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					</table>The Maharashtra Electricity Regulatory Commission (<a href="https://merc.gov.in/" target="_blank" rel="noopener">MERC</a>) has ordered the Maharashtra State Electricity Distribution Company <a href="https://www.mahadiscom.in/en/home/" target="_blank" rel="noopener">(MSEDCL</a>) to compensate a developer for the increased cost of the project due to the basic customs duty (BCD) on solar cells and modules.
The Commission ruled that any event can be considered a ‘Change in Law’ event if it is categorically mentioned in the power purchase agreement (PPA). If a project cost increases due to such events, it must be compensated.
Background
In May 2021, MSEDCL <a href="https://www.mercomindia.com/maharashtra-bids-500-mw-of-hybrid-power" target="_blank" rel="noopener">issued</a> a request for selection (RfS) to procure 500 MW wind-solar hybrid power on a long-term basis through a competitive bidding process from grid-connected inter-state and intra-state projects. The bid submission deadline was June 23, 2021.
At the time of the bid deadline, two taxes were applicable on solar projects &#8211; the basic customs duty (BCD) and safeguard duty (SGD). SGD ended on July 29, 2021.
Tata Power Saurya (TPSL) and Azure Power <a href="https://www.mercomindia.com/tata-power-azure-power-winners-msedcls-500-mw-hybrid-auction" target="_blank" rel="noopener">won</a> the auction to develop the projects at a tariff of ₹2.62 ($0.031)/kWh. TPSL won the auction to develop a 300 MW (200 MW solar and 100 MW wind) project.
The MSEDCL issued a letter of award (LOA) to TPSL to develop the 300 MW project, and the PPA had to be signed within 30 days of the tariff approval by the Regulatory Commission.
Since the PPA was yet to be signed, TPSL proposed to claim relief under the ‘Change in Law’ clause.
In April 2022, TPSL filed a review petition requesting the tariff to be revised to ₹2.56 ($0.030)/kWh, considering the increase in the cost of the steel. On July 7, 2022, the Commission issued the Order adopting the tariff of ₹2.56 ($0.030)/kWh and asked for the PPA to be signed within 15 days from the date of the Order. However, the Commission had not commented on the relief sought under the ‘Change in Law’ clause. TPSL then approached MSEDCL to review the PPA with the relief requested.
MSEDCL and TPSL signed the PPA on August 3, 2022, incorporating the ‘Change in Law’ provisions.
Meanwhile, TPSL tried to avail the concessional customs duty and requested that the Energy Department, Maharashtra, issue a ‘Recommendatory Letter’ to the Customs Department to import the solar modules with customs duty concession under Chapter 98. The concessional duty could not be claimed as the letter was never received. The government later discontinued this concessional duty.
TPSL approached MSEDCL claiming compensation for the project cost increase due to the BCD considering it was a ‘Change in Law’ event. MSEDCL refused to accept the ‘Change in Law’ claim based on the office memorandum (OM) issued by the Ministry of New Renewable Energy (MNRE) on March 9, 2021. The OM alerted bidders to quote tariffs considering the imposition of BCD on 4 April 2022. This was mentioned in the RfS issued by MSEDCL.
MSEDCL further observed that since the bid submission deadline was June 23, 2021, the imposition of BCD applied per the RfS, and TPSL should have considered it in its tariff.
TPSCL highlighted that in case of ambiguity or contradiction between the provisions of RfS and PPA, the terms of the PPA will prevail over those of the RfS. Per the PPA, any change in SGD, Goods and Services Tax (GST), and BCD rates after the bid submission deadline would be treated as a ‘Change in Law&#8217; event. Project cost escalations due to the ‘Change in Law’ event must be compensated.
Commission’s analysis
The Commission observed that TPSL made an honest effort to avail of the customs duty concession but failed due to the recommendation letter not being issued by the Energy Department, Maharashtra.
The Commission noted that any event can be considered a ‘Change in Law Event’ if such provisions are specifically made under the PPA. The PPA signed between TPSL and MSEDCL had the provisions to consider the introduction of BCD as a ‘Change in Law’ event. MSEDCL had not disputed receiving the ‘Change in Law’ Notice by TPSL.
The Commission ruled that TPSL had followed the due processes notifying the ‘Change in Law’ event to MSEDCL and is eligible to claim compensation for increased expenses because of the ‘Change in Law’ event. TPSL must file a separate petition for compensation once the project is commissioned.
In June this year, the MERC <a href="https://www.mercomindia.com/merc-compensation-gst-rate-change" target="_blank" rel="noopener">ruled</a> in favor of TPSL, declaring the increase in GST rates as a &#8220;Change in Law&#8221; event for its 300 MW wind-solar hybrid power project.
In July 2024, the Commission also <a href="https://www.mercomindia.com/merc-msedcl-procure-solar-thermal-power" target="_blank" rel="noopener">approved</a> MSEDCL&#8217;s petition to procure 5,000 MW of solar and 1,600 MW of thermal power.

