The Karnataka Electricity Regulatory Commission (KERC), in a recent order, ruled that Fortum Solar India is entitled to compensation for the additional cost incurred due to the imposition of safeguard duty through incremental tariffs.

The Commission asked the distribution companies (DISCOMs) to pay the supplementary bills for the incremental tariffs at the rate and minimum contracted capacity determined, from the commercial operation date until the date of the order in three equal monthly installments.

The Commission also directed the developer to abide by the affidavit dated September 19, 2020, to reimburse the amount received by DISCOMs if the Supreme Court order sets aside the safeguard duty notification regarding ‘Change in Law’.

The Commission asked both the parties to submit the supplementary power purchase agreement (PPA) for approval by the Commission.

Fortum Solar India had filed a petition seeking reimbursements due to the imposition of safeguard duty from the Bangalore Electricity Supply Company, the Hubli Electricity Supply Company, the Chamundeshwari Electricity Supply Company, and the Mangalore Electricity Supply Company.

Earlier, the Appellate Tribunal for Electricity had directed KERC to decide the incremental tariff payable as compensation to the developer. The developer had to be compensated for the additional expenses incurred due to the imposition of safeguard duty which was a ‘Change in Law’ event.

The Tribunal observed that the Commission had agreed with the developer and accepted that the claims were related to ‘Change in Law.’ However, the amount of compensation arrived at by the Commission was much lower than what was claimed by the developer.

Background

Fortum Solar India had won the projects in the Karnataka Renewable Energy Development Limited’s tender for 650 MW at the Pavagada Solar Park in Karnataka. The tariff discovered in the reverse auction was ₹2.85 (~$0.039)/kWh. The company signed the PPAs with the DISCOMs for setting up 250 MW of grid-connected solar projects.

Later, after the PPAs were signed in 2018, the Ministry of Finance imposed a safeguard duty on the import of solar modules from China and Malaysia.

Fortum Solar India, in its submission, said that it had incurred additional expenditure due to the imposition of safeguard duty. As it had to receive the additional amount spread over the term of the PPA as incremental tariff, the additional expenditure should be reimbursed as incremental tariffs considering all the parameters as ordered by APTEL.

The DISCOMs, in their submission, clarified that the additional amount the developer incurred due to imposing safeguard duty was to be compensated by spreading the sum over the remaining period of the PPA considering the amount of energy generated during the period.

Commission’s analysis

The Commission observed that the PPAs were executed in the last week of July 2018 and were approved by the Commission on August 27, 2018, and the period allowed for the commissioning of the projects was set as August 26, 2019.

The Commission said that it had considered the parameters as per the generic tariff orders and found that the payment of safeguard duty was spread over two generic orders. So, the Commission considered the applicable parameters based on the majority of the bill of entry raised and payments made.

The Commission arrived at the levelized incremental tariffs considering these parameters:

KERC added that the developer was allowed reimbursement of the additional capital cost as an incremental tariff on the minimum contracted capacity per year. It also said that the developer was not entitled to any other carrying cost.

Recently, KERC ruled that Adyah Solar Energy, a subsidiary of ReNew Solar, was entitled to compensation for the additional cost incurred due to the imposition of safeguard duty. The Commission noted that safeguard duty imposed on imported solar cells and modules constituted a ‘Change in Law’ event.

Earlier, the Central Electricity Regulatory Commission had directed the Solar Energy Corporation of India to compensate a solar developer for the increased cost incurred due to imposing safeguard duty under the ‘Change in Law’ clause.

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