The Adani Group started as a port and power company, rapidly integrating backwards from electricity to coal and gas, especially the distribution of gas in cities, and is now diversifying into solar power and wind power. Going green this way fits in with three kinds of goals.
One is India’s climate agenda. At the Glasgow Climate Summit, Prime Minister Narendra Modi announced five goals: achieving net carbon neutrality by 2070, reducing the emissions intensity of India’s development by 45% by 2030, reducing India’s emissions from its levels in 2005 by 2030 Reducing half of India’s energy production from renewable sources by 2030 and achieving 500 GW of non-fossil energy capacity by 2030, fully measurable by any company or business group’s contribution to achieving that goal and makes it visible.
In other words, Adani’s green strategy is essentially about achieving measurable progress in meeting and propelling the government, which, of course, is also the country’s climate action target. Therefore, it will not be surprising if policy stimulus comes soon Adani’s way.
The second target Total and Adani would like to burn their green credentials. Total is a hydrocarbon major, under pressure from the increasingly eco-friendly prejudices of the European public (the Greens are part of the ruling coalition in Germany and may have more bargaining power in France if President Macron’s newly named Renaissance party is elected as a single). does not get a majority on its own in the French National Assembly in the upcoming elections) and the ESG faces pressure from investors, even if it has subsided in recent months. In India, Indonesia and Australia, Adani’s hands are black with dirty coal. Adani also needs to be rubbed with as much green energy as possible.
Hydrogen can be converted into electricity in fuel cells to drive trucks. Liquefied hydrogen or ammonia (which is three atoms of hydrogen combined with one atom of nitrogen) can replace fuel oil to power ships or propel planes. Hydrogen can replace thermal coal in cement and steel. Green hydrogen is a solution to the intermittent problem of renewable energy such as solar and wind – use electricity from the wind, when it blows, and when the sun shines, to split water and produce hydrogen, which is called electricity, unlike electricity. Can be stored, and moved at will.
While Adani has proposed to invest $50 billion in green hydrogen, Reliance plans to invest $75 billion in renewable energy. Mukesh Ambani announced a target to produce commercial green hydrogen at $1 per kilo at a time when President Biden’s failed infrastructure bill offering a subsidy of $5 per kilogram for green hydrogen. With two of India’s top industrialists powering its green hydrogen project, the country promises to be a world leader in space, like other sectors.
To be on the dangerous edge of hydrogen, the Adani Group will have to invest in innovative technologies to convert its most abundant fuel, coal, into hydrogen, ammonia and usable carbon. The International Energy Agency estimates that it is possible, with carbon capture, storage and use, to reduce the production of carbon dioxide by up to 3 kg per kg of hydrogen. While this is higher than the CO2 production for green hydrogen, in which electricity from renewable sources is used to electrolyze water and split it into hydrogen and oxygen, it is significantly less than the 25 kg of CO2 per kilogram of hydrogen that splits. will result. Water using grid electricity is part of which coal based electricity. Further innovation could make coal a low-to-zero carbon source of hydrogen, with usable carbon as a byproduct. Graphene greatly strengthens when added to concrete, and reduces the use of clinker in cement making. Since Adani is one of the largest users of concrete in the country and one of the largest cement manufacturers, following the recent acquisition, producing graphene from coal with hydrogen will lead to a lot of synergies within the group. Another potentially usable form of carbon, after separating the hydrogen from coal and the methane into which it is converted, is carbon fiber, which has been used in everything from car body panels to lightweight cables to replace steel ones for lifts. is used for.
Transmission cost has already been waived off for green hydrogen production. If innovative solutions from coal to clean hydrogen call for policy impetus for the startup ecosystem, it shouldn’t be hard to drum up.
The third goal is to reduce Adani Group’s leverage. The total debt of Adani Group is 2.22 trillion, creating a debt to equity ratio of 2.36 at the end of March. It’s not all that much considering that, in addition to newer, smaller adventures like drones, the bulk of the group’s investments are in long-term infrastructure projects that can easily be 3:1 or 4:1 loan-to- same ratio. The main thing in infrastructure is to reduce the risk, then comes the project execution capability. While earthquakes and extreme weather events are not within one’s control, policy-related risks are manageable, especially for a group with established lines of communication with the government, where, at least, understanding and reasoning during transmission do not diminish. Will be done. Still, ratios are something that equity investors factor in. For lenders, the absolute amount of the loan matters.
RBI has norms on how much of a bank’s total assets can be held in a particular group or in a particular sector. Even when large loans are issued by a consortium of banks, it is possible for large conglomerates such as Ambanis and Adanis to risk exposure to how much the Indian banking system can together bear, while complying with regulation. can. Then, reducing debt becomes imperative.
Adani is growing at breakneck speed in everything from traditional ports and electricity to data centers and drones, with green energy as a major expansion area. It is borrowing both domestically and abroad through offshore bond issues. The money would be raised to reduce debt by selling some of the group’s equity in the companies to other investors. The same strategy was followed by Reliance Industries, raising $27 billion in investments in its telecom and retail ventures. Some of Total’s investment will, of course, be in new equity and not just transfer of Adani’s existing equity to Total. But some of the money will go towards reducing the debt burden of the Adani Group.