Safeguard Duty Extension Deemed as Change in Law for Tata’s Solar Project in Maharashtra

The Maharashtra Electricity Regulatory Commission (MERC) has accepted Tata Power Renewable Energy’s (TPREL) petition seeking to declare levy of safeguard duty (SGD) on the import of solar cells as a ‘Change in Law’ event in the power purchase agreement (PPA).

The respondent in the petition was Tata Power Company-Distribution (TPCD).

The Commission said that additional expenditure and other consequential impacts shall be considered on an actual basis for reimbursement under ‘Change in Law’ subject to prudent check after TPREL filed its petition with all the details following the provisions of PPA.

Background


TPCD initiated a competitive bidding process (followed by reverse auction) to procure up to 150 MW of solar power for 25 years. It issued a Request for Selection on August 21, 2019, inviting bids to select solar power producers.

The Letter of Award (LoA) was issued in favor of TPREL on October 31, 2019, to develop a solar photovoltaic project in Jaisalmer, Rajasthan. As per the terms of the LoA, TPREL was required to execute a PPA with TPCD.

TPREL submitted performance bank guarantees amounting to ₹300 million (~$4.09 million) in favor of TPCD on January 1, 2020. TPREL then entered into a PPA with TPCD to supply 150 MW solar power at a tariff of ₹2.83 (~$0.039)/kWh generated from the solar PV plant.

The Commission approved the PPA on December 4, 2019. The scheduled commercial operation date as per the PPA was July 3, 2021.

TPREL had procured solar PV modules from Lianyungangshenzhou New Energy Company,China. Since the old SGD Notification mandated that the last date for the imposition of SGD was July 29, 2020, TREPL had planned the procurement of solar PV modules after July 2020, by which date the effective SGD would not have been applicable.

However, the Ministry of Finance, on July 29, 2020, extended the applicability of the SGD from July 30, 2020, to July 29, 2021. TPREL, on August 5, 2020, had informed TPCD about the new notification and stated that the same should qualify as a ‘change in law’ event as per  the PPA.

However, TPCD told the Commission that the impact of SGD on the project cost and tariff should only be determined at the time of commercial operation date of the project only after considering actual payment made against SGD presented with documentary evidence.

TPCD further stated that SGD is a part of capital expenditure and needs to be spread out over the assets’ balance life.

Meanwhile, TPREL stated that the PPA provides specific timelines concerning only financial closure and the commercial operation date of the project and no timelines concerning procurement of the solar modules. Thus, TPREL did not need to submit any timeline for procurement of the solar modules.

Eventually, the Commission ruled that the extension of SGD  imposition is an event of Change in Law. The Commission further ruled that the additional expenditure and other consequential impacts would be considered on actual basis for reimbursement under Change in Law subject to prudent check. Accordingly, TPREL must approach the Commission at a later date to determine the increase in cost on account of imposition of SGD if any.

In 2019, MERC had stated that imposition of Safeguard Duty should be a considered a Change in Law event, and therefore the additional expenditure and other impacts will be considered for reimbursement. The commission was responding to petitions filed by TPREL, Adani Renewable, and ACME Solar on account of Change in Law due to the promulgation of levy of safeguard duty of 25% on solar modules and cells imported from China and Malaysia.