As much as $6 billion worth of acquisition deals have been executed in the country’s renewable energy space in the first ten months of 2021, according to an independent study released on Wednesday by the CEEW Centre for Energy Finance and the International Energy Agency. The value of the deals is more than 300% higher than the $1.5 billion of such transactions reported in 2020. The upswing in 2021 is marked by Adani Green Energy’s acquisition of SB Energy’s 4,954 mega-watt (MW) of renewable energy projects at an enterprise value of $3.5 billion.
Acquisitions are an attractive investment route into renewables for players such as financial investors or investment trusts. In April, special US presidential envoy for climate John Kerry had called India a “red hot investment opportunity” because of the country’s efforts to increase the share of renewables in the energy basket. India has set a target to raise the capacity of installed renewable energy generation plants from the current level of 104 giga-watt (GW) to 500 GW by 2030. If the 46.5 GW of hydro and 6.8 GW of nuclear capacities are included, the target under the Paris climate change accord of having 40% of installed power generation capacity from non-fossil fuel sources has already been achieved.
In June, Norwegian renewables player Scatec signed an agreement for holding 50% stake in Acme Solar’s upcoming 900 MW power generation assets in Rajasthan. In the same month, Acme Solar had also announced the closure of a deal with global renewable asset owner Brookfield Renewable for developing 450 MW solar power generation projects. In July, Infrastructure investment trust IndiGrid said it has completed the acquisition of 100 MW of solar energy assets from Fotowatio Renewable Ventures at an enterprise value of Rs 660 crore. ReNew Power had announced in August the signing of a binding agreement for the acquisition of a 260 MW solar project in Telangana.
The study also noted that interest rates for solar and wind project debt fell by around 100 basis points to a range of 9.25-10% between July, 2020 and June, 2021 from prominent non-banking financial companies. Cheaper debt was available from banks within a range of 8.75% to 9.5%. Renewable energy projects usually access long-tenure debt equivalent to 75% of project costs. Equity internal rate of return expectations for solar projects declined to 13.3% in January-June, 2021 from around 14.9% in 2020. Higher sectoral risks in India — irregular offtake and payments from discoms, land and transmission infrastructure issues —have kept return expectations 320 basis points higher than in the United States and 360 basis points higher than in China, the report added.