APTEL Upholds Full Carrying Cost Compensation For Solar Projects Amid Change In Law

In a notable development in the Indian renewable energy sector, the Appellate Tribunal for Electricity (APTEL) delivered a significant judgment on September 15, 2025, in favor of ACME Chittorgarh Solar Energy Private Limited (ACME). The case, numbered 147 of 2020, involved an appeal against the Maharashtra Electricity Regulatory Commission (MERC) and the Maharashtra State Electricity Distribution Company Limited (MSEDCL) concerning the calculation of “carrying cost” for ACME’s solar power project. The dispute arose after ACME faced additional expenditure due to a change in law, specifically the imposition of a safeguard duty on imported solar cells and modules, and sought compensation for the resulting financial impact.

ACME, a subsidiary of ACME Solar Holdings Limited, had undertaken a 250 MW solar power project in Rajasthan for MSEDCL through a competitive bidding process. After importing solar modules for the project, the Ministry of Finance imposed a safeguard duty on these modules on July 30, 2018. This action increased the project’s capital costs, and ACME argued that this constituted a “Change in Law” event under its Power Purchase Agreement (PPA) with MSEDCL. As a result, ACME sought compensation not only for the additional capital cost but also for the carrying costs associated with the delay in financial recovery due to the change in law.

While the MERC recognized the safeguard duty as a “Change in Law” event, the commission restricted the carrying cost to a rate of 1-year SBI MCLR plus 1.25%, following the precedent set in the “Azure Power” case. MERC’s decision was based on applying a lower rate similar to the late payment surcharge (LPS), which ACME argued did not reflect the actual financial burden it had incurred. MSEDCL had opposed ACME’s proposed rate, contending that the LPS rate should be applied instead.

APTEL, however, sided with ACME in its judgment. The tribunal highlighted the core principle of a “Change in Law” provision, which is to restore the affected party to the same economic position it would have been in had the event not occurred. The tribunal clarified that carrying costs and late payment surcharges are distinct concepts. Carrying cost represents the actual financing cost borne by the project developer, while LPS is merely a penalty for delayed payments. Restricting the carrying cost to the LPS rate was deemed inequitable and inconsistent with the principle of restitution.

The tribunal referred to its earlier judgment in the case of Nisagra Renewable Energy Private Limited Vs. MERC & Anr., reinforcing that affected parties must be restored to their original financial position. APTEL set aside the MERC order to the extent it limited carrying costs to the LPS rate and directed that ACME should be compensated based on its actual financing cost. The tribunal suggested methods like the weighted average cost of capital or an annuity rate, provided credible evidence of debt and equity costs is presented.

The matter has been remanded back to the MERC with instructions to hold fresh proceedings to determine the appropriate carrying cost in line with the tribunal’s principles. This decision underscores the importance of fair financial restitution for solar project developers facing unforeseen changes in law and reinforces the broader framework of investment protection in India’s renewable energy sector. The judgment is seen as a significant win for developers, ensuring that financial burdens arising from policy changes are adequately addressed.

This ruling could have wide-ranging implications for solar power developers in India, as it reinforces the principle that compensation for “Change in Law” events must accurately reflect the economic impact, including genuine financing costs, rather than applying a lower, standard surcharge.