Seven questions about Adani’s Andhra solar deal – and why Jagan Reddy’s defences don’t hold

On November 20, in a court filing, the United States Securities and Exchange Commission said Gautam Adani had “paid or promised a bribe” to Andhra Pradesh government officials “at or in connection with” a meeting in August 2021 between Adani and “the Chief Minister of Andhra Pradesh”. In return, the SEC said, it had been agreed that Andhra Pradesh would buy expensive power from Adani’s upcoming solar power project.

Two days later, the YSR Congress Party, which was in power in Andhra Pradesh between 2019 and 2024 under Chief Minister YS Jagan Mohan Reddy, responded by arguing that its government had not entered into any agreement with Adani Group. Instead, it said, its power purchase contract was with the Solar Energy Corporation of India, an enterprise owned by the government of India.

But this defence did not hold.

SECI is an intermediary between solar developers and state-owned electricity distribution companies, known as discoms. It invites bids from solar developers and then approaches discoms to purchase the capacity it has bidded out. In other words, although power purchase agreements or PPAs are signed between SECI and discoms, the eventual suppliers and beneficiaries are the developers.

On November 25, the YSRCP came out with a longer rebuttal in response to an article in the Eenadu newspaper, in which it made three key claims:

1. As a special incentive, SECI had waived inter-state transmission charges for this project, which would net Rs 3,750 crore in annual savings over 25 years for Andhra despite the Rs 2.49 per unit price.
2. At the time SECI held its tender, global solar panel prices were at an all-time low. Thereafter, subsequent tenders have netted higher solar tariffs.
3. Telugu Desam Party, its main political rival, the party currently in power in the state, had signed PPAs at yet higher tariffs.

In the days since, further defences have emerged. A report said the YSRCP wanted to give all 7 gigawatts as “free power” to rural areas. Nor is the party the only one rejecting the SEC’s chargesheet. Gautam Adani, Adani Group chief financial officer Jugeshinder Singh, and Adani Green have denied wrongdoing as well.

Scroll’s reporting, however, shows that the PPAs did result in Andhra Pradesh being saddled with higher electricity costs. Bribery, as alleged by the United States Securities and Exchange Commission, is not the only possible malfeasance here.

Apart from the YSRCP government, questions also surround the decisions taken by SECI and the Ministry of Power. Scroll sent queries to all three. Only YSRCP replied – its answers have been incorporated into this report.

Why did SECI club manufacturing and solar generation together?

As IIT professor Rohit Chandra wrote in Scroll, SECI is “largely a Central government response to investor perceptions that state distribution companies were too financially unstable and risky as counterparties in power contracts”.

Accordingly, SECI floats tenders for solar power – and then tries to place the successful bids with discoms.

As we know, this particular SECI tender clubbed manufacturing and solar generation. It wanted developers to produce solar equipment (cells, modules) in India. In return, it would buy a multiple of the plants’ manufacturing capacity as solar power. Which is how, by producing solar components worth 1 GW, Azure could sell 4 GW of solar power. And, with 2 GW manufacturing capacity, Adani had 8 GW of power to sell.

At 12 GW, this was the biggest solar energy tender India had seen till date but the insistence on manufacturing kept most developers out of the race. As things stood, just three firms participated in the November 2019 bid – Adani Green, Azure Power and Andhra’s Navayuga Group.

Why were manufacturing and generation clubbed together? SECI didn’t respond to our question. However, in 2021, replying to a letter by TDP MLA Payyavula Keshav, then chairperson of the public accounts committee of the Andhra Pradesh assembly, and the current finance minister of the state, SECI said that its mandate allowed it to push solar manufacturing as well.

This is not much of an answer. In 2020, India would begin work on its production-linked incentive scheme for solar manufacturing. Did SECI need to step in? What were the tariff implications of bundling manufacturing and solar generation together? Why did it think a bid with a ceiling tariff of Rs 2.93 per unit would find buyers when previous manufacturing-linked tenders, priced at Rs 2.75 per unit and Rs 2.85 per unit, had failed?

Scroll wrote to SECI asking it to comment on these questions. This article will be updated when it responds.

