India’s Power companies and IPPs scout for equity capital to fund their ambitious plans

India’s power sector has been troubled in the last few years due to a variety of issues. One has been the supply and pricing of fuel. While gas supply has fizzled out, coal pricing had become too high for the power companies to meet their obligations of supplying electricity at the contracted rates. The distribution sector had also faced a huge problem, due to huge losses and they delayed payments to the generation sector. The new governments’ massive push to the solar energy sector has come as a shot in the arms.

As the country looks to ramp up capacity from 4 GW to 100 GW in the next few years, IPPs and India’s power companies such as CLP, Tata Power etc. are looking to increase capacity. Anyway gas based power sector has become a no go area, with even existing gas plants unable to get fuel at viable prices. Even the thermal power sector is not hitting the accelerator, with no new plants being planned by the private sector. Most power companies are heavily indebted and do not have capital to fund large new capacities. Most of India’s power companies such as GMR, GVK, Lanco and Tata Power are going through tough times. Even raising the 20% equity capital for solar power projects is a problem for such companies.

To surmount this issue, they are looking to form a JV with cash rich PE and sovereign funds. Some of the new IPPs such as Renew Power, Azure Power, ACME have done a JV with large foreign companies and funds to fuel their financing capabilities. Now Tata Power is looking to hive off its solar/wind assets into a separate company and form a JV with a PE firm. This will allow it to grow its RE business which has been extremely slow growing, compared to other companies. With fossil fuel power plants fast becoming a legacy technology, the companies should not only look to accelerate their RE plans but also make it their main focus area. Other RE IPPs such as Mytrah and Suzlon are also looking at solar energy to grow. These companies used to focus on wind energy only but with wind energy set to install less than half the capacity of solar energy in the coming years, these firms are moving in the right direction. Mytrah too is looking to move aggressively into solar energy.