COVID Crisis allows Indian Solar Companies to Opportunistically Rescind on Irrationally bid Contracts

The COVID crisis has caused a major social and economic dislocation around the world and India too has been drastically affected due to a very strict national lockdown that has almost gone for more than two months. While industrial activities were allowed in the middle of the lockdown, the issues in getting equipment and labor have brought several project construction activities to a standstill. It has also given leeway for Indian solar companies to opportunistically use the COVID crisis to get out of a few contracts where they had bid irrationally low.

ACME which is one of the largest Indian solar developers has called force majeure on a solar project where it had bid the lowest price in India. The 600 MW project had been facing execution issues earlier due to the availability of transmission infrastructure leading to delays. Now the COVID crisis has given the perfect excuse for ACME to get out of the whole project citing that it will face huge delays due to supply chain issues and lack of labor. The company has filed a petition with the central regulator to prevent SECI from invoking its bank guarantees for not meeting its contractual obligations.

The company must complete the project as per the contract latest by May 2021, if it gets the six-month extension which is allowed. Since the company sees interminable delays, it has every probability of finishing the project on time. The company is already fighting a court case with the transmission provider PGCIL due to the lack of transmission infrastructure for evacuating power from its solar project that it plans to build in Rajasthan. The government agencies have seen through the stratagem of the developers and are vigorously fighting the company at the regulator to see that the company does not wiggle out of its obligations and liabilities. India has more than 30 GW of solar projects under various stages of construction. Many of these projects were won at very low prices which did not make sense at that time. Given the crisis, many developers would be looking to get out of there contracts as the power situation has turned for the worse, and getting financing has become tougher. If ACME gets out of its 600 MW contract, then look out for the floodgates to open for other developers to also claim force majeure for several of their projects.