Solar Developer's Plea for Refund of Liquidated Damages Rejected

The Karnataka Electricity Regulatory Commission (KERC) has rejected a petition filed by a solar developer seeking a refund of ₹56.1 million (~$756,784) deducted as liquidated damages for delay in commissioning a 10 MW solar project from the Mangalore Electricity Supply Company (MESCOM).

The Commission also ruled that the developer was eligible for a reduced tariff of ₹6.51 (~$0.088)/kWh as the project was not commissioned on time.

It also ruled that the petitioner was liable to pay ₹56.1 million (~$756,784) as liquidated damages for not completing the project on time.

Background


Celestial Solar Solutions was incorporated by Surana Telecom and Power, which had won a bid to develop a 10 MW solar project at Tumkur district, under Karnataka Renewable Energy Development Limited’s (KREDL) tender to develop 500 MW of solar power projects in the state. KREDL had issued a letter of award in November 2014 to Surana Telecom and set a tariff of ₹7.12 (~$0.096 )/KWh.

Faced with land acquisition challenges, the petitioner requested KREDL to allow the project to be set up in Koppal District and later in Chitradurga District. KREDL had approved both requests.

The petitioner claimed that the project development slowed further during November 2016 because of the demonetization. The petitioner submitted a request to MESCOM to approve an extension of the scheduled date of commissioning, citing ‘force majeure’ events.

In April 2017, the Commission directed MESCOM to include a provision in the supplementary power purchase agreement (PPA) that if the project were not commissioned by August 11, 2016, a lower tariff of ₹6.51(~$0.088)/kWh would be applicable.

However, the petitioner contested this by claiming that MESCOM had extended the revised commissioning date to February 11, 2017, after considering the ‘force majeure’ events and delay as provided in the PPA. The petitioner claimed that PPA provided for the scheduled commissioning date to be extended on ‘force majeure’ grounds, and the original tariff as specified in the PPA would be applicable.

In February 2017, the petitioner raised invoices at ₹7.12(~$0.096)/KWh. However, the petitioner claimed that MESCOM did not extend the commissioning date and hence adjusted the invoice amount towards liquidated damages. MESCOM sought to collect damages and liquidated damages to the extent of ₹56.1 million (~$756,784) for not completing the project on time.

MESCOM claimed that the delay in commissioning the project was due to the petitioner’s negligence. It said that the second request of the petitioner for a change of location was made 13 months after the PPA was executed, which reflected the negligent attitude. The petitioner was legally bound to pay the liquidated damages and could not arbitrarily invoke ‘force majeure’ to escape its liability.

MESCOM claimed that there were provisions in the PPA that mentioned that if there were a delay in the commissioning of the project beyond the scheduled commissioning date, the applicable tariff for the project would be the lower amount.

Commission’s analysis

The Commission noted that the project should have been commissioned by August 11, 2016, as per PPA. However, the project was commissioned on  February 11, 2017. This was after KERC issued the revised tariff of ₹6.51 (~$0.088)/kWh for grid-connected solar power projects. Therefore, the petitioner was only eligible for a reduced tariff.

The state regulator found that the petitioner had not provided any evidence to infer that the liquidated damages agreed in the PPA were in the nature of a penalty.

The Commission also observed that the petitioner had failed to establish any ‘force majeure’ event to claim an extension of the scheduled commissioning date.

In July this year, KERC had rejected a petition of Kavit Green Energy asking Gulbarga Electricity Supply Company Limited to refund ₹28.3 million (~$380,087) deducted as liquidated damages for delay in commissioning a 5 MW solar project.

It had also rejected Photon Suryakiran’s petition asking Bangalore Electricity Supply Company not to reduce the tariff of the delayed solar project from ₹7.05 (~$0.095)/kWh to ₹6.51 (~$0.087)/kWh.

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