GERC Reviews Petition On 120 MW Solar Project Cost Increases Due To Tax Changes

The Gujarat Electricity Regulatory Commission (GERC) heard a petition filed by M/s ABRel SPV 2 Limited against Gujarat Urja Vikas Nigam Ltd. (GUVNL) regarding compensation for increased costs due to changes in tax rates. The petitioner sought relief under Section 86 of the Electricity Act, 2003, and Article 9 of the Power Purchase Agreement (PPA) dated January 30, 2021, arguing that the imposition of Basic Customs Duty (BCD) on solar PV modules and the increase in GST rates constituted a “Change in Law” event.

The petitioner stated that the Indian government, through notifications issued in 2021, raised the GST on solar modules from 5% to 12%, significantly increasing project costs. Additionally, the Finance Act of 2022 introduced a 40% BCD on solar PV modules, which became effective from April 1, 2022. The petitioner argued that these changes directly impacted the cost structure of the solar project and should be considered under the “Change in Law” provisions of the PPA.

The petitioner presented documents, including invoices, bills of lading, and duty payment receipts, to support its claim that the increased costs were unavoidable and incurred after due diligence in procurement. They also argued that if the modules had been imported before April 1, 2022, the additional duty would not have been applicable, but project timelines did not permit earlier procurement.

The petitioner further highlighted that the increase in GST affected not only the cost of solar modules but also the Balance of System (BoS) components, leading to an overall rise in project expenses. They requested compensation for these additional costs, including carrying charges, to restore them to the financial position they would have been in before the tax changes.

GUVNL, the respondent, countered that the petitioner’s claims should be limited to the 120 MW capacity specified in the PPA rather than the 125 MW capacity installed. They also argued that the petitioner failed to provide a proper breakdown of tariff adjustments and had not demonstrated that the tax increases solely impacted solar modules.

The commission reviewed the arguments and supporting documents from both parties. It acknowledged that the petitioner had submitted the required documents to demonstrate the financial impact of the tax changes. However, GUVNL raised concerns about missing annexures in the petitioner’s Chartered Accountant (CA) certificate, which were later submitted in the rejoinder.

GERC also examined the applicability of the “Change in Law” clause and whether the increased tax rates on modules and BoS components qualified for relief. The petitioner referred to previous tribunal judgments supporting their case, arguing that cost increases due to policy changes should be compensated.

After hearing both sides, the commission concluded that arguments had been presented in full and reserved the matter for a final order. The parties were given four weeks to submit any additional written statements. The outcome of this case will determine whether developers can receive financial relief for increased costs due to changes in government tax policies, setting a precedent for future renewable energy projects in Gujarat.