INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED
Know the Company
Indian Renewable Energy Development Agency Limited (IREDA ) was incorporated in 1987 by the Government of India, under the administrative supervision of the Ministry of New and Renewable Energy. IREDA’s primary objective is to promote, develop, and extend financial assistance for renewable energy (RE) and energy efficiency projects across India. IREDA has been recognized as a Mini Ratna (Category-I) government enterprise and has been notified as a public financial institution. Additionally, it is registered as a non-banking financial company – asset finance company with the Reserve Bank of India.
IREDA offers a comprehensive range of financial products and related services for renewable energy (RE) projects. from project conceptualization to post-commissioning. Apart from this, the Company supports other value chain activities such as equipment manufacturing and Power transmission projects.
In November 2023, IREDA launched an Initial Public Offering (IPO) at a price of Rs 32 per share with the aim of raising Rs 2,150 crores. Subsequently, it got listed on the Indian Stock Exchanges.
Company Business and Services
IREDA is assigned with providing a range of financial services to promote renewable energy projects (RE) across the country. It provides loans and financial assistance to both public and private sector entities involved in renewable energy generation, transmission, and distribution. Additionally, IREDA offers refinancing services to renewable energy projects, enabling developers to access capital at lower interest rates and more favorable terms, thus reducing the overall cost of renewable energy generation.
IREDA also functions as the nodal agency for directing various subsidies and grants from the Government of India to the renewable energy (RE) sector. This role includes administering generation-based incentive schemes for solar and wind power projects, capital subsidy schemes for solar equipment, like water heaters, and the IREDA-National Clean Energy Fund (NCEF) Refinance Scheme, aimed at refinancing biomass and small hydro projects. Additionally, IREDA serves as the implementing agency for the PLI scheme for ‘High Efficiency Solar PV Modules’ and the Central Public Sector Enterprises Scheme (Government Producer Scheme) of the MNRE, with the objective of establishing 12,000 MW of grid-connected solar photovoltaic power projects. Overall, IREDA plays a pivotal role in India’s transition toward a cleaner and more sustainable energy future by facilitating investments in renewable energy infrastructure and promoting energy efficiency initiatives.
Strength
With a legacy of nearly four decades, IREDA stands as a leading financial institution in India, focused on the RE sector. The Company provides financing support in a traditionally robust market, with solar, wind, and hydropower projects financing, that contribute over 70% of the sanctioned amount and over 56% of the disbursed amount, in the past financial year. Additionally, the company expanded its presence in new and emerging renewable energy technology financing, particularly in ethanol and electric vehicle manufacturing, through innovative products such as fleet financing and on-lending to E-mobility B2C NBFCs.
The Company carefully maintains strong bonds with borrowers, and these long-standing relationships with customers drive high satisfaction. This has enabled the Company to secure over 80% of its sanctions from existing customers. Additionally, the company has intensified its sales outreach efforts, resulting in a significant increase in customer additions for the Company.
The Company boasts a long track record and extensive experience in financing RE projects, giving it a competitive edge over its rivals. Additionally, it is strategically positioning itself to gain an early mover advantage in financing green hydrogen and its derivatives, as well as other emerging technologies. This proactive approach will enable the organization to penetrate new markets and diversify its revenue streams, aligning with the growth trajectory of these segments.
IREDA has a well-diversified borrowing profile, accessing funding through various channels such as tax-free bonds (9%), taxable bonds (22%), bank or financial institution loans (29%), masala bonds (6%), and foreign currency loans (33%) as of September 30, 2023. The average cost of funds increased marginally to 6.3% in H1 FY2023 compared to 6.1% in FY2022, yet it remained marginally lower than the five-year average of 6.7% between FY2019 and FY2023 (sources from Rating Agency).
IREDA’s liquidity profile is robust, supported by its foreign currency debt with long tenures, typically ranging from 10 to 40 years. Its overseas borrowing mainly comes from multilateral agencies such as the Japan International Cooperation Agency (JICA), Kreditanstalt für Wiederaufbau (KfW), the Asian Development Bank (ADB), the World Bank, the European Investment Bank (EIB), the Nordic Investment Bank (NIB), and others.
The Indian government’s goals, including the capacity addition targets of 500 GW of non-fossil fuel capacity by 2030, are likely to offer significant business opportunities for the Company. With its extensive experience in the RE sector, the Company is poised to play a pivotal role in realizing this vision. During the past several quarters, the Company has reported record profits and disbursements compared to previous quarters, demonstrating its commitment to achieving the government’s vision.
