FLNC - Indian Renewables Developments Look Interesting For ReNew Energy Global

Summary

• The Indian government is serious about supporting dramatic energy transition and decarbonization of the economy.
• Green funds in India need investable projects. With strong international institutional ownership, RNW is a good place to satisfy funding requirements.
• Many Indian projects do not have such good governance and especially ESG seems questionable in some cases.
• Fluence is expanding its India Technology Center, which augurs well for the JV with ReNew Energy to compete in battery storage and energy management projects.
• ReNew Energy Global has lots of opportunities coming in India.

India has a very low per capita emissions profile but because of its huge population it is the world's third largest greenhouse gas emitter. It is working hard to bring 1.4 billion people out of poverty and it realises that it has to do this differently from the way that Europe, the US and China have done based largely on exploiting fossil fuels. Investors are wary of investment in India for various reasons including currency issues and lack of transparency/corruption. However, it is becoming clear that investment requires a bigger canvas than just the US and Europe. The action is moving to China and India. Five months ago I wrote about ReNew Energy Global ( RNW ) as a company worthy of watching as a possible way of getting exposure to the Indian green energy transition. The stock has gone nowhere since October (priced at $5.52 when I wrote the article in October, today $5.73) and Seeking Alpha's quant ratings have a warning that RNW is at high risk of performing badly. Here I look again at ReNew Energy Global. I see green shoots.

Safe havens for Indian investment

Adani?

If investors were looking for reason to be cautious about Indian investment, the recent drama of Adani and the Hindenburg Research short gives pause for thought. Aswath Damodaran has presented a really excellent summary of the Adani story and the danger of investing in family companies that have an extensive network of related party transactions.

A key takeaway from Aswath Damodaran's article is that the Adani family has a massive shareholding in its various enterprises. He indicates the overall insider (family) holding in the Adani enterprises is 72.52%. It has been achieved by using debt rather than selling shares to expand the empire. With that kind of control comes all kinds of issues for investors, and this is compounded when the family has very close political links.

ReNew Energy Global

ReNew Energy Global is a very different beast and that is a key reason why I have an interest in the company. Yahoo data indicates that top 10 institutional holders own 45.35% of the shares, with the Canada Pension Plan Investment Board owning a large 28.32% of the shares. ( CNN Business shows similar numbers with Top 10 owners holding 43.83% and the Canadian Pension Plan 27.08%). In fact 112 Institutions hold 77.42% of the shares. The top 10 mutual fund holders have 4.99%. They are mostly clean energy funds. This puts a large majority of the shares in institutional hands. Insiders hold 15.25% of the shares.

The investment by the Canada Pension Plan Investment Board (CPPIB) is a long term investment which began in 2018 when CPPIB took a 6.3% stake in ReNew Power (as it was then known) from the Asian Development Bank for million, followed shortly after by investment of a further million. CPPIB continued to increase its holding in ReNew Energy Global after the NASDAQ listing. Note that CPPIB is a seasoned investor in India, with .4 billion invested at the end of 2017.

The Board and Senior Management of RNW has extensive experience of both international and Indian business. The Board consists of 10 highly experienced Directors and senior management has huge international and Indian experience, making RNW well positioned to benefit from expansion of solar PV, wind and battery storage in India.

Investment opportunities

India is the world's third largest power market, notwithstanding the fact that per capita power consumption remains very small (but is changing). A recent report from IEEFA (Institute for Energy Economics & Financial Analysis) spells out a number of features of the Indian renewables market that are attractive. The report indicates a diversity of business models, products and services that are evolving rapidly. The 166 GW of installed renewable capacity in November 2022 reflects dramatic expansion over the past decade. With 104 GW wind and solar installed, a big focus is on 24/7 power. One approach to this is hybrid solar and wind projects which complement each other. ReNew Energy is well positioned as the company has huge experience of both areas, including a focus on grid scale projects. An additional area is battery storage with Indian plans for 140-200 GW battery storage installed by 2040. In my previous article I explored the JV ReNew Energy has with Fluence Energy ( FLNC ) in the energy storage and management areas. At the recent (Feb 9, 2023) Fluence Q1 2023 earnings call transcript it became clear that Fluence's Indian operations are booming at its India Technology Center, with employee numbers doubling. Fluence expects that India will represent 10-15% of its talent as a low cost support operation clearly not only for the burgeoning Indian market (where the Technology Center will support the RNW/FLNC JV) but also in relation to Fluence's global support activities. It will be interesting to hear from RNW about the impact of the Fluence JV on accessing what looks like a big emerging opportunity for battery storage and energy management in India.

Conclusion

When one spends a lot of time in the undergrowth it is always good to come up for air and get a sense of where the big picture sits. Bloomberg recently helped me get a sense about where the energy transition sits when it made the point that 2022 was the first year that renewable energy investment ($1.1 trillion) equalled that in the fossil fuel industry. So while fossil fuel investment in upstream, midstream and downstream segments of the oil & gas industry plus investment in fossil fuel power generation was $1.1 trillion, the renewable energy industry (350 GW solar PV and wind in 2022), transport electrification (10 million BEVs in 2022), heat and energy storage also received $1.1 trillion of investment. Note that the year on year increase in investment for renewables was $250 billion. An IEEFA report laid out that a rapid transition to an 80% carbon-free grid is quite feasible. This applies not only in the US, but everywhere. I suspect that this comment might attract a lot of denier comments, but it is a fact.

The above big-picture commentary is very relevant to investment in companies like ReNew Energy Global. The money is moving towards renewables fast and the scale of the transition is extraordinary.

I maintain that India is going to undergo massive change as it decarbonizes its economy and brings its people out of poverty, and ReNew Energy Global looks as good as it gets to participate in the Indian energy transition. That is why I am holding a small stake in RNW. Of course whether you participate in the Indian transition depends on your appetite for risk in an environment that misses a lot of the checks and balances that investment in the US brings. RNW is NASDAQ listed and it has all of the credentials of the best US corporate entities. RNW will provide its next quarterly report soon. I hope that my comments here help give you some context as you consider possible investment in RNW.

I am not a financial advisor but I do look closely as the massive changes approaching as the world electrifies the power system and exits fossil fuels. I hope that my comments are useful if you are thinking about how to participate in the energy transition in India.

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