Adani or no Adani, India’s renewables drive continues — Issue #43
Following the release of Hindenburg's report, there were doubts regarding India's green energy goals. However, two events that took place last week indicate that these doubts may be unfounded.
The Big Picture
Shortly after Hindenburg released its report, India’s green energy targets themselves have come under doubt. The country wants to boost its RE capacity to 500 GW by 2030. A tenth of this, or 50 GW, was supposed to come from Adani alone. Apart from setting up solar parks with Adani Green, the group had also declared large plans for Hydrogen and renewable equipment manufacturing. But two events last week show why these concerns might be misplaced.
Last week, Mukesh Ambani announced Reliance would set up a 10 GW solar energy project in Andhra Pradesh. Second, the Indian government finally invited bids for the second round of the solar PLI. The first one had been bagged by Shirdi Sai Electricals, Reliance and Adani. In the pre-Hindenburg era, Adani was widely expected to participate in the second round. Given the short-seller’s report, however, the company is cutting back on fresh capex – and so, it stayed out. The outcome? The tender didn’t fail. Instead, 11 companies have sought PLI support to set up indigenised solar manufacturing lines. These include past winners like Reliance and Shirdi Sai as well as newer entrants like Tata Power.
A perceptive report in Nikkei explains why. With growing conviction that government bids would go to Adani, it says, other companies stopped participating.
“There have been cases where companies and investors such as local group Mahindra & Mahindra and funds such as the government-backed National Investment and Infrastructure Fund have expected to acquire assets at auction only to see them go to those with closer connections to the prime minister,” it writes. “Those affected have included Middle Eastern sovereign wealth funds and Canadian pension funds. Why show up to bid when the outcome has already been determined?”
The accompanying costs were high. Slipping towards market concentration, the country was losing a chance to create a more vibrant renewables manufacturing sector. “Adani is now active in solar module, gas, LNG, city gas, thermal, solar, hydrogen, ports and refineries,” an RE industry veteran in Hyderabad had told CarbonCopy last year. “Why are we not supporting new companies in each of these verticals?”
Given the group’s recent troubles, the field suddenly feels wide open again. Even if Adani survives, the pause gives its rivals — in renewables manufacturing, hydrogen, renewable projects, and elsewhere — a chance to bulk up (and hedge against acquisitions) in the meantime.
News of the week
To accelerate India’s energy transition, the Indian government has decided that “any generating company establishing a coal/lignite-based thermal generating station (going live) ...on or after 1st April 2023... shall be required to establish renewable energy generating capacity of a minimum of 40% of the capacity of (the thermal unit).” Any coal or lignite-based thermal plant starting after April 2025 will need to comply with the obligation when operationalised.
In other words, if NTPC sets up a 1200 MW thermal power plant, it will also need to set up a 480 MW renewables unit. If unable to set this capacity up, they can procure renewable power from others and supply that to the grid. The ramifications of such an order have to be understood. On one hand, asking thermal units to set up renewable parks militates against the notion of core competency. On the other, it does boost renewable energy addition. There are other questions. How will this power be sold? Separately? Or together – with the generator balancing thermal and renewables (like pumped storage) to deliver steady power – instead of leaving it to discoms to balance the grid?
Apart from this, there were a clutch of other developments. There is more scepticism if India can displace China in global supply chains. Also see this report on that question. India’s LNG plans are still in trouble – low demand has created an outcome where capacity utilisation at three of India’s six LNG terminals is below 20%. India has seen the hottest February since 1901.
The centre has approved the massive Dibang hydel project. A clutch of state governments want pumped storage projects, at least the smaller ones, to be exempted from environmental clearances. India wants to push its pumped storage capacity up to 90,000 MW. Most of these, a Hyderabad-based bidder for these projects told CarbonCopy, are likely to be retro-fitted onto existing dams. In these projects, there won’t be fresh inundation of land – which has been flagged previously as the primary cost of building new pumped storage projects – nor any changes to downstream river flow as only water already sitting in the reservoir gets recycled. And yet, retro-fitting existing dams for pumped storage is a new idea.
Last week also saw a massive win for biodiversity. For a long while, ecologists have been urging policy-makers to set a third of the earth aside for biodiversity. That has finally happened in the case of the oceans. The High Seas Treaty aims to turn 30% of the seas into protected areas by 2030, a safe space where marine species can recuperate and grow. The agreement was reached on Saturday evening, after 38 hours of talks, at UN headquarters in New York. These species, needless to say, won’t be entirely safe. They will still have to contend with warming waters – which killed, in June 2021, over a billion sea creatures along the Vancoever coast alone. What the declaration wins these species, however, is protection (if strictly enforced) from rapacious fishing fleets – the whalers of today. In a related development, news also came that overfishing is wiping out the population of great seahorses off the Coromandel coast.
And then, there is Adani. The second line of Hindenburg’s report — “(India’s) economy has been held back by the broken state of its capital markets”, had raised patriotic hackles. And yet, Indian regulators have done little to dispel the notion. First, stock bourses tried to arrest the fall in group company shares by halving the lower circuit percentage – from 20% to 10%. In other words, if the company’s shares fell by 10%, trading would stop for the day. This was subsequently revised to 5%. This was followed by regulators’ studied silence on both the Hindenburg report – and news reports on Adani affiliates investing in its FPO. Then came NSE’s inexplicable decision to add Adani group companies to 14 of its indices. The Supreme Court stepped in, only to create a panel with the usual suspects.
