Tata Power plans $10 billion renewable outlay in 5 years

When Tata Power took a decision to make a quantum shift to renewable power a couple of years back, few gave them any chance of success. Today, it is precisely that renewable focus that is boosting the valuations of Tata Power. In its latest aggressive move, Tata Power has set aside an aggressive capex plan to invest more than Rs75,000 crore in renewable energy over the next 5 years. The investments would be in the range of Rs10,000 to Rs15,000 crore per year. Tata Power plans to increase its green energy share to 60% by the year 2027.

During the just concluded FY22 fiscal year, Tata Power had added 707 MW capacity across renewables to its power portfolio. Currently, Tata Power has an execution order book worth Rs13,000 crore. These orders are spread across solar engineering, procurement and construction (EPC) business. While Tata Power will be investing Rs14,000 crore in FY23, it would be allocating similar amounts over the next four years also. These projections of Tata Power were confirmed by the Tata Sons chairman, N Chandrasekaran in an interaction.

Tata Power currently has a capacity of 13.5 GW, which it plans to enhance to 30 GW by FY27. However, this would also mean that the share of clean energy portfolio will go up sharply from the current 34% to 60% by 2027 and eventually scale up to 80% by the year 2030. Tata Power is also planning to simultaneously ramp up and optimize its Transmission & Distribution (T&D) business in an aggressive fashion.

The push towards green energy has to also be supported by the creation of the right ecosystem and if such ecosystem does not exist, then it has to be created. Towards this end, Tata Power also plans to set up a 4 GW solar cell and module manufacturing capacity in the southern state of Tamil Nadu. This project will entail an investment outlay of Rs3,000 crore. Tata Power is also going one step ahead and making this renewable technology more customer centric with solutions like rooftop solar, electric vehicle chargers, solar pumps etc.

Investor interest in the renewable focussed power portfolio is already evident among the private equity funds and the sovereign funds. Back in April 2022, Tata Power had raised a sum of Rs4,000 crore from Blackrock Real Assets and Mubadala Investment company. Mubadala is a Middle East based investor which already has exposure to the Reliance group in India. Tata Power had got these investments for its renewable energy subsidiary, Tata Power Renewable Energy, which would be eventually hived into a standalone entity.

Ever since the Modi government took charge in 2014, India’s green energy push gained momentum. This momentum has only intensified with the strong commitments made by India at the 2021 United Nations Climate Change Conference (COP26) in Glasgow. As per the commitment, India will become net-zero emitter by 2070 create 500 GW of non-fossil capacity by 2030 and meet 50% of energy requirements from renewable sources. If these targets have to be achieve, then Tata Power has a pivotal role to play.

For FY22, Tata Power reported 28% higher top line revenues even as the return on capital employed or ROCE increased by 60 basis points to 7.8% yoy. Due to the higher commercial and industrial activity as part of the post-COVID recovery in the Indian economy, the power demand got a boost of 8% in FY22. In fact, during the month of July 2021, the peak power demand had managed to breach the 200 GW mark for the first time ever.

According to Chandrasekaran, Tata Power also proposes to become a benchmark within the power sector for Environmental, Social and Governance (ESG) benchmarking. As Chandra put it very succinctly, Tata Power has predicated its future on 3 distinct goals. Firstly, it plans to carbon net-zero by 2045. Secondly, Tata Power plans to become 100% water neutral by the year 2030. Last, but not the least, Tata Power also plans to be able to add zero waste to the landfill by the year 2030. That is surely a strong renewable future for Tata Power.