With the expected continued tremendous growth in the Indian renewable energy (RE) sector and its potential to become the dominant energy source in India’s energy mix, there are immense opportunities available in RE financing.
Favorable Industry Scenario
The renewable energy (RE) sector has experienced transformative growth in recent years, evident in both the increased installed capacity and the rising share of RE in the country’s total power generation. As of March 2023, according to reports from the Central Electricity Authority, renewable power accounts for more than 41% of the total installed power generation capacity in India, amounting to 172 GW out of 416 GW. Specifically, renewable power, excluding hydro power, accounts for 125 GW out of 416 GW total capacity. Globally, India ranks among the top 5 countries in terms of installed capacities for both wind power and solar power. In contrast, while the thermal sector capacity has grown at a compound annual growth rate of 1.02% per annum, the RE capacity has expanded significantly, with a CAGR of 10.4% over the last 6 years.
Support from the Government
India is the 3rd largest energy-consuming country in the world. Its energy demand is anticipated to rise more than any other nation in the coming years, driven by its large working-class population and tremendous potential for growth and development. The Central Electricity Authority (CEA) estimates that India’s power requirement will substantially increase and reach 817 GW (Giga Watts) by 2030. The Government of India plans to meet most of this new energy demand through renewable sources. To achieve these goals, the government has initiated various schemes and policies, including the Production-Linked Incentive (PLI) scheme for the renewable energy sector. Additionally, sizeable sums of money have been allocated in the Union Budget for FY 2023-2024 to support this segment. To increase the production of high-efficiency solar modules, the Government committed Rs 19,500 crore (USD 2.57 billion) for a PLI scheme alone.
Recently, the Government of India launched a new scheme called the “new solar rooftop scheme,” referred to as the Pradhan Mantri Suryodaya Yojana. The scheme aims to expand India’s rooftop solar installed capacity in the residential sector by providing rooftop solar power systems to one crore households.
Financials and Asset Quality Improvement
For the Q4FY24, IREDA reported 33% (YoY) growth in a net profit at Rs 337 crore as against Rs 258 crore reported in the same quarter of the previous financial year. The Loan Book of the Company has grown by 26.8% to Rs 59,698 crore in FY2024 from Rs 47,052 crores in the previous financial year. It has achieved an all-time high annual Profit After Tax of Rs. 1252 crore in FY2024, with an impressive growth of almost 44% over the previous fiscal year.
IREDA’s net worth moved up by 44.2% for the FY2024 to Rs 8,560 crore as against Rs 5,935 crore in the previous financial year. The Company managed to bring down its Non-Performing Asset (NPA) to 0.99% in FY 2023-24 from 1.66% in FY 2022-23.
Risk Factors
As IREDA is a Non-Deposit taking Systemically Important (ND-SI) NBFC, the provision of deposits from retail investors is unavailable for the Company, leading to a marginally higher cost of borrowing compared to banks.
The Company faces competition from other financial institutions that also finance renewable energy projects. These institutions, such as banks, may have a lower cost of funds or better access to capital, potentially putting the Company at a disadvantage when competing for projects.
The Company’s operations are mandated to be restricted to a single sector, namely Clean Energy. The growth of this sector is highly dependent on a supportive policy framework and the related fiscal and financial incentives available. Government support for this industry has been favorable thus far, but any reduction or withdrawal of these benefits could adversely impact the Company’s prospects.
Bright Outlook
Green energy companies are harnessing power from renewable energy sources, including solar, wind, hydropower, biomass, bioenergy, and ocean energy, among others. With escalating environmental concerns and government initiatives aimed at reducing fuel imports and addressing India’s substantial energy consumption, there are tremendous opportunities in this industry, spanning from equipment manufacturing to financing.
The Hon’ble Prime Minister of India, at CoP 26, announced that India is committed to achieving 500 GW of installed electricity capacity from non-fossil fuel sources by the year 2030 and reaching net-zero emissions by 2070. This commitment serves as a ray of hope for the overall renewable energy industry.
The Indian economy has displayed resilience amidst global uncertainties. Looking ahead, there is widespread anticipation of faster growth in investment, buoyed by supportive government policies, sound macroeconomic fundamentals, and India’s remarkable demographic advantage.
Going forward, electricity is expected to remain a key input in India’s GDP growth, and renewable energy is poised to play a dominant role in the country’s overall energy portfolio. With the accomplishment of ambitious targets set by the Government of India, the majority of the energy requirement is likely to be met through clean sources of energy, presenting a significant benefit for RE financing companies.