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Why Adani-Ambani ‘power tie-up’ is not as surprising as it appears

The acquisition of a 26% stake in Adani’s power plant is a regulatory prerequisite for purchasing power from the company under the ‘captive power plant’ category

Screenshot 2024 03 30 071821NEW DELHI: The so-called Adani-Ambani joint venture in power sector, dominating the headlines today, is not as much of a groundbreaking event as it is portrayed to be.

This is because dozens of such deals take place every year in India because of the way the rules have been framed around what are called captive power units.

Captive power units are usually small power plants constructed next to a big industrial unit — such as an alumina smelter unit or a cement plant — with the express purpose providing power to the factory.

It is often constructed by the same company that constructs the factory, and then a 74% stake in the unit is sold to a professional power generating company for day-to-day running.

Sometimes, it is the other way around — the power company constructs the captive plant, and then sells 26% to the consuming company upon completion. Either way, to be considered a captive plant, the consuming industrial unit must own at least 26% of the generating unit.

Captive power projects are much simpler to put up than a regular power project, and do not have to jump through as many regulatory hoops — particularly in terms of pricing — as regular power projects.

Moreover, they also ensure a reliable and constant supply of power to the industrial unit.

Most large industrial units constructed today come with captive power plants — often in the shape of a solar farm, or sometimes in the form a small thermal power unit.

As explained in Reliance Industries’ press statement on Thursday, the deal with Adani Power is essentially a 20-year power supply agreement.

However, to take advantage of the regulatory benefits under ‘captive power plant’ category, RIL took a 26% stake in the unit which will be supplying power to it, at a cost of Rs 50 crore. This indicates that the total value of the power unit is only around Rs 200 crore.

Meanwhile, several news reports have portrayed it as a path-breaking development, pointing to a thawing of the relationship between two of India’s major business houses.

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