Why SECI struggles to find buyers for its renewable energy tenders

The Solar Energy Corp. of India (Seci) plays a key role in India's renewable energy push by acting as a central intermediary between private power producers and state power distribution companies (discoms). However, Seci's mention in the US indictment of Indian tycoon Gautam Adani has put the spotlight on its tendering process.

The indictment says Adani executives paid bribes to secure agreements with discoms to buy solar power from Seci, in a bid that Adani Green had won in a 2019 tender. Seci's inability to find buyers for the power generated by these projects, which US Securities and Exchange Commission (SEC) alleges was priced "above market rate", was a key factor in the alleged bribery scheme. Adani group has denied the allegations.

"Seci will not be reviewing the order (the US indictment) or initiating a probe now on the issue, as there is no basis for that. There is no document with us other than the order, on the basis of which we could comment on the issue. I have heard of it only from the media. Further, I am not sure whether any norms have been violated and if anybody has been named in the order," Seci chairman and managing director R.P. Gupta told Mint.

Also read | Mint Explainer: The Adani bribery charges and the US legal process

Here’s an overview of how Seci operates, the systemic challenges it faces, and potential flaws.

How Seci works

Seci was set up in 2011 to facilitate the implementation of the Jawaharlal Nehru National Solar Mission (JNNSM) and to achieve the targets set forth by it. The agency is set up under the ministry of new and renewable energy. It floats competitive tenders to secure power supply at the lowest possible price, to be sold to discoms. Private companies bid aggressively for these tenders. The expectation is that Seci will pass on this low-cost power to discoms, ensuring affordable renewable energy supply across India. This model relies heavily on the assumption that there will be robust demand from discoms for renewable energy.

Why Seci finds it difficult to secure buyers

A key challenge Seci faces is the mismatch between supply and demand. While the model worked well in earlier stages when discoms readily bought power, many discoms later stopped signing power purchase agreements, as they struggled financially, or when they found cheaper alternatives like coal-based power. Consequently, Seci is often left holding power without buyers.

Besides, power from older capacities often remain unsold. With the continuous decline in tariffs, older capacities turn out of favour when power from newer projects are bid out. In case a project is bid out in January this year and the power is not tied up, and another tender is floated in October, and the tariff is lower in the latter case, power from the latter project would be more attractive for buyers, while that from the older capacity remains unsold.

Another issue lies in Seci's tender contracts, which is often a two-stage bidding with reverse auction being the final stage allowing bidders to go ahead with aggressive bidding, while power developers later find it unviable to supply power at such low prices.

Also read | Adani may see wider impact from US setback

To encourage domestic production, Seci offers financial incentives to locally produced renewable power. While this is well-intentioned, it has led to higher bid prices that some discoms are unwilling to bear.

Compounding these issues is the flawed sequencing of demand and supply. Seci often secures supply without ensuring demand from discoms, when a better approach might involve gauging demand first and then tendering for supply. Power generating firms also find it necessary to work with Seci and cannot approach buyers directly because of the central guarantee that the corporation offers, which prevents discoms from backing out of contracts, or covering the risk for power producers if discoms can't pay in a timely manner.

What Seci could do differently

Seci could prioritize identifying buyers and ensuring their commitment before tendering for supply. Tenders should also include clauses specifying that bid prices expire after a set period if no buyer is secured. Incentives for local manufacturing must balance cost considerations to avoid pricing out discoms.

While Seci has been instrumental in driving down renewable energy costs in India, its operational model is showing cracks due to mismatched demand, inflexible contracts, and financial issues at discoms. Addressing these flaws may require restructuring Seci's tendering approach and ensuring accountability across the energy value chain.

And read | IntelliSmart to provide data analytics services to discoms: Anil Rawal