Renewable energy sector in consolidation mode

As the entire renewable energy sector is going through a consolidation phase, mergers and acquisitions are poised to accelerate, say sector players.

The acquisition of Welspun Energy assets by Tata Power’s renewable arm, and the induction of China Light Power as a strategic partner by Suzlon Energy for a solar project in Telangana are two of the recent developments pointing towards consolidation.

The M&A activity is aimed at churning the projects, divesting completed ones, and freeing up debt and equity to redeploy in other projects.

Sujoy Ghosh, First Solar India Head, said, “One of the main drivers of M&A is the inability of firms to recycle capital. This contributes to stagnation. As the solar sector expands and matures in the country, it brings in a new set of market participants who would be keen to invest in operational or semi-development assets where the initial risks of development, construction and financing and technology are mitigated.”

Sembcorp hiking stake in Green Infra and Welspun acquisition by utility companies and long term asset owners shows that this is just the beginning.

The recent developments at the US-based major SunEdison at the global level has opened up another potential channel for merger or joint development of projects in AP and Telangana, where the company had aggressively bid out others.

Though names of a couple of suitors for joint development and stake sale are doing the rounds, there has not been any announcement as yet. Seeking anonymity, a sector player said SunEdison is poised for joint development by roping in a strategic/global partner.

Last month, CLP India, a wholly-owned subsidiary of the Hong Kong–based CLP Holdings Ltd, (formerly China Light Power), announced acquisition of 49 per cent stake in SE Solar of Suzlon for a cash consideration of ₹73.5 crore with an option to acquire the balance 51 per cent within one year of the commercial operations date. This entails joint development of 100 MW of solar power project at Veltoor in Telangana.

After the acquisition of Welspun assets, Anil Sardana, MD & CEO, Tata Power, had said the company continues to evaluate all possible opportunities, both through organic and inorganic development. The company had acquired a 30 MW wind farm located in Maharashtra from Indo Rama Renewables and continues to scout for new opportunities.

While the Tata Power’s ₹9,249 crore deal with Welspun for 1140 MW was one of the biggest witnessed in the country, a number of smaller mergers and acquisitions are in the making. Sources indicate that it is poised for another major deal.

Narendra Surana, MD of Surana Solar, said, “We are considering strategic or part divestment of some of the developed projects to focus on setting up of new ones. Given the need to scale up and invest more, smaller companies face it tough to scale up and compete with larger companies with deep pockets.”

Greenko Energy Holdings, an affiliate of the Singapore government’s sovereign wealth fund GIC, has raised $230 million in fresh funding from Abu Dhabi Investment Authority and the parent company.

The Singapore government-backed GIC had acquired a majority stake in Hyderabad-based Greenko Group Plc’s Mauritius entity for £162.8 million in October. Abu Dhabi Investment Authority has joined with an investment of $150 million.

Ghosh said, “As the market expands, the investors with an ability to bring long term equity would be the ones that would eventually sustain the growth by both organic development in solar parks as well as acquisitions of smaller portions in non-solar park projects.”

With SoftBank, Sky Power and a few other US and Chinese companies eyeing the potential in India, consolidation is on the cards. Lately, global investors’ appetite in Indian renewable sector has gone up, if the investments by the World Bank in the renewable sector is any indication.

“The renewable energy sector is fairly hot with a major thrust by the government. A significant number of players have invested and built capacities,” said Raja Lahiri, Partner, Grant Thornton India, said.

“Established players, who have enough resources, will acquire projects which are financially viable and provide good returns. And there are a number of players who have built capacities and now want to monetise them,” he said.

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