Expensive capital will slow the green transition


Clean energy solutions rarely come quickly or cheaply. Patient foreign investors that can channel low-cost, long-term funding have played an outsize role in putting India, a capital-scarce top polluter, on track to hit its renewable energy goals. As rising borrowing costs and global risk aversion test other investors’ commitments, they may have to step it up.

A major international deal announced on Tuesday underscores ongoing support from those focused on greening themselves to protect their own valuations. France’s TotalEnergies (TTEF.PA) picked up a 25% stake in a unit of Indian tycoon Gautam Adani’s Adani Enterprises (ADEL.NS), his incubator for projects ranging from data centres to airports. The duo plan to spend $50 billion to develop green hydrogen capacity and related services over 10 years. Others with green investing mandates remain active too: in April, BlackRock and Abu Dhabi’s Mubadala paid $500 million for 11% of Tata Power’s (TTPW.NS) renewables unit.

These A-list backers are more important than they might look. Their capital offsets the challenges of investing in India, such as payment delays from state-owned power distributors and New Delhi’s recent history of soured infrastructure loans. That factors into credit ratings too, keeping a lid on companies’ offshore borrowing costs in a nonetheless high-yield market. Similar partnerships helped renewables power 60% of India’s energy capacity additions in the past six years, according to Senior Credit Officer Abhishek Tyagi and his team at Moody’s. They reckon a further $250 billion in investment is needed over the next eight years to meet India’s 2030 goal to roughly triple its energy capacity to 500 gigawatts.

Unfortunately, the adverse turn in the global economy threatens the pace of new projects. Although renewables equipment costs will decline over time, inflation is driving up the costs of setting up projects as prices spike for everything from polysilicon to shipping. Rising interest rates drive up the cost of financing too.

Risk aversion also clogs up options to refinance bank loans through bond markets once projects up are and running. Indian renewable companies have issued $6.8 billion of U.S. dollar bonds since January 2021, but nothing significant since Greenko, a Singaporean sovereign wealth fund-backed developer, tapped the market in April. Yields on that $750 million issue funding the world’s largest, lowest cost integrated renewable energy generation and storage project have jumped 200 basis points since then. Dislocations create an urgent need for more patient capital.


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