MERC Allows Solar Developer’s BCD Compensation Claims

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					</table>The Maharashtra Electricity Regulatory Commission (<a href="https://merc.gov.in/" target="_blank" rel="noopener">MERC</a>) ruled in favor of TP Saurya (TPSL), a subsidiary of <a href="https://www.tatapowerrenewables.com/" target="_blank" rel="noopener">Tata Power Renewable Energy</a>, declaring the increase in Goods and Services Tax (GST) rates as a &#8220;Change in Law&#8221; event for its 300 MW wind-solar hybrid power project.
The ruling will allow TPSL to claim compensation to offset the financial and commercial impact incurred due to the tax hike.
Background
In 2021, Maharashtra State Electricity Distribution (<a href="https://www.mahadiscom.in/en/home/" target="_blank" rel="noopener">MSEDCL</a>) conducted a competitive bidding process for procuring 500 MW of wind-solar hybrid power. TPSL emerged as one of the successful bidders, quoting a tariff of ₹2.62 (~$0.031)/kWh.
However, on September 30, 2021, the Ministry of Finance issued a notification increasing the GST rate on renewable energy devices from 5% to 12%.
Initially, MERC refused to adopt the discovered tariff, but after a review petition by TPSL, the Commission adopted a revised tariff of ₹2.56 (~$0.028) per unit on July 7, 2022. TPSL and MSEDCL signed the power purchase agreement (PPA) on August 3, 2022.
On August 12, 2022, TPSL issued a Change in Law notice to MSEDCL regarding the GST rate increase. MSEDCL opposed this claim, arguing that TPSL should have factored in the GST hike while offering the revised tariff and that the notice was not issued within the stipulated 7-day period as per the PPA.
Commission&#8217;s Analysis
MERC rejected MSEDCL&#8217;s contention that the impact of increased GST rates was included in the discounted tariff. The Commission noted that accepting this argument would lead to changing PPA conditions post-bidding, which would vitiate the bidding process.
The Commission found that the GST rate hike satisfied the conditions stipulated in the PPA for consideration as a Change in Law event that occurred after the last date of bid submission.
It said TPSL could not have issued a Change in Law notice before the PPA was signed on August 3, 2022. The notice issued on August 12, 2022, was deemed within the stipulated seven working days.
The Commission ruled that TPSL would be eligible to seek compensation for increased expenses due to this change. However, TPSL has been directed to file a separate petition for compensation after the project&#8217;s commissioning.
Earlier this year, the Central Electricity Regulatory Commission also <a href="https://www.mercomindia.com/cerc-allows-compensation-developer-due-to-gst-rate-change" target="_blank" rel="noopener">allowed</a> a renewable energy developer to claim compensation for change in law events because of an increase in GST.
Recently, MERC <a href="https://www.mercomindia.com/merc-approves-tariffs-for-tata-powers-225-mw-wind-solar-hybrid-projects" target="_blank" rel="noopener">approved</a> tariffs for Tata Power Company – Distribution&#8217;s 225 MW wind-solar hybrid projects.
Subscribe to Mercom&#8217;s real-time <a href="https://www.mercomindia.com/product/mercoms-renewable-energy-regulatory-updates" target="_blank" rel="noopener">Regulatory Updates</a> to ensure you don&#8217;t miss any critical updates from the renewable industry.

