The highs, hurdles and grey areas in Adani's green energy dreams

Despite a $20-billion investment announcement in renewable power, the group is yet to commit to a net-zero investment in coal, and analysts question its debt burden

As the power and renewable sector battled the heat of the pandemic with demand falling and smaller players leaving the fray, Adani Green Energy (AGEL), the newest entrant from the Adani stable, made hay in the sunshine. Between 2020 and now, the company has acquired close to 5.4 Gw of renewable energy projects. This includes the biggest catch in recent times — the 5 Gw assets of SoftBank Energy, which exited India.

From January 2020, when Gautam Adani announced that it will be the world’s largest renewable energy company, to this September, when he said the group will spend $20 billion on green energy projects, the port-to-power conglomerate has taken a huge green leap. Unlike its peers such as Tata Power or JSW Energy, however, the group is yet to commit a net zero or nil investment in coal.

So, while Adani Green grew, both on Dalal Street and in the RE market, Adani Mining, Adani Power and several allied companies continued to have exposure to coal. For its mining business, the company has participated in the latest round of commercial coal mining. It is also the country’s largest mine development operator (MDO) for various state-owned mines.

In comparison is Tata Power, which has committed to not making any future investment in coal or in thermal power. Speaking with Business Standard in May this year, Praveer Sinha, Managing Director, Tata Power, said, “We took a stand last year, and will not make any new investment in coal ourselves or even through our platform Resurgent. We will be net zero carbon by 2050.”

Tata Power currently has renewable capacity of 2,667 Mw and 1,300 Mw is under implementation. It is looking to commission 1,000 Mw this year.

In the numbers game though, Adani races ahead of all peers, including state-owned power generation giant NTPC. Adani Green Energy has a portfolio of 25 Gw of solar and wind projects. Out of this, 14 Gw is operational.

NTPC recently announced setting up 60 Gw of renewable energy capacity comprising solar and wind power by 2032. The current fuel mix, however, has negligible renewable energy. NTPC’s current total installed capacity stands at 66 Gw. Of this, thermal (coal + gas) is 61 Gw, hydro 3.7 Gw, solar 1 Gw and wind accounts for the rest. Under the developer mode where it awards RE projects to private players, 4 Gw projects are operational and tenders for close to 3 Gw would be finalised soon.

Then, Reliance Industries Limited (RIL) made a splash by announcing earlier this year Rs 75,000 crore investment in the green energy sector in the coming three years. RIL plans to invest in solar power generation and manufacturing, hydrogen production, e-fuels, and energy storage under its “New Energy and New Materials” division.

As the competition thickens, the only thing to set one apart would be investments. Adani has committed 70 per cent of its planned capex of the energy vertical in green energy. The company is placing its bets on two modes — cost efficiency due to its in-house engineering and infrastructure and innovative financing models with mostly global institutions.

Adani Group has an Energy Nerve Operating Centre (ENOC) that provides technological innovations and advice on process improvement to projects across sectors. The group also has Adani Infrastructure Management, which provides certain basic O&M services to their infrastructure platform.

Adani-ENOC is a cloud-based platform that adopts machine learning, uses drones for monitoring project progress and digital asset mapping, and geospatial technologies for surveys and others. Along with in-house O&M, the company also has a strong vendor network. For its 322 sites in 20 states at group level, it has a support network of 20,000 vendors.

The group’s rising debt, ­however, could be a pain point. In FY21, AGEL’s net debt had grown to Rs 15,682 crore, up 36 per cent over the last fiscal. The management is unruffled, ­saying the debt levels are high because it has more capacity under construction than it ­­has commissioned.

Addressing investors in August 2021, Kaushal Shah, Chief Financial Officer, AGEL, said revenue from the power supply improved by 39 per cent and EBITDA from the power supply was up 41 per cent. He attributed the improvement to the acquisition of assets and greenfield projects that became operational.

“Our construction framework agreement and the revolving facility of $1.35 billion, where 12 banks have participated, are unique in nature. Once the asset becomes operational and we go to the international market to replace it with bonds, this will be available for this next set of projects. In this construction facility, we have done the scenario rating well in advance for the takeout by the bonds,” Shah said.

Under this framework, the company will take construction financing from banks and once projects are operational, refinance that portfolio with international bond funding. “This will allow the company to recycle the same approval on the development facility… and to continue with the development plan till 2024-25,” senior executives said in an investor conference call last year.

Earlier this year, global energy major Total France announced it will pick up a 20 per cent stake in AGEL by acquiring shares held by the promoter group. Along with the minority stake, the French firm will acquire a 50 per cent portfolio in the 2.35 Gw operating solar assets owned by AGEL in a deal worth $2.5 billion, or about Rs 18,000 crore, implying that it will have a 50 per cent stake in the projects under implementation.

Total has also partnered with Adani-run liquefied natural gas (LNG) regasification terminals at Mundra and Dhamra and rolled out 1,500 fuel stations over 10 years. Total plans to invest around Rs 2,000 crore in the joint venture. With LNG, along with hydrogen, methanol, and the CNG network that Adani has acquired in recent biddings, the company is looking at a spectrum of clean fuel business going forward.