MERC Rejects Biomass Developer’s Plea for Compensation After EPA Termination

The Maharashtra Electricity Regulatory Commission (MERC) has rejected Spark Green Energy Limited’s plea for relief and compensation after the termination of the energy purchase agreement (EPA) by Brihanmumbai Electric Supply and Transport (BEST).

Earlier, Spark Green had approached the Commission for seeking direction for setting aside the termination of the EPAs by BEST in a letter dated March 05, 2019.  Spark Green had further sought the declaration of the force majeure event that occurred during the period between 2010 and 2015.

The company had also sought compensation for losses, including expenses and interest on the loans incurred on the project from April 2016 to date. It had also asked the Commission to direct BEST to release ₹48.8 million (~$685,157) outstanding towards the electricity invoices raised.

Background


Spark Green Energy (Ahmednagar) Private Limited (SGEAPL) and Spark Green Energy (Satara) Private Limited (SGESPL) had entered into two separate energy purchase agreements (EPAs) with BEST for the supply of 25 MW of biomass power from its projects to be located at Ahmednagar and Satara in Maharashtra.

Back in 2007, BEST had invited an expression of interest (EoI) for the purchase of renewable power with the requirement of 300 million units of renewable energy per year. In response to the EoI, only one response was received from Tata Power Trading Company Limited (TPTCL) for supplying renewable energy from 25 MW of biomass-based projects of SGEAPL and SGESPL, with an actual capacity of the sale being 22.5 MW each. The bid price for the offer received was ₹5 (~$0.07)/kWh.

BEST had approached the Commission seeking approval for the purchase of power for meeting its RPO target. The Commission, in its order dated November 21, 2008, had rejected the case on the grounds of infirmities in the bidding process and also as the discovered rate of ₹5/kWh was higher than the prevailing tariff of ₹3.04 (~$0.043)/kWh.

Even after the Commission’s order, BEST signed EPAs with Spark Green on October 01, 2009, for each of the projects at Ahmednagar and Satara.  Later, BEST approached the Commission seeking relaxation of the RPO regulations saying it had already entered short-term contracts with many renewable developers for supplying power in FY 2010-11 for fulfilling its RPO target.

Spark Green, in its submission, had explained the efforts it had made for setting up an evacuation facility and contended that the delay in commissioning of the projects was mainly because of the delay in the implementation of the work of evacuation facility by the Maharashtra State Electricity Transmission Company Limited (MSETCL).

In its petition, Spark Green had also claimed that due to BEST not paying the dues towards the bills raised for the electricity supplied from the Ahmednagar project, the construction of the Satara project had come to a standstill and has been lying idle since June 2016. Because of this, the company said it suffered significant losses and so, it sought an amount of ₹400 million (~$5.61 million) towards compensation.

The first unit of 12.5 MW at Ahmednagar was synchronized on January 04, 2016, and it delivered power to BEST from January 2016 to June 2016.

Again in 2018, Spark Green requested BEST to make the outstanding payment. Further, Spark Green asked BEST to witness the initial capacity test and declare the commercial operation date as per the EPA for 12.5 MW unit at Ahmednagar.

Instead of responding to the letters by Spark Green, BEST sent a letter terminating the EPAs and also sought a refund of ₹300 million (~$4.21 million) from the company along with interest at 12% per annum.

The Commission noted that as per the EPA, the scheduled date of the completion of the project was 12 months from the date of signing of the agreement. As EPA has been signed on 1 October 2009, the project should have been completed by 30 September 2011. Considering an additional six-month period before treating it as default, the extended date should have been February 28, 2012.

The petitioner had contended that the delay in completion of the project was on account of the delay in the construction of the evacuation facility, which was to be undertaken by MSETCL. The petition further claimed that the delay should be treated as a force majeure event.

In the order, it was underlined that work related to the evacuation infrastructure has two parts: the evacuation infrastructure connecting the generating project to the delivery point and the construction of the substation and lines for evacuating power.

In this case, while the first part was the responsibility of the project, the other was the responsibility of MSETCL. For this second part, Spark Green had submitted an application to MSETCL in 2006 but the work was completed only in January 2015.

Such a delay on account of MSETCL is clearly beyond the control of Spark Green and can be treated as a Force Majeure event. However, the effect of the Force Majeure event can at best be allowed only until January 2015. After this, Spark Green cannot claim the effect of Force Majeure. The Commission further noted that as per the provision of EPA, a force majeure event does not entitle any compensation. So, Spark Green’s claim for compensation cannot be allowed.

Further, the Commission noted that there is no merit in both the cases raised by Spark Green, and therefore, they were rejected.

“However, considering unique nature of these EPAs, various actions of the Spark Green and BEST including investing interest-free deposit in the generating company, the Commission is of the opinion that since the tariff as per the EPA works out to be lower than the prevailing generic tariff for biomass power,  if both parties agree, they can continue with the existing EPA at tariff rate with a discount against the interest-free deposit,” stated the order.

Under such a circumstance, they should file a case afresh for the approval of the EPAs, or Spark Green should refund the interest-free deposit of ₹300 million (~$4.21 million) invested by BEST.

Earlier, in a judgment favoring biomass project developers, APTEL had found that in the case of one part tariff, developers cannot be denied fixed cost components of the tariff if the plant has been forced to shut down under Merit Order Dispatch principle.

In September last year, the Andhra Pradesh Electricity Regulatory Commission (APERC) has asked one of the state’s distribution companies, Andhra Pradesh Southern Power Distribution Company Limited (APSPDCL) to pay ₹4.5 million (~$62,710) as the full and final settlement towards a biomass project developer’s claim for interest.