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Consolidation to give new lease of life to renewable energy

According to reports, a website offering second-hand goods lists tiny hydropower projects. Many more renewable energy projects are up for grabs offline as policy troubles and a tough environment have blown away profits from windmills, while it seems like sunset time for the much-feted solar energy projects.

Renewable energy, once seen as an easy money-spinner, has burnt the fingers of many an entrepreneur, many of whom came from diverse backgrounds such as real estate, distilleries, automobile dealership, chemical manufacturing and agri-processing.

Industry sources say that many M&A deals are brewing and dozens of companies have already changed in the past year. “More such deals are about to happen and comparatively weaker players would move out of the sector. Amongst the buyers are large players with some exposure to the power sector, who want to expand their portfolio in either wind or solar. An emerging set of buyers are the second rung leadership in conglomerates who are now looking at renewable energy as a money-spinner and not just a CSR activity,” said PwC associate director for energy & utilities, Amit Kumar.

Sellers include windmill-makers who can’t reap any more depreciation gains and solar plants which have huge payments pending from state utilities. But potential buyers, usually established players in the business, are striking hard bargains and being cautious.

Sumant Sinha, CEO of ReNew Power, in which Goldman Sachs has invested heavily, said there are sellers available and his company is looking at opportunities but nothing has met his requirements so far.

His company was among the contenders for DLF’s wind power assets. “If people have not set up their projects selectively, I need to buy them at below book value for getting what I want. Until price corrects in the market, I don’t see us making acquisitions. We set up projects selectively based on tariff, capacity utilisation and returns on investment,” said Sinha.

In the past few months, real estate major DLF closed a deal for 150 MW of wind power projects while Jain Irrigation Systems announced intentions to sell its 13.2 MW of wind project.

Commercial vehicle operator VRL Logistics is scouting for a buyer for its 42.5 MW of its wind farm in Karnataka. Lanco InfratechBSE -4.14 %, too, wants to divest its stake from wind and solar power projects. And there are a number of project developers interested in divesting from biomass and mini & small hydro projects due to uncertainty over raw materials and long gestation periods, respectively.

Cash-rich firms such as Green Infra, Mytrah Energy and Bharat Lights & Power have recently closed sizeable deals. Gurgaon-based Amplus Renewables is a new entrant looking for acquisitions. It could not close its deal with VRL Logistics due to unknown reasons.

“We have many opportunities to grow inorganically. In the past, a large number of investors engaged in other business areas put up wind power projects to save tax through accelerated depreciation. Today, they are finding it difficult to sustain their core business and selling off wind power assets to raise funds.

At the same time, investment bankers are interested in renewable and they can achieve good scale only through acquisition of wind farms with proven performance records,” said Amplus Renewables director Guru Inder.

As per agreements with utilities, developers cannot hive off their stake in the newly commissioned solar projects immediately. However, some of the developers have pledged their equities to the financers — offering them indirect control over the project.

Research firm Mercom Capital Group CEO Raj Prabhu draws parallels between India and Italy where farmers turned their fields into solar farms and ended up selling their assets.

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