Adani has no guaranteed clients for $ 6 billion Indian solar project: report


NEW DELHI / CHENNAI: Adani Green Energy’s record $ 6 billion solar power project announced in June has no guaranteed customers, as seen in deal with India’s leading solar adoption agency , and may expose the business to greater financial risk.
Shares of the company, controlled by billionaire Gautam Adani, have tripled since signing the 8 gigawatt (GW) multi-plant deal, which Adani hailed as “the largest of its kind ever” and a point landmark for India.
However, previously undisclosed details of the deal between Adani Green and Solar Energy Corp of India Ltd (SECI) reveal that the agency has no “legal or financial obligation” to support the project if SECI fails to find buyers.
It would be the first major SECI project without a state-guaranteed power purchase agreement (PPA), which analysts say has been critical in developing India’s renewable energy sector.
When SECI launched the tender for the project in June 2019, it said that a PPA would be insured, but withdrew the clause guaranteeing the purchase in the agreement signed a year later.
“There will be no legal or financial implications for SECI with respect to this (unsold) quantum, including the associated quantum of manufacturing facilities,” said the agreement, reviewed by Reuters.
Funding risk
Adani Green said 2 GW of generating capacity will be commissioned by 2022, while the remainder will be added in annual increments of 2 GW until 2025 as part of the deal.
There are no online buyers for the project yet, and it is unclear when SECI will be able to find buyers, a process that typically takes months.
SECI auctions typically attract higher participation due to the insurance of power purchase and payments.
But the absence of such a guarantee could undermine investor and lender confidence, raising financing costs in a market like India where growth in demand for electricity has repeatedly been below expectations in a context of general economic slowdown.
The quality of “federally guaranteed contracts with certainty of cash flow payment gives investors the confidence to deploy tens of billions of dollars,” said Tim Buckley, director of the Institute of Energy Economics and Financial Analysis.
Adani Green said he would receive interim funding for the project from a consortium of foreign banks, and later with funds raised in capital markets.
He reassured investors of its ability to exploit the markets by citing its sovereign rating.
He declined to comment on the project on Thursday.
“We have full visibility and we would be able to brief the market shortly,” Group CFO Jugeshinder Singh said earlier this month.
Adani Green aims to become the largest renewable energy company in the world by 2030. It has an installed renewable energy capacity of 2.8 GW and aims to increase it to 25 GW by 2025.
“Enough margin available”
Gautam Adani said the latest project could generate profits at the electricity price of 2.92 rupees ($ 0.0393) per kilowatt hour (kwh) agreed in the SECI tender. “At Rs 2.92 there is enough headroom available and we also have 3-5 years time to implement this project,” he said in June.
The SECI tender for the project had dragged on for a year with the agency extending the deadlines and increasing the maximum bid price to Rs 2.93 / kwh from Rs 2.75 / kwh.
“SECI believed the final agreed price was higher, and that is why there was no purchase assurance,” an official close to the deal said on condition of anonymity due to the sensitivity of the question.
Since the abandonment of the PPA with Adani, SECI has also removed the clause from certain other renewable energy tenders.
SECI chief executive JN Swain told Reuters on Wednesday that potential buyers of electricity had been consulted and that “due process” had been followed during the auction and before signing the deal with Adani.
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