The Central Electricity Regulatory Commission (CERC) has granted relief to Thar Surya 1 Private Limited (TS1PL), a company operating a 300 MW solar power project in Bikaner, Rajasthan, following a “Change in Law” event related to increased Goods and Services Tax (GST) rates. TS1PL had filed a petition against the Solar Energy Corporation of India (SECI) and two Delhi-based distribution licensees, BSES Rajdhani Power Limited (BRPL) and BSES Yamuna Power Limited (BYPL), seeking compensation for the additional costs incurred due to the GST hike.
The dispute arose from three government notifications issued in 2021 that raised the GST on renewable energy devices and services. Before these notifications, certain renewable energy equipment and parts were taxed at 5%, and composite Engineering, Procurement, and Construction (EPC) contracts carried an effective tax rate of 8.9%. The 2021 notifications increased the GST on goods to 12% while keeping the services tax at 18%, resulting in an effective rate of 13.8% on composite contracts. TS1PL argued that these changes, which occurred after its bid submission in June 2020, significantly raised the cost of the project. The company estimated the total additional expenditure at around ₹64.29 crore, including ₹54.85 crore in principal costs and ₹9.44 crore in carrying costs.
In response, SECI recognized that the GST increase fell under the “Change in Law” provisions of the Power Purchase Agreement (PPA) but maintained that relief should only cover costs incurred up to the project’s Scheduled Commissioning Date (SCoD). The distribution licensees, BRPL and BYPL, contested the petition, claiming delays in filing and suggesting that TS1PL should have followed the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021, to recover additional costs.
The CERC rejected these objections, pointing out that the GST notifications occurred before the 2021 Rules came into effect, and therefore, the claims must be addressed according to the original PPA terms. The Commission formally recognized the GST hike as a “Change in Law” event and directed all parties to reconcile the additional costs. TS1PL is required to demonstrate a direct correlation between project expenses and invoices, supported by an auditor’s certificate. Compensation will be calculated using the PPA formula, which allows a tariff increase of ₹0.005 per kWh for every ₹1 lakh per MW increase in project costs.
This decision provides important legal clarity and financial protection for solar developers, ensuring that unforeseen statutory tax increases during project development can be compensated. The ruling is expected to strengthen investor confidence in renewable energy projects in India by affirming that developers can claim additional costs arising from government policy changes. It highlights the significance of robust PPA provisions and the role of regulatory authorities in maintaining a fair framework for the growth of the solar power sector in the country.
The outcome also underscores the importance of timely documentation and reconciliation in such claims, setting a precedent for how similar disputes may be handled in the future. By recognizing the GST hike as a Change in Law event, the CERC has reinforced its commitment to supporting renewable energy developers in navigating regulatory and financial uncertainties.
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