Oil and gas major Royal Dutch Shell has emerged as a surprise bidder to acquire Sprng Energy, the Indian renewable platform of Actis Llp that is on sale, said people aware of the matter.
Shell, the world’s largest trader of liquefied natural gas, will be competing with Australian infrastructure fund Macquarie and Canadian pension fund CPP Investment Board (CPPIB) for the potential billion dollar plus buyout. All three were shortlisted last week, after an initial round of screening from a list of close to 20 potential candidates that had signed non-disclosure agreements. Shell’s $1.2 billion non-binding equity offer is believed to have trumped all others. The debt on these assets is $960 million.
The shortlisted parties are due to submit binding offers in six-eight weeks.
Emerging market private equity firm Actis has mandated Bank of America to officially launch the sale process for Sprng Energy, ET first reported in September. This is the second platform that Actis had created after it sold Ostro Energy, its original green power platform, to ReNew Power Ventures in 2018 at an enterprise value of $1.5 billion.
Sprng Energy has signed power purchase agreements (PPAs) for 2.6 gigawatts (GW), of which 2.1 GW will be operational by March 2022, while another 600 MW is expected to be operational by March 2023. The FY22 ebitda for all the contracted assets is pegged at $220 million.
The platform was set up by Actis Fund IV with an equity commitment of $475 million in March 2017. Sprng Energy expanded its portfolio by buying out assets with a capacity of 600 MW from Acme Cleantech last year and the 194 MW solar energy portfolio of the Shapoorji Pallonji Group in 2019.
A Macquarie spokesperson declined to comment. Actis, CPPIB, and Shell didn’t respond to queries.
“It is a good portfolio with PPAs with good counterparties like SECI, NTPC, Gujarat Urja Vikas Nigam Ltd (GUVNL),” said the CEO of a competing green platform who evaluated the asset, on condition of anonymity. “But the valuation of the pipeline has been a challenge for many. Domestic players are aware of the headwinds. For example, in Andhra Pradesh they have invested around $150 million in a 250 MW project (and) issues with the state government are not yet fully resolved.”
Andhra Pradesh chief minister Jagan Mohan Reddy had cancelled several contracted projects in the state alleging corruption and high tariffs in 2019. The matter is still caught up in legal battles.
According to an ICRA report from last year, Sprng Energy will continue to benefit from its demonstrated operating track record as well as the presence of long-term PPAs at cost-competitive tariffs with strong counterparties for a major portion of the company’s portfolio on a consolidated basis.
Oil and gas super majors including Shell have been under pressure from heightened investor activists pushing for change, voting in higher numbers than ever before for climate-related resolutions. Third Point, a US hedge fund calling for Shell’s break-up, said in October that the Anglo-Dutch supermajor had “too many competing stakeholders,” resulting in “an incoherent, conflicting set of strategies attempting to appease multiple interests but satisfying none”.Since February 2021, Shell has detailed its strategy to achieve its target to be a net-zero emissions energy business by 2050. In October 2021, Shell set a target to reduce absolute emissions by 50% by 2030, from 2016 levels, which includes all Scope 1 and 2 emissions.
Last December, it acquired US-based solar and energy storage developer Savion from Macquarie’s Green Investment Group, to expand its global solar portfolio as part of the push to move to net-zero emissions. With the acquisition, Shell said it aimed to sell more than 560 terawatt hours globally per year by 2030 as part of its integrated power business — twice as much electricity as the company sells currently — and expected to serve more than 15 million retail and business customers worldwide as a leading provider of clean power-as-a-service.
However, Shell does not have any major presence in the Indian clean energy space and only holds about 49% of solar power producer Cleantech Solar Energy. Shell’s arm Shell Eastern Petroleum (Pte) Ltd had acquired a 49% stake in Cleantech Solar in 2019. Sources said it was also contemplating a joint bid for BPCL but the plans did not proceed further.
The interest from global investors in India’s green energy space has been high in the past few years, despite a slowdown in renewable energy (RE) capacity addition in FY21. The total value of acquisitions in India’s renewable energy sector surged by more than 300% to $6 billion in the first 10 months of 2021 from less than $1.5 billion reported in 2020, according to a study by the CEEW Centre for Energy Finance (CEEW-CEF) and the International Energy Agency (IEA).
Macquarie currently operates about 414 MW of solar assets in India, about 375 MW of which was acquired from Hindustan Power projects and the rest from Canadian Solar. In 2020, Blueleaf Energy, a portfolio company of Macquarie’s Green Investment Group, acquired a majority stake in Hyderabad-based Vibrant Energy with a pipeline of over 400 MW solar plants across India.
CPPIB has been among the biggest foreign institutional backers of Indian cleantech initiatives, including ReNew Power. It was also one of the prospective buyers for Mahindra Susten’s 617 MW assets and a key contender for SoftBank’s majority stake in SB Energy Holdings but was pipped by the Adani Group. In May 2019, CPPIB joined hands with Piramal Enterprises to set up India’s first renewable energy focused infrastructure investment trust (InvIT) by raising $600 million, with the Canadians agreeing to contribute $360 million. Globally, CPP Investments’ exposure to renewable energy went up to $6 billion as of March 31, 2021, from $5.2 billion a year ago.
