Investors are playing the long game in India’s tricky renewables market

On Wednesday, Indian private capital news source VCCircle reported that Canadian alternative investments giant Brookfield Asset Management, which has more than $500 billion in assets under management across more than 30 countries, may be in advanced talks for its second direct acquisition in the Indian renewable energy market in six months.
Citing individuals with knowledge of the deal who spoke with VCCircle on condition of anonymity, the reported target is Emami Power Ltd., the solar energy division of Kolkata-based conglomerate Emami Group, which is actively shedding non-core assets in order to reduce its debt burden.
If completed, this latest acquisition would bring Brookfield’s total India renewables portfolio capacity to 350MW.
Representatives of Brookfield did not respond to VCCircle’s requests for comment.
Value play
Earlier this year, Sachin Shah, who leads Brookfield’s renewables division, told analysts in a call that the firm was finally seeing the emergence of attractive value opportunities in India-renewables energy assets after years of overstretched prices.
“We’ve been patient in that market, not really building out over the last five to seven years given how strong the bid has been. I’d say all of a sudden within the last six or eight months the market has really turned in our favor,” he said.
In May, Brookfield bought two wind farms with a combined capacity of 210MW from Hyderabad’s Axis Energy Ventures.
The Indian government has set ambitious targets for renewable energy investment, aiming for 175 GW of installed capacity by 2022, and fueling financial inflows into the space. Investments in India’s renewable energy sector hit $20 billion in 2018, doubling over a five-year period, according to figures obtained from the International Energy Agency (IEA) and India’s Council on Energy, Environment and Water (CEEW).
Much of this investment has come from foreign private equity. IEA and CEEW found that India’s solar and wind generating industry has become highly concentrated within a clutch of firms with sufficient scale to access better financing terms. Their research found, “In particular, those firms with access to favourable sources of finance through foreign private equity investments, lower-cost foreign debt, balance-sheet strength, or by virtue of being state-owned enterprises are able to undercut the competition consistently and win bids.”
“Sanctity of contracts”
But even with an embarrassment of riches in foreign capital, recent market developments have cast doubt on the near-term feasibility of the Modi government’s lofty renewables capacity targets.
In October, Mumbai ratings and analytics firm CRISIL, which is owned by Standard & Poor’s, issued a report predicting India will miss its 2022 targets by a gaping 42%, as the industry struggles with “policy uncertainty and tariff glitches.”
State authorities in the southern state of Andhra Pradesh, an avid regional consumer of renewable energy, recently tried to renegotiate power purchasing agreements from suppliers struck during previous fixed-rate tariff regimes that have since been converted to open bids. An Indian High Court ruling in September referred the matter back to state regulators after energy firms appealed the decision.
“There are questions on what this means for sanctity of contracts in India. That has made investors jittery,” ReNew Power CEO Sumant Sinha told Reuters last week.
Sinha’s comments carry no mean weight with foreign investors. His company is India’s largest renewable energy company and a private market unicorn, whose financial backers include Goldman Sachs, Canada Pension Plan Investment Board, and Abu Dhabi Investment Authority. Last month, it became the first Indian company to reach 5,000 MW of installed capacity.
CRISIL described the sector as experiencing “a material waning of developer interest,” noting that 26% of 64 GW in renewable energy projects auctioned by central and state authorities to date in the 2019 fiscal year had received low or no bids.
Buy and hold
But patient money appears willing to buy the proverbial dip. Speaking with Economic Times of India earlier this week, the CEO of Brookfield’s South Asia business, Anuj Ranjan, called India a “once-in-a-lifetime opportunity,” while acknowledging the potentially troublesome implications of the Andhra Pradesh case, saying, “Sanctity of contracts obviously are paramount. The good news is we’re long-term investors, so we take a long-term view of any changes in a micro market.”
Other institutional investors appear to be following suit. It was announced this week that Singapore’s sovereign wealth fund Temasek has partnered with Swedish private equity firm EQT on an initial equity commitment of $500 million to launch a new platform, 02 Power, to invest in greenfield and brownfield wind and solar assets in India. The deal will mark EQT’s first foray into the Indian market.
In October, Livemint reported that Lichtenstein-domiciled LGT Lightstone Aspada plans to invest $50 million in AMP Energy’s India-focused impact investment platform. This will mark the first swoop of Lichtenstein’s LGT Group, the world’s largest family-owned private banking and asset management firm, which is owned by the royal family of Lichtenstein and has $220 billion in AUM, into the Indian energy market.
Brookfield, meanwhile, has invested more than $8 billion in India this year to date, part of a $16 billion investment over the past six years.
Investments into India hit an all-time high of $36.8 billion in the first eight months of 2019, breaking last year’s record according to a report by the India Private Equity and Venture Capital Association and consulting firm EY.
