Municipal Solid Waste-Based Project Stranded Due to COVID-19 Disruption

The Uttar Pradesh Electricity Regulatory Commission (UPERC) has directed UP Power Corporation Ltd (UPPCL) and Ecogreen Energy Lucknow Pvt Ltd to come up with a firm agreement for the amended power purchase agreement (PPA) for a 13.5 MW municipal solid waste (MSW)-based power project.

The Commission has also adjourned the date of hearing to July 21, 2020, owing to the coronavirus (COVID-19) outbreak.

Background

The UPPCL and Ecogreen Energy Lucknow Pvt Ltd had signed a power purchase agreement in September 2017 for 13.5 MW of MSW-based power. The project was scheduled to be commissioned by March 2019. The Commission approved the PPA for the project in December 2017.


Ecogreen Energy had sought the extension of the commercial operationalization date (COD) from UPPCL until December 2020. The company pointed out that the delay in commissioning was due to the delay in the issuance of a concessional customs duty certificate. Moreover, the site was dumped with waste before the project development began.

The UPPCL had given an extension to the COD of the project up to December 2020 based on six conditions which were subject to the Commission’s approval.

One of the main conditions was that the extension for the commissioning of the project from March 2019 to December 2020 would be on a mutually agreed tariff of ₹7.19 (~$0.10)/kWh for the financial year (FY) 2020-21. The tariff for the subsequent years would be as per the terms and conditions mentioned in the UPERC (Captive and Renewable Energy Generating Projects) Regulations 2019.

The other five conditions were:

  • Neither UPPCL nor Uttar Pradesh Power Transmission Corporation will bear any financial liability for the extension
  • There will be no further extension of the commissioning date under any circumstances, and UPPCL will have the liberty to terminate the PPA if it finds the progress unsatisfactory
  • The generating project needs to submit a monthly progress report during its construction
  • Ecogreeen Energy will ensure the installation of availability based tariff (ABT) meters and submission of declared capacity regularly through Uttar Pradesh State Load Despatch Centre (UPSLDC) website, and
  • All other terms and conditions of the PPA will remain applicable.

The amended PPA was signed in October 2019.

Then in March 2020, the Commission directed the UPPCL to file a comparative statement on the petition within a week, showing a financial impact on UPPCL due to a change in COD.

After the order from the Commission, the UPPCL submitted an affidavit stating that the net present value (NPV) with the revised COD was lower with respect to the original COD.

The NPV for the original COD was ₹482 million ($6.4 million), while the NPV for revised COD stood at ₹467.3 million ($6.2 million).

Ecogreen Energy argued that the COD timeline that was agreed in the amended PPA was before the pandemic, and under the current circumstances, COD timelines may not be adhered to.

The UPPCL submitted that COVID-19 is a force majeure condition, and “PPA has the provision of its treatment.”

Soon after the outbreak of the virus in the country,  the Ministry of Finance (Department of Expenditure Procurement Policy Division) had issued a clarification that coronavirus will be covered in the force majeure clause and should be considered as a case of natural calamity. Further, the ministry has stated that this clause can be invoked wherever appropriate.

The Commission observed that the terms of the amended PPA are yet to be finalized. If they are approved in their present form, it may lead to unnecessary litigation between the parties. Citing this, the two entities were asked to work out a firm agreement and present it before the Commission.

Earlier, the Ministry of New and Renewable Energy (MNRE) revised the guidelines for its waste to energy program. A new addition to the guidelines was the inclusion of municipal solid waste-based projects based on the clarification by the Department of Expenditure.

In March 2020, Mercom reported that owing to the impact of the COVID-19 outbreak on the global economy, the Ministry of New and Renewable Energy announced that the time extension in scheduled commissioning of renewable projects due to the disruption of supply chains would be treated as a force majeure event.

Image credit: Dea at Wikimedia Commons, CC BY-SA (4.0)