India’s demand for renewable energy strong: Australian Ethical
Australian Ethical is investing in renewable power generation companies working in India
Prime Minister Narendra Modi is looking at renewable energy to bring 300 million people out of energy poverty, how can an investor participate in this development?
Australian Ethical’s International Equities Portfolio Manager, Nathan Lim, explains:
Today, 300 million Indians live without access to electricity – that is 13 times the entire population of Australia. As astonishing as this figure is, it is actually an improvement since 1991 when there were an estimated 499 million living without electricity. Lifting nearly 200 million out of energy poverty has been notable but the distribution of access has clearly favoured urban centres where 94% of residents have electricity versus 67% in rural areas. Electricity is just another indicator of the growing wealth divide in India, an issue Prime Minister Narendra Modi has decided to tackle head on.
Following up on our earlier article on the policy steps Modi has taken in the first seven months of his government, we highlight two companies that should benefit from the increasing use of renewable energy in India:
First Solar Inc (NYSE: FSLR)
First Solar is the first thin-film photovoltaic module manufacturer to install 10 gigawatts of capacity globally. This remarkable achievement has been driven by its ability to consistently deliver bankable, low-cost solar power for utilities. Just recently, First Solar was the panel supplier to a consortium that won two 100 megawatt projects at the Mohammed bin Rashid Al Maktoum Solar Park in Dubai. The winning bid on the second project was a world record low of $58.40 per megawatt hour. This rate is cheaper than the $90 per megawatt hour electricity costs from the existing natural gas power plants it is displacing and will be delivered with no government subsidy. First Solar entered the India market in 2014 and repeated the feat in Dubai by being the lowest bidder on two 40 megawatt projects in the state of Andhra Pradesh. Being the cost leader in the development of utility scale solar power should aid First Solar in capturing a sizeable share of the 100,000 megawatts of solar capacity India wants to install.
Gamesa Corporacion Tecnologica SA (Madrid: GAM)
Gamesa is a leader in the wind turbine industry. For the nine months ending September 2014, India was responsible for 27% of the company’s total turbine sales, which is up from 18% last year. It should have given Gamesa a market share of approximately 25%. Gamesa is so optimistic about the Indian market that it has recently committed to spend €100 million to build out its production capabilities there. The expansion will allow the introduction of Gamesa’s latest turbine design and increase annual production capacity to 1,700 megawatts. For context, India installs about 2,000 megawatts of wind power each year. Also, with the re-introduction of the accelerated tax depreciation credit in July, the market is expecting annual new builds to exceed 3,000 megawatts going forward.
Renewable energy is making deeper inroads into world markets. This is because it is becoming increasingly cost competitive and dovetails into government policy to promote lower emissions intensive technologies to overcome the challenges of climate change. Australian investors seeking to benefit from this secular trend should look overseas so to escape the political inertia around climate change in Canberra.