Indian energy firms step up renewable power M&A ahead of hydrogen push

Indian energy companies are accelerating the acquisition of renewable power assets ahead of planned investments in renewable hydrogen production, a trend expected to gain momentum, industry experts said.

India has targeted the production of 5 million mt/year of renewable hydrogen by 2030, with a 10% share of the global hydrogen trade around the same time, encouraging companies to develop renewable hydrogen projects.

These acquisitions are "expected to increase as companies strengthen execution capabilities, release capital to fund expansion, and diversify into new growth segments like green hydrogen," said Ankita Chauhan, associate director at S&P Global Commodity Insights.

The deals coincide with some foreign investors exiting India amid "perceived higher market risk," and others seeking to cash out high valuations of renewable assets, Chauhan said.

The acquirers are mostly Indian renewable producers and diversified utilities seeking to expand portfolios and build capabilities in their journey to decarbonize and enter the clean fuels business, she said.

Recent acquisitions

ONGC NTPC Green -- a joint venture between Oil and Natural Gas Corp. and National Thermal Power Corp. -- acquired renewable energy firm Ayana Renewable Power in March, adding 4.1 GW of solar and wind capacity to its portfolio.

Meanwhile, ONGC Green, the renewable energy arm of ONGC, acquired PTC Energy's 288 MW wind assets. The COO of ONGC Green said the company, targeting net zero in 2038 with a $24 billion energy transition budget, will target organic and inorganic growth.

On the other hand, JSW Neo Energy, bought a 4.7 GW renewable energy platform from O2 Power on April 9, owned by Nordic investor EQT and Singapore's Temasek.

"JSW's acquisition aligns with their dual strategic objectives: expanding their portfolio to serve power distribution companies and general buyers while supporting their growing green steel business," said Ashish Singla, director at Commodity Insights.

"ONGC's acquisition demonstrates a focused approach toward developing in-house renewable energy capabilities, which complements their strategic ambitions in green hydrogen production," Singla added.

JSW, with a 2050 net zero target, has interests in steel, cement and infrastructure, and plans to expand into renewable hydrogen and green steel production.

"O2 Power has built an attractive portfolio and pipeline of projects which adds to our asset base and strengthens our operational capabilities and presence," said Pritesh Vinay, director of finance and chief financial officer of JSW Energy.

Among other foreign investors that exited include Enel Green Power, which sold its Indian assets to Waaree Energies, a solar PV modules manufacturer that is also set to produce renewable hydrogen.

Difficulties in renewables

Regulatory bottlenecks and delayed payments from power distribution companies were contributing to operational challenges for renewable firms driving the M&As, analysts said.

"The investor exodus from renewable energy companies aligns with the broader market trend we're observing," said Mohammed Sahil Ali, associate director at Commodity Insights.

"Renewable energy companies have incentives to address both capital investment needs and payment recovery issues from distribution companies facing financial stress," Sahil Ali added.

Outstanding dues from Discoms fell from Rupees 1,400 billion ($16.32 billion) in June 2022 to less than Rupees 500 billion in January 2024, according to government data.

Indian power distribution companies' financial losses are compromising the country's renewable energy target, which may be better managed by cash-rich large energy firms, industry members said.

Not all foreign investors are exiting the Indian renewables space. Singapore's Sembcorp tied up with Bharat Petroleum to develop renewable hydrogen and ammonia projects across India.

Platts assessed Oman hydrogen produced via alkaline electrolysis -- including capital expenditures -- at $5.00/kg on April 16, down 4.21% month over month.

Japan hydrogen produced via alkaline electrolysis -- including capital expenditures -- was assessed at $5.17/kg on April 15, up 29.25% month over month.