L&T makes ‘asset heavy’ exception for $1 billion green hydrogen play
Engineering conglomerate Larsen & Toubro will explore green hydrogen prospects in India under the asset ownership model, which is a detour from its stated policy of staying asset-light. Company executives said the decision is to allow for build-own-operate prospects in that segment.
For its entry into the green hydrogen segment, L&T has diverged from its usual strategy on two counts. One, it has opted for an asset ownership and operatorship model and second, it has decided to house all its green energy interests under a subsidiary. The two moves, company executives stated, were to address build-own-operate prospects and allow scope for financial partners at a later stage, if needed.
Last week, L&T formed a joint venture (JV) company named GH4India Private Limited, along with Indian Oil Corporation (IOC) and Renew, with an interest of 33.33 per cent each. In its announcement, L&T said the JV is for the purpose of the development of green hydrogen and its derivatives, production assets and associated renewable assets through any model of ownership and operatorship. In simpler words, L&T looks to sell green hydrogen and not just the equipment related to its manufacturing.
Derek M Shah, senior vice president and head of L&T Energy – green manufacturing and development, at L&T said, “L&T maintains its strategy of pursuing an asset-light approach.” However, Shah noted, “We also recognise the opportunities that exist in the energy transition journey. Green hydrogen is indeed one of the emerging opportunity areas for us to leverage our leadership position in the energy sector and expertise in manufacturing and EPC projects.”
Shah said GH4India will allow the company to address build-own-operate (BOO) prospects in the green hydrogen and derivatives space, “In a manner that is not return dilutive to L&T.” Top executives from L&T have earlier stated that the three partners combined will look to invest close to $3-4 billion over the next three to five years.
L&T moved to an asset-light model more than a decade ago, after investments under the asset ownership model in different infrastructure projects yielded mixed results. In 2014, L&T, along with Tata Steel, exited from the ownership of Dhamra port in Odisha, through a sale to Adani Ports and SEZ. Last financial year, L&T announced a full exit from its road portfolio joint venture, L&T Infrastructure Development Projects (IDPL).
As a solo venture, L&T is also building an electrolyser manufacturing facility in Hazira in Gujarat. In July, L&T said its subsidiary L&T Energy Green Tech will act as a holding company for creating a focused entity structure that will house the multiple business portfolios of green energy, including electrolyser manufacturing. This is again a detour from L&T’s preferred model of creating business divisions for engineering, procurement and construction (EPC) opportunities in different segments.
R Shankar Raman, whole-time director and chief financial officer for L&T in an interview said, “We wanted to do this in a separate special purpose vehicle to have the flexibility to scale up if required, including financial partnership, if it warrants.”
– To house electrolyser business under SPV model