CERC Grants Compensation to RE Firm for GST Hike Impact on Solar Project Costs

In a significant ruling, the Central Electricity Regulatory Commission (CERC) has granted compensation to Beempow Energy Pvt. Ltd. (BEPL), an RE firm, for additional costs incurred due to the increase in GST rates on renewable energy devices and parts.

The rate hike, from 5 percent to 12 percent/18 percent, was mandated by Notification No. 8/2021-Central Tax (Rate) dated 30.09.2021 and qualifies as a 'Change in Law' under Article 17 of the Power Purchase Agreements (PPAs) signed on 25.11.2021.

The CERC’s decision entitles BEPL to financial redress for the increased expenditure resulting from this tax adjustment. The compensation will cover the mutually agreed project capacity under the PPAs, with contracting parties required to reconcile the additional expenditure up to a threshold of INR 20 million.

The CERC found that the GST rate hike on renewable energy equipment met the Change in Law criteria, which include statutory changes affecting project costs. Compensation will be paid at 9.12 percent over a 15-year annuity period, starting either from the 60th day of this order or from the date of BEPL’s claim submission, whichever is later. BEPL is also entitled to carrying costs, calculated based on the lowest applicable interest rate. The enforcement of compensation for the period after the COD remains contingent upon future Supreme Court rulings.

Beempow Energy, a firm specialising in the development of utility-scale solar projects was awarded a 350 MW solar power project at the Agar Solar Park in Madhya Pradesh with the tariff of INR 2.444/kWh. The company had entered into tripartite PPAs with Madhya Pradesh Power Management Company Ltd. (MPPMCL), Indian Railways (West Central Railway), and Rewa Ultra Mega Solar Ltd. (RUMSL) on 25.11.2021. The company filed for compensation due to the impact of the GST rate increase on the project, citing unforeseen cost increases.