Firms like ReNew and Azure Power seek capital for projects under development
Other firms such as Fourth Partner Energy, SunSource have initiated talks with investors
Rooftop and distributed solar energy project developers, including large independent power producers such as ReNew Power and Azure Power, are exploring the sale of their rooftop portfolios to raise capital, said three people aware of the development, requesting anonymity.
Others such as TPG-backed Fourth Partner Energy and SunSource Energy have already initiated talks with investors to raise equity capital to fund their growth plans, the people cited above said.
“Azure has mandated KPMG to find buyers for its rooftop portfolio of around 120 megawatts (MW), while ReNew has been looking at selling around 100MW. The idea is to sell operating assets and deploy the capital in their underdevelopment project pipeline," said the first person cited above, declining to be named, as the talks are private.
On 24 July, The Economic Times reported that Fourth Partner Energy is planning to raise around $150 million and has mandated an investment bank to manage the fundraising process.
According to the second person cited above, SunSource Energy, another rooftop company, which is backed by SBI Capital’s Neev Fund, is also in the market to raise $50-100 million from private equity investors.
ReNew Power, Azure Power and KPMG declined to comment.
“We are a growth company in a growth sector and continue to evaluate solutions. We would not like to comment on anything specific to market speculation," said a spokesperson for SunSource Energy.
According to industry experts, investors are seeing long-term growth potential in the distributed solar energy space, leading to mergers and acquisitions (M&A) and fundraising transactions.
“We are seeing increased activity across this segment in all transaction types—M&A, debt raising, and equity raising. The sector is expected to grow considerably over the coming years and the fundamental value proposition for customers is increasing," said Rahul Goswami, managing director, Greenstone Advisors LLP, a boutique investment bank focused on the renewable sector.
“We expect transactions in this space to increase in scale. Several new investors are evaluating opportunities," Goswami said.
Since 2017, the distributed renewable energy sector has seen investments worth $251 million across 10 deals, according to data from private investment tracker Venture Intelligence.
Investors who bet on this sector include Warburg Pincus, TPG Capital and UK Climate Investments.
Investors have poured billions of dollars into utility-scale solar projects, and are now closely looking at the distributed renewable space, with plans to invest in existing companies or to set up their own platforms.
"Distributed solar sector is fast maturing as a separate segment within renewables. Multiple specialist RESCO (renewable energy service company) companies have emerged within the sector, with capabilities unique to distributed business model, such as franchise-based origination, credit risk management, regular engagement with client/off-takers, in comparison to utility-focussed IPPs that only prioritize scale and stability of cashflows," said Prateek Jhawar, director and head of Infrastructure and Real Assets at Avendus Capital.
Jhawar added that the Indian commercial and industrial distributed renewable capacity is currently at approximately 12 gigawatts (GW), with solar (67%) outpacing wind (33%) installations in the recent past.
"The market is poised to grow to around 60 GW over the next 5 years, providing sufficient headroom for growth. The underlying customer base can be further serviced across multiple allied expansion opportunities in storage, aggregation & micro-grids to become one-stop shop for all their off-grid energy needs," said Jhawar.
Bilateral, bespoke contracts allow for higher IRRs (internal rate of return) in distributed solar vis-à-vis severely-bid central government-backed utility contracts, he added.