SECI Asked to Compensate Maharashtra DISCOM for Delay in Commissioning Solar Projects

The Maharashtra Electricity Regulatory Commission (MERC) has asked the Solar Energy Corporation of India (SECI) to compensate the Maharashtra State Electricity Distribution Company Limited (MSEDCL) for the short supply of energy due to which it had look to other sources to fulfill its renewable purchase obligation (RPO).

It directed SECI to return the money if the bank guarantee was encashed after creating the payment security mechanism. It also asked SECI to reimburse the money accrued following the tariff reduction due to delay in commissioning of the projects.

MSEDCL had filed a petition with the Commission seeking compensation as per the power sale agreement (PSA) executed with SECI and compensation on account of the delay in the project’s commercial operation date (COD) as per the power purchase agreements (PPA) with the project developers.

Background


SECI carried out two separate bids for selecting solar power developers for 500 MW projects in each case to be set up in Maharashtra for sale to MSEDCL based on the Request for Selection (RfS) dated August 27, 2015, and February 24, 2016.

SECI and MSEDCL entered into two PSAs on November 04, 2016, and December 01, 2016, with SECI having to sell solar power to MSEDCL by buying the same from the selected developers.

The commissioning dates for Batch-III projects was May 10, 2017, for the open content category (450 MW) and August 16, 2017, for the domestic content requirement (DCR) category (50 MW).  The commissioning date for 500 MW Batch-IV projects was December 23, 2017.

The agreed capacity of power to be sold by SECI to MSEDCL under both the PSAs was 500 MW each, respectively.

SECI started supplying power to MSEDCL from June 2017 in a phased manner. However, some of the projects that SECI had tied up for were delayed, leading to a shortfall in supply of power as agreed under the PSA executed between MSEDCL and SECI.   

In its submission, SECI said that it was acting only as an intermediary nodal agency to facilitate such purchase and resale of electricity.

The delay in commissioning and commercial operation of the developers’ solar projects led to a delay in commencement of supply of power for reasons not attributable to SECI.

It said that there was no avenue available for MSEDCL to seek a reduction in the applicable tariff of ₹4.50 (~$0.061)/kWh.

SECI argued that the amount related to the liquidated damages and reduction in tariff provided for in the PPAs was not required to be remitted to MSEDCL. There was no monetary remedy provided under the PSAs for the delay in commissioning of the projects.

Commission’s Analysis

After going through all the facts, the Commission said that the PSA and PPA provisions established that compensation for the short supply of energy in any contract year was recoverable by SECI from the developer for remitting it to MSEDCL.

However, such compensation for the short supply of energy was relevant only for the period after the project’s COD. SECI, in its submission, had also agreed with the same.

Accordingly, the Commission said, MSEDCL may revise its claim for the short supply of energy by considering only the period post the COD of the projects.

The Commission observed that to make timely payments to the developers, the National Solar Mission (NSM) guidelines had specified the development of a ‘Payment Security Fund.’

“Accordingly, money received from encashment of bank guarantee has to be deposited into the above-stated fund. Hence, MSEDCL cannot claim such an amount from SECI. However, MNRE has specified a ceiling limit of such fund, i.e., three months of payments to the projects set up under the guidelines. Once the limit is reached, the benefit of any subsequent encashment of the bank guarantee would need to be passed on to MSEDCL. To enable MSEDCL to claim such benefit, SECI is directed to provide details of the fund created, its ceiling level considering three months payment to the project, and details of the bank guarantee enchased. Based on such details, if applicable, MSEDCL may claim amount received by SECI towards encashment of the bank guarantee,” the Commission noted.

The state regulator added that the tariff for the sale of energy to MSEDCL was linked to tariff discovered for individual projects through reverse auction process plus SECI’s trading margin of ₹0.07 (~$0.0009)/kWh. It was also important to note that the PSA had put higher limits, i.e., ₹4.50 (~₹0.061)/kWh, which can be levied on MSEDCL.

Therefore, when there is a reduction in tariff on delay in commissioning the project, SECI will have to pass on the same to MSEDCL.

From the detailed project commissioning status submitted by SECI, the Commission stated that several projects had been commissioned with a delay of more than three months. All such projects must have been subjected to the reduced tariff as per the PPA provisions, and SECI must have accrued the benefit of the reduced tariff.

Therefore, the Commission directed SECI to pass on any benefit accrued to it based on a reduction in the tariff to MSEDCL within a month.

In September last year, MERC asserted that it was the appropriate Commission to adjudicate a dispute between SECI and MSEDCL. The MSEDCL had filed a petition with the Commission seeking compensation from SECI following a shortfall in the supply of power as agreed upon under the PSA between both the parties.

Earlier, Arina Solar had filed a petition with the Central Electricity Regulatory Commission (CERC) requesting it to direct SECI to return its performance bank guarantee of ₹500 million (~$6.67 million).

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