India’s Threadbare Utilities Are Threatening a Green Energy Boom

(Bloomberg) — A green energy auction system that has turbocharged India’s solar and wind growth is at risk of being upended by the country’s cash-strapped utilities.

Eager to save on intermediary costs and to keep electricity charges down, power distributors are beginning to plan their own, alternative, renewable-energy auctions, according to central government and regional energy officials. If these gain traction, they could replace the current system, where four government agencies act as guarantors to ensure the power projects are viable — but also collect a fee in return. 

Analysts fear the result of an effort to press for short-term savings would leave renewable projects dependent on India’s threadbare power distributors. That would threaten the development of hundreds of gigawatts of projects, and India’s green targets.

“This model has been a catalyst in attracting private investments in the renewables sector,” said Girishkumar Kadam, a credit analyst at ICRA Ltd., which rates Solar Energy Corp. of India, or Seci, one of the state agencies. “The response wouldn’t have been similar if the weak state utilities floated their own tenders.”

India, the world’s third-biggest emitter, wants to more than double clean power capacity to 500 gigawatts by 2030. The federal auction model has been instrumental in helping the country add more than 130 gigawatts of renewables projects over the past decade.

In a typical auction, the agency signs two separate contracts. The first is a power-purchase agreement with the supplier, ensuring them timely offtake and payments, and then a power-sale agreement with provincial retailers — a structure that has been effective in getting around unreliable local players

To underwrite the risks, the four agencies — NTPC Ltd., SJVN Ltd., NHPC Ltd. and Solar Energy Corp. of India or Seci — charge a fixed fee of 0.07 rupees on every kilowatt hour of electricity sold from the projects. Almost 80% of India’s solar and wind power capacity was added since this system was introduced in 2015.

But roughly a decade since the first auctions took place, some of these beneficiaries are demanding the fee for the intermediaries be reduced to bring down the cost of power — even as, according to Raj Kumar Chaudhary, who heads two of the four federal firms, auctioning agencies have resisted.

Utilities are now reluctant to sign binding contracts with auctioned projects, holding up production. Nearly 35 gigawatts of supply is waiting to sign long-term offtake agreements, a number that has been rising over the months, according to data from Solar Energy Corp. of India.

ICRA’s Kadam said the utilities have benefited from the “competitive bidding and robust price discovery” in federal auctions and said the developers’ participation would be selective in state tenders. State power retailers together accounted for accumulated losses of $80 billion as of March 2024.

“The government is aware of the issue and the matter is under review,” India’s renewable energy ministry said in response to questions from Bloomberg. 

Seci said it has submitted its views to the government and declined to comment further. NTPC didn’t respond to an emailed request for comment. 

“It’s already a meager margin; if that too is pruned, the business will no longer be viable,” Chaudhary, chairman of NHPC and SJVN, said in an interview. “The risks would outweigh gains.”

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