MERC Allows Compensation for Renewable Energy Developer on GST Rate Change

The Maharashtra Electricity Regulatory Commission (<a href="https://www.merc.gov.in/" target="_blank" rel="noopener noreferrer">MERC</a>) dismissed Tata Power Company-Distribution&#8217;s (TPC-D) request to change the name of the execution entity from Tata Power Green Energy Limited (<a href="https://www.tatapowerrenewables.com/" target="_blank" rel="noopener noreferrer">TPGEL</a>) to Tata Power Saurya Limited (TPSL). The petition was filed for a 225 MW wind-solar hybrid power project.
Background
Tata Power-Distribution had filed the petition seeking the Commission&#8217;s approval for the change in the name.
Before that, it had approached the Commission to set a tariff for the procurement of 225 MW of power from hybrid projects on a long-term basis to meet its renewable purchase obligation (RPO) targets.
The tender was <a href="https://mercomindia.com/tata-power-rfs-power-hybrid-projects/" target="_blank" rel="noopener noreferrer">floated</a> in June 2020.
In its order dated August 10, 2020, the Commission had approved a tariff of ₹2.59/kWh.
Earlier, Tata&#8217;s distribution arm had <a href="https://mercomindia.com/tata-power-green-receives-letter/" target="_blank" rel="noopener noreferrer">issued</a> the letter of award to Tata Power Green to set up the 225 MW hybrid project. Later, Tata Power Green informed that its parent company, Tata Power, had decided to develop all its new projects under one company for better cash flow management and governance. After that, Tata Power Saurya was incorporated to consolidate the entire new renewable energy portfolio.
After this, Tata Power Green requested a change in the execution entity&#8217;s name for the hybrid project.
In its submission, Tata Power-Distribution said that during the bid evaluation, it had verified that Tata Power Green met the bid requirements by being a 100% subsidiary of Tata Power along with the financial criteria. Similarly, Tata Power Saur, being another 100% Tata subsidiary, qualified for the bid requirement. The new entity had agreed to execute the project at the same terms and conditions that were signed initially.
Commission&#8217;s Analysis
In its analysis, the Commission stated that it had approved the tariff discovered through the competitive bidding process, and Tata Power Green was found to be the lowest bidder. So, the capacity was given to it through a letter of award.
The Commission added that while submitting the petition, it was clearly stated that the request for selection does not provide the transfer of execution right to an affiliate.
The state regulator further said that Tata Power Saurya was not in existence as a separate legal entity during the bidding process or after completing the process because it was incorporated only on August 02, 2020. It said that the petitioner was seeking the change of executing entity, which was selected after a transparent process of competitive bidding to a new entity that did not exist at the time.
The Commission noted that the petitioner had not revealed any information about the existing obligations of Tata Power Green after the incorporation of the new entity.
&#8220;As per bidding conditions, the selected bidder had the option of forming a special purpose vehicle (SPV) to execute the project,&#8221; the Commission added.
After considering all the facts, the Commission said that the change in executing entity for the 225 MW grid-connected wind-solar hybrid power projects from TPGEL to TPSL could not be approved.
Regulatory updates in the renewable energy sector can be hard to keep track of. This is why Mercom has introduced real-time <a href="https://mercomindia.com/product/mercoms-renewable-energy-regulatory-updates/" target="_blank" rel="noopener noreferrer">Regulatory Updates</a> for its subscribers.

MERC Refuses Transfer of Execution Right in a 225 MW Solar-Wind Hybrid Project

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