Renewable energy sector: M&A issues and incentives

In recent times, the government of India has reiterated the potential of renewable energy (RE) to meet the growing demand for power in the country. In its February 2015 report on India’s Renewable Electricity Roadmap 2030, the Niti Aayog (National Institution for Transforming India) has recognized this potential and the need for new initiatives from the central and state governments to support the participation of power sector stakeholders (including the RE industry), developers, public and private finance and consumers.

Due to the growing importance of RE as a commercially viable source of power, there has been an increase in M&A activity in the RE sector in India in the past few years. This sector has shown immense promise for investment both by national and international players. Despite the competition prevalent in this sector, fragmentation of the market has helped to retain the interest of strategic players to acquire projects or enter into joint ventures with existing players. Given the enormous demand for power in India, investors and strategic acquirers continue to consider the RE sector as an attractive sector for investment.

While acquisitions in the RE sector are on the rise, there are certain issues that the potential acquirers grapple with at the time of evaluating such deals. On the other hand, there are certain incentives from a policy perspective which should increase M&A activity. Some of the issues and positive developments which will impact the M&A activity in the RE sector are outlined below.

Gaurav Singhi is a partner and Ruhi Goswami is a senior associate at Shardul Amarchand Mangaldas & Co. The views expressed in this article are those of the authors and do not reflect the position of the firm.