Indian wind energy space ripe for M&A, says KPMG

The Indian wind energy space is ripe for mergers and acquisitions, says consulting firm KPMG. Companies like state electricity boards or distribution companies could consider buying into wind power projects.

“Pricing will be good for sellers in India. I’m not sure it will be a quick buck for buyers, it is more of a long-term investment for utilities and domestic institutional investors,” Cyrille Arnould, Head of the Global Energy Efficiency and Renewable Energy Fund, European Investment Bank (EIB) was quoted in the report.

[caption id=“attachment_23842” align=“alignleft” width=“380” caption=“The KPMG study findings say that the Indian wind market has experienced rapid growth in recent months. Reuters”] [/caption]

The cost of wind power is approximately $ 1.8 million per megawatt (MW). Wind turbines cost three quarters of that amount. The grid connection, wind mill foundation, construction and other work adds up to the balance.

The KPMG study findings say that the Indian wind market has experienced rapid growth in recent months. “Some $586 million of project financing flowed into Indian onshore wind farms in the first quarter of 2011, only 37% below the $934 million that was allocated to the sector throughout 2010,” the report says.

Most of this financing has been provided by Indian banks, although there are signs that international lenders are now taking interest in the sector in India. HSBC and Sumitomo Mitsui Banking Corp provided$110-million debt project financing in March 2011 for a 92 MW-wind farm situated in Gujarat.

The KPMG study highlights that over 70% of North American, Asian and European respondents predict an increased competition for acquisition targets. Globally, over 40 percent of corporate and investor respondents intend to pay 3-5x EBITDA (earnings before interest, tax, depreciation and amortisation) for renewable energy companies over the next 18 months, compared with last year when most respondents intended to acquire assets at or below 3x EBITDA (39%). This means buyers are willing to pay more to current owners.

Here is a list of some companies with wind power projects:

• Vakusawade Power: This is a project owned by Suzlon, the turbine maker and is of 259 MW capacity.

• Cape Comorim: Aban Lloyd Chiles Offshore owns the project of 33 MW in Tamil Nadu

• Kayathar Subhash: Subhash Ltd owns the project of 30 MW based in Tamil Nadu

• Ramakkalmedu: Subhash Ltd owns the project of 25 MW based in Kerala

• Muppandal Wind: Muppandal Wind Farm owns the project of 22 MW based in Tamil Nadu.

Other key takeaways from the KPMG report:

•In 2010, a total of 446 renewable energy deals were completed, representing an increase of more than 70 percent on the 260 deals closed in 2009

• A record 141 merger and acquisition deals were announced in the first quarter of 2011, with a total value of $11.2 billion; more than double the quarterly average value in 2010 of $5.5 billion on an average of 96 deals

• The top five targeted countries for renewable energy investment are the USA, selected by 53% of the respondents, China (38%), India (35%), Germany 34%, and the UK (33%). The main mover is China, which this year moved from fifth to second position

• Biomass was found to be the most compelling renewable energy sector again, with over 45% of respondents intending to invest (2010: 37%); closely followed by solar at 39% (2010: 37%), while onshore wind lost ground at 30% (2010: 35%) and appetite remained limited but broadly stable for offshore wind at 10% (2010: 11%).