Dispute Over One Day Commissioning Delay Causes 30% Solar Tariff Reduction in Karnataka

The Karnataka Electricity Regulatory Commission (KERC) has rejected a petition to extend the project commission date and has set a tariff of ₹4.36 (~$0.061)/kWh for a 1 MW grid-connected solar photovoltaic project developed on a farmer-owned land in the state’s Kalaburagi district.

Under the “Solar Power Plants under Land Owning Farmers’ Category,” land owning- farmer Mallikarjun Gundappa Hanamshetty’s property was selected for the development of a 1 MW solar power project. The letter of allotment to set up the solar project was issued on March 16, 2015, based on which the developer executed a PPA with GESCOM dated July 7, 2015.

In 2015, the Karnataka government launched this program under which 300 MW (with projects ranging from 1 to 3 MW) of solar was to be developed by farmers on land held by them at a tariff of ₹8.40 (~$0.1254)/kWh. Under this program, farmers were provided with a central subsidy of ₹50,00,000 (~$79,365)/MW.

KERC was examining a petition filed by Globalexotium Renewable Solutions Private Limited (GRSPL), a special purpose vehicle (SPV). GRSPL was created to execute the project and a draft supplemental power purchase agreement (SPPA) to be executed by GRSPL as well.



GRSPL was seeking the approval of the extension of time to be granted by the Gulbarga Electricity Supply Company (GESCOM) for a new scheduled commercial operation date without altering the tariff fixed under the power purchase agreement (PPA). The company also sought to declare the effective date of the PPA to be September 7, 2015, the date on which the PPA was approved. However, due to a delay in project commissioning, the agreed upon tariff was contested by both parties.

After examining the petition, KERC did not accept the contention of the petitioners as it is of the view that any extension of time to commission a project has a bearing on the payable tariff.

KERC observed GESCOM had accepted the claim of force majeure (uncontrollable) events and granted the extension of time.

According to KERC, the PPA signed by the parties on July 7, 2015 was not a draft, as claimed by the petitioners. As per the PPA, the project had to be commissioned within 18 months from the date of signing the PPA (by January 6, 2017).

While examining the submissions made by the petitioners, KERC also observed that the petitioners had alleged that they could not commence the project work due to the delay in PPA approval by the commission.

KERC in its order stated, “A signed copy of the PPA would be enough to proceed with the preliminary works for implementation of the project. The approval of the PPA by the commission has no bearing on the initial obligations of the developer such as applying for land conversion, evacuation approvals, and  loans.”

KERC also found that the developer had applied for the conversion of the land after a lapse of more than 11 months from the effective date of the PPA. The SPV applied for the evacuation approval after more than 11 months from the date of the PPA.

Keeping the above points in consideration, the KERC did not provide any relief that was sought by the petitioners and stated that the SPV will also be liable for the damages. KERC fixed ₹4.36 (~$0.061)/kWh as the generic tariff for that year and demanded that the parties submit the required documents to the commission for approval of the SPPAs.

Recently, there have been a slew of rulings against commission delays of solar projects in Karnataka clearly indicating there is no leeway for any delays in project timeline.

Last month in a similar case, KERC penalized Marakka Solar Power Project LL.P for delay in commissioning a 1 MW project.

KERC also dismissed a petition Emmvee Photovoltaic Power Private Limited, stating that the solar power developer is not entitled to the relief due to project commissioning delay which resulted in a 30 percent tariff reduction for the developer.

A rooftop project commissioning delay in another case in front of KERC cost the installer a 36 percent reduction in tariff.

While these penalties seem overly harsh, developers also tend to delay project construction as long as possible to extract maximum cost benefit due to anticipated decline in component prices.