Adani Green Energy: Exploring organic and inorganic routes for growth

Exploring organic and inorganic routes for growth

The Adani Group has committed $50 billion-$70 billion in investment in the renewables space. The group also aims to become the world’s largest renewables player by 2030. In November 2021, Adani Green Energy Limited (AGEL) and Adani Transmission Limited (ATL) declared their Energy Compact Goals as part of COP26, primarily adhering to Sustainable Development Goal 7. In particular, AGEL set a target of achieving 45 GW of renewable energy capacity by 2030, with the average tariff below the average power purchase cost at the national level. For 2025, the company’s goal is to reach 25 GW of renewable energy portfolio.

Further, AGEL aims to invest $20 billion in renewable energy development over the next decade and develop a 2 GW per year solar manufacturing capacity by financial year 2022-23. As per the company’s most recent press release dated May 28, 2022, AGEL has an operational capacity of 5.8 GW and a total renewable portfolio of 20.4 GW. Between now and 2025-26, the company expects to add around 3 GW of capacity every year.

Power Line examines the recent developments of AGEL in different renewable energy segments, financing, and organic and inorganic growth opportunities…

Recent financings

AGEL, which is planning massive investments in the renewable energy space, has been depending on a bouquet of financing options for its expansion activities. For instance, in May 2022, Abu Dhabi-based International Holding Company (IHC) invested $2 billion in AGEL, ATL and Adani Enterprises Limited through the preferential allotment route. IHC’s partnership with Adani will generate 9 per cent of India’s non-fossil energy capacity by 2030.

Prior to that, in March 2022, AGEL extended its construction financing framework to $1.64 billion by raising a $288 million facility for its under-construction renewable asset portfolio through definitive agreements signed with a group of international lenders. The funds will be used to finance the 450 MW hybrid portfolio of solar and wind renewable projects being set up in Rajasthan by AGEL. Then, in February 2022, three subsidiaries of AGEL – Adani Green Energy (UP) Limited, Prayatna Developers Private Limited and Parampujya Solar Energy Private Limited – with a cumulative portfolio of 930 MW of operational solar power projects, raised Rs 6.123 billion through their maiden domestic bond issuance, on private placement basis. The non-convertible debentures (NCDs), with a face value of Rs 1,000,000 each, have an average fixed annualised coupon rate of 7.83 per cent per annum and a tenure of up to approximately 12 years. The proceeds from the NCDs will be utilised to part-refinance the existing rupee term loan, bearing a higher interest cost.

Similarly, in September 2021, AGEL priced its maiden ListCo senior issuance of $750 million through a three-year issuance at a fixed coupon rate of 4.375 per cent. The issuance was oversubscribed by 4.7 times. The funds will be utilised towards equity funding of the capex for underlying renewable projects under construction by AGEL. Under the structure, AGEL can draw up to $1,700 million (including the present issuance) over course of time, subject to the covenants of the structure.

Inorganic route for growth

AGEL aims to grow quickly in the renewable energy space and amass several GWs of capacity by 2030. However, the development of completely new projects often takes time, as they need to be won in an auction, following which tariffs need to be approved, and land and grid connectivity need to be assured before actual construction begins, which also takes time. For companies such as AGEL, with deep pockets and the ability to absorb risks, acquiring good quality projects is thus often a preferable means of expanding their portfolios.

For instance, in October 2021, AGEL successfully completed the acquisition of SB Energy Holdings Limited (SB Energy India) in an all-cash deal. With this deal, SB Energy India is now a 100 per cent subsidiary of AGEL. The transaction pegs SB Energy India at an enterprise valuation of $3.5 billion. The average tariff of the portfolio is Rs 2.75 per unit.

Then, in September 2021, Adani Renewable Energy (MH) Limited, a wholly owned subsidiary of AGEL, signed definitive agreements with Essel Green Energy to acquire 100 per cent economic value in a special purpose vehicle (SPV) that owns a 40 MW operating solar project in Odisha. The project has a long-term power purchase agreement (PPA) with the Solar Energy Corporation of India (SECI) at a tariff of Rs 4.235 per unit, with a remaining PPA life of about 22 years. The acquisition of the project was at an enterprise valuation of Rs 2.19 billion.

