Tata Power is going the whole hog on renewable energy (RE) despite recently saying that the company is considering thermal projects also. Tata Power would be incurring a major part of its capital expenditure for FY25 on RE. It has plans to incur a capex of Rs 20,000 crore in FY25 with 60% allocated to renewable, 30% transmission and 10% to new areas like pumped hydro.

The company has an installed capacity of 6.1 GW in RE as of Q1FY25, accounting for 41% of the capacity, with another 5.3 GW under execution. It is aiming to increase the portfolio to over 11 GW, accounting for 56% of the total capacity, within the next 12 – 24 months .

“Tata Power is likely to witness an annual capex of three to four times of that of the previous decade. That capex would be led by RE (along with storage for RE power),” said analysts at Ambit Capital in a report.

Ambit analysts said that despite the over Rs 12,000-crore annual capex, the firm’s net-debt/Ebitda would stay at three times through FY30. This implies the company will take on debt in RE, but use its cash flows to pay down the entire core and non-core debt for Mundra plant, WREL (Welspun Renewable Energy) and other businesses, they said.

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Once loss funding for Mundra plant stops, Tata Power will deploy its capital towards growing its RE (with storage) business. That means share of Mundra and coal in overall capital employed will trend down from 20-25% at present to 15% by FY30.

Tata Power is positioning itself for a performance upswing in renewable energy business, said analysts at JM Financial. They said the business is expected to post revenues of over 25% on compounded annual growth rate (CAGR) between FY22 and FY25.
Following this, they anticipate that the transmission (over 6,668 circuit kilometres) and then generation (over 600 MW hydro and over 1,800MW pumped hydro) businesses will drive further performance improvements.

RE gencos posted an Ebitda of Rs 903 crore in Q1FY25 against Rs 844 crore a year ago. The net profit was at Rs 229 crore vs Rs 235 crore in Q1FY24.

Tata Power has an RE pipeline of over 5 GW, including 2.6GW utility scale solar EPC, which is sufficient for FY25. Currently, project commissioning is facing challenges due to constraint in availability of transmission connectivity, JM analysts said.

“With focus on meeting contractual commitments, it is not bidding aggressively. Roof top solar is emerging as a huge opportunity and the management expects meaningful contribution to come during later part of FY25,” they said.