Adani Green Energy’s record $6 billion solar power project announced in June has no guaranteed customer, its deal with India’s main solar adoption agency shows and may expose the company to higher financial risk. Shares in the firm have soared 3 fold since the signing of the 8 gigawatt (GW) multi-plant deal, which was hailed as the ‘largest of its type, ever’ and a landmark for India.
However, previously unreported details of the agreement between Adani Green and Solar Energy Corp of India Ltd (SECI) reveal 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).
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. “There shall not be any legal or financial implication to SECI in relation to such (unsold) quantum including associated quantum of manufacturing facilities” the agreement, reviewed by Reuters, says.
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. There are no buyers lined up for the Adani project yet and it’s unclear when SECI will be able to find buyers, a process that typically takes months. Auctions by the SECI usually attract greater participation because of the assurance of power purchase and payments. The lack of such a guarantee could undermine investor and lender confidence, raising financing costs.
Gautam Adani had 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 time of 3-5 years to implement this project.”
Since dropping the PPA with Adani, SECI has removed the clause from some other renewable energy tenders too.
