Experts say that India is falling behind in its 2022 renewable energy targets. This has created a greater urgency and developers and investors see long term opportunity.
Despite India falling behind in its 2022 target for power generation from renewable sources by a significant margin, developers and investors are increasingly interested in India’s decarbonisation market.
The Mahindra Group of India and Canada, Canada’s Ontario Teachers Pension Plan Board (OTPPB), announced a strategic partnership last week to tap India’s growing renewables potential.
OTPPB and the two companies have entered into binding agreements. OTPPB will purchase a 30% equity stake in Mahindra Susten Private Limited, which is India’s renewable energy business. The equity value of OTPPB’s equity stake is Rs 2,371 crore (or about $300 million). In the proposed transaction, OTPPB will acquire a 30 percent equity stake in Mahindra Ssten Private Limited. This is a deal that includes renewable power assets planted by Mahindra and a capacity of 1.54 GWp (Gigawatt peak).
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The deal will net Mahindra Group Rs 1,300 crore. OTPPB and Mahindra Susten will also be sold to OTPPB an additional 9.99 per cent by May 31, 2023. According to the release, the Group will invest this money and an additional amount of Rs 1,750 crore (about 220 million) into the business over the next seven-years. OTPPB has pledged to invest an additional Rs 3,550 crore (about $450 millions) in the business and InvIT during the same time.The transaction will enable Mahindra Susten to build a strong renewable energy company that focuses on solar energy, hybrid power, integrated energy storage, and green energy plants round the clock, according to the company. Puneet Renjhen (member of Mahindra’s executive board and EVP Partnerships and Alliances at Mahindra) stated that the deal would “unlock value” in the renewable energy sector through continued joint investments toward accelerated growth. Mahindra plans to become carbon neutral by 2040.
Bruce Crane, OTPPB’s senior managing director for Asia Pacific, infrastructure, and natural resources, sees the agreement as a long-term investment. Deepak Thakur (Managing Director and CEO), stated that the partnership will allow Mahindra Susten to “substantially increase our green energy portfolio across PV, wind and energy storage”.
Shravan Shankar (co-founder of Climake), a provider of climate finance intelligence, said that the deal was a sign that they are more optimistic about renewables. “Last year, they were the top-ranked developers in terms of installed units in the country. It’s fair to assume that they have given a major push with more focus.”
Global investors will find it easier to support their projects with the new structure created in partnership with Canada’s pension fund. They feel that there is more potential for them to win new business and expand their operations. He says that investors will be more optimistic about investing now.
This bullishness can also be seen in the rapid growth in renewable energy capacity in India over recent years. Since 2018, 7-8 GW of new capacity has been added each year. In 2022, 7GW was added in the first half. New capacity for the year is expected to reach 20 GW based on capital entering the space and companies raising funds.
Companies like Tata Power, SunSource Energy and Mahindra Susten have all raised capital to expand their operations. Shankar states that this level of capital raise was not possible in previous years. This could indicate an increase in India’s renewables sector.
Developers can build large solar farms and connect them to existing power lines in the country. They then rely on distribution companies or ‘discoms to be paid for the power that they supply.
Open access power is a new trend. Developers set up the installations, connect them to the grid and negotiate power purchase agreements for large enterprise customers, instead of relying solely on discoms. According to CleanMax, Adobe India, an Indian unit of the creative software company Adobe, receives 100 percent of its power requirements for Bengaluru from solar farms in Karnataka, which are managed by CleanMax Enviro Energy Solutions.
Open access, although it has been around for some time, has gained popularity in recent years. It solves the problem of companies not having enough roof space or other real property to install solar panels.
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