CERC Approves Most of the Changes in Bidding Guidelines for 1500 MW of Solar Projects

Petition under Clause 18 of the Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Solar PV Power Projects (Resolution number 23/27/2017-R&R.) issued by the Ministry of Power, Government of India on 03.08.2017 under section 63 of the Electricity Act, 2003, seeking certain deviations from the Guidelines.

Summary

i. Payment Security Mechanism: The Commission observes that the ‘letter of mandate’ issued directly to RBI, would provide the desired security of payment and serve as an adequate substitute for a letter of credit or a payment security fund to be maintained with a scheduled bank. Hence, this deviation is allowed.

ii. Notification of force majeure event: The Commission observes that the intent of the deviation being sought is to give sufficient time to notify all the effects of force majeure. Hence, this deviation is allowed.

iii. Off-take Constraints & Grid Unavailability: The Commission observes that the intent of the proposed changes in connection with generation compensation in the event of transmission infrastructure constraint is to provide greater certainty to investors. Hence, this deviation is allowed.

iv. Events of default and termination consequences: The Commission observes that the deviations are an attempt at further detailing of the consequences of default and termination, especially when two procurers are involved. Hence, this deviation is allowed.

v. Event of default on account of SPD’s failure to supply energy as per PPA: The Commission observes that the intent of the proposed changes in connection with the termination consequences proposed by the Petitioners, is to give the parties an option to avoid termination of the PPAs and continue with the Project which may be economically beneficial to the stakeholders involved with the Project. Hence, this deviation is allowed.

vi. Applicability of bid responsiveness conditions to affiliates of the bidder: The Commission is of the view that the objective behind Clause 7.1 of the Solar Bidding Guidelines seems to ensure that the bidders do not get into litigation because of any of their affiliates, thereby putting the sustainability of the projects into question.

There could be cross-holdings between affiliates, corporate guarantees/ personal guarantees between ‘related parties’ and consequently the conduct of affiliates though not directly contributing to the networth of the bidder, might jeopardise the sustainability of the project because of such cross-holdings/ stakes etc.

In the light of above, the Commission does not consider it appropriate to allow relaxation of Guideline 7.1 of the Solar Bidding Guidelines. Accordingly, the deviation sought in this context is not allowed.

vii. Bidder’s Affiliate: The Commission observes that the stipulations provided under the Solar Bidding Guidelines are adequate and doesn’t consider it appropriate to dilute/ relax the provisions. Accordingly, the deviation sought in this context is not allowed.

viii. Definition of ‘control: The Commission observe that there is no strong justification to dilute the basic structure of the Solar Bidding Guidelines. Accordingly, the deviation sought in this context is not allowed.

ix. Time period for holding minimum paid up share capital: The Commission observes that the Solar Bidding Guidelines, as amended on 25.09.2020 have reduced the lock-in period from three (3) years to one (1) year and the Petitioners undertake that they will comply with the latest provision under the Guideline 13 of the Solar Bidding Guidelines, as amended. Hence, the deviation is disposed of accordingly.

x. Controlling shareholding of a listed company: The Commission observes that in case of the successful bidder itself executing the PPA, the requirement is of ensuring promoters ‘control’ unlike the requirement of ensuring minimum 51% of shareholding in case of SPV/project company.

Further, the Solar Bidding Guidelines contain an ‘enabling’ clause which empowers the Petitioners to allow the successful bidder to change the
shareholding pattern prior to one year from the COD with the prior approval of the procurer.

We are of the view that flexibility already exists in the Solar Bidding Guidelines. Accordingly, the deviation sought in this context is not allowed.

xi. Extension of commissioning timelines: The Commission observes that as the time extension is based on the Petitioners’ own assessment and is meant to avoid uncertainty in project execution, the Commission does not have any objection to agreeing to the same. Hence, this deviation is allowed.

xii. RUMSL’s Additional Conditions Subsequent: The Commission observes that the proposal of the Petitioners is in the nature of detailing of the timelines and is aimed at reducing the perceived risk of delay in availability of transmission infrastructure for the Project. Hence, this deviation is allowed.

xiii. Inclusion of “Epidemic, Pandemic, Quarantine, Lockdown or similar action ordered by any government authority” as Force Majeure Events: The Commission observes that the expression ‘pandemic’ or ‘epidemic’ without a qualification defining inability of the project developer to execute the project would be too open a position and needs to be restricted to ‘pandemic resulting in lockdown or similar action ordered by any government authority’.

Accordingly, this deviation is allowed with the modification, namely, ‘pandemic resulting in lockdown or similar action ordered by any government authority’.

xiv. Termination due to a Non-Natural Force Majeure Event: The Commission observes that the period of one hundred and eighty (180) days may not be sufficient for the SPDs to revive the projects. Hence, this deviation sought is allowed.

xv. Quantum and Mechanism for Change in Law Relief: The Commission observes that the tariff once determined through competitive bidding under section 63 of the Electricity Act, 2003 and adopted by the Commission cannot be reopened/ revised.

If tariff is allowed to be revised, then the bidding process itself gets vitiated. Further, the Clause 5.7.1 of the Solar Bidding Guidelines regarding ‘Change in law’ requires that firstly, the quantum and mechanism of compensation payment has to be determined, and secondly the date from which the quantum and mechanism of compensation payment shall be effective, has to be declared.

Therefore, the quantum and mechanism of compensation payment has to be in the form of a separate/ additional component. It may be the case of lumpsum compensation or compensation based on annuity distributed over a period of time or any other method but cannot be in the form of a revised tariff. Accordingly, the deviation sought in this context is not allowed.

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