O2 Power Backed Firm Wins CERC Relief For 350 MW Solar Project

Beempow Energy Private Limited, a solar developer firm backed by O2 Power, has won a significant suit for relief at the Central Electricity Regulatory Commission (CERC). The relief, linked to its 350 MW solar project at Agar Solar Park  in Madhya Pradesh, where Rewa Ultra Mega Solar Limited (RUMSL) is the designated project developer. RUMSL in turn had separate agreements with MPPMCL and Indian Railways (acting through WCR) (collectively, as the Procurers of the energy from the project at a cost of Rs 2.44/unit.

The relief centres around change in law events in the firm of hike in GST in 2021 on solar equipment that was notified after the award of the project to BEPL, and associated interest and carrying costs linked to the same. Interestingly, as far back as early 2022, BEPL had informed rating agencies of its intention to claim for approval of additional capital cost incurred due to change in taxes. The quantum approved by the regulatory forum along with the timely realization of the same was subsequently added as a regulatory risk on the firm’s credit rating as well.

BEPL sought compensation due to an increase in the Goods and Services Tax (GST) rate from 5% to 12%/18% as per Notification No. 8/2021-Central Tax (Rate) dated 30.09.2021. This increase in GST was considered a Change in Law event under the PPAs, as it had signed the PPA before the change in law event.

• Financial Impact: The petitioner requested compensation for the increased expenditure due to the higher GST rates. The threshold limit for additional costs due to Change in Law was set at INR 20,000,000 (Indian Rupees Twenty Million). Any costs exceeding this limit would require the parties to approach the Commission for determining the quantum and mechanism of relief.
• Commission’s Decision: The CERC bench acknowledged the increase in GST as a Change in Law event and directed the parties to reconcile the additional expenditure. The compensation was to be paid at a discount rate of 9.12% over an annuity period of 15 years. The liability for monthly annuity payments would start from the 60th day from the date of the order or from the date of submission of claims by the petitioner, whichever is later.
• Carrying Cost: CERC decreed that the petitioner was also entitled to carrying costs from the date of actual payment of additional GST until the issuance of the order. The carrying cost would be calculated at the actual rate of interest paid by the petitioner for arranging funds, the rate of interest on working capital as per applicable RE Tariff Regulations, or the late payment surcharge rate as per the PPAs, whichever is the lowest.
• Restitution Clause: The Commission emphasized that the parties should be put in the same economic condition as if the Change in Law event had not occurred. The directions related to additional compensation for the period pre-COD (including carrying cost) would be enforced, while those for the period post-COD would be subject to further orders of the Hon’ble Supreme Court.

For O2 Power, the order is a significant if expected win. Interestingly, while noting the significant delay in the commissioning of the project, the CERC bench did not go into the issue going by the arrangement between the parties involved on the matter.