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In 2018, India was the 3rd largest producer of CO2 in the world. This infamous position was achieved due to the fact that around 65% of electricity generated in India comes from burning of coal, oil and other thermal energy sources. According to a report published by the Government of India on January 21, 2021, Thermal (Non-renewable) power is 61.5% of the total power generated in India, which includes coal (53.1%), lignite (1.7%), gas (6.6%) and diesel (0.1%). Nuclear Power is 1.8% of the total, while renewable energy sources (RES) is 24.5% of the total power generated in India. Renewable energy or clean energy, comes from “natural resources or processes that are constantly replenished.” Renewable energy sources include small hydro projects, biomass gasifiers, biomass power, urban and industrial waste power, solar and wind energy. In spite of this lower RES percentage as compared to thermal energy generation, according to The Renewable Energy Country Attractiveness Index (RECAI) published by Ernst and Young (EY), as of November 2020, India is the 4th largest market for RES in the world. In this article we will examine the renewable energy market in India and the opportunities it has in terms of investment capacities and market growth. A growth in this market would allow for a reduction in thermal energy usage, resulting in a movement down the ladder of CO2 production. Investors are also becoming aware of the importance of green companies, increasing their valuation of such companies. Thus, a green movement seems to be underway and RES companies are playing an important role in this. 

As per the Paris Agreement, India has a target to increase its RES capacity to 175GW by 2022, and a 450GW target by 2030. With the current value of 91 GW (2021), achieving their 2022 target seems difficult. Still, the government has taken up various initiatives during the pandemic to increase the production and use of solar energy. This includes supporting force majeure, reducing repo rate, making solar plant operations and maintenance an essential service and  removing tariff caps for solar tenders etc. This in addition to permitting foreign direct investment (FDI) up to 100 per cent under the automatic route (2018) and a waiver of interstate transmission system (ISTS) charges for 25 years from the date of commissioning to all solar, wind and hybrid projects (2018), has allowed a growth in the renewable energy sector in India.  Being a developing economy with an ever-increasing urban population, the need for energy will continue to rise in India, and a green path is a good solution given the need to fight climate change and reduce global warming.   

At the moment, renewable energy projects are being implemented in the private sector.  However, to ensure cheaper generation of renewable energy, the government has initiated a process to award projects through transparent bidding process i.e., through a reverse auction. A reverse auction is a form of auction where the buyer (the government) puts in a request for the good or service they need (implementation of renewable energy projects), and the sellers ( various private firms) bid the price for the project. The firm that quotes the lowest amount wins because lower amounts mean a promise of cheaper generation of energy. 

There are many private players in the RES sector, and can be divided as (based on 2019 data):

Solar energy companies

Acme Solar Holdings2300MW
Greenko Energy Holdings1916MW
Azure Power1591MW
Tata Power1388MW

Wind energy companies:

Greenko Energy Holdings 2156MW
Tata Power1161MW
Mytrah Energy 1000MW
Hero Future Energies576MW

JSW Energy is a major player in the hydro energy generation (1391MW).

The power generation sector raises debt capital primarily from domestic banks and NBFCs. Solar and wind projects are highly capital intensive and require financing by debt-heavy capital structure. The amount of debt financing is dependent on the risk perception of debt financiers – the greater their confidence in the project’s viability and the borrower’s creditworthiness, the greater their willingness to finance a larger proportion of the capital costs. This plays an important role in assessing the debt-equity ratio of the company. The debt-equity ratio is the measure of financing of shareholders relative to creditors of the company.

