Sumant Sinha on Why ReNew Power’s US Listing is Important

ReNew Power has become India’s largest publicly traded renewable energy company, in terms of generation capacity, by combining its business with the US-based RMG Acquisition Corporation II and getting listed on the Nasdaq. Among the top 10 renewable independent power producers (IPP) globally by capacity, ReNew Power has more than 100 operational, utility-scale wind and solar energy projects in nine Indian states. It also owns and operates distributed solar energy projects for more than 150 commercial and industrial customers in India. In an exclusive interview, Sumant Sinha, Founder, Chairman, and Managing Director of ReNew Power, explains how the listing gives an opportunity to showcase India’s capabilities globally and attract leading investors to the country’s green energy space, among other things. Edited excerpts:

ReNew Power is the first major Indian renewable IPP to get listed on the Nasdaq. How will it help your expansion plans? Are you going global and what is the significance of this listing?

To make it clear, our business is in India and that will continue to be the case. We have not gone there to just go global, but to do a listing outside India to bring in many more global stakeholders. So far, we had some global investors. As part of this transaction, new investors have [come on] board as part of our shareholder base. We will continue to be an Indian company focussed on India, but our listing is outside India.

[The] interesting thing is, with the US listing, we have a large pool of top global investors. In that sense, we are the first window for global and public market investors to invest in Indian renewables. So far, most investors in India’s green energy space have been private market investors or private equity. This is the first opportunity for large global investors to invest in Indian renewables and we will be compared and benchmarked to leading global renewable energy firms.

In terms of capacity, we are among the top 10 listed renewable energy companies in the world. Among independently listed ones, we are among the top five or six. Our task is to educate global investors about the India opportunity. We can share their feedback with the Indian government. That will help us to mediate and have a two-way dialogue with the government and global investors.

How are you planning to use the proceeds from this transaction?

ReNew Power has received $610 million in net proceeds, consisting of funds from RMG II’s former trust account and from a private placement in public equity (PIPE). The PIPE was anchored by institutional investors including funds and accounts managed by BlackRock, BNP Paribas Energy Transition Fund, Chamath Palihapitiya, Sylebra Capital, TT International Asset Management, TT Environmental Solutions Fund, and Zimmer Partners.

The primary gross proceeds from the listing and the considerable cash we have will be utilised to implement ongoing projects, and for expansion. The existing capacity is also going to give good cash flows in the future. These will help us to have 18.5 GW of capacity by 2025. Today we are close to 6 GW of commissioned capacity and [have] 4.5 GW under construction. Most of that will be ready in the next 18 months, say, by March 31, 2023. Beyond that, we can execute another 8 GW over the next two-three years. The cash and proceeds will help us fund the plans till 2025. By the end of the year, we are looking to get Ebitda of $800 million from the added capacity. As we add capacity, Ebitda will go up. We may require about $500,000 per MW for execution between wind and solar. Assuming a cost of Rs 4-4.5 crore per MW, we will raise 70-75 per cent of that as debt — say about Rs 3 crore.

What kind of organisational change and professionalism is likely to happen with more investors coming in?

We are transforming into a Board-run company with professional independent directors from all over the world. Some of the earlier Board members will stay and some are new. We have decided that in the future, our Board will have a majority of independent directors. It will be a fully professionally run company. ReNew Power will not be Sumant Sinha’s or Goldman Sachs’s company.

The secondary part is relatively small. Goldman Sachs’s stake fell from 49 per cent to 33 per cent; Abu Dhabi Investment Authority (ADIA) and Canada Pension Plan Investment Board (CPP), which held 17 per cent each, [pared their stakes] down to 12-12.5 per cent each. The PIPE institutional investors own about 20 per cent of the company.

ReNew Power’s Board of directors comprise 10 members, six of whom are independent directors. The Board of Directors is led by me as Chairman and includes Robert Mancini, CEO of RMG II. The new Board also has representatives from Goldman Sachs, CPP, and ADIA. My shareholding has come down from 6.5 per cent to about 5 per cent after the listing.

While all agree that India has huge potential for renewable energy, there are concerns related to competitive bidding, causing projects to be auctioned at much lower costs compared to coal power. How viable is it to bid at such low prices?

