The joint venture of Engie SA and Abraaj Group plans to build a 1,000 MW wind power platform in India through acquisitions and bidding for new projects
New Delhi: A joint venture (JV) of French energy firm Engie SA and Dubai-based private equity firm Abraaj Group may invest around $1 billion to build a 1,000 megawatt (MW) wind power platform in India.
The strategy ahead for the JV announced last week involves bidding for new contracts and making acquisitions to reach the targeted capacity.
“That’s the scale of the total investment cost," said Malcolm Wrigley, country manager, India, for Engie in an interview.
The capital expenditure planned in equity and debt comes in the backdrop of India’s wind sector transitioning from a feed-in tariff regime to tariff-based competitive auctions.
While feed-in tariffs ensure a fixed price for power producers, wind power tariffs in India followed the solar route and hit a record low of Rs3.46 per kilowatt hour (kWh) in a February auction conducted by Solar Energy Corp. of India.
“Abraaj has good financial credentials. They are keen and interested in investing equity in India...It is difficult to find partners sometimes who are in that situation," said Wrigley.
“They are fit from several perspectives and they have access to funds which will help us finance the projects. As you know these are capital-intensive projects we deal with. A big chunk of the costs which feed into the tariff is financing," he added.
In such a scenario, obtaining finance at the lowest cost has become key to success, resulting in record low solar and wind energy tariffs.
“Together, Abraaj and Engie have identified a robust pipeline of wind power projects representing over 1GW (gigawatt) in several key states," the companies said in a joint statement last week.
Prior to this joint venture, both Abraaj and Engie have had a presence in the Indian solar space.
While the Abraaj Group, with $11 billion under management, announced a partnership with the Aditya Birla Group in October 2015 to build a renewable energy platform focused on developing solar power plants, Engie, with €66.6 billion in revenue, has been trying to expand its presence in India’s clean energy space.
“There is a future trajectory for opportunities that we want to do. We have some specific sites and specific partners identified and the idea is that we would take advantage of those through the auction processes," said Wrigley.
Foreign investments are crucial for India’s renewable energy industry as the lower cost of foreign capital and the size of the market has helped bring down tariffs.
“So right now, we have a handful of specific projects that we are working on but I don’t want to talk about them in detail," Wrigley added.
An external spokesperson for Abraaj Group, in an emailed response, said, “We can confirm that Abraaj and Engie have access to a pipeline of close to 1,000MW," and added, “however, unfortunately we cannot disclose the current status of the projects and the growth strategy."
Engie plans to set up 2GW of capacity in India by 2019, with its subsidiary Solairedirect SA actively bidding for solar projects, and has an 810MW portfolio.
India’s low green energy tariffs have caused disruptions with some states looking to renege on their offtake commitments for projects awarded at comparatively higher tariffs.
“We are a rational international investor and we will do projects which make financial sense to us. So, we have a degree of expertise in the wind business and in many other businesses and the intention is to bring that expertise to bear here to do projects that make sound economic sense to us," Wrigley said.
Apart from tariffs for executed power purchase agreements facing downward tariff pressure from states, the projects are also facing other impediments such as curtailment of wind power procurement, payment delays and no guidelines for state-level wind bids, according to the Wind Independent Power Producers Association (WIPPA).
However, investors remain upbeat given India’s target of installing 175,000MW of renewable energy by 2022. Of this, 100,000MW is to be generated by solar projects and 60,000MW by wind projects.
India’s newly appointed power and new and renewable energy minister Raj Kumar Singh had announced last week that he has instructed that 20,000MW each of wind and solar power contracts be auctioned by December