MERC Orders Compensation for APTFPL Following SC Ruling on GIB

In a pivotal move for the renewable energy sector, the Maharashtra Electricity Regulatory Commission (MERC) has mandated compensation for Azure Power Thirty-Four Pvt. Ltd. (APTFPL), a subsidiary of Azure Power, in response to increased costs stemming from the Supreme Court’s conservation directives for the Great Indian Bustard (GIB). This decision follows APTFPL's formal petition seeking financial redress for the additional expenses incurred due to newly imposed bird protection measures.

It may  be noted that APTFPL has formally filed a petition under Section 86 of the Electricity Act, 2003, seeking appropriate compensation for costs incurred due to a 'Change in Law' event. This petition pertains to the Supreme Court of India’s order dated April 19, 2021, issued in Writ Petition (Civil) No. 838 of 2019, also known as the M.K. Ranjitsinh v. Union of India case. The petition is based on Article 9 of the Power Purchase Agreement (PPA) dated July 30, 2018, which governs the supply of 130 MW of solar power to Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL).

In response to the petition, the Court's order mandated the underground installation of power lines in the habitats of the GIB and Lesser Florican and required the installation of bird diverters on existing overhead powerlines. These measures were introduced to protect the endangered species from potential harm caused by power infrastructure. The Court’s directive aimed at enhancing the conservation efforts for these avian species by mitigating risks associated with power lines.

In response to these new requirements, APTFPL, which operates a 130 MW (AC) solar power project in Rajasthan's BAP Taluka under a Power Purchase Agreement (PPA) with Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL), filed a petition with MERC on June 14, 2023. The company’s petition outlined several critical requests. Firstly, APTFPL sought a declaration that the Supreme Court’s order qualifies as a 'Change in Law' under their PPA. They argued that the newly mandated measures imposed unforeseen and significant costs, which were not anticipated at the time of their bid submission.

Secondly, APTFPL requested the development of a suitable compensation mechanism to address these additional costs. They specifically sought compensation for the installation of bird diverters, which could be provided either as a one-time lump sum or through the compensation mechanism proposed. Furthermore, APTFPL asked for carrying costs and interest on these expenditures from the date they were incurred.

The financial impact on APTFPL has been substantial. The company incurred costs of INR 8,627,511 for the installation of 4,200 bird diverters, as required by the Supreme Court’s conservation measures. These costs were incurred following the bid submission deadline of April 27, 2018, and the commissioning of the project on September 6, 2019. The directive from the Supreme Court was issued after these key dates, leading to unplanned financial burdens on the project.

On May 3, 2024, the Central Electricity Regulatory Commission (CERC) affirmed the Supreme Court’s order as a "Change in Law" event in its Final Order related to Case Nos. 197/MP/2023 and 206/MP/2023. This recognition supports APTFPL’s claims by validating that the new regulations impacted their financial and operational commitments under the PPA. The CERC's acknowledgment confirms that the Supreme Court's directives fall within the scope of unforeseen regulatory changes affecting the project's economic position.

This ruling has set  a broader precedent for other developers who may encounter similar challenges due to evolving environmental regulations. It emphasises the importance of adaptive regulatory frameworks that balance conservation objectives with practical considerations for the energy sector. The decision reinforces the necessity for clear mechanisms to address unforeseen compliance costs, ensuring the financial viability of renewable energy projects amidst changing regulatory landscapes.