Solar Auctions in India: How are Deals Secured and What are the Challenges?

Adani Green Energy (AGEL), one of India's biggest renewable energy company, has been embroiled in a series of controversies lately. Most recently, it faces bribery and fraud allegations in the United States. The indictment of Gautam Adani by the US Department of Justice (DOJ), centres around his alleged involvement in "a bribery scheme" to secure solar contracts in India and sharing misleading information with US firms about its involvement. The US officials, last month, accused Adani and his associates of offering and promising bribes worth $265 million to Indian government officials in 2021 to secure contracts.

The allegations have highlighted the challenges involved in achieving India’s solar ambitions. India plans to achieve 500 gigawatts (GW) of non-fossil fuel based energy capacity by 2030. Here's a quick look at the bidding process for solar projects in India.

How are Solar Auctions Conducted in India?

Government-run power companies like Solar Energy Corporation of India (SECI), NTPC, NHPC and SJVN (formerly known as Satluj Jal Vidyut Nigam) invite companies to set up solar power plants and sell electricity at competitive prices. Among them SECI is the most prominent auctioning agency. After it issues the tender detailing the size of the auction, location and other conditions, the interested companies pitch their bids at competitive prices and the one with the lowest tariff is awarded the project.

A Power Purchase Agreement (PPA) is signed between both the parties to ensure that they buy the electricity for a fixed period. Following this the developer secures the land, purchases equipment to set up the solar power plant at the location.

Only after the winners are chosen, the government agency starts looking for distribution companies (discoms) and enters into Power Supply Agreement (PSA) with them—a process that can take months, keeping the developers waiting.

The process allows for the participation of private companies which operate on scale and have the capacity to generate a significant amount of solar power. It would otherwise have been impossible for India to become the third-largest country with solar production.

Despite its merits, the solar auctioneering process in India is not without its challenges.

Delays, Low Tariffs Spark Concerns

Over the years, a time-consuming auctioneering process and delays in allocation of solar projects to companies have resulted in a limbo of more than 3-4 years for some solar projects. Delays are often caused by issues like land acquisition challenges, disruptions in supply chain and challenges in developing transmission infrastructure.

Projects requiring inter-state transmission systems (ISTS) often face significant delays due to slow progress in building sub-stations and grid connections. Developers have expressed concerns that delayed transmission projects could defer commissioning of solar projects by years.

Overall, while most solar projects aim for a commissioning timeline of 18-24 months post-auction, delays can extend far beyond this, sometimes reaching or exceeding 3-4 years, especially in large-scale or interstate projects.

Another issue with the bidding process has been that smaller solar firms have been unable to compete with larger firms like Adani Green, Tata Power, ReNew, who have more resources to expend. Developing large-scale solar projects requires significant financial resources for land acquisition, equipment procurement and construction. Large companies have better access to capital and can handle these costs, while smaller firms often struggle to secure funding.

Auctions favour the lowest bidder, and only large companies can afford to bid at lower tariffs because they operate at scale, reducing per-unit costs. Smaller ones find such low bids unviable due to limited economies of scale.

Moreover, many tenders have stringent requirements, such as guarantees, performance bonds and technical qualifications, which favour companies with prior experience and resources.

In 2021, the country floated a number of ambitious solar tenders, with an installed capacity of above 500 MW. Some of these tenders were oversubscribed to the extent that they broke previous tariff records. However, some of them like the 7.5 GW tender in Ladakh never even reached the auction stage.

However, Ladakh's challenging terrain and certain limitations imposed on the developers during the auctioneering process, among other things, lenders did not finance such a complex project. The relevant distribution company was not keen on the relatively high tariffs. The tender finally went unsubscribed and the government withdrew it. Similarly, Gujarat’s 700 MW project in Dholera Solar Park was cancelled even after projects were awarded.

India has achieved remarkable success in solar expansion. However, the complexity of the auction process continues to pose challenges. Experts have emphasised on the need to simplify the bidding process to avoid delays. Only then, will India be able to meet its climate targets.