Behind Azure’s Investor Update. Challenges To Continue in 2021

The Firm’s 4 GW project win through SECI remains in limbo. That places almost 18 GW of awarded solar projects together in the same boat in India.

In an update to the Securities and Exchange Commission (SEC) in the US, where it is listed at the New York Stock Exchange (NYSE) Azure Power has sounded out its investors on the challenges it faces vis a vis its 4 GW tender win in India. The firm won the tender early in 2019.  The firm says it “continues to work towards signing PPAs for the 4 GW manufacturing linked tender for which a Letter of Award (“LOA”) has already been received. The Solar Energy Corporation of India (“SECI”) has informed us that so far there has not been adequate response from the state electricity distribution companies (“DISCOMs”) for SECI to be able to sign the PSAs at this stage even though we have a LOA.”

Thus, the project has effectively seen zero progress ever since the letter of award was provided. readers will recall that this is the same project where Adani Green Energy won 8 GW of capacity, a number that catapulted them to the ‘leading solar developer’ status in the world, thanks to over eager industry publications. That’s 12 GW os solar pipeline that is stuck tight, for now.

Azure’s statement adds that  capital costs, interest rates and foreign exchange rates have improved since it won the 4 GW auction a year ago which have resulted in lower tariffs in other recent SECI auctions. “We expect these savings likely will be passed on to state electricity distribution companies (DISCOMS). We expect a tariff markdown from the price discovered in the auction, which will facilitate signing of PSAs. We will continue our discussions with SECI towards signing PPAs in respect of the 4GW tender and expect the PPAs to be signed in tranches over a period of time. We will continue our policy to only take on contracts that create shareholder value and earn returns that are above our cost of capital.”

In effect, the firm, while making it clear that it is open to a tariff markdown to enable signing of PPA/PSA’s, is clear that it may not quite go to the lengths recent auctions have seen. Negotiations are likely to be tough, considering how the question of deciding the right price is increasingly being taken out of the hands of the winners. What will make it interesting will be the stance that Adani Green Energy adopts, considering its even larger stakes in the auction win.

The delay in this landmark tender is not just putting into focus the emerging challenges for India’s solar sector, but also the growth and investment plans of major developers, Azure and Adani being two of the largest ones of course.

Azure has been an early independent solar power producer with a pan-India portfolio of 7.1 gigawatts on September 30, 2020 of which 1.8 GWs is operational, 1.3 GWs are under construction, besides the 4.0 GWs in question here.