The Maharashtra Electricity Regulatory Commission (MERC), in a recent order, directed the Maharashtra State Electricity Distribution Company (MSEDCL) to pay ₹406.44 million (~$4.92 million) to Juniper Green Field toward an increase in the Basic Customs Duty (BCD) on import of solar inverters and increased Goods and Services Tax (GST) on renewable energy devices.

Further, the Commission noted that the carrying cost on the ‘Change in Law’ compensation must be allowed at the interest rate on the working capital loan allowed in the Renewable Energy Tariff Regulations, 2019. It must be calculated on a simple interest basis from the date of incurring such increased expenses until the order date.

The Commission directed MSEDCL to communicate its payment options for the compensation amount within a month from the order date.

Background  

MSEDCL issued a tender on November 6, 2019, to procure 500 MW of solar power from intrastate solar power projects. It issued a Letter of Award to Juniper Green Energy to develop 150 MW solar power projects in Maharashtra, and a power purchase agreement (PPA) was executed on February 10, 2020.

The scheduled commercial operation date of the projects, initially set for August 9, 2021, was later revised to June 1, 2022, due to the first and the second wave of COVID-19.

Subsequently, the central government increased the BCD on the import of solar inverters to 20%.

On February 17, 2021, Juniper Green Field issued a notice for a ‘Change in Law’ to MSEDCL, notifying the increase in the rate of BCD being levied on the import of solar inverters.

The developer argued that it had accrued an additional amount of ₹32.81 million (~$397,218) due to the increase in BCD.

Later, the government issued a notification increasing the rate of GST from 5% to 12% on renewable energy devices and parts.

The developer noted that the increase in GST qualified as a ‘Change in Law’ event under the provisions of the PPA.

Juniper Green Field added that the total impact of the increase in GST amounted to ₹373.63 million (~$4.52 million).

MSEDCL argued that the solar developer was ten days late in issuing the ‘Change in Law’ notice for the claim concerning the BCD. MSEDCL contended that Juniper Green Field had issued notices for the reimbursement of BCD on February 17, 2021, whereas the BCD was increased on February 1, 2021. The developer failed to give the notice within seven days of the increase in BCD. Hence its compensation claims should be rejected.

Even though the developer submitted GST claims on time, it failed to submit all the documents.

MSEDCL added that Juniper Green Field had filed the petition to restore its financial position to what it would have been if the ‘Change in Law’ event had not occurred. The solar developer was intentionally withholding the information about the financial model it used to determine the tariff and had not provided any actual details regarding the carrying cost.

Regarding the carrying cost, DISCOM added that the PPA has a provision of a late payment surcharge of 1.25% in case of a delay in the payment of bills.

The DISCOM said there could not be any other penalty in the form of additional interest, which is not provided in the PPA. In the present case, there is no delay in payment of the ‘Change in Law’ bills as it still needs to be approved by the Commission. Hence a claim of interest is not justified.

Commission’s analysis

The Commission observed that the increase in BCD on the import of solar inverters and the increase of GST on solar power devices from 5% to 12% happened after the bid submission date.

Hence, both events amounted to ‘Change in Law’ events per the provisions of the PPA.

MERC said as there was no document to show that the developer was aware of such a ‘Change in Law’ event before, and it had immediately served the notice on February 17, 2022, after becoming aware of the event. Hence, the Commission ruled that by issuing a notice dated February 17, 2021, for ‘Change in Law’ related to BCD, Juniper Green Field had complied with the requirement of issuance of notice under the PPA.

The state regulator noted that it was relying on the CA certificate submitted by the solar developer and accordingly considered the BCD impact as ₹32.81 million (~$397,218). However, MSEDCL is free to scrutinize the documents, and the solar developer must support MSEDCL in that process.

Considering the facts, the Commission approved ₹406.44 million (~$4.92 million) as compensation for the ‘Change in Law’ events, including the GST compensation of ₹373.63 million (~$4.52 million).

The Commission directed MSEDCL to decide whether it intended to opt for payment of the compensation on a lumpsum basis or per unit basis over the PPA tenure.

Recently, MERC directed MSEDCL to pay ReNew Sun Bright ₹32.8 million (~$397,190) toward increased BCD on solar inverter imports and ₹26.9 million (~$325,744) toward increased GST rate on renewable energy devices.

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