CERC Rejects Petition To Replace Bank Guarantees With Payment On Order Instruments For Solar Project Connectivity

Indosol Solar Private Limited filed a petition with the Central Electricity Regulatory Commission (CERC), seeking approval to submit a Payment on Order Instrument (POI) issued by the Indian Renewable Energy Development Agency (IREDA) instead of a bank guarantee for connectivity under the General Network Access (GNA) Regulations, 2022. The company is developing a 3,500 MW solar project across Andhra Pradesh and had requested this alternative citing financial flexibility.

The company argued that POIs, backed by public sector entities like IREDA, serve the same purpose as bank guarantees, offering security for evacuation capacity and transmission charges. Indosol highlighted that obtaining bank guarantees imposes double financial burdens, requiring upfront payments for both counter-guarantees and bank guarantees. The company cited precedents where similar instruments were accepted in renewable energy projects.

The Central Transmission Utility of India Limited (CTUIL), a respondent, opposed the proposal, stating that the GNA Regulations explicitly require bank guarantees issued by scheduled banks. CTUIL emphasized that POIs lack the legal immunity provided to bank guarantees under the Insolvency and Bankruptcy Code (IBC). Additionally, it argued that such a substitution would undermine the regulatory framework’s robustness.

CERC reviewed the arguments and found that the GNA Regulations do not currently recognize POIs as an alternative to bank guarantees. The Commission noted that while POIs have been accepted in certain contexts, their enforceability and immunity under the IBC are limited compared to bank guarantees. CERC stated that any change to the regulations would require careful evaluation and amendments to ensure compliance with the legal and financial frameworks.

As a result, the Commission rejected Indosol’s petition to use POIs in place of bank guarantees. However, it acknowledged the financial challenges faced by renewable energy developers and directed its staff to explore alternative instruments that could provide adequate security without compromising regulatory integrity. The matter may be revisited through formal amendments to the GNA Regulations.