Renewable energy firms with overseas operations poised to get windfall from rupee depreciation

The local renewable energy players with an expansive overseas portfolio are likely to do well in the future due to the growing demand for sustainable energy as the world is coming together to gradually end its reliance on fossil fuel powered energy on growing concerns about climate change and global warming. 

According to First Capital Research (FCR) companies such as Vidullanka PLC, LVL Energy Fund PLC and Windforce PLC among few others,  are better poised to deliver enhanced financial performance which will get a further tailwind from the weaker rupee against dollar seen at present considering their sizeable overseas incomes.
However, the ability to generate continuously higher profits at these companies are dependent on the ability to enhance their capacity in tandem with the growing demand for energy, both locally and overseas, said Vidushika Perera, the Assistant Manager Research at First Capital Holdings PLC. 

“Under these circumstances, existing and potential overseas operations by local players with a sizeable dollar income, which are mainly positioned in Bangladesh and Uganda with further potential for growth in light of the regional prospects, are expected to flourish while harnessing the benefits of steep LKR depreciation against USD”, wrote Perera who authored the report titled ‘Green Energy, Powering the Transition’.

Addressing climate change and associated global warming became a key global political and economic priority in the current century and it signified by the 2015 adoption of the famed, ‘Paris Agreement’ by more than 200 countries signatories into the pact which also stipulated commitments by nations to cut their carbon  emissions by way of annual targets. 

Sri Lanka also has a target to generate 70 percent of its electricity using renewable energy sources by 2030 and 100 percent by 2050. 

To this end Sri Lanka in December 2020 commissioned its largest wind energy farm with a capacity of 100 MW in Mannar and has plans for capacity expansions of up to 1,323 MW from wind, 2,210 MW from solar, 654 MW from mini hydro and 144 MW from biomass in the next 20 years. 

The Ceylon Electricity Board, the monopoly power transmitter and distributor has signed for purchase agreements with other renewable energy power plants with a total capacity of 539 MW in addition to multiple roof-top solar projects to be developed with private sector participation. By the end of 2020, Sri Lanka generated 36 percent of its electricity from renewable energy sources of which 31 percent were from traditional hydro power. 

Authorities recently expressed their intentions to raise moneys through green bonds - a type of financial instrument used to raise capital for environmentally friendly projects - to fund renewable energy projects and manufacturing of organic fertiliser. 

In respect of private renewable energy players FCR, singled out LVL Energy Fund PLC and Windforce PLC as the two companies with the highest installed capacities and with higher upside from their overseas power plants which at present contribute 30 percent to their financials. 

“Windforce and LVL Energy Fund showcase a sizeable bundle of pipeline projects locally as well as overseas which is expected to further enhance the generation capacity. Considering these essential criteria, LVEF and WIND are appeared to be worthy within the sector”, Perera said. 

LVL Energy Fund has projects in hydro, wind and thermal with a total installed capacity of 254 MW with pipeline of projects both in Sri Lanka and overseas. The company’s Bangladesh and Nepal operations generate 38 percent of its total revenues and the company remains hopeful of its future prospects with higher demand from Bangladesh, upcoming hydropower project in Nepal and the operation of under-utilised plants in its portfolio. 

Windforce PLC meanwhile has a total installed capacity of 218 MW spread across hydro, wind and solar. The company has overseas projects in Uganda, Pakistan and Ukraine generating 30 percent to its revenues with a pile of new projects both in Sri Lanka and overseas markets including 2 new solar projects in Senegal.