CERC’s Role In Adapting To Challenges And Compensation In India’s Solar Sector After GST Rate Hike

In recent proceedings before the Central Electricity Regulatory Commission, M/s Ostro Energy Private Limited (OEPL) sought compensation under the Electricity Act 2003 for financial impacts arising from a change in the Goods and Services Tax (GST) rate, increased from 5% to 12% by a 2021 notification. The compensation claim was based on the Power Purchase Agreement (PPA) signed between OEPL and the Solar Energy Corporation of India Limited (SECI) in 2019.

OEPL, a renewable energy company engaged in solar power projects, argued that the GST rate hike resulted in additional project costs, qualifying as a “Change in Law” event under the PPA. Despite multiple hearings and notices, the responding parties did not provide written submissions.

The Commission, after careful consideration, acknowledged the 2021 GST Notification as a Change in Law event. It highlighted the need for a clear correlation between the GST increase and its impact on the project for compensation eligibility. However, due to a lack of specific project dates, the Commission couldn’t determine if the project was affected during construction or post-commercial Operation Date (COD).

The Commission directed parties to reconcile claims, emphasizing the need for a clear correlation between projects and invoices. It granted compensation based on the prevailing normative cost of debt at the time of COD, following principles outlined in related Supreme Court judgments.

The Commission ordered SECI and Discoms to reconcile and pay the claims to the petitioners, allowing a Late Payment Surcharge if payments were delayed beyond 60 days. Additionally, it acknowledged OEPL’s entitlement to carrying costs, considering actual interest rates paid or applicable RE Tariff Regulations, and directed SECI to pay the reconciled claims.

Notably, the Commission decided to enforce compensation for pre-COD claims but deferred decisions on post-COD compensation and carrying costs, awaiting guidance from the Supreme Court in related matters. In summary, the Commission recognized the impact of the GST rate change as a Change in Law event, emphasizing the need for specific project correlation for compensation eligibility. The decision reflects a cautious approach, awaiting further clarity from the Supreme Court on post-COD compensation and carrying costs. This case underscores the complexities in determining compensation for regulatory changes in the renewable energy sector, with implications for project economics and financial prudence.

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