GERC Allows Changes to Force Majeure Clause for GUVNL’s 500 MW Solar Tender

The Gujarat Electricity Regulatory Commission (GERC) has approved the changes to the Ministry of Power’s guidelines relating to force majeure (unforeseen) events, as sought by Gujarat Urja Vikas Nigam Limited (GUVNL).

GUVNL had filed a petition seeking the approval for deviations from the Ministry of Power’s tariff-based competitive bidding guidelines to procure power from grid-connected solar PV power projects that were amended in October 2019. The change sought is specifically regarding the force majeure clause in the amended guidelines. GUVNL is planning to issue a tender for a 500 MW solar project in the state.

The Commission has approved the changes sought by the GUVNL.

Background


In August 2017, the Ministry of Power (MoP) had issued guidelines for the tariff-based competitive bidding process for grid-connected solar PV power projects under which Clause 5.4 referred to force majeure stating, the PPA would contain provisions about force majeure definitions, exclusions, applicability and available relief on account of force majeure,  as per the industry standards.

In place of the simple two-sentence reference to force majeure, the guidelines amended in October 2019,  had force majeure elaborately defined and categorized under natural and non-natural force majeure events and also exclusions. Further details of how the notification of force majeure is to be presented and termination of PPA due to force majeure events were also mentioned.

The amended guidelines provide scope for the termination of the power purchase agreement (PPA) in the event of force majeure, which was earlier missing.

GUVNL has pointed out to the Commission that in the guidelines, the generator is given the discretion to unilaterally terminate the PPA in case of a non-natural force majeure event in the absence of any default on the part of the procurer (in this case, GUVNL), which would be hard on the distribution licensees. According to GUVNL, the termination of the PPA unilaterally requires the procurer to take over the project assets, providing a potential exit route to the generator by transferring the project risks to the procurers and ultimately to the consumers of the state, which is not fair. GUVNL had also submitted that the generation of power and maintenance of the project is not the business of the DISCOMs, and it would be inappropriate for the DISCOMs to step into the shoes of the generators by taking over the project.

GUVNL, in its submission, asserted that it wants to continue with the existing provisions of force majeure under Article 8 of the PPA, which allows for relief under force majeure but not termination. This calls for a deviation from the force majeure clause as in the amended guidelines issued in October 2017.

To reiterate that the requested change could be allowed, the GUVNL pointed out to clause 18 in the guidelines issued in August 2017, which states that in case there is any deviation from the guidelines, it would be subject to approval by the appropriate Commission. The appropriate Commission can approve or ask for modification in the bid documents within a reasonable time, not exceeding 90 days.

The Commission accepted GUVNL’s plea that the provisions of force majeure under the amended guidelines are extensive and have a vast scope. More particularly, the termination provisions provide a potential exit route to the generator by transferring the project risks to the procurers and ultimately to the consumers of the state. This may also give rise to circumstances where the generator would terminate the PPA for no default on the part of procurers, and in such cases, the interest of procurers and ultimately of electricity consumers of the state would be adversely affected.

Last year too, the state body had approved the proposed deviations to the competitive bidding guidelines for procuring power from grid-connected solar projects by Torrent Power. In that case, Torrent Power Limited had petitioned the commission seeking its approval for changes from the Ministry of Power’s guidelines for future tenders for sourcing solar PV power from grid-connected solar projects to fulfill the renewable purchase obligation of its license areas.