Adani charges highlight broader India solar risks
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Shritama Bose
MUMBAI, Nov 28 (Reuters Breakingviews) -The U.S. indictment of Gautam Adani has thrown a spotlight onto the rolling risks of India’s solar industry. Last week, prosecutors in New York charged the billionaire and several others of securities and wire fraud by agreeing to bribe government officials to secure solar power contracts for the Adani Group’s $19 billion renewable energy unit. The accusation revolves around him doing so because he was having no success finding takers for his “high energy prices”. That underscores the cascade of issues that plague the broader industry.
Start with bureaucracy. The tariffs power producers charge for solar projects are determined through auctions run by the federal agency Solar Energy Corporation of India at the time they win the initial contract - which in this particular case was the first half of 2020. The producers then hunt for long-term power purchase agreements. There is usually a lag of a few months in between. Often, that’s not a problem. Four years ago, it was.
First, solar module prices were fluctuating wildly – a problem which worsened during the pandemic as semiconductors got more expensive, thanks to supply chain problems. That complicated how to cost a project.
Second, the price producers could charge for solar-generated electricity was falling. It had been doing so for a decade, but in 2020 hit a record low. That was hastened by the third factor, rampant competition for solar projects, which had caused aggressive bidding.
Put it all together, and it’s hardly a stretch for the rates Adani Green Energy ADNA.NS was going to charge to be regarded as too expensive within months of it winning the 8-gigawatt contract, which it billed as the largest ever globally, from SECI.
Some of these pressures have since abated: tariffs are more stable, as are module costs. And some players have pulled out of the market, like SoftBank 9984.T, which sold its solar portfolio to Adani for $3.5 billion in 2021, and Finland's Fortum FORTUM.HE.
These problems could yet return, though – and the built-in delays between being commissioned and finding buyers remain. Of course, that’s no excuse for bribery, if the U.S. allegations prove to be right. In fact, on Monday, SECI, which allocates projects and matches government buyers with power providers, made it clear that the latter can reduce tariffs set at auction if they can’t find any bidders.
Meanwhile, those that remain in the business, including GIC and Macquarie, face shrinking returns. Adani Green Energy’s return on equity, for example, fell to 13% from 20% in 2023. That’s still not bad for an energy provider, but it’s a big drop - and leaves less of a buffer if old or new financial challenges appear.
Follow @ShritamaBose on X
CONTEXT NEWS
TotalEnergies will pause investment in its Adani Green energy project until there is further clarity on a U.S. securities and wire fraud case against Indian billionaire Gautam Adani and others, the French group's CEO, Patrick Pouyanne, said on Nov. 26.
India’s Andhra Pradesh state is likely to suspend a power purchase deal linked to the Adani Group due following the charges, Reuters reported the same day, citing two state government sources.
Graphic: Adani is a key engine for India's green goals https://reut.rs/3CRvzbC
(Editing by Antony Currie and Ujjaini Dutta
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