New Delhi : It took less than two weeks for French multinational Total Energies to put on hold its massive green hydrogen project with the Adani group after the Indian group was rocked by allegations of fraud.
The deal – part of a plan that would see billionaire Gautam Adani’s clean energy business invest US$50 billion (S$66.4 billion) over the next decade in emissions-free fuels – is in limbo, the victim of explosive short-seller Hindenburg Research reports.
The fallout is unlikely to be limited to the Adani empire. The furore over the business practices of the group – which expanded from transport infrastructure to become one of the country’s biggest investors in renewable energy – means that Indian corporate governance across the board will come under greater scrutiny.
Energy transition investment in India already lags behind that of other major countries, and now rising global interest rates are driving up the cost of capital, while the Inflation Reduction Act attracts clean energy investors to the United States and its free trade. creating more opportunities for partners.
All of this spells trouble for Prime Minister Narendra Modi’s goal of putting India at the forefront of climate action.
“The market is enforcing discipline on companies including Adani to reduce debt and bring in equity,” said Mr. Shashank Krishna, London-based partner at law firm Baker Botts, who advises clients on energy and infrastructure deals. “Some projects that are not economically viable or that do not have a strong business case will have to be scaled down or reduced in size.”
Growing difficulties are making the government’s target to triple clean electricity capacity by the end of the decade less achievable. New Delhi wants to increase the current 169 gigawatts (GW) to 500GW by 2030, taking the percentage of the total from 41 percent to nearly two-thirds, an important milestone on the way to net zero by 2070.
If it falls short of this target, the world’s third biggest emitter will be forced to rely on coal for a long time. This is bad news for a rapidly warming planet, and also for an Indian economy that is hoping to attract investment from multinationals that are under pressure to decarbonize their supply chains.
The Ministry of Renewable Energy did not respond to an e-mail request for comment.
While India is set to install 15GW of grid-connected wind and solar capacity in 2022, which is 44 percent more than in 2021, it is still far short of reaching the 2030 target. And ominously for Mr. Modi, significantly increasing investment levels was already proving difficult before the Adani crisis.
According to data compiled by Bloomberg, investment in renewable energy technology deployment is set to increase by about 4 percent in India to US$11.5 billion in 2022, but it is still lower than the recent peak of US$12.7 billion in 2017. It is also a fraction of the total US$274 billion spent in China and US$49.5 billion in the US.
Fiscal stimulus such as the Inflation Reduction Act is drawing a lot of capital that could potentially find its way into India, said Ms. Anita George, Co-Founder, Edina Capital, an Indian looking to invest in clean energy, mobility Private equity firm. Green building and recycling opportunities. “It has been a dismal one for all emerging markets, not just India.”
India’s volatile policy environment – with import tariffs, court orders and doubts over whether state-level utilities will honor commitments to buy power – is also giving international investors pause. To compensate for the uncertainty, Indian projects need to deliver much higher returns than those in less risky sites.
Mr. Pramod Kumar, Head of Investment Banking, Barclays Bank India said, “From a global investor perspective, the risk-reward in India today looks somewhat misaligned. He said that if Indian projects offer returns on equity of 11 per cent to 12 per cent and debt of 8 per cent, “globally people are saying that given the impact of inflation, these returns seem a bit low”. “So it’s affecting some deal activity”.