The company had earlier conceived of a renewable energy infrastructure investment trust (InvIT) with external investors such as Petronas to pare debt, pursuing the plan for over a year before abandoning it. This time the plan is to club its entire renewables portfolio – operating and pipeline independent power producer (IPP) assets, charging stations, rooftop solar, microgrids, panel manufacturing, engineering, procurement and construction (EPC) – into an umbrella entity and raise equity for the entire platform. For instance, Tata Power Solar is a 100% subsidiary of the wholly owned TPREL.
Tata Power declined to comment.
Aiming for 40% Green Share by ’25
Experts also see this as a potential value-unlocking and valuation-benchmarking exercise before an eventual listing. The company has begun work with an external advisor for the capital raise, said the people cited above. Approaches are being made to infrastructure and cleantech-focussed funds, sovereign wealth funds (SWFs) and pools of pension capital.
Tata Power, the country’s largest integrated power company, has a stated plan to phase out coal-based capacity and expand its clean and green capacity to 80% by FY30. Renewable energy comprises over a third of its total power capacity of 13 GW. The management hopes to increase this share to at least 40% by 2025 to improve its environmental, social and governance (ESG) ratings and burnish its appeal for overseas investors. Since January, it has commissioned or received letters of intent for solar projects with a capacity of over 1 GW.
Tata Power is realigning its utilities business model to harness growth by focusing on niche, high-growth opportunities. One of the key growth strategies is to focus on sunrise areas that are less capital-intensive but gaining traction, such as solar EPC and pumps, transmission and distribution and the value chain of renewable businesses. Besides, the company is gradually moving into the business-to-consumer (B2C) value chain via electric vehicle (EV) charging stations and home automation, among others.
This pivot coincides with the overall clean energy surge triggered by a combination of the decline in capital cost, technological advancements and political commitment toward climate change, making it the preferred choice for incremental capacity globally.
“While the Street’s fixated on legacy troubles and valuing the company accordingly, we argue the company has outlived its past and is primed for sustainable and clean growth,” said Swarnim Maheshwari of Edelweiss. “We plumb TPCL’s new opportunities ($87b)-renewable energy (RE), Distribution and EV-and its positioning thereof and make a case that Tata Power Co. Ltd (TPCL) is powering ahead on a sustainable growth path (25% CAGR), which would drive a shift in how it is perceived… Tata Power is best placed to capitalise on the renewable wave led by its spread of offerings across the spectrum.”
The balance sheet too has been broadly mended with restructuring and divestments, analysts said, giving a further boost to the stock. Net debt as at the end of June was ₹38,898 crore, of which ₹13,220 crore is on account of the renewables business. Parent Tata Sons also invested $350 million in the company. Tata Power ended at ₹135.85 on the BSE Tuesday, up 1%, for a market value of ₹43,400 crore. The stock has risen 30% over the past six months.
Across the Value Chain
In solar for example, Tata Power has built a presence along the entire value chain – module and cell manufacturing, EPC and operations and maintenance (O&M) – for competitive advantage. The company also has a presence in upcoming battery storage technology and in August won the country’s first large-scale battery storage tender at Ladakh for 50 MWh.
Tata Power is one of the frontrunners in solar-wind hybrid power; it’s the market leader in solar rooftops. In April, Tata Power Solar doubled manufacturing capacity at its Bengaluru facility to 1.1 GW, and has been looking to tap into the government’s ₹4,500 crore production-linked incentive (PLI) scheme for solar modules. It submitted a bid to expand its cell and module manufacturing capacity to 4 GW, if the government’s initiatives come through.