Solar projects delayed by coronavirus in China may get relief

On the lines of clarification given by Ministry of Finance (Department of Expenditure Procurement Policy Division) that coronavirus will be covered in the force majeure clause (FMC), the MNRE will soon issue a separate notification allowing developers facing delays extra time to commission their project without inviting any penalties.

A force majeure clause holds that if there are extraordinary events like those beyond human control such as wars, riots, crimes, or natural calamities, then this clause can free both the parties from contractual liability from fulfilling their obligations under the contract.

Renewable energy projects, particularly solar power projects, has been badly impacted due to spread of coronavirus in China as it has completely stopped critical supply of modules. Nearly, 80 per cent of solar modules is sourced from China.

This has put developers at the risk of paying penalty to state discoms for any delay in commissioning of projects as per the terms of power purchase agreement (PPA).

Rating agency CRISIL has estimated that nearly 3000 MW of solar projects, worth Rs 16,000 crore, could be at risk of penalties for missing their respective scheduled commercial operation date (SCOD) if the impact of Coronavirus on trade with China prolongs.

As per the standard terms of PPAs, non-adherence to completion timelines attracts penalties, including downward renegotiation of tariffs. Typical schedule of penalties on account of delay includes payment of Rs 20 crore per day for delay in commissioning up to 30 days, Rs 80 crore penalty (pro-rata) per day for delays between 31 and 90 days and downward revision of tariff or cancellation of PPAs if delays extends beyond 90 days.

"The clampdown (in China) has forced several manufacturers to run their plants at low utilisation, or to stall operations altogether. Indeed, even the modules already manufactured are facing delays in transit to project sites on account of precautionary restrictions on transit at ports," CRISIL has said in its analysis report of impact of virus on renewable energy sector.

According to clean energy communication and consulting firm Mercom, the force majeure clause could prevent developers only for delays up to 90 days as further delay in the performance of any obligation under this contract gives option to both parties to terminate the contract without any financial repercussion on either side.

The National Solar Energy Federation of India (NSEFI) had also written to the MNRE, asking for coronavirus to be seen as force majeure. The association also pointed out that most solar projects are interstate transmission system (ISTS)-connected and delays in commissioning these projects would also result in the levy of transmission charges/point of connection charges by the Power Grid Corporation of India (PGCIL) due to the operationalisation of Long Term Open Access (LTOA).

Mercom reported previously that the solar industry is plagued with issues like delays in discoms payments, difficulty in forecasting and scheduling power, and the looming fear of the coronavirus derailing the supply schedules.

India installed 7,346 MW of solar capacity in calendar year 2019, a 12 per cent decline year-over-year (YoY), compared to 8,338 MW in 2018, according to Mercom India Research's newly released Q4 & Annual 2019 India Solar Market Update. There is about 23.7 GW of large-scale solar projects under development currently.