GERC Examines Safeguard Duty Impact on Solar Project Costs Under Change in Law Provision

Azure Power Thirty-Three Private Limited filed a petition before the Gujarat Electricity Regulatory Commission (GERC) seeking compensation for an increase in project costs due to the imposition of safeguard duty on imported solar modules. The safeguard duty was introduced by the Government of India through a notification dated July 30, 2018, after the bid deadline for the project, and Azure claimed that this constituted a “Change in Law” under Article 9 of its Power Purchase Agreement (PPA) signed with Gujarat Urja Vikas Nigam Limited (GUVNL).

Azure Power had secured a project to set up a 260 MW solar PV plant in Gujarat through a competitive bidding process initiated in June 2017. The tariff for the power supply was discovered at ₹2.67/kWh. The PPA was signed on October 24, 2017, and the project’s scheduled commercial operation date was March 25, 2019. At the time of bidding and signing the PPA, there was no safeguard duty applicable on imported solar modules.

After the imposition of safeguard duty ranging from 25% to 15% for two years starting from July 30, 2018, Azure faced additional costs not anticipated in their bid. The company argued that the duty impacted their capital expenditure and requested reimbursement of ₹64.5 crore for modules already imported and additional sums for the remaining imports, with 15% interest. They also requested reimbursement of legal and administrative expenses and recognition of the duty as a pass-through in the tariff.

Azure supported its claim by referencing MNRE guidelines dated August 3, 2017, which classify changes in taxes and duties post-bid deadline as a “Change in Law.” They also cited clarifications from the Ministry of Power and MNRE affirming that such cost implications should be compensated to ensure the viability of projects.

GUVNL, however, contested these claims. It acknowledged that the safeguard duty is a law but argued that not all changes in law automatically entitle compensation under the PPA. According to GUVNL, the PPA’s Article 9 only recognizes changes in taxes on electricity generation and sale—not on inputs like solar modules. It also stated that Azure was aware of potential duties before importing and chose to import from China, despite the known risk of duties. GUVNL claimed the safeguard duty applied only to modules imported after July 30, 2018, and Azure could have avoided it by importing earlier.

Moreover, GUVNL argued that the PPA does not provide for carrying costs or interest before the Commission’s approval. They said Azure failed to demonstrate a one-to-one correlation between imported modules and the project, which is necessary for claiming reimbursement.

Azure responded by reiterating that safeguard duty qualifies as a Change in Law event as per both the PPA and MNRE guidelines. They contended that denying relief would contradict the statutory framework and Supreme Court interpretations. Azure also invoked legal doctrines such as contra proferentem, claiming that any ambiguity in the PPA should be interpreted in favor of the party that did not draft it.

The matter remains under adjudication by the Commission, with Azure seeking recognition of safeguard duty as a compensable Change in Law event and GUVNL opposing it based on contractual interpretations and bidding conditions.