Diverging Court Rulings on SGD Reflect Legal Complexities in Solar Sector

Several appellate courts across India have recently delivered judgments on the imposition of Safeguard Duty (SGD) and its classification as a ‘Change in Law’ under Power Purchase Agreements (PPAs), leading to varying outcomes for solar power developers.

These rulings, particularly in the states of Rajasthan and Andhra Pradesh, have significant implications for the solar power sector, especially in terms of financial compensation and regulatory consistency.

In Rajasthan, a group of solar power developers, collectively generating a total capacity of 950 MW, faced a legal setback when the Rajasthan Electricity Regulatory Commission (RERC) ruled against their claims. The developers had appealed an RERC order from December 2021, seeking recognition of the imposition of SGD via a July 2020 government notification as a Change in Law event under their PPAs.

The RERC, however, dismissed the appeal, arguing that the reduction in SGD rates, compared to those applicable on the last day of the bid, did not negatively impact the project costs of the developers. Consequently, the RERC ruled that the imposition of SGD did not qualify as a Change in Law under the existing agreements.

In Andhra Pradesh, solar developers with a total capacity of 750 MW in the Ananthapuramu Ultra Mega Solar Park secured a partial victory. The Andhra Pradesh Electricity Regulatory Commission (APERC) acknowledged in a March 2023 order that the imposition of SGD through 2018 and 2020 notifications constituted a Change in Law event under the PPAs. Despite this recognition, the developers were unable to obtain financial compensation.

The APERC denied relief, citing the developers' failure to provide sufficient evidence of financial losses incurred due to the SGD imposition. This outcome left the developers without the compensation they sought, despite the favourable ruling on the legal classification of the duty.

At the national level, BSES Rajdhani Power Limited, a major electricity distribution company, challenged a Central Electricity Regulatory Commission (CERC) order from January 2023. In this case, the CERC had recognized the imposition of SGD as a Change in Law event, offering some hope for developers seeking compensation. However, the broader implications of this ruling remain uncertain as the interconnected nature of these cases led to their disposal through a common judgement.

These varied outcomes highlight the ongoing legal complexities within India's renewable energy sector. The differing interpretations of Change in Law provisions across states reflect the need for clearer guidelines and more consistent regulatory frameworks.