Green Power in a distressed state in India

The Indian economy is in a massively bad shape and companies are groaning under huge debts. The 2003-2008 boom led to creation of a lot of assets which are not giving adequate returns these days. Most of the large infra players and conglomerates such as ADAG, GMR, Lanco, Adanis etc. have a massive pile of debt. These companies are desperate to deleverage and are selling assets at fire sale prices. Cash rich Indian companies are having a great time buying some prize assets for cheap prices. Renewable energy assets are also on sale with India’s largest utility Tata Power saying that it is examining over 3000 MW of potential green power capacity for acquisition.

Note Tata Power itself is in a bad shape; however the Tata Group as a whole is doing well thanks to the tremendous success enjoyed by TCS, which has become India’s most valued company. Hydro assets are going for sale as power developers are facing difficulty due to long gestation time and funding. Even wind power assets are seeing distress as power evacuation and getting money on time has become difficult. The Indian Renewable Energy Certificate (REC) scheme is also not working well, as there is no mean or will to enforce RPO on utilities and major power consumers. Another thing which has led to distress sales is that a lot of companies without any expertise jumped in the power industry in 2008. Now with massive fuel scarcity and debt problems, these companies want to exit the power space. These firms were never in for the long haul as they went for quick profits from the thermal power industry. Many companies had bid irrationally in government tenders for solar energy during JNNSM. While the sharply fallen prices of solar panels have saved most of them from outright failure, the returns are still quite low. The solar thermal projects have faced the brunt as solar equipment prices have not come down much for this segment. Tata Power has not participated in the JNNSM bidding citing the difficulties of getting payments from utilities, the low tariffs won during bidding and problems of getting cheap debt. The company is now thinking of getting into Phase 2 bidding as many concerns have been removed and non-serious players have gotten out.

The travails of the Indian power industry have been long and non-ending due to mostly the Indian government. The corruption scams have also caused great harm to the industry. Here is an interview with Tata Power:

You are getting so many offers. Are they distress sales?

It is basically due to the financial stress in the system.

For some, it is more of a distress sale, where their main or parent business is under stress.

For others, it is rationalisation — whether they want to be in renewable energy or not.

Some others, who had invested for accelerated depreciation and enjoyed the benefit, now want to capitalise their assets. More than 50 per cent of the wind farms for sale fall in this category.

Why the financial overhang? After all, promoters must have planned for repayments…

Lenders and financial institutions have over-exposure to the power sector and now are scrutinising the credentials of the promoters, which they were not looking so stringently earlier.

In an under-construction project, one needs to keep bringing in equity, else lenders and financial institutions will not provide the balance.

The hydro projects on sale — of 2,500 MW — appear to be large…

More projects were allotted to people outside the power sector than to those within.

Of the total, operational projects for sale are more than those under construction.

They are in the North and North-Eastern States — Himachal Pradesh, Uttrakhand and Sikkim.

Are you close to inking any deal?

It is a question of whether the value you offer is something that the exiting party finds reasonable. We hope to close a few deals by the end of this fiscal.

Your top management has made it categorical that it will not undertake large investment projects until it gets compensatory tariff for its 4,000 MW Mundra plant…

We have to be selective, but then we have to evaluate everything.

This is the time when there is stress and opportunity as well. There is a huge number of assets doing the rounds, and nobody seems to be having the money.

Why is your solar portfolio small?

We have about 29-plus MW of solar. We have been a little cautious where we build the plant, who we sell to and also the tariffs we are selling at.

We had been called conservative, but now people accept we were prudent. In wind power, we have about 437 MW in India.

What about the National Solar Mission?

We did not participate in the past as we did not have land and were circumspect about the sale of power and payments.

Now that these issues have been addressed over the last two years, and with land with us, we are evaluating the options.