APTEL Ruling Reinstates Original Tariffs for Karnataka Solar Project; Supreme Court Upholds Reversal of KERC Reductions

In a significant judgment reinforcing the sanctity of long-term power purchase agreements, the Supreme Court of India has upheld an order by the Appellate Tribunal for Electricity (APTEL) reinstating the original tariffs for a solar power project in Karnataka. On August 27, 2024, a bench comprising Justice Pamidighantam Sri Narasimha and Justice Pankaj Mithal dismissed the challenge brought by Bangalore Electricity Supply Company Limited (BESCOM) in Civil Appeal No. 7595 of 2021. The ruling confirms that systemic administrative delays qualify as force majeure events, thereby invalidating previous tariff reductions imposed by the Karnataka Electricity Regulatory Commission (KERC) against Respondent No. 1, Hirehalli Solar Power Project LLP.

Legal Background and the Contested KERC Orders

The dispute originated from a project initiated under Karnataka’s 2014 solar policy, which sought to involve land-owning farmers in the state’s renewable energy transition. In 2015, the developer, operating as a Special Purpose Vehicle (SPV), executed a 25-year Power Purchase Agreement (PPA) with BESCOM.

Following the signing, the project encountered several hurdles that hindered its progress toward the Scheduled Commissioning Date (SCD). These included:

• Significant administrative delays in obtaining land conversion approvals from government authorities.
• Systemic bottlenecks in securing evacuation scheme clearances for power transmission.
• Financial constraints and disruptions in the supply chain resulting from the national demonetization policy.

Although the project was eventually commissioned in August 2017—approximately six months beyond the original SCD—the developer completed the works within an extension timeframe previously sanctioned by BESCOM. Despite this extension, the KERC initially attributed the delays solely to the SPV’s negligence. The Commission subsequently issued orders reducing the PPA tariffs from the original ₹8.40 per unit to ₹5.07/kWh and ₹4.97/kWh, while also imposing liquidated damages.

APTEL’s Reasoning and Findings on Project Delays

Upon appeal, APTEL conducted a comprehensive reappraisal of the factual matrix, identifying that the project was hampered by “systemic issues” and “administrative bottlenecks” rather than developer-led delays. The tribunal’s reasoning focused on the proper application of contractual protections:

• Force Majeure Applicability: APTEL ruled that government and authority-induced delays are recognized as force majeure events under Article 8.3(a) of the PPA.
• Due Diligence: The tribunal found that the respondents acted with the necessary due diligence in pursuing approvals. It contrasted this with BESCOM’s arguments, noting that the developer could not be held liable for the “prolonged delay” caused by third-party regulatory bodies.
• Tariff Reinstatement: Consequently, the tribunal invalidated the KERC’s imposition of liquidated damages and ordered the reinstatement of the original tariff of ₹8.40 per unit for the duration of the 25-year agreement.

Statutory Context and the Supreme Court’s Ratio Decidendi

The Supreme Court’s dismissal of BESCOM’s appeal underscores the restrictive nature of its appellate jurisdiction under Section 125 of the Electricity Act, 2003. In its ratio decidendi, the Court emphasized that judicial restraint is necessary when reviewing the factual findings of specialized bodies like APTEL.

The bench noted that Section 125 limits the scope of interference to substantial questions of law, a threshold BESCOM failed to meet. The Court observed that such restraint is a “necessary measure” to allow statutory regulators and specialized tribunals the autonomy to develop “consistent sectoral jurisprudence” through a principled approach to technical and industry-specific facts.

The finality of the 25-year PPA is now settled law, and the Court has directed BESCOM to comply with the following:

• Tariff Reimbursement: BESCOM must reimburse the solar developers for the difference between the unauthorized reduced tariffs (₹5.07/₹4.97) and the original ₹8.40 per unit.
• Late Payment Premium: In addition to the tariff difference, BESCOM is required to pay a late payment premium as previously ordered by the tribunal to compensate for the delayed revenue.

This judgment serves as a vital precedent for the renewable energy sector, affirming that developers are protected under Article 8.3(a) against administrative inefficiencies that fall outside their control.