renewable energies: OPINION: The new asset class in India

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New Delhi: To say India is at the forefront of renewable energy conversations won’t be an understatement. With the world’s fourth largest installed renewable energy capacity and a target of 450 GW by 2030, India is leading the global battle against climate change head-on. Ranked third in EY’s Renewable Energy Country Attractiveness Index, India has made great strides in making its renewable energy sector an attractive asset class for investment.

India’s renewable energy began with the support of lucrative government grants and benefits that attracted Indian businesses and tax-paying citizens to invest in the sector. This national capital formed the basis for India to build its first 20 GW of wind and solar power, with wind representing the lion’s share of the investment. Over time, thanks to technological improvements and cost reduction, the subsidies were gradually phased out and a transparent online tendering process was put in place. This sweeping change, along with a host of reforms, laid the foundation for what is arguably one of the most successful models for building large-scale projects in India today. And the numbers don’t lie! In the past 6-7 years alone, India’s renewable capacity has increased by over 250%, with solar power alone increasing more than 15 times.

As of July 2021, the total installed renewable energy capacity in India was 98.8 GW. To meet the high targets and ensure that we maintain the momentum of the renewable energy transition, we need a continuous and increased influx of investments year on year.

In his opening session at the Accelerating Citizen Centric Energy Transition event, Indian Energy Minister RK Singh said India had recorded a total investment of $ 70 billion in seven years. It is estimated that we currently need an investment of $ 500 billion to reach our renewable energy target by 2030. IEEFA estimates that of the $ 500 billion the sector needs $ 300 billion. for wind and solar infrastructure, $ 50 billion for grid reinforcement and $ 150 billion for transmission and distribution. This becomes important not only in view of our upcoming goals for 2030, but also as an indicator of the overall interest of RE in investments. Also, let’s not forget, the industry allows for 100 percent foreign direct investment. In the first half of 2021 alone, India’s renewable energy sector recorded $ 3.7 billion in mergers and acquisitions.

With world famous investors such as Brookfield, Goldman Sachs, CPPIB, ADIA, SembCorp, Total, Engie and many more already in attendance, many investors are still lining up to get a piece of the pie. This is testament to the promising returns of India’s renewable energy sector. With an ambitious prime minister leading the charge, the likely failure to meet 2022 targets is sure to lead to a heightened push for the sector. However, while the sector has performed very well in the utilities segment, the sheer amount of capital required today has driven out the national capital base that has helped build the sector since its inception.

But when one door closes, the other opens. Recently, the lagging roof industry in India has started to show sparks. In just 2020 (a pandemic year), India’s rooftop industry added capacity of 1.35 GW in the calendar year. This is a stunning achievement given that India’s cumulative installed base before 2020 was only 3.2 GW. This growth continued until 2021, with the first four months seeing 660 MW of additional capacity. And at the heart of this growth is the domestic capital that the sector attracts. Manufacturers and owners alike now have a better understanding of the solar segment and are showing increased interest because of its savings compared to the state’s draconian electricity tariffs. Through innovative funding models, HNI investors are now able to invest in REs with tickets ranging from $ 35,000 to $ 2 million. A revolving project generates monthly cash flow at an internal rate of return of 10-16% over its lifetime.

With FD languishing at 5 percent, the return of a RE project far outweighs the slight increase in risk. Mukesh Ambani’s foray into the sector has also proven that industry leaders are slowly realizing this opportunity and are keen to become an active part of India’s renewable energy journey.

The golden era of renewable energy in India has arrived. As tenders increase and megawatts increase, so does the need for investments and the potential return on investment. The question we should be looking for answers to is not what might prevent investors from getting into renewables. The real question is who will act early and chart their success story.

[The piece was authored byAnimesh Damani, Managing Partner, Artha Energy Resources]


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