Sembcorp Industries (SCI) has expanded its renewable energy portfolio in India to 5.4 gigawatts (GW) with the win of a 300 megawatt (MW) hybrid wind-solar project from NTPC, announced on Nov 26.
This boosts SCI’s overall renewable energy gross capacity to 16GW, or 64% of its 2028 target of 25GW. This includes a 49MW acquisition pending completion in Vietnam, note CGS International Research analysts Lim Siew Khee and Meghana Kande in a Nov 26 note.
In view of SCI’s “strong” renewable energy portfolio and expanded market share in Singapore, Lim and Kande are maintaining “add” on Sembcorp with an unchanged target price of $7.32.
India project
SCI announced on Nov 26 that its wholly-owned subsidiary Sembcorp Green Infra was awarded a 300MW inter-state transmission system (ISTS) connected wind-solar hybrid power project from state-owned power producer NTPC, formerly known as National Thermal Power Corporation.
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The award is part of a 1.2GW bid issued by NTPC. Other winners include Adani Renewable Energy (600MW), Green Prairie Energy (200MW), Adyant Enersol (70MW) and ReNew Solar Power (30MW).
Upon completion of the project, power output will be sold to NTPC under a 25-year long power purchase agreement.
Lim and Kande expect the project to become operational by 2027F.
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Based on industry newsflow, SCI’s 300MW was awarded at a tariff of INR3.29 (0.52 cents) per kilowatt-hour (kWh) by NTPC. This compares to INR3.26/kWh for Solar Energy Corporation of India’s (SECI) October project and INR3.48 for public sector project SJVN in March.
“We believe the lower tariffs compared to projects announced in the beginning of 2024 could be due to lower solar panel and module prices,” say Lim and Kande. “In general, we note that India’s wholesale price index (WPI) for solar power system solar panel and attachable equipment has retraced by 10% y-o-y.”
According to SCI’s management, the equity internal rate of return (IRR) for projects in India remains in the teens.
SCI also has a sizeable renewable energy portfolio in China. According to Chinese statistics of national new energy grid connection and consumption, average implied curtailment for solar and wind power nationwide improved to 2.3% and 2.9% respectively in 3Q2024.
This is lower than 3.2% for solar and 3.9% for wind power in 1H2024.
In the energy sector, “curtailment” refers to the reduction of power production when there is too much electricity in the grid.
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“We understand curtailment for SCI’s solar and wind assets have also improved to 7% and 6%, respectively in 3Q2024,” say Lim and Kande, compared to 11% and 8% respectively in 1H2024.
Looking ahead, key catalysts for SCI are stronger-than-expected earnings growth from expanded renewable and non-renewable energy capacity expansion, and asset recycling for mature renewable energy and non-core assets, say Lim and Kande.
SCI could also accelerate its pace of acquisitions and secure more renewable energy contracts to reach its 2028 target, they add.
On the other hand, any prolonged unplanned plant shutdown would affect SCI’s profit, say the analysts.
As at 2.25pm, shares in Sembcorp are trading 3 cents lower, or 0.58% down, at $5.13.
Charts: CGS International Research
