India's RERC Rules Renew's 375 MW Solar Project Eligible for GST Compensation

en.Wedoany.com Reported - The Rajasthan Electricity Regulatory Commission (RERC) has ruled that the Goods and Services Tax (GST) rate hike notification issued by the Ministry of Finance in September 2021 constitutes a "Change in Law" event, entitling Renew Solar Photovoltaic Private Limited to compensation for its 375 MW solar project in Pokhran, Jaisalmer, Rajasthan.

The project was developed under a Power Purchase Agreement (PPA) signed on April 13, 2022, between Renew Solar and the Solar Energy Corporation of India (SECI), at a tariff of INR 2.18/kWh. The dispute centered on two notifications issued by the Ministry of Finance on September 30, 2021, which increased the applicable GST rate on solar equipment and solar power generating systems from 5% to 12%, effective October 1, 2021. This rate revision occurred after the bid submission deadline of July 1, 2021, and Renew Solar claimed that the project costs increased as a result, an expense that could not have been anticipated at the time of bidding.

RERC noted that in its tariff approval order dated September 27, 2022, the aforementioned GST notifications had already been recognized as a "Change in Law" event, and therefore the question of whether the GST hike constitutes a "Change in Law" had already been settled. The Commission also dismissed objections regarding the timing of Renew Solar's petition, holding that the actual financial impact of a Change in Law event can only be accurately quantified after the project achieves commercial operation, as the calculation is based on actual expenditures. The project was commissioned in three phases and achieved full commercial operation (COD) on March 25, 2025. RERC determined that Renew Solar's petition, filed on July 24, 2025, was within the applicable limitation period.

RERC did not directly quantify the compensation amount payable this time, but instead directed the contracting parties to undertake a reconciliation exercise to determine the additional expenditure incurred due to the GST change. Claims must be supported by relevant invoices, documentary evidence, and statutory auditor certificates establishing a one-to-one correspondence between the expenditure and the project. The Commission clarified that only additional expenditure incurred before the applicable deadline under Clause 12.1.2 of the PPA is eligible for compensation; the primary compensation will be recovered through tariff adjustment under Clause 12.2.2 of the PPA. Under this mechanism, for every net increase or decrease of INR 0.1 million/MW in project cost, the tariff shall be correspondingly increased or decreased by INR 0.005/kWh.

RERC also approved compensation for carrying costs, but with restrictions on the claimable period. Renew Solar is entitled to carrying costs from the date of actual expenditure incurred until the project COD (March 25, 2025), as well as from April 28, 2026, until the date of this order; no carrying cost shall accrue for the period between March 26, 2025, and April 27, 2026. Carrying costs will be calculated at the lowest of the following three rates: the actual rate of interest borne by Renew Solar for raising funds (subject to certification by a statutory auditor), the working capital interest rate specified under the applicable RERC tariff regulations, or the late payment surcharge rate under the PPA.

RERC has directed the parties to initiate the reconciliation process within seven days of this order and complete it within 90 days. Upon completion of reconciliation, carrying costs shall be paid in a lump sum within 60 days of Renew Solar raising a supplementary bill. The arrears in tariff differential from project COD until the supplementary bill shall also be paid in a lump sum within 60 days. The Commission further clarified that SECI and Rajasthan Urja Vikas & IT Services Limited (RUVITL) are bound by the back-to-back contractual framework of the PPA and the Power Sale Agreement, and their respective obligations towards the approved "Change in Law" compensation are governed by the relevant agreements.

Renew Solar's 375 MW project was awarded by SECI at a tariff of INR 2.18/kWh and was commissioned in three phases: 200 MW commissioned on October 16, 2024, 100 MW commissioned on December 16, 2024, and the remaining 75 MW commissioned on March 25, 2025, thereby achieving COD for the entire project on March 25, 2025.