CERC approves compensation for GST rate hike to RE developer

08 Jan 2024 CW Team

The developer is entitled to claim carrying costs, calculated at the minimum of the actual interest rate, the rate specified in the renewable energy tariff regulations, or the late payment surcharge rate stipulated in the power purchase agreement (PPA).

Ostro Energy, a subsidiary of ReNew Power Services, specialises in the development, operation, and maintenance of large-scale grid-connected solar power projects for wind power generation.

The power purchase agreement (PPA) for the 50 MW wind energy project was executed with the Solar Energy Corporation of India (SECI) on October 25, 2019. The Scheduled Commercial Operation Date was set for April 18, 2021. The alteration in GST rates occurred on October 1, 2021.

On June 12, 2022, the company filed a petition seeking compensation to alleviate the financial impact resulting from changes in law events related to the GST rate increase from 5% to 12%.

The petitioner urged the respondent to provide compensation, either as a one-time lump sum payment or through tariff adjustments, in response to the GST tax rate hike. Additionally, it sought interest or carrying costs from the date of incurring the expense until the Commission's order. The respondents in this matter are SECI and Uttar Pradesh Power Corporation (UPPCL).

The Commission noted that Article 12 of the PPAs stipulates that any statutory change in the tax structure affecting the wind power project constitutes a change in law. Recognising that the GST rates changed post the scheduled commercial operation date and considering the principle that change in law compensation should not result in profit, the Commission determined that the discount rate and annuity period would be the appropriate methodology for calculating change in law compensation.

The Commission decided that the liability of the respondents for monthly annuity payments commences from the 60th day from the date of the order or the date of claim submission by the petitioner, whichever is later. In case of delayed monthly annuity payments beyond the 60th day, a late payment surcharge is applicable.

Furthermore, the Commission ruled that Ostro Energy is eligible for carrying costs at the lowest of the actual interest rate paid, the rate of interest on working capital as per applicable renewable energy tariff regulations, or the late payment surcharge rate as per the PPA. Recently, CERC determined that the delay in adopting the tariff order by the Uttar Pradesh Power Corporation is a valid reason to claim an extension in the commissioning date for a wind energy project.

The Central Electricity Regulatory Commission (CERC) has granted approval to a renewable energy developer for seeking compensation to counteract the financial and commercial repercussions arising from changes in law events due to an escalation in the rates of goods and service tax (GST). The developer is entitled to claim carrying costs, calculated at the minimum of the actual interest rate, the rate specified in the renewable energy tariff regulations, or the late payment surcharge rate stipulated in the power purchase agreement (PPA). Ostro Energy, a subsidiary of ReNew Power Services, specialises in the development, operation, and maintenance of large-scale grid-connected solar power projects for wind power generation. The power purchase agreement (PPA) for the 50 MW wind energy project was executed with the Solar Energy Corporation of India (SECI) on October 25, 2019. The Scheduled Commercial Operation Date was set for April 18, 2021. The alteration in GST rates occurred on October 1, 2021. On June 12, 2022, the company filed a petition seeking compensation to alleviate the financial impact resulting from changes in law events related to the GST rate increase from 5% to 12%. The petitioner urged the respondent to provide compensation, either as a one-time lump sum payment or through tariff adjustments, in response to the GST tax rate hike. Additionally, it sought interest or carrying costs from the date of incurring the expense until the Commission's order. The respondents in this matter are SECI and Uttar Pradesh Power Corporation (UPPCL). The Commission noted that Article 12 of the PPAs stipulates that any statutory change in the tax structure affecting the wind power project constitutes a change in law. Recognising that the GST rates changed post the scheduled commercial operation date and considering the principle that change in law compensation should not result in profit, the Commission determined that the discount rate and annuity period would be the appropriate methodology for calculating change in law compensation. The Commission decided that the liability of the respondents for monthly annuity payments commences from the 60th day from the date of the order or the date of claim submission by the petitioner, whichever is later. In case of delayed monthly annuity payments beyond the 60th day, a late payment surcharge is applicable. Furthermore, the Commission ruled that Ostro Energy is eligible for carrying costs at the lowest of the actual interest rate paid, the rate of interest on working capital as per applicable renewable energy tariff regulations, or the late payment surcharge rate as per the PPA. Recently, CERC determined that the delay in adopting the tariff order by the Uttar Pradesh Power Corporation is a valid reason to claim an extension in the commissioning date for a wind energy project.