Regulator Rejects Solar Developer's Petition for Refund of Liquidated Damages

The Karnataka Electricity Regulatory Commission (KERC), in a recent order, has rejected the petition of Kavit Green Energy asking Gulbarga Electricity Supply Company Limited (GESCOM) to refund ₹28.3 million (~$380,087) deducted as liquidated damages for delay in commissioning a 5 MW solar project.

Background: 

In 2014, the Karnataka government had issued a request for proposal (RfP) to develop a solar project in the state.

The Karnataka Renewable Energy Development Limited (KREDL) accepted a bid from Kavit Green Energy to develop a 5 MW solar project at Challakere taluk in the Chitradurga district of Karnataka. The tariff for the same was set at ₹7.10 (~$0.095)/kWh.


The draft power purchase agreement (PPA) was part of the RfP. The company executed PPA with GESCOM on February 9, 2015. As per the PPA, the petitioner was required to fulfill certain ‘conditions precedent’ within 365 days from the effective date, unless the project work was affected by any force majeure event. The PPA also noted that the project should be commissioned within 18 months from the effective date of the PPA.

The petitioner requested GESCOM to extend the time to commission the project. GESCOM accepted the request, and both parties signed a supplemental PPA, including these extensions, and sent it for approval of the Commission. The supplemental PPA was signed as the project’s location was shifted from Chitradurga district to Yelaburga taluka of Koppal district in Karnataka.

GESCOM’s response

GESCOM said it granted the extension of time as per the board resolution dated June 18, 2016. It also made it clear that the extension of time granted was subject to the approval of the Commission and the applicable tariff would be revised tariff as per the PPA.

In its response, GESCOM said the petitioner failed to commission the project within the time stipulated in the PPA. Therefore, the petitioner was not entitled to any further extension of the scheduled commissioning date.

Commission’s analysis

 After analyzing submissions by the petitioners and GESCOMthe Commission said the petitioner had not stated anything about the force majeure event. The only reason stated by the petitioner for not achieving the conditions precedent was the issues regarding arranging the equity, which is not considered a force majeure event.

The Commission also said that it is the petitioner’s responsibility to identify and take possession of land for the project, and it could not be treated as a force majeure event.

The Commission also noted that GESCOM already extended the time to achieve the conditions precedent and scheduled commissioning date. It also said that subsequent request to extend the timeline is contrary to the provisions of PPA and against the public interest.

On the issue of liquidity damages, the defaulting party is liable to pay the liquidated damages without any actual proof of damage or loss if the contract provides a pre-estimate of damage or loss. In addition, the PPA’s terms would mention that it is a genuine estimation of damages payable for non-supply of power within specific time limits.

Therefore, the Commission rejected the petitioner’s request to direct GESCOM to refund ₹28.3 million (~$380,087) deducted as the liquidated damages.

Earlier this month, the Commission also rejected Photon Suryakiran’s petition asking for Bangalore Electricity Supply Company not to reduce the tariff of the delayed solar project from ₹7.05 (~$0.095)/kWh to ₹6.51 (~$0.087)/kWh.

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