The benchmark cost for setting up wind units is estimated at Rs 4 crore per MW. At this rate, the replacement cost for a 1,850 MW capacity would be Rs 7,400 crore, and it is likely that the assets of Continuum Wind would fetch bids that would be at a premium to this valuation.
Continuum Wind, the Singapore-headquartered and India-focused renewable power producer, is back in the market for a buyout, with its existing stakeholders looking for an exit, sources told FE. The fresh feelers come two years after SunEdison backed-off from a deal. The company, which has 1,850 MW of wind assets, is majority owned by Morgan Stanley Infrastructure Partners, an infrastructure PE investment fund with close to 85% stake in the company. The benchmark cost for setting up wind units is estimated at Rs 4 crore per MW. At this rate, the replacement cost for a 1,850 MW capacity would be Rs 7,400 crore, and it is likely that the assets of Continuum Wind would fetch bids that would be at a premium to this valuation.
However, when contacted, Arvind Bansal, CEO of Continuum Wind, said, “We are not in discussions with anyone as of now, and cannot comment on speculation.” As per the people mentioned above, the private equity major is looking for an 18% yield on investment. Experts, however, feel this ask is steep, and may just be a starting point for negotiations. They argue that with the reverse bidding option being announced for the wind sector, returns on investments are likely to fall to sub 15% for wind projects in future. “Only a developer with efficient operations may demand a premium, which may push the yield to 16%, but not beyond that. Also, the entering investor may have his own yield expectations,” said a Mumbai-based consultant on condition of anonymity. A senior official from ReNew Power said, “Continuum Wind has very good assets, mostly in Maharashtra and Madhya Pradesh and these are the kind of projects we will be interested in. Earlier they did not have power purchase agreements, but now all their projects have signed PPAs, which adds to their quality.” With the new guidelines in place for the wind sector, the market is likely to improve and there is a strong likelihood that big players like Tata Power and Hero Future Energies, besides ReNew, might also evince interest in the assets. Greater clarity on regulations, after some uncertainty following a shift from feed-in tariffs to auctions, could also increase interest from overseas investors keen to acquire renewable assets.
The past year has seen a wave of sell-offs and some consolidation in the wind energy sector. “A sizeable capacity is still available for mergers and acquisitions, which is being held-up by valuation expectations and because many such assets are splintered across locations and sites. So, administering them is costly for any acquirer,” said Kameswara Rao, lead, energy, at PwC. As per industry estimates, if we include Continuum’s assets, a total of 3500 MW of wind assets are up for sale, even without accounting for a lot of fragmented smaller assets. Experts believe the valuations for these assets will improve with the expected improvement in the wind sector. “With new bidding guidelines for wind auctions, and a road map for fresh 2,000 MW of auctions of wind capacity, a revival and new investments in the sector are expected now,” said Rao. There is sizeable interest in renewables from foreign utilities, who are keen on wind energy projects in the country, given their long familiarity with the sector. “They have so far relied on mergers and acquisitions to gain entry and increase their presence, and the new developments should see them participate in upcoming auctions too,” the Mumbai-based consultant said.