A diversified power generation portfolio and innovative financing models are helping ReNew Power, one of India's biggest renewable energy company, hedge its sectoral risks. The company, which is targeting to hold on to 10 per cent share of the generation capacity in renewable space, is planning to expand both through acquisitions and bidding for fresh capacity. In an interview with Business Standard, Sumant Sinha, founder chairman and chief executive officer of ReNew Power, said, “At this stage, there are many companies that are in the market and looking for buyers, and some of the larger companies with a long-term outlook are looking at acquisitions. We remain open to inorganic growth in both wind and solar, as and when the right opportunity presents itself.” He, however, did not give details on acquisition plans. The company last month completed a 100 MW acquisition of K C Thapar Group's wind assets. With this, its operational wind power generation capacity reached around 1,600 MW. ReNew has operational and under-construction capacity of 3500 MW in 16 states. Of this, 1600 MW is from wind and 1100 is from solar projects, all commissioned. Sinha said the short-term regulatory ups and downs did not govern acquisition strategy for any company. In India, the expectation on internal rate of return from any investment has gone down by a few percentage points in the last couple of years, mainly due to the steep fall in tariffs. “The companies which are able to raise more capital today are the ones which have been able to deliver on their plans on a consistent basis." ReNew had earlier announced its intentions to go for an initial public offer, but Sinha did not disclose any timeline. “The renewable energy sector is a capital intensive sector, so any company that is looking to make bids for new projects or acquire existing assets will have to raise more capital,” he said. The company —with a total equity base of $900 million — has Goldman Sachs and US-based Global Environment Fund, Abu Dhabi Investment Authority, Asian Development Bank and JERA as investors. Unlike its peers, the company has lately kept away from aggressive bidding for bagging power generation capacities. “We have been a conservative company as far as bidding is concerned. The renewable industry in India is a constantly evolving one, so it is prudent to not develop too many plans for the long term,” Sinha said. The company has a diversified portfolio of assets across both wind and solar, allowing it to hedge to a certain extent short-term regulatory uncertainties. The industry expects more capacity to be auctioned in solar and also wind, where the regulatory aspects are more stable. “Besides, the industry expects more clarity on the solar side over the next few months, which will allow IPPs to plan further,” he said. Sinha said there was a fair bit of uncertainty in the solar sector given GST, application of customs duty and the proposed safeguard duty. “As a result, the entire solar industry is a little cautious now. We are still expecting a clear guidance on the imposition of customs duty. The 7.5 per cent duty and additional surcharge will add almost 15 paise to each unit generated.
This will have an impact on a lot of projects that have been already been commissioned or are under development.” The proposed safeguard duty on solar cells and modules imported from China and Malaysia could potentially increase tariff by Rs 1-1.15 per unit. While the industry was supportive of domestic manufacturing companies, he said, the government should look at other ways like providing direct subsidy to help domestic manufacturers build capacity to meet the annual demand. “That way the industry stays competitive, prices are controlled and more jobs are created in the sector. Currently, there is a lot of apprehension among the developer community. We are all hoping that the government is able to resolve these issues quickly for the industry to meet the 175 GW target that has been set.” Sinha said things were more settled in the wind sector. The OEMs profitability has been under pressure due to a minimal capacity coming up for bidding last year. “However, the industry expects that more capacity will get added this year and that tariffs to also go up. There is already pressure on the OEMs and capping of tariffs at a lower level will exert pressure on profitability for both OEMs and developers." The company has also been able to hedge risk for its investors. “We try as many different sources of debt as possible because we want to diversify our sources of funding,” Sinha said. Earlier this month, it closed a non-convertible debenture issue of Rs 22.35 billion. The issuance was in two parts -- the first, a credit enhanced NCD worth Rs 7.60 billion and the second, a multi-issuer cross-collateralised rupee bond of Rs 14.75 billion. The second involves multiple power distribution companies from Andhra Pradesh, Rajasthan and Gujarat, and has funds spread across eight special purpose vehicles and 12 projects totalling 234 MW of installed capacity (174 MW of wind and 60 MW of solar). “We got a single A plus rating and that in turn enabled us to get a good price. The higher rating comes from two points- projects bunched together and a partial guarantee by the parent company. The nature of bonds is such that the discom risk is spread across different projects,” Sinha said. ReNew had raised around $475 million from international and Rs 31.75 billion in masala bond issues in 2017. It entered the Indian bond market in 2015 with three issuances of Rs 4 billion, Rs 2.8 billion and Rs 4.5 billion. The following year it raised another Rs 10 billion through three issuances.