MERC Allows Compensation for Renewable Energy Developer on GST Rate Change

The Maharashtra Electricity Regulatory Commission (MERC) ruled in favor of TP Saurya (TPSL), a subsidiary of Tata Power Renewable Energy, declaring the increase in Goods and Services Tax (GST) rates as a “Change in Law” event for its 300 MW wind-solar hybrid power project.

The ruling will allow TPSL to claim compensation to offset the financial and commercial impact incurred due to the tax hike.

Background

In 2021, Maharashtra State Electricity Distribution (MSEDCL) conducted a competitive bidding process for procuring 500 MW of wind-solar hybrid power. TPSL emerged as one of the successful bidders, quoting a tariff of ₹2.62 (~$0.031)/kWh.

However, on September 30, 2021, the Ministry of Finance issued a notification increasing the GST rate on renewable energy devices from 5% to 12%.

Initially, MERC refused to adopt the discovered tariff, but after a review petition by TPSL, the Commission adopted a revised tariff of ₹2.56 (~$0.028) per unit on July 7, 2022. TPSL and MSEDCL signed the power purchase agreement (PPA) on August 3, 2022.

On August 12, 2022, TPSL issued a Change in Law notice to MSEDCL regarding the GST rate increase. MSEDCL opposed this claim, arguing that TPSL should have factored in the GST hike while offering the revised tariff and that the notice was not issued within the stipulated 7-day period as per the PPA.

Commission’s Analysis

MERC rejected MSEDCL’s contention that the impact of increased GST rates was included in the discounted tariff. The Commission noted that accepting this argument would lead to changing PPA conditions post-bidding, which would vitiate the bidding process.

The Commission found that the GST rate hike satisfied the conditions stipulated in the PPA for consideration as a Change in Law event that occurred after the last date of bid submission.

It said TPSL could not have issued a Change in Law notice before the PPA was signed on August 3, 2022. The notice issued on August 12, 2022, was deemed within the stipulated seven working days.

The Commission ruled that TPSL would be eligible to seek compensation for increased expenses due to this change. However, TPSL has been directed to file a separate petition for compensation after the project’s commissioning.

Earlier this year, the Central Electricity Regulatory Commission also allowed a renewable energy developer to claim compensation for change in law events because of an increase in GST.

Recently, MERC approved tariffs for Tata Power Company – Distribution’s 225 MW wind-solar hybrid projects.

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