The Odisha Electricity Regulatory Commission (OERC) has approved the power sale agreement (PSA) executed between the Solar Energy Corporation of India (SECI) and Grid Corporation of Odisha (GRIDCO). The PSA is for GRIDCO to procure power from a 270 MW solar project to fulfill its renewable purchase obligations (RPOs).

The project commissioning was delayed, and there was also a shortfall in energy generation. So, GRIDCO requested a reduction in tariff by claiming the liquidated damages. It also asked to be compensated for the shortfall in energy generation.

Background

GRIDCO filed a petition with the Commission seeking approval of the PSA executed between GRIDCO and SECI to procure power from a 270 MW solar project.

GRIDCO informed the Commission that it had requested 500 MW of solar capacity from SECI under the state-specific bidding program of the Ministry of New and Renewable Energy (MNRE) with a viability gap funding (VGF) support to meet its RPO obligations.

SECI floated a tender for 300 MW of solar capacity in 2016. Of this, SECI signed power purchase agreements (PPA) with solar power developers for 270 MW.

Solar developers were allowed 12 months from the date of signing of the PPA to commission the projects. The PPAs were for 25 years with a tariff of ₹4.50 (~$0.060)/kWh. The projects were commissioned during the financial year 2018-19.

As per the PSA between SECI and GRIDCO, the tariff was ₹4.50 (~$0.060)/kWh, including the trading margin of ₹0.07(~$0.00094)/kWh. A minimum of 401.13 MU of solar energy was to be supplied until ten years and 377.53 MU for the rest of the agreement period. Solar developers were liable to pay compensation in case of a shortfall.

TP Northern Odisha Distribution Limited (TPNODL), TP Southern Odisha Distribution Limited (TPSODL), TP Western Odisha Distribution Limited (TPWODL) submitted that there was about 7,068 MU of surplus energy in the state as per GRIDCO’s average revenue realized (ARR) for FY 2021-22. If GRIDCO procured power from solar projects, the surplus energy would increase and affect the consumer tariffs. Therefore, the Commission should take a holistic view before considering new agreements to purchase conventional or renewable power.

In its response, TP Central Odisha Distribution Limited (TPCODL) said the projects were delayed over three months and were liable to pay liquidated damage for the delay in commissioning. The tariff could be lowered from ₹4.43 (~$0.059)/kWh if GRIDCO claimed the liquidated damages and reduced the tariff signed with the developers. There was also a shortfall in generation for FY 2019-20 as per GRIDCO’s data. Solar developers were, therefore, liable to pay compensation.

Regarding the issue of liquidated damages, SECI said that the PPAs executed with solar developers provide for liquidated damages through encashment of the bank guarantee and tariff reduction due to delays in project commissioning. However, the PSA between SECI and GRIDCO did not envisage any such compensation. Therefore, GRIDCO could not claim liquidated damages.

SECI said that it had written to solar developers seeking reasons for shortfall in the generation. It also informed them that they would be responsible for any financial implications arising from any shortfall in energy generation. However, the developers had not responded.

Commission’s analysis

The Commission noted that SECI could levy liquidated damages in case of delays in project commissioning as per the MNRE’s guidelines. However, the guidelines do not specify claims for liquidated damages to be made by the entity purchasing power from SECI.

The Commission also observed that SECI had made a provision in the PPA for liquidated damages in case of delay in commissioning projects through a payment security fund set up to promote solar power development.

It directed GRIDCO to take up the matter with MNRE to claim liquidated damages and reduction in tariff for the delay in commissioning the solar projects.

It noted that the mechanism for compensation due to a shortfall in the generation was similar in the PPA and PSA. However, no penalty had been levied on GRIDCO for not meeting its RPO target for FY 2019-20 and 2020-21. GRIDCO could claim such compensation for a shortfall in solar generation only when a penalty was levied.

The Commission approved the PSA between GRIDCO and SECI. It also directed GRIDCO to analyze the terms and conditions before signing any PPA or PSA in the future.

Last month, OERC approved the standard and supplementary PSAs executed between SECI and GRIDCO. The PSAs are for 500 MW solar projects under the manufacturing-linked and interstate transmission system (ISTS)-connected solar program (Tranche- I).

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