Why there are very few takers in the secondary market for India’s renewable energy assets

Experts also suggested that the older projects, which were once backed by higher tariffs, are now struggling to compete with their younger peers priced below Rs 2 per unit. This leads to unsold assets and valuation loss in the secondary market. Solar PV, wind and hydropower experienced the most considerable cost decreases in 2023. The global average cost of electricity (LCOE) from solar PV fell 12 percent, offshore wind and hydropower by 7 percent, and onshore wind by 3 percent, according to a September report by International Renewable Energy Agency.

"The PPA  (power purchase agreement) rates, at which some of these old projects were conceptualised, have changed. Investors are now weighing factors such as the quality of PPAs and certainty of payment. C&I (customer and industrial) assets are more frequently transacted than the ones which require grid connections," said Raju Kumar, partner at consultancy firm EY. He noted that there are more than 20 such assets awaiting buyers.

Earlier this month, Business Standard had reported that nearly 10 leading renewable energy (RE) companies in India were actively seeking buyers for 20 GW of their operational and under-construction capacity.  The report noted scarcity of PPAs, power supply agreements (PSAs), and issues related to transmission connectivity, among the key reasons for the sluggish transactions.

The market has been facing higher capex and supply chain uncertainty since the past few years, leading to higher valuation expectations from the developers, which has resulted in muted M&A deals for renewable assets. Buyers often prefer operational assets with a proven performance track record with stable revenue generation, which is also one of the reasons why asset M&A has not grown significantly despite a large pipeline of more than 80 GW of renewable projects, according to Chauhan.

Earlier this year, Mint had reported that ReNew, the largest pure-play renewable energy firm in India, is in talks with Singapore’s Sembcorp Industries Ltd to sell solar energy projects totaling 350 megawatts (MW). This development follows an earlier proposed deal for 1.1 GW that included ReNew’s solar (350 MW) and wind power assets (750 MW). However, the agreement could not be reached due to a valuation gap concerning the wind assets, according to the report.

Additionally, Canadian investor Brookfield Asset Management and French firm EDF Renewables are also weighing partial exit from clean energy assets in India, the Economic Times had reported.

But, Kothari noted that investors are interested only in projects with a visibility of 25 years of revenue, which is driving the spurt in offtake agreements for the new projects.

As of now, India's renewable capacity stands at 208 GW and the country aims for 500 GW by 2030, which requires investments to the tune of Rs 30 lakh crore, according to the ministry of new and renewable energy (MNRE).  The sector has reportedly received Rs 16.93 lakh crore since 2014.

"Despite investor enthusiasm and higher stock market valuations for green energy companies, S&P Global Commodity Insights data shows that oil and gas companies have consistently outperformed them by an average of 8.3 percent in returns on capital employed over the past five years. This is a reality check and represents a need to ensure sufficient investments for energy security, while balancing the needs and ambition for the energy transition," said Gauri Johar, executive director in Energy Transition and Clean Tech Global Consulting team at S&P.