After the sudden ouster of Cyrus Mistry as chairman of Tata Sons, questions have been raised in some quarters about some of the decisions taken by the conglomerate during his tenure, but at least one of them — Tata Power’s R10,000-crore buyout of Welspun Energy’s renewable energy assets —can’t be faulted.
According to analysts, the deal which made Tata Power the country’s second largest clean energy firm is a positive for it, as a majority of the acquired assets are already generating cash and have long-term contracts to sell power with attractive returns. “The enterprise value of the acquisition is R9,300 crore. On the current valuation, the company is expected to earn 14-15% return on equity,” an IDFC Securities report said.
According to the details of Welspun Energy’s assets available with FE, all its operating assets have 25-year power purchase agreement (PPAs) with tariffs quoted ranging between R6/unit and R12/unit. While the solar power plants have an average tariff of R8/unit, PPAs allow wind power to be sold at R6/unit.
Tata Power’s subsidiary Tata Power Renewable Energy has an operating portfolio of 294 MW and an ‘under implementation’ portfolio of 495 MW. About 500 MW of renewable portfolio (operating under standalone balance sheet) is being carved out and will be merged with TPREL. With the Welspun acquisition, the company would have 2,300 MW of portfolio.
Tata Power acquired Welspun’s operating portfolio of 1,040 MW of renewable assets and 100 MW of under construction portfolio. Of 1,140 MW, nearly 990 MW capacity is solar and 150 MW is wind power.
“In the context of the prevailing environment where some states are reneging on PPA commitments and many others renewable energy not attractive with spot power becoming cheaper, the Tata Power-Welspun deal stands out since cash flows are high,” an industry expert said on the condition of anonymity.
The deal also fits neatly with the Tata Power’s plan to have 30-40% of renewable energy in its portfolio by 2025. The power utility has also set a target for a cumulative generation capacity of 20,000 MW across thermal, renewable and hydro by the same time. Currently, the company has a portfolio of a little over 10,000 MW excluding the Welspun Energy assets.