A mountain of renewable assets is looking for buyers

Among the prominent names, Siemens Energy AG has said it plans to sell the India wind turbine unit of its subsidiary, while Shell Energy, which acquired Sprng Energy in August 2022 is looking for investors. EQT and Temasek are planning to sell the 4GW O2 power platform, while Macquarie has explored the sale of its solar power project Stride platform and C&I platform Vibrant Energy. In all, 15-20 renewable companies are looking for investors.

However, not all of them will find investors despite the rising interest in green power, multiple investment bankers familiar with the sector said, given the oversupply, and valuation mismatches. Besides, they said the success of some transactions may create a new set of investors entering the segment, as well a greater interest in commercial and industrial assets (C&I).

Also read: India needs $300 bn investment to meet 500GW renewable energy aim by 2030: Report

‘Core markets’

"Siemens Gamesa will concentrate on the core markets of Europe and the US, but will also serve other markets where profitable business is possible," a company spokesperson said about the wind turbine sale. "The Indian market is fundamentally interesting for us; we have service obligations here that we will of coursefulfill," the spokesperson said.

Many renewable energy companies are seeking funds to support growth, finance new projects, upfront investment and spur innovation as the sector booms.

“Not all renewable assets will attract investors, as success hinges on factors such as project viability, market conditions, and the risk-return profile," said Suman Bannerjee, chief investment officer at alternative asset manager Hedonova.

Also read: Shell hires Ambit for Sprng valuation before stake sale

Incoming investors will prioritize projects with strong financial projections, transparent regulatory routes and experienced management teams, Bannerjee said, adding the overall market sentiment and the performance of existing renewable energy companies also shape investor appetite. Therefore, while significant investment potential exists in renewable assets, success of fundraising will depend on these critical factors, he added.

Too much supply?

According to a joint report by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research & Analytics earlier this month, India saw tenders for over 69 GW of utility-scale renewable energy projects in FY24, far beyond the government's steep target of 50 GW, indicating robust interest in the sector. Solar and wind tenders made up 57% of the renewable energy tenders issued in FY24, with the balance in wind-solar hybrid projects, and renewable energy projects combined with energy storage systems.

“While liquidity for the sector remains high, valuation expectations are unlikely to be met in several of these transactions," cautioned Prateek Jhawar, managing director and head, infrastructure & real assets investment banking, Avendus Capital.

Abhishek Joshi, executive director, head of India ECM, UBS Global Markets said there is significant dry power available across public and private markets, but this will go to“ quality companies with strong business models, good execution and high standards of corporate governance will have access to that capital".

Also read: Edelweiss front runner to buy O2 Power’s 350 MW solar projects

Focus on high-return markets

At the same time, there has also been reallocation of capital by global firms toward higher-return markets.

Finland's Fortum Oyj, which entered India in 2013, has been selling assets in the country. It exited its solar power assets in India in May, and said that it was evaluating options for the remaining assets. It will also not be investing further in India, it said.

"In line with its Nordic strategy, Fortum is limiting its exposure in India and evaluating alternatives for these remaining operations and will not make any further commitments in India," Fortum said in May.

Even within renewable energy companies, there is a move to recycle capital and set up newer projects. Nasdaq-listed ReNew Energy Global Plc is in talks with Singapore’s Sembcorp Industries Ltd to sell solar energy projects totalling 350 MW, Mint reported recently. It is also exploring a 30% stake sale in a 2.3 GW C&I project. Meanwhile, ReNew has also recently set up a joint venture with Gentari to develop 5MW worth of solar, wind and energy storage.

Also read: Hero Future Energies to rope in JP Morgan for pre-IPO fundraise of $200 mn

Others in the market include Aditya Birla, which is selling stake in its renewables energy platform. Macquarie Group is looking to sell 400 MW solar power projects of its Stride platform, while Ayana Renewable Energy is also looking for buyers for its entire platform, Mint reported.

C&I projects may have an edge in attracting capital, investors said.

Last month, the International Finance Corporation said it was putting in $125 million in Fourth Partner Energy Pvt Ltd with 1.25 GW capacity, which provides solutions to C&I clients in India, according to an IFC disclosure in May.

Also read: ONGC enters the fray to acquire Ayana Renewable Power

Listing an option

The increase in project complexity and potential returns have enhanced listing prospects. However, sponsors are still cautious due to past experiences and are conducting thorough internal assessments before some of these companies consider listing in FY26, Prateek Jhawar of Avendus Capital said.

So far, project developers have relied on overseas pension funds, sovereign wealth funds, and private equity investors for growth capital, but Neha Agarwal, MD & head, equity capital markets, JM Financial, believes the next phase of growth could largely be funded by public markets.

“India has an aim of achieving 500GW of renewable capacity by 2030; currently, we have 200GW including hydropower. And to achieve another 300GW in the next 6 years, the government has bidding targets of 50GW of renewable projects every year," she pointed out.

Also read: The energy firm in sights of a global consortium

Also, many companies have reached significant scale and size (funded by private capital) - nearly 20 companies are over 1 GW in size and have a track record of operating profits; which is why several renewable companies are now approaching the capital markets for fund raise, she said. “We believe high quality names will be able to attract huge investor interests given the huge opportunity in renewable energy space and increasing ROE profile of these companies," Agarwal said.

Among the firms tapping public markets include Hero Future Energies, which has picked banks for an IPO. Warburg Pincus backed Clean Max Enviro is also looking at a $300 million IPO, Moneycontrol reported in May.