SaurEnergy Explains- The Solar Tender At the Centre of Adani’s US Controversy

By now, a lot has been written about the charges brought at a US district court against key names in the Adani group, besides Azure power. While those charges will be contested no doubt by the firms as already announced, it is a good time to understand just what tender it was where allegations of corruption have been floated, considering the generally competitive situation in India for solar bids. So here is a timeline for you to track.

The Long Road To Find Takers For Manufacturing Linked Solar Development

The tender in question was meant to kickstart solar manufacturing in India, especially solar cells, something the Government of India had been keen on ever since 2017 when Solar capacity additions started to take off in a big way, and considering the 100 GW target for 2022. Thus it was that rather than go for the PLI route (not even an idea at the time for solar manufacturing), much like a pilot case, the Solar Energy Corporation of India (SECI) was entrusted with the task of designing a manufacturing linked tender for solar developers. The thought process, that a large solar project win will support the logic of investment into solar manufacturing as well was pushed through simply because domestic manufacturing at the time was unwilling or incapable of investing big, thanks to Chinese imports and low capital availability for such a move by institutions.

Journey Starts in May 2018

Thus started SECI’s efforts to find developers who would commit to manufacturing as well as solar power development. The first effort came in May 2018, with a project for 10 GW of solar capacity linked to a 5 GW manufacturing commitment. With the tariff capped at Rs 2.93/unit, only one bidder turned up, namely, Azure Power for part of the capacity on offer.

By January 2019, the tender had duly been canceled, and a fresh one was issued for 3 GW solar capacity linked to 1.5 GW manufacturing.  The tender failed to get enough of a response, going through 4 deadline extensions for bids, before finally being cancelled in June 2019.

In the last week of June came a reworked tender, this time for 6 GW of solar capacity linked to 2 GW of total manufacturing. Interestingly, with solar prices dropping, the ceiling tariff for this tender was set at Rs 2.75 per unit.  The enhanced 6 GW size failed to find enough bidders at first, going through the now familiar deadline extensions (three times in fact), before finally closing in November 2019, with oversubscription. With solar input prices dropping, developers, it seemed, were finally confident of setting off the manufacturing-linked investments with the recoveries from the solar projects they would set up. Finally, after a further enhancement to 7 GW of projects on offer, bidders were found for 10 GW of capacity, before the reverse auction to determine winners.

By January 2020, the government finally confirmed that Adani Green Energy had bid for 1.5 GW solar cell manufacturing capacity and 6 GW generation capacity, along with Azure Power’s bid for 500 MW solar cell manufacturing capacity and 2 GW generation capacity.

With the greenshoe option, the capacity for Adani would increase to 2 GW of solar cell manufacturing capacity and 8 GW generation capacity while for Azure, with the greenshoe option, it will be 1,000 MW solar cell manufacturing and 4 GW generation capacity. That took total capacity awarded to 12000 MW of solar power, and 3000 MW of solar manufacturing. Something the government estimated would lead to investments of comfortably over RS 50,000 crores. 

The Start of a New Struggle- Buyers for Solar at Rs 2.93/unit

Even before the self-congratulations had died down, both SECI and bidders were quickly confronting a new challenge. It was a common problem by now, of the biggest and this case only possible buyers for solar power, state discoms playing hard to get. Not only had discoms started holding out forever lower solar prices thanks to subsequent tenders that were seeing bids below Rs 2.50 /unit, but finding buyers for this scale was also a challenge. With the critical next stage in the cycle after the awarding of LOAs, the signing of PPAs (Power Purchase Agreements)  between SECI and the winners linked in back-to-back arrangements with the signing of PSAs (Power sales agreements) between SECI and state discoms, the parties found themselves at an impasse. No discom was willing to buy power at this rate, with prevailing rates far lower in the range of Rs 2.25 to Rs 2.60/unit.

First Buyer, After 18 Months

PPAs that are ordinarily supposed to be signed within 90 days, saw repeated delays before the door finally opened with the first PSA between SECI and Odisha’s GRIDCO, which agreed to buy 500 MW. Even this was below the winning bid price of Rs 2.92/unit. However, what helped was that solar prices had finally started inching up in recent bids, breaching the Rs 2.70 mark even in cases.

As a solution to the issue of buyer resistance, SECI had decided to bundle the 12 GW of solar power in batches of 3 GWs. This bundling would be liable to changes depending on the actual commissioning achieved by the projects. For projects that are commissioned after June 2023, ISTS charges and losses would be applicable, and the cost of the project would differ.

The 3 GW of solar projects with the tariff of ₹2.92/kWh is to be bundled with 1.2 GW (Tranche VIII) and 2 GW (Tranche IX) of ISTS-connected solar projects, which were auctioned in February and June 2020, respectively. The winning tariffs in the 1.2 GW auction ranged between ₹2.50/kWh and ₹2.5/kWh. The tariffs for the 2 GW auction were in the ₹2.36/kWh and ₹2.38/kWh range.

The resulting average tariff or the pooled tariff was around ₹2.66/kWh at which SECI planned to sign PSAs for 6.2 GW of solar projects.

With the first deal in place, subsequent deals started falling into place with multiple state discoms, at prices ranging from 2.54/unit to Rs 2.42/unit, considered competitive to prices prevailing by then. In April 2022, CERC duly approved the new tariffs. A huge contributor to these, and finding pride of place in the US charges, are the Andhra discoms, which committed to offtake of 7 GW from the projects.

Final Closure and Progress

For Adani Green, which had won the larger part of the bid at 8 GW of solar capacity and 2 GW of manufacturing linked to it, it wasn’t until December 2023 that it could finally confirm that everything in terms of power purchase agreements and manufacturing tie-ups was in place. Almost three years after the tender had originally been awarded. With the progress that has already been made by both the developers, it is unlikely that anything can be done about the various agreements already in place. If, and that is a big if, any proof of wrongdoing does come out, it will deal a death blow to the already struggling Azure Power, besides throwing a question mark over the aggressive growth plans at Adani Green Energy, which has set itself a target of 50 GW of renewable capacity by 2030, something that will require large dollops of debt funding at the finest possible rates, usually available only in the US and other international markets.