Low valuations of clean energy groups hinder green transformation, says ReNew boss

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The CEO of one of India’s largest renewable energy groups has said public markets are undervaluing clean energy companies and hindering the transition to green energy as the sector struggles to attract investors.

Sumant Sinha, head of ReNew Energy Global, also raised the issue of moving the listing away from Nasdaq as concerns about a potential Donald Trump presidency and high interest rates contributed to a sell-off in clean energy.

Lower valuations have prompted some buyout groups to pounce, lured by what they see as opportunities in the renewable energy sector. Brookfield is in talks to buy France’s Neoen, while KKR is buying Germany’s Encavis.

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

The value of new capital raised in public markets by climate technology and energy transition companies also fell from $68 billion in 2022 to $33 billion in 2023, according to data from research group BloombergNEF.

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

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

ReNew, which develops wind and solar projects in India, has seen its share price fall by more than 30 percent since listing on the New York Stock Exchange in August 2021.

Shares of clean energy companies have fallen 28 percent since July last year, according to the S&P Global Clean Energy Index, which tracks data on 100 companies including makers of wind turbines and solar panels.

Analysts said Trump’s lead in polls ahead of November’s U.S. presidential election helped weaken stocks, extending a decline that began in 2021, just before the Federal Reserve began aggressively raising interest rates.

Asked if he would transfer the ReNew offer, Sinha said that “we could definitely think about it.”

But he added: “With that in mind, you don’t want to make any rash decisions based on what’s going to happen in a year or two. Ultimately, I think you have to go through the cycle and see what happens.”

Rising interest rates are weighing on the sector, weighing on the profits of renewable energy developers and making bonds a more attractive alternative for investors.

“We’ve had a three-year decline in valuations and sentiment, driven by interest rates and a reversal of the euphoria of three years ago,” said Simon Webber, chief portfolio manager at Schroders. “It’s the opposite of what we saw a few years ago.”

“We need both primary and project investment. A stronger secondary market would help,” 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 believes it is time to buy because of low valuations. It is buying Greece’s Terna Energy.

“We’re seeing a number of acquisitions by private equity firms that are clearly prepared to pay more, which means a group of smart people are offering a higher price than the public market is prepared to pay,” said James Smith, director of Premier Miton Global Renewables Trust.

ReNew expanded its pipeline of projects and posted a net profit of $50 million in the fiscal year to the end of March, compared with a loss of $60 million the previous year.