Page 67

energetica-india-55

RENEWABLE ENERGY 67 year. In addition to national auctions, these players have been equally aggressive (tariffs were little higher though) in state level auctions. We expect, utilities mostly new Indian players as well as Multi-National Companies (MNCs) would be building this 384GW of capacity over next 9 years. These utilities would be supported by global pension and sovereign wealth funds through equity as well as debt because they want stable returns assured by state or national level governments. The support from private equity players come handy for these utilities where size of investment is less than INR26bn (USD400m) as long term investors. Since investing in clean energy debt or green bonds is sensed as diversion of carbon risk, the banking sector will extend loans to these utilities lead by Power Finance Corporation (PFC) and Rural Electricity Corporation (REC) followed by Indian Renewable Energy Agency (IREDA). Indian/ multi-national banks as well as multi-lateral agencies should be able to extend debt of INR18tn (USD276bn) by 2024. To achieve this, Indian promoters as well as retail investors will have to support this renewable energy revolution in our country. Will Indian retail investors and capital markets support this initiative? Will Indian Capital Markets support renewable energy revolution? We assume these companies will remain unlisted until 2018 as equity investors in utilities segment look for positive cash flows. We expect around energetica INDIA · JAN | FEB16 a dozen players would have secured 10GW (10,000MW of capacity) through multiple auctions and negotiated power purchase agreements. Once capital expenditure of these utilities stabilises, equity investors would like to invest in these companies through initial public offers as well as placements. The industry can expect a massive capital flows of INR650bn (USD10bn) by2018-19 through initial public offers/ placements in domestic markets as well as solid supply of INR denominated Masala Bonds/ Green bonds to these utilities. Indian investors did not make attractive returns in listed wind players and is it going to haunt new players again in 2018 onwards. We feel, the risks in National Solar Mission are minimal and it is going to support additional 15GW of capacity through auctions. In addition state level auctions through reformed distribution utilities may be safer until we achieve 80-90GW of renewable energy. Thereafter, we need to be cautious about the capacity expansion..So will investors make money in this sector as they lost big some in utilities in 2010-15? How much is reasonable return in renewable sector? We expect promoters as well as retail investors to make decent returns on renewable companies on account of stable earnings. The Indian Grid will be improved by 2018 because of additional investments in smart grid as well as storage costs coming down substantially. The batteries of EVs are also storage equipments of energy and that are going to work as demand loads during off-peak night hours. That’s why we expect grid stability should be better in India despite solar and wind capacity going beyond 80-90GW by 2019. Once grid is stable, the utilities should be able to make decent return on equity (RoE) of 12-16% depending on cost of debt. Is it a reasonable return in Indian utilities? Definitely yes, because the raw material for the renewable energy is interest rate and nothing else, which is decided by Central Banks like Reserve Bank of India (RBI) and not by commodity / industrial players? We expect RBI to bring down rates by 2016 and that should bring down weighted average cost of capital for these utilities. Lower rates mean lower discount rates; lower discount rates will improve present value of these utilities and offer decent 12-16% annual returns to institutional as well as retail investors. Is it going to be all goodies-goodie? What are the risks involved for regulators as well as investors? The grid stability would be the biggest risk for the regulator as well as utilities. If grid becomes unstable and coal power plants are fired more, the cost of electricity rises significantly for consumers. We have expected electric vehicles population of 30m by 2030, it is equal to 600GWh (600m kWh) of electricity storage. We also expect significant 100-150GWh of energy storage at solar homes where people store electricity in products like Powerwall of Tesla and LG Chemicals. State of Tamilnadu has learnt a hard lesson on grid management as it added 7GW of wind capacity without any expenditure on grid management. With improved technology as well as planned green transmission corridors, massive investment of INR650bn (USD10bn) in Smart Grid by Power Grid Corporation of India (PGCIL) as well as regional/ state load dispatch centres (RLDCs/SLDCs) by 2020 should help in us mitigating this risk. With lower risk, the returns of 12-16 % look reasonable. What about COP21 commitment of Indian Government? Although Government of India missed on calculating electricity demand from EVs, the rapid expansion of solar and wind capacities in the country should work for the country. Solar is going to much bigger than wind by 2020 while returns on wind could be slightly better in returns. Thus rapid expansion of solar capacities may help Government of India to achieve its COP21 target of 35% renewable energy generation by 2024 itself. (It means India will have renewable capacity of 50- 60% of total installed capacity). If India achieves it by 2024, maintaining it by 2030 will not be a difficult task The Indian Grid will be improved by 2018 because of additional investments in smart grid as well as storage costs coming down substantially


energetica-india-55
To see the actual publication please follow the link above