The Central Electricity Regulatory Commission (CERC) recently passed an order asking Solar Energy Corporation of India (SECI) and National Thermal Power Corporation (NTPC) to pay the requested compensation to Wardha Solar (Maharashtra) Pvt Ltd (WSMPL) on a back-to-back basis.

Since a majority of solar projects were already under development when the safeguard duty and GST were announced, they came under a clause called “Change in Law.” Change in law comes into force when there is a new law or a change in the tax structure or when a new tax is introduced.

The Commission has directed WSMPL, a project company of Parampujya Solar Energy Pvt Ltd (PSEPL), to send all the relevant documents to SECI and NTPC (respondents), clearly illustrating a direct correlation between the projects and the supply of goods and services along with relevant invoices and auditor’s certificates.

Background

Wardha Solar is developing a solar project of 40 MW at Siddapur village in Vijayapura district and 10 MW at Yelburga in Koppal district, Karnataka. Parampujya Solar Energy Pvt Ltd is engaged in the business of setting up solar power projects and the generation of electricity. PSEPL is developing five solar projects, each of 10 MW (cumulative 50 MW) capacity under DCR in Telangana. Both these special solar power vehicles belong to Adani Solar.

The petitioners requested the CERC to hold and declare that the imposition of GST is covered under Change in Law under Article 12 of the power purchase agreement.

In February 2016, SECI had issued a request for selection (RfS) for setting up 1 GW of solar projects in Karnataka. Subsequently, in July 2016, the nodal agency issued the Letter of Intent (LoI) to Parampujya Solar Energy for the development of the projects.

PSEPL formed the project company Wardha Solar which entered into two power purchase agreements for 50 MW (10 MW and 40 MW) with SECI in September 2016.

Later, National Thermal Power Corporation invited proposals through RfS for setting up grid-connected solar PV power projects of 350 MW (10 MWx35 projects) on the land to be identified and arranged by SECI in Telangana. PSEPL submitted its proposal for the development of five solar PV projects of 10 MW each to be located in Telangana. PSEPL was selected as the successful bidder. PSEPL entered into the five PPAs with NTPC in August 2016.

After almost a year in July 2017, GST was enacted by the government of India. Later, the PSEPL sent a notice to NTPC and SECI regarding the Change in Law due to the imposition, but SECI and NTPC did not respond. According to the petition, the incremental impact of GST, as claimed by the petitioners, is ₹141.8 million (~$1.7 million) and ₹168.2 million (~$2.02 million).

According to the petitioners, SECI and NTPC withheld part payment from invoices towards the cost incurred from the installation of solar modules, equipment, and allied services, which have been raised after the date of commissioning of the solar projects.

The Commission noted that the PPAs were executed before the introduction of GST on July 1, 2017. Therefore, they are entitled to relief under GST laws.

CERC noted that the petitioners incurred adverse financial consequences due to the introduction of GST, which has resulted in an additional financial burden for them. Considering all these, the Commission stated that SECI and NTPC should pay the amount claimed under Change in Law provision. The Commission added that the PPAs do not have a provision dealing with restitution principles of restoration to the same economic position. Therefore, the Commission added that the claim regarding separate carrying costs is not admissible.

The respondents have been directed to reconcile the claims for Change in Law on the receipt of the documents and pay the amount to the developer with 60 days from the date of issue of the order.

The CERC also felt that since the power purchase agreement (PPA) and the power sale agreement (PSA) are interconnected and linked to each other, SECI and NTPC can claim the same amount from the distribution companies (DISCOMs) on a back-to-back basis.

The back to back nature of the PPAs and PSAs means that the DISCOMs are liable to pay SECI and NTPC all that the latter has to pay to the petitioners. The Commission also states that alternatively, the petitioners and respondents may mutually agree to a mechanism for the payment on an annual basis over a period not exceeding the duration of the PPAs.

Recently, the Ministry of New and Renewable Energy released a circular stating that GST and Safeguard Duty compensation to solar developers should be paid within 60 days. Mentioning the orders already passed by the Central Electricity Regulatory Commission (CERC) on the ‘Change in Law’ compensation for GST and SGD, the ministry added that there is now no need for the developers to approach the CERC for each case individually.

In February 2020, Mercom reported that the CERC had reiterated its opinions on the restitution principle in power purchase agreements in the face of a Change in Law event.  The Commission noted that since the compensation on account of the introduction of GST is not large, it should be discharged by the respondent-procurers as a one-time payment on time.