CERC Grants Compensation For GST Hike Impact On 350 MW Solar Project In Madhya Pradesh

M/s Beempow Energy Private Limited (BEPL) filed a petition before the Central Electricity Regulatory Commission (CERC) seeking compensation for the financial impact of a change in tax laws. The petition revolves around the increased Goods and Services Tax (GST) rates on renewable energy equipment, which BEPL argues have led to higher project costs. The case pertains to the 350 MW solar power project at the Agar Solar Park in Madhya Pradesh, for which BEPL signed power purchase agreements (PPAs) with the Madhya Pradesh Power Management Company Limited (MPPMCL) and Indian Railways.

The petition was based on Section 79(1)(b) & (f) of the Electricity Act, 2003, along with Article 17 of the PPAs. BEPL contended that the government’s notification, which increased GST rates from 5% to 12% or 18% from October 1, 2021, constituted a “Change in Law” event. According to the agreements, any such regulatory changes that affect project costs should be eligible for compensation to restore the financial position of the affected party.

MPPMCL, as the procurer, is responsible for electricity distribution in Madhya Pradesh, while Indian Railways, through its energy management arm, has been procuring power directly from renewable energy generators. Rewa Ultra Mega Solar Limited (RUMSL), a joint venture between Solar Energy Corporation of India (SECI) and Madhya Pradesh Urja Vikas Nigam Limited (MPUVNL), was designated as the implementing agency for the Agar Solar Park.

BEPL’s petition outlined a series of arguments, highlighting that the GST hike directly increased the cost of solar equipment and, consequently, the total capital expenditure of the project. The company requested CERC to recognize the GST hike as a Change in Law event and evolve a mechanism for compensation. Additionally, it sought reimbursement for legal and administrative costs incurred in filing the petition and demanded carrying costs on the additional expenses incurred due to the delayed reimbursement.

The Commission examined the applicable laws and contractual provisions, including Article 17 of the PPAs, which stipulates that any statutory change in tax rates affecting project costs qualifies as a Change in Law. The Commission noted that the bid submission took place before the GST hike was implemented, thereby validating BEPL’s claim that the additional costs were unforeseen at the time of bidding.

CERC ruled in favor of BEPL, acknowledging that the GST hike constitutes a Change in Law event. It directed the contracting parties to reconcile the additional expenses while ensuring compliance with the financial threshold set in the PPAs. The Commission established a mechanism for compensation based on an annuity model with a discount rate of 9.12% over 15 years. Furthermore, it ruled that payments should commence within 60 days from the date of the order, and any delays would attract late payment surcharges.

Additionally, the Commission granted BEPL the right to claim carrying costs for the period between the actual expenditure and the final settlement. However, it clarified that the reimbursement of post-commercial operation date (COD) expenses would be subject to the Supreme Court’s pending decision in a related matter.

The ruling aligns with previous orders issued by CERC on similar cases, reinforcing the principle that renewable energy developers should be compensated for regulatory changes affecting project costs. The decision ensures that BEPL, and by extension other solar developers, are not financially disadvantaged due to policy changes made after contract execution.

With this order, BEPL can now proceed with claiming its compensation from the procurers, ensuring financial stability and continued operations of the solar project. The ruling also serves as a precedent for similar cases, reaffirming regulatory consistency in India’s renewable energy sector.