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NEW DELHI : In a reflection of investors' interest in India’s green economy, the total value of acquisitions in India’s renewable energy sector surged by more than 300% to $6 billion in the first ten months of 2021 (till October) from less than $1.5 billion reported in 2020, according to a study by CEEW Centre for Energy Finance (CEEW-CEF) and the International Energy Agency (IEA).

“The growth in acquisitions was supported by conducive global financial conditions and accommodative monetary policy maintained by the Reserve Bank of India. Adani Green’s takeover of SB Energy India, in October, at a reported enterprise value of USD 3.5 billion was the biggest deal in the sector," CEEW-CEF said in a statement.

Earlier this year, Adani Green Energy Ltd (AGEL) bought Japan’s SoftBank Group Corp.’s and Bharti Enterprises Ltd owned solar power producer SB Energy India for an enterprise value of $3.5 billion. A recent case in point is the sale process of private equity firm Actis Llp’ renewable energy platform in India—Sprng Energy—that has seen significant interest with at least 20 firms including BlackRock Inc., Adani Group, JSW Group and Canada’s Brookfield Asset Management Inc. signing non-disclosure agreements (NDAs) as reported by Mint earlier. The others who have signed NDAs include KKR, Macquarie Group, and Canadian pension funds— Canada Pension Plan Investment Board (CPPIB), Caisse de dépôt et placement du Québec (CDPQ), Ontario Municipal Employees’ Retirement System (OMERS) and Ontario Teachers’ Pension Plan (Ontario Teachers).

The other deals include OMERS purchase of a 19.4% stake in NYSE-listed Azure Power Global Ltd. for $219 million from IFC and IFC GIF Investment Company. Canadian pension funds have been active in India’s green energy space and represent the so-called patient capital, which seeks modest yields over time. Also, Thailand’s state-owned energy major PTT Group announced its acquisition of a 41.6% stake in Avaada Energy Pvt Ltd for around $454 million.

“However, the ‘Clean Energy Investment Trends 2021’ study highlighted that solar PV capacity awarded in the first six months of 2021 fell sharply to just 2.6 GigaWatt from 15.3 GW (including 1.6 GW solar-wind hybrid capacity) reported in the corresponding period in 2020. This was largely a result of a backlog of unsigned power sales agreements (PSAs) amounting to around 20 GW with the Solar Energy Corporation of India (SECI) at the end of 2020," the statement said.

India’s decarbonization play has caught the investor’s interest and the proposed deal for Sprng Energy comes in the backdrop of a growing focus on environmental, social and governance (ESG) investing. At the COP-26 summit in Glasgow, India also announced its plans to increase non-fossil fuel power generation capacity to 500 GW by 2030.

“The study also highlighted that India’s renewable energy sector will face headwinds in the near- term. An increase in prices of PV modules, driven in turn by rising raw material and shipping costs, could result in lower realised returns than those priced into tariffs at the time of bidding," the statement said.

The spike in global conventional fuel prices such as crude oil, gas and coal is now playing out in the solar space with module prices touching 28 cents per kilowatt-hour (kWh), the highest since 2019. This sharp jump in prices is on account of China’s worst-ever power shortage, with factories running on limited days as reported by Mint earlier.

“Further, the Indian government’s decision to levy a basic custom duty of 40 per cent and 25 per cent from April 2022, on imports of solar modules and cells respectively, is expected to increase module prices in the near term as well, as buyers advance their purchases to avoid the extra cost. The study estimated that an increase of 20 per cent in realised module prices, from those assumed in the most competitive tariffs - 1.99/kWh (discovered in December 2020) - could lower equity returns by around 45 per cent," the statement added.

With modules accounting for nearly 60% of a solar power project’s total cost, any price increase will impact the internal rate of return (IRR) from such projects, many of which have already signed power purchase agreements (PPAs). With India having strict commissioning deadlines, the failure to meet them will result in penalties for developers.

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