India will need a further $500 billion in investment in wind and solar infrastructure, energy storage and grid expansion to reach 450GW capacity target by 2030.
Investment in Indian renewable energy was US$6.6 billion between April and July 2021, beating the total for the previous financial year. (AP)
Investments in the renewable energy sector in India are seeing growth again following the slowdown in the previous financial year due to the onset of the coronavirus disease (Covid-19) pandemic, a recent study by the Institute for Energy Economics and Financial Analysis (IEEFA) found.
Between April and July this year, investment in the Indian renewable energy sector reached US$6.6 billion, surpassing the US$6.4 billion level record in the 2020-21 fiscal year. The findings in the study projected that and the investments have the potential to breach the US$8.4 billion milestones achieved in the 2019-20 financial year before the pandemic struck.
“Rebounding energy demand and a surge of commitments from banks and financial institutions to phase out fossil fuel financing are helping drive investment into Indian renewable energy infrastructure,” Vibhuti Garg, an energy economist at IEEFA, who co-authored the report, said.
The new IEEFA note explores renewable energy investment trends during the 2020-21 fiscal and for the first four months of the ongoing financial year and outlines the key deals made during both periods. It highlighted that the majority of the money flowed through acquisitions which helped in recycling the capital into new projects.
The largest of around 30 deals during the 2020-21 fiscal and in April to July period in 2021-22 financial year was SoftBank’s exit from the Indian renewable energy sector in May 2021 with a US$3.5 billion sale of assets to Adani Green Energy Limited (AGEL). With this acquisition, AGEL became a major investor as well as the world’s largest solar developer.
Other major deals included Engie’s acquisition by Edelweiss Infrastructure Yield Plus for $550 million, Acme’s acquisition by Scatec Solar for $400 million, and Fortum’s acquisition by Actis for $333 million.
Analysis of different types of deals revealed the majority of the other big investments were packaged as debt, equity investment, green bonds, and mezzanine funding.
Indian renewable energy developers are attracting huge investments from green bonds, said Saurabh Trivedi, a research analyst at IEEFA.
“In April 2021, ReNew Power raised money from green bonds with a tenor of 7.25 years at a fixed interest rate of 4.5% per annum, and this was soon trumped in August 2021 by the $414 million 2026 green bond issue by Azure Power Global at a record low 3.575% per year.”
In the latest development, a mega $8 billion special purpose acquisition company (SPAC) transaction between ReNew Power and RMG Acquisition Corporation II has approval from a majority of shareholders, paving the way for a Nasdaq listing with expected trading from August 24.
“This is a landmark transaction as it represents the biggest overseas listing of an Indian company via the SPAC route,” says Trivedi.
IEEFA’s note also points to several very positive developments: investment in India is clearly shifting towards renewables; the government is redoubling efforts to boost energy security and self-reliance by expanding clean energy technologies as demonstrated by Prime Minister Modi’s Independence Day speech, and Indian corporates like Reliance and JSW Energy are making big clean energy commitments.
In addition, the lending portfolios of Indian financial institutions like State Bank of India and Power Finance Corporation now include more renewable energy assets than fossil fuels, a trend which has picked up significantly in the last one to two years, according to the note.
In a report published in February this year, the IEEFA highlighted that India will require a further $500 billion in investment in new wind and solar infrastructure, energy storage and grid expansion and modernisation to reach 450 gigawatts of capacity by 2030.
“The decarbonisation of the energy sector will demand massive amounts of investment, and the flow of capital into this space will need to accelerate rapidly in order to meet India’s clean energy targets and enable a green recovery towards a sustainable economy,” says Garg.
India is currently investing around $18-20 billion in energy generation capacity and a further $20 billion in the grid on an annual basis. To achieve the Sustainable Development Scenario (SDS) in the International Energy Agency’s India Energy Outlook 2021 the country would need to triple its current rate of annual investment to $110bn.
“This is daunting in one respect,” says Garg. “But the financial trends in Indian renewable energy and grid infrastructure over the last two to three years strongly suggest domestic and global capital can support this ambition.”