Torrent Power's Plea for Changes to 'Force Majeure' and 'Change in Law' Clauses Approved

The Gujarat Electricity Regulatory Commission (GERC) has approved the changes sought by Torrent Power to the ‘force majeure’ and the ‘change in law’ clauses in the draft power purchase agreement (PPA) for the procurement of power from grid-connected solar projects for the fulfillment of its renewable purchase obligation (RPO) targets.

However, the Commission refused to approve any deviations to the ‘commissioning schedule’ in violation of the Ministry of Power’s guidelines.

Background

In August 2017, the Ministry of Power had issued guidelines for the tariff-based competitive bidding process for grid-connected solar PV power projects under which Clause 5.4 referred to force majeure definitions, exclusions, applicability, and available relief.


In November 2019, the Ministry of New and Renewable Energy (MNRE) issued amendments to its competitive bidding process guidelines, defining force majeure categorization under natural and non-natural events and exclusions.

‘Force Majeure’ Provisions

The Commission said that as per the draft PPA, no party would be in breach to the extent that the performance of its obligations is delayed due to a force majeure event and that there will be no adjustment in the tariff. Further, the taking over of project assets and appointment of another party to maintain and operate the assets were usually dealt with by banks and financial institutions.

The Commission agreed with Torrent Power’s submissions, which said that the provisions about ‘force majeure’ in the existing guidelines were extensive and had a vast scope. More particularly, the termination provisions provide a potential exit route to the generator by transferring the project risks to the procurers and ultimately to the consumers. This could give rise to circumstances under which the generator could terminate the PPA. In such cases, the interest of procurers would be adversely affected. Therefore, the power procurer should not be burdened with termination payment and takeover of the project when there is no default on the part of the power procurer.

Change in Law  

The state regulator also said that Torrent Power had requested for modification of Clause 9.1.1 (b) with “Introduction/modification/changes in the rates of any taxes/duties/cess/surcharge on import of solar power equipment which has a direct effect on the project cost” instead of the existing  clause of “Introduction/modification/changes in the rates of safeguard duty and anti-dumping duty which has a direct effect on the project cost.”

The developer had also requested the Commission to add in relief Clause 9.2.2, “This increase or decrease in tariff due to this change in the cost of PV modules will be limited to actual DC capacity or 150% of contracted AC capacity whichever is lower.”

The Commission noted that the petitioner had provided separate relief clauses for ‘change in law’ whereby as per clause 9.1.1 (a), which results in a decrease or increase by 1% in the estimated revenue for the contract year for which such adjustment becomes applicable, the tariff paid to the power producer will be appropriately increased or decreased with GERC’s approval.

Similarly, in case of the ‘change in law’ resulting on account of clause 9.1.1 (b), the petitioner had proposed that the power producer will be allowed an increase or decrease in the tariff of ₹0.01 (~$0.0001)/kWh for every increase or decrease of ₹200,000 (~$2,723)/MW in the project cost.

Torrent Power had further proposed that such an increase or decrease in tariff due to change in the cost of PV modules should be limited to actual DC capacity or 150% of the contracted AC capacity, whichever is lower.

The Commission approved the changes proposed by Torrent Power to the ‘change in law’ clause.

Commissioning Schedule

The existing guidelines provided that for the delay in commissioning up to six months from the scheduled commercial operation date (SCOD), the performance bank guarantee’s encashment would happen on a per-day basis and proportionate to the capacity not commissioned.

The petitioner had proposed a similar clause regarding the delay in commissioning up to six months from SCOD in the PPA. Torrent Power proposed that it may reduce the project capacity commissioned up to the SCOD plus six months and terminate the PPA for balance capacity for the delay in commissioning beyond six months.

The regulator said that granting sole discretion to the procurer to decide whether to avail the balance capacity which is not commissioned within six months after SCOD may not be reasonable. Moreover, the petitioner as distribution licensee needs to undertake a competitive bidding process to procure renewable power on a long-term basis to comply with its RPO. Therefore, any capacity tied up that is not fully commissioned within the period of SCOD plus six months may lead to a shortfall in meeting the RPO targets.

The Commission, however, refused to allow changes sought to the commissioning schedule.

In January last year, GERC had approved the changes to the Ministry of Power’s guidelines relating to ‘force majeure’ events, as sought by Gujarat Urja Vikas Nigam Limited.

Mercom had earlier reported that GERC approved the deviations to the competitive bidding guidelines for procuring power from grid-connected solar projects by Torrent Power.

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