Last week, all of a sudden, despite the shares still being over-valued compared to its peers and the persistent lack of clarity about the group’s future, Adani shares rose. This climb, make no mistake, has been aided by regulators.
In the real world, the group’s not doing as well as its shares. Reuters reported last week that Adani had informed creditors that it had secured a $3 billion loan from a sovereign wealth fund. A couple of days later, it announced Australia’s GQG Partners had invested Rs15,000 crore in a clutch of group companies (Adani Enterprises, Adani Ports, Adani Transmission, Adani Green). Also came the news that Adani wanted to raise $400 million debt against its Australian holding, NQXT terminal.
Each of these statements has created further controversy. A day after the Reuters report, Adani denied the development. As for GQG, it quickly emerged that GQG had not invested directly in Adani companies – instead, the Adani family had sold some of its shares to them. In other words, the money doesn’t go to the firms but to the promoters who say they will use this cash to reduce debt. Also emerged the news that these shares were sold at the current (low) valuations, giving a sense of what future fund-raising gambits might net. In the meantime, though, GQG is facing questions from its investors about the deal. As for NQXT, Adani’s announcement sits poorly with an older communication to MSCI, while protesting against the index’s decision to drop the group from its climate change indices, that it had divested the terminal to an unrelated company.
ICRA re-rated two group companies -- Adani Ports and Adani Total Gas -- from "stable" to "negative". News also emerged that the group wanted to hike user charges at the Lucknow airport from the current Rs192 to Rs1,025 over the next five years. Similar hikes had been mooted last year for Ahmedabad airport. In the past, we have also seen the group try to offload its coal cargoes at a discount. Taken together, these transactions paint two pictures. One, the Adani Group is in a hurry to raise money. It also seems likely that, with cash scarce, several of the group businesses – like airports -- will be forced to generate their own cash to deliver on their commitments. Expect more price hikes, essentially.
More damning disclosures followed as well. Adani projects are like government-to-government deals, said Sri Lankan FM. More instances of favoritism emerged as well. More on those below.
Adani reads of the week
On the Godda power project, Heads Adani wins, tails Bangladesh loses.
“There has been a 102 per cent increase in the average cost of electricity bought by the Gujarat government from Adani Power during the calendar years 2021 and 2022, the state legislature was informed Saturday,” reported Indian Express’s Avinash Nair. “Between 2021 and 2022, the average cost of electricity bought from Adani Power went up 102 per cent from Rs 3.58 per unit to Rs 7.24 per unit in 2022, data tabled as a part of the reply reveal. Despite the increase in cost of power purchased from Adani Power, the government bought 7.5 per cent more power from the company in 2022, compared to calendar year 2021.”
Modi govt allowed Adani coal deals it knew were ‘inappropriate’ – on Adani’s MDO operations.
Adani stuffs power plant with $1 billion debt that won’t go down (Bloomberg)
“For a measly $1 billion, the Adani group has placed the future of Mumbai — the country’s financial capital — at risk of plunging into a state of darkness. The risks arise from the fierce collateral terms attached to the $1-billion Senior Secured Notes that Adani Electricity Mumbai Ltd (AEML) floated in February 2020 — just 18 months after the Adani group gained control of beleaguered tycoon Anil Ambani’s Reliance Infrastructure Ltd.” The Telegraph, on how Mumbai has been left at the mercy of Adanis. This article has a broader point to make. As Adani looks to pledge assets and sell shares – a clutch of foreign funds are going to end up owning the Indian infrastructure ceded to him.
Climate Long-reads of the Week (we have quite a few this week)
Adam Tooze on the global prospects for decarbonisation. (Substack)
EV race: The battle for dominance looks set to intensify as start-ups sniff new territory. (CarbonCopy)
Western firms certified as socially responsible trade in Myanmar teak linked to the military regime. (ICIJ)
In India, ‘phase down’ of coal actually means rapid expansion of mining. (Scroll.in)
Decentralised solar power is scripting scores of success stories in rural India. (Scroll)
Water is needed for green hydrogen production, but concerns remain about its availability. (Mongabay)
India’s green certification under cloud. (Indian Express)
Books of the week
A long time back, this newsletter had alluded to Greg Muttitt’s Fuel On The Fire: Oil and Politics in Occupied Iraq.
Then, we found another book which took us further back in time – into the region’s great power politics. That was Kim Ghattas’ Black Wave: Saudi Arabia, Iran, and the Forty-Year Rivalry That Unraveled Culture, Religion, and Collective Memory in the Middle East. And now comes yet another book, which takes us deeper into Iran of the Early 1950s. This is David Painter and Gregory Brew’s The Struggle for Iran: Oil, Autocracy, and the Cold War, 1951–1954. That is when, as this review says, “the wildly popular, democratically-elected Iranian prime minister Mohammad Mossadegh was ousted in a coup.”
We know what happened thereafter. The country turned into a theocracy. Books like Reading Lolita in Teheran tell us about the grievous human costs that followed. The question is: will the new energy transition create a more just world?