Goldman’s ReNew in Solar Dash as U.S. Moves WTO: Corporate India
ReNew Power Ventures Pvt., a company backed by Goldman Sachs Group Inc., the Tata group, whose businesses span software to automobiles, and First Solar Inc. (FSLR), the biggest U.S. maker of solar panels, are among 68 bidders vying for projects as India seeks clean alternatives to fossil fuels. The winners for the 750 megawatts of capacity will be announced by the end of this month.
India plans a sixfold increase in solar capacity that may draw $11.7 billion of investment by 2017 as the technology sheds perceptions that risks are high. In contrast, banks are slowing lending to coal and gas-fired projects hamstrung by a fuel squeeze. Rising demand for equipment is also prompting panel makers to seek a bigger share of the trade as the U.S. lodged a complaint with the World Trade Organization this week against India’s barriers.
“The advantage of renewables is that you know that the cost is going to be forever,” said Sumant Sinha, chief executive officer of ReNew Power, which is backed by a $385 million investment from Goldman Sachs. “You lock in the price today. You’re not impacted by the rupee’s depreciation. There’s no fuel risk.”
Three years ago, India’s first national solar auction drew skepticism with record-low bids from a woolen yarn maker and animation company. Tata Power Co. shunned that tender, saying banks wouldn’t loan to projects deemed too risky.
The current tender received bids for more than double the capacity available. The offers include 100 megawatts by ReNew, 150 megawatts by a unit of India’s Infrastructure Leasing & Financial Services Ltd. and 40 megawatts by Tata Power.
The growth of the industry has boosted inbound shipment of photovoltaic gear, with the value of the purchases reaching $2.4 billion since 2010 when India started its solar program, according to data from the Ministry of Commerce.
In order to help local makers of solar modules including Moser Baer India Ltd. (MBI), India is requiring half of the capacity being auctioned to be built with locally made equipment. That’s 375 megawatts or about 10 percent of the total capacity India has offered in the past year. The U.S. said this rule unlawfully restricts access to American manufacturers such as First Solar.
India said it will dispute the complaint lodged by the U.S. with the WTO against the “unfair barrier to U.S. exports.”
India is offering as much as 18.75 billion rupees ($302 million) in grants for the first time to solar developers to offset project costs. That will enable the plants to reduce the electricity tariff to 5.5 rupees a kilowatt-hour, equal to the cost of grid power.
That eliminates one of the main investment hurdles the industry faced: the risk that cash-strapped state utilities buying the power would default, leaving plants unable to sell their output elsewhere. At 5.5 rupees, the plants could find alternate buyers, including industrial and commercial consumers who pay the highest rates for power.
“Renewables are attracting a different class of investors who want stable yields,” said Sunil Wadhwa, chief executive of IL&FS Energy Development Co., a developer of gas, coal and clean-energy projects. “These are stable cash flows. For the investor, the costs are highest in the beginning, but it’s more predictable.”
Clean energy projects in Europe are luring institutional cash as retirement and insurance funds, including Allianz SE, Aviva Plc (AV/) and PensionDanmark A/S seek stable returns to match their long-term liabilities. Copenhagen-based PensionDanmark has invested about $1.8 billion in renewable energy, while Allianz Capital Partners, a unit of Europe’s largest insurer, invested more than 400 million euros ($545 million) last year.
In India, investors from Goldman to Morgan Stanley (MS) have led about $2 billion of private-equity buyouts, project and company acquisitions in the renewable industry since 2010, according to Bloomberg New Energy Finance. In the past year, the Government of Singapore Investment Corp. invested 100 million pounds ($166 million) in Greenko Group Plc (GKO), a developer of Indian wind farms. GE Energy Financial Services invested 2.57 billion rupees in a hydropower plant in northern Sikkim state under development by Gati Infrastructure Pvt.
Photovoltaic plants in India are likely to earn a 16 percent return, according to calculations by the central electricity regulator to set tariffs. That compares with a yield of 8.87 percent offered by India’s benchmark 10-year bond.
Foreign direct investment in India’s thermal power sector has collapsed to less than one-third its level two years ago as fuel risks, regulatory uncertainties and environmental delays hold up projects, according to government data.
More than 60 percent of power stations owned by NTPC Ltd., the nation’s biggest generator, are running below capacity due to a lack of coal supply, NTPC Director A.K. Jha said this week. India plans to raise local gas prices by as much as 90 percent to $8 per million British thermal units, a level that will be unviable for power plants, Oil Secretary Vivek Rae said on Jan. 12.
With coal and gas prices rising and an increasing share to be imported, a clean-energy project may already be able to supply electricity about 3 percent cheaper over the long term, said Wadhwa of IL&FS Energy, which is building a 750-megawatt gas power plant and is India’s second-biggest owner of wind farms.
Indonesia, the biggest coal supplier to India, banned exports of raw ores last month. “Tomorrow it might be coal,” said Wadhwa. “In thermal, you’re never sure.”
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