Legal

CERC Approves NHPC Tariffs for 2GW Project, Disapproves of NHPC Attitude

NHPC’s largest solar tender to date, the 2000 MW ISTS connected tender, which it concluded in July 2020 by allotting LOA’s (Letter of Award) to the 7 final successful bidders, has got tariffs for the projects adopted finally, after a slight delay. But what should have been a standard procedure turned into a slightly embarrassing dressing down for the PSU, when the central regulator, CERC made its displeasure known and on record, for the PSU’s lackadaisical attitude to the process.

Timeline So far

What Irritated The CERC?

The regulator picked on two issues. One, NHPC’s failure to advertise the RFS for the tender in two national papers. Instead, NHPC used its own web portal, besides one International paper edition, namely, The Asian Age, since the project called for international competitive bidding. The CERC let this pass, as a circular by the MNRE on 21.1.2019 allowed bypassing the two newspaper requirement, despite it being there in the standard tender guidelines from earlier.

Now, post the whole process of bids (by 9 entities), followed by reverse auctions, a final list of five winners was arrived at. Along with their final bid prices.

The Final Five: Winners With NHPC

Now, NHPC, between July 15 2020 and October 19, 2020, managed to complete the signing of PPA’s and PSA’s with the bidders, and the respective discoms that committed to buy power from the project(s). And this is where NHPC slipped up. It inserted a change in the PPA, without taking permission from the CERC, as the guidelines specify. The change, namely” “….12.1.1(g) In case of change in Law on account of Antidumping Duty and/ or Safeguard Duty and/or Custom Duty on Solar PV Modules, the Solar Power developer shall be entitled for increase/ decrease in tariff. This increase/ decrease in tariff shall be for an amount equivalent to 0.5 paisa/kWh for every increase/ decrease of INR 01 (one) lakh per MW of impact on cost of Solar PV Modules, which shall be effected based on documentary evidence submitted to the concerned authority, which shall inter-alia include Bill of Lading (BL), Bill of Entry (BOE) at the Port of arrival, duty paid at the port of arrival, Lorry Receipt (LR), Goods Receipt (GR), insurance Papers/etc/ upto the Project Site.

This increase/ decrease in tariff due to this change in cost of Solar PV Modules shall belimited upto 150% (One hundred & fifty percent) of the Solar Project Capacity allocated to the Project Developer.”

And just like that, it ran afoul of the commission. The CERC noted that not only did the CPSU fail to inform it in time, it also made the mistake of filing an affidavit claiming no deviation from the guidelines, while contradicting itself with the two deviations made. And worse, it did not even request for a condonation of the two deviations.

The Buyers List

Thus, even while adopting the tariff, the regulator asked NHPC to go back to the developers to arrive at a fresh arrangement for the clause disallowed by it, for subsequent permission by the CERC.

It should be interesting to see if removal of the said clause, and the turmoil in the market right now in terms of prices being much higher than anticipated, lead to further issues or further delays for commissioning.

Delhi HC Asks DGTR To Take Feedback On Anti

Dumping Investigation Till July 19

In the now familiar tussle between domestic solar manufacturers and solar power developers, the Delhi High Court has set a new date. July 19. That is the new date for feedback on the anti dumping investigation launched by the Directorate General of Trade Remedies (DGTR), for imposing anti dumping duty on panel imports from China, Thailand and Vietnam. The earlier date for feedback was June 26.

The timing of this investigation was considered very relevant, considering the end of the safeguard duty (SGD)of 14.50% that is scheduled to end by the end on July 29. Many industry leaders have opined privately that this latest investigation is one way to justify a penal duty on imports, till the new customs duties come into force on April, 2022.

These developers have also opined that there might be a case for a zero duty breather between July and April next year, to allow developers to order for projects that have been delayed due to covid, and other projects that are facing a price shock due to the unexpected spike in import costs in any case. We have reported earlier on how even confirmed orders have been cancelled, besides the 15-22 percent hike in costs of imports in the past 4 months. At best, they hope that following norms, the government will extend the safeguard duty at a lower rate, as mandated by the exim rules.

The Delhi High Court was responding to a petition from the Solar Power Developers Association (SPDA), according to a member developer we spoke to.

The DGTR had launched its investigation on May 5 this year, based on the petition filed by the Indian Solar Manufacturers Association (ISMA). ISMA had filed the petition on behalf of Mundra Solar PV (Adani) – a unit in a Special Economic Zone; Jupiter Solar Power, a unit in the Domestic Tariff Area (DTA); and Jupiter International Limited (DTA).

The SPDA in its petition requesting a stay on the investigation, has contended that “Promotion of inefficiencies of one industry should not be allowed to adversely affect the other user industry” They have also complained about the lack of modern technology options available domestically. As dates come and go, the key date to watch is July 29, when SGD is supposed to end. With an extension looking unlikely, a DGTR pronouncement, if allowed to proceed uneventfully from here, could still take until August end or later to come now. Keep in mind that ramp of domestic solar manufacturing will not begin to show results until 2023 possibly. We have already seen multiple government schemes that mandate use of domestic equipment slow down, due to ‘shortages’. In that context, and keeping in mind the increase in import costs seen recently, it really will take some exceptional work for the DGTR to make a strong case for dumping in India. Unless of course, it is the low technology, low cost equipment that the SPDA claims it no longer wants to use.