Though bidding prices have come down, companies take into account the margins they can make out of the projects. We are the largest power market after the US and China, and the fastest growing at 5-6 per cent a year, except last year [because of Covid-19]. Though renewables account for 25 per cent of the installed capacity, they make up only 10 per cent of generation. Total current generation and consumption is about 1.4 trillion kilowatt-hours (kWh). This is growing at 5 per cent a year and, over the next 10-12 years, we need additional capacity of 1 trillion kWh. That capacity has to come from somewhere.

The government’s target is 450 GW [of renewable energy] by 2030. By that time, renewables will account for one-third of the demand; coal will account for 50-55 per cent. So, demand for renewables will continue as coal plants will continue shutting down and power demand will increase. Those plants will be replaced by clean energy. By 2030, we will reach peak coal [power capacity] and after that it will start declining. By 2040, 55-60 per cent [of the demand] may be accounted for by clean energy and the balance may be hydro, nuclear, and a small amount of coal.

Renewables have now become the cheapest form of electricity and no one wants to invest more in coal-based assets. Therefore, the bulk of additional capacity has to come from renewables. Even if we achieve 450 GW, it will not account for the entire 1 trillion kWh of additional capacity required. Today we do about 15 GW of renewable [energy] new auctions and that will grow to 25-30 GW, and eventually to 40 GW by 2030. That is done through the Solar Energy Corporation of India (SECI) and sold to the utilities. This is option number one for us to sell power. These are 25-year power purchase agreements (PPAs) and cash flows are reasonably well assured. That is because the PPAs are with SECI and not with discoms, which have financial stress. So structurally, that area looks good. The scale, magnitude, and opportunities are huge to install 450 GW and that will require half a trillion dollars. Beyond this, there will be opportunities to sell to corporate customers.

Further, the government wants the power market to be flexible, open; it wants to de-license utilities and set up a power market through exchanges. As we get into the opportunity to go into distribution through de-licensing, then you can directly go closer to the end-customer. So, lots of changes will happen in the Indian power market going forward, which will be exciting and advantageous to companies like us.

Grid intermittency management is going to be a bigger issue. You cannot just pump in solar to the grid, which peaks in the day and wanes in the night. The round-the-clock 400 MW power bid we won last year requires us to deliver 80 per cent plant load factor (PLF) using only clean energy. For that we will be setting up 900 MW of wind, 400 MW of solar and 550 MW of batteries. That allows us to deliver the required 80 per cent PLF at the cheapest cost.
So, solar will grow since it is the cheapest, but you will still require wind to balance the growth. We need better management solutions like improved battery storage for wind, solar, and hybrid power. Technology is improving and costs are coming down for batteries. That will help to manage grid intermittency and receive more renewable energy into the grid. That is also going to be a fairly big opportunity.

Which are the specific energy sectors you are looking at as future opportunities? What are your plans related to solar plants and module manufacturing?

So far, our business has been in generation and how to operate wind and solar farms. Green hydrogen as an energy [source] will develop into an important requirement [and] that is a capability we have to develop. The core of our capability is to put up wind and solar farms, but there are lots of extensions we can develop around that. Two fundamental changes are happening around energy transition: Electricity production is becoming greener, and there is a deepening of electrification within the energy basket. A number of firms are looking at renewables. With technology evolving, this is an area oil and gas companies will be looking at. We need more companies to come in to deal with climate change and [reduce the] carbon footprint. It is a mammoth transition and requires investment of hundreds of billions of dollars. With more big companies coming in, it will lead to faster development of the ecosystem, bring prices down faster, and develop faster technology. It will hasten the whole process of decarbonising energy systems.

We have plans to set up solar cells and modules. We will continue to be a big consumer of solar panels and modules. Currently we are setting up a 2-GW cell and a 2-GW module plant, with an investment of Rs 1,500 crore. We have identified land at Dholera in Gujarat and the project will take off by the end of next year.

We also acquired a company that advises on load and demand forecasting, better balance, and managing demand and supply. It will eventually start advising IPPs like us on how to improve performance. New technologies will also emerge in stationary storage like lithium-ion batteries. We don’t want to take a technology bet right now because we don’t know which is going to emerge and succeed. Our job is to produce power and put that to grid and for that, we will be the first company to use utility-scale large battery storage systems in India. I don’t think we will become a battery manufacturer but we will be using the best battery technologies.