In an important development, the Supreme Court of India upheld the judgment of the Appellate Tribunal for Electricity (APTEL), in which it had set aside the orders passed by the Karnataka Electricity Regulatory Commission (KERC) regarding the reduction in tariff based on the commissioning date of solar projects in Karnataka.

The Bangalore Electricity Supply Company Limited (BESCOM) had filed the petition, challenging APTEL’s earlier order.

Background

The Karnataka Renewable Energy Development Limited (KREDL) had issued a request on November 20, 2015, to develop 1,200 MW of solar projects in 60 taluks through private-sector participation. Emmvee Photovoltaic Power incorporated two special purpose vehicles (SPVs) for the task.

ES Solar Power was an SPV constituted by Emmvee Photovoltaic Power for developing a 10 MW ground-mount solar project at Bidar in Karnataka. Another SPV was set up for developing a 20 MW solar project at Bagpalli in Chikkaballapura. The projects were awarded on March 31, 2016, and the power purchase agreements (PPAs) were signed on May 23, 2016. The supplemental PPAs were signed on December 17, 2016. The commissioning certificate for the Bidar project was issued on October 25, 2017, and for the Bagpalli project, it was issued on November 23, 2017.

The original petition was filed by the developers who were hit by the tariff slash from ₹6.10 (~$0.082)/kWh to ₹4.36 (~$0.059)/kWh and imposition of damages to the tune of ₹2 million (~$26,955) for the delay in commissioning of the projects by one day. KERC, in its order dated October 23, 2018, dismissed the petition filed by the developers based on the assumption that the scheduled commissioning date for the solar projects was October 16, 2017, and not October 17, 2017.

Mercom had reported then that the ruling was extremely harsh considering the dispute is based on a matter of hours and the fact that the developer had some evidence showing power injection activity.

Later, the developers approached APTEL and requested the Tribunal to consider the projects delayed by one day and whether the Commission was justified in imposing liquidated damages on them. The APTEL, in its order, held that the commissioning date of both the projects, according to the Karnataka Power Transmission Corporation Limited (KPTCL), was October 16, 2017. The Tribunal also noted that the commissioning of projects was done within the prescribed time limit. APTEL set aside the KERC order on the topic, and as a result, BESCOM filed this appeal challenging APTEL’s order.

BESCOM said that the Commission correctly interpreted the agreement to include the first date and the last date. The state DISCOM said that it was clear that no injection of power to the grid had taken place until October 17, 2017, and the developers were not entitled to a tariff of ₹6.10 (~$0.082)/kWh.

Court’s Analysis

The Apex Court said that the main point of contention was whether the developers commissioned the project before the 12-month deadline from the date of approval of the PPA, which was October 17, 2016, and whether the scheduled date of commissioning was October 16 or 17, 2017.

The Court added that the reduction in applicable tariff as per the PPA was permissible only in the case of a delay in commissioning of the projects beyond the scheduled commission date. It further noted there was no dispute between the parties that the effective date was October 17, 2016.

Further, the Court observed that if the event date of October 17, 2016, were excluded, the scheduled commissioning date would be October 17, 2017.

“The Commission applied 1.2.1 (m), which refers to a period commencing from a specified date to a specified day for the purpose of including the date of the event. In our view, the Commission has committed an error in applying 1.2.1 (m) when the applicable provision is 1.2.1 (k). There is a specific mention of ‘twelve months’ in the definition of ‘scheduled commercial operation date,’ and Article 1.2.1 (k) categorically provides that any reference to a ‘month’ should be a calendar month,” the Court noted.

On the topic of tariff cut due to a day’s delay in commissioning of the projects, the Apex Court noted that the Commission had answered the point in favor of the state DISCOM by holding that the actual injection of power was necessary to determine the date of commissioning of the projects. APTEL reversed the findings by relying upon the commissioning certificate issued by the KPTCL, which says that the solar projects were commissioned on October 16, 2017, itself.

The Court observed that as the commissioning date for the projects was October 17, 2017, it was not necessary to adjudicate on the matter of injection of power into the grid for determining the commissioning date.

Considering all the above facts, the Court upheld the order issued by APTEL and dismissed the appeal filed by BESCOM.

Speaking on the judgment, Aditya K Singh, Associate Partner at Link Legal, said, “The Supreme Court while dismissing an appeal filed by BESCOM reiterated that the exercise undertaken in the construction of the contract is to determine what the words used mean, i.e., to say expressed intentions (no scope for either adopting liberal or a narrower approach). In the instant matter, the project was to be commissioned within 12 months of the date of the PPA approval. The dispute was whether the date of the approval should be included or excluded in the calculation of 12 months. The Supreme Court relied on specific provisions of the PPA and held that 12 months period would start from the next date of the PPA approval. Definition of the word ‘commissioning’ was also a point of the contention; however, the chance to adjudicate this issue did not arise in the judgment.”

There has been a slew of rulings against commission delays of solar projects in Karnataka. In November 2018, KERC reduced the tariff of a 34 MW solar project by Welspun Renewables Energy. The developer was entitled to a tariff of ₹7.01 (~$0.098)/kWh which was reduced to ₹6. 51 (~$0.091)/kWh as a result of commissioning delay.

Subscribe to Mercom’s real-time Regulatory Updates to ensure you don’t miss any critical updates from the renewable sector.