As of September, 2020, Greenko Energy Holdings received an investment of around USD 980 million by ORIX, making them a minority stakeholder in the company (17.5%), and resulting in Greenko’s equity to be valued at USD 5.75 billion. The investment further solidified the company’s shareholder base, comprising long-term investors such as GIC (56%) and Abu Dhabi Investment Authority (14%). They have so far infused USD 2.2 billion into Greenko. This makes the enterprise value of the company to be USD 10.2 billion. Greenko posted a revenue of USD 661 million for the year ending on 31 March 2020. Greenko has also acquired a 40% stake in Teesta Urja Ltd, which is said to set up a 1.2 GW hydropower project in North Sikkim, for $250 million. This, along with the ORIX deal that came with a bonus of 873 MW operating wind assets, takes Greenko’s operational portfolio to 7.3 GW – India’s largest operational clean energy portfolio. Apart from this, Greenko also receives financing from its green bond framework, with an estimation of USD 1035 million. All these transactions clearly indicate or even confirm the heightened interest and participation in the green sectors both from market participants as well as investors. Greenko also entered in an agreement to partner with NTPC, to gage the possibility of developing ‘round-the-clock’ power supply by integrating renewable energy sources and pumped storage projects, as of August 2020. Pumped storage projects store and generate energy by moving water between two reservoirs at different elevations. At times of low electricity demand, excess energy is used to pump water to an upper reservoir. During periods of high electricity demand, the stored water is released through turbines, flowing downhill from the upper reservoir into the lower and generating electricity. This is a cheaper alternative to battery storage systems.

National Thermal Power Corporation (NTPC), a state-owned power generator, launched its initial public offering (IPO) in 2004, with the government holding 89.5% of the equity share capital. In 2013, Government of India’s holding in NTPC reduced from 84.5% to 75%. The rest is held by institutional investors, banks and the public. As of 2020, the government’s holding in NTPC reduced to 54.14%. Foreign institutional investors (FFI) hold 12.32% of the shares, domestic institutional investors (DII) hold 19.39%, individuals hold 2.28% and body corporate and insurance co. hold 13.50% of the total shares. As of December, 2020, the earnings per share (EPS) (not annualised and excluding net movement in regulatory deferral account balances) of NTPC was valued at 7.30 crore, with the face value of the share valued at Rs10/-. In February 2021, the board of directors of the company declared an interim dividend of Rs3/- per share for the financial year 2020-21. That they are paying dividends asserts the fact that the company is doing well, having a good profit margin. This is because dividend payments by a company are not compulsory, and are based on how well the company is performing. 

In 2019, NTPC invited domestic bids for development of an aggregate 923 MW capacity of grid-connected solar projects under Phase-II of Central Public Sector Undertaking (CPSU) Scheme. Only domestically manufactured solar cells and modules were allowed for the projects. A single developer could bid for a maximum 300 MW. In April 2020, Vikram Solar won a 300MW solar plant project for USD 250.39 million in the reverse bidding auction. Tata Power Solar (a subsidiary of integrated power producer Tata Power) also won the bid to build a 300 MW solar project. The grid-connected solar project is valued at Rs 1730.16 crore and must be commissioned within 18 months, i.e., September 2021. These projects clearly indicate the ambition of energy companies, including to change their patterns of functioning. The core purpose of companies which were fossil fuel led is also changing, with the imperatives of new-age sustainability needs and development.

Adani Green Energy is a company that has hit huge valuations basis these expectations. In 2017, it got listed in the National Stock Exchange and the Bombay Stock Exchange, and now has a share price of around Rs1,184, an EPS of 0.46, and a price-to-earnings (PE) ratio of Rs904.28. Promoter shareholdings contribute 74.92%, foreign institutions contribute 22.78%, public shareholdings 1.99%. In 2019, they became the first Indian company to offer investment grade green bonds worth USD 362.5 million to global investors. They have three wholly owned subsidiaries of solar power– Adani Renewable Energy, Kodangal Solar Parks and Wardha Solar (Maharashtra). In April-September 2020, the group won bids for 130 MW wind and 600 MW hybrid energy projects. Adani Green Energy, believes that its portfolio size will increase significantly, in-line with the industry and the government’s goal of renewable energy achievement. This would require heavy financial investment from all parties involved to ensure the growth of the company and the sector. In their value creation report of 2018-19, they issued a statement stating that “Adani Green Energy Ltd. ‘s expanding footprints has been aligned to India’s vision to embrace a healthier energy mix through solar and wind power. Significant financial development such as this one (Green Bonds) is a defining stride towards that direction.”

