The Maharashtra Electricity Regulatory Commission (MERC) has directed the Maharashtra State Electricity Distribution Company (MSEDCL) to release the performance bank guarantees of solar developers ACME Sikar Solar and ReNew Dinkar Urja upon the termination of their power purchase agreements (PPA), failing the power evacuation set up by state entities.

The Commission held that the inability of the transmission company to ensure power evacuation constituted a force majeure event under the PPAs. As the force majeure had continued beyond 180 days, it ruled that the solar developers had validly terminated the PPAs.

Background

ACME Sikar Solar (ASSPL), a special purpose vehicle of ACME Solar Holdings (ASHPL), submitted a petition on April 3, 2023, seeking a declaration regarding the termination of the PPA on account of force majeure and the return of the performance bank guarantee (PBG) of ₹240 million (~$2.89 million).

The respondent in this case is MSEDCL.

In a separate petition, ReNew Dinakar Urja (RDUPL), an SPV of ReNew Solar Power, sought the return of its PBG of ₹160 million (~$1.9 million).

The respondents in the case of ReNew were MSEDCL, MSETCL, and Central Transmission Utility of India (CTU).

ACME stated that the force majeure event that affected their ability to fulfill their obligations is attributed to MSETCL’s failure to provide an unconditional No Objection Certificate (NOC) for power evacuation from ASSPL’s 300 MW solar power project in Rajasthan to MSETCL’s network.

The necessity of an unconditional NOC arose because the power from the project is intended to flow from MSETCL’s network through the CTU’s Inter-State Transmission System (ISTS).

The unconditional NOC is a prerequisite for the CTU to grant unconditional long-term access (LTA) for power evacuation from ACME’s Rajasthan project up to MSETCL’s periphery and subsequently for the transmission and supply of power from MSETCL’s periphery to MSEDCL.

Due to MSETCL’s failure to issue the NOC, ACME said it was confronted with several issues that were beyond its control, and therefore, it terminated the PPA.

The petitioner submitted that it had the right to terminate the PPA if a force majeure event persists for a duration exceeding 180 days.

Similarly, ReNew stated the purpose of the PBG is to guarantee the punctual commissioning of the project, and upon successful commissioning, the PBG is meant to be returned.

The project’s foundation was laid on the assumption of a long-term evacuation arrangement being in place. According to the terms of the PPA, MSEDCL was obligated to procure power.

However, due to deficiencies in the STU network arising from the non-availability of a transmission corridor, uncertainty persisted in the power evacuation process.

MSEDCL, in its response, argued that the force majeure clause was applicable only to the extent that the circumstances were beyond the reasonable control of the affected party. It said the petitioners were responsible for selecting the project site and ensuring grid connectivity availability.

The STU stated that ACME and ReNew applied for a NOC in March and April 2022, respectively, seeking long-term access due to insufficient Available Transfer Capability (ATC) margin. It issued conditional NOCs in July 2022, contingent on network strengthening and ATC margin availability, requiring an indemnity bond.

The CTU granted ACME conditional LTA in June 2022 before STU’s conditional NOC issuance. However, ReNew’s NOC was delayed due to the pending indemnity bond submission.

STU emphasized that both the petitioners and MSEDCL failed to confirm ATC margin availability before finalizing the PPA.

Commission’s Analysis

The Commission noted that ACME secured a capacity of 300 MW and ReNew 200 MW through a competitive tariff-based bidding process.

The Commission acknowledged the diligence of the petitioners in pursuing the issuance of an unconditional NOC. However, MSEDCL and STU argued that the petitioners must demonstrate compliance with prudent utility practices before claiming force majeure.

MERC noted that MSEDCL’s solar tender did not specify the location but specified that the delivery was to be in Maharashtra. While developers install projects anywhere, the responsibility of grid upgrades for connection falls on CTU/STU and not developers.

The Commission determined that the inability of MSETCL to issue an unconditional NOC had created uncertainty in power evacuation, impacting the cash flow of the projects and causing lenders to withdraw support. This situation constituted a force majeure event under the PPA, and since it had continued beyond 180 days, the Commission ruled that the petitioners had validly terminated the PPAs.

As the PPAs were terminated, the Commission directed MSEDCL to return the respective bank guarantees to the petitioners within 15 days.

The Commission underscored the critical role of guaranteed power evacuation in securing project financing. In the absence of such assurances, including a defined compensation mechanism in case of grid-related non-evacuation, financial institutions remain hesitant to lend support, jeopardizing the projects’ viability.

The Commission emphasized the unfortunate termination of a 500 MW solar PPA with a low tariff of ₹2.42 (~$0.0291) -2.43 (~$0.0292)/kWh and urged MSETCL/STU to expedite the implementation of transmission schemes to increase CTU-STU tie-line capacities.

Recently, MERC directed MSEDCL to compensate Juniper Green Field with ₹406.44 million ($4.92 million) for increased Basic Customs Duty on solar inverters and higher GST on renewable energy devices.

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