Decarbonisation Goals: KKR to invest $400 million in Serentica Renewables

KKR to invest $400 million in Serentica Renewables

Serentica Renewables, the newly formed renewable energy platform of Sterlite Power Transmission Limi­ted, has been making headlines since its launch. The company recently clinched significant investments from leading American global investment firm KKR. On November 8, 2022, Serentica announ­c­ed the signing of definitive agreements under which KKR will invest $400 million in the company to help meet its decarbonisation objectives. This transaction marks KKR’s latest investment in the Indian renewable energy sector. Notably, KKR has invested over $15 billion in equ­ity between 2011 and 2021 in renewable assets across the globe with an aggregate operational power generation capacity of 23 GW. Standard Chartered Bank acted as the sole financial adviser to Serentica for this transaction.

In an official release, Pratik Agarwal, di­rec­tor, Serentica Renewables, and managing director, Sterlite Power Transmis­sion, said, “This investment will allow us to leap ahead in our vision of decarbonising large energy-intensive industries and help in reversing climate change. This transaction is amongst the largest industrial decarbonisation investments in India to date and carries forward the global decarbonisation agenda, which is at centre stage at the United Nations Climate Change Conference COP27.”

Hardik Shah, partner, KKR, stated, “Our investment in Serentica reflects KKR’s confidence in India’s renewables sector and our commitment to advancing the energy transition in India. En­ergy-in­tensive, heavy industry companies play an important role in society but have traditionally faced more challenges in meeting energy needs sustainably. With Serentica, we look to support these companies in their decarbonisation objectives.”

Background

Set up in September 2022, Serentica is wh­olly owned by Twinstar Overseas Li­mi­ted, which also owns controlling stakes in Sterlite Power Transmission and Sterlite Technologies Limited, all entities of the Vedanta Group. The company is focused on providing renewable energy solutions to large-scale energy-intensive industries through long-term power purchase ag­ree­ments. Serentica’s launch is well alig­ned with the current energy market tren­ds, with commercial and indus­trial (C&I) consumers, who consume over 50 per cent of the electricity generated in the country, increasingly looking for options to decarbonise their operations. The Vedanta Group itself has an expansive industrial footprint across the metals and mining sector and Serentica will supply about 600 MW of round-the-clock renewable energy to its various entities.

Regarding KKR, the investment in Se­rentica is in line with its infrastructure strategy for the Asia-Pacific region whe­rein it considers renewables as a focus ar­ea. KKR has a long association with

St­­er­lite Power Transmission. To recall, in 2019-20, KKR became a co-sponsor in Sterlite Power Transmission’s infrastructure investment trust, the India Grid Trust (IndiGrid), in a deal that marked KKR’s

fi­rst infrastructure investment in the Asia-Pacific region at the time. KKR and Singa­pore’s sovereign wealth fund, GIC, invested Rs 10.84 billion ($157 million) and Rs 9.8 billion ($142 million) respectively to acquire significant stakes in IndiGrid. Currently, KKR has a 24 per cent economic ownership share in IndiGrid.

KKR deal and the way forward

Serentica’s latest deal with KKR will help the company finance its upcoming re­ne­wable energy capacity addition plans. Of the $400 million investment by KKR, about $100 billion will be directed towards growth capital while the rest will be invested in projects. The company has set a medium-term goal to reach 5 GW of carbon-free generation capa­city along with different storage technologies that can supply over 16 BUs of clean energy per year, avoiding nearly 20 million ton­nes of carbon dioxide emissions. In the next two years, it plans to commission about 1,500 MW of solar and wind power projects across Karna­taka, Rajas­than and Maharashtra. Rece­ntly, in November 2022, Serentica enter­ed into an agreement with the Greenko Group to source 1,500 MWhr of energy storage capacity through Greenko’s pumped storage projects at Pinnapu­ram in Andhra Pradesh and Gandhi­sa­gar in Madhya Pradesh.

Given the backing of Sterlite Power Transmission’s expertise in project management and building networks across varied terrain (including the Northern Region Strengthening Scheme-29 in the Kashmir Valley), Serentica is expected to have an edge over its peers in setting up renewable projects at remote sites that have been unexplored so far. The company can, therefore, provide renewable energy along with transmission connectivity to C&I consumers.

The Vedanta Group is reportedly expec­ted to invest $100 million in Serentica in the near future. The company’s financing will adhere to the typical debt-equity ra­tio, with the major equity coming from the Vedanta Group given that it has acc­ess to several third-party equity providers that are likely be to explored later.

Going forward, Serentica is expected to play a key role in fast-track decarbonisation of hard-to-abate energy-intensive in­dustries and KKR’s investment will help it leap forward at a brisk pace.