Flood of green energy IPOs to electrify market

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The focus on renewable energy in India is increasing rapidly. In FY24, 71% of the total power generation capacity added in the country was from renewable energy sources. A record 10 GW of solar capacity was added in the first quarter of 2024 alone. Overall, a record 18.48 GW of renewable energy capacity was added in FY24, up 21% from 15.27 GW in the previous fiscal year.

The government has set a target of installing 500 GW of renewable energy capacity by 2030. As of March 2024, India’s installed renewable energy capacity stands at 143.64 GW. Experts believe that to meet the government’s target, at least 50 GW of renewable energy capacity needs to be added every year for the next 6 years. This will require large-scale funding for companies.

Around a dozen government-owned energy companies are preparing to launch IPOs for their green energy business subsidiaries. These include:

NTPC Green, the renewable energy subsidiary of NTPC, plans to raise around Rs 10,000 crore through an IPO by November this year, which could be the biggest IPO by a government company since LIC’s IPO in May 2022.

Other companies like Coal India, ONGC, SJVN, NHPC, Indian Oil Corporation (IOC), and NLC India are also lining up to launch IPOs for their renewable energy subsidiaries.

The funds raised will be used to finance existing and upcoming projects in solar, green hydrogen, and green ammonia. The large pipeline of renewable energy IPOs is driven by the government’s ambitious targets and the need for massive investments in this sector in the coming years.

The government-owned energy companies are not only developing climate-friendly assets on a large scale but also want to take advantage of the tax benefits available for new green energy projects. Though the exact timing of these IPOs is not clear yet and it may take a few months for clarity, one thing is certain that the government is encouraging these companies to launch IPOs.

The Department of Investment and Public Asset Management (DIPAM) has been nudging government energy companies to set up new manufacturing-linked subsidiaries and joint ventures to take advantage of the lower 15% corporate tax regime. These companies formed green energy subsidiaries and JVs before the March 31, 2024 deadline to become eligible for the reduced corporate tax rate.

Apart from lower tax rates, another reason behind creating these green energy subsidiaries is that it becomes easier for them to find equity partners compared to their parent companies. This is why companies are creating green energy businesses using their savings, which can be easily monetized when required.

On the investment strategy for these upcoming IPOs, Arun Mantri of Mantri FinMart suggests applying for the IPOs of these green companies even if they come at a premium, as long as it’s not excessive premium. He also recommends buying the parent companies ahead of the subsidiary IPOs. Investment can also be considered in private green energy players like KPI Green, BF Utilities, Adani Green.

Overall, with rising energy demand and environmental awareness in India, the government has a major focus on increasing renewable energy capacity. The companies associated with this business have strong growth prospects in the coming years. Therefore, their IPOs present a good opportunity for long-term investment, provided the valuations are reasonable.