Tag: renewable

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Renewable Energy Sector In India To Fly After Budget 2021?

India has installed a renewable energy capacity of close to 136 GW as of February 2021. It has an installed solar energy capacity of 36.91 GW and a wind energy capacity of 38.43 GW. Additionally, India has installed a strong hydro-power capacity of 45 GW. The government plans to install 500 GW of renewable energy capacity by 2030. The Budget 2021 is a game-changer for the renewable energy sector. 

The Electricity Amendment Bill that has received praise in the public domain can also prove to be a much-needed change for the power generation, transmission and distribution companies. Let’s explore what the renewable energy sector has in its books for investors. 

Current Scenario/Budget 2021 Impact

The solar and wind energy sectors aren’t having the best time. Poor tariffs, bad government regulation, and high payment default rates are what the sector is facing. According to a 2019 report, power distribution companies owed renewable energy companies Rs 6,800 crores in payment dues. Delays in payment by State Electricity Regulatory Commissions(SERCs) make it difficult for renewable energy companies to set up new projects. 

The pricing of renewable energy by government bodies isn’t a transparent process and has its own set of challenges. Financial institutions do not have much understanding or expertise in renewable energy projects. Moreover, the taxation of renewable energy still falls under the grey area.  

In the Budget Session of 2021, the Finance Minister announced reforms in the power and the renewable energy sector. These reforms will ensure improvement in infrastructure financing, clearing payment dues, and improving energy efficiency. The government will be infusing Rs 2,600 crores into the solar power sector through loans, incentives, and subsidies. It will also jack up import duty on solar panels to promote domestic production. 

The government has also announced reforms that will improve the financial position of transmission and distribution companies. This will ensure that the amount of money owed to renewable power generation companies is paid.  

Stocks To Watch Out For

Adani Green

Adani Green is a renewable energy company owned and operated by the Adani Group, headquartered in Ahmedabad, Gujarat. It has a project portfolio of 14,000 GW/Gigawatts. It means that if all of his projects become operational they will generate 14 GW of electricity, which can realistically power up to 42 lakh homes. Adani Green’s projects include solar energy, wind energy, and hybrid solar-wind energy projects. Adani Green has a market capitalization of Rs 1.75 lakh crore. The company’s share price has risen by 1,207% in one year’s time.

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NHPC 

National Hydroelectric Power Corporation was set up in 1975 with the objective of setting up hydropower projects. It has a market cap of Rs 25514 crore It has a total installed capacity of 7071.2 MW. It has executed 22 hydro projects with an installed capacity of 6717 MW on an ownership basis plus some on a joint venture basis. The company holds projects majorly in the states of Himachal Pradesh, Uttarakhand, and Jammu, and Kashmir to name a few.

Sterling & Wilson Solar

Sterling & Wilson Solar is a Shapoorji-Pallonji Group company that works in end-to-end solar solutions, procurement, construction, operation, and maintenance of solar units. The company has a market cap of Rs 1975 crore. The Engineering, Procurement, and Construction (EPC) business contributed to 96.7% of company revenue in FY 19-20. Operation And Maintenance (O&M) contributed to 3.3% of the revenue in the same year.

The Company’s unexecuted orders stood at Rs 11,396 crore as of March 31, 2020, up 47.3%, from Rs 7,739 crore as of March 31, 2019. This is a minor cause of worry, even though they are getting new orders every other week.

JSW Energy

JSW Energy currently generates 4,559 MW, out of which 3158 MW is thermal power,1391 MW is hydropower, and 10 MW solar power. Close to ~34% of JSW’s portfolio is in renewable energy. JSW Solar bagged an order from Solar Energy Corporation of India for setting up of 2500 MW ISTS or Interstate Transmission System. 

Tata Power

Apart from thermal power production, Tata Power’s renewable business capacity is 2,637 MW (932 MW Wind & 1705 MW Solar). Close to 36% of its total energy is produces from renewables. The company also has an installed hydropower capacity of 693 MW, of which 65% is generated for the domestic market. The company plans to expand its renewable energy capacity base from 4.1 GW to 15 GW by 2025

Other Listed Companies

  • Waa Solar
  • Suzlon
  • Gita Renewables
  • Ujaas Energy and much more..

FM Nirmala Sitharaman announced in the budget 2021 that provisions were being laid for power consumers to choose between multiple power distribution companies. This will promote healthy competition and at the same time, help for better price discovery.

The renewable energy sector shares were struggling for much of its time in the stock exchanges. This is the reason behind poor valuations and price growth of renewable energy companies since IPO, often getting classified as ‘penny stocks’ or ‘operator-driven stocks’.

Factors like the Electricity Amendment Bill, power sector reforms, increased power trading on the Indian Energy Exchange, Renewable Purchase Obligation (RPO), and so on, will spark a movement in the renewable energy sector. 

