How an easy govt timeline on green hydrogen provides a breather to Adani

Among its renewable energy projects, the Adani group's massive planned investments in green hydrogen would be the easiest to scale back given the government's benign targets

Of the myriad projects across infrastructure and energy for which the Adani Group has plans, those for green energy are at their most nascent stage. If the crippling of its market cap last week forces the group to cut back on the scale or extend the timelines of its projects, plans to scale up production of green hydrogen could well be the easiest to clip.

As recently as June 2022, the group announced that it intends to invest $50 billion over the next two years to produce green hydrogen. Raising such a huge amount of humongous capital on the group’s current balance sheet will be difficult, is plainly obvious. Its joint venture partner in this is TotalEnergies of France that acquired a 25 per cent minority interest in Adani New Industries Ltd (ANIL), of which green hydrogen is a major project, the manufacture of wind turbines and solar modules being the others.

TotalEnergies has committed to acquiring its stake in ANIL from Adani Enterprises. Total, incidentally, also has 37.4 per cent interest in Adani Gas, 50 per cent in Dhamra LNG projects and 20 per cent in Adani Green Energy. ANIL has a target to develop green hydrogen production capacity of one million metric tonnes (MMT) per annum by 2030. That is 20 per cent of what India plans to produce.

What might help Gautam Adani is that the government’s declared timeline for green hydrogen is also benign, targeted as of now at the demand side of the market. Under the National Green Hydrogen Mission action plan, the timeline set by the Ministry of New and Renewable Energy (MNRE) for ramping up green hydrogen production capacity in the economy to 5 MMT by 2030 envisages that in FY24 MNRE will notify the formal targets, that too only after those are approved by an empowered group of secretaries headed by the cabinet secretary.

The timeline notes that the action will then shift to sectors such as fertiliser producers who will bid to convert their processes to hydrogen-based feedstock. The ministry will call for competitive bids for establishing fertiliser plants based on green hydrogen or green ammonia. In the next stage, the ministry will award the capacity. All of these developments are expected to take place in FY24. This may not have been necessary in a free market but given that production of green hydrogen will be limited initially, the ministry will play the role of matchmaker.

So ANIL will come in only when the MNRE rolls out its programme for the supply side — Strategic Interventions for Green Hydrogen Transition (SIGHT). The company and its competitors such as RIL and NTPC have their eyes on the Rs 17,490-crore ($2.2 billion) government incentive for SIGHT. But those will become operational only from FY26. The intervening two years are meant in the ministry’s own words for “consultation and market review” and “notification of the incentive scheme”. No bidder needs, even notionally, to commit to any investment till FY26.

For ANIL and Total this is a big relief. Thus, ANIL’s aim “to be the largest fully integrated green hydrogen player in the world with presence across the entire value chain — from manufacturing solar panels, wind turbines, electrolysers, to RE power generation, green hydrogen production capacity” has to be on hold. Even a conservative MNRE estimate shows that the green hydrogen business will need an investment of Rs 8 trillion ($100 billion) till 2030. That means even by this conservative estimate, if ANIL has to produce a fifth of India’s projected green hydrogen capacity, it will have to rustle up $20 billion.

Incidentally, a tenth of the recently scrapped Follow-On Public Offer (FPO) was supposed to raise money for the green hydrogen foray. Raising the risks for the company, Financial Times has suggested “TotalEnergies must not only consider marking down its exposure to the Adani Group, but should also rethink its India energy strategy”. As a Bernstein report notes, the Adani Group will now have a difficult job of raising money. The costs have risen. Instead of bonds, there is a “potential for increased exposure of banks emanating from the group’s switch from bonds to bank debt (in the context of a large volume of bond debt maturing in FY24)”, the report notes. The corporate name, which allowed Adani Green for instance to have a leverage of 14 times its equity, is history. Bernstein caution is to be read in the context of several financial institutions like Citibank and Credit Suisse stopping margin loans on Adani debt papers last week.

This implies the group has to pare down debt at a rapid clip, yet raise money at the same time. This is a tough call, given that the option of going to the markets is closed for now. Since there are only limited cash cows of the group, such as Adani Ports & SEZ or Adani Power, free flow of cash, too, is limited.

Adani did not officially respond to an email from Business Standard, but a source close to the group claimed the group generates about Rs 57,000 crore from operations annually, of which 50 per cent is available as cash to pay the debt. Financial results of six of the nine listed entities of the group will be out this week and the next. “They may go for private placements or qualified institutional placements once the noise around the stocks subsides,” the source said.

In the circumstances, it makes for a far better financial plan for Adani to ease off on its green hydrogen bet. Green hydrogen is a territory that has no shortage of backers, even within India, for the government to meet its green targets. One of the reasons is that the government has decided to de-risk the business. The government document itself notes it will be “de-risking first movers and providing viability support for early innovators in the sector till the production of Green Hydrogen and its derivatives achieves scale and sustainability”. The other is that the technology for producing green hydrogen is mainly humdrum, so a large number of companies can be in the chase.

Money-spinner

(Snapshot of Adani Group cash cow, Adani Ports and Special Economic Zone Limited (APSEZ))

• APSEZ is India’s largest private port (approx. ¼th of cargo movement in country)
• Has presence across 13 domestic ports in Gujarat, Maharashtra, Goa, Kerala, Andhra Pradesh, Tamil Nadu and Odisha
• Over the years, APSEZ has evolved into a provider of integrated port infrastructure services — largest of them is Mundra SEZ
• Net worth as of March 2022: Rs 26,697.61 crore
• S&P has revised outlook on APSEZ from stable to negative, last week