Understanding Ambani’s Solar Ambitions

India’s largest conglomerate, Reliance Industries, has been on a dream run for the past few years. Its telecommunications business has grown to become the largest player in the space, while the debt was lowered by selling minority stakes to investors.

Some segments of the retail business have grown by leaps and bounds, despite the pandemic situation. The business too, has managed to raise capital by selling minority stakes to outsiders.

The Renewables Push

Despite the diversification, refining remains the largest (and the most profitable) business that still contributes to more than 50 per cent of the conglomerate’s revenues.

But with potentially lower demand for fossil fuels in the future, Reliance is looking to hedge its bets in the energy sector. In addition to this, there’s a growing regulatory and public pressure against fossil fuels, globally.

Several large investment groups too, have begun focusing on Environmental, Social and Governance (ESG) scores of companies before investing in them.

The focus on the environment has pushed several companies to take up the “net-zero” carbon emissions initiative. Reliance plans to meet the zero net emissions targets by 2035, and its foray into renewables could certainly aid it in getting there quickly.

Consequently, Reliance has been focusing on growing its renewables business at a rapid pace. One of the earliest announcements about the renewables foray came during the Annual General Meeting (AGM) with shareholders in July 2020 where Ambani had outlined a basic plan to enter the renewables business.

A similar announcement was made in the June 2021 AGM, where Ambani revealed the details of his plans to enter the sector with an initial investment of Rs 75,000 crore.

According to him, a major chunk of the money would be used to build gigafactories and renewable power complexes. The company aims to generate 100 GW of power by 2030, starting with a 5,000-acre Dhirubhai Ambani Green Energy Giga Complex in Jamnagar.

Acquisition Spree

Within four months, its subsidiary Reliance New Energy Solar (RNESL) has already bought REC Group at an enterprise value of Rs 5,792 crore. REC is a solar energy equipment manufacturer based out of Europe.

It was previously owned by Chinese giant, China National Bluestar Company.

Reliance has also acquired a 40 per cent stake in Shapoorji Pallonji Group’s solar EPC business, Sterling Wilson Solar Limited, for Rs 2,845 crore. The SP group is currently undergoing a financial turmoil as the pandemic and lockdowns have caused cash flow issues.

As a result, the group is now looking to sell its assets to raise money. Reliance acquired a part of the stake at a 15 per cent discount to the current market prices for the shares of Sterling Wilson.

However, it appears that Reliance had been planning its entry for several years — it had acquired Kanoda Energy Systems back in 2018. Kanoda operates in the solar space offering rooftop installations and other advisory services.

Late – As Always

Reliance is a later entrant to the renewables space that is already dominated by the likes of Adani Power, Tata Power, and the ReNew Power. But, Reliance has an old habit of arriving fashionably late to every business — whether its telecom (both in 2002 and 2016), retail, digital commerce, and now, green energy.

But, when it does enter a business, it makes up for the delay with heavy investments deployed rapidly at a scale few others can match.

Take Jio for instance. Not many companies could have matched the rapid scale-up and the execution. Most existing companies exited the sector within a year of Jio’s launch. Its online fashion retailing venture, AJIO, saw a rapid increase in user-adoption as well.

The focus on rapid execution has been a part of Reliance since its early days. For instance, back in the 1980s, its Patalganga polyester plant was built rapidly in 18 months, in contrast to the usual 26 months that would be required to build such a plant, even in countries with better development. Unsurprisingly, Mukesh Ambani was responsible for building the plant, and he was just 24.

Beyond Solar

Apart from solar, the company is also exploring the possibilities of using fuel cells as a means of sustainable energy. Its four gigafactories are expected to manufacture batteries, fuel cells, photovoltaic modules, and electrolysers for hydrogen.

Green hydrogen is produced by electrolysing water which yields its two elements — hydrogen and oxygen. The electrolysis is performed with electricity produced from renewable sources — giving the hydrogen its name. The hydrogen produced is then used for running fuel cells and other purposes.

It has already been involved in vetting the viability of the fuel-cell technology at its telecommunication towers, in areas with irregular energy supply. Though currently, it is using methanol based fuel-cells, it plans to shift to green hydrogen in the future.

The current methanol-based technology was developed in partnership with Thermax and the Council of Scientific and Industrial Research (CSIR). A large-scale adoption of such systems could also reduce Indian dependence on crude.

In August, it had invested Rs 1,085 crore in Ambri Inc, a company involved in the long-duration energy storage business. Ambri and RIL were also in talks for collaborations as Reliance looks to set up its own Gigafactory for storage devices in India. Ambri, like the REC Group, has a strong focus on research and development.

The PLI Tailwind

The Government has announced a new Production Linked Incentive (PLI) scheme to incentivise the growth of solar PV modules manufacturers. Several major players, including Adani, Reliance and Tata, have evinced interest in the scheme.

After the competitive bidding, some manufacturer will be selected to operate under the scheme. The selected manufacturers will be examined on various parameters and would be rewarded accordingly.

Similarly, the government has also announced a Rs 18,100 crore PLI scheme for battery manufacturers for manufacturing Advanced Chemistry Cells. ACCs are currently being imported from other countries, and the government wants India to become self-sufficient in India.

Such incentive schemes would aid Reliance in its foray into the clean energy sector.

Oil is here to Stay

But, it is unlikely that Reliance’s dependence on oil would come to an end immediately. The oil business is the cash cow that funds its expansion. And the recent energy crisis taught us that fossil fuels will continue to be an integral part of our energy ecosystem, whether we like it or not.

It has continued expanding the refinery business, even investing in Abu Dhabi’s Petrochem Hub.

Reliance has been wooing Aramco to invest in the petrochemicals business for $ 25 billion in return for a 20 per cent stake. The deal would boost India’s crude imports from Aramco, while allowing Reliance to reduce its debt further and, to secure its raw material — crude.

Nevertheless, Reliance faces competition from formidable foes in the renewables space. The Adani group, which in an incumbent in the renewables sector, has been stepping up its game — it has declared plans to invest $ 20 billion in the renewables space.

Recently, it acquired SB Energy, a joint venture between Softbank and Bharti Group, in order to grow its renewables portfolio. The deal was completed at an enterprise value of $ 3.5 billion. The Adani Group too, has been attempting to reduce its dependence on the thermal power business.

Reliance has always bet big and won big. But whether its winning streak will continue in the highly-challenging renewables space, remains to be seen.