India into another Solar scam

We have really come a very long way in India’s solar industry with a recent deal between India’s southern state of Tamil Nadu and the Adani Group for buying power from 648 MW of solar plants at Rs 7/kWh ( (~11c/kWh) considered too high. A lot of the opposition parties are calling it a scam, since a recent tender in another Indian state of Madhya Pradesh saw the lowest bids for solar power coming at just Rs 5/kWh which is around 30% lower than the Adani bid. Note the Indian government has mostly procured solar power through reverse auctions. The results have been quite good with successive auctions seeing lower rates for solar energy with high competition. In fact the recent 300 MW solar power auction saw over 100 large and small companies putting in their bids. This led to the price falling so low. Though some people are contesting the lower prices in the bids as irrational and not sustainable, the Rs 7/kWh is clearly too high as Indian CERC declared Rs 6.49/kWh as the reference price last year. The prices have only come down since then and Rs 6/kWh is considered as a decent price by both developers and governments.

The Adani Group has been aggressively expanding into the solar power area singing MOUs worth billions of dollars with state governments in TN and Rajasthan. It also signed a MOU with SunEdison to build a $4 billion solar manufacturing plant in Gujarat. Considered extremely close to the new BJP government in the center, Adanis have been buying and building plants like there is no tomorrow. They have already bought a number of thermal power plants from distressed owners, despite the Group straining under a massive debt burden. Even as other infrastructure groups like JP Associate, GMR, GVK, Lanco etc. face the prospect of bankruptcy and asset sales, Adani Group has been expanding at a ferocious rate.

The recent deal with TN does not make much sense for the government there, as they could easily get a lower rate through competitive bidding. Even the Adanis have bid only Rs 6/kWh in MP which makes the recent deal even more controversial. Now I don’t think this project of the Adanis will come to fruition, given the huge hue and cry and the simple math which makes this deal seem tainted. The Rs 7/kWh rate was formulated by the government a couple of years ago but given the rapid change in the solar sector, it has already become obsolete.

The solar sector in India has not been left untouched by corruption and unethical practices which is prevalent in all walks of Indian life. The first solar scam was the one by Lanco group which was said to have bid for multiple projects during JNNSM Phase 1 using dummy companies, to circumvent group limits on the capacity allocation. The court ultimately did not think it was a scam as everything was right in a legal sense, though it may not have been completely ethical.

The second big scam was in Kerala where people closely associated with the Chief Minister’s office defrauded investors of crores of rupees through solar investment schemes. Now the Adani Group has become the controversy. Please note there is no evidence of a scam in this case, though it smacks of incompetence by the government officials.