Marine management

Adani has no guaranteed customer for $6 billion solar project in India: report


Adani Green EnergyRecord $6 billion Project solar energy The company, announced in June, has no guaranteed customer, as evidenced by its deal with India’s largest solar agency, and may put the company at greater financial risk.

Shares in the company, controlled by billionaire Gautam Adani, have plummeted since the signing of the 8 gigawatt (GW) multi-plant deal, which Adani described as the “biggest of its kind ever” and a milestone for India to achieve the tripled.

Previously unreported details of the agreement between Adani Green and Solar Energy Corp of India Ltd (SECI) show that the agency has no “legal or financial obligation” to support the project if SECI fails to find buyers.

This would be the first major SECI project without a government-guaranteed power purchase agreement (PPA), which analysts say has been key to building India’s renewable energy sector.

When SECI published the tender for the project in June 2019, it had said a PPA would be secured, but it withdrew the clause guaranteeing purchase in the deal signed a year later.

“There are no legal or financial implications for SECI with respect to such (unsold) quantities, including the associated amount of manufacturing assets,” the agreement, reviewed by Reuters, reads.

financing risk

Adani Green said 2 GW of generation capacity will come online by 2022, while the rest will be added in annual 2 GW increments through 2025 under the agreement.

There are no buyers for the project yet and it is unclear when SECI will be able to find buyers, a process that usually takes months.

SECI auctions tend to attract larger participation because electricity purchases and payments are guaranteed.

However, the absence of such a guarantee could undermine investor and lender confidence and raise financing costs in a market like India, where power demand growth has repeatedly fallen short of expectations amid a general economic slowdown.

The quality of “government-guaranteed contracts with cash flow security gives investors the confidence to commit tens of billions of dollars,” said Tim Buckley, director at the Institute of Energy Economics and Financial Analysis.

Adani Green has announced that it will receive interim financing for the project from a consortium of foreign banks and later from capital markets.

It has assured investors that it is capable of making markets, topping its sovereign grade rating.

She declined to comment on the project on Thursday.

“We have full transparency and would be able to update the market shortly,” the group’s chief financial officer, Jugeshinder Singh, said earlier this month.

Adani Green aims to become the world’s largest renewable energy company by 2030. It has an installed capacity of 2.8 GW of renewable energy and aims to increase this to 25 GW by 2025.

‘There is enough margin’

Gautam Adani said the latest project could make a profit at the electricity price of 2.92 rupees ($0.0393) per kilowatt-hour (kWh) agreed in the SECI tender. “At 2.92 rupees, there is enough margin and we still have 3-5 years to complete this project,” he said in June.

The SECI bidding process for the project had dragged on for over a year, with the agency extending deadlines and increasing the maximum bid price to Rs.2.93/kWh from Rs.2.75/kWh.

“SECI considered the final agreed price to be higher and therefore there was no guarantee of purchase,” said an official familiar with the deal on condition of anonymity due to the sensitivity of the matter.

Since breaking off the PPA with Adani, SECI has also removed the clause from some other renewable energy tenders.

SECI chief executive JN Swain told Reuters on Wednesday that potential power buyers were consulted and “due procedures” were followed during the auction and prior to signing the agreement with Adani.

This story was published from a wire agency feed with no changes to the text.

Subscribe to something Mint newsletter

* Enter a valid email address

* Thank you for subscribing to our newsletter.

Don’t miss a story! Stay connected and informed with Mint. Download our app now!!