The issue of ACME solar attempting to exit out of 300 MW SECI PPA from a record low tariff of Rs. 2.44/kWh

A petition was filed with Central Electricity Regulatory Commission (CERC) for PPA dispute resolution after ACME Solar Holdings Pvt. Ltd. along with its executing companies ACME Phalodi Solar Energy Pvt. Ltd. and ACME Raisar Solar Energy Pvt. Ltd., terminated this project which they had won at a historically low tariff of Rs 2.44 per kwh citing the clause of Force Majeure.

Factual Background

Solar Energy Corporation of India (SECI) (Respondent) had issued a Request for Submission (RfS) for the development of a 3000 MW solar power project. ACME Solar (Petitioner) won the tender for developing a 300 MW solar power plant and a PPA was signed between both the parties.

The PPA dispute arose between both parties when the petitioners terminated the PPA citing the clause of force majeure events. The issues they cited were firstly the problem of land acquisition as the Rajasthan High Court ruled Status Quo on the land where the substation was to be built. Secondly, the impact of COVID-19 outbreak on the manufacturing units, both in India and China including lockdown. Thirdly, the delay in the commissioning of assistant transmission network which led to a delay of 15 months, in addition to further delay in the execution of the project due to the present uncertainty regarding COVID-19. The Article 4.3.5 when read with Article 13.5.1 says that if the project is stalled on account of force majeure event or its effect for more than 3 months, the petitioners can terminate the PPA and no liability shall survive for both parties.

This was contested by SECI on the grounds that the termination of the contract took place unilaterally and this termination was not accepted by the respondents. Second the respondents disputed on the petitioners claim of the force majeure events or their effects continuing for 3 months. The respondents stated that the delay in land acquisition and assistant transmission network was not sustained until after the event was over. Also, the respondents stated that they were considering the request to provide an extension for the project and seeked for the bank guarantees and letter of comfort to be kept alive while the case is still pending.

PGCIL on the other hand stated that the matter of land acquisition was being re-agitated by the petitioners as it was already presented before the commission through different petitions and had applied for a grant of four months in SECI to achieve financial closure, land procurement and scheduled commercial operation date which had now been granted by SECI. They further stated that the petitioners can only contest on the COVID-19 and its effects causing delay in project. They further stated that the ‘force majeure clause could not be held as the ground for frustration of contract as the ‘force majeure’ clause provided only temporary pardon. The respondent PGCIL also stated that the petitioners cannot escape liabilities under the guise of ‘force majeure’.

Issues

The judgement for this case is still pending with Central Electricity Regulatory Commission (CERC).

Ideally, ACME Solar should have requested for an extension to be provided rather than terminating the PPA unilaterally after acquiring the tender for the same at a historically low price by citing force majeure events like problems in acquiring of the land for substation whose hearing is already going on in the Rajasthan high court and the COVID-19 outbreak, due to which the petitioners have requested for an extension for their various other projects and honour the contract rather than terminating under the PPA under the guise of COVID-19.

ACME has also highlighted the equipment supply chain issues from China due to COVID-19 outbreak and has sought 327 days extension, which the offtaker such as SECI have never granted to any developer, and has reached to the regulators for deciding on the merit of the extension.

Conclusion

It is believed that ACME has bagged this project at a very low price and not been able to secure finances from investors and wants to exit as the project is no longer feasible. During the COVID period, there has been increase of prices of solar equipments including modules, inverters and the structures, which has made many solar projects unviable.

As we have observed that the project developers are doing all efforts to grab solar PPAs and not keeping any room for the project risk adjustments. In the reverse bidding their efforts are to do financial engineering to make project financial viable, however it ends up in non implementation of projects. In recent solar bids, not more than 50% of the solar projects are commissioned and rest are in legal disputes to get some relief from the regulators.