The Karnataka Electricity Regulatory Commission (KERC), in a recent order, ruled that Adyah Solar Energy, a subsidiary of ReNew Solar, was entitled to compensation for additional costs incurred due to the imposition of a safeguard duty. The Commission noted that the safeguard duty imposed on imported solar cells and modules was a “change in law” event.

The Commission asked the distribution companies (DISCOM) to pay the additional invoices for the incremental tariffs from the dates of commissioning of the projects until the date of order in three equal installments.

The Commission also ordered the developer to comply with the affidavit dated January 6, 2021, to reimburse the amount received by DISCOM if the Supreme Court order rescinds the notice of safeguard rights regarding the “change of law” .

Adyah Solar had filed petitions, seeking reimbursement from the Bangalore Electricity Supply Company, Hubli Electricity Supply Company and Gulbarga Electricity Supply Company for the additional costs incurred due to the imposition of the safeguard duties.

Background

A special purpose vehicle of Renew Solar, Adyah Solar is registered under the Companies Act 2013.

Karnataka Renewable Energy Development Limited had launched a tender to develop 1.2 GW of solar projects in the Pavagada solar park in January 2018.

Renew Solar was one of the auction winners and had won the tender to develop 300 MW of solar projects. The projects were to be developed in six different blocks of the Pavagada solar park.

Shortly after the signing of the Power Purchase Agreements (PPAs), the Ministry of Finance imposed safeguard duties on the import of solar cells and modules from China, Thailand and Vietnam. The proponent argued that the imposition of a safeguard duty was a “change of law” event.

The developer also argued that “costs of ownership” were compensation for the time value of money and a provision inherent in the “Change of Law” clause of the PPA. Since the “change of law” clause was based on the principles of restitution, relief of porterage costs on additional costs incurred due to the “change of law” was implicit in the PPAs.

Commission’s analysis

The Commission observed that the decision on the validity of the safeguard duty notification considered to be a “change of law” was pending before the Supreme Court of India. However, the Supreme Court had not given any specific or general instructions to the Commission not to hear the claims in this regard.

The developer had appealed to KERC to declare that the imposition of a safeguard duty was a “change of the law” event. In addition, he had asked the Commission to order DISCOM to reimburse him for the additional expenses incurred with a proportional increase in the agreed tariffs.

The Commission noted that the notification issued by the Ministry of Finance regarding the imposition of a safeguard duty on the importation of solar cells and modules was a “change in law” event within the meaning of Article 15 of the APP.

However, the Commission considered that the requests to grant postage costs on the additional working capital on the payment of the safeguard duty and the integrated tax on products and services were not sustainable. Compensation for postage has been a bone of contention with developers and DISCOMs. Recently, Mercom reported that in the case of an imported coal-based thermal power generator, the Commission decided that the generator was eligible for “carrying costs” resulting from approved “law change” events. from date ‘until actual payment has been made. The producer would be eligible for “carrying costs” at the actual rate of interest paid for setting up funds or at the rate of interest on working capital. The cost of ownership was permitted by the explicit restitution clause in the PPA.

DISCOM had argued that the developer’s additional expense reimbursement claims could have been avoided if he had imported solar modules from countries that did not attract safeguard duties instead of purchasing them from China.

The Commission agreed with DISCOM’s assertion that the developer imported more modules than needed for production capacity, and could not authorize a refund of safeguard duties on the additional quantity of solar modules . In a similar case involving another solar developer Fortum, KERC had refused to allow reimbursement of safeguard duties on the additional quantity of solar modules.

The Commission determined the amount of reimbursement to Adyah Solar for the additional investment cost incurred due to the imposition of a safeguard duty for the minimum contractual capacity through incremental tariffs for all six projects. DISCOMs are required to reimburse the amount from the date of commissioning of the projects until the date of order in three equal installments.

Recently, the Electricity Appeals Tribunal ordered KERC to decide on the additional tariff payable as compensation to solar developer Fortum Solar. The developer had to be compensated for the additional expenses incurred due to the imposition of a safeguard duty, which was a “change of law” event.

Previously, the Central Electricity Regulatory Commission ordered the Solar Energy Corporation of India to compensate a solar developer for increased costs incurred due to the imposition of the Goods and Services Tax (GST) and the right of safeguard. The Commission noted that the enactment of GST laws and the imposition of safeguard duties could be dealt with under the “change of law” clause.

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