MERC Grants Relief To Wind Company Due To Force Majeure

MERC Grants Relief To Wind Company Due To Force Majeure

The Maharashtra Electricity Regulatory Commission (MERC), in its latest order, provided relief to Clean Wind Power (Bhavnagar), a subsidiary of Hero Wind Energy Private Limited (Hero). This case highlights the importance for renewable energy developers to carefully draft contracts, anticipate potential disruptions, and ensure compliance with regulatory requirements to mitigate risks.

In its order, MERC aimed to resolve issues surrounding the development of a 75.6 MW wind power project by Clean Wind Power (Bhavnagar) Pvt. Ltd. (CWPPL) in Maharashtra. This project, part of a Power Purchase Agreement (PPA) with the Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL), faced recurring delays due to Force Majeure events, including grid connectivity challenges and the COVID-19 pandemic.

MERC in its ruling said, “If project gets delayed beyond 27 months form date of signing of PPA, contract capacity stands terminated and entire PBG shall be encashed. However as explained in earlier part of the Order, such period of 27 months is extendable by the period during which CWPPL is affected by Force Majeure event. Also, such termination of PPA post 27 months (or extended period on account of Force Majeure) is with encashment of PBG and can be considered as default of the PPA and may liable for compensation payable by CWPPL to MSEDCL on account of associate costs for PPA default.

CWPPL had argued that the fundamental basis of the contract had changed, supporting their claim of contract frustration. However, the commission dismissed this, stating: “The contention of change as a fundamental basis to support the claim of frustration of contract cannot be allowed. Therefore, the prayer sought by CWPPL to declare frustration of the PPA on account of prolonged Force Majeure events cannot be granted.”

This ruling addresses the impact of Force Majeure events, such as the COVID-19 pandemic, which significantly delay project timelines and affect the financial viability of renewable energy projects. CWPPL’s petition sought a declaration that their PPA with MSEDCL was frustrated due to extended Force Majeure events, and requested various reliefs. They cited delays in obtaining grid connectivity, the COVID-19 pandemic, and the non-receipt of grid connectivity for 50 MW of the project as reasons for relief.

The commission had previously extended deadlines due to Force Majeure events but noted that MSEDCL had initiated action to encash the Performance Bank Guarantee due to delays. Addressing this, the commission emphasized that the doctrine of frustration must be applied narrowly.

Partial Commissioning

The commission noted that CWPPL had grid connectivity for 25 MW and was obligated to proceed with this portion, as Force Majeure relief only applied to the remaining 50 MW. Specifically, it stated that “out of the total project capacity of 75.6 MW, grid connectivity of 25 MW was already available with CWPPL, while the remaining 50 MW had been applied for and the necessary fees paid.” Due to administrative processes and COVID-19 lockdowns, the application for 50 MW grid connectivity was delayed.

Force Majeure Events

MERC granted CWPPL exemption from obligations under the PPA for the 50 MW capacity lacking grid connectivity during the Force Majeure period. The ruling clarified: “CWPPL is exempted from its obligation under the PPA, i.e., commissioning of the project for 50 MW during the period in which STU had kept its application for grid connectivity pending. However, for the 25 MW for which CWPPL already possessed grid connectivity, this Force Majeure event did not apply.”

MSEDCL issued a notice to IndusInd Bank to invoke CWPPL’s Performance Bank Guarantee (PBG) due to delays in project commissioning. Citing Force Majeure events, including COVID-19 lockdowns and grid connectivity delays, the commission extended project completion deadlines but did not allow for termination of the PPA.

Regulatory Insights and Grid Connectivity Challenges

The ruling identified grid connectivity issues as a major challenge, noting that delays in obtaining connectivity approvals can extend project timelines and strain finances. This case underscores the importance of well-defined contractual obligations and the potential for disputes when unforeseen events disrupt project timelines and performance. It illustrates the regulatory body’s role in providing relief and extensions to renewable energy projects impacted by Force Majeure events, ensuring developers are not unfairly penalized.