Expensive capital will slow down the green transition

A general view of Adani Power’s power plants is seen in the town of Mundra in the western Indian state of Gujarat April 1, 2014. The way Indian billionaire infrastructure builder Gautam Adani sees it, working with the government does not make him a crony-capitalist. Adani’s rapid rise to the top of Indian affairs is often associated with the rise of Narendra Modi, the Hindu nationalist opposition leader who is set to become India’s next prime minister once the country’s elections are over next month. . Its flagship Adani Enterprises soared 22.9% for its biggest daily gain on Thursday and has nearly doubled since early February, against a nearly 20% gain in the infrastructure index. Picture taken April 1, 2014. REUTERS/Amit Dave (INDIA – Tags: POLITICS ELECTIONS BUSINESS ENERGY) – GM1EA470M6301

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MUMBAI, June 17 (Reuters Breakingviews) – Clean energy solutions rarely come quickly or cheaply. Patient foreign investors who can channel long-term, low-cost finance have played an outsized role in putting India, a major low-capital polluter, on track to meet its energy goals. renewable. As rising borrowing costs and global risk aversion test other investors’ commitments, they may need to step up.

A major international agreement announced on Tuesday underscores the continued support of those focused on greening to protect their own valuations. France’s TotalEnergies (TTEF.PA) has taken a 25% stake in a unit of Indian tycoon Gautam Adani’s Adani Enterprises (ADEL.NS), its incubator for projects ranging from data centers to airports. The duo plans to spend $50 billion to develop green hydrogen capacity and related services over 10 years. Others with green investment mandates also remain active: in April, Abu Dhabi’s BlackRock and Mubadala paid $500m for 11% of Tata Power’s renewable energy unit (TTPW.NS).

These A-list backers are bigger than they look. Their capital offsets the challenges of investing in India, such as late payments from state-owned electricity distributors and New Delhi’s recent history of infrastructure loans. It also takes into account credit ratings, which limits corporate borrowing costs abroad in a nonetheless high-yielding market. Similar partnerships have helped renewables power 60% of India’s power capacity additions over the past six years, according to Abhishek Tyagi, senior credit manager, and his team at Moody’s. They estimate that an additional investment of $250 billion is needed over the next eight years to meet India’s 2030 goal of tripling its power capacity to 500 gigawatts.

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Unfortunately, the unfavorable turn of the global economy is threatening the pace of new projects. Although renewable energy equipment costs are falling over time, inflation is driving up the costs of setting up projects as prices rise for everything from polysilicon to shipping. Rising interest rates also increase the cost of financing.

Risk aversion also obstructs options for refinancing bank loans through bond markets once projects are launched and running. Indian renewable companies have issued $6.8 billion in US dollar bonds since January 2021, but nothing significant since Greenko, a developer backed by a Singaporean sovereign wealth fund, tapped the market in April. Yields on the $750 million issue funding the world’s largest and lowest-cost integrated renewable energy generation and storage project have jumped 200 basis points since then. Dislocations create an urgent need for more patient capital.

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Adani Enterprises announced on June 14 a partnership with French TotalEnergies to support the Indian company’s ambition to invest $50 billion over the next 10 years in green hydrogen production capacity. As part of this agreement, Total acquires a 25% stake in a unit of the company, Adani New Industries.

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Editing by George Hay and Katrina Hamlin

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