Adani-Softbank’s $ 3.5 billion deal boosts green energy consolidation


MUMBAI – Adani Green Energy, which plans to purchase the renewable energy assets of SoftBank Group in India, points to a new round of consolidation in the sector, which has attracted interest from private equity investors and major energy companies these last years.

In a May stock exchange filing, the renewable energy company run by billionaire Gautam Adani said it would buy SB Energy Holdings for an enterprise value of $ 3.5 billion. Adani purchases SoftBank Group Capital’s 80% stake in SB Energy and the remaining 20% ​​held by Bharti Global in a cash transaction.

With this acquisition, Adani Green Energy will take control of nearly 5 GW of renewable energy assets from SB Energy Holding, including 1.4 GW of operational projects. The rest is under construction. SB Energy Holding’s green energy portfolio consists of 84% solar projects, 9% wind-solar hybrids and 7% wind projects. All come with 25-year power purchase contracts.

Commenting on the deal, SoftBank said it was focused on stepping up its investments in artificial intelligence. As the Japanese company practically exits the renewable energy sector in India, Adani has indicated that it will step up its investments in this market.

“This acquisition is another step towards the vision we set out in January 2020, in which we outlined our plans to become the world’s largest solar player by 2025, and subsequently the largest energy company. renewable in the world by 2030 “, said Gautam Adani, president of the Adani group. . “We are on track to meet our stated solar portfolio goals four years ahead of the deadline we have set for ourselves.

SoftBank is virtually withdrawing from the renewable energy business in India. (Photo courtesy of SoftBank)

Energy assets bring Adani Energy one step closer to achieving its goal of having 25 GW of renewable energy capacity by 2025. It currently has 19.3 GW of growth projects in operation, under construction, allocated and capitalized at its facility. active. Capitalized projects have a period during which they cannot be sold.

Adani Energy is India’s largest green energy company, and its measures are essential for India to meet its target of having 227 GW of renewable energy capacity by next year. The country currently has an installed capacity of 92.97 GW of renewable energy, with an additional 50.15 GW at various stages of completion.

India is the third largest producer of renewable energy in the world, after the United States and China, according to the latest attractiveness index by country of EY Renewable Energy. It has moved up a notch from the previous year’s ranking and is expected to see its solar power generation capacity increase significantly once the COVID-19 pandemic subsides.

Somesh Kumar, partner of EY India, said: “Installed [photovoltaic] Capacity in India soared to 39 GW, slightly exceeding wind capacity for the first time.

“The economic attractiveness of solar PV and intense competition from the private sector has led to record tariff offers. India has also pledged to create 450 GW [of] renewable energy capacity by 2030 [at] the recent climate summit hosted by the United States It will likely increase the share of renewables in global installed power generation capacity to 54% … from a share of global gross generation [of] 36%. “

Raju N, head of infrastructure and project finance for the Care Ratings group, believes that a lot of consolidation will take place in the sector and that the Adani deal bodes 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. dollars. In recent years, the sector has attracted increased interest from companies and private equity players, such as the Tata Group and US company 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 purchasing the stake in SB Energy, which Adani Green ultimately bought out. This followed reports that Brookfield was considering buying a stake in Mytrah Energy in 2019. Malaysian state-owned oil company Petronas is also said to be in talks to buy a stake in Tata Power, another Indian power producer.

The regulatory shift towards green energy targets, particularly in solar, has also contributed to optimism.

“Extremely low interest rates and ongoing economies of scale, along with technological improvements, are driving double-digit annual reductions in solar module costs. And in 2020, we saw successive record solar tariffs, ”said Tim Buckley of the Institute for Energy Economics. and Financial Analysis, in a report released in February.

The report notes that India’s renewable energy sector is increasingly dominated by 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 heavily in capacity building in the international debt and equity markets.

But these giants face growing competition from 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. , who seek to decarbonise. .

Saurabh Trivedi, co-author of the report, said: “Over the past two years, India’s renewable infrastructure sector has seen significant M&A activity, a growing list of green bond issues and the spin-off of renewable operating assets via infrastructure investment funds.

“But India needs more project developers, an even stronger balance sheet to tap this potential, while also providing more opportunities for retirement investors. The market for local infrastructure investment trusts is increasingly seen as a key enabler of this interaction between domestic and foreign capital, and enhancing the depth of the domestic Indian financial sector, ”he said.

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