Why wasn’t the bid cancelled given disinterest from discoms?

Of the three bidders, Navayuga was a surprise.

Not only was the Hyderabad-based group new to solar manufacturing, it was also snared in political and economic trouble at the time of bidding. Between August 2019 and January 2020, the Jagan Mohan Reddy government had taken away some of its prime assets, like the ports at Krishnapatnam and Machilipatnam, the group’s land bank outside Krishnapatnam, and the Engineering, Procurement and Construction contract to build Andhra’s Polavaram dam. It had handed over the ports to Adani and the EPC contract to Megha Engineering.

As things emerged, Navayuga’s Rs 2.93 per unit bid was higher than the Rs 2.92 per unit that both Adani and Azure bid. Its bid failed. The other two firms bagged the contract. We will return to this point of price discovery later.

The project carried the potential to dramatically boost both firms’ operating scale and financial health. Azure Power, as the United States Securities and Exchange Commission noted, expected $2 billion in after tax profits over the next 20 years. Adani Green, which was yet to post a profit, too was “projected to earn billions of dollars of revenue and more than a billion dollars in profit”.

We know what happened next. The Rs 2.92 per unit made discoms blanch. This wasn’t a surprise. Two previous manufacturing-linked tenders, with tariffs capped at Rs 2.75 per unit and Rs 2.85 per unit, had already failed. It isn’t clear why SECI floated a third tender at an even higher tariff.

The Letters of Award to Adani and Azure had been signed in June 2020. With discoms finding Rs 2.92 per unit price too high, power supply agreements had not been signed even a year later.

Despite this delay, SECI didn’t cancel the tender.

Instead, the US indictment says, Adani started reaching out to state governments. It wasn’t, however, the only entity trying to get discoms to bite.

Why did SECI and the power ministry accord preferential treatment to this project?

The electricity generated from the project would flow through state transmission lines to the central transmission utility and then enter Andhra.

In India’s electricity grid, both the central transmission authority and state governments charge for the use of their power lines. Of these, the inter-state transmission system charges were waived for the Adani solar project.

YSRCP’s rebuttal to Eenadu alludes to this, saying: “The ISTS waiver is a very key feature that is not there with respect to any other project.” Without it, the party claims, Andhra would have had to pay an additional Rs 1.99-Rs 2 per unit.

This needs to be understood. From February 2016, India has been waiving ISTS charges for solar and wind projects selling power to discoms. Initially exempted only for projects commissioned before March 2022, this deadline has repeatedly been extended. It now exempts all projects commissioned by 2025.

And so, why does YSRCP say ISTS waiver was unique to this tender?

One answer lies in the current state finance minister’s letter to SECI. At the time of the bid, the power ministry had granted the waiver only to projects coming up by March 2022. The SECI tender, however, extended that benefit to the manufacturing-linked tender even if it came up after March 2022. As we know, tranche-II, III, and IV of the tender are supposed to start generating from September 2024, September 2025, and September 2026.

According to the YSRCP, future solar projects – ones commissioned after 2025 – may or may not get the inter-state transmission system charges waiver. The manufacturing-linked tender, however, would. “This project is the only project that possesses waiver of ISTS charges in the most unambiguous manner and in a manner not contingent on any future events.”

This, however, raises further questions for SECI and the power ministry. Why was an exception made only for this project? As the current state finance minister had noted in his 2021 letter, SECI extended the ISTS waiver beyond 2022 well before the power ministry did. Did SECI overstep its bounds?

Further relaxations followed. The inter-state transmission system charges have been waived for projects supplying power to discoms for their renewable power obligation. In November 2021, however, the power ministry waived ISTS for this tender irrespective of whether this power is within renewable purchase obligation or not.

“With that, even power being sold privately from the solar plant was exempted from transmission charges,” said a retired Indian Administrative Service officer with power sector expertise, on the condition of anonymity.

Did Andhra even need 7 GW of additional power?

In its response to Scroll, YSRCP submitted two reasons why the PPA was in the state’s interest.

First, it said, Andhra was facing a shortage of electricity. Second, given the ISTS waiver, the 7 GW PPA was the cheapest available electricity on hand.

