Tata Shuns Coal for Clean-Energy Projects in Chase for Growth

The power unit of Tata Group, India’s biggest, said its new investments will favor wind and solar farms over coal-fired projects which have become “impossible” to develop.

Tata Power Co. (TPWR) bid for its first overseas wind and solar farms in South Africa with Pretoria-based Exxaro Resources Ltd. (EXX) this week in a renewable-energy tender whose results will be known by May, said Tata Power Executive Director S. Padmanabhan. He declined to say how much capacity their joint venture Cennergi is seeking, citing auction rules.

Tata Group, which owns Corus Group and Jaguar Land Rover, is focusing on new clean-energy investments as coal-powered projects face fuel shortages in India and environmental hurdles in the U.S. and Europe, he said. South Africa, where average power prices almost tripled in four years, is a “prime market for development” because of its size and abundant clean-energy resources, according to Bloomberg New Energy Finance.

“Why would anyone want to invest at this stage in a coal project?” Padmanabhan said in an interview in Mumbai yesterday. “Investment has stopped.”

South Africa’s auction of 3,725 megawatts of renewable- energy capacity drew Suzlon Energy Ltd., (SUEL) India’s largest wind- turbine maker, in an earlier round. Suzlon Chairman Tulsi Tanti said in November the company may build a factory there if Africa’s largest economy generates enough demand.

Tata Group accounts for almost 5 percent of India’s gross domestic product and has built a global business spanning steel, cars and drinks by acquiring Corus, Jaguar Land Rover and Tetley Group Plc. Its overseas clean-energy investments include stakes in two geothermal projects in Australia and Indonesia with Sydney-based Origin Energy Ltd. (ORG)

Smaller Investment

Renewable projects are a better way to expand into new power markets because the investment tends to be smaller, the plants are built faster, and costs are usually more uniform globally, Padmanabhan said. Cennergi also plans to pursue power projects in Namibia and Botswana.

“It’s impossible to do a coal-based project in the U.S. and Europe” because climate-change concerns could potentially shut plants in the future, he said. “Its longevity for 25 to 30 years isn’t guaranteed.”

In India, the government isn’t supplying enough coal for Tata Power’s 1,050-megawatt Maithon plant to reach full capacity, he said.

South Africa, which gets 83 percent of its power from coal, aims to raise the proportion of electricity it generates from clean sources from almost nothing to about 20 percent by 2030, according to New Energy Finance.

Auction Approach

The continent’s largest economy ditched a program that paid fixed, preferential rates to renewable-energy projects in favor of an auction-based process. India used a similar approach to drive down the cost of solar power by 38 percent in a year.

Companies offer discounts to a cap rate proposed by the government of 2,850 rand ($373) per megawatt-hour for solar photovoltaic plants and 1,150 rand per megawatt-hour for onshore wind farms, according to New Energy Finance. Those rates are about double the global average, according to data compiled by Bloomberg.

The government invited bids on Aug. 3 to build 3,725 megawatts of renewable energy by the end of 2016. In December, the first bidding round awarded 28 projects with 1,416 megawatts. The second round closed March 5, with 79 proposals submitted.

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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