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In an indication of accelerating consolidation in India’s green energy space, Subhash Chandra’s Essel Infraprojects Ltd has mandated Investec to find a buyer for its solar business, said two people aware of the development.
Essel’s move comes at a time when financing at the lowest cost has become key to success in India’s renewable energy sector after solar and wind power tariffs fell to record lows. Solar power tariff fell to a record Rs2.44 per kWh in May before firming up to Rs2.65 per kWh in an auction by the Gujarat government last month.
“Essel Infra has appointed Investec as the banker for the sale of their solar business,” a person aware of the development, requesting anonymity. A second person confirmed the development. Essel Infraprojects, an Essel Group firm, has a presence across green energy, transportation, electricity transmission and distribution, and urban infrastructure.
According to information available on its website, Essel Infraprojects has 685 megawatt (MW) solar capacity, with six of its 12 solar projects being operational. It also has a portfolio consisting of 163 MW of hydropower and 560 MW of wind power.
An Essel Group spokesperson declined to comment. Queries emailed to Ajeeth Narayan, head of the Indian unit of Investec, remained unanswered. Essel Group has been trying to ramp up its energy sector plans, including exploring a solar module manufacturing facility with one of China’s largest solar equipment makers, GCL-Poly Energy Holdings Ltd, Mint reported on 22 March.
The London and Johannesburg Stock Exchanges listed Investec has a presence in the UK and Europe, South Africa, Asia and Australia. Analysts say India’s solar sector will witness a lot of transactions at the right valuations.
“Solar sector has seen significant capacity addition and allocations in the past two years and developers are scrambling to raise capital to sustain business growth,” consulting firm Bridge to India wrote in a 3 October note.
“Nine private developers have built up solar portfolios exceeding 500MW in the past couple of years—Adani (2,038MW), Acme (1,713MW), Renew (1,659MW), Greenko (1,407MW), Tata Power Renewable (1,382MW), Azure Power (1,102MW), Essel Infra (710MW), Engie (694MW) and Hero Future Energies (540MW) in addition to wind capacity as of September 2017,” the note added.
Overseas investors have been attracted by India’s emerging green economy. Last month, Singapore-based power producer Sembcorp Industries Ltd announced the acquisition of IDFC’s remaining 28% stake in renewable energy firm Sembcorp Green Infra (SGI) for Rs1,410.2 crore to become its sole owner.
“In such an environment, lots of portfolios, across market, are available for sale or IPOs (initial public offerings) but deals are held up because of mismatch in pricing expectations. Our view is that investors are driving hard bargains and closures are likely to happen only for credible developers at the right prices,” the Bridge to India note added.
India, the world’s third-largest energy consumer after the US and China, plans to achieve 175 gigawatt (GW) of renewable energy capacity by 2022 as part of its commitments under the global climate change accord. Of this, 100GW is to come from solar.
The National Democratic Alliance government seeks to reduce import of fossil fuels, boost underutilized power plants and meet its climate change commitments by providing universal access to electricity. Given the scale of the Indian market, the country’s green energy play is expected to grow substantively with federal policy think tank NITI Aayog projecting 597-710GW of capacity by 2040 in its new draft energy policy.
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