Developers who have projects under development need to use the pass through option due to safeguard duty that was imposed recently on solar imports

The Ministry of Power has written to the Central Electricity Regulatory Commission (CERC) directing the commission to expedite the process for the exercise of the pass through option.

Following the recent imposition of safeguard duty on solar cells and modules from China and Malaysia, the pass through option is applicable between the time-period from the date of submission of the bid and the invoice date of PV modules procured for the project.

It had been brought to the notice of the government that power generating firms in the country are facing difficulties in exercising the pass-through option to avoid the safeguard duty on projects that were already under development before the duty was issued. Developers are citing that considerable amounts of time are being consumed in the approval process.

Key Points from the MoP Letter

  • CERC must treat change of cost related to change in duties, taxes, cess, etc. as pass through if it is not mentioned in the power purchase agreement (PPA).
  • CERC will determine the per unit impact of duty to be passed on.
  • CERC must issue order for pass through giving calculation for per unit impact within 30 days of filing of petition.
  • The impact of the change in law will be effective from the date of the change in law.

Recently, the Ministry of New and Renewable Energy (MNRE) issued clarifications in response to the comments received from various stakeholders unable to account for uncertainties due to proposed duties or ongoing cases pertaining to the levy of duties.

The MNRE order was supposed to bring relief to the sector, but the clarification seems to have raised new questions as the industry is unsure how everything will work moving forward. Solar project developers have reiterated multiple times that getting the pass through is a cumbersome process and would take almost 5 years.

Various developers have stated that for the pass through, one has to first approach CERC/SERC which will usually take 1-1.5 years, though the mandate is that they should process the request within 6 months. Developers unsatisfied with the CERC direction, will then need to approach the Appellate Tribunal for Electricity (APTEL) which may take another year and if this referred to the Supreme Court, it could end up taking another 2-3 years. There have been several instances in thermal projects where developers never got the full pass through. They may only end up getting 60-70 percent of the reimbursement they request.

This letter is a first step towards addressing the pass-through issue. The industry will need a lot more clarity on paper as to what the process will be and how long it will take to receive a reimbursement.