developer cannot claim any GST impact towards purchasing excess modules.

The DISCOMs argued that they were not obligated to compensate the developer for invoices raised after the project’s commercial operation date.

Commission’s analysis

The Commission observed that the imposition of the GST laws had resulted in the change in the project cost, and the same was to be considered a’ Change in Law’ event.

It ruled that the invoices of ₹14.06 million (~$187,294), ₹42.73 million (~$569,207), ₹33.89 million (~$451,450), and ₹79.96 million (~$1.07 million) raised by the developer for the four projects in Malur, Narasipura, Periyapatna, and Byadagai taluks should be considered for GST compensation.

Regarding the impact of GST on O&M expenses, the Commission stated that outsourcing O&M services to a third party was a purely commercial decision. Any increase in cost on account of that cannot be levied upon the DISCOM.

On the issue of carrying cost, KERC said there was no restitution clause in the PPA for restoring the petitioner to the same economic position as before the imposition of the GST laws. Hence, it could not be allowed.

Considering the facts, the state regulator directed the four DISCOMs to make the payments in three equal installments within 90 days of the order. If the DISCOMs failed to do so, they would be liable to pay a late payment surcharge at the rate of 1.25% per month from the date of default after 90 days.

Recently, KERC ruled in favor of Parampujya Solar Energy, a solar power developer declaring that it was eligible for compensation due to the enactment of GST per the ‘Change in Law’ clause.

Earlier, KERC had ruled in favor of a solar developer and allowed compensation for four solar projects of 20 MW each on the grounds of the imposition of the GST laws.

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