Mumbai: Private equity investor Actis LLP has agreed to buy Essel Infraprojects Ltd’s solar power projects for ₹ 5,500-6,000 crore, according to two people involved in the deal process. The deal would be formally announced by December-end, one of the two people said, requesting anonymity. Essel Infra, part of media mogul Subhash Chandra’s Essel Group, put its solar assets on the block in early 2018 and has spent most of the year negotiating with potential buyers. Essel has 685MW of installed capacity and under-construction projects.
The renewables industry in India has witnessed a wave of consolidation as smaller companies exit the industry due to low tariffs, stiff competition and as access to cheap funds, a key criterion for success, dries up.
“In order to compete in solar and wind business, one needs to have access to low-cost funds," said Crisil Research director Rahul Prithiani. “Investors are looking at operating assets where cash flows are more certain, which enables him to deploy relatively low-cost funding and ensure good returns."
While a spokesperson for Actis declined to comment, Essel Infra did not respond to an email seeking a response.
Mint first reported in May that Tata Power, Actis, Greenko and Hero Future Energies were in talks with Essel Infra to acquire its solar power plants.
“Essel Infra has comparatively older assets, which were won when prevailing solar tariffs were higher," said the first person. Essel’s assets have power purchase agreements (PPAs) with state governments for as high as ₹ 8 per kilowatt hour (kWh) and the average PPA for the assets is at ₹ 5.50 per kWh, the person said.
An investment banker, who runs a renewable practice in India, said that investors in the sector were willing to pay a premium for PPAs with higher tariffs. “Developers and investors take inordinate risk when investing in renewable projects because the technology in modules and solar panels becomes outdated very quickly. So, higher PPAs give us some comfort when making investments," the banker said, requesting not to be named.
In 2017, solar power tariffs in India fell to a record low of ₹ 2.44 per kWh from ₹ 10.95-12.76 per kWh in 2010-11.
In October, Sekura Energy Ltd agreed to buy four power transmission assets of Essel Infraprojects for an enterprise value of ₹ 6,000 crore. With the sale of solar power plants and transmission lines, Essel Group will exit its renewable energy and power transmission businesses. The group wants to expand its footprint in emerging sectors such as water, railways and municipal solid waste, and expects the asset sales in the renewable energy and transmission business will fund the growth of its new businesses.
London-based Actis has committed just under $1 billion in the renewable sector in India, of the $2.1 billion that it has in all asset classes here. In April, Actis sold its wind energy business, Ostro Energy Pvt. Ltd, to ReNew Power Ventures Ltd for ₹ 10,800 crore, the largest merger and acquisition (M&A) deal so far in India’s renewable energy sector.
The renewable energy sector in India has had a sobering year, with the number of new projects slowing down and investors finding that the sector is generating lower power and financial returns than they expected.
“There is going to be maturity coming into the renewable sector, where you will have a segment of industry players who will primarily be developers and who will hold the asset till it stabilizes and then pass it on to those who will primarily be operators," said Ashish Khanna, president, renewables, Tata Power Group. “These operators will then operate on a long-term basis."