The government's target of producing more than 10,000 megawatts of energy from renewable sources will draw huge investment into wind and solar projects, even though changing regulatory goalposts is a disturbance, Ray Wood, the head of power, utilities & renewables at the bank, told
February 19, 2020. By News Bureau
India's renewable energy sector could become a major destination for global investors with a latent to appeal $10 billion (Rs 71,550 crore) of annual investments, Bank of America’s global head of energy and renewable business believed.
The government's target of producing more than 10,000 megawatts of energy from renewable sources will draw huge investment into wind and solar projects, even though changing regulatory goalposts is a disturbance, Ray Wood, the head of power, utilities & renewables at the bank, told.
“What people like about renewables the most is that you have a long-term contract of over 20 years,” he said, referring to long-term power supply contracts that often are part of the projects auctioned by government agencies.
“Foreign money including pensions, insurance money and sovereign money are the primary sources of this institutional funding into renewables,” he said.
Bank of America continues to deliver on its objectives on environmental, social and governance (ESG), which is a new theme that many international investors are allocating money to, Wood said. In 2019, it announced the completion of a $125 billion, 10-year green business commitment — six years earlier than planned. The bank aims its environmental business initiative to be $300 billion by 2030.
“We continue to serve as the largest underwriter of green bonds, one of the largest issuers of green bonds, and have structured a number of innovative low-carbon financing deals in 2019,” Wood said, adding: “Importantly, global investors now are more focused on ESG.”
Funds could come through a mix of debt and equity, which would be a function of what the market wants, Woods said, adding that if the contracts were for 20 years, the amount of debt as a percentage would be higher. Investors are said to be looking yield first and then growth, he said.
Large companies are going to enter this market in a big way, he said. “They can save money for their core businesses by pivoting to renewables, and they can do so at scale and keep bringing down costs.”
One risk factor is, if capital dries up then it will make it more expensive for the country to replace fossil fuels. “Cost of capital is critical and it impacts the renewable economics significantly because, by its very nature, renewable plants have a high capex and very little variable cost,” he said.
According to Woods, abundant liquidity in global markets at low interest rates is a perfect scenario to raise money externally for infrastructure.
Investors will evince interest not only in high-growth companies but also in ports, railroads, renewables, gas and water sectors, which can provide attractive returns, he said.
He said India could gain from the Covid-19 epidemic. Many believe the outbreak could cripple the Chinese economy as that country struggles to deal with the situation. “This has resulted in a strong appetite for Indian paper in offshore capital markets,” Woods said.
In the renewable sector, Bank of America expects consolidation to happen — platforms led by entrepreneurs and backed by private equity will shift to larger companies. “Renewables is a mature business and corporates will come in and create scale,” Wood said.
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