Adani charges highlight broader India solar risks

Fortum Oyj

28/11/2024 03:23

(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.

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Graphic: Adani is a key engine for India's green goals    https://reut.rs/3CRvzbC
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 (Editing by Antony Currie and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  BOSE/ 
shritama.bose@thomsonreuters.com))