These changes in the power sector will ensure an increase in cash flows for these companies.  Struggling distribution companies may be able to pay their dues on time, this way reducing the financial burden on the entire sector. A defined tax-structure for electricity too can help power companies transfer tax-burden to their clients. 

There are plenty of small-cap or “penny-stock” renewable companies listed on NSE and BSE, some of these infant companies might turn out to be power giants in the future if they manage to clear off their very high debts. Do you know any? Let us know in the comment section down below!

However, in our opinion, try to go for good companies like the ones we have mentioned above even if their valuations are higher. High debt levels and poor technology may limit these penny stocks from making a comeback, while good companies will flourish.

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Editorial

What is the Indian Energy Exchange(IEX)? How Does it Work?

What is IEX?

The Indian Energy Exchange or IEX is an electronic power trading marketplace for electricity corporations and boards to trade contracts related to energy. In simple terms, just like how individuals can trade in the stock market to gain profit, electricity corporations can trade on the IEX to increase profitability and have better price discovery. It is a place where participants can buy and sell energy through a double-sided closed auction process. 

State Electricity Boards, power-producing companies, power transmission companies, and power traders that have a huge capital trade on IEX. IEX is one of the only two power exchanges apart from Power Exchange India Limited(PXIL).

The IEX started operations in 2008. It is regulated by the Central Electricity Regulation Commission, which regulates the IEX just like how SEBI regulates the NSE and BSE. 

How Does Trading Work On the IEX?

Say, for example, there is a shortage of power in Bangalore, which will increase the price of electricity and also eat into the profits of the electricity board. The electricity board will then log on to IEX and find out if another electricity board/transmission company/renewable energy company which offers a lower price. There will then be a bidding process for that segment. This way Bangalore’s electricity board will be able to procure electricity at a lower rate. At the same time, the entity which sold the electricity will be able to make profits.

Products on the IEX trade on a normal demand-supply basis. There are 4 major products traded on the IEX:

Renewable Energy Certificates(REC) – An REC certifies that the bearer owns one megawatt-hour (MWh) of electricity generated from a renewable energy resource. Companies need to meet requirements related to show that they are not causing pollution and are meeting the environmental requirements. A REC helps them achieve this compliance which can later translate into government grants, profits, or lower taxation. 

For example Ajay Renewables is a renewable energy company based out of Kochi, that sets up wind turbines, generates electricity, and then sells it to companies. The Government of India comes out with a subsidy plan where it gives Rs. 100 crores to any company that has generated more than 30 lakh megawatt-hours that year in green energy. Two months for year-end, Ajay Renewables has managed to generate only 29 lakh megawatt-hours that year. It does not have time to set up new wind turbines and meet the target. It approaches the IEX and buys 200,000 RECs in the spot market. This certifies that the company has produced 2 lakh megawatt-hours of power in renewable energy. Ajay Renewables ends up getting the Rs. 100 crores subsidy,

Energy Saving Certificates(ESCerts)– Energy Saving Certificates are similar to RECs, just that they represent one megawatt-hour (MWh) of energy saved from a project. These certificates can be bought and sold like normal certificates 

Both EScerts and RECs can be bought and sold on the exchange by companies. This means that even if a company might be causing a lot of pollution, yet it buys enough of these certificates, it gets a clean chit.

Day-Ahead-Market (DAM) – It is a physical electricity trading market where power is delivered within 24 hours of the next day starting from midnight. They are traded in 15 minute time blocks The prices and quantum of electricity closed the auction bidding process. 

Term-Ahead Market (TAM) – It provides a range of products allowing participants to buy/sell electricity on a term basis for a duration of up to 11 days ahead.

Real-Time Market (RTM) – In RTM, power is physically delivered within an hour of the bidding process.

Can I Trade on the IEX?

IEX isn’t a ground for retail traders. The exchanges involves physical delivery of electricity. An individual may trade on the exchange provided he/she owns an establishment that requires tons of loads of power. Apart from this, the individual requires the necessary clearance from the CERC to be able to trade on the platform. According to the exchange guidelines, a member or a client should have a capital of atleast Rs. 150 Lakhs to be able to transact on the platform.

Looking Ahead

Energy exchanges provide an economic as well as environmental benefit. It provides a fair price discovery on electricity, at the same time encouraging companies to use green energy. 

The IEX is listed on NSE and BSE. On average, 6000+ MW of power is traded daily on the exchange. The traded volume is growing at 32% CAGR. It has a consumer base of 4000+ Industries, 55+ Distribution companies, 100+ ESCert Entities, 500+ Generators, 1500+ renewable energy generators. 

Apart from being an energy exchange, IEX is also an interesting company with interesting financials. The company has strong fundamentals as of now and with the Electricity Amendment Bill around the corner, things seem bright for the energy sector. We will be covering more in a company analysis of IEX. Stay tuned.

To know more about functioning of the IEX, check out their FAQ page, click here.

