Temasek-EQT joint venture to launch India green energy platform

The two sponsors have promised an initial equity commitment of $500 million as the seed capital. On the back of that, the company will be raising leverage two to three times to fund both greenfield and brownfield ground-mounted projects in wind a...

MUMBAI: Singapore’s Temasek is teaming up with Swedish private equity group EQT to launch a new renewable energy platform for India that will build wind and solar farms ground up and acquire assets to bulk up. A group of four senior executives from ReNew Power, led by Chief Executive Officer Parag Sharma, is leaving their current organisation to lead this new platform 02 Power as the operating management team, people aware of the development told ET.

The two sponsors have promised an initial equity commitment of $500 million as the seed capital. On the back of that, the company will be raising leverage two to three times to fund both greenfield and brownfield ground-mounted projects in wind and solar electricity. The focus will also be on presence across the value chain and hybrids, battery storage and other frontier clean-energy initiatives.

A formal announcement is expected in a month.


EQT, Sharma, and Temasek declined to comment.

EQT, the second largest buyout group in Europe, had tied up with Singapore’s sovereign investment company in 2017 to scout for opportunities in Asia. This will be its first investment in the country.

Initially, the sponsors were in discussions with two senior executives of Ostro, a company that Renew had acquired for $1.5 billion enterprise value, to launch the platform, but those talks did not fructify. The executives Ranjit Gupta and Murali Subramanian went on to join Azure Power, an NYSE-listed clean energy firm backed by Canadian pension fund CDPQ.
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The initial capital commitment is expected to help the platform scale up to 3GW (3000 MW) of capacity over the next five years. To begin with, the idea is to bid for large Central government auctions of NTPC and Solar Energy Corporation (SECI).

The decision of two of the largest private asset managers in the world to enter the clean energy landscape of the country comes as a positive development after months of uncertainty that hampered sentiments as major states such as Andhra Pradesh considered renegotiating signed contracts after a regime change.

“This has been a sector driven by global private capital, but of late the appetite of large funds has tempered down due to several factors. Andhra Pradesh’s decision to reopen tenders was the single biggest detrimental factor,” said Debashis Mishra, leader, Energy Practice, Deloitte. “Mounting SEB losses, which in turn caused receivables to spike at these utilities and the way recent tariff based competitive auctions have been carried out with winners being kept on hold for months have further heightened the negativity around the space. With already wafer-thin margins, such uncertainties impact the equity IRRs further for global investors.”

At the same time, it also highlights the changing investment thesis of global funds as they move toward sustainability. Temasek had decided against investing in Saudi Aramco's IPO, in part, over environmental concerns.
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Singapore’s sovereign wealth fund GIC has backed Greenko, among the largest renewable companies in the country. Temasek too has backed Sembcorp Industries, a utilities and marine group that has a large renewable portfolio in India. GMR, has been another investee company.

Traditionally, several funds have stayed away from renewables because of returns. Oil and gas-drilling projects or fossil fuel backed ones have traditionally offered higher returns to offset the exploration or greenfield risks involved. Renewable projects, meanwhile, tend to follow a low-risk, low-reward model pioneered by utilities. But with renewable energy reaching grid parity, the interest levels have gone up.
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PE firms have floated several renewable energy platforms in India ground up. Actis-backed Ostro was among the earliest. Warburg Pincus backed a management team to start Cleanmax Solar to build rooftop solar projects for commercial and industrial customers. The Piramal Group and CPPIB of Canada too have recently started a new InVIT platform to acquire green energy projects.

green-info


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