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Why India’s leading renewable energy company is going public via SPAC

On Wednesday, ReNew Power announced that it would be going public via SPAC with RMG Acquisition Corporation II in an $8 billion transaction, which is expected to close in the second quarter of 2021. The combined entity is expected to be listed on the NASDAQ under the new ticker symbol “RNW”. ReNew’s founder, chairman and CEO Sumant Sinha joins Yahoo Finance Live to discuss the move and the state of renewable energy.

Video Transcript

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JULIE HYMAN: Indian Prime Minister Narendra Modi has said that his nation aims to have 40% of its energy sourced from renewable sources by 2030. There's a company that's already providing five gigawatts of clean power capacity in that country and it's going public through a SPAC here in the US. ReNew Power is the name of it and Sumant Sinha, the founder, chairman, and CEO, is joining us now. It's going to go public through a combination with RMG Acquisition Corporation II. It's a SPAC deal and it's a large one.

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Mr. Sinha, thank you so much for being here this morning. So for those who are not as familiar with the Indian renewable power market, it sounds like that you all are the dominant player there with that five gigawatts of capacity. Is that solar? Wind? And where in India are you located? Do you have those sources? What's the market there look like?

Yes, sir. Thank you so much for having me on the show, Julie. So look, the Indian power market is actually the third largest market in the world after China and the US. And in terms of renewable energy capacity we are the fourth largest in the world after Germany as well. But we're growing the fastest among all countries in the world, both in power demand as well as in renewable capacity additions. And so we really have a very solid base in terms of the market size, which is going to grow quite substantially over the next many years. And Prime Minister Modi has set a target to get to-- by 2030-- five times the current capacity of renewable energy. And so there is going to be a significant growth in our sector over the next many years.

As a company, ReNew is very well placed to capitalize on that opportunity. We are, in fact, the largest company currently. We have more than, as you observed, 5.5 gigawatts of commissioned capacity. This is a mix of both wind and solar. And we have a very integrated execution model. We do everything end-to-end ourselves, from development to construction to procurement and eventually to asset management as well. And that allows us to be a little bit more profitable than our competitors in the market. And so really, that's our company. We expect to grow quite rapidly over the next several years in line with market growth. And so, really, that's our story, Julie.

BRIAN SOZZI: What makes your model profitable?

JULIE HYMAN: Well, you know, in India, the interesting thing is that renewable energy is now the cheapest form of new electricity in the market. It's significantly cheaper than coal-based power. And the way power purchase agreements are granted is through competitive auctions. And so you bid the tariff that you think makes sense, that allows you to get a good return. And so we bid in various auctions, we win capacity, and then we construct that capacity with these long-term assured power purchase agreements which guarantees us access to long-term cash flows. And so really it's those tariffs that we bid and the cost that we incur to set up the projects that allows us to make the kind of margins that we need to make to continue to invest capital profitably and keep growing.

BRIAN SOZZI: So from the SPAC you'll raise $610 million in net primary proceeds. How do you plan to spend that money?

SUMANT SINHA: Well, you know, as I said earlier, the Indian market is growing very substantially. And as I said earlier, there is going to be a 5X growth in the next 10 years. We're going to go from 90 gigawatts of currently installed renewable energy capacity between wind and solar to 450 gigawatts of capacity. So we already have a pipeline off another 4.5 gigawatts that we're constructing right now. So some of the capital will go for that. And as we look to the future beyond that, we can certainly use more capital. So some of this capital will go for that as well. So really most of it is going to go for building out new capacity and really making sure that we get to a size that would then allow us to generate sufficient total capital that will keep allowing us to grow and be the number one player in the country.

MYLES UDLAND: Sumant, Myles here. I want to ask broadly about the Indian economy right now and the business climate there. Because I think when you talk to US-based investors, particularly venture investors, they are more excited about the opportunities in India than pretty much anywhere else in the world geographically, at least as far as they see it. I'm curious if you could just maybe outline for us today as we sit here, February 2021, what the growth prospects are like, the business climate there, and how you guys are fitting into that broader picture.

SUMANT SINHA: Yeah, sure. So, you know the Indian economy had been growing before the COVID pandemic hit last year at about, let's say, 6% to 7% a year on average. Of course, COVID put a dent in that, but the reality is we recouped most of that growth again in the next financial year. And so we expect almost 13% GDP growth in the next financial year, which starts in India on April 1. So we'll definitely be back to where we were pre-pandemic. From that point on, the government has actually recently come under the program, or decided in terms of its policies, to really give off significant fiscal stimulus through increased spending for infrastructure.

And that's really terrific because what that means is it's going to actually lead to productive capacity creation in the economy, make the economy a lot more efficient, with a strong focus, as well, on the manufacturing side. So between all the efforts that the government is putting in, in terms of fostering farther, faster growth, and with the very robust ecosystem of startup companies in India-- sectors like ours which are growing very rapidly-- I'm pretty convinced that we are going to continue to grow at maybe 7% to 8% a year for the foreseeable future.

If we do that, and I'm pretty convinced that we shall, then in actual fact what that means is that there's going to be sufficient power demand growth as well. And we will be looking at robust power demand growth of between 5% and 6% every year, which is in turn going to lead to a doubling of India's power demand over the next 12 to 14 years. And the question is, where is that power supply going to come from? The answer is that it's going to come from renewables now because it's so much cheaper than coal-based power. And that's really good news for the global-- for the world as a whole given all the climate change issues.

JULIE HYMAN: And you, as you talk about that cost, how much-- subsidies are a big issue here in the US with government subsidies for a lot of renewable energy sources. Is that the case in India as well? And, in other words, if you're looking at that cost advantage that renewables have, is that partly because of government support?

SUMANT SINHA: No, actually, that's not true at all, Julie. What I'm talking about is fully costed power plants, whether renewables or coal. And the reality is that without any subsidies whatsoever, renewables is now significantly, significantly cheaper than coal-based power. And so therefore, as we look at the future, the reality is that renewables have become the de facto default choice for all new capacity additions in the power sector. There is actually no need for us to add more coal-based capacity at all.

And therefore, in fact, in the last two, three years, you've actually seen no new coal starts being announced at all because, in addition, nobody really wants to fund coal-based power plants either. And so therefore, the entire capacity addition is migrating towards renewables. And as I said earlier, with robust demand growth of 5% to 6% a year, that is going to lead to this big imperative and this big impetus for renewable energy growth in the future in India.

JULIE HYMAN: Really fascinating stuff. Thank you so much. Sumant Sinha is ReNew Power founder, chairman, and CEO. That merger with RMG Acquisition II is expected to close in the second quarter. Thank you, Sumant.