In a recent development, the Central Electricity Regulatory Commission (CERC) has issued a significant ruling in response to petitions filed by solar power companies seeking compensation for the financial impact of the increase in the Goods and Services Tax (GST) rate. The petitioners, including Azure Power Forty-One Private Limited, Azure Power Forty-Three Private Limited, and Azure Power Maple Private Limited, had approached the CERC under Section 79 of the Electricity Act, 2003.

The dispute arose due to a change in the GST rate from 5% to 12%, as notified by the government through Notification No. 8/2021-Central Tax (Rate) on September 30, 2021. The petitioners argued that this change qualifies as a “change in law” event under Article 12 of the Power Purchase Agreements (PPAs) they had entered into with the Solar Energy Corporation of India Limited (SECI).

SECI, a Central Public Sector Undertaking, and Grid Corporation of Odisha (GRIDCO Odisha), along with other distribution companies (Discoms), were named as respondents in the case. The CERC had admitted the petitions and directed the parties to provide details related to the Scheduled Commercial Operation Date (SCoD) and the Commercial Operation Date (CoD) of the projects.

After careful consideration of submissions from both parties, the CERC concluded that the increase in the GST rate constituted a “Change in Law” event as per Article 12 of the PPAs. The Commission referenced similar orders it had issued in the past, reinforcing its position.

The projects of the petitioners were affected by the GST rate change, with bid submissions made in 2018 and 2019, and subsequent execution of PPAs. The CERC held that the petitioners were entitled to compensation for the change in law, specifically due to the 2021 GST Notification.

Regarding the methodology for determining compensation, SECI had suggested a discounting factor of 9% and monthly installments over 15 years. However, the petitioners argued for a consideration of the debt-equity ratio of 70:30. The CERC stated that, in competitive bidding projects, it’s challenging to ascertain capital structuring and actual interest rates. Therefore, a uniform rate of compensation was deemed appropriate, not exceeding the normative cost of debt.

The CERC referred to Renewable Energy Tariff Regulations and Orders, considering an interest rate of 9% for certain periods. The Commission ruled that a discount rate of 9% and an annuity period of 15 years would be applicable for some projects, while a discount rate of 9.12% and an annuity period of 15 years would be suitable for another project.

Additionally, the Commission addressed the issue of carrying costs, allowing the petitioners to claim such costs from the date of actual payments to authorities until the issuance of the order. The carrying costs were to be determined at the actual rate of interest paid by the petitioners or the rate specified in applicable regulations, whichever was lower.

The CERC directed SECI and Discoms to pay reconciled claims to the petitioners, with liability starting from the 60th day after the order’s date or from the submission of claims by the petitioners, whichever was later. Late payment surcharge provisions were outlined in case of delays.

The Commission also clarified that certain aspects of its order related to compensation for specific periods would not be enforced until further orders from the Hon’ble Supreme Court in related matters. The CERC’s ruling favored the solar power companies, acknowledging the change in GST rates as a “Change in Law” event and providing a framework for compensation, discount rates, annuity periods, and carrying costs. The decision is expected to have implications for similar cases in the renewable energy sector.