The rush of money that the Indian renewable energy sector saw last year has continued into 2016, as investors look to cash in on the opportunity, a stable regulatory environment and the government’s commitment to the global community to fight climate change.In the latest instance of investor interest in the renewable space, IDFC Alternatives, the asset management arm of infrastructure-focused lender IDFC Ltd, is in talks with Delhi-based ACME Solar to invest Rs.600 crore (approx $90 million), according to two people aware of the development.“Talks are in an advanced stage and the deal is expected to close soon,” said one of the persons mentioned above, requesting anonymity.
The funding will help ACME complete solar power projects that are under development across various states in India. “The company has a solar power asset portfolio of almost 1.5 gigawatts (GW), of which around 400 megawatts (MW) is currently operational,” said the second person cited above.ACME, according to its website, has solar projects in several states such as Punjab, Andhra Pradesh, Rajasthan and Tamil Nadu. “We are in touch with various investors and we can comment on the development once we close it,” said Manoj Upadhyay, founder and chairman of ACME Solar.
An IDFC Alternatives spokesperson declined to comment on the development
IDFC Alternatives is also in talks to acquire Welspun Renewables’ 1.1 GW of renewable assets for around Rs.10,000 crore, Mint reported in February.Last week, Mint reported that Hero Future Energies Ltd, the renewable energy arm of the Hero Group, is in talks with CDC Group Plc and International Finance Corp. (IFC) to raise $150 million (about Rs.1,000 crore).These developments come on the heels of almost $1.55 billion worth of investments in the Indian renewable energy sector in 2015, data from VCCEdge shows. VCCEdge is the financial research platform of VCCircle Network.The investor interest is being driven by Prime Minister Narendra Modi’s aggressive push for renewables to fight climate change, setting an ambitious target of increasing India’s clean energy capacity more than fivefold to 175 GW by 2022. Of this, around 100 GW is to come from solar power.
In the climate change talks held in Paris in December, Modi said that by 2030, 40% of the country’s installed power capacity will be based on non-fossil fuel. India was also among the 20 countries that pledged to double clean energy research investment in the next five years.According to industry experts, the government’s ambition has resulted in an opportunity, whose scale investors cannot ignore. “India is one of the fastest growing renewable markets in the world. It will clearly be one of the top three markets by installed capacity, if you take a 5-10 year view,” said Rahul Goswami, founder and managing director at Greenstone Investment Bank, an advisory firm that focuses on the renewables sector.
While the US renewable market continues to grow, Europe has more or less stagnated, he said. “The three fastest growing renewable markets are the US, India and China. China has its own complications in terms of investment. So, when you look at emerging markets, India is arguably the best opportunity,” said Goswami.According to Debasish Mishra, partner at Deloitte Touche Tohmatsu India LLP, while the growth targets seem aggressive, they are backed by a stable regulatory regime.“The growth that is being targeted is aggressive but coupled with a stable system of policies and regulations, it is achievable,” he said, adding that there is already a lot of clarity on matters such as zero regulatory interference in prices that are discovered through a transparent bidding process.
Given the Paris commitment, we should see the government focusing on achieving around 8-9 GW of solar capacity addition per year in the next 2-3 years, said Mishra.“You can put up a solar project in a couple of months, unlike long-gestation conventional infra projects. Also, unlike thermal power, solar power assets don’t face fuel supply chain uncertainties during operation, such as availability or price of fuel,” he added.
However, not everyone believes that the ambitious targets set by the government can be achieved.
In a July report, Deutsche Bank forecast India’s solar capacity to reach only 34 GW by the year 2020. “Realistically, challenges of weak financials of distribution companies and grid constraints need to be addressed. Hence, our forecasts consider 34 GW solar power capacities in India by 2020,” Deutsche Bank said in the report.The intent is in place, but a comprehensive strategy is still needed to achieve the large number in order to avoid an IPP-type (independent power producers) failure wherein others in the value chain (coal, railways and distribution companies) were not geared up, the bank said.