GERC Provides Only Interim Relief On Replacement of Modules For Old Solar Project

In a recent order in January, the Gujarat Electricity Regulatory Commission (GERC), when faced with a petition seeking permission to replace solar modules on a project ‘damaged’ by floods, chose to provide interim relief only, reserving the tight to take a final view on the issue.

The matter at hand is a very interesting case, as across the country, there would be tends, if not hundreds of such small projects set up before 2016-17 approximately, where the PPA contract for power generated is much higher than present day rates. Varying from Rs 4.50/unit to upto Rs 16/unit, state discoms across the board have been seeking opportunities to exit or reduce the value of these contracts on any opportunity whatsoever. However, it is the sanctity of the PPAs that has saved most developers so far. But key issues, like replacing older modules with newer ones, that could lead to higher CUF and hence higher realisations at the old rates, remain to be settled for good. In this case, the tariff was Rs 9.98/unit for the first 12 years, and Rs 7 per unit for the next 13 years.

Unlike Wind repowering, where a policy for such cases has been proposed, on solar, a clear stand is yet to emerge on calculating rates and terms when the need arises. Many of the PPAs enjoin the developer to take the permission of the buying discom before making changes, others don’t, making the situation even more interesting.

In this particular case, a developer, Astonfield Solar (Gujarat) Private Limited, with a PPA for an 11.5 MW solar plant had petitioned the GERC for permission to change modules. Besides that, the petition sought an order extending the first-time block of 12 years contained in Art.5.2 of the PPA (first signed in 2010)  till the date of the modules are replaced and the plant is fully operational with 11.5 MW capacity appropriately in addition to that delay caused by the respondent discom.

What made this case really interesting was the fact that Astonfield, due to floods that damaged its solar plant extensively in 2015 and 2017, making it impossible for it to fulfill its generation and supply commitments to GUVNL since then. These setbacks drove the firm to declare bankruptcy, and ended up in the insolvency court. In an order dated 20.11.2018 passed by the NCLT the process of handing over management of Astonfield stood completed and the management is now under Kundan Care Products Ltd. (KCPL). In the meantime, KCPL submitted its Resolution Plan whereby it sought to pay approximately Rs.25 crores for settlement of debts owed to the Petitioner’s creditors and take over the company as a going concern. This plan was approved, which meant Kundan Care effectively had control of the firm from January, 2022.

KCPL promptly appointed an independent auditor to evaluate the plant, and the audit report made it clear that rather than a CUF of 16-17% that it should have been working at, the plant was operating at barely 3.7% CUF. IT recommended replacing all the modules, and with technology having moved along, by default these new modules would be far more efficient and deliver higher output.

KCPL even went so far as to undertake that after replacement of the solar modules, the average CUF will not breach the CUF as applicable for the current year and the subsequent years in terms of the Tariff Order. As such, the Petitioner will not claim tariff at a higher CUF by replacing all the solar modules. It said that it has no intention to increase the installed capacity beyond contracted capacity of 11.5 MW and CUF approved by the Commission of 18% with 1% reduction on year-on-year basis. As against the CUF of 16.78% for CY 2020 and 16.61% for CY 2021, the actual PLF achieved by the Solar plant is 3.46% and 3.76% respectively.   Similarly, the CUF permissible as per Tariff Order for CY 2022 is 16.61% and that for CY 2023 is 16.26%. The firm is agreeable to receive tariff payments upto 16.44% for CY 2022, 16.26% for CY 2023 and even thereafter with 1% reduced CUF for ensuing years after replacement of Solar modules.

GUVNL, in its counter asserted that KCPL cannot be permitted to replace the solar panels with new panels with much higher efficiency and much lower cost entitling to the same tariff as provided for in the PPA and determined by the Commission in the year 2012. The tariff provided in the PPA was based on the costs and expenses prevailing then and the efficiency of the solar panels as was then available. KCPL in effect is seeking to divorce the tariff determination from the capital cost and efficiency of the panels which is not permissible, according to it.

In fact, it made the case that it should pay only Rs 2.00 to Rs 2.50 per unit, if KCPL was allowed to replace panels. It contended that the KCPL group has taken over the Petitioner company at a total cost of Rs. 25 crores. This cost for the 11.75 MW project works out to only a
little more than Rs. 2 crore per MW as compared to the capital cost of Rs. 10 crore per MW as approved by the Commission. That as against the capital cost which would work out to Rs. 115 crore for this project, the project has been taken over at the capital cost of only Rs.25 crore which works out to only about 21.7%. It also sought to remind the bench that no force majeure notice was served on GUVNL after the floods in 2015, further affecting the credibility of claims of flood damage. Thus, it sought to cancel the PPA. However, the termination of the PPA during the CIRP was held to be impermissible by the NCLT by its Order dated 29.8.2019 which was upheld by the NCLAT by its Order dated
12.10.2019 and also by the Hon’ble Supreme Court vide its Order dated 08.03.2021.

The GERC bench, in its interim order, allowed KCPL carry out replacement of defective/damaged solar panels/ modules at their cost and risk, while keeping all the contentions, issues, disputes raised by both parties open and without deciding them and the matter on merits. “Thus, for the present, only an interim relief is granted and eventually it is for the Petitioner to prove its case based on facts, documents and evidences on record and merits at the time of final decision & disposal of this matter by the Commission. We further note that the Petitioner admitted that it shall ensure replacement of defective / damaged panels etc. in such manner that the number of solar modules, inverters and their capacity shall not be more than contracted capacity and generation of energy from the Solar Power Plant shall not exceed installed / contracted capacity on the date of SCOD as per GEDA certificate and CUF in compliance to the decision of the Commission in relevant Tariff Order as undertaken and admitted by the Petitioner. Further, the Respondent is not liable to pay any amount for surplus power than above quantity if generated and supply from the Petitioner power plant to the Respondent beyond. “

In taking this careful view, the bench sought to take the common sense approach of allowing the plant to be revived, while being careful not to allow undue ‘profiteering’ thanks to the lower replacement costs and high PPA value. It has kept open the key issues of pending generation deficit that the new owner sought to supply and get paid for. Or the request to extend the PPA basis the period of severely low generation due to the damaged plant. As and when it does take a final decision on the issue, expect it to be hotly debated across the industry in any case.