Coal baron Gautam Adani, 58, is transforming the $27-billion Adani Group from India's leading coal-trading firm to the “world's largest” green energy company.
That is quite a turnaround for a company that was India’s first mine development operator (MDO) and which recently won a 10-year-long bruising battle in Australia’s Queensland to start work on a coal mine that faced stiff opposition from environmentalists and locals.
A few days before it began work on the Carmichael mine, the Solar Energy Corporation of India awarded Adani Green Energy Limited (AGEL), the group’s renewable energy arm, a contract to build 8 gigawatts (GW) solar projects in the country. As part of the reward, Adani Solar will establish 2 GW of additional solar cell and module manufacturing capacity.
This project, which the company says is the largest in the world, entails an investment of Rs 45,000 crore ($6 billion). It will take Adani Green a step closer to emerging as the world’s biggest renewable energy firm.
“India will have 20-25 percent penetration in renewables by 2030. I feel that renewable penetration will continue to grow because it offers clean economical energy solutions,” Gautam Adani told this journalist.
According to Adani, by 2025, Adani Green’s renewable capacity of 25 GW will overtake the group’s thermal capacity of less than 20GW.
The coal miner
Started as a commodity trading firm in 1988, Adani Enterprises became India’s first mine development operator (MDO) in 2005. Three years later, it acquired Bunyu mine in Indonesia, marking Adani’s foray in coal mining outside the country. Acquired with an investment of $1.65 billion, the mine has a resource base of 269 metric million tonnes.
In 2010, Adani Enterprises successfully bid for coal mines in Australia's Queensland for $2.72 billion to fuel the group’s power plants in India, making Gautam Adani India's undisputed coal baron. The mine has 4 billion tonnes of coal reserves.
The group also agreed to pay $2 billion in cash for the Abbot Point terminal near Bowen, a coastal town in Queensland, to secure coal deliveries.
The company also promised a $10-billion investment to develop the port, rail, mine and allied infrastructure, making it India's largest investment in Australia.
Adani in 2010 set an ambitious target of generating 20,000 megawatts of power, mining 200 million tonnes per annum (MTPA) of coal and handling 200 million tonnes of cargo by 2020 based on streamlining his business to focus on three core sectors – energy, resources and logistics.
Today, the group has an installed capacity of about 13,000 MW (65 percent of the targeted capacity) in the power sector. But the company could mine only 15 MTPA of coal (7.5 percent of targeted capacity). For ports, it achieved the target a year ahead of the deadline, handling over 200 MT of cargo in 2018-19.
In India, Adani Enterprises is MDO for nine mines, with reserves of 2,843 million metric tonnes (MMT) and a peak production capacity of 100 MTPA. However, most of the mines are still being developed. Only two mines are producing coal. In Indonesia, Bunyu's total production in 2017-18 was 4 MMT and the production target for 2018-19 was 5.5 MMT. Adani Enterprises website says the company wants to be one of the largest mining groups in the world.
Chasing the Australian coal dream
After acquiring the Carmichael mine in 2010, the Adani Group committed investments of more than 16 billion Australian dollars to make it the largest in Australia and one of the biggest in the world, with peak coal production of 60 MTPA.
However, the project faced opposition from the green lobby, litigation, and protest from the locals. Environmental activists claimed that the mine would produce 200 million tonnes of carbon dioxide during its 60-year life.
After a $3.3-billion investment, so far, and a 10-year wait for various approvals, work on the Carmichael mine began in early July after the project was cleared by the state government for groundwater management.
But the years have taken a toll. Following pressure from the green lobby, most global banks backed out from funding the project. Even State Bank of India (SBI), the country’s largest lender, refused after signing a memorandum of understanding (MoU) for $1 billion.
The company was forced to scale down the project to produce just 10 MTPA of coal or 16 percent of the 60 MTPA envisaged at the time of acquisition. With no funding commitments from the lenders, the company downsized the project to $2 billion to be self-funded.
According to Adani Mining CEO David Boshoff, the company is on track to export its first coal in 2021 and has awarded contracts worth over $1 billion for the development of the mine.
To reduce capital costs, the company settled for a narrow gauge of almost 200 kilometres to connect to the rail network against 388km of standard gauge planned earlier to transport coal from Carmichael to Abbot Point terminal.
From ‘dirty’ to green
In 2014, Adani Power became India’s largest private thermal power generator with 9,280 MW capacity, overtaking rivals like Tata Power and Reliance Power.
