Solar sector caught in a haze as Adani storm to hit funding, project plans

The Indian solar sector is bracing for impact after the US charges against the Adani group and NYSE-listed Azure Power last week. While a 12-gigawatt (Gw) manufacturing-linked solar power project auctioned by the Solar Energy Corporation of India (SECI) — a wholly-owned subsidiary of the Ministry of New and Renewable Energy — is in the middle of the storm involving the Adani group and several states, the solar-renewable industry itself fears a severe backlash.

 

An executive with an energy firm said: “There’s a sense of shock and disbelief.” The executive added that Donald Trump’s election as the next US president, in addition to these developments in India, could impact the pace of renewables in India and likely the financing cost as well. 

“It’s incredibly harmful to the sector and India,” said a senior executive with a legal firm, consulting on energy sector deals and investments. The executive said the recent developments had resulted in loads of discussions amongst different classes of investors, though no definitive decisions had been taken yet.  

Several industry executives and sector experts raised concerns over the possible impact the latest developments may have on financing of solar projects in the country. They also expressed apprehension about the role of SECI in tendering projects. “SECI LoA was the gold standard. Given that it is a sovereign backed assured off taker, domestic and global financing agencies relied on its face value. But with recent events where the role of SECI seems to have become clouded, there would now be a higher rate of scrutiny. We fear the rate of interest also going up,” said a senior executive of a leading energy company.

 

The first-of-its-kind tender was aimed to build a solar manufacturing unit along with a power plant. Adani Green and Azure Power were the only two winners, both placing bids of Rs 2.92 per unit, just below the ceiling tariff of Rs 2.93 per unit set by SECI. When SECI was unable to find a buyer for these projects, the two companies allegedly approached several states and offered bribes, according to the ‘indictment’ document of the United States Attorney for the Eastern District of New York.

 

The state in question is Andhra Pradesh, which agreed to buy power from the project at Rs 2.49 per unit, after persuasion from the companies. According to a letter dated September 15, 2021, SECI wrote to the Andhra Pradesh energy department urging it to buy electricity from the project at Rs 2.49 per unit. 

 

“The developers have suo moto offered 9 Gw at a tariff of Rs 2.49/unit including SECI’s trading margin, considering reduction of solar tariff in the recent tenders for solar projects nationwide and considering bulk capacity being offered,” said the letter, a copy of which was reviewed by Business Standard.

 

It added: “We at SECI believe that this project would be an apt and befitting alternative to GoAP’s tender and it would achieve all its stated objectives including costs and would be economically cheaper. Besides, AP will be supporting the nation for development of indigenous manufacturing under ‘Atmanirbhar Bharat Abhiyan’.” SECI in its letter had cited recent tenders of Andhra Pradesh where a similar tariff was discovered.

 

Responding to this, a top central government official told this newspaper that it is a “standard practice by SECI” to circulate the revised tariff among all states and look for buyers. Requesting anonymity, he said SECI was not at all a party to the legal case and they were also not kept in the loop when the investigation was ongoing by the US agencies.

 

“As it is understood, no evidence suggests the role of SECI. It is also not a concern of SECI how the states agree to sign the PSA at what tariff. SECI is neither a regulatory nor an investigative agency but a commercial company,’’ the official explained. ‘’If any tender condition is violated, action will be taken. Whatever documents are available online, there is no evidence attested to it. There is no way to presume it happened and that the ‘indictment’ is true,’’ he said.

 

The SECI spokesperson did not reply to the emailed queries. 

 

Industry stakeholders also referred to another recent case that was reported by Business Standard earlier. It’s about SECI allowing Anil Ambani-owned Reliance Power to submit invalid bank documents twice for a solar plus storage project in June.

 

Looking at the big picture in the renewable sector, there’s a view that the tendering process for projects should undergo revision as states continue to demand less than the supply. Sunil Jain, chairman, Skill Council for Green Jobs and formerly CEO of Hero Future Energies, said the solution to the reluctance of states is to abolish reverse bidding and get a new model such as ‘contract for difference’ auction.

 

“Under this, price discovery will happen during the auction but the power will be sold on power trading platforms. Any difference in price can either be paid to the developer if it’s lower than discovered or the state if it’s higher,” he said. Going forward, the duration of PPAs would also have to come down to 10, 15, 20 years, he added. “This would help factor in the instability in power prices and input costs,” Jain said. 

 

Ripple effect

  Sector majors are likely to shy away from SECI tenders, stating that Letters of Allocation (LoA) are no longer a gold standard 

Concerns over financing grow as interest rates are expected to rise amid heightened scrutiny of LoAs 

Many suggest NTPC and SJVN tenders will be preferred over SECI’s