Delayed solar projects subject to reduced tariff and payment of damages

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The Karnataka Electricity Regulatory Commission (KERC) ordered Hubli Electricity Supply Company (HESCOM) to recover damages from three solar developers for the delay in commissioning the projects.

The Commission also decided that the price of the projects would be reduced due to the delay beyond the planned commissioning date.

Background

Sirar Solar Energies, Sirar Dhotre Solar and Sevalal Solar have filed petitions with the Commission asking for a four-month extension for the commissioning of their solar projects under Supplementary Power Purchase Agreements (PPAs).

They asked the Board for a rate of 8.40 (~ $ 0.11) / kWh for the additional PPAs entered into with HESCOM.

Solar developers have run separate PPAs to sell 1 MW of solar power. They were to commission the projects within 18 months of the date of the PPA.

After executing the PPAs, the developers sought to partner with investors. However, they were unable to secure any funding as investors insisted on converting farmland to non-farmland.

The developers informed the Commission that there was a considerable delay in the issuance of land conversion orders by the Deputy Commissioner of Vijayapura District.

Meanwhile, the developers have applied for permissions to evacuate the electricity to the closest assigned substations from Karnataka Power Transmission Corporation Limited (KPTCL). However, there has been an unreasonable delay in issuing approvals.

After that, the solar developers trained three Special Purpose Vehicles (SPVs) and performed additional PPAs with HESCOM. However, there was a delay in the approval of the PPAs by the Commission.

The solar developers informed the Commission that they had started work on the project sites and made the first progress. However, there was a lack of liquidity due to the policy of demonetization. This caused workers to leave the project sites, causing a delay of 44 days.

In light of these delays, the developers asked HESCOM for an extension of 120 days from the scheduled go-live date to complete the projects. The developers received the extension letters but only 51 days from the date of the request.

The delays had caused developers significant losses, interest charges, a freeze of funds, and an additional Goods and Services Tax (GST), while projects were entitled to a full exemption before July 2017. However, l The entire procurement for the projects was carried out after July. 2017. The delays caused by multiple factors constituted a “force majeure” according to the PPAs.

HESCOM’s response

HESCOM said that despite a six-month extension, the developers did not go live with their projects. The delay in commissioning severely impacted HESCOM’s power supply.

Therefore, the solar developers were required to pay damages to HESCOM for not commissioning the projects in accordance with the PPAs and failing to fulfill the conditions.

Commission analysis

After examining the submissions of the parties, the Commission noted that the delay in converting the land had not resulted in any delay in setting up the SPVs. She observed that the promoters’ assertion that without the approval of the additional PPAs they could not have sought investors was not acceptable.

The Commission said the developers had not proven any “force majeure” claims.

The regulator said the projects were commissioned after a delay of 13 to 16 months from planned commissioning dates. The developers had no reason to ask for a further extension of the project commissioning deadline.

The financial closure of projects was also not complete, even two years after the date of implementation of the PPA.

The Commission ordered the developers to pay damages to HESCOM. The tariff applicable to the effective commissioning dates for Sirar Solar Energies and Sirar Dhotre Solar has been reduced to 4.36 (~ $ 0.058) / kWh, and 3.05 (~ $ 0.041) for Sevalal Solar.

The Electricity Appeals Tribunal last month ordered a solar developer to pay damages to the Gulbarga Electricity Supply Company for the 31-day delay in commissioning a solar power project of 40 MW.

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