CERC approves compensation for GST rate hike to RE developer
POWER & RENEWABLE ENERGY

CERC approves compensation for GST rate hike to RE developer

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.

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.

Next Story
Infrastructure Urban

Consistent reforms will foster growth and reduce investor risk

Incorporated in 1986 as a wholly owned subsidiary of State Bank of India, SBI Capital Markets Ltd (SBICAPS) is a SEBI-registered Category I merchant banker and research analyst. It offers the entire bouquet of investment banking and corporate advisory services under one umbrella, covering project advisory and structured financing, capital markets, mergers and acquisitions, private equity, ESG advisory, startup advisory and stressed assets resolution. Headquartered in Mumbai, SBICAPS has seven regional offices of which six are in India (Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata and New ..

Next Story
Infrastructure Urban

Adani Group Invests $240M in Global Skills Academy

The Adani Group has announced a partnership with ITE Education Services (ITEES) of Singapore to establish a world-class talent pipeline for industries such as Green Energy, Manufacturing, Hi-tech, Project Excellence, and Industrial Design. The initiative will see an investment of over $240 million by the Adani family to set up internationally benchmarked schools of excellence, named Adani Global Skills Academy. These finishing schools will train students from technical and vocational backgrounds, equipping them with industry-relevant certifications. Graduates will have employment opportunities..

Next Story
Infrastructure Urban

Swiggy to Invest $120M in Scootsy for Expansion

Food and grocery delivery giant Swiggy Ltd announced on Friday that it will invest up to $120 million in its wholly owned subsidiary Scootsy Logistics in one or more tranches. Scootsy specializes in supply chain services and distribution, including warehouse management, in-warehouse processing with value-added services, and order fulfillment for wholesalers and retailers. "We wish to inform that the Board of Directors of the company, at its meeting held on Friday, February 21, 2025, has approved the investment by the company in the equity shares of Scootsy Logistics Private Limited, a wholly..

Advertisement

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Advertisement

Talk to us?