July4 , 2022

French energy giant TotalEnergies to invest $12.5 bn in Adani Group’s new firm

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Adani New Industries aims to invest over $50 billion over the next 10 years in green hydrogen and associated ecosystem, said a statement by Adani.

The announcement propelled Adani Enterprises’ stock on Indian bourses on Tuesday. At 11 am, shares of Adani Enterprises were up 3.53% at Rs. 2155 apiece on the BSE.

“Adani and energy supermajor TotalEnergies of France, have entered into a new partnership to jointly create the world’s largest green hydrogen ecosystem. In this strategic alliance, TotalEnergies will acquire 25% minority interest in Adani New Industries Ltd (ANIL) from Adani Enterprises Ltd (AEL),” said a joint statement by Adani Enterprises and TotalEnergies.

In the initial phase, Adani New will develop green hydrogen production capacity of 1 million ton per annum before 2030.

“The new partnership, centred on green hydrogen, is expected to transform the energy landscape both in India and globally. Both Adani and TotalEnergies are pioneers in energy transition and clean energy adoption, and this joint energy platform further strengthens the public ESG commitments made by both companies,” said the two companies.

TotalEnergies already has a 37.4% stake in Adani Total Gas Ltd.

“The strategic value of the Adani-TotalEnergies relationship is immense at both the business level and the ambition level,” said Gautam Adani, Chairman, Adani Group.

“TotalEnergies’ entry into ANIL is a major milestone in implementing our renewable and low carbon hydrogen strategy, where we want to not only decarbonize the hydrogen used in our European refineries by 2030, but also pioneer the mass production of green hydrogen to meet demand, as the market will take off by the end of this decade.” said Patrick Pouyanné, Chairman and CEO of TotalEnergies.

Pouyanné said the new agreement with the Adani Group contributes to the valorization of India’s abundant low-cost renewable power potential.

“In our journey to become the largest green hydrogen player in the world, the partnership with TotalEnergies adds several dimensions that include R&D, market reach and an understanding of the end consumer. This fundamentally allows us to shape market demand. This is why I find the continued extension of our partnership to hold such great value. Our confidence in our ability to produce the world’s least expensive electron is what will drive our ability to produce the world’s least expensive green hydrogen. This partnership will open up a number of exciting downstream pathways,” said Adani.

For TotalEnergies, which has been enhancing its focus on clean energy over the past two years, the agreement with Adani could act as a major step in increasing TotalEnergies’ share of new decarbonized molecules including biofuels, biogas, hydrogen, and e-fuels to 25% of its energy production and sales by 2050, a cording to the French energy giant’s chief.

According to the contours of the partnership, the joint statement by the two companies said that while Adani will provide its expertise in Indian market, rapid execution capabilities, operations excellence and capital management philosophy to the partnership, TotalEnergies will bring its understanding of the global and European market, credit enhancement and financial strength to lower the financing costs, and expertise in underlying technologies.

“The complementary strengths of the partners will help ANIL deliver the largest green hydrogen ecosystem in the world, which, in turn, will deliver the lowest cost of Green Hydrogen to the consumer and help accelerate the global energy transition,” said Adani.

“ANIL aims to be the largest fully integrated green hydrogen player in the world,” said the two companies, adding that Adani New will have a presence across the entire value chain, from the manufacturing of renewables and green hydrogen equipment (solar panels, wind turbines, electrolysers, etc.), to large scale generation of green hydrogen, to downstream facilities producing green hydrogen derivatives.

With this investment in Adani New, the strategic alliance between the Adani Portfolio and TotalEnergies now covers LNG terminals, the gas utility business, renewables business and green hydrogen production.

Gaurav Moda, partner and energy sector leader, Ernst & Young, India, said, “In the entire process industry, diesel-run transport industry and ammonia industry, green hydrogen finds a massive potential. There are two key areas where green hydrogen can make a mass replacement of fossil fuels. The entire process industry extensively uses gas, heat or oil today. Metal companies, steel, aluminium, cement, chemical industries either use coal, gas or diesel generators for production. In these process industries, fossil fuel can be replaced by green hydrogen (which is basically the hydrogen produced by breaking down water by using solar or wind energy). A lot of metal companies are now looking for ways to become carbon-neutral, not just for the environment but also to gain carbon credits to make some money in the future.”

“Secondly, 50% of the transport fuel in India is diesel, 20% is petrol and 30% is aviation fuel, LPG and so on. In the petrol-driven space, innovations like CNG, electric vehicles, bio-fuels etc. are happening, but not in the diesel segment. Diesel mainly gets used by trucks which can’t use electric battery since they are too heavy and need too much power. Trucks can move into new energy only when hydrogen-led fuel cells technology gets available, which may take 3-4 years more. 50% of India’s oil demand can get converted once hydrogen fuel cells come in, and that’s where lies the huge potential for green hydrogen in India. The third major potential is that hydrogen can be converted into ammonia, the demand for which will keep increasing globally. That’s why the government has said India can be an export hub for ammonia,” said Moda.

“In terms of foreign investment, India is a preferred destination in this space because of — the large scale solar energy generation initiatives being taken in the country, given the large amount of open spaces available; extensive local demand for green hydrogen among companies here; the government pushing the agenda for green energy proactively (such as National Hydrogen Mission), which gives global investors a comfort in terms of growth prospects; and lastly, oil companies globally are looking at avenues to put in their green dollars, which are basically the funds available for environment-friendly projects from banks, financial institutions and private equity majors at lower interest rates as compared to rates given for funding coal, gas or oil driven industries. Basically, if it is through green dollars companies or investors get funds for investments at cheaper interest rates. So, global energy firms with green dollars see a lot of potential from Indian market, which is why more such investments are likely to come into India in the coming days,” added Moda at Ernst & Young.

The deal marks the largest ever investment by any foreign entity in an Indian energy firm.

With its business spread across 130 countries, TotalEnergies emphasizes on sustainable development in all its projects.

The French energy major recorded a consolidated net income of $5.05 billion in the first quarter of 2022 that ended on 31 March, as against $3.41 billion in the corresponding period of last year.

In the first quarter of 2022, TotalEnergies generated cash flows of $11.6 billion.

TotalEnergies, while announcing its latest financials, said that given the strong cash flow generation the board decided to give priority to countercyclical opportunities to accelerate the company’s transformation.

In the second quarter, TotalEnergies will benefit from the increase in its production in Brazil from May 2022 with the start-up of Mero 1 and the entry into Atapu and Sépia (30 kb/d in the second quarter growing to 60 kb/d in the fourth quarter), said TotalEnergies in April.

“The company maintains its capital discipline with net investments trending toward $15 billion in 2022, of which 25% will be in renewables and electricity,” added TotalEnergies in its April announcement.

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