India has been at the forefront of the carbon neutrality movement. The past decade has witnessed the emergence of many large renewable energy developers, who continue to lead the country’s pursuit of these goals. The growth of the country’s renewable energy sector in recent years has attracted global interest, with companies from across the world fighting for India’s large consumer base. To tap into the Indian market, domestic and global giants have been acquiring vast portfolios of renewable energy assets, or even merging their operations with renewable energy companies. In addition to tapping into synergies in the sector, such merger and acquisition (M&A) transactions also provide enormous scope for growth and domination of the sector, and even offer tax benefits.
Renewable Watch highlights some of the major M&A deals in the Indian clean energy space…
M&A landscape in India
NITI Aayog’s 2015 report, “India’s Renewable Electricity Roadmap 2030”, called the central and state governments to support the participation of renewable energy developers, public and private finance, and consumers in building renewable energy capacity. The following year witnessed a surge in M&A transactions. Notably, Indian buyers represented the majority of the transactions. At this point, a preference for greenfield projects and troubled balance sheets in their home markets were the main reasons why foreign investors were not active in the M&A market for renewable energy. The preference for greenfield projects was due to their cost-effectiveness and the smaller scale of Indian renewable energy projects at the time. The tables turned in the next four years, as the Indian renewable market matured and became extremely cost-competitive. Companies such as Orix, SunEdison, Ostro Energy, UK Climate Investments, Elite Alfred Berg and Petronas entered the Indian market.
The year 2020 was crucial for India’s renewable energy sector, as the country needed to aggressively add renewables to its power mix to meet its climate goals. While most industries faced massive losses when Covid-19 hit, the renewable energy sector remained resilient. Notably, oil and gas companies across the globe faced massive losses owing to a price crash during the pandemic. However, investing in clean energy technologies became a path to boost their returns on capital as well as future-proof their portfolios.
As a result, in 2020, KPMG reported that India’s renewable energy M&A increased by approximately 75 per cent over 2019 to surpass a cumulative $2 billion in value. This growth was not only in terms of cumulative value but also in terms of individual transaction size, with over three transactions valued at $500 million each. A closer look reveals that the first three months of 2020 saw eight M&A deals worth about $1.2 billion, but the pace slowed down in the following months. The last quarter of the financial year 2020, in particular, saw very little activity. So far, in the first half of 2021, M&A deals have crossed the $3 billion mark, with Adani Green Energy Limited’s (AGEL) acquisition of SB Energy being one of the key highlights.
Major M&A deals
In recent years, oil and gas companies have been making efforts to “future-proof” their portfolio. In April 2019, Malaysian oil and gas company PETRONAS acquired a 100 per cent interest in Singapore-based Amplus Energy Solutions Pte Limited for an estimated value of $370 million. Amplus focuses on commercial and industrial customers in India, providing them with rooftop and ground-mounted solar power. At the time of the deal, the company had a portfolio of about 500 MW of solar capacity under operation and development, represented by 275 projects across 20 states in India. Since then, the company has expanded its portfolio to over 850 MW, with over 400 projects across all Indian states. Due to the global pandemic, Petronas recorded significant losses in 2020. However, there have been some signs of recovery in 2021 with the company reporting profits between April and June. Commenting on the results, Tengku Muhammad Taufik, chief executive officer, says that recovery in the oil and gas sector is still fragile, given market uncertainties. Although Amplus’ operations are relatively small, it represents most of Petronas’s activities in the clean energy space. Therefore, more such investments may be made in the future by the oil and gas giant.
In another deal, the RattanIndia Group sold its solar plants with a combined capacity of 306 MW to Global Infrastructure Partners (GIP) for Rs 167 billion in September 2020. GIP is one of the world’s largest infrastructure investment managers, with over $70 billion of assets under management globally. While it is too soon to measure the impact of this deal, it reiterates GIP’s interest in the Indian renewable energy space. The company recently announced plans to raise Rs 12.37 billion through green bonds in India. Earlier, the company had explored the possibility of raising $100 million in equity through an infrastructure investment trust (InvIT).
