APTEL Permits Adani Green To Claim Carry Costs Based On Change In Law Interpretation

Highlights :

  • The Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commission (SERCs) had previously rejected the petitions of solar developers, but the Appellate Tribunal For Electricity (APTEL) has now permitted carrying cost pass-through under the “Change in Law”.
  • The Tribunal ordered CERC to issue decisions regarding petitions filed by several solar developers seeking compensation for the “Change in Law” brought about by the implementation of the goods and services tax (GST) and safeguard duty on imports of solar modules.

After facing rejections at the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commission’s (SERCs), Adani Green Energy had something to celebrate early this week when the Appellate Tribunal For Electricity (APTEL) permitted their plea for allowing carrying cost pass-through under the “Change in Law” definition of most PPAs.

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The Tribunal ordered CERC to issue decisions regarding petitions filed by the developer through its various subsidiaries seeking compensation for the “Change in Law” brought about by the implementation of the goods and services tax (GST) and safeguard duty on imports of solar modules.

In The Appellate Tribunal For Electricity

  • APPEAL NO. 256 OF 2019
  • APPEAL NO. 299 OF 2019
  • APPEAL NO. 427 OF 2019
  • APPEAL NO. 23 OF 2022
  • APPEAL NO. 35 OF 2022
  • APPEAL NO. 131 OF 2022 
  • APPEAL NO. 275 OF 2022

were the appeals of multiple developers that were bunched together in the order. 

The Issue

Aggrieved by the various orders issued by CERC rejecting relief on claims for restitution following the “Change in Law” provision contained in the power purchase agreements, solar project developers filed six petitions with APTEL.

The regulator also combined the order it issued in response to a petition submitted by the Chhattisgarh State Power Distribution Company (CSPDCL).

While the majority of distribution companies (DISCOMs) have accepted the CERC’s GST dispensation, the Chhattisgarh DISCOM has questioned the legality of the relief provided to the generating company because CERC could not have exercised jurisdiction given the location of the power projects in question.

The Chhattisgarh DISCOM also argued against the GST dispensation, asserting that SECI, the intermediary, never informed it about the “Change in Law” provision and that the electricity supply from these projects is intra-state. It stated that the projects in question were only officially declared commercially operational on March 8, 2018, following the implementation of the GST regime.

For Parampujya Solar Energy to develop five projects totaling 10 MW in Telangana, NTPC had issued letters of intent (LoI). For the development of two solar projects in Karnataka, each with a capacity of 50 MW, SECI issued LoIs to Wardha Solar.

With SECI, Parampujya signed a PPA for a 25-year, 20 MW capacity for Rs. 4.43 per kWh. Additionally, it entered into PPAs with NTPC to set up five projects totaling 10 MW for 25 years for Rs. 4.67 per kWh. With SECI, Wardha entered into two 50 MW PPAs for the sale of electricity.

On August 1, 2017, the Integrated Goods and Services Tax (IGST) Act and the Central Goods and Services Tax (CGST) Act went into effect. With this, the Central Government gained the authority to levy and collect CGST and IGST for the supply of goods and services both within and between states. Telangana, Karnataka, and Maharashtra each passed legislation governing GST.

The appellants sent notices to NTPC and SECI regarding the GST legislation following the terms of the pertinent PPA clauses governing the impact of Change in Law. In six petitions, Parampujya and Wardha requested approval for the “Change in Law,” the compensation claim, and the carrying cost following GST laws. The petitions were dismissed by CERC, which recognised that the implementation of GST laws constituted a “Change in Law” event and held that the project developers in question were entitled to compensation because of the GST-related increase in construction costs.

The appellants did not have a right to carrying costs, according to CERC’s ruling. The PPAs do not include a clause that would put the parties back in the same financial situation or make up for the increased tax liability brought on by outsourcing operation and maintenance services.

For two solar projects in Chhattisgarh, totaling 50 MW each, Parampujya and SECI signed a PPA. Parampujya then sent SECI notices requesting compensation, which the CERC approved.

NTPC gave Prayatna Developers letters of intent to build two solar projects in Rajasthan, each of 10 MW. NTPC received CIL notices from Prayatna following the passage of the GST Laws. The CERC denied the petition it filed to have the GST claims reimbursed.

The tribunal noted that the Central Commission’s regulatory framework governs matters about the tariff of generators that the Central Government owns or controls. The Central Government also controls the rates charged by generating companies that have signed agreements with multiple states to generate and sell electricity, or that have a composite arrangement in place.

All of the appeals share the concern of compensation for additional costs incurred by solar developers due to the “Change in Law” brought about by the implementation of the GST laws, safeguard duty on the import of solar cells, and carrying costs.

The CERC had agreed that the implementation of the GST laws and the imposition of safeguard duty on solar cell imports qualify as “Change in Law” events.

APTEL stated that to fairly consider the compensation claims, the Central Commission’s regulatory powers should have been properly utilised.

The tribunal declared that it was unable to concur with the Central Commission’s position on the matter of carrying costs. In addition to the Central Commission-allowed compensation, the developers were entitled to relief for the carrying costs.

The regulators and developers have disagreed on how to be compensated for carrying costs. APTEL has also previously requested that the Maharashtra Commission take carrying costs into account when making up for the imposition of safeguard duties.

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