Low valuations for clean energy groups are hampering green transition, says ReNew boss

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Public markets are undervaluing clean energy companies and hampering the green transition, the chief executive of one of India’s largest renewable energy groups has said, as the sector struggles to entice investors.

Sumant Sinha, head of ReNew Energy Global, also raised the prospect of moving its listing from the Nasdaq as concerns over a potential Donald Trump presidency and high interest rates have helped spur a clean energy sell-off.

The lower valuations have prompted some buyout groups to swoop, lured by what they see as bargains in the renewable energy sector. Brookfield is in talks to purchase France’s Neoen while KKR is buying German Encavis.

“If you look at basic valuations, it’s very clear that companies are not being rewarded for growth, for the scale they have built over the past few years,” said Sinha.

The amount of new equity raised by climate tech and energy transition companies in the public markets has also fallen, from $68bn in 2022 to $33bn in 2023, according to data from research group BloombergNEF.

“Public capital markets are not hospitable right now. And to me, that’s the biggest thing that is holding back our sector today globally,” added Sinha.

“We are a profitable company — there is no reason for our valuation to be where it is right now. If you look at the Indian market, valuations are a lot higher because people are seeing that growth.”

ReNew, which develops wind and solar projects in India, has suffered a share price fall of more than 30 per cent since its listing in New York in August 2021.

Overall, clean energy stocks have tumbled 28 per cent since July last year, according to the S&P Global Clean Energy Index, which tracks 100 companies including wind turbine and solar panel manufacturers.

Trump’s lead in the polls ahead of the US presidential election in November has helped undermine stocks, analysts say, extending a decline since 2021, just before the Federal Reserve began to aggressively raise interest rates.

Asked whether he would move ReNew’s listing, Sinha said it was “something that we might think about — for sure”.

However, he added: “Having said that, you don’t want to be taking hasty decisions based on what’s happening in a year or two. Ultimately, I think you have to go through a cycle and see what happens.”

Rising interest rates have weighed on the sector as they affect renewable developers’ returns and also make bonds a more attractive alternative for investors. 

“There’s been this three-year downtrend in valuations and sentiment, driven by interest rates and the reversal of the euphoria of three years ago,” said Simon Webber, lead portfolio manager at Schroders. “It’s the opposite scenario of a few years ago.”

“We need investment in terms of primary investment and project investment — and it would be helpful if there is a stronger secondary market,” said Adam Forsyth, head of research at Longspur Capital. 

Masdar, the Emirati state-owned renewable energy company, is another group, along with Brookfield and KKR, that considers the time is ripe to buy because of cheap valuations. It is purchasing Greece’s Terna Energy. 

“We are seeing a few takeovers coming from private equity that are obviously prepared to pay more, so that is telling you that a group of smart people are coming up with a higher price than the public market is prepared to,” said James Smith, manager of the Premier Miton Global Renewables Trust. 

ReNew has grown its project pipeline and made a net profit of $50mn in the year to the end of March, up from a $60mn loss the previous year.