Heating up the competitive market: Vedanta gears up for solar foray

October 10, 2015

MUMBAI: Billionaire Anil Agarwal’s Vedanta Group plans to enter solar power generation business in India by bidding for upcoming government projects, joining a growing club of big businesses foraying into clean energy space. The metals to mining multinational plans to create 500 megawatt capacity portfolio of solar power, people familiar with Vedanta’s plans told ET.

Agarwal’s nephew Pratik Agarwal, director for infrastructure business at the London-listed Vedanta Resources, is working on the go-to-market strategy for solar for the past year, they said. “Pratik Agarwal has the mandate to build the renewable energy,” one of them said. “He did look at some solar assets on the block but dropped the plan later as he found that the group can build better and more technologically advanced assets at a lower cost,” the person said. Vedanta Resources spokesperson had not responded to a detailed emailed questionnaire from ET as of press time Wednesday.

Vedanta is the latest in a growing list of conglomerates rushing to the solar energy market, joining the likes of Tatas, Reliance Industries, Aditya Birla Group, Adani group and Welspun group, even as the country is chasing an ambitious target of having solar power capacity of 100 gigawatt (GW) by 2022 from just 3 GW now. That would require investments of $200 billion, or Rs 13,50,000 crore, according to industry estimates.

‘Every conglomerate with presence in the energy business realise that they cannot ignore solar,” said Santosh Kamath, partner and head – renewable at KPMG. On Tuesday, Aditya Birla Group sold 49% stake in its renewable energy business to a unit of international private equity firm Abraaj Group for an undisclosed sum to build up to 1 GW of solar power and operate it. Renewable energy is expected to meet a crucial part of India’s energy needs in the next decade as the country has committed to significantly reduce the intensity of greenhouse gas emissions as part of its climate action plan announced last week.

As part of its intended goals announced ahead of the United Nations’ Paris Climate Summit in December, India has set a target of installing 175 GW of renewable energy capacity by 2022 and increasing its share of non-fossil based energy to about 40% by 2030.

Vedanta, with interest in mining and oil exploration, is no longer keen to expand coal-fired power capacity. Private energy producers have been disgruntled by the long and costly clearances process to acquire coal mines and set up thermal power plants and many are now shifting focus to solar which can be built in a year.

According to KPMG, solar energy will make up for 15% of India’s power consumption by 2025. Consultants, however, said the market is getting competitive with lower entry barriers but with tighter returns. “The space is getting competitive and barriers to entry are low…. returns are going to be tight in the next two years,” Kamath of KPMG said. “Once scale improves some level of consolidation might happen.”

Kuljit Singh, partner for Infrastructure practice at EY, said, “The success of conglomerates will depend on how cheap they can source both equipment and capital and build without compromising on quality.”

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