Adani Group, Azure Power, and RP Gupta's Exit: What Broke the SECI Model to Promote Solar Power?

The services of RP Gupta, Chairman and Managing Director of the Solar Energy Corporation of India (SECI), were terminated abruptly on 9 May—barely a month before his contract was due to expire in the normal course. Gupta, an efficient and pushy Gujarat cadre retired IAS officer, was at the helm of SECI affairs for about two years. Why did the government terminate his services in such a manner—akin to the unceremonious exit of Krishnamurthy Subramanian from the International Monetary Fund's Executive Director’s post—and not allow him to go away ‘honourably’ like former SEBI chief Madhabi Buch?The SECI was in the midst of a major controversy relating to an extra-beneficial solar energy contract to the Adani Group, including the transfer of Azure Power’s shares to them—an issue which led to Adani's indictment in a US court. The SECI has also been in the news for not being able to conclude solar power sale contracts of over 10 gigawatts awarded in earlier bids.Is there deep rot within the SECI? Has its once-celebrated model fallen apart?IMF, India, and a Rs 7.5 Cr Book Deal: Behind the Dismissal of K SubramanianIn May 2018, a proposal landed up at the Finance Ministry from the Ministry of Power and the Ministry of New and Renewable Energy, which were both under a common minister at the time. The proposal requested the Finance Minstry's direction to the Reserve Bank of India (RBI) to make auto-debit in state governments' accounts if their power distribution companies (discoms) failed to pay the SECI for power supplied. A similar arrangement was also requested for the Power Finance Corporation and the Rural Electrification Corporation.The SECI was effectively seeking the guarantee of the Government of India (GoI) and the RBI for full and timely payment of power arranged by them to state discoms from solar power generators, which, if granted, would have made supplies by renewable energy generators default-free and secured prompt payments.However, the Department of Economic Affairs opposed the proposal. After a good deal of wrangling, it was dropped.Unable to secure the auto-debit mechanism, the Ministry of New and Renewable Energy and the SECI adopted a watered-down power payment security mechanism (PSM), notified in February 2019, on the lines of other power utilities: a letter of credit, further backed by a Rs 1,500 crore corpus to lean on, in case discoms did not make payment. The SECI model of promoting solar power generation in India is built on three components. The SECI bids out solar power generation capacities (including extra features like the setting up of solar cells or modules manufacturing)The SECI enters into a power purchase agreement (PPA) with the winning bidder to buy and pay for the power generated from the awarded projectIt concludes a power sale agreement (PSA) with the state governments and the discoms concerned, mirroring PPA contract, for the quantities agreed to be boughtAs the SECI is a GoI enterprise, the bidders took the PPA signed with the SECI as an implicit GoI guarantee. Supported with the PSM, they willingly bid initially and secured large capacities in auctions. The SECI charged a margin of 7 paise per unit of power generated and sold through this model. As per the SECI's website, its award of solar power generation capacities (cumulative) rose sharply between 2017-18 and 2020-21—from 4.05 GW to 32.69 GW. Thereafter, it stagnated. 2021-22: It rose to only 35.68 GW2022-23: No new capacity awarded2023-24: Total capacity awarded increased to 40.18 GWIn the next three-year period, the solar power generation capacities awarded by the SECI grew by only 7.49 GW (against as much as 28.64 GW during 2017-18 to 2020-21). The SECI’s business effectively stalled.There was yet another major problem. A good deal of capacity awarded by the SECI after 2019-20 remained on paper. Discoms refused to buy the power. The SECI has not been able to find buyers for as much as 10 GW of solar power awarded. Is India’s Renewable Energy Transition on Track?The SECI does not utilise power; nor does it trade power. If it fails to find a buyer to sell the power agreed to be bought from the awarded project, the whole edifice falls. So, why is the SECI failing to find buyers?With overall power availability improving, states and discoms have options. When the SECI’s auctioned rates looked costlier than market rates, they refused to play ball and declined PSAs offer by the SECI. This is what triggered the now-infamous Adani-Azure controversy. In what was unprecedented and beyond the bid conditions, the SECI had to revise the price discovered in auction, re-engineer the PSA contracts for enabling purchase by Andhra Pradesh and other states, and transfer the capacity surrendered by Azure Power to Adanis. The SECI got mired into other controversies as well, including a bank guarantee issue with Ambanis. Many discoms started delaying payment of power to the SECI. Its FY2023-24 balance sheet notes Rs 62.61 crore in receivables overdue by more than six months—including Rs 16.84 crore pending for over three years. The SECI could not use the PSM fund as the government hardly transferred any money into it. Though the SECI was contractually obliged to make payments to suppliers, it reportedly delayed payments until the states/discoms paid up.As the implicit GoI guarantee (in the absence of auto-debit mechanism) and PSM effectively got blown away, renewable energy power generators started losing interest. Some SECI auctions attracted no bids; others saw much higher tariffs—factoring in payment risks. Simultaneously, many foreign pension and private equity funds, which had provided finance to renewable energy companies for solar auctions, also lost interest and began selling their investments. The SECI model had broken. Will Adanis' Indictment in the US Curtail the Money for India's Solar Ambitions?The grid-scale solar capacity creation suffered in general. Even the National Thermal Power Corporation and other power PSUs, which had announced intentions to establish large-scale solar capacities, are now struggling to secure buyers.The root for the SECI's unsustainable and artificial model blowing up was not Gupta, but the Finance Ministry and the RBI's refusal to provide guarantee for auto-debit facility. Their refusal empowered the state governments and discoms to reject overpriced solar power.This, in a way, saved the states and discoms, and rightly caused failure of the SECI model.RP Gupta was not responsible for designing the SECI model. He did everything, including making changes not permissible under the tender conditions, to force surrender of power by Azure Power and reallocate the same to Adanis. Under his watch, the SECI also did not initiate any investigation into alleged corruption by Adanis. But that was evidently not enough to save him. The failure of the SECI to award new solar capacities, move towards the ambitious goal of generating 470 GW of renewable energy by 2030 (after missing the 175 GW target for 2022), ensure that awarded capacities were accepted by Discoms, avoid becoming a public spectacle of collapse, and come up with workable solutions to revive the system, has evidently been laid at Gupta's door.He will have the SECI’s regrets for company in the years to come.(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of many books, including 'The $10 Trillion Dream Dented, 'We Also Make Policy', and 'Explanation and Commentary on Budget 2025-26'. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

BECOME A MEMBER

Behind the Curtains at SECI: Contracts, Collapse, and a Scapegoat

RP Gupta was not responsible for designing the SECI model. He did everything, writes Subhash Chandra Garg.

Read Latest News and Breaking News at The Quint, browse for more from opinion

Topics: RBI Finance Ministry Solar Power