Centre directs energy PSUs to list green energy business

New Delhi: The Centre has asked state-run energy companies to consider taking their renewable businesses public, two people aware of the development said, at a time of rising markets and keen interest in the sector. The move is in line with the government's plans to create value for itself and shareholders, rather than sell off the asset to private entities.

This comes at the time when NTPC Green Energy Ltd has filed draft papers for a ₹10,000 crore initial public offering that is expected to open in early November, while SJVN Ltd is planning to take its green energy business SJVN Green Energy Ltd public, and Navratna enterprise Solar Energy Corp. of India (Seci) plans a public offer within the next two years.

The department of investment and public asset management (DIPAM) has identified some potential companies for IPOs, one of the two people cited above said on the condition of anonymity. "Like NTPC's green energy business, there are more that can be taken to market. Some may have to be carved out from the parent units before they're taken to market," the person said. IPOs will fetch better value for the government than a strategic sale, he said, calling the latter a "one-time transaction."

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“There is a clear mandate from the Centre to PSU energy companies which have green energy arms to list these businesses or subsidiaries in order to create more value,” the second person said.

Hiving off and listing green energy arms is seen as a better way to raise funds for this growing sector, a third person said, given the difficulties in raising funds for conventional energy companies given their carbon footprint. "Solar, hydropower, batteries for EVs—these are sunrise sectors and eventually, companies in this sector will get better market value. We have to see the best way to derive value from the assets (through listing)" he added.

The public market route is in line with the government's asset monetization and disinvestment plans. At the end of FY24, a total of ₹3.58 trillion was raised within three years under the ₹6 trillion National Monetization Pipeline. During FY24, around ₹1.56 trillion was raised against the annual target of ₹1.8 trillion.

CEO of SJVN Green Energy Ltd, a subsidiary of SJVN Ltd, Ajay Kumar Singh said: “There is a consideration to go public, although talks are at an initial stage. Our current operational capacity is around 400MW and it is likely to touch 2GW of operational capacity by the end of this year.” He said the company's long-term target is install 15GW renewable energy capacity by 2030.

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Another company considering an IPO along with option of bringing in private investors for its green energy subsidiary is NHPC, India’s largest hydro power company.

“IPO plans are there, but it may take some time, may be a few years. We would like to add more capacity and scale up the green energy operations before going to the market,” a company official said on condition of anonymity.

Queries sent to the ministries of finance and power and NHPC remained unanswered till press time.

In July last year, Mint reported that NHPC plans to take its subsidiary NHPC Renewable Energy Ltd public, or bring in strategic investors in two-three years. However, the company is now looking at finalizing stake sale plans only adding significant capacity.

According to NHPC’s annual report for FY24, the subsidiary incorporated in 2022 is exploring various renewable energy projects. It is currently setting up a 700 KW solar plant in Rajasthan, and plans to take up projects under PM Surya Ghar, India's flagship rooftop solar scheme.

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Sudhanshu Bansal, vice-president, Institutional Equities at JM Financial said: “While the mandate is clear from the government, investors-both institutional and retail-would be cautious, primarily due to the liquidity- driven valuations in the market.”

Noting there are a number of independent power producers coming up with their IPOs in the coming weeks and months, he said in many cases, private sector companies would have better execution capabilities and financials, which may attract investors more.

“Therefore, the government will have to ensure that the timing of their own listings is right and the volumes of shares they take to market are according to the appetite in the market,” Bansal said.

ACME Solar filed for a ₹3,000 crore IPO in July, while Waaree Energies Ltd received approval for its IPO last week.

An analyst tracking capital markets said that there was sufficient investor appetite for private and public sector IPOs in the green energy space. Mutual fund systematic investment plans attracting significant amounts, which can flow to IPOs. On the institutional side, a lot of focus is on ESG as a segment that can be used to diversify portfolios, the analyst said.

The government is looking at this from a disinvestment and asset monetization strategy because once the asset is public, it can be monetized over time, deriving more value, he added. Further, since green energy is not a legacy space, it has fewer regulatory hurdles, it also adds to value for the segment as well as for companies, so there's upside.

As PSU green energy firms attempt IPOs, their business fundamentals will come into focus; therefore, challenges of commissioning of assets on time will have to be addressed. For instance, most of the solar projects are delayed due to lack of evacuation infrastructure or land acquisition at economic prices, the analyst said. Delays in wind power projects happen due to delay in attractive sites offering strong wind CUF.

"There is no market for plain vanilla solar or plain vanilla wind projects. Discoms are increasingly looking to tackle non-solar hours with storage. So, the market is changing from what it used to be," the analyst said.

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