Megawatts are the wrong scoreboard
Indian renewable companies report installed capacity much as retailers once reported store counts. A board that sets a megawatt goal before it sets a balance-sheet limit has decided how fast to grow before deciding what the company can carry.
Almost every Indian renewable company presents its progress with one chart: installed capacity, in gigawatts, rising every year towards an ambition several times its present size. I have helped to prepare that chart and I understand its appeal. Capacity is easy to count, easy to compare and easy to explain. This letter argues that it is a poor guide to how well a company is doing, and that boards which govern by it can take decisions about the balance sheet without quite realising they have done so.
What the capacity count hides
A megawatt of capacity tells you how much a plant could produce in ideal conditions. It does not tell you how much it does produce, at what price, for which buyer, with how much debt behind it or when the buyer pays. Two companies with four gigawatts each can be very different businesses. One may sell mostly to central intermediaries at recent auction tariffs, with modern equipment and debt refinanced to match its contracts. The other may sell to a few state utilities with poor payment records, run older turbines at declining output and carry construction debt that must be refinanced in a difficult year. The capacity chart presents them as equals.
The count also conceals how growth is paid for. Every new plant in India needs roughly a quarter of its cost as equity before lenders will fund the rest, and that equity comes from operating cash flow, new shares or the sale of existing assets. A company bidding for two gigawatts a year at today's costs needs equity of several thousand crore rupees annually. If its operating cash flow after debt service cannot supply that, the gap is filled by borrowing at the holding company, which is debt dressed as equity, or by issuing shares at whatever price the market offers that year. Neither appears on the capacity chart.
In the spring of 2023 Tejovan had 3.1 gigawatts in operation and net debt of 7.4 times EBITDA. Our chairman had announced an ambition of ten gigawatts by 2030, roughly two gigawatts a year. On our own projections, that pace would have required about ₹1,100 crore a year more equity than our operations could provide. Our ratings had not moved from A+ in three years. The capacity ambition was in effect a decision to increase our gearing, but it had never been put to the board in those terms.
A balance-sheet budget before a bid budget
What I proposed instead was a sequence. First the board decides what the balance sheet can carry. Only then does it decide how much new capacity to commit to within that limit.
The limit we adopted is simple: no new commitment unless net debt to EBITDA, projected through the peak of construction, stays at or below seven times. The projection includes the debt and equity the new projects will need and the EBITDA they will not yet earn while being built. In most years it allows us about one gigawatt of new bids. We supplemented it by selling 49 per cent of a 900-megawatt operating solar cluster to a long-term investor, keeping control, and using the ₹1,640 crore it raised as equity for new projects. Recycling mature assets into new ones is common practice in infrastructure. What mattered was that we planned it within the limit rather than using it to escape the limit.
The limit had costs, and I do not want to understate them. We stayed out of auctions for perhaps 1.5 gigawatts over two years that we could probably have won. Our share price trailed a sector index by about 18 per cent in 2024–25 as investors rewarded faster growers. Our project teams, who had worked hard on bids we then withdrew, heard the limit as a statement that their work mattered less than a ratio. The chairman, who had been persuaded rather than convinced, reminded me of the share price more than once, and he was entitled to.
The gains came more slowly but have lasted. By March 2026 operating capacity had still grown to 4.2 gigawatts, net debt had fallen to 6.5 times EBITDA, and two domestic rating agencies had raised us to AA-. Our borrowing costs fell, which itself makes the next project more valuable. Most important, the limit turned a recurring argument into a standing decision. The board reviews it once a year with the budget and does not reopen it every auction season.
What I would ask a board to approve each year
If I were an independent director of a renewable company, I would ask management to bring three things to the board each year, before any discussion of capacity.
The first is the limit itself: the level of gearing the board is willing to reach at the peak of construction, and the reasons for it. Different companies will reasonably choose different limits. What matters is that the choice is made deliberately and written down.
The second is a measure of output and cash beside capacity. I would want units generated against expectation for each plant, revenue collected against revenue billed, and the equity return on recent projects at actual tariffs, actual costs and actual payment days. These show whether the capacity the company already owns is earning what was promised when it was approved.
The third is the equity plan: where the equity for next year's commitments will come from, in rupees, and what happens to the gearing limit if a large buyer pays late or a refinancing slips by a year.
None of this is an argument against growth. India needs a great deal more renewable capacity, and companies that build it well should grow. It is an argument about order. A board that decides first what its balance sheet can carry, and then how fast to grow within it, will sometimes grow more slowly than its rivals. It is far less likely to discover, in a bad year, that its growth was financed by risks nobody had chosen to take.