MERC Rejects ACME's Force Majeure Claim, Imposes Penalty for Under-Generation

In its recent ruling, the Maharashtra Electricity Regulatory Commission (MERC) has ruled against ACME’s claim of Force Majeure due to disruptions caused by the COVID-19 pandemic. The Commission found that ACME’s decision to declare the Commercial Operation Date (CoD) of its solar power project on May 25, 2022, despite only installing 333.19 MW of Direct Current (DC) capacity instead of the planned 444.75 MW, was a commercial choice rather than a result of Force Majeure.

The decision emphasised the importance of adhering to contractual obligations, particularly concerning the Capacity Utilisation Factor (CUF) and generation targets agreed upon in the Power Purchase Agreement (PPA). Despite ACME's claims that the COVID-19 pandemic, a recognised Force Majeure event, disrupted their supply chain and reduced their Direct Current (DC) capacity installation, the Commission maintained that these challenges did not absolve the company from its post-Commercial Operation Date (CoD) obligations.

ACME's project initially planned to install a DC capacity of 444.75 MW to deliver an Alternating Current (AC) capacity of 300 MW, ensuring a CUF of 29.75 percent. However, due to pandemic-related disruptions, only 333.19 MW of DC capacity was installed. Despite this shortfall, ACME declared the CoD on May 25, 2022, arguing that delaying this declaration would have led to further penalties, including the invocation of bank guarantees and a reduction in the PPA tariff.

The Commission, however, viewed this as a commercial decision rather than one forced by external circumstances. ACME's reliance on a subsequent Ministry of New and Renewable Energy (MNRE) notification, which allowed an extension for project completion until March 2024, was dismissed by the Commission. The notification was deemed inapplicable as it only covered projects that had not declared CoD before its issuance.

ACME also contested the penalties for under-generation, arguing that Maharashtra State Electricity Distribution Company Limited (MSEDCL) had not demonstrated any actual losses due to the shortfall. The Commission, however, referenced a judgement by the Appellate Tribunal for Electricity (APTEL) that upheld the enforceability of pre-calculated liquidated damages in the PPA without the need for the off-taker to prove actual losses. The ruling affirmed MSEDCL's right to recover penalties as stipulated in the PPA.

WIth this, it can be concluded that the MERC's decision indicates the critical need for solar power developers to carefully manage both the construction and operational phases of their projects. While Force Majeure events like the COVID-19 pandemic can provide some relief during the construction phase, they do not excuse developers from meeting their performance obligations once the project is operational.

The ruling serves as a crucial reminder of the importance of adhering to contractual commitments in the renewable energy sector, where long-term success depends on balancing immediate project needs with future operational requirements.