The Total-Adani Deal- Impact on Indian Solar Sector

The announcement yesterday of a proposed JV between Total Total SA, the french energy major, and Adani Green Energy, the renewable energy arm of the Adani Group, for $510 million (approx Rs 3600 crores) is, to put it mildly, a surprise. After all, while not dire, the sector today faces multiple pressure points, the latest of which is the uncertainty around supplies from China, the biggest supplier market for equipment.

The deal, wherein Total will be the 50 percent owner in a joint venture firm that will own the solar assets of Adani Green Energy Ltd, is a welcome bit of good news in that respect. The new JV will start with 2,148MW of solar projects portfolio across 11 states in India. After Malaysia’s Petronas, which brought out Amplus Energy last year, this is the second major global oil firm investing big in India’s renewable energy sector. Previously, some of the biggest investors have been financial investors, from Goldman Sachs in Renew power, to multilateral agencies in Avaada Energy, besides smaller fund raises by other top developers like Azure Power and more.

So what does the deal signal for the sector as a whole? For starters, the worst  might be getting behind the sector, that has been weighed down by the full complement of policy troubles, price squeezes, discom dues and challenges to signed contracts by state governments. In fact, if one goes by just a sample of the stories we have covered in the past 30 days on various cases at state and national regulatory commissions for electricity, the force majeure clause, considered the rarest of the rare, has been the de facto resort  in far too many projects.  Impressively, regulators have agreed, more often than not, with its use by developers. However, all this could not stop the squeeze on lending the sector has faced, with financial institutions worried both about the viability of projects at razor thin margins, and the quality and safety of assets.

For Adani Green Energy, with its total portfolio of 6 GW, (built and in the pipeline), the deal is yet another marker of its pole position in the sector today. The fresh funding will also help the group proceed smoothly with the Solar Energy Corporation of India Ltd’s(SECI)  tender of 8GW manufacturing-linked development project , where it is one of the winners. Markets have acknowledged its strengths for some time now, with its stock price moving from Rs 34 on Feb 7, 2019  to Rs 202, at close of market hours yesterday. That massive growth premium for the firm is in stark contrast to the troubles in the sector during the same period.

For Total SA, an oil and gas major now working hard to plan for a new energy future with more renewables, the deal with Adani follows another deal it closed in October 2019, to buy a 37.4% stake in Adani Gas for around ₹5,700 crore. Total SA, had an annual turnover of $209.4 billion in 2018, making it the world’s fourth largest oil and gas firm in the private sector. The firm has been much slower to warm up to renewables, and the Adani deal could be the precursor to a lot more investments, if the returns match up.

As the largest manufacturer of solar modules and cells in the country, the Adani Group has the reputation and record to deliver on its expansion plans, and might be one of the few firms that manage to actually deliver on the government’s make in India policy for the sector.

The two investments in quick succession by Total will definitely encourage many other global firms to relook their India investment plans, considering the massive potential the country offers in theory. After all, with a 100GW plan till 2022, and another 250-300 GW by 2030, India is poised to be the world’s second biggest market for fresh solar capacity, after China.

But what might really matter for the sector is a change in mindset at the country’s domestic lenders, who still need to be convinced that the sector offers quality returns. The rooftop solar category for instance, suffers from serious regulatory and funding issues, which, if improved, could help it boom.

It is important that the Adani group, with its record of managing to deliver results in challenging sectors, be it thermal power, ports, and now renewable energy, does not prove to be the exception to the rule. The investment by Total, a global firm whose CEO Patrick Pouyanne values, and understands the ability to engage with government successfully, cannot be seen as a vindication of our existing solar policy. In fact, the biggest mistake the government can make is to believe that the investment vindicates their policies. Many people have said, that the investment is to be seen as a success DESPITE poor a poor policy environment. Many more firms in Solar need to succeed, for India to meet its energy goals, of which solar is a huge part. And for the solar  sector to deliver on its promise of jobs, manufacturing and a cleaner environment.