CERC Order Against Avaada Energy in 100MW Project Leaves Key Issues hanging

Last Week, in an order dated January 13th , 2019 the Central Electricity Regulatory Commission (CERC) ruled against Avaada Energy in a petition it had brought against SECI (Solar Energy Corporation of India). The order, while dismissing a plea by Avaada to stay the cancellation of a PSA (Power Sales Agreement) it had with SECI for a 100MW project in Maharashtra, also raises interesting issues on pretty much all disputes that extend beyond a specific period of time in the sector.

Due to their short gestation periods typically, solar developers, at most, get around 2 years to execute projects, after taking into account all possible delays.  In Avaada’a case, the delay on the 100 MW project has extended to this day, with just the first 28MW that was set up by it in place, and there too, there is no clarity on how the power generated will be utilised, or wasted? After all, after the CERC order, that capacity also stands orphaned, in respect of any buyer for it. Thanks to the MSEDCL (Maharashtra State electricity Distribution Company Limited ) also cancelling its own back to back PSA with SECI for the full capacity.

Thus, a dispute that should have been resolved on 17.12.2018, when the CERC first ruled on the delays caused due to land acquisition and other issues on the remaining 72 MW, seems destined to escalate to a possible appeal in the High Courts by Avaada Energy Private Limited. The latest cause for the delay and subsequent cancellations and petitions was the inability of Avaada to compete the project with its own funds, after giving an undertaking to do so within 90 days. When it set out to raise the funds from a bank, SECI apparently refused to issue a letter of confirmation to it on the PSA . SECI’s contention being that after the letter from Avaada on using its own funds, it considered the project’s financial closure as done. Tus, despite Avaada showing its intent with the 28MW that is already installed, plus the Rs 206 crores that it claims to have invested, the project is no hanging in limbo, caught between legalities.

A quick background on the project: The Ministry of New and Renewable Energy (MNRE) issued a scheme for setting up of 2000 MW Grid connected Solar PV Power Projects under Batch-III of Phase-II of the Jawaharlal Nehru National Solar Mission (JNNSM) with Viability Gap Funding support from National Clear Energy Fund. On 27.8.2015, SECI, the nodal agency for implementation of the MNRE Scheme, issued Request for Selection (RfS)document for selection of Solar Power Developer (SPD) for development of 500MW grid on Build, Own and Operate (BOO) basis in the State of Maharashtra. Welspun Renewable Energy Pvt. Ltd. (WREPL), was awarded the project of 100 MW by SECI and in this regard, Letter of Intent (LOI) was issued to it on 10.3.2016.  this was issued to Welspun Energy Pivate Limited, which in turn, turned to its subsidiary Giriraj Renewables to execute, a firm which eventually became present day Avaada Energy Private Limited. All these changes, along with the demonetisation and resultant cash crunch, not to mention digitisation of land records that hit the economy during 2016, have all claimed their share of blame for the initial delays. Most of which were accepted in the order of dec 17, 2018.

Today, Avaada Energy claims that everything other than module installation, and related permissions post project completion, like synchronisation permission and CEIG permission, has been done. Thus, it’s certainly not a fight it can give up at all.

The interesting questions here, some of which have been raised by Avaada in its plea too, is on how SECI, rather than taking a holistic view of its role to encourage solar power production and act as an enabling body, has been reduced to a regular government agency that is going through the motions of following the letter of the law, and not the spirit.  SECI, on the other hand has clearly been unhappy about the repeated delays, and reasons given, even as solar prices elsewhere kept dropping from the rates agreed to in the original PSA. In fact, it is quite possible that it felt its hands were tied, thanks to the risk of charges of favouring Avaada had it tried to do that, when actual project commissioning date has been pushed to the era of sub Rs 3 per unit rates.

Tracking this case should make a lot of sense for getting a clearer view on the overall view of the executive and judiciary, in a situation where solar power is already falling behind, both the size and resources invested in this project are already substantial, and the developer in this case clearly has every reason to execute. The answer to finding a way out of the logjam could literally be the million dollar answer many others will use as precedent.

For Avaada, considered one of the more bankable names in the sector with a strong record of fund raising from storied names, its a fight it can fight. One wonders how any other smaller firm, faced with a similar wall of official resistance, would have survived.