GST Hike: CERC Grants Compensation to RE Developer for SECI Solar Project

The Central Electricity Regulatory Commission (CERC), in its latest judgment, has ordered compensation to a renewable energy company due to a ‘change of law’ event. The order came to the fore after renewable energy company Thar Surya 1 Private Limited approached the central regulator seeking its intervention.

The company had earlier developed a 300 MW solar project in Rajasthan’s Bikaner district. The project was developed after it won a tender issued by the Solar Energy Corporation of India (SECI) in 2020. SECI awarded the project at an agreed tariff of Rs 2.37/kWh. The company signed the PPA in August 2021 to supply power to Delhi-based discoms BSES Rajdhani Power Limited (BRPL) and BSES Yamuna Power Limited (BYPL).

GST Rate Revision Notification 

However, the Ministry of Finance issued a notification on September 30, 2021, increasing the GST rate on renewable energy devices from 5 percent to 12 percent. It stated that for composite EPC contracts—which involved both goods and services—this change resulted in the effective tax rate increasing from 8.9 percent to 13.8 percent. The company argued that since the revised rates were notified after the bid cutoff date of June 22, 2020, they constituted a change of law under Article 12 of the PPA, making it eligible for compensation.

The company said the change in GST rates led to a financial burden of around Rs 64.29 crore. This included Rs 54.85 crore in principal costs related to the Module Supply Agreement and EPC contract, and Rs 9.44 crore in carrying cost (financial costs) computed up to July 2023.

Change Of Law Event? 

CERC, in its judgment, considered the rate revision as a ‘change of law event’. It directed both parties to conduct a one-to-one reconciliation of expenses, supported by an auditor’s certificate. The commission further stated that relief would be provided based on the PPA formula, wherein every Rs 1 lakh per MW increase in project cost results in a tariff increase of Rs 0.005/kWh.

“The Petitioner shall also be eligible for carrying cost starting from the date when the actual payments were made to the Authorities till the date of issuance of this Order, at the actual rate of interest paid by the Petitioner for arranging funds (supported by Auditor’s Certificate) or the rate of interest on working capital as per applicable RE Tariff Regulations prevailing at that time or the late payment surcharge rate as per the PPA, whichever is the lowest,” the CERC order said.