The 51 MW solar project developed by ReNew Power in Vijaypur, Madhya Pradesh is in jeopardy after the Supreme Court of India  issued a stay order on the Jabalpur High Court’s ruling pertaining to a power purchase agreement (PPA) problem between ReNew Power, the solar project developer, and Madhya Pradesh Power Management Company Limited (MPPMCL), the off-taker.

A MPPMCL official told Mercom, “After the PPAs had been cancelled, the developer approached the High Court for redressal. The High Court issued a ruling in which it directed the MPPMCL to enter into a PPA with the developer, albeit it allowed the MPPMCL to retain the bank guarantee that had been cashed out, ₹119.6 million (~$1.8 million).”

After the High Court order, the MPPMCL approached the apex court in the country Supreme Court of India. The Supreme Court stayed the High Court’s order subject to the restitution of the bank guarantee, added the MPPMCL official.

When asked whether the bank guarantee has been restored, the MPPMCL official replied, “Yes, we did it as soon as the apex court’s order came out.” Regarding future course of action and whether PPAs for this 51 MW will be signed, the official commented, “We are awaiting the Supreme Court’s order, we will do as directed by the apex court in consultation with our legal team – up to that time I cannot comment any further.”

ReNew Power officials could not be reached for comments.

The Case

ReNew Power had won the contracts to develop a 51 MW grid-connected solar PV project by participating in a 300 MW solar tender issued by MPPMCL. ReNew Power quoted a tariff of ₹5.457 (~$0.0839)/kWh and was issued a letter of intent (LoI) on October 23, 2015. The PPA was signed between MPPMCL (the off-taker) and ReNew Power on November 10, 2015.

Per the tender document, the developer needed to procure land to develop the solar project. The State Government allotted 41.811 hectares for the project, but due to encroachment issues, work could not commence. On December 29, 2016, the MPPMCL issued a letter stating, “Change in the location of land may be permitted after 210 days of signing of PPA, by MPPMCL,”  subject to provision 2.5 and 2.6 of said PPA.”

Provision 2.5: MPPMCL shall encash contract performance guarantee (CPG)/bank guarantee (submitted by seller (ReNew Power) at the rate of ₹3 million (~$46,126)/MW) as under, subject to Force Majeure:

Provision 2.6: In case of Solar Project of capacity beyond 50 MW and up to 100 MW, commissioning of plant shall be within 15 months from the date of financial closure subject to Force Majeure.

On March 22, 2017, ReNew Power informed the MPPMCL, it had acquired 253 acres of land at Ashok Nagar, through a letter. On August 11, 2017, the MPPMCL terminated the PPA and ordered encashment of contract performance guarantee, citing a delay of 16 days.

On one hand it shows that the state governments are strictly enforcing deadlines and contract conditions, which is good for the sector. On the other hand, long-term PPAs should not be cancelled for such short delays.

Penalizing for a delay is within the sanctity of the contract entered by both parties, but rescinding a PPA of a commissioned project is taking a step backwards. Huge investment, infrastructure and expertise is locked up, resulting in huge losses, both to the project developer and the state. It leads to underutilization and a waste of resources at hand.

The PPA cancellation by MPPMCL runs counter to the Ministry of New and Renewable Energy’s (MNRE’s) recent advisory to provide time extensions for solar projects.

In September 2017, the MPPMCL cancelled PPAs for solar projects totaling 100 MW. This is setting a bad precedent in a state that is the first to provide a layered payment guarantee mechanism for project developers.

Image credit: By Pinaki1983 (Own work) [CC BY-SA 4.0], via Wikimedia Commons