Orient Green Power – Buying time? Orient Green Power which is one of the largest green focused utilities in India has shown a decent profit in the last quarter after an average performance since its IPO. Note Orient Green Power which mostly has capacities in wind energy and biomass had been facing issues with the [...]

Quick quiz. What is common to Suzlon, Moser Baer, Indo Solar, Websol Energy systems and Orient Green Power? All these stocks had successful runs on the stock market and hyped as the next game changers in wind energy, semi conductors, solar power and hydel/geo thermal power. Valuations were more on growth stories than through an hard nosed DCF spreadsheet. But now, they trade at record lows(like other stocks but what is different is the pressing fundamental concerns in each case). Is this a bubble finally bursting, or are investors panicking?

India had set up around 500 MW of Biomass Capacity by 2007 and has increased it by almost 150 MW since then to reach around 1 GW capacity today.Most of Indias’ Biomass Electricity is being generated in Andhra Pradesh,Maharashtra,Tamil Nadu,Karnataka and Rajasthan.A lot of new capacity is being built in Punjab and Chattisgarh as well.India with a total biomass capacity of around 1 GW is planning to increase it by 10 times to 10 GW by 2020 by setting up a number of 1-2 MW biomass plants around the country.Around 400-600 acres of land are required to support 1 Mw of Biomass Capacity and 200-300 acres using energy intensive crops.This is much more than what is required for even thin film solar energy which is around 10 acres.The large land requirements make Biomass Energy Scalding a difficult proposition,however it has a great use in niche applications where there is a large amount of crop and animal residue/waste

Biomass Energy is clearly seeing a massive investment of private capital by a number of Green Energy companies.A number of these companies are backed by Private Equity Players.Almost all Sugar Companies in the country co-generate biomass power at their sugar plants.The size of the segment is quite large and has not been listed here.In India 3 types of companies are focused on biomass electricity – Sugar Companies,Rice Companies and Green Energy Utilities.The first 2 categories will be successful as their cost of feedstock is essentially zero while the the success of the third kind will depend on the management and execution.

Green Investing in India makes a great theme but investing in specific CleanTech companies is a tough task.Some of the biggest Renewable Energy Companies have led to serious losses eg. Suzlon or Moser Baer.However Renewable Energy in India has a great future and a rising tide will lift all boats.Note the list of solar power [...]

A2Z Maintenance and Engineering Services is a Private Equity Promoted Facilities Management,Waste Management and EPC Company which is getting into the business of biomass energy.Company has fixed a price band at Rs 400-410 comprising of fresh issue of Rs 675 crore (~$150million) by the company and an offer for sale of upto 4.5 million shares by the selling shareholders.Note Renewable Energy in India has a bright future with around 5 GW of Renewable Energy Capacity to be installed per year over the next decade.However Biomass Energy may not be the best area considering the considerable expense and uncertainty in acquisition of feedstock.The Company already operates in 3 distinct sectors namely

Summary

A2Z is very similar in nature and valuation to VA Tech Wabag which did a successful IPO recently.The margin profile,growth and management is very similar.As such A2Z is a decent company however its not a compelling buy given the valuation.Note Biomass Energy is a tough sector to operate in and Orient Green Power has done badly since its IPO without having done anything badly as such.A2Z given the overall qualitative and quantitative factors seems a good stock at fair valuation.This makes the company a decent one to buy.

Renewable Energy Certificate (REC) Policy is starting in India tomorrow which will allow Green Energy Generators to earn additional tariff.Note the REC Mechanism is also present in different forms in Italy,USA and Australia and has proven a good incentive to promoter Renewable Energy in those countries.India’s Electricity Regulator (CERC) has been actively implementing different orders to boost Green Energy Generation.CERC had earlier mandated a 6% Renewable Energy Percentage from Alternative Energy which would go upto 15% by 2020.The REC Policy will help in achieving those targets by providing a pseud market linked mechanism to inentivize Green Power Producers.

Who will Benefit

Renewable Energy Companies and Green Utilities are set to benefit the most from this Policy.Suzlon has already welcomed the policy saying that Financing will ease for Renewable Energy Projects.Orient Green Power,the largest Green Focused Utility will also be a big beneficiary.Local Indian Wind Turbine Companies should also benefit from the Scheme.It also provides companies outside the JNNSM to get decent returns from solar generation as the REC band for Solar REC has been set between Rs 12-17/Kwh.India need to increase Renewable Energy Capacity by at least 50 GW in the next 10 year to meet the 15% CERC Target