POWER BANK

A former Wall Street banker is building India’s largest clean energy company

Obsession
Energy Shocks
Quartz india
Obsession
Energy Shocks
Quartz india

By the time he finished high school in the 1980s, Sumant Sinha thought he knew what he wanted to do in life.

Like his father Yashwant Sinha, then a bureaucrat yet to move into politics and serve as India’s finance minister—twice—Sumant was set on joining the Indian Administrative Service.

He had even won a seat to study economics at St Stephen’s College, Delhi University, an institution with a record of turning out civil servants by the dozens. The dream was there for the taking. But the timing didn’t work.

A strike at Delhi University in 1983 forced affiliated colleges to open later than usual. So, Sinha looked at his other option, the Indian Institute of Technology (IIT), Delhi, also the alma mater of his brother Jayant Sinha (currently India’s junior aviation minister).

“I thought that IIT started, might as well just go and see what the place is like,” Sinha said rather matter-of-factly in an interview last week. “And then I liked it so much that I just ended up staying there.”

That decision to study civil engineering instead of economics set in motion a professional life that would traverse businesses and continents over the next three decades. Eventually, Sinha landed on an entrepreneur’s saddle in the heart of one of the world’s hottest renewable energy markets.

Sinha, 52, is the chairman and CEO of ReNew Power, a Goldman Sachs-backed clean energy startup that he founded in 2011. In the last six years, Sinha has driven ReNew Power at breakneck speed, going from zero to 2,300 megawatt (MW) of commissioned capacity—more than Kenya’s total power generation capacity back in 2015—to become India’s largest independent renewable energy producer.

The success of ReNew Power has been partly built on the bedrock of Sinha’s long experience in the financial sector, allowing the company to raise some $850 million since it started off. At the same time, those large sums of money have been smartly utilised to diversify ReNew Power, which initially only focused on wind power, into solar power. At last count, in February 2017, the company was valued at $2 billion.

And now, amid boom time in India’s renewable energy sector, as prices crash and government support rises, Sinha is plotting to grow ReNew Power into a 10,000 MW clean energy behemoth. The plan includes fighting for new projects in India, scouting at home and abroad for potential acquisitions, and an initial public offering (IPO), ranging anywhere upwards of $400 million, in the next year or so.

It’s a big bet, but Sinha has a penchant for timing.

Wall Street to windmills

After IIT, Sinha took the now well-worn route to an Indian Institute of Management (IIM) and then joined the Tata Group.

He didn’t stick around too long. In 1991, he was accepted into the School of International and Public Affairs at Columbia University in New York on a full ride. Next, he joined Citibank, and worked in finance, in New York and London, for a decade.

 “The idea was that I would go in as No. 2 in Suzlon and over a fairly short transition, would become the CEO of the company.” 

In 2002, he returned to India as CFO of the Aditya Birla Group. For five years, he worked to back the group’s growing ambition as the conglomerate went on a spree of high-profile acquisitions, including Ultratech Cement, Idea Cellular, and Novelis. “I went from being a banker, which I had been for 10-11 years of my life, to becoming somebody who actually saw how companies are run and how companies create value, and what it took to run a large organisation,” Sinha said.

Not long after he’d pivoted within the group to become the CEO of Aditya Birla Retail in 2007, he received a call from the blue. It was from Suzlon Energy, then a high-flying Indian wind turbine maker with a market cap of over $15 billion. The company was looking for a CFO.

He went and met Suzlon founder and chairman Tulsi Tanti, who was then India’s 10th-richest person, valued at $10 billion. “After a lot of discussion and thinking, the role also changed fundamentally,” Sinha said. “The idea was that I would go in as No. 2 in Suzlon and over a fairly short transition, would go off and become the CEO of the company.”

Bust and new beginnings

The timing couldn’t have been worse.

A month after Sinha joined Suzlon as its COO in August 2008, Lehman Brothers filed for bankruptcy and the global financial crisis truly kicked off. Meanwhile, Suzlon was caught with its pants down, as demand collapsed and credit dried up. “Then, I realised that Suzlon had used all its capacity just in furtherance of growth, and had spent very little of its capacity or bandwidth on creating an organisation that could handle adversity as well,” Sinha explained.

Within a year-and-a-half, it became clear that Tanti wanted to remain in control. Sinha figured it was time to move on. “It was very amicable, so we worked out a whole transition,” he said.

 “I realised that if all these guys who didn’t really understand the sector were getting in, why could I not take a stab at it?” 

It was May 2010, and Sinha sat observing India’s renewables landscape beginning to slowly transform as independent power producers entered the market. Many, even players without any experience, were drawn by the government’s generation-based incentives, which gave wind electricity producers an extra Re0.5 for every unit fed into the grid.

That got Sinha thinking. “And I realised that if all these guys who didn’t really understand the sector were getting in, why could I not, with my background in this sector and my background in finance, also take a stab at it?”

So, in 2011, Sinha put in some of his own money, setup ReNew Power, hired a small team, and went looking for financing. He was in the market for at least $60 million, not a small amount, but quickly realised that people weren’t willing to part with that sort of money for a renewables startup. “The PE (private equity) guys said you’re too early-stage for us,” Sinha recollected, “The venture guys said you’re looking for too much money.”

The former banker tapped deeper into his network and found that Goldman Sachs was open to evaluating early-stage renewable energy platforms in India. “So, I worked out some numbers and came back with a number of $170 million-$180 million to get to close to 900MW in the next five years time,” he said. “And they went ahead and got approval for $200 million.”

