Reliance to transform energy business, says Morgan Stanley

Billionaire Mukesh Ambani's Reliance Industries Ltd plans to transform its energy business with an over-arching strategy to offer decarbonisation solutions globally at a competitive price in a market potentially worth USD 5 trillion by 2030, Morgan Stanley said.

Over the next few decades, the world will need to fundamentally retool the way it produces and consumes energy.

Reliance is embracing the change and investing to provide green infrastructure solutions to power this change, via silicon and hydrogen -- a USD 60 billion value creation opportunity, Morgan Stanley said in a report.

"The strategy is to provide supporting infrastructure in areas of hydrogen, integrated solar PV and grid batteries -- all areas with high entry barriers, technological advances and good returns," it said.

The oil-to-telecom conglomerate plans to create four giga-factories offering the entire spectrum of renewable/distributed energy solutions, as it capitalises on India's quartz and silicon resources.

The focus on the hydrogen value chain offers significant opportunities to decarbonise energy operations, compliment energy storage with batteries and potentially export green ammonia.

"Reliance's approach is unique in that it is taking a leaf from European oil majors to become an enabler of electrons, with less focus on producing them, and like US majors it will focus on synergistic decarbonisation areas (with existing operations), such as carbon capture, hydrogen and even biofuels," the brokerage said.

The plan would make Reliance the largest renewable infrastructure producer with the potential to become an alternative technology supplier to the globe, within the current geopolitical setup, similar to how it exports high-grade refinery fuels.

"In the last decade, Reliance investments in technology drove USD 125 billion in value creation from scratch, and we see investment in green energy infrastructure as key to outperformance in the next decade," it said, adding the success the firm has enjoyed from entry to offering telecom data in the past half-a-decade has surprised the market.

And silicon and hydrogen are expected to emerge as the next decade's 'New Oil' for Reliance, with potential of up to USD 60 billion in value creation if things fall into place by 2025.

"New energy EBIDTA potential is as big as the contribution from Reliance's petrochemicals business now, but we think it will command a multiple twice as large," Morgan Stanley said.

Stating that there are multiple catalysts in the near term, it said chemical prices are picking up, gasoline margins are at multi-year highs, and demand is starting to recover. Also, broadband subscribers are picking up and gas production is increasing when global gas markets are tightening and prices inflecting.

"Investments are not without risk in execution/technology changes. However, considering the large domestic market and global focus on diversifying the sourcing of solar panels and batteries, the hurdle for Reliance to take market share is not as high, but cost competitiveness vs China is key.

"Adoption of untested technologies like liquid metal and quickly falling hydrogen electrolysers prices are other challenges," it added.