Financial bonanza for Adani and Azure?

12 June 2020 |

SECI has approved award of an astounding 12,000 MW project capacity in its 7,000 MW manufacturing-linked project tender. The auction was held back in January 2020 with Adani Green and Azure announced as winners with tariff bids of INR 2.92/ kWh. The two developers had bid for 4,000 MW and 2,000 MW project capacity but are being awarded 8,000 MW and 4,000 MW respectively after exercising the 100% green-shoe option. In addition to developing projects of this capacity, the two bidders would be required to build PV cell and module manufacturing capacity of 2,000 MW and 1,000 MW respectively.

  • Extended timelines and attractive tariffs should help in tiding over various project development and financing challenges;
  • The project award would offer a financial bonanza to the two bidders because of the implicit tariff subsidy and proposed basic customs duty on modules;
  • It remains to be seen if the DISCOMs sign up to buy such large quantum of power at the relatively high tariff;

The win represents huge success for both Adani (current RE operational capacity 2,208 MW) and Azure (1,652 MW). The tariff is extremely attractive – last two solar auctions by SECI and NHPC saw winning bids between INR 2.50-2.56/ kWh – particularly in view of falling equipment costs and development period of five years (25% completion every year from second year onwards). Land, transmission and debt financing should not be a problem due to long timelines, attractive tariffs and the government’s 50 GW renewable park push.

Salient terms of the tender are as follows:

  1. Manufacturing capacity should come onstream by the end of year two.
  2. Cells and modules produced should have minimum efficiency of 21% and 19% respectively.
  3. There is no restriction on module sourcing for the projects.
  4. There are no cross-linkages between project development and manufacturing components unless manufacturing capacity is delayed by more than 12 months – in this instance, power tariff would stand reduced to INR 2.53/ kWh, equivalent to the lowest discovered tariff in solar ISTS auctions in the year prior to bid submission for this tender.

Adani already has significant interests in both project development and module manufacturing. It is also cash rich after selling 50% stake in its operational solar portfolio to Total for INR 37 billion (USD 0.5 billion). But we understand that it may bring in a JV partner for the manufacturing business. Azure, on the other hand, is planning to rely on Waaree and other partners for meeting its manufacturing obligations.

The project award, touted as the largest solar project award ever in the world, would offer a financial bonanza to the two bidders if implementation goes ahead as planned. We estimate NPV of implicit tariff subsidy in the tender at INR 127 billion (USD 1.6 billion). Separately, the manufacturing business would benefit from proposed basic customs duty (BCD), under active consideration by MNRE. Interestingly, Adani Green’s stock has already shot up by 164% in the last three months, adding USD 3.2 billion in market capitalisation, as against the broader market’s increase of just 30% in the same period. But it remains to be seen if the DISCOMs actually sign up to buy so much power at the relatively high tariff. After all, power demand grew by a measly 1% in FY 2020 and is likely to fall this year by 6-8%. Many tenders have been cancelled in recent times because of DISCOM reluctance to buy power at even lower tariffs.

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