CERC Judgement on SB Energy’s 300 MW Bhadla Project Compensation

Aplea by SB Energy at the CERC, with SECI and Rajasthan Urja Vikas Nigam as respondents, was disposed of by the commission with a now predictable template on most of the contentions. In doing so, the CERC has served to iterate what seems to be well established rules for such situations. The final order gives a full perspective in that sense.

The case, involving a 300 MW solar project won by SB Energy at Bhadla in Rajasthan that was allotted in 2017, came up for final hearing and judgement on May 13, with the order being posted a day later.

SB Energy’s key contentions were for compensation owing to launch of GST and then, the Safeguard Duty, as both fall within the ‘change in law’ definitions, besides extra costs for its O&M which it outsourced to Sterling and Wilson Solar, and finally, interest costs and carrying costs for the period of delay in receipt of payments.

Some of the CERC’s conclusions are as below: (i) The enactment of the “GST laws” is squarely covered as “Change in Law” under the first and last bullet in seriatim of Article 12 of the PPA and entitles the Petitioner to relief under Article 12 of the PPAs. (ii) The imposition of Safeguard Duty qualifies as “Change in Law” under the PPAs and entitles the Petitioner to relief under Article 12 of the PPAs.

(iii) The liability of payment on account of GST Laws and imposition of Safeguard duty on procurement of Solar PV panels and associated equipment by the Petitioners shall lie with the Respondents till the Commercial Operation Date (COD) for the contracted capacity and energy as per Article 4.4 of the PPAs.

CERC Methodology For Computing Escalation For RE Projects

In a suo moto (An order decided of its own accord, without a petitioner), the Central Electricity Regulatory Commission (CERC) has decided on a key aspect of Renewable Energy projects. That is, the methodology for Computing the Escalation Rates and other Parameters for the Purpose of Bid Evaluation and Payment for Procurement of Power from Renewable Energy Projects Complemented with Firm Power from any other source through Competitive Bidding. This is important, because unlike renewable power tariffs which are fixed, non renewable fuels like coal and gas are subject to multiple other factors that can impact prices.

That, plus issues of calculating return on projects, cost of equity and debt also matter, on specific base assumptions like 70 percent debt and 30 percent equity, for instance. Thus the methodology truly matters, as it can have significant impact on specific projects, now that we have an increasing number of RTC + other fuels projects being built, with more in the pipeline. Renewable+ other fuels projects are also being pushed in India to support stranded capacity, besides the obvious reason of making RE based supply more predictable.

The order is part of CERC’s mandate, and follows a staff paper on the same issue that was released on February 23 this year for feedback and suggestions by the commission, followed by a meeting of stakeholders on April 12, 2021. Many of the relevant firms in the sector attended the meeting.

The CERC received a plethora of suggestions from firms , and chose to go with a few of them in its final order.

AP High Court Throws Out 6.4 GW State Solar Auctions

The Andhra Pradesh High Court declared yesterday that the state government’s 6.4 GW solar project auctions were bad in law, and quashed the request for selection (RfS) and power purchase agreement (PPA) for the same. The move follows a petition filed by Tata Power Renewable Energy in January this year, where it was contended that the initiation and process of selection contravened rules as laid down in the Electricity act (2003).

The Andhra Pradesh Green Energy Corporation (APGECL) was the specially designated state agency that carried out the process in January 2021.

The key issue where the state process tripped up was the dispute resolution clause, where the state government was the declared arbiter, instead of the state power regulator or even central regulatory authorities or courts. This was always considered a shambolic way to sidestep oversight, and has reached a predictable outcome. The state now has a chance of starting up the whole process again, with amended agreements, or making this a political catfight . Shri Venkatesh of SKV Law Offices, that represented Tata Power said, “Electricity Act, 2003 is a complete code and issues such as competitive bidding must be in terms of Act and the Regulator has an intrinsic role to play in such transactions. In this case however, AP had carved out a method outside the Act and also outside the scope and powers of Regulator, which in our view is not permissible. This is what has been held by the Hon’ble High Court as well.”

The auctions, where the final award of tender was on hold pending the high court proceedings, had seen Adani Green Energy (AGEL) emerging the big winner , winning over 3 GW in the 10 projects of 600 megawatt (Mw) each under the tender. NTPC, a surprise participant , had won a single 600 Mw package in the auction

The auctions were notably given a miss by some of the biggest developers who had been caught up in the earlier state government decision to cancel all agreements signed by its predecessor in 2019, affecting almost 9 GW of projects in the state. Not only did the state government try to force developers to agree to lower rates, it also tried to put pressure on them by delaying payments owed for operating power projects in the state. The state has faced repeated setbacks on that decision too, with both the MNRE and courts tending to rule with the aggrieved developers. Consequently, the state government made its own new 6.4 GW bids a prestige issue, pulling out all stops to ensure that it not only got a response, but that the new prices would be lower that the ones it had cancelled earlier. And on doing so, keep all its concessions and related issues outside the purview of stricter scrutiny. It was a plan that was always a very high risk one, and to its credit, they almost pulled it off with the bidding process and the prices they discovered. However, it is worth highlighting that SECI auctions held after this particular auction did reach prices as low as Rs 2 also, from the same bidders (NTPC) in some cases.

However now, it appears clear that all it will achieve finally is an unnecessary and expensive delay in capacity addition of at least 2-3 years minimum. Andhra Pradesh, from being one of the leading states in renewable energy, will probably be left ruing what could have been.