Adani Group has the opportunity to lead India’s energy strategy

The Group’s renewable energy business (Adani Green Energy) has a market value of US$15.6 billion, which is 40% more than India’s largest thermal power generator NTPC—a company with 22 times as much capacity. The RE business is of serious global investor interest, but also materially exposed to the wider Group’s environmental, social and governance (ESG) standing. By committing to phased closure of coal plants, Adani Group could lower the risk to global capital access while aligning with the government’s vision for energy independence through fast-growing reliance on renewables.

November 11, 2020 Uma Gupta

With ESG risk evaluation prominent in global financial markets, the Adani Group has much to leverage, but also much to lose, according to Ieefa.

Image: Adani

A new report by Institute for Energy Economics and Financial Analysis (IEEFA) identifies the opportunity for India’s Adani Group to lead the nation’s energy strategy by further aligning itself with the government’s vision for energy independence and fast-growing reliance on renewables.

The report highlights Adani Green Energy, which was created just five years ago, has seen a 2,400% rise in share price since its IPO launch in 2018. Its current market capitalization of INR 1.17 trillion (US$15.6 billion) is 40% more than India’s largest thermal power generator NTPC, a company with 22 times as much capacity.

“The soaring value of Adani Green Energy is a clear indication of where the market, and this group, are heading,” said Tim Buckley, co-author of the report and Ieefa’s director of energy finance studies for South Asia.

“Adani Green is now the largest listed energy company in India and one of the world’s biggest solar developers. Adani’s new strategic collaboration with Italy’s Snam to explore opportunities in green hydrogen is an exciting new development that suggests the group is scaling up its renewable ambitions even further.”

While the renewables business (Adani Green Energy) leads the Adani Group’s equity value with 44% of the total, Adani Power (with 12.4 GW of coal-fired power generation) is much reduced at just 5% after a decade of losses.

[Considering that global financial institutions divest on grounds of climate risk] a pledge to close coal plants as power purchase agreements (PPAs) expire would enhance the group’s environmental, social and governance (ESG) ratings and ensure ongoing access to global capital to fund ambitious growth plans, according to Buckley and co-author Simon Nicholas, an energy finance analyst at Ieefa.

Progressively phasing out coal power generation would also be fully aligned with the Indian government’s intention to replace ageing coal plants with renewable energy, said Buckley.

ESG factor

According to report authors, with markets increasingly focused on ESG risk evaluation, there is much to gain for Adani from an orderly shift away from coal.

“Banks, insurers, investors and leading global corporations like ANZ, Scottish Widows, NextEra Energy, Mitsui & Co, and GE are increasingly distancing themselves from thermal coal. The growing number of coal exit announcements by major financial institutions make it more difficult to finance coal projects and add to the rapidly rising stranded asset risk,” said Nicholas.

Nicholas pointed out that companies such as Adani Green Energy and Adani Ports that are increasingly tapping into and leveraging global capital have to be particularly conscious of their ESG ratings.

Committing to a phased move away from coal power would provide the Group an opportunity to take a national leadership position and accelerate investment aligned with India’s sustainable economic growth, said Buckley.

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