Adani saga: Lack of takers for RE key reason behind corruption case

SECI could not find buyers for the said "Corrupt solar project," companies resorted to bribing states: SEC findings

A widespread reluctance among states to purchase renewable energy (RE) has led to a corruption case filed by the United States Attorney for the Eastern District of New York against Adani group and the New York Stock Exchange-listed Azure Power. 

This issue dates back to 2019-2020, when the Solar Energy Corporation of India (SECI) issued record-high tenders worth 30 gigawatt (Gw). 

SECI is an RE project-awarding and facilitating agency under the Ministry of New and Renewable Energy. 

However, these projects failed to find buyers in any state. In 2021, according to data from the Central Electricity Authority (CEA), 20 Gw of solar projects were granted extensions due to the pandemic, which had delayed their power sale agreements (PSAs), while 8 Gw of solar projects tendered by SECI had no power purchase agreements (PPAs).

  CEA, the technical arm of the Ministry of Power, released the first status report on RE projects in 2021. This paper had reviewed and reported in 2021.

  The list included mega solar projects from leading players such as Adani Green Energy, ReNew Power, SoftBank Energy, Azure Power, ACME Solar, and others. It also included the 7 Gw manufacturing-linked solar tender floated by SECI in January 2020.

This first-of-its-kind tender 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. Adani committed to building 8 Gw, and Azure committed to 4 Gw. 

According to the indictment document, the high energy prices outlined in the letters of award (LoAs) made it difficult for SECI to

find states willing to purchase energy for the project.

 

“After the award of the project, SECI unsuccessfully sought out Indian state and Union governments to purchase the 12 Gw of solar power pursuant to PSAs. 

Without PSAs to sell the energy to a state buyer, SECI would not enter corresponding PPAs to purchase power from the Indian energy company’s subsidiaries or the US issuer. 

SECI’s inability to find purchasers jeopardised the lucrative LoAs and corresponding revenue that the Indian energy company’s subsidiary and the US issuer had anticipated receiving from the manufacturing-linked project,” the document said. 

The Indian energy company mentioned is Adani Green, which referred to this project as the world’s largest solar project.

The US issuer is Azure, which claimed it would earn $2 billion in profit from the project. 

According to the US Securities and Exchange Commission’s investigation, both companies initiated a cycle of bribing state governments to obtain favourable PSAs. 

“During the course of the bribery scheme, the co-conspirators undertook extensive efforts to corruptly persuade government officials to cause state electricity distribution companies to execute PSAs,” said the indictment statement. 

Only when a PSA is signed can SECI sign a PPA with the project developer, which is required to obtain any form of debt financing needed for the project. If delayed, this threatens the project’s viability.

  According to SECI’s tender guidelines, it is the agency’s responsibility to find states willing to sign PSAs. A spokesperson for SECI did not respond to a query concerning the case. 

In the aftermath of the 2020 pandemic, not only did states refuse to sign new PPAs, but they also began negotiating tariffs. The average tariff for RE projects in 2019-20 was close to Rs 3.5 per unit, nearly on a par with coal-based power.

  Financially beleaguered power distribution companies even delayed payments to RE project developers with whom they had PPAs. 

However, the precarious situation for RE projects has not improved, despite tariffs falling to Rs 2 per unit. By 2024, the number of stranded projects has ballooned.

  There are close to 25-30 Gw of projects with no takers. Of these, 10-15 Gw have no PPAs, and the remaining have no PSAs.      

COST OF POWER 

- SECI, in January 2020, issued tender for first of its kind manufacturing-linked solar project

  - Adani Green and Azure Power won the tender, 8 Gw and 4 Gw respectively, by quoting ~2.92/unit

  - SECI failed to find buyers for the project during the 90 days period

  - Adani & Azure started an alleged cycle of bribing states to sign PSAs, according to SEC’s investigation

  - It took 18 months to sign PSAs by the developers as against the 90 days deadline

  - States were reluctant to sign PSAs due to financial stress, high RE tariff than coal