The Supreme Court of India has asked renewable energy project developer ReNew Power to pay a penalty of ₹119 million (~$1,827,700) to the Madhya Pradesh Power Management Company Limited (MPPMCL) for delaying the commissioning of a solar project in the state by more than 210 days.

The Supreme Court was responding to an appeal put forth by MPPMCL to provide relief in the matter of a 51 MW grid-connected solar photovoltaic (PV) project being developed by ReNew Power for which MPPMCL had entered into a 25-year Power Purchase Agreement (PPA) with the company.

The apex court, however, has set aside the cancellation of the PPA which was initiated by MPPMCL.

An official working with MPPMCL told Mercom, “The Honorable Supreme Court’s order is paramount, we will get the Performance Bank Guarantee (PBG) amount, the PPA will not be terminated.”

When asked why the Jabalpur High Court order was not accepted, though it was the same as the SC order, the MPPMCL official said, “MPPMCL felt we were the aggrieved party and were not satisfied with Jabalpur High Court’s order, hence we appealed.”

“The Supreme Court judgement in the case of ReNew Power is a shot in the arm for the renewable sector. The Supreme Court has passed a landmark judgement wherein it has upheld the order of the Madhya Pradesh High Court in favor of ReNew Power, which labelled the termination of the contract by MPPMCL as unlawful and arbitrary”, said Pranav Mehta, the founder and chairman of National Solar Energy Federation of India (NSEFI), in an emailed response.

Mehta further added, “The judgement has come as a shot in the arm for the renewable sector as it is an investment intensive sector and the Independent Power Producers (IPPs) put in substantial capital investment upfront – to the tune of $1 million per MW of installed capacity. The Central Electricity Authority estimates that the sector needs $100 billion of investment in the next five years if India has to achieve its target of 175 GW of renewables by 2022. In this backdrop, it is imperative that the sanctity of the PPAs signed with various IPPs is maintained else it will dampen the image of India as a preferred investment destination for renewables.”

Quick Recap of the Case

ReNew Power had won the contract to develop a 51 MW grid-connected solar PV project by participating in a 300 MW solar tender issued by MPPMCL. ReNew had quoted a tariff of ₹5.457 (~$0.0839)/kWh and was issued a Letter of Intent (LoI) on October 23, 2015. The PPA was signed between MPPMCL and ReNew on November 10, 2015.

According to the tender document, the developer needed to procure land to develop the solar project. The state government had allotted approximately 103 acres for the project but the project work could not commence due to encroachment issues.

On December 29, 2016, the MPPMCL issued a letter stating, “Change in the location of land may be permitted after 210 days of signing of PPA by MPPMCL, subject to provision 2.5 and 2.6 of said PPA.”

On March 22, 2017, ReNew informed the MPPMCL that it had acquired 253 acres of land for the project. On August 11, 2017, in line with provision 2.5, MPPMCL terminated the PPA and ordered encashment of the contract PBG, citing a delay of 16 days beyond the nine-month extension.

Later, ReNew Power approached the Jabalpur High Court to provide relief in the matter. The Jabalpur High Court ruled that the encashed PBG need not be returned, but it also put aside the termination of PPA.

The MPPMCL then approached the Supreme Court in October 2017. The Supreme Court put a stay on the Jabalpur High Court’s order and asked MPPMCL to return the encashed PBG.

The new judgement by the Supreme Court will provide some relief to ReNew Power and to the general sentiment of project developers in the country. Penalizing for a delay is within the sanctity of the contract entered by both parties but rescinding a PPA of a project nearing completion is taking a step backward.

“Developers already feel PPAs are one sided and any delays on the part of government agencies has no consequence and cannot be questioned. Meanwhile, delays even due to legitimate reasons beyond control (mostly land issues) on the part of developers is quickly punished through fines and encashment of bank guarantees. Hopefully this case sets a precedence that legitimate reasons on both sides need to be considered and treated fairly.” said Raj Prabhu, CEO of Mercom Capital Group.