Adani Power revives old ambitions as power demand surges in India

Adani Power, part of the Adani group, plans to add close to 6 gigawatts (Gw) of new power assets in the next five years, according to an investor presentation by the company. That is clearly meant to ride on India’s burgeoning power demand.

But there is another side to it: All of this new capacity is expected to be thermal power, or power produced from coal.

Adani Power is not alone in this. A Reuters report dated March 4 said Adani Power was one of three private producers — the others being JSW Group and Essar Power — to have told the power ministry they were keen to build at least 10 Gw of coal-fired power capacity over a decade, ending a six-year drought in significant private involvement in the sector.

However, Adani’s plans, said Reuters, were bigger than JSW’s and Essar’s. The report quoted a spokesperson for the power ministry as saying the private sector had agreed to invest in the coal-fired power sector “in line with the energy requirements of the nation,” and that India was ahead of international commitments to cut emissions.

Overall, Adani Power plans to operate more than 21Gw of thermal capacity by 2028-29 (FY29), up from 15.21 Gw at present. The Adani Group’s green energy business is housed under Adani Green Energy, which has 5.614 Gw of solar capacity and 1.275 Gw of wind power, and another 2.140 Gw of hybrid.

At present, the largest power producer in the country is NTPC with 75 Gw capacity and the largest private sector player is Adani Power, with Tata Power a close second. 

A spokesperson for Adani Power declined to comment on this story. However, in a call with analysts in November last year, the company called itself “debt-light” and “now poised to take off successfully for the long haul as India’s power demand grows strongly in line with its economy”.

The turnaround

Adani Power intended to achieve 20 Gw capacity by  2020 as stated in some of its annual reports from FY16 onwards. However, along the way it got caught up in concerns related to state discom health, fuel availability, and its debt situation. It did not commission any significant new capacity between FY15 and FY19, company data shows. Instead, in the year 2020, as the Covid-19 pandemic raged, the company was preparing a de-listing plan.

In May 2020, the company’s promoters announced the delisting and said it would enable the group to obtain full ownership and allow flexibility for “options like corporate restructurings, acquisitions, exploring new financing structures including financial support from the promoter”. 

The delisting was called off in September 2022, due to non-receipt of requisite approvals. However, by then Adani Power’s fortunes had turned for the better on account of improving regulatory situation, compensatory tariff claims, and claims pertaining to a coal block deallocation.

“Receipt against such claims has boosted cash flows in the past couple of fiscals, and has reduced receivables as well as outstanding debt,” a Crisil note in September 2022 said.

Adani Power pegs duly realised outstanding regulatory income for the period from FY18 to FY24 (up to December 2023) at Rs 29,000 crore and two-thirds of it was received between FY22 and FY24.

This turnaround has coincided with India recording new highs in peak power demand for two consecutive summers – 2022 and 2023. Rating agency CareEdge expects India’s power demand to grow at 5 to 6 per cent for the next few years. As if on cue, last August Adani Power announced plans to take its 15,210 megawatt (Mw) capacity to 21,110 MW by FY29, which would include 1,100 Mw added through the inorganic route.

Different strokes

Adani Power is different from two of its primary rivals in the private power sector. Top executives from Tata Power have maintained the company will not make any fresh investments in the thermal power segment and will retire existing thermal power assets at their end of life.

Even executives from JSW Energy, one of the three in the Reuters report, had told Business Standard in an earlier interaction that private sector thermal capacities were unlikely until there was surety of off-take — essential for financial closure.

Hetal Gandhi, Lead APAC, Energy transition-carbon capture, Woodmackenzie, noted: “India is a growing economy and among the top carbon emitters globally. This places it uniquely on the energy transition agenda. There are no easy solutions and thermal power is here to stay for a while to meet rising power needs for a growing economy.”

Adani group’s multiple listed entities, too, put it in a situation different from its peers. Tata and JSW, as groups, have all their power capacities — green as well as thermal — concentrated in single entities: Tata Power and JSW Energy, respectively. Attempts to hive the green assets from thermal have so far not fully fructified.

However, the Adani Group has planned its energy portfolio differently. It hived off and listed its green energy assets — Adani Green Energy — as a separate entity as early as June 2018.

Sabyasachi Majumdar, Senior Director, CareEdge Ratings, notes there is still a reasonable prospect for fresh investments in the thermal business, given India’s growing demand and green energy’s limitations of being intermittent and seasonal in nature. He added that for anyone taking a contrarian view, there were some risks, including equity and debt-based funding.

With two different listed entities, Adani caters to a separate set of equity investors. Debt, however, according to industry experts, remains an issue. “…banks and financial institutions may perceive high risk to such projects,” Sabyasachi added.

Crisil, which rates Adani Power, said in January that timely execution and funding of the planned capex, without impacting the capital structure or liquidity profile, would be the key. The agency expects Adani Power’s capex over the next four to five fiscal years to be around Rs 47,000 crore, with up to 70 per cent of it likely to be funded through debt and the remaining through internal accrual.

So far, Adani Power has managed the debt well, with significant improvements reported in its debt profile over the last few quarters (see chart). Last week, Bharat Heavy Electricals Ltd announced it had received an order worth Rs 4,000 crore from Adani Power for setting up the 1,600 MW Thermal Power Plant at Raigarh, Chhattisgarh. Adani Power also acquired two thermal assets through the debt resolution route in FY24.

As Adani Power hopes to realise its 20 GW dream, albeit a decade later than originally intended, it has reignited the fire.