Categories
Editorial

Is Adani Green Overpriced? The $6 Billion Trap for Retail Investors

Adani Green is a renewable energy company owned and operated by the Adani Group, headquartered in Ahmedabad, Gujarat. If you are a stock market participant, you may know it as the company whose shares just keep going up and up!

While Adani Group is generally infamous for its coal-related businesses, Adani Green’s projects include solar energy, wind energy, and hybrid solar-wind energy projects. Adani Green has a market capitalization of Rs 1.75 lakh crore. The company’s share price has risen by 1207% in one year’s time. This means that if you had invested Rs 1 lakh and a year back, you would have had Rs 13 lakhs in hand right now. That is a lot of money, considering that the company was listed only in the year 2018 and only 20% of its total projects are operational. This means only 20% of its commissioned solar and wind projects are generating electricity. Why did the share price rise so much? Is the share overpriced? Let’s jump right into it.

Why is Adani Green Share Going Up Endlessly?

Adani Green has managed to have a project portfolio of 14,000 GW/Gigawatts. It means that if all of his projects become operational they will generate 14 GigaWatts of electricity, which can realistically power up to 42 Lakh homes. 

In June 2020, SECI or Solar Energy Corporation of India had awarded Adani Green a bid to build an 8 GW solar project worth Rs 46,000 crore. This is by far the world’s largest solar power project. This is the main reason for the optimism towards Adani Green in the markets. This project will lead to the creation of 4 lakh direct and indirect jobs and a reduction of 900 million tonnes of CO2(which is a lot).

In October 2020, Adani in a joint venture with French-Multi National ‘Total SE’ acquired solar assets of Essel Group of 250 MW for Rs 1,632 crore. These projects are located in Punjab, Karnataka, and Uttar Pradesh. French power company ‘Total SE’ has invested Rs 3,370 crores to form a joint venture with Adani.

According to the latest report of global solar companies, Mercom Capital has ranked Adani Green as #1 globally in terms of power generation, operational, and contracted projects. Adani Green has set a target of 25GW of renewable projects by 2025.


Currently, Adani Green’s shares are driven by the prospects of future growth and the speculation of more power purchase agreements with state electricity companies, transmission, and distribution companies. Also, hope you understood that the massive 8GW project is almost half the market cap of the company.

Is Adani Green Overpriced?

It was recently discovered that Adani’s Rs 46,000 crores 8 GW project didn’t have a guaranteed power purchase agreement by SECI. This means that SECI wasn’t obliged to buy power from Adani Green’s 8GW solar project as was speculated earlier. Instead, SECI would ‘facilitate’ in getting bidders for the solar project. This leaves the 8 GW solar project in a bit of a dilemma. 

Generally, Adani’s companies are highly leveraged or fuelled by debt/loan. Adani Green has a net debt of Rs 13,362 crores. Such high debt isn’t reflecting in its earnings for now. The company has been posting losses consistently. Its debt to equity ratio of 9.85 is considered pretty high as compared to its peers This high debt has added a risk factor to Adani Green. A debt to equity ratio of 1.0 would mean that both the lenders and shareholders of the company are on an equal footing.

Let us consider two more ratios to assess the valuation of the company. The Price to Earnings ratio or P/E ratio and the Price to Book Value ratio or the P/B Ratio. These values compare the price of the share to respective parameters to check if the valuation is fair. According to tickertape, the PE ratio of Adani Green is -7715.1 as compared to an industry average of 16.19. The difference is huge and indicates that the company has an obscenely expensive valuation. 

The company’s PB Ratio is 77.51 as compared to the industry average of 1.81. The book value of a company is the company’s assets minus its liabilities. Price to book value ratio is used to compare a company with its peers. Once again, the PB ratio is unnaturally higher than its competitors.

An expensive evaluation doesn’t always mean that the shares of the company are going to fall or that the company is performing badly. It just increases the risk and volatility involved. It also represents a positive sentiment in the market in favor of the company and that the investors have certain expectations from the company which might be met or not be met. Adani Green has definitely been in the good books of many investors, hitting the upper circuit constantly. 


Let’s take the example of Jio. Reliance Jio had taken MASSIVE amounts of debt and offered obscenely cheap tariffs to its users while it focused on capturing the market. There were speculations on whether Jio would be able to pay back the amount. Fast forward to June 2020, Jio has become net debt-free alongside parent company Reliance. Given the high amount of debt that Adani Green possesses, the company might just be a risky investment, but not a bad one. Adani Green has recorded a profit in the last 4 out of 5 quarters.

At present, the share price of Adani Green is overvalued, and therefore a huge fall in prices can trap retail investors. It is advised that retail investors do their research and keep an eye on how Adani Green manages to complete its commissioned projects, find a suitable buyer for the big projects and, at the same time reduce its debt burden. Also, remember that even completed projects are not being utilised to its full capacity. Is the management neglecting the company and its future?