Covid-19 crisis: ACME cancels pact to supply power at record low tariff

PGCIL said as the matter of deadline extension due to delay in getting in sub-station for the project is already sub-judice in High Court of Rajasthan, the same cannot be contested in this petition by ACME
ACME Solar, one of the largest solar power developers in India, has decided to cancel a contract with government agencies to supply power at the country’s lowest tariff, with the Covid-19 crisis taking a heavy toll on the economy.

The firm won the 600 MW project in Rajasthan at a historic low rate of Rs 2.44 per unit in 2018. In its petition to the Central Electricity Regulatory Commission (CERC), the company cited the pandemic as one of the reasons for terminating the agreement. The company urged the CERC to prevent Solar Energy Corporation of India (SECI) and Power Grid Corporation of India (PGCIL) from encashing the bank guarantee and letter of comfort submitted for the project.

ACME had signed a power purchase agreement (PPA) with SECI and a long-term access agreement with PGCIL. ACME Solar said it had terminated the PPA dated December 2018 executed with SECI “on account of the force majeure events”.

The force majeure clause in an agreement pertains to events and circumstances that are beyond the control of humans. The clause, however, does not excuse a party’s non-performance entirely, and only suspends it for the duration of such events.

The reasons cited by ACME in the petition are: “Status quo orders by the Rajasthan High Court qua land on which Fatehgarh substation was to be constructed; the outbreak of Covid-19 and its adverse impact on manufacturing facilities of suppliers since December 2019, including lockdowns in China and India; and delay in the commissioning of associated transmission network elements by other transmission service providers.”

“The projects have already been delayed by 15 months and further delay will continue on account of uncertainty due to Covid-19,” ACME said.

The petition follows an earlier request filed by ACME Solar to SECI, seeking force majeure of 327 days owing to a delay in getting transmission connectivity. “Power evacuation from our solar power project was not certain, which is completely beyond our control and as such amounts to force majeure under provisions of the PPA and PSA,” it said. Business Standard has reviewed the letter and the petition.

ACME has contested the terms of the PPA, saying the extension allowed under the agreement is not enough for them. “Due to delay on account of force majeure events, the petitioner is not able to execute the projects within the time period. Accordingly, performance of obligations under the PPAs has become impossible and thus become void. Therefore, the parties are absolved from their obligations,” it said in the petition.

SECI and PGCIL in their reply contested the grounds on which ACME has decided to “unilaterally terminate the PPA”. Asking for more time from the CERC to respond to the petition, SECI said, “The issue relates to the unilateral termination of the contract by the petitioners (ACME) on alleged grounds of force majeure. However, termination has not been accepted by SECI.”

It has also disputed that there has been an event of force majeure, or that even if there is such an event, its effect is continuing for a period of more than three months. SECI also said it was “considering giving an extension to ACME and has no intent to encash the bank guarantee”.

PGCIL said that as the matter of deadline extension due to the delay in getting substation for the project was already sub judice in the High Court of Rajasthan, the same could not be contested in this petition by ACME.

The grid-connected solar power project was awarded to ACME in December 2018 by SECI. ACME won 600 MW capacity at a tariff of Rs 2.44 per unit to construct the plant at Fatehgarh district, Rajasthan. A year before, ACME had quoted Rs 2.44/unit tariff for 500 MW capacity in the Bhadla solar power park as well. This was the lowest ever solar tariff in India and was hailed globally as it was cheaper than every other energy source.

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