In just the first half of the year, India’s booming renewable energy sector has seen merger and acquisition (M&A) deals worth over $2.5 billion (around Rs16,631 crore).
In April, ReNew Power, India’s largest renewable energy company, acquired New Delhi-based Ostro Energy for around $1.5 billion, what has been the biggest such deal in the country so far.
And now, Greenko, a Hyderabad-based renewable power producer, is set to acquire Orange Renewables at an enterprise value of $1 billion, Greenko’s founder and joint managing director Mahesh Kolli told Quartz. Backed by Singapore’s GIC and the Abu Dhabi Investment Authority, Greenko has just raised $447 million from its existing investors to fund the acquisition.
Founded by Anil Chalamalasetty and Kolli in 2006, Greenko currently operates around 3,000 megawatts (MW) of wind, solar, and hydro power projects. Following its acquisition of Orange Renewables, the company will have a total installed capacity of around 4,200 MW, taking it to the second place in the country’s renewable power sector.
In addition to scaling up operations, Greenko’s acquisition of Orange, a 100% subsidiary of Singapore’s AT Holdings, will help it diversify into the energy storage space, Kolli said.
The acquisition is Greenko’s second major M&A deal, coming two years after it acquired the Indian assets of American renewable energy giant SunEdison, which went bankrupt in 2016.
Leading the way
Analysts suggest that this is only the beginning of the consolidation that the Indian renewable energy sector will see over the next year.
The industry witnessed a shake-up last year, with both wind and solar power tariffs crashing to record lows and companies having to face multiple policy and regulatory issues.
Now, as the sector turns around and matures, there will be more such acquisitions of smaller companies by larger ones that have weathered the challenges. “Only the strong hands will survive. This acquisition of Greenko-Orange is a step in that direction,” said Amit Kumar, cleantech partner at consulting firm PwC.
Firms such as ReNew Power, Greenko, and Tata Power, with installed capacities of several thousand megawatts, will be driving growth and acquire smaller players that can’t compete in a market where the internal rate of return—the yield an investor gets on investments—are low.
The consolidation will also help companies raise funds. Earlier Indian renewable power producers were heavily dependent of private equity funds and foreign investors. Now, they are looking at public markets.
For instance, ReNew power, in May, launched the first initial public offering (IPO) from the sector on the Indian bourses; more are set to follow. “ReNew was the first to hit the block, but I think Greenko is also moving in that direction so that’s why they are scaling it up and combining the resources,” Kumar told Quartz.
Funding will also let firms expand into emerging areas within the clean-tech space such as energy storage or offshore wind power. Greenko, for example, now intends to focus on integrating energy storage facilities with its renewable power plants.
That’s because one of the drawbacks of the sector is that wind and solar power are infirm and don’t run round the clock, leading consumers to lean back on coal or gas-based power plants. However, integrating storage facilities will help stabilise renewable power. “In a market where renewable addition is far higher than the base load (coal-based power) right now, balance is the key issue,” Kolli said. “Going forward we want a stable renewable energy instead of a standalone renewable energy.”