Foreign investment push into renewable energy segment

Investments of up to Rs 40,000 crore expected in next 2 years; however, implementation challenges need to be addressed, caution many

There seems a rush of foreign investors in India’s renewable energy (RE) sector, following the government’s stated ambition to add 175 Gw of capacity in this segment by 2022, to the existing 36.3 Gw.

Italian energy renewables entity ENEL Green’s $33 million buy-out of a majority stake in BLP Energy has followed US-based SunEdison acquiring Continuum Wind Energy for $650 mn three months earlier.

Ambit Corporate Finance, which is advising foreign strategic and institutional investors to invest in the sector, says Rs 40,000 crore of investments are expected in the next two years. This will be to build 7-8 Gw annually, at an average cost of Rs 4-5 a Mw.

"What is attracting investors is that rates are fixed for the useful life of an RE plant, usually 25 years," says Rahul Mody, managing director of Ambit.

UBS Investment Bank, financial advisor to BLP Energy for the investment from ENEL Green, is also expecting a surge. “We have already seen a significant fall in cost of power generation from RE sources,” says Sawan Kumar, executive director. “As the technology improves, economy of scale comes and efficiency improves. The hope is that cost of renewable power will become equivalent to that of conventional power in the next two to three years. It would also depend, he cautioned, on the behaviour of coal prices.

“Risk is not being appropriately considered right now. People are assuming the government is going to deliver on the challenges plaguing the power industry for long. if they do not, there will be a similar situation to that on the conventional side,” says Sumant Sinha, founder and chief executive officer at Goldman Sachs-backed ReNew Power. This entity claims to be the largest Indian player in the space, with 1,000 Mw in construction and operational wind and solar energy projects.

”There are concerns such as grid evacuation and financial health of distribution companies.  If these are not addressed simultaneously to the expected capacity addition, then perhaps the payment issues will start,” says Sinha.

The rush of foreign investors is also because India is attractive for large companies in the segment looking to diversify geographically into Asia. The Indian market is considered easier to enter than the Chinese one.

Renewable	Current Capacity (MW)	Target by 2022 (MW)
Wind Power	23,763	60,000
Solar Power	4,061	1,00,000
Small Hydro Power	4,102	5,000
Biomass power	4,419	10,000
Total	36,344	1,75,000
Source: Care Ratings

"Currently, the Indian energy generation market is considered risky, considering almost all of the Indian utilities are severely in debt; paying developers on time can make or break the market,''says Raj Prabhu, head of Mercom Capital Group, a global clean technology communications and research entity.