The 90K Stimulus Impact. Will Indian Solar Asset Sales Slow Down?

It is no secret that many developers were forced to sell off their renewable energy assets in the recent past to meet their liquidity requirements. From selling by the Shapoorji Pallonji group, which owns leading EPC developer Sterling and Wilson, to reports of Renew Power being in talks, there have been a string of deals earlier to, be it Essel Group’s asset sales to Adani Green, or acquisitions by Vector Green of Rattan India’s solar assets and more.

Now, with the biggest issue facing many developers, namely, dues from discoms, close to a resolution with the Rs 90,000 crore credit line from PFC/REC, will there be a pause on Solar asset sales? After all, dues in many cases have been outstanding for well over 6 months , with the additional stress of facing power curtailment from discoms in many states, despite instruction for must run status issued by the MNRE.

Not really, point out industry insiders. A developer involved with over 500 MW of solar projects informs us that they don’t expect things to change drastically. ” While the liquidity is fantastic news for all generators, the situation for renewable energy producers was already looking up with the efforts of the MNRE to prioritise renewable energy payments”.  He also reminds us that some of the biggest deals have involved firms like ILFS or even the Essel Group, which were more like distress sales.

An investment banker, whose asked not to share his name as he is not authorised to speak to the media, confirms that ” for many developers, holding on to these assets is never a part of the long term plan. Flipping, or turning over the portfolio is a given for them, to generate cash flows for the next project, and improve margins for their owners and other stakeholders”.

On the other hand, the developer we spoke to confirms adds that delays in payment simply lead to fresh capital raises going to service loans for operational plants, rather than the expansion it was raised for. For his firm, a resolution of their payment issues has definitely made expansion easier.

Making the market even more interesting is the interest from many institutional investors who are already present in the market, who have a strong appetite for more Indian renewable energy assets. That is one reason valuations, or realisation per MW has not really crumpled in India, despite the many challenges the industry has been facing.

KK Singh, an energy sector consultant  stresses that with both cost of capital and yields in other developed markets being quite low, a period of stability on the policy and predictable growth could really heat up the market, as far as acquisitions go. Especially from US or Europe based firms. The current move to infuse liquidity in the biggest customers, ie, the discoms will simply reduce the risk to that extent for investors still sitting on the fence.  He points to the recent deal of Total and Adani Green to remind us that there is a ready market of large legacy energy players from the oil sector who are keen on large acquisitions, to diversify away from fossil fuels.

“Quality developers like the Shapoorji Group which recently sold assets to KKR, or even Renew Power now, will easily get a healthy  valuation, that will generate decent returns for the developers. With borrowing costs coming down significantly, a lot of these developers will leverage fresh funding to reduce their interest costs by retiring older debts. For that, selling assets at the right price makes sense”.

Thus, for the solar sector, a fresh round of expansion seems to be the best case scenario, as most of the weaker players who had to exit the market are already out, leaving players who are keen to ride the next wave of growth.