MUMBAI -- Adani Green Energy, which plans to buy SoftBank Group's renewable energy assets in India, points to a new round of consolidation in the sector, which has drawn interest from private equity investors and top energy companies in recent years.
In a May stock exchange filing, the renewable energy company led by billionaire Gautam Adani said it would buy SB Energy Holdings for an enterprise value of $3.5 billion. Adani is buying SoftBank Group Capital's 80% stake in SB Energy, and the remaining 20% held by Bharti Global in a cash deal.
With the acquisition, Adani Green Energy will gain control of SB Energy Holding's nearly 5 GW of renewable energy assets, including 1.4 GW of operational projects. The rest are under construction. SB Energy Holding's green energy portfolio is 84% solar, 9% wind-solar hybrid and 7% wind projects. All come with 25-year power purchase agreements.
Commenting on the deal, SoftBank said it is focused on stepping up its investments in artificial intelligence. While the Japanese company is virtually exiting the renewable energy business in India, Adani has indicated that it will accelerate its investments in this market.
"This acquisition is another step towards the vision we stated in January 2020, wherein we laid out our plans to become the world's largest solar player by 2025, and thereafter the world's largest renewable company by 2030," said Gautam Adani, chairman of Adani Group. "We are well on our way to achieve our stated solar portfolio targets four years before the deadline we set for ourselves."
The power assets bring Adani Energy closer to achieving its goal of owning 25 GW of renewable energy capacity by 2025. It currently has 19.3 GW of operating, under-construction, awarded and locked-in growth projects under its belt. Locked-in projects have a period during which they cannot be sold.
Adani Energy is India's largest green energy company, and its moves are key to India's push to reach its goal of having 227 GW of renewable energy capacity by next year. The country currently has an installed capacity of 92.97 GW of renewable power, with an additional 50.15 GW in various stages of completion.
India is the world's No. 3 producer of renewable power, after the U.S. and China, according to the latest EY Renewable Energy Country Attractiveness Index. It moved up a notch from the previous year's ranking and is expected to see its solar energy generation capacity grow significantly once the COVID-19 pandemic subsides.
Somesh Kumar, a partner with EY India, said: "Installed solar [photovoltaic] capacity in India has skyrocketed to 39 GW, marginally overtaking wind capacity for the first time.
"The economic attractiveness of solar PV, and intense competition from the private sector, has led to record-low tariff bids. India also committed to set up 450 GW [of] renewable energy power capacity by 2030 [at] the recent climate summit hosted by the U.S. This will likely increase the share of renewable energy in the overall power generation installed capacity to 54% ... compared with a share of overall gross generation [of] 36%."
Raju N, Care Ratings' group head of infrastructure and project finance, reckons a lot of consolidation will take place in the sector, and that the Adani deal augurs well for competition.
Foreign direct investment in renewable energy in India totaled $9.83 billion between April 2000 and December 2020. Since 2014, total investment in the sector, including domestic spending, amounted to $42 billion. In recent years, the sector has seen greater interest from companies and private equity players, such as the Tata Group and U.S.-based Brookfield.
Earlier this year, France's Total announced a $2 billion investment in Adani Green, giving it a 20% stake. In December, the Canada Pension Plan Investment Board expressed interest in buying SB Energy's holding, which Adani Green eventually bought. This followed media reports that Brookfield was looking at buying a stake in Mytrah Energy in 2019. Malaysia's state-owned oil company Petronas is also reportedly in talks to buy a stake in Tata Power, another Indian electricity producer.
The regulatory shift toward green energy goals, especially in solar, has also contributed to the optimism.
"Extremely low interest rates and ongoing economies of scale, plus technology improvements, are driving double-digit annual cost reductions in solar modules. And in 2020, we saw successive record-low solar tariffs," said Tim Buckley of the Institute for Energy Economics and Financial Analysis, in a report published in February.
The report noted that the Indian renewables sector is increasingly dominated by the major independent power producers: ReNew Power, Greenko, Adani Green, Tata Power, ACME, SB Energy, Azure Power, Sembcorp Green Infra and Hero Future Energies, and that each has invested strongly in building capacity in international debt and equity markets.
But these giants face growing competition from the likes of Vena Energy/Vector Green, O2 Power, Ayana Renewable Power, Torrent Power and Sprng Energy, as well as state-owned fossil fuel majors, such as NTPC and NLC, which are looking to decarbonize.
Saurabh Trivedi, co-author of the report, said: "Over the past two years, India's renewable infrastructure sector has seen significant mergers and acquisitions activities, a growing list of green bond issuances, and spinning off of operating renewable assets via infrastructure investment trusts.
"But India needs more project developers, with even greater balance sheet strength to tap this potential, while providing more scope for pension investors. The local infrastructure investment trust market is increasingly being seen as a key facilitator of this domestic-foreign capital interplay, opening up and enhancing the depth of the domestic Indian finance sector," he said.