Keeping up with the trend of oil companies acquiring renewable energy portfolios, in 2020, TotalEnergies (formerly Total) acquired a 20 per cent stake in AGEL for an estimated value of $2.5 billion. As per the deal, TotalEnergies and AGEL announced a 50-50 joint venture, into which AGEL would transfer its solar assets in operation. These projects are spread across 11 Indian states and have a cumulative capacity of over 2 GW. The deal is in line with TotalEnergies’ strategy of building a portfolio of low-carbon, technology-based assets that could help account for 15 to 20 per cent of its sales by 2040.
Later, in 2021, AGEL signed a share purchase agreement to acquire 100 per cent stake in SB Energy India from the SoftBank Group and the Bharti Group. The transaction marks the largest acquisition in the renewable energy sector in India, at an enterprise valuation of about $3.5 billion. SB Energy India has a total renewable portfolio of 4,954 MW spread across four states in India. While AGEL entered the deal much later than other interested parties, it had the advantage of being a local player and even offered operational synergies, as it had plants in close proximity to SB Energy’s assets. Notably, the company reported a total income of Rs 10.79 billion in the first quarter of the financial year 2022, representing a 23 per cent increase compared to the same period last year. Now that AGEL is arguably a leader in India’s renewable energy space, the deals are expected to propel the company to global dominance in the future.
More recently, in August 2021, ReNew Power announced the completion of its merger with Nasdaq-listed special purpose acquisition company RMG Acquisition Corp. II (RMG II). The merger entailed an enterprise value of around $8 billion and an equity value of $4.4 billion for the formation of a new entity, ReNew Energy Global Plc. It is expected to become the first Indian company to raise more than $1 billion, following the deal. Further, as compared to a domestic initial public offering, the deal is set to help ReNew achieve a higher valuation due to increased global awareness about the renewable energy sector. It is also set to attract participation from 25-30 global players.
Another company that has been extremely active in the Indian M&A market is UK-based investor Actis. In August 2020, the company acquired 400 MW of solar assets from ACME Solar for $334 million and, almost a year on, it announced the acquisition of about 500 MW of solar assets from Fortum. Going forward, the private equity firm plans to invest $850 million in India to build two green energy platforms. The first platform will have a focus on grid-connected solar and wind projects and the second will cater to the growing commercial and industrial (C&I) segment. Actis also announced that it is looking to sell its Indian renewable energy platform, Sprng Energy, by 2022.
Among other prominent M&A deals is the acquisition of Shapoorji Pallonji Infrastructure Capital (SP Infra) by KKR in April 2020. Under the deal, KKR acquired five solar energy assets from SP Infra for a total consideration of $204 million. The portfolio comprises assets with a capacity of 169 MWp in Maharashtra and 148 MWp in Tamil Nadu. For SP Infra, the deal was important in repaying their refinancing debt of Rs 30 billion.
As current trends suggest, India’s renewable energy M&A landscape will continue to expand, given the fast growing renewable energy market and the increasing energy demand. Additionally, the Government of India has launched a large-scale divestment and asset monetisation programme, in which the energy sector will play a crucial part.
That said, some challenges need to be addressed to sustain global interest in the sector. Most significantly, the poor financial condition of the domestic distribution companies, difficulties in acquisition of land, unavailability of ready transmission facilities, and delayed and complicated approval processes may limit foreign interest. More specific to M&A transactions, there are larger issues with changing control restrictions embedded in power purchase agreements, as implementing agencies do not permit any change in the controlling shareholding of the developer for one year from the achievement of commercial operations.
While M&A deals in renewable energy offer benefits in terms of economies of scale and various synergies, they involve extensive due diligence, third-party consent, and complexity in deals. For this reason, equity and debt financing continue to dominate as the preferred sources of finance for renewable energy companies in India. Even though there has been a decline in debt financing in recent months, green bonds and InvITs have emerged as popular options. As India’s renewable energy industry expands, it is imperative that developers and financiers be able to choose the most appropriate mode of finance without being restricted by external factors.
By Rithvik Kumar