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ACME Aklera Power Technology, a subsidiary of ACME Solar Holdings, has been awarded approximately ₹47.4 crore by the Rajasthan Electricity Regulatory Commission (RERC). This compensation, for regulatory changes including customs duty and GST hikes, is expected to boost revenue from its 250 MW solar project by about 3.5% annually for 15 years. The payout will be disbursed over 15 years at a 9% discount rate, offering financial certainty and regulatory clarity for renewable energy developers.
ACME Aklera Power Technology, a subsidiary of ACME Solar Holdings, announced on Monday that the Rajasthan Electricity Regulatory Commission (RERC) has awarded it approximately ₹47.4 crore in change-in-law compensation.
This compensation is intended to cover increased costs incurred by the company due to significant regulatory changes. These include the imposition of basic customs duty on solar cells and modules, and an increase in Goods and Services Tax (GST) from 5% to 12%, along with associated carrying costs.
The ruling is projected to positively impact ACME's 250 MW solar project, which is contracted with the Solar Energy Corporation of India (SECI). The annual revenue from this project is expected to increase by around 3.5% over the next 15 years.
The total compensation amount will be disbursed through an annuity mechanism over a 15-year period, applying a 9% discount rate. This structured payment plan aims to protect the project's economic viability against unforeseen increases in regulatory expenses.
This decision by the RERC is significant as it provides crucial regulatory certainty for renewable energy developers facing unexpected policy shifts during their project lifecycles. It establishes a framework for compensating developers for increased costs stemming from regulatory modifications, potentially influencing similar cases across India's renewable energy sector. ACME Solar Holdings currently manages 2,918 MW of renewable energy capacity and has an additional 4,472 MW under construction.
In related market information, ACME's shares were trading at ₹251.30 on Monday, up 0.28% from the previous close, with a market capitalization of ₹15,240 crore.
Impact
This award offers substantial financial relief and enhances the long-term revenue stability for ACME's solar project. It also sets a positive precedent for the wider renewable energy sector in India, potentially boosting investor confidence by demonstrating a mechanism to mitigate risks associated with regulatory changes. The compensation directly improves the project's profitability and financial predictability.
Rating: 6/10.
Difficult Terms
- Subsidiary: A company that is owned or controlled by another company.
- Change-in-law compensation: Payment received by a company to offset financial losses or increased costs caused by new or changed government laws or regulations.
- Rajasthan Electricity Regulatory Commission (RERC): An independent statutory body responsible for regulating the electricity sector in the Indian state of Rajasthan.
- Solar Energy Corporation of India (SECI): A public sector undertaking under the Ministry of New and Renewable Energy, Government of India, tasked with promoting solar energy.
- Basic customs duty: A tax imposed by a government on imported goods.
- Goods and Services Tax (GST): A comprehensive indirect tax levied on the supply of goods and services in India.
- Carrying costs: Expenses incurred for holding an asset, such as interest on loans during construction or storage costs.
- Annuity mechanism: A method of payment where a series of equal payments are made at fixed intervals over a specified period.
- Discount rate: The rate of return used to calculate the present value of future cash flows, reflecting the time value of money and risk.
- Regulatory certainty: Assurance that the regulatory environment will remain stable or predictable, allowing businesses to plan with confidence.
