Who’s against transparent clean energy?

The Adani solar bribery scandal unwittingly makes the case for contract disclosure

The US Justice Department indictment of Gautam Adani, one of the world’s richest men, on charges of bribing officials to get favorable solar contracts is creating immediate fallout. Infrastructure deals involving his vast empire are being canceled from Sri Lanka to Kenya. The reaction could have a major global impact since Adani Green Energy operates over 11 gigawatts of renewable energy projects (roughly equal to all solar operating in all of Africa) and had plans to more than quadruple this by 2030. The scandal will undoubtedly be a setback for energy deployment in many countries. But it could help to spur changes that will allow clean energy to scale even faster and cheaper, if we draw the right lessons.

That’s a big IF.

Why are solar contracts still treated like national secrets?

Hidden backdoor contracts never end well. That’s because someone is always benefiting from secrecy – and that is never the public. We’ve seen tremendous strides in contract transparency around the world. Governments that borrow on behalf of taxpayers are expected to disclose those loans. Oil and mining deals now are far more open thanks to the Extractive Industries Transparency Initiative (EITI). Even all the stuff governments buy is becoming more transparent. More openness means better prices and less corruption. 

Yet, electricity contracts are stuck in the past. In many countries, they’re still done through unsolicited bids signed in backrooms with no public oversight. So, many governments are making massive generations-long decisions about the future of their energy system based on… which guy randomly shows up offering a power plant deal. It’s hardly surprising that it’s not going well. And that many countries keep adding cheaper renewables to their mix, yet prices are going, not down, but up. Is that discrepancy because countries actually aren’t getting such great prices? Are there other hidden costs and giveaways? We don’t know because the contracts are secret.

It’s even worse than just overpaying or a handful of bad deals. Renewable energy contracts, in nearly all cases in nearly all emerging markets, are take-or-pay with a government guarantee. These provisions are needed to make projects bankable. But they turn most solar and wind deals, at bottom, into just another form of sovereign debt. In other words, every renewable energy project is actually an obligation by future taxpayers that is being hidden from current taxpayers. (Okay, technically a guaranteed energy contract is a contingent public liability that might not become debt if the utility pays for the entire term of the contract. Often they do not, and the payments are then tacked on to the national debt. Ask Zambia. Or Pakistan.) We want countries to sign more energy deals. But guaranteed contracts are a massive public obligation that absolutely should be disclosed like other debts. 

So another way of thinking about the Adani scandal is not just that one unscrupulous company paid off officials to get a higher price for their solar power over many years. It’s shining a spotlight on the entire energy sector, which is rife with overpayment, questionable deals, and lack of competition, all because of closed buying systems and secret contracting. 

The wrong lesson to draw from the Adani affair is that one bad apple is ruining it for the rest of the industry. The entire clean energy market needs to be less like Tammany Hall and more like LevelTen Energy, the online platform for power providers and company buyers to transact quickly and openly. Corporate electricity contracts used to take over a year, but by streamlining the process and using competition, it’s down to just eight weeks. Meanwhile, governments across Asia and Africa are sticking with the old way, waiting for deals to present themselves and then wrangling with lawyers for up to two years to write each contract from scratch. 

Who is against transparency? (Yes, you know who again.)

Given these obvious costs, it’s worth asking: who is benefitting from the closed clean energy marketplace? The Adani case suggests that some developers are willing to offer bribes, and some officials are willing to take them. Lots of power contracts get signed that raise eyebrows. A less-obvious beneficiary: Law firms who get two years’ worth of billable hours for every (mostly boilerplate) contract are incentivized to treat each contract as intellectual property and keep the current system. But, really, the main obstacle is actors who are effectively colluding to steal from the public. Any time a price has to be kept secret, by definition it’s not a competitive price.

That’s why it’s so strange to me that the big financiers – who seem to genuinely want clean energy to get cheaper and faster – are also hesitant to embrace transparency. When I’ve raised this issue with development finance institutions, I get a similar response: “Of course we support transparency and we’d love to be more open, but if we push for it, our own deals will lose out.” They blame other actors. This is exactly the same argument that EITI faced when they first proposed that governments and oil companies disclose contracts for the public good. 

The myopia of clean energy investors is really a collective action problem. Everyone would benefit from an open system, but no one wants to stick their neck out. That’s why we need some international body to get everyone to agree to basic transparency norms. If this happened, the winners would be many: consumers getting cheaper power, taxpayers with lower debt risk, investors with a clearer view of payment risk, and governments who could claim credit for cheaper electricity to drive growth and job creation. And if we want the world to meet ambitious clean energy targets, transparency would speed everything up.  

Some governments are getting fed up with bad power deals and are desperate for more electricity. Ghana, which has especially suffered from poor contracts, has started to pry open its own market by posting basic details of all active power contracts. Other countries are also starting to lean on regulators to enforce basic transparency. 

Source: PPA Watch

Who could turn this piecemeal incremental progress into a big bang? Who could throw the door wide open by bringing parties together to set a new global standard? What international organization already advises governments on open procurement and debt reporting standards and, oh, has a mission to serve the collective global good? Which agency has also pledged to catalyze billions for clean energy? The World Bank. 

Sorry to beat up on them again. I worked at the World Bank two decades ago and learned so much from many, many wonderful people. We need an effective World Bank.

I also have watched the Bank with growing frustration at its inability to adapt. I’m seeing this stubbornness again with clean energy, where big promises like scaling solar are not happening, in large part because the Bank refuses to be more open. In my informal discussions with Bank officials about greater electricity contract transparency, I’m hearing the same old thing: “We support transparency and we’d love to be more open, but if we push for it, our deals (at the IFC) will lose out.” Pretty weak beer, if you ask me. 

Perhaps the Adani scandal will be just the jolt the clean energy markets need.