Prior to that, in March 2021, AGEL had signed a share purchase agreement for the acquisition of a 100 per cent stake in two SPVs holding 75 MW of the operating solar projects of Sterling & Wilson Private Limited, a Shapoorji Pallonji Group company. The projects, commissioned in 2017, are located in Telangana and have long-term PPAs with the Southern Power Distribution Company of Telangana. The enterprise valuation of the two target SPVs is Rs 4.46 billion. In the same month, the company also signed a share purchase agreement for acquisition of 100 per cent stake in an SPV holding a 50 MW operating solar project of Toronto-headquartered SkyPower Global. The project is located in Telangana and was also commissioned in 2017 following a long-term PPA with the Southern Power Distribution Company of Telangana.

Project development activities

In its journey towards becoming a leading global renewable energy player, AGEL has been announcing multiple new projects in the renewable energy space and has also been successful in winning a few tenders recently. Further, the company realises the importance of large-scale storage facilities in facilitating integration of intermittent renewables, and is exploring this space actively.

Most recently, in June 2022, the chief minister of Andhra Pradesh approved pump storage projects proposed by AGEL with a total capacity of 3,700 MW and an investment plan of Rs 157.4 billion by the Adani Group in Andhra Pradesh. At the World Economic Forum 2022, the Adani Group had inked a memorandum of understanding with the Andhra Pradesh Government for an investment of about Rs 600 billion by AGEL in the state. In Andhra Pradesh, apart from the pumped hydro project, AGEL also plans to build a 10,000 MW solar energy project. The company has proposed pump storage projects in four districts across the state, including two in Parvathipuram, one in YSR Kadapa and one in Satya Sai. In Parvathipuram district, a 1,200 MW plant will be constructed in Kurukutti and a 1,000 MW plant will be constructed in Karrivalasa. Meanwhile, a 500 MW plant in Chitravathi and a 1,000 MW plant in Gandikota will be constructed simultaneously.

In terms of other new projects, in May 2022, AGEL’s subsidiary Adani Hybrid Energy Jaisalmer One Limited commissioned a 390 MW wind-solar hybrid power project in Jaisalmer, Rajasthan. The power from this project will be delivered at a tariff of Rs 2.69 per unit. Prior to this, in December 2021, AGEL signed an agreement with SECI to supply 4,667 MW of green power. The agreement is part of a manufacturing-linked solar tender of 8,000 MW awarded to AGEL by SECI in June 2020. Even earlier, in March, 2021, Adani Renewable Energy Holding Fifteen Limited, a subsidiary of AGEL, won 300 MW at a tariff of Rs 2.77 per kWh for a period of 25 years at SECI’s Tranche X tender for setting up 1,200 MW of ISTS-connected wind power projects.

The way forward

Other companies in the Adani Group have ambitious renewable energy plans. Going forward, Adani Electricity Mumbai Limited, the distribution arm of  ATL, aims to increase its renewable energy penetration from 3 per cent in financial year 2020-21 to 60 per cent by financial year 2026-27.

Meanwhile, Adani Enterprises Limited, through its wholly owned subsidiary Adani New Industries Limited (ANIL), has undertaken an investment of $50 billion over the next nine years to form a new green hydrogen vertical. In June 2022, TotalEnergies announced that it will acquire a 25 per cent stake in ANIL, which will be an exclusive platform for the production and commercialisation of green hydrogen in India. Going forward, ANIL aims to produce 1 million tonnes per annum (mtpa) of green hydrogen per year by 2030, underpinned by around 30 GW of new renewable power generation capacity. ANIL aims to develop a project to produce 1.3 mtpa of urea derived from green hydrogen for the Indian domestic market, to replace current urea imports. Moreover, it aims to invest $5 billion in a 2 GW electrolyser factory fed by renewable power from a 4 GW solar and wind farm.

All in all, the Adani Group, through AGEL and other companies, has ambitious and aggressive plans for India’s renewable energy sector. There are interesting times ahead for the company as it diversifies and expands into the domain of module and electrolyser manufacturing, pumped storage and green hydrogen production.