New Delhi: Finland’s state-controlled power utility Fortum OYJ has hired Barclays Bank to sell a stake in its operational solar power projects in India, said two people aware of the development.
The move by one of the largest nuclear and hydropower generators in Europe and Russia to seek financial investors is representative of growing consolidation in India’s clean energy space. It comes at a time when financing at the lowest cost has become key to success given the record low solar and wind power tariffs. Fortum has plans of investing around €400 million in India’s solar sector.
“Fortum is looking at growth capital and hence this mandate to Barclays," said a person aware of the development requesting anonymity.
The quest for long-term capital by the third-largest Nordic utility comes after India witnessed record low solar tariffs of Rs2.44 per unit (kWh) in May which firmed up to Rs2.65per kWh in an auction conducted by the Gujarat government in September. These tariffs are lower than the average rate of power generated by coal-fuelled projects of India’s largest power generation utility, NTPC Ltd, at Rs3.20 per unit.
“Barclays is running the process for Fortum. They plan to sell significant stake in their portfolio," said another person who also didn’t want to be named.
Fortum is present in electricity, heating and cooling businesses in Nordic and Baltic countries, Russia, Poland and India with €3.6 billion in annual sales and a market cap of €13 billion. Fortum India’s operation has 215 megawatt (MW) in its solar power project portfolio.
While a Barclays Bank spokesperson declined to comment, Sanjay Aggarwal, managing director, Fortum India Pvt. Ltd in an emailed response said, “We do not comment on market speculation."
“However, as we have earlier communicated: we are investing 200-400 MEUR (million euros) to Indian solar market and remain committed to develop solar and explore new opportunities and this has not changed," Aggarwal said. “We can consider to take financial investors alongside us to our operating renewables assets."
The so-called patient capital, which seeks modest yields over time is being sought with falling equipment prices and the lower cost of raising finances contributing to India’s record low solar and wind tariffs.
With 64% of electricity generated by the Fortum being carbon dioxide free, the utility generated 24.1 terawatt-hours of nuclear power in 2016, contributing to a third of its total electricity production. Fortum recently announced a €8.05 billion takeover bid for Uniper, another power utility partly-owned by Germany’s E.ON AG.
The interest in the renewable energy space also seems to be buoyed by federal policy think-tank NITI Aayog’s projections of a 597-710 gigawatt (GW) capacity by 2040 in its new draft energy policy. The National Democratic Alliance (NDA) government has set up an ambitious clean energy target of 175GW by 2022. Of this, 100GW is to be generated by solar projects and 60GW by wind projects.
The deal-making activity in the Indian clean energy space has gathered pace. Ongoing deal activity includes Subhash Chandra’s Essel Infraprojects Ltd mandating Investec to find a buyer for its solar business and Finland’s Taaleri Plc evaluating assets for acquisition here. Equis Energy is also moving ahead with its sell-off plan, as part of the strategic review of its Asian renewable energy portfolio, Mint reported on 14 June.
The price gap between electricity generated from Indian thermal, solar and wind projects has been bridged. This is primarily due to costs of solar modules and wind turbine generators falling by 80% and 20%, respectively, over the past five years.