According to a report via Reuters, India’s main solar-adoption agency Solar Energy Corp of India Ltd (SECI) revealed that the $6 billion solar power project which was announced in June with Adani Green Energy has no guaranteed customer. It may expose the company to higher financial risk.
Gautam Adani’s shares have soared three-fold since the signing of the 8 gigawatts (GW) multi-plant deal, which Adani announced as the “largest of its type, ever” and a landmark for India.
The agreement between Adani Green and Solar Energy Corp of India Ltd (SECI) as reported earlier revealed 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 state-guaranteed Power Purchase Agreement (PPA), which analysts say has been key to building up India’s renewable energy sector.
When SECI floated the tender for the project in June 2019, it had said a PPA would be assured, but it withdrew the clause guaranteeing purchase in the deal signed a year later.
Adani Green has said 2 GW of generation capacity will come onstream by 2022, while the rest will be added in annual 2GW increments through 2025 as a part of the contract.
SECI is uncertain about finding buyers for the Adani project which is a process which takes months. Auctions conducted by SECI are usually the primary method to attract greater participation because of the assurance of power purchase and payments.
But the lack of such a guarantee could undermine investor and lender confidence, raising financing costs in a market like India where power demand growth has repeatedly fallen short of expectations amid a broader economic slowdown.
Tim Buckley, director at the Institute of Energy Economics and Financial Analysis pointed out that the quality of “federal government-guaranteed contracts with cashflow payment certainty provides investors the confidence to deploy tens of billions of dollars.”
Adani Green has said it would receive interim funding for the project from a consortium of foreign banks, and later with money raised from the capital markets.
It has reassured investors of its ability to tap markets citing its sovereign grade rating.
“We have full visibility and we would be in a position to inform the market shortly,” Adani’s chief financial officer, Kaushal Shah, said earlier this month.
Gautam Adani has said the project can make a profit at the power price of 2.92 rupees ($0.0393) per kilowatt hour (kwh) agreed in the SECI tender. “At 2.92 rupees, there is enough margin available plus we also have the time of 3-5 years to implement this project,” he said in June.
The SECI tender for the project had dragged on for a year with the agency extending deadlines and raising the maximum bidding price to 2.93 rupees/kwh from 2.75 rupees/kwh.
SECI Managing Director J.N. Swain said on Wednesday that the potential buyers of power were consulted and “due processes” were followed during the auction and before signing the agreement with Adani.