While Adani Green Energy is solely motivated towards ensuring RES are in full swing, Adani Enterprises, with it’s Adani Port branch, seems to be taking a different approach. Adani Enterprises Limited, in 2010, purchased a coal tenement in the Galilee basin of Queensland, Australia, from the around $2.7 billion in cash and royalty. It also bought the Abbot Point Coal Terminal from the Queensland government, to facilitate the export of coal to India, and was planning to build a 190km railway line to connect the Carmichael mine to the Abbot Point Coal terminal for 60 years. The project is said to produce 10 million tonnes of thermal coal per annum. There have been many protests against this, given that it will contribute to significant rise in global warming. Moreover, it could potentially affect the Great Barrier Reef by allowing around 500 or more coal ships to travel through the area. The project would also lead to a major depletion in groundwater, since the project is said to get access to 270 billion litres of Queensland’s groundwater for 60 years, for free. There is also the risk of damaging aquifers of the Great Artesian Basin. #StopAdani protests raged all over Australia, finding support from all around the world. Market Forces, a Melbourne based activist group, believed that Adani Ports must be scrutinised for its role in the environmental damages it creates today and it had created in the past, especially at ports in India. The Government of India blamed Adani Ports for causing damage to the environment during the construction of the Mundra port project in Gujarat. Other environmental activists grouped based in India, came together to protest against Adani’s projects in India and Australia. Around 25 environmental youth organisations, including Fridays for Future India, Chennai Climate Action Group, Extinction Rebellion India, Let India Breathe and Yugma Network, were called to action on a website called Adani Watch. The post titled “Youth Action to Stop Adani – 27 January to 2 February,” was“a call to action by youth groups from around the world to Stop Adani from subverting democracies, suppressing community voices, harassing its critics.” In 2015, the State Bank of India, agreed to provide Adani group with a loan of $1 billion to fund the project. Other than SBI, the group’s request for funding was turned down by many top coal financiers globally, including BNP Paribas, Credit Agricole, Barclays, Citigroup, Deutsche Bank, Goldman Sachs Group, HSBC Holding, JPMorgan Chase, Morgan Stanley and Royal Bank of Scotland. Moreover, the insurance groups, AXA XL, Liberty Mutual, HDI and Llyod’s of London firm Apollo, stated that they will no longer renew their insurance of the project once it expires. 

Thus, investors are actively seeking out Environmental, Social, Governance (ESG) compliances, so financial development and investment for RES firms may not be that hard to achieve. In fact, companies with work towards sustainability and the environment provide an additional valuation for companies. ESG criteria are a “set of standards for a company’s operations that socially conscious investors use to screen potential investments.” A growth in the solar/renewable energy sector through an increase in demand, is a great example in this attitude towards ESG.

However, companies, on their mission to comply with ESG guidelines, should not of course use untruthful means. This is where the notion of greenwashing comes about. Greenwashing is the process whereby a company conveys false impressions or provides misleading information about how their products are more environmentally sound than they actually are. This is seen as a deception to investors and society alike, where they believe that a company is environmentally friendly when it may in fact not be the case. Conventional energy companies are seen as the biggest users of the greenwashing technique, where on one hand they could be the biggest carbon emitters, but they rebrand themselves to seem more environmentally friendly. Thus, the society wants businesses that are truthfully more responsible towards sustainability. “Investors need to have confidence that ESG indices take into account the full picture of a company’s activities and the impacts they cause,” a Market Forces campaigner stated. This leads to significantly favourable terms for borrowings, basis valuations and continued performance. Investors are sizing up enterprise and societal risks in this area, and are putting a premium/discount basis on strongly differentiated finance and environmental models. While companies in the renewable energy sector do not currently fall under the ESG market, they play a vital role in the “E” part of the criteria, and could very well be the path towards a sustainable future.

Shreya Ramchandran is a second-year undergraduate Economics and Finance student at Ashoka University, and a prospective minor in psychology. She is passionate about environmental economics, seeking to analyse various environmental and economic issues, and to find possible solutions to it. 

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