Indian billionaires clash in the race for solar domination

CHENNAI (Reuters) – Indian magnate Mukesh Ambani’s $ 10 billion entry into renewable energy could lower solar tariffs and spark bidding wars with fellow billionaire Gautam Adani, industry analysts say.

Mukesh Ambani, Chairman and CEO of Reliance Industries, attends a convocation ceremony at Pandit Deendayal Petroleum University in Gandhinagar, India on September 23, 2017. REUTERS / Amit Dave / File Photo

India’s two richest men vie to be at the forefront of Prime Minister Narendra Modi’s ambition to quadruple green power capacity in the world’s second most populous country to 450 gigawatts (GW) by 2030.

They have mostly avoided operating in each other’s space and the push for renewables by Ambani’s flagship product, Reliance Industries and the Adani group of companies, will be the most high-profile showdown between them.

Ambani, 64, built his family petrochemicals and textiles business in a sprawling empire comprising telecommunications and retail. Adani, 59, is a self-made billionaire who has focused on the production, transmission and distribution of electricity and the operation of ports and airports.

The two billionaires – and Modi – are all from the Indian state of Gujarat in western India.

Ambani announced last month that it would build 100 GW of solar power capacity over the next nine years. He said his group would spend $ 10 billion over the next three years on building solar power manufacturing units, a battery factory for energy storage, a battery factory in fuel and a green hydrogen production unit.

Three days later, Adani announced that his green power business would add 5 GW each year this decade, up from a current level of around 3.5 GW.

Analysts say there is enough space for several companies to expand under India’s ambitious green energy goal, but tariffs could fall further as companies try to outdo each other in wars aggressive bidding to win projects.

Solar tariffs in India are already among the lowest in the world, having fallen below 2 Indian rupees ($ 0.0269) per kilowatt hour in auctions conducted in Gujarat.

“I would expect that by 2030 they (solar tariffs) will probably hit 1 rupee per kilowatt hour,” said Tim Buckley, director of energy finance studies at the Institute of Energy Economics and Financial Analysis.

Reliance has a habit of disrupting competing businesses. With cheap smartphones and data plans, his telecommunications company Jio has overtaken market leaders Vodafone Idea and Bharti Airtel in five years to become India’s largest telecommunications operator.

POWER TO COAL MAY DECREASE

Ambani and Adani both started companies based on fossil fuels. Reliance operates the world’s largest refining complex in Jamnagar, Gujarat, while Adani is India’s largest private sector operator of coal-fired power plants and the country’s largest coal trader.

India is the world’s third largest emitter of greenhouse gases. Coal-based power generation could drop significantly as major players go green, analysts say.

Rishab Shrestha, senior analyst at consulting firm Wood Mackenzie, said he expects India’s share of coal production to drop to 50% in the early 2030s, from more than 70% currently .

“We forecast that the cost of building new coal-fired power plants in India will be $ 62 / MWh by 2030, 25% more than that of solar power,” Shrestha said.

Adani has not announced plans to build new thermal power plants, and its businesses are unlikely to be affected by the relatively higher costs of coal-fired electricity.

The two groups are trying to improve their clean energy benchmarks as investors pay more attention to the environmental impact of their companies and make decisions based on ESG ratings, analysts said.

One of Adani’s leading companies, Adani Green Energy, currently dominates the renewable energy space in India. Its shares have climbed more than 156% in the past year.

Ambani wants Reliance to become net zero carbon by 2035, well ahead of the 2050 target of global oil majors such as Royal Dutch Shell and BP.

“Reliance will become the country’s most credible renewable energy player over the next two years. Its ESG scores will improve as well, significantly drawing money from ESG funds around the world, ”Jefferies said in a note.

If both companies meet their targets, Reliance’s target solar capacity of 100 GW will be twice that of Adani, and the companies together would account for one-third of India’s entire 2030 target.

Adani, who has been criticized for developing a coal mine in Australia and doing business with entities that a human rights group says are linked to Myanmar’s armed forces, must do more to secure better sustainability scores, Buckley said.

The Adani group has denied any connection with the Burmese military and said it could cancel an investment in a port terminal in Myanmar. He said the Australian coal mine created jobs for the local population and was essential for ensuring energy security.

“Financial markets are not ESG agnostic, so it has to go along with the rhetoric,” Buckley said.

($ 1 = 74.7725 Indian rupees)

Reporting by Sudarshan Varadhan and Nidhi Verma; Editing by Sanjeev Miglani and Raju Gopalakrishnan

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