Solar Developers to Be Compensated for Per Unit Impact of Safeguard Duty Imposition

The Maharashtra Electricity Regulatory Commission (MERC) approved two solar developers’ claims for compensation on account of safeguard duty imposition. The developers sought relief under the ‘Change in Law’ provision for 133 MW of solar modules installed at various locations in the state.

The Commission directed the Maharashtra State Electricity Distribution Company Limited (MSEDCL) to ascertain the compensation amount within 15 days from the date of the order.

Background

Juniper Green Energy Private Limited (JGEPL) and its special purpose vehicle Nisagra Renewable Energy Private Limited (NREPL), had filed petitions seeking the approval of the amount of compensation along with interest on account of ‘Change in Law’ due to the imposition of safeguard duty on the import of solar cells.


MSEDCL had issued a request for selection (RfS) on April 27, 2018, inviting bids for the development of solar projects in Maharashtra. Juniper was declared one of the selected bidders for 100 MW capacity with 10 MW of capacity awarded for each of 10 locations at a tariff of ₹3.15 (~$0.042)/kWh.

Juniper Green was originally incorporated as AT Capital Advisory India Private Limited on December 05, 2011, and the name of the company was later changed to JGEPL. AT Capital was selected as the successful bidder to execute solar power projects at different talukas for a cumulative capacity of 100 MW under the ‘Mukhyamantri Saur Krishi Vahini Yojana.’

On the other hand, Nisagra was incorporated on March 22, 2018. The main objective of Nisagra was to execute the power purchase agreements for 70 MW, while the remaining 30 MW was to be executed through Juniper. The PPAs were executed with MSEDCL on December 27, 2018.

The two had claimed for compensation to the extent of ₹134 million (~$1.79 million) and ₹316.2 million (~$4.23 million), respectively. However, the two principal issues of contention with MSEDCL were:

  • The calculation of DC capacity in a proportion of the declared capacity utilization factor (CUF)
  • The calculation of carrying cost

The two petitioners said that they had incurred an additional cost of ₹491.3 million (~$6.57 million) on account of safeguard duty for the import of 145.51 MW (43.72 MW for JGEPL and 101.79 MW for NREPL) of solar modules. Accordingly, they were seeking compensation for this amount along with the carrying cost through the restitution principle of the PPA. They also proposed the mechanism of a lump-sum payment for providing compensation.

Juniper and Nisagra had requested that considering environmental conditions in Maharashtra; the minimum CUF should be considered as 17.12% while computing allowable DC module capacity for the compensation.

The Commission noted that higher capacity and efficient modules are already available in the market, which will improve the CUF of the project. The Commission added that if all the factors are considered, then it is not correct to state that 19% CUF cannot be achieved in Maharashtra with DC: AC ratio of 1:1. Therefore, petitioners’ request of considering minimum CUF of 17.12% while computing allowable DC module capacity cannot be accepted.

The order added that although per unit charge at the start of each financial year needs to be decided based on the declared CUF, year-end reconciliation at the end of each financial year should be undertaken as per the actual CUF within range ± 10% of the declared CUF. The Commission underlined that this method of computing per unit impact of Change in Law compensation protects the interest of both parties as it provides time value of money (carrying cost) on the deferred recoveries to the petitioners and also allows MSEDCL to smoothen the payment of compensation over the period of PPA.

The Commission asked MSEDCL to complete the process of determining compensation within 15 days from the date of the order. Also, additional documents should be examined within 45 days. Further, the physical verification of RFID (Radio-frequency identification) tags should be completed within six months.

The Commission further noted that for fulfilling the contractual obligation of supplying a total of 100 MW (AC) capacity from 10 projects to MSEDCL, JGEPL and NREPL were entitled to compensation for maximum DC capacity of 133 MW.

Further, the Commission said that under the ‘Change in Law’ provisions of the PPA, the petitioners should be eligible for carrying cost from the date it paid such amount to the government authorities until the date of this order.

The Commission noted that MSEDCL has the option to decide whether it has to pay the amount of compensation in lump-sum to avoid further carrying cost or make a payment over the tenure of PPA with an additional carrying cost.

Earlier, the two developers had requested the Commission to accept safeguard duty imposition as Change in Law. The order underlined that the government notification was a “Change of Law” event. The state Commission also added that the actual expenditure and its consequential impact would be considered for the reimbursement. This will be possible only after JGEPL and NREPL approach the MERC again with all the necessary details.

According to Mercom’s India Solar Project Tracker, Maharashtra has over 1.6 GW of large-scale solar projects in operation, and nearly 1.4 GW is currently under the development pipeline.

Notably, the Director-General of Trade Remedies has recently recommended the extension of the safeguard duty on the import of solar cells and modules to India for another year starting July 30, 2020. In its notice, the DGTR recommended a rate of 14.90% for the first six months and 14.50% for the subsequent six months on all solar cells and module imported from the China PR, Thailand, and Vietnam, noting that imports from all other developing nations will not attract the duty.