Active Stocks
Thu Feb 29 2024 15:49:54
  1. Kotak Mahindra Bank share price
  2. 1,690.80 0.43%
  1. Axis Bank share price
  2. 1,075.70 0.10%
  1. Tata Steel share price
  2. 140.90 0.11%
  1. Power Grid Corporation Of India share price
  2. 282.55 1.07%
  1. ITC share price
  2. 406.50 -0.51%
Business News/ Industry / Energy/  2018 a sobering year for renewable energy in India

2018 a sobering year for renewable energy in India

The number of new renewable energy projects and rock-bottom power tariffs impacted India's renewable energy sector in 2018

Solar Energy Corp. of India Ltd looking to cancel bids of 2,400MW this year as solar tariffs were above its expectations. Photo: BloombergPremium
Solar Energy Corp. of India Ltd looking to cancel bids of 2,400MW this year as solar tariffs were above its expectations. Photo: Bloomberg

Mumbai: The renewable energy sector in India has had a sobering year in 2018 with the number of new projects slowing down and investors finding that the sector is generating both lower power and financial returns than they expected. A Crisil report in August projected solar installations in FY19 would fall to 7,400 megawatts (MW) from a decadal high of 9,363MW in FY18. The pipeline of projects has weakened as well, with the Solar Energy Corp. of India Ltd looking to cancel bids of 2,400MW this year as tariffs were above its expectations while aggressive bidding by some firms to build portfolios has started to squeeze returns.

“It’s not a great time for those who have invested in solar energy right now," an industry executive said. “We’re seeing some investors let their top teams go for investments being far below expectations."

In the past month alone, three top executives in the renewable space have stepped down: Sanjay Chaturvedi, chief executive officer of renewable energy at Macquarie Group; Vinay Kumar P., managing director and chief executive (renewables) at Brookfield Asset Management; and Rohit Modi, CEO at Essel Infra and Smart Utilities.

In May, Mint reported that Essel Infra is in talks with various investors to sell its solar power plants. In October, it concluded a deal to sell four power transmission lines to Edelweiss-backed Sekura Energy for 6,000 crore. Mint has learnt that Brookfield is currently on the lookout for a new head of India’s renewable practice.

Mint has reported in the past that Macquarie is in talks to buy assets from ReNew Power Ventures Ltd and from Canadian Solar.

Spokespersons for Essel Infra, Brookfield and Macquarie declined to comment for this story.

“All of the renewable space is facing trouble," said the person quoted above, asking not to be named. “We are seeing acquisition deals falling through in the solar sector this year. There has been no respite from 18% GST (goods and service tax) on modules while interest rates are on the rise and squeezing margins for developers.

“Many investors came into renewables expecting higher returns, quick Ebitda growth, but none of that has played out yet," he added. Ebitda stands for earnings before interest, taxes, depreciation and amortization, and is a measure of profitability.

A top official at an infrastructure-focused fund operating in India said the number of new projects coming up has slowed down considerably, as a result of which there is too much money chasing too few projects, leading to excessive competition among investors. He said even though the reasons for senior executives stepping down could vary across organizations, the subdued performance of the sector is certainly a common thread.

“Exits have been difficult as markets are volatile. Renewable energy firms, although keen on more projects, are taking a cautious approach. Rupee has depreciated and imports have become more expensive and at the same time, tariffs have gone down steeply," he said.

A recent Mercom report said solar installations declined for the first time in Q2 FY18 after four consecutive quarters of growth. In July-September, solar installations were at 1,599MW, a 52% decrease when compared with 3,344MW installed in Q1 2018. Installations were also down about 21% year-on-year (y-o-y) compared with 2,025MW installed in Q2 2017. The decline has been attributed to uncertainties around trade cases, module price fluctuations, and PPA (power purchase agreement) renegotiations after record low bids that contributed to a tender and auction slowdown in 2017. All of this resulted in a weaker project pipeline for 2018.

“For a lot of projects in renewables, the valuations (by a private equity investor) was based on Ebitda-growth based strategies," a senior executive at a PE firm said. “You compare this to current returns from the public market and then decide on whether to make the investment. Very often, there isn’t a fundamental analysis done on the renewable project itself. There is no data set available, on say, past generation from the project. The investor takes on inordinate risk in investing in such projects."

The Indian government has set an ambitious target of generating 100GW of solar power by 2022 from the existing installed capacity of 21.65GW. Tariffs for electricity produced at utility-scale solar farms touched an all-time low of 2.44 per kilowatt-hour earlier this year, but have since risen from those levels. A report from ratings agency Crisil released in August predicted that India would fail to meet its renewable energy target.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Industry News, Banking News and Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
More Less
Published: 27 Nov 2018, 05:29 AM IST
Next Story footLogo
Recommended For You
Energy Stocks
Switch to the Mint app for fast and personalized news - Get App