The Central Electricity Regulatory Commission (CERC) has directed distribution companies (DISCOMs) to compensate solar developers for incremental impact due to the imposition of safeguard duty and associated ‘carrying costs.’

It also directed two solar developers and the Solar Energy Corporation of India (SECI) to reconcile the extent of incremental impact by exhibiting a one-to-one correlation with the projects and the invoices raised in support of it.

SECI will receive the due amount from DISCOM, which will then be transferred to the developers.

However, payment to the developers by SECI would not be conditional upon the payment to be made by the DISCOMs to SECI.

Azure Power Forty One and Azure Power Maple had filed petitions with CERC seeking the declaration of the imposition of safeguard duty as a ‘Change in Law’ event per the provisions of the power purchase agreement (PPA).

Background

Azure Power Forty One and Azure Power Maple are developing solar power projects of 300 MW each in the jodhpur district of Rajasthan.

The developers had executed PPAs on September 17 and November 27, 2019, with SECI for the sale of 300 MW of solar power each.

The actual commercial operation date was achieved by Azure Power Forty-One on March 8, 2022. In contrast, Azure Power Maple achieved the actual commercial operation date for 53 MW capacity on February 14, 2022, and the commercial operation date for 204 MW was achieved on March 30, 2022. The remaining 43 MW is yet to be commissioned by Azure Power Maple.

The developers submitted that the safeguard duty notification was a ‘Change in Law’ event as it had occurred after the bid submission date and had resulted in the developers incurring additional expenditure as envisaged before the bid submission date.

The developers noted that the essence of the ‘Change in Law’ clause was to restore the affected party to the same economic position as if the said ‘Change in Law’ had not happened.

SECI, in its response, said it was just after the expiry of the effective period of safeguard duty imposed through the previous safeguard duty notification dated July 30, 2018, i.e., on July 29, 2020. The imposition has therefore been in continuity.

SECI added that if the Commission decided that the imposition of safeguard duty was a ‘Change in Law’ event, the Commission must issue directions to the DISCOMs to make payment, toward the evaluated claims of the safeguard duty payable by SECI to the developers, on a back-to-back basis under the power sale agreements (PSAs).

Commission’s analysis

The Commission noted that the safeguard duty notification was promulgated on July 29, 2020, after the acceptance of the bid submitted by the developers. Hence, the imposition of safeguard duty was a ‘Change in Law’ event under Article 12 of the PPA.

Further, the state regulator added that the developers had achieved the actual commercial operation of the projects in February 2022 and March 2022, much after the safeguard duty notification 2020. Therefore, applying the principle decided by it in its earlier order, there cannot be any higher rate of return than the prevailing normative cost of debt. Hence, the Commission allowed an interest rate of 9% and an annuity period of 15 years.

Also, the Commission noted that the developers were entitled to the grant of relief in terms of ‘carrying costs’ on account of the impact due to the ‘Change in Law’ event. However, the directions concerning ‘carrying costs’ would not be enforced and will be subject to further orders of the  Supreme Court in the case of Telangana Northern Power Distribution Company and Parampujya Solar Energy.

In August last year, CERC had ruled that a solar developer was entitled to compensation for the additional expense incurred due to the imposition of safeguard duty. The Commission had clarified that the imposition of safeguard duty constituted a ‘Change in Law’ event.

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