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The paradigm has definitely changed for green energy contracts in India. The renewable energy (RE) space, which was estimated to have undergone consolidation between 4-5 strategic players and 3-4 large RE platforms a few years ago, has transformed back into one of the sectors fastest growing in India. It has witnessed a phenomenal increase in the number and type of investors.
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India’s total installed renewable energy capacity recently passed the 100 GW mark, doubling in five years, with solar alone growing from 2.5 GW in 2014 to 42 GW in 2021. India is already the world’s largest renewable energy auction market with one of the lowest tariffs in the world. Increased churn in the market implies that the market leaders in various segments in terms of installed capacity keep changing every year.
The renewable energy sector has witnessed the evolution of some interesting transaction themes against the backdrop of this amazing capacity and ramp-up.
Many private equity-backed global RE platforms have shifted their approach from a “complementary” acquisition model to an organic growth model, a key reason to build confidence in the country’s institutional framework for development entirely new projects.
Pension and sovereign funds have traditionally engaged in buying back large-scale operational RE portfolios on a ‘yield’ basis. The renewable energy segment is also witnessing the emergence of a new trend with many US and European hedge funds typically investing at “multiple returns” and seeking to buy back operational RE assets.
One of the main reasons for the changing dynamics of the sector is the diversification of exit opportunities for private equity players. Exit options have evolved from a larger seed round followed by a domestic/offshore IPO to creating an InvIT and exiting through acquisitions by offshore vehicles SPAC (Special Purpose Acquisition Company). We are witnessing an increased level of interest from SPAC sponsors in the US and Europe to acquire targets in India’s RE space, particularly in the area of ’clean tech’.
The fervor of transactions is not limited only to funds and institutions. A new class of global strategic investors including oil majors, steel producers, major consumer brands and global companies from different sectors have entered the renewable energy market with a long-term strategy to fulfill their ESG commitments. Pure renewable energy players present in solar and wind power are now expanding into futuristic resources such as green hydrogen by entering into technology partnerships with European and American companies.
The landscape of investment opportunities has also diversified. While large utility portfolios remain favorites, there has been a recent increase in M&A deal closings and traction in rooftop-based projects, C&I spaces, energy certificates renewable and other smaller wallets. As a spin-off from the central theme of renewable energy, the electric vehicle space in India is experiencing a frenzy fueled by the influx of large foreign capital with companies whose valuations exceed more than $500 million at the stage of pre-production. The ripple impact is seen in the emergence of a powerful new category – “EV-as-a-Service” – which is set to be the flavor of the season in 2022.
With the target of reaching an installed renewable energy capacity of 175 GW this year under the largest clean energy expansion program in the world, India has undoubtedly become the global focal point for mergers and acquisitions and private equity transactions. As an indicator of things to come, renewable energy asset acquisitions surged in 2021, now exceeding $6 billion.
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