Solar Developers, DISCOM Spar Over CUF to be Considered for Safeguard Duty Reimbursement

The Maharashtra Electricity Regulatory Commission (MERC) has said that if the generators revised the capacity utilization factor (CUF) as per the provisions of the power purchase agreement (PPA), then the revised CUF would be considered for calculating allowable DC module capacity for calculations safeguard duty compensation under the ‘change in law’ clause.

Juniper Green Energy and Nisagra Renewable Energy filed petitions seeking clarification regarding the Commission’s observations concerning the revision of CUF without an increase in the installed DC capacity.

Background

The Commission issued a Common Order dated July 23, 2020, regarding the approval and defining of quantity and compensation mechanism to be considered in a ‘change in law’ event due to imposition of Safeguard Duty on the import of solar cells and modules.


The Commission in its order had said:

“For fulfilling the contractual obligation of supplying a total 100 MW (AC) capacity from 10 projects to MSEDCL, the petitioners are entitled to compensation under Change in law for maximum DC capacity of 133 MW.”

The generators said that the Commission in its order had acknowledged and accepted that the solar generator has an option to revise CUF within one year from the commissioning date of the project. However, while restricting further claims of ‘change in law’ for any additional modules in case DC installed capacity is upwardly revised, the Commission had not clarified what should happen if the generator revises its CUF while keeping the installed DC capacity the same.

Both the generators said that the PPA provided for the revision of the CUF. The Commission’s observation to allow revision of the CUF on one hand and refusal to any further claims of ‘change in law’ toward any additional modules in case of upward revision of DC installed capacity seemed confusing and needed clarification.

Further, the requested clarification will also benefit the Maharashtra State Electricity Distribution Company Limited (MSEDCL) in a situation where a generator ‘downwardly revises’ its declared CUF.

MSEDCL, in its submission, said that the generators were trying to obtain relief for its installed DC capacity of 145.51 MW by using the clause of the PPA, which provided for resetting the CUF during the first year after the commissioning date.

The state DISCOM said that the Commission’s earlier order was absolutely clear and without any ambiguity that even if the generator resets the CUF per the PPA provision, no further claims will be admissible for any additional modules in case DC capacity was upwardly revised.

Further, it added that any change in the CUF, after the PPA had been executed and during the first year after the commissioning date, is the solar generator’s commercial decision depending on its performance in the first year.

Commission’s Analysis

In its earlier order, the Commission noted that the petitioners had approached the Commission for the ‘change in law’ compensation towards Safeguard Duty’s imposition. The Commission had adopted the formula (AC contracted capacity x (declared CUF/minimum guaranteed CUF as per bid)) for deciding the solar DC capacity, which was eligible for compensation.

This intervention was necessary to comply with the PPA provisions to ensure and allow only a prudent oversizing of DC capacities under the ‘change in law’ and avoid the burden of the generator’s inefficiencies be passed on to consumers.

The state regulator said that the petitioners suggested that the revised CUF be considered in the formula for calculating the eligible DC Capacity that will be considered for calculating compensation under ‘change in law.’

MSEDCL has opposed such a request contending that any change or revision in CUF, after the execution of PPA and within the first year of the commissioning date, was the solar generator’s commercial decision.

The regulatory body said that the PPA allowed the generator to revise CUF within the first year of the project’s commissioning. The revised CUF will be considered as declared CUF for other modalities as envisaged under PPA.

Hence, revised CUF within one year from the project’s commissioning date needed to be considered for computing allowable DC capacity for ‘change in law’ compensation.

The Commission categorically mentioned that the above ruling only clarifies the issue of declared CUF to be considered while computing allowable DC capacity for the ‘change in law’ compensation.

Both the petitioners have filed appeals before the Appellate Tribunal for Electricity (APTEL), challenging the Commission’s above decision to restrict allowable DC capacity for compensation of safeguard duty under ‘change in law’ as per formula specified in the Commission’s earlier order.

In a similar case recently, the Karnataka Electricity Regulatory Commission ruled that “the distribution companies are obliged to purchase the energy of minimum capacity from contracted capacity and not obliged to reimburse the safeguard duty on excess modules installed in their solar power project.” The Commission said it could not allow safeguard duty reimbursement on the additional quantity of solar modules.

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