In India’s largest clean energy deal, ReNew Power Ventures last week acquired Ostro Energy Pvt. Ltd from global private equity fund Actis LLP at an enterprise value of $1.5 billion. In an interview, Actis partner Sanjiv Aggarwal, responsible for its Asia energy business, spoke about the firm’s prudent green energy auction strategy and a larger game plan for its second green energy platform—Sprng Energy Pvt. Ltd—by growing its 750 megawatts (MW) portfolio to 1.75 gigawatts (GW).
Aggarwal also spoke about leveraging Sprng Energy that bid Rs2.51 per kilowatt hour (kWh) last week to win wind power contracts for 300MW, to make investments in South East Asian countries such as the Philippines, Indonesia, Malaysia, Vietnam and Thailand. Edited excerpts:
Are Indian clean energy auctions nerve-wracking?
We have got used to it. The first bid that I attended, I was all excited and nervy; but after doing so many of these, you realize in the initial few hours which way it will go…Before we start the bid, we have a very clear-cut walk-away position.
And if we hit that walk-away position, we just go. Because, you have to be disciplined, otherwise, the psychology takes over…And if you go down that slippery slope, that doesn’t make sense.
We are very disciplined investors; we don’t get swayed. We wait… So, in the previous bid, SECI (Solar Energy Corp. of India)—3 bid, the bids stopped because we backed out.
Are you setting up prudence benchmarks?
No, I wouldn’t say that. In our business, prudency is something that is discovered down the road. Everyone needs to decide for himself. So, we have been determining our walk-away price.
Given that the law of the land has changed in the conventional energy space, what has been your strategy?
It’s been an interesting journey for us. The good thing is that we learnt from other people’s mistakes because we came late. We saw what happened in thermal sector. Thermal underwent a lot of stress on account of coal, on account of gas and on account of PPAs (power purchase agreements).
That’s when we took a call we want to get into renewables in India in a big way. And starting from 2013, Actis started scouting around for investments on the renewable side.
And we looked at a number of opportunities here in the conventional sense, that let’s go and buy out an existing platform with around 50-100MW of operational capacity.
We looked at the whole market but the valuation expectations were crazy.
Then we said, forget about this. Let’s start a 100% Actis-owned business in India. And this was a model which not many people had thought. Most private equity investors wanted a local partner. By that time (2013-14), we were already late to the game…We believed renewables had potential. Then we started Ostro in 2014. So, we decided to back two good guys—Ranjit (Gupta) and Murali (Subramanian)—whom we appointed as CEO (chief executive officer) and COO (chief operating officer) of Ostro. And we started with one project in Rajasthan. We then built a full team around that. When Actis exited Ostro, we had about 130 employees, starting from two people. We started from 50MW and grew it to 1,100MW. All 100% owned by Actis on an equity investment of $280 million. We had around $900 million of total debt.
How much did you get out of it?
I can’t tell you that, but it was a successful investment (laughs).
So, what is your game plan for Sprng Energy?
We have a large commitment of $450 million towards Sprng and have a lot of runway still left. We have investment commitment of around $200 million (for 750MW portfolio)…Actis will look for acquisitions for Sprng.
We will grow Sprng the way we grew Ostro. We now have a decent management team; it has not been completely fleshed out. We have a great CEO running that business for us. We have around 35-40 people and are in the process of recruiting more. So, the team will grow, the portfolio will grow, and just like we set up Ostro, we will set up Sprng. The business plan for Sprng is larger. We would take it up to 1.5-1.75GW.
The market has changed. When I started doing Ostro, the projects were under the feed-in tariff regime (feed-in tariffs ensure a fixed price for wind power producers), with a 50MW here and a 100MW there. Starting from January, the market has changed. Now, the tenders that are coming are of 300MW, 500MW (the maximum a firm can bid for).
So, in one shot between December and now, I have won 500MW. The whole game is changing. But winning PPAs is not the only thing, you have to construct…the market is changing and execution risks in India are on the higher side. We are very focussed on execution.
You are not interested in the conventional energy space?
In India, it’s only renewables for us. In other markets, we like gas.
Will you leverage Sprng Energy in making investments in the region?
In Sprng, we are thinking of doing a South-East Asia piece. The reason is, when you go to South-East Asia, it is a very small and fragmented market…What we are thinking is that since we already have the capability within Sprng, we can use that to grow our business in South-East Asia… The Philippines, Indonesia, Malaysia, Vietnam and Thailand.