APTEL Provides Relief To CSP Developers On Force Majeure Grounds

Highlights :

  • The reasoned judgement takes into account the experimental nature of the technology, as well as data used to bid and build projects by the developers.
  • With many assumptions proving wrong, the developers found themselves staring at claims from the off taker, NVVN, for failure to meet obligations.
APTEL Provides Relief To CSP Developers On Force Majeure Grounds

In an important judgement that will hopefully close the chapter on a festering dispute, the Appellate Tribunal for Electricity (APTEL) has allowed multiple developers stuck with Concentrated Solar Thermal (CSP) projects to get relief from liabilities, caused due to lower DNI (Direct Natural Irradiance) than they had assumed when bidding. The developers impacted include Godavari Green Energy, Rajasthan Sun Techniques (Reliance) and MEIL (Megha Engineering).

APTEL was ruling on appeals filed by the developers, as well as NTPC Vyapar Nigam Limited, the designated authority for buying, packaging and selling the power generated from the CSP projects by these developers to multiple discoms. The generic tariff, as set down by CERC for these projects was Rs 15.31/unit.

The Issue

Government of India, MNRE, in January, 2010 launched the Jawaharlal Nehru National Solar Mission ( in short “JNNSM” or “Solar Mission”) for promoting and developing solar power projects in the country to achieve Renewable Energy Targets inter-alia promoting Solar Thermal Projects also.

NVVN was designated as the nodal agency by the MNRE under the JNNSM for entering into Power Purchase Agreements with the Solar Power Developers to purchase solar power, in accordance with the tariff and PPA duration as fixed by the Central Commission.

In Solar Thermal Technology or CSP projects, the concentration of only direct rays of the sun through mirrors produces heat which in turn converts water into steam to generate electricity. However, in case of Solar Photo Voltaic Technology, even the diffused rays can generate electricity. Therefore, in case of CSP projects, the Direct Normal Irradiance (hereinafter “DNI”) which is the source of energy of such projects requiring fair projected data regarding the DNI availability in the geographical area of the project. Thus, at that time, CSP projects were considered more efficient from a generation perspective than equivalent PV based projects.

The root cause of these litigations is, thus, non-availability of accurate DNI data resulting into the disputes regarding compensation due to drastic reductions in DNI from the expected value, compensation for Foreign Exchange [hereinafter ‘forex’] variation as a force majeure event, payment of Liquidated damages for short-supply of committed energy due to reduction in DNI and force majeure claims of fire, flooding etc. The grievance of the Solar Project Developers is essentially that the plants were planned, constructed and finally commissioned, on the basis of the DNI values in existence which were available and accordingly, the projects were bid, however, after commissioning the plants it was found that the actual DNI numbers were far lower than the projections resulting in reduced generation and efficiency resulting into claim for compensation for the same.

Contrary to the claims by the Developers, NVVN and the Discoms being the ultimate purchasers of such power, contended that the entire process being a bid process, it is the Generators who had a choice to bid or not to bid, and if they did so on the basis of assumptions made by them, any risk involved is their responsibility.

They point to the  Power Purchase Agreement wherein Article 4.4.1 indicated the minimum CUF percentage as 16% for solar thermal projects with the normative CUF of 23 % and maximum CUF at 25%.

APTEL, in its order, accepted the variability of DNI as a Force majeure event. This was done on the logic that not only was the technology itself novel at the time, the data available at the time was also from specific sources and developers really didn’t have an option to seek better quality data on DNI. APTEL, also took note of government notings that considering the experimental nature of technology, penalising developers who took the risk would repel other potential investors possibly. With even a government review commitee considering these projects ‘laboratories’, APTEL was convinced of the need to take a more nuanced view of the shortfalls faced by the developers, despite heavy odds. It noted that even the generic tariff of Rs 15.31 by the CERC was based on the same ‘faulty’ data.

Second Issue:

This was the question of whether Liquidated Damages claim by the NVVN is permissible even when the loss on account of short supply of power by the Generator cannot be quantified and proved? Here, the APTEL bench noted CERC findings that no actual loss had been suffered by NVVN on account of loss of generation from these projects, and as the SPD (Solar Power Developers) could not be blamed directly for the shortfall caused by DNI variance, they were not liable for liquidated damages.

Final issue

Finally, APTEL ruled on the issue whether Foreign exchange rate variation (Forex) in respect of foreign loans taken can be considered as Force Majeure Event? This issue came up due to depreciation of the Rupee from Rs 45 at the time of bidding to Rs 62 by the time the project was commissioned a ‘blow’ to the developers who had imported all the equipment.  Reliance had contended that RSTPL has relied on a Notification dated 31-3-2010 whereunder the CERC has itself considered a forex variation of 0.36% per annum, whereas the CAGR of the forex variation in this case is almost 4.5% approx. over a period of 11 years, that is nearly 13 times the CERC number. After a lengthy reasoning, APTEL finally accepted that this was a Force Majeure Event too.

The ‘win’ for the relevant developers here, even while a relief, serves to establish a benchmark foe what will be considered force majeure events for other similar projects. However, unfortunately, it will not do much for Solar CSP, which has really struggled to take off in India and elsewhere, even as some new projects on other countries recently have infused new hope.

To view the full APTEL order, click here.

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