On Sept. 26, 2011, ReNew Power announced that it had secured an equity investment (pdf) of up to Rs1,000 crore from Goldman Sachs, then the largest investment in India’s renewables sector.

The sun is shinin’

With money in the bank, ReNew Power moved quickly to get its projects off the ground.

The company swiftly ran into regulatory headwinds with its first project, a 25.2 MW wind farm at Gujarat’s Jasdan. While ReNew Power had calculated a tariff of Rs4.10 using a certain policy mechanism, the state-owned power purchaser was insistent on using a different mechanism that yielded a tariff of Rs3.50. With Goldman Sachs breathing down their neck, ReNew Power had to scramble, even meeting then Gujarat chief minister Narendra Modi, to get the issue sorted. The Jasdan project was eventually commissioned on May 6, 2012.

IMG_20160916_144532
A ReNew Power wind project in Ellutla, Andhra Pradesh. (ReNew Power)

“So, I think, the first two-three years went in just demonstrating that we could do projects, that we could assess wind, that we could operate projects, we could set them up, we understood wind turbine technology,” Sinha said. “Just a lot of basics.”

As the wind business picked up steam, Sinha realised that ReNew Power couldn’t ignore solar any longer. A significant drop in solar component prices and growing government support were bringing tariffs down and making the sector increasingly more attractive. So, around 2013, ReNew Power put together a small solar-focused team and got into a bidding game. They won nothing initially. But in March 2014, ReNew Power won its first solar power bid, a 57.6MW project in Madhya Pradesh’s Sheopur district.

Steadily, the projects stacked up and ReNew Power crossed the 500MW capacity in 2015. By 2016, it doubled to 1,000MW (or one gigawatt, GW). Currently, the company has over 2GW (1,500 MW of wind and 800MW solar) of capacity up and running. Another 700MW in the pipeline, most of which is solar.

Analysts reckon that there are three key things that ReNew Power has got right so far.

First, the amount of equity it has raised. Between 2011 and now, ReNew Power has raised over $850 million from a variety of investors, including the initial Goldman Sachs investment of $250 million. “So, in the last few years, they have raised a significant amount of equity to support their growth,” said Gautam Bafna, an analyst at CARE Ratings who tracks the renewables sector. “Once you have visibility on equity and your projects are viable, then getting debt is relatively easy.”

Second, according to Bafna, the company has done well to diversify its investor base. “At one point of time, Goldman Sachs was their only outside investor,” he said. “But over the years, JERA, ADB, and the Abu Dhabi Investment Authority have come.”

Year Amount Investor
2011 $60 million Goldman Sachs
2012 $100 million Goldman Sachs
2013 $90 million Goldman Sachs
2014 $70 million Goldman Sachs
2015 $70 million Asian Development Bank (ADB) & Global Environment Fund (GEF)
2016 $260 million Abu Dhabi Investment Authority, Goldman Sachs & GEF
2017 $200 million JERA (JV of Tokyo Electric Power Group and Chubu Electric Power Group)

And finally, there is ReNew Power’s ability to successfully pivot to solar. “They understood that the solar market is opening up and growth is equal to or higher than wind, so they quickly diversified in that segment,” said Bafna. “Many other companies either stuck to wind, or diversified later on, or a few companies were focusing on solar only. ReNew Power was able to reap the benefits from both the segments.”

Risk and reward

From its perch, ReNew Power is now in an ideal position to capitalise on the renewables boom underway in India.

In solar, particularly, tariffs have nosedived—50% over the last year, with a 25% drop in the last three months alone—bringing them to a level where they’re cheaper than coal-powered electricity. At Rs2.44 per kilowatt-hour (kWh), the tariffs are in dangerous territory, Sinha concedes, although his assessment is that the bigger players may be able to take the beating if the projects don’t turn profitable.

But some of the smaller guys who are building these projects, they may have a harder time. Because, you know, this will be large for them. And, therefore, how they’re able to deal with the consequences, we’ll have to see,” Sinha said. And while there is a risk of smaller players going belly up, for ReNew Power it could be an opportunity, especially as it begins to scout for acquisitions. “We’ll look at M&A (merger and acquisitions) opportunities within and outside India,” Sinha said. “We’ll look at various ways of broadening our funnel for growth.”

With ReNew Power’s existing capacity locked in at the higher tariff rates that they were bid at, the focus is now on picking up projects that make money. “For us, the most important thing is making sure that the projects that we do are profitable projects. Because while we’re building a business, we are also using other people’s capital,” Sinha explained.

The current target is to become a 10,000 MW clean energy company, but Sinha is reluctant to provide a timeframe. “I cannot control how many bids the government gets and how much people bid,” he admitted, referring to a narrowing pipeline of renewable projects that the government is auctioning and the aggressive bidding that private players are engaging in. “So, to that extent, our growth is driven by external factors. That’s a challenge for us.”

The other challenge for Sinha is to line up and successfully pull off ReNew Power’s much-awaited IPO, which would give his investors an exit opportunity and give him the monetary firepower for further growth.

I think our minimum size would be 20% of the market cap of the listed company, maybe the maximum is 30-35%,” he said, drawing out a window of between nine and 18 months to launch the listing. Given ReNew Power’s current valuation of $2 billion, a rough figure could be anything between $400 million and $700 million.

“The only issue is timing.”

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