Adani Group plans $3-billion push for new clean-energy business

The Adani Group plans to invest ₹25,000-27,500 crore (about $3 billion) to set up its first pumped-storage hydropower (PSH) facility, according to two people aware of the conglomerate's plans. PSH produces electricity by moving water between two reservoirs at different elevations.

Under the plan, Adani Green Energy Limited (AGEL) will set up PSH capacity of 5 GW in the next five years. "We will eventually increase this to 25 GW, which will take the group’s total green-energy capability to 70 GW," one of the people cited above said on condition of anonymity.

To start with, the group will set up PSH generation facilities in four states – Maharashtra, Andhra Pradesh, Tamil Nadu and Telangana, they said.

"This will require an investment of ₹25,000-27,500 crore, based on the current costs. Some of the required reservoirs and separate elevation facilities have already been put in place," said the second person.

The development comes as the Adanis look to gain an edge in the country's fast-growing clean-energy industry, where top business groups such as Mukesh Ambani's Reliance Industries, Tata Group, Vedanta Group and JSW Group are pumping in billions of dollars in renewable energy projects including solar, wind, PSH, green hydrogen, etc.

In PSH itself, several other companies are already in the fray including Tata Power, NTPC and JSW.

Adani Group has so far focused on solar and wind energy generation in its clean energy business. As of now, the group's target of 45GW clean energy has been raised to 50GW by 2030 following the PSH move. It already has 11GW clean energy under operation, in addition to 15.25 GW thermal power plants in seven states.

An email sent to Adani Group's spokesperson remained unanswered.

What's the plan?

"The financial closure for commissioning 3.5 GW of PSH capacity has already been done," said the first person. The two people added that the 5GW target will be funded by issuing new shares and raising debt, and that the group has already begun basic construction work for the first 500 MW PSH project in Andhra Pradesh, which will be commissioned in FY27.

Typically, infrastructure assets are funded with debt and equity in the ratio of 70:30. For funding Adani's green energy projects of 11 GW in the next two years, including the latest one based on PSH, the equity portion of financing will come from promoter infusion and internal accruals, according to the two persons cited above.

While AGEL generated ₹3,400 crore of free cash flow to equity in fiscal 2024, the Adani family has committed investments of ₹9,350 crore in AGEL, of which 25% is already infused and the balance ₹7,012 crore will be exercised during the current financial year, which can fund about 5.5 GW capacity, according to the two persons.

For the the debt funding, in FY24, AGEL commissioned about 3 GW, with a credit revolving facility of $1.6 billion, which has been increased to $3.4 billion now, by a consortium of 25 international and domestic banks, which if utilized, is sufficient to develop 6-8 GW, the two people added.

“Once the assets stabilize, the facility is refinanced with a long-term dollar bond. The idea is to issue bonds with fixed coupons and with a long-term amortization structure—where the cashflows are fully aligned with debt servicing. AGEL’s RG1 dollar bond issued in March 2024, received a seven-times participation from international investors," said the second person.

India's PSH Push

As India, the third largest emitter of carbon dioxide after China and the US, moves on its renewable pledge of net zero by 2070, PSH is emerging as a big part of this push.

In January, the government cleared eight PSH projects worth ₹81,981 crore in five states, according to the ministry of environment, forest and climate change or MoEFCC.

Adani Group's closest rivals Tata Power, NTPC and JSW have already announced plans to enter the PSH space. The Ahmedabad-based conglomerate's capex target, though, is the highest.

Also read: Norway fund giant Norges cuts off Adani Ports

On 19 February, a report in The Economic Times quoted Tata Power CEO Praveer Sinha saying that the company was looking to set up 2.8 GW of PSH capacity by FY29 with an investment of ₹15,000 crore.

In November 2023, a Moneycontrol report said state-run NTPC Ltd had identified at least nine states where it planned to build PSH units with a total installed capacity of 14 GW.

In December, the government had cleared Greenko Energy’s proposal for a 3.66-GW PSH project in Uttar Pradesh’s Sonbhadra district according to MoEFCC.

Two projects in Chhattisgarh with a capacity of 1.2 GW each, by Sterlite Grid and Gandhwani Energy, have also received recommendations. Another 2.22 GW project by Oju Subansiri Hydro Power Corporation in Arunachal Pradesh and a 1.5 GW project by JSW Energy in Maharashtra have also received clearance, according to MoEFCC.

A 1.2 GW project by Non-conventional Energy Development Corporation of Andhra Pradesh Ltd in Annamayya district has been given terms of reference (ToR) clearance, while the company's 1 GW project in YSR district, which will be operational in three to four years, has received environmental clearance, according to MoEFCC.

What is PSH?

PSH is a type of hydroelectric energy storage that comprises two water reservoirs at different elevations. Power is generated when water moves from one reservoir to the other through a turbine. When there is a surplus of electricity available, typically during off-peak hours or from solar and wind energy, the power is used to pump water from the lower to the higher reservoir.

This type of energy generation is fast catching on with power companies because it is capable of supplying electricity around the clock, unlike solar and wind.

The reservoirs essentially act as batteries, saving costs and boosting margins, which is why both public and private companies are keen to set up or ramp up their PSH capacities.

According to experts, closed-loop pumped storage hydropower systems have the lowest global warming potential across energy storage technologies.

A March 2023 report by JM Financial Institutional Securities Ltd. says, "We estimate that a PSP (pumped storage plant) project can generate 13.4% IRR assuming a levelised tariff of ₹7.5/kWh and pumping cost of ₹3/kWh, which can further increase with incentives. We believe PSP will be the frontrunner in the energy storage space over the next decade and offer a $10 bn-12 bn opportunity for utilities, EPC and capital good players over a decade such as NTPC, JSW Energy, Tata Power, Greenko, NHPC, SJVNL, Adani Green, L&T, Siemens, and Voith."

According to the Central Electricity Authority (CEA),the on-river PSH potential in India is about 103 GW. Out of 4.75 GW of such plants installed in the country, 3.3 GW are working in pumping mode, and about 44.5 GW projects are at various stages of development.

A November 2023 Teri paper suggests PSH should be a priority in this decade to facilitate the achievement of India’s ambitious goal of having 500GW of non-fossil fuel capacity by 2030.

According to CEA, as of April 2024, India has a total installed power generation capacity of 442.86 GW, of which 191.68 GW is from renewable sources. The share of variable renewable energy is expected to increase to 35% by 2030 as per CEA.

Within the renewable space, the total installed hydro capacity is 52 GW currently in India, as per CEA.

Importantly, according to a 17 June report by energy research firm Rystad Energy, as South East Asian countries look to transition from fossil fuels to clean energy, PSH capacity in Southeast Asia is likely to increase from about 2.3 GW at present to 18 GW by 2033 at an expected investment of $12-70 billion. Currently, fossil fuels account for 64% of Southeast Asia’s power generation.