Even as he was chasing his Australian coal dream, Adani decided to change the perception of his group from that of firm trading in “dirty” coal to the world's largest green company.
Perhaps the opposition he faced in Australia played a role or it was plain economics.
“Technology has changed the world dramatically and also helped in climate change adaptation. So when we are talking about only climate change and not giving economical solutions, things will never work,” Adani said.
Over the years, coal has gained a reputation of being a dirty fuel, a lightning rod for climate change activists, also the reason the company faced stiff opposition in Australia.
Concerns over coal-fired electricity have led countries including India to aggressively push for green energy.
Analysts anticipate a fall in demand for imported coal in India, as Coal India is likely to treble its production and most of the new power plants are based on renewables.
In the current financial year, Coal India, the world’s largest coal producer, aims to replace 100 MT of imported thermal coal with the domestic one. It is also looking to replace 150 MT of seaborne coal in 2021-2022, a move that will have a direct impact on Adani’s plan to bring Australian coal to India.
Except the Adani Group, no one was pursuing their overseas mines that were meant for captive use for power plants in India, investment adviser SP Tulsian said.
“The Adani Group saw it from commercial mining purposes. If they don’t see coal demand in India, they may sell it to other countries,” Tulsian said.
Analysts also say that Adani’s Australian project may become economically unviable due to falling prices. The seaborne thermal coal is now trading below $50 per tonne compared to $140 a tonne when the mine was acquired.
The big shift
In 2015, India committed to building 175 GW renewable energy capacity by 2022 at the Paris climate change conference. COP-21 also saw the launch of the International Solar Alliance.
Helmed by India, the 121-country alliance aims to scale up solar energy to reduce dependence on fossil fuels. Renewable energy is a cause close to Prime Minister Narendra Modi’s heart.
The Adani Group reworked its business strategy in keeping with the government’s new energy policy by demerging Adani Ports and Special Economic Zones (APSEZ), Adani Power Limited (APL) and Adani Transmission Limited (ATL) in 2015.
A year later, the group commissioned one of the world’s largest solar power plants in Kamuthi in Tamil Nadu with a capacity of 648 MW. The next year, the group started manufacturing solar photovoltaic panels by setting up the country's first and largest vertically integrated solar PV manufacturing and EPC business in Mundra special economic zone (SEZ).
In 2018, it demerged Adani Gas Limited (AGL) and Adani Green Energy Limited (AGEL). In less than two years of its public listing, AGEL today is one of the largest renewable companies in India which develops, builds, owns, operates and maintains utility-scale grid-connected solar and wind farm projects.
When reached for comments, Adani Group CFO Jugeshinder Singh said, "In the next five years, I foresee solar and wind generation will be among our top businesses, given 65 percent of our capital allocation is in the sector. Airports will take longer to ramp up. Coal mining, which constitutes 29 percent of our EBITDA, will see its share fall below 10 percent in the coming years."
Not just in India, the group has been in a green energy push in Australia as well though sceptics see it is an attempt to get some good press.
Adani Renewables Australia owns and operates 65MW Rugby Run Solar Farm in Moranbah in Queensland, the first in its planned rollout of renewable projects in that country.
The project provides 185,000 megawatt hours of renewable energy–enough to power 23,000 homes and businesses each year–and can double the output to 170MW.
The company also plans to set up a solar farm in Whyalla in the state of South Australia to produce up to 140MW of renewable power each year to provide electricity to about 60,000 homes annually.
The Solar Energy Corporation of India project will take AGEL’s capacity to 15 GW, accelerating its journey towards becoming the world’s largest renewables company by 2025.
It will also take the company closer to its target of 25 GW of installed generation capacity of renewable power by 2025, which will see it commit an investment of Rs 112,000 crore ($15 billion) in the renewable energy space over the next five years.
It is the only renewable company outside of OECD to get a sovereign rating. AGEL’s business model of focusing on long-term contracts with investment-grade counterparties, rapidly constructing large projects and building solar development partnerships with major global integrated energy players that seek to reduce the carbon footprint has enabled it to expand rapidly.
“The cost of renewable energy used to be five times higher five years ago but the reduction in price has seen wide acceptance. People want development at an affordable price. The challenge is to continue development and make things good for society. Economically-viable solutions driven by improving technology will make climate change adaptation faster,” Adani told this journalist.
While he is aggressively pursuing his vision to make Adani Green the world's largest renewable company, Adani has not given up on the Carmichael mine.(Piyush Pandey is a senior journalist based in Mumbai.)