The Maharashtra Electricity Regulatory Commission (MERC), in a recent order, ordered the Maharashtra State Electricity Distribution Company Limited (MSEDCL) to compensate two solar developers for additional costs incurred due to the imposition of a safeguard duty under the “change of law” clause. power purchase agreements (PPA).
The Commission has asked MSEDCL to forward its decision on the payment options to Juniper Green Energy and its wholly owned subsidiary Nisagra Renewable Energy within two weeks.
The Commission clarified that the carrying cost of the deferred payment should be at the interest rate on the working capital loan (average of the one-year marginal cost of the SBI funds-based lending rate (MCLR) plus 150 points basic); authorized in the “MERC Fare Rules, 2019”.
The Commission initiated the proceedings in this case on the basis of the earlier judgment issued by the Electricity Appeal Tribunal (APTEL) on November 16, 2021. It had sent the order to the Commission to issue a further order regarding compensation under the Law Clause.
MERC had issued a Request for Selection (RfS) to develop 1,000 MW of solar power projects in 218 talukas of Maharashtra.
MSEDCL had declared AT Capital as one of the successful bidders for 100MW capacity at a tariff of ₹3.15 (~$0.042)/kWh. The developer’s name was later changed to Juniper Green Energy.
The developer had specified that the 70 MW capacity would be developed by its subsidiary Nisagra Renewable Energy and that 30 MW would be developed by it.
Juniper Green Energy and Nisagra Renewable Energy had signed power purchase agreements (PPAs) with MSEDCL for the supply of 30 MW and 70 MW of solar power on December 27, 2018.
Under the provisions of the PPAs, the promoters had filed motions to determine the amount and mechanism of compensation as well as interest due to the “change of law” event due to the imposition of a backup.
The Commission had authorized compensation for such a “change of law” event, but had limited the maximum DC capacity eligible for such compensation by prescribing a formula. The Board had also awarded the cost of possession on this amount of compensation, but at the rate of increase for late payment stipulated in the PPA.
Dissatisfied with the order, the two promoters contacted APTEL. The Tribunal rescinded the previous order made by the Commission and asked it to make a new one. APTEL, in its order, had stated that the full DC capacity of the projects should be taken into account when calculating the “change in law” compensation.
The Tribunal had stated that the higher installed DC capacity resulted in higher project output while using the same AC infrastructure, thus optimizing the use of AC infrastructure, the benefits of which were passed on to the MSEDCL in the form of a lower rate.
With regard to the cost of possession, the Court had stated that the cost of possession on the amount of compensation should have been on the actual figures and not on the rate of increase for late payment specified in the PPAs, it i.e. 1.25% over 1 year MCLR of SBI for 25 years.
MSEDCL in its submission said that Nisagra Renewable Energy and Juniper Green Energy are claiming ₹28.67 million (~$380,230) and ₹13.35 million (~$177,052) respectively in compensation for installed DC capacity real.
DISCOM further added that cost of carry should be allowed in accordance with the “change of law” restitution principle stipulated in the PPA.
The Commission observed that the claims for compensation presented by the developers corresponded to the demands of the original petition. APTEL, in its judgment, had ordered to pass on the impact of the total DC capacity of the project when calculating the compensation.
Accordingly, the Commission approved the balance amount of ₹28.67 million (~$380,230) and ₹13.35 million (~$177,052) to be paid to Nisagra Renewable Energy and Juniper Green Energy, as approved by APTEL.
With respect to the cost of carry, the Commission noted that the cost of carry at the actual interest rate or the interest rate applicable to the working capital loan under the “2019 Tariff Rules” should be allowed to count from the date on which the promoters paid the safeguard right until the date of the order.
In addition, the state regulator pointed out that interest on the working capital loan (average of the SBI’s one-year MCLR plus 150 basis points) should be allowed to calculate the cost of ownership.
MERC stated that MSEDCL should decide on its payment option (lump sum or deferred payment) of the compensation and accordingly communicate the same within two weeks.
Last November, APTEL rescinded an order from MERC denying compensation sought by Azure Power Thirty Four Private under the “change of law” clause due to the imposition of the Goods and Services Tax (GST). ).
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Rakesh Ranjan is a journalist at Mercom India. Prior to joining Mercom, he held numerous positions as Business Correspondent, Deputy Editor, Senior Content Editor and Deputy Editor at bcfocus.com, CIOReview/Silicon India, Verbinden Communication and Bangalore Bias. Rakesh holds a BA in English from the Indira Gandhi National Open University (IGNOU). More articles from Rakesh Ranjan.