On the first of these, the party cited an Andhra Pradesh Electricity Regulatory Commission order which estimated the state’s power deficit at 59,229 million units (or 6.7 GW) in 2028-’29. It also cited Central Electricity Authority numbers pegging Andhra’s power demand at 121,156 million units (13.83 GW) by 2029.

“Going by the above assessments, the scenario of power deficit was apparent and taking this into consideration, the arrangement with SECI was accepted by the then Government of Andhra Pradesh and was approved by the APERC,” the YSRCP told Scroll.

Do these numbers hold up? In 2023, going by its State Electricity Plan, Andhra Pradesh needed 8.2 GW of power, while its installed generation capacity was 19.83 GW. Its plant load factor, which measures power capacity utilisation, was 67%, lower than Tamil Nadu’s 73%, and Maharashtra’s 70%.

By 2030, Andhra’s power requirement is estimated to be 13.27 GW and the generation capacity is expected to rise to 23 GW of power. By then, the State Electricity Plan says the plant load factor is projected to fall further to 63.75%.

Does Andhra even need this 7 GW solar project?

By 2021, concerns were already being raised about the state having more renewable projects than it needed. That February, the state had held auctions for a 6.4 GW solar project which would come up in 10 solar parks within the state. “These projects, if implemented, would pose serious grid management problems given Andhra’s total power requirement is only around 9 GW but the state already has total operational renewable capacity of 7.9 GW,” wrote Bridge To India, a portal tracking India’s renewable energy sector.

Renewable power comes with intermittency risks. As their generation rises and falls, they can disrupt grid frequency, resulting in power outages or the grid tripping. Which is why discoms need to parallelly invest in energy storage like batteries or pumped storage.

And so, the question: Why did SECI offer Andhra 9 GW? The current state finance minister had raised this concern in the 2021 letter he wrote while in the Opposition. He asked SECI: “Did you conduct any load flow study or any demand study to check if the state needs the proposed 9 GW power?”

Even assuming Andhra needed this power, was this the cheapest power available?

In its rebuttal to Eenadu, YSRCP justified Adani’s revised price offer of Rs 2.49 per unit saying other solar projects outside the state would have been costlier.

In its response to Scroll, the party wrote: “The average cost of procuring power at the time when the arrangement with SECI was concluded was Rs 5.10 per kWh of power.” It claimed the decision to procure power from SECI translated to “annual savings of Rs 4,400 crore”.

First and foremost, the cost comparison between coal-based power and solar power is misleading. The former doesn’t get subsidies like transmission charge waivers or transmission loss waivers.

The question is whether Andhra Pradesh would have gained more from buying power from a standalone solar generation project.

Around the time SECI bidded out the manufacturing-linked tender, India also saw such tenders. A 500 MW tender by Gujarat Urja Vikas Nigam issued in September 2020 landed a tariff of Rs 1.99 per unit. A tender for 6.4 GW of power by Andhra Pradesh itself netted prices below the manufacturing-linked tender. This power, generated within Andhra, would have been exempted from inter-state transmission system charges as well.

As things evolved, this 6.4 GW tender faced flak for breaching bidding norms and ended up in court. What happened next is striking. Adani dropped its tariff for the SECI project Rs 2.92 per unit to Rs 2.49 per unit. Thereafter, Andhra Pradesh decided to not fight for the tender in court – and signed up with SECI-Adani instead.

This decision, as the Economic Times reported, was opposed by the state’s Andhra Pradesh Power Coordination Committee. Given the solar project was sited outside Andhra, the committee wanted its tariff to include basic customs duty and SECI’s trading margin. It also wanted SECI to renegotiate tariffs for the September 2025 and 2026 tranches per the prevailing tariffs of that time. “These suggestions were rejected by the state government,” the paper said.

This raises several questions. Reverse auctions are considered an effective instrument for price discovery. However, when one of the winners unilaterally slashes its tariff by almost 15%, was the SECI bid competitive enough?

Given solar tariffs are going up, isn’t Rs 2.49 a good deal as well?

