CERC Grants Compensation To Renew Solar Urja In Historic ‘Change In Law’ Case

In a significant development, the Central Electricity Regulatory Commission (CERC) issued a ruling in response to a petition filed by ReNew Solar Urja Private Limited (RSUPL) under Section 79 of the Electricity Act 2003. The petition sought approval for a “Change in Law” and compensation mechanism due to the rescission of Notification No. 1/2011 – Customs dated 06.01.2011, impacting the rate of basic customs duty on solar inverters.

RSUPL, a company engaged in solar power projects, is setting up a 300 MW Solar Power Project in Rajasthan. The rescission of Notification No. 1/2011 resulted in increased customs duty, social welfare surcharge, and Goods & Services Tax (GST). RSUPL argued that this change constitutes a ‘Change in Law’ event, impacting its financials as per the Power Purchase Agreement (PPA) with Solar Energy Corporation of India Limited (SECI).

The commission’s order, dated 11.04.2023, comes after multiple hearings and submissions from both RSUPL and SECI. The petitioner highlighted the adverse effects of the increased customs duty on solar inverters, leading to higher social welfare surcharge and IGST. They also pointed out the impact of the 2021 GST Notification, which raised GST rates from 5% to 12%.

The commission, after careful consideration, declared the rescission of Notification No. 1/2011 as a ‘Change in Law’ event. It acknowledged the increase in social welfare surcharge and IGST as additional elements of this change. The commission further noted that the change in law impacted RSUPL’s project, which had achieved commercial operation ahead of schedule on 16.12.2021.

Regarding compensation, the commission determined a discount rate of 9% and an annuity period of 15 years. It directed SECI and distribution companies to start monthly annuity payments from the 60th day from the order date or from the submission of claims by RSUPL, whichever is later. Late payment surcharge provisions were outlined for delayed payments.

Additionally, the commission addressed the issue of carrying costs, stating that RSUPL is entitled to reimbursement of carrying costs from the date of actual tax payments until the commission’s order. The carrying cost would be based on the actual interest rate paid by RSUPL or the rate specified in applicable RE Tariff Regulations or the late payment surcharge rate per the PPA, whichever is the lowest.

However, the commission specified that enforcement of compensation for the period post-Commercial Operation Date (COD) and carrying costs post-COD would be subject to further orders of the Supreme Court in a related matter.

In summary, the commission’s ruling provides relief to RSUPL for the increased costs incurred due to the change in law. The decision sets a precedent for similar cases under the Electricity Act, emphasizing the importance of compensating affected parties to restore them to the same economic position as if the change in law had not occurred. This landmark decision contributes to the evolving legal landscape surrounding renewable energy projects and their contractual agreements.

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