New Delhi: Ranjit Gupta and Murali Subramanian, former chief executive officer (CEO) and chief operating officer (COO), respectively, of global private equity firm Actis LLP’s Ostro Energy Pvt. Ltd, are in talks to initially raise $100 million to establish a renewable energy platform in India, said three people aware of the development.
“What we raise will depend on the investors’ interest. We are initially looking to raise $100 million," said Subramanian. He declined to elaborate. Gupta couldn’t be reached immediately for comment.
In April, ReNew Power Ventures had acquired Ostro Energy at an enterprise value of $1.5 billion, in India’s largest renewable energy deal.
Backed by Actis, Gupta and Subramanian spearheaded the growth of Ostro Energy through a prudent renewable energy auction strategy entailing an equity investment of $280 million and a debt of about $900 million. It helped Ostro Energy leapfrog from one 50 megawatts (MW) project in Rajasthan to 1.1 gigawatts (GW) when it was sold.
“We believed renewables had potential. Then we started Ostro in 2014. So, we decided to back two good guys—Ranjit and Murali—whom we appointed as CEO and COO of Ostro. We then built a full team around that. When Actis exited Ostro, we had about 130 employees, starting from two people," Actis partner Sanjiv Aggarwal, incharge of Asia energy business, said in an earlier interview.
“Ranjit and Murali understand the space and have been part of Ostro’s success," said a person aware of the fund-raising plans cited above, requesting anonymity.
India registered record low solar and wind power tariffs of ₹ 2.44 per unit and ₹ 2.43 per kilowatt hour, respectively. With competitive solar bids and India’s wind energy sector having transitioned from a feed-in tariff regime, which ensures a fixed price for wind power producers, to tariff-based competitive auctions, obtaining finance at the lowest cost has become key. Also, the global green economy is going through a transition with falling battery storage prices.
Earlier this month, SoftBank Group Corp. CEO Masayoshi Son offered to supply free electricity to International Solar Alliance member countries, including India, once its contracts to supply power in these countries expire after 25 years.
The developments come at a time when India has emerged as one of the most favourable destination for renewable energy with investments of about $42 billion. Over the next four years, the green energy sector has business potential of $70-80 billion. It is working on an ambitious clean energy push, with a target of adding 175GW by March 2022. Of this, 100GW were to come from solar. This assumes significance in a country that is now the biggest emitter of greenhouse gases, after the US and China, and is among those most vulnerable to climate change. India plans to reduce its carbon footprint by 33-35% from its 2005 levels by 2030 as part of its commitments to the UN Framework Convention on Climate Change. However, concerns on India’s emerging green economy remain. According to Moody’s Investors Service, the weak credit quality of off-takers, typically state-owned distribution companies, is a key credit challenge facing green energy developers.
Given the National Democratic Alliance’s target to achieve universal household electrification by 31 March 2019, there is a growing demand for electricity. Prices have been rising since September, with the all-time high for electricity in the spot market at ₹ 18.2 per unit for 4 October delivery.
“All-India electricity demand growth remained steady at 5.6% during the first five-month period of FY19. The increased demand is being met from higher generation by both thermal and renewable energy plants, and this is also reflected in an improvement in thermal power PLF to 60.6% in 5M FY19, against 59.1% in 5M FY18," ICRA Ratings said on Wednesday.