In its response to Scroll, YSRCP claimed that global solar panel prices were at an all-time low when the SECI tender was held. Thereafter, subsequent tenders have netted higher solar tariffs. “At the time of the outbreak of the Covid pandemic, it was assumed that the drop in panel prices would not only sustain but would also continue steadily,” it wrote. “However, the panel prices have not reduced as what was anticipated and this resulted in all tenders issued after 2021 leading to price discovery of tariffs way above Rs 2.00 per kWh, even for generation in states with very high PLFs.”

The first of these points – about global solar panel prices – is not correct. Over the last 15 years, solar cell prices, led by China, have dramatically fallen across the world. Back in 2019, when SECI held its tender, module prices were heading towards 20 cents per watt. Since then, they have fallen further, touching 13.7 cents per watt in 2024. Solar tariffs, world over, have fallen in tandem.

The party’s second statement – about domestic tariffs – is incorrect as well. Solar tariffs have climbed in India due to the country’s decision to impose import barriers on Chinese modules and push for domestic module manufacturing instead. One fallout of this protectionism? Domestic module prices have risen 90% over the last year even as the price of Chinese solar cells, which most Indian manufacturers assemble into solar panels, has fallen. With that, solar tariffs have risen as well.

Scroll asked YSRCP to comment on the role of import tariffs in panel price hikes. The party didn’t respond.

The party’s third contention to Eenadu – that TDP signed PPAs at yet higher tariffs – is partially true. Solar module costs were higher between 2014 and 2019 – when TDP was in power – and so were, naturally, solar tariffs.

At the same time, as this report by Prayas, a Pune-based energy sector watchdog, says, under the TDP, the state did sign PPAs at higher costs.

What this shows, essentially, is that manufacturers and developers have profited off the state.

The costs need to be understood.

What are the costs of buying this power?

As things stand, Andhra Pradesh won’t just pay Rs 2.49 per unit for 25 years.

The manufacturing-linked tender also passes basic customs duty and GST onto discoms – as opposed to letting developers split it between investors and discoms. As YSRCP told Scroll, this is a standard clause in most solar tenders.

As a result, by buying this power, the state would incur an additional annual burden of Rs 850 crore, said the Economic Times, citing data from a 2021 report by the Andhra Pradesh Power Coordination Committee. Over 25 years, this comes to Rs 21,250 crore.

The overall power purchase bill, reported the Business Standard, might be as high as Rs 1,61,000 crore over 25 years.

That is not all. Unlike coal-based power, solar power is intermittent. To protect the grid, state discoms need to keep thermal power plants on standby during the day – and pay them for doing so.

Alternately, the state would have to push all 7 GW to farmers – as YSRCP said was the plan and the APERC subsequently approved. In this scenario, the state government absorbs the costs.

But here again, questions about demand come in. In 2021, Srikant Nagulapalli, who was state energy secretary at the time, said Andhra’s nearly 6,000 agricultural feeders consume roughly 24% of the state’s total energy demand. Following these numbers, if Andhra’s power demand was 8.2 GW in 2023, farm demand would be 2.1 GW.

This was also flagged by state finance minister Keshav in his 2021 letter. “All the parameters submitted by the Government of Andhra Pradesh to APERC... indicate that the growth of the agriculture sector is very minimal... and hence, contracting such huge capacities doesn’t make any sense.”

Larger lessons

In essence, allegedly in return for a payoff, a state government agreed to buy power its people might not even need.

A few months ago, while working on another report about India’s solar sector, this reporter met a former additional secretary who had served in the Ministry of Power. “It’s a myth that India’s discoms are cash-strapped due to theft of power,” said the former official. “That problem has been more or less fixed. India’s discoms are in trouble nowadays because of injudicious expenditure.”

Much of that applies here. At lower rates, Andhra could have bought more units of power. As it is, its people are already seeing power cuts.

This article is part of a collaborative series reporting on the US charges against Adani.

M Rajshekhar is an independent reporter writing on energy, climate and kleptocracy. He is also the author of Despite The State: Why India Lets Its People Down and How They Cope, published by Westland Books in 2020.