Chennai With international emission reduction commitments to keep, India cannot but forge ahead with renewable energy. The real story of renewable energy in India is just about to unfold. India added a record 10GW of solar in the first nine months of 2022; wind, which was dormant in the last few years, is now showing signs of coming alive, thanks to a plethora of reasons, such as corporate purchase and easing of regulations.
Nasdaq-listed ReNew Power is the largest player in the India, with a total operational and under-construction capacity of 13.4 GW. Business Line caught up with Sumant Sinha, ReNew Power’s Chairman and Managing Director, for a chat about the leading trends in the renewable energy industry, in which he explains why supporting solar manufacture is wise even though Indian manufacturers would never be competitive with the Chinese. Excerpts:
We see two trends in the renewable energy industry—increase of corporate PPAs and demand for round-the-clock power supply. Do you see these two trends converging?
Corporates sometimes have a requirement for RTCs, sometimes they have a requirement for just wind and solar, it depends on the company’s requirements which are different from time-to-time. So the trends can be seen converging, for sure. Some corporations do want round-the-clock power solutions but not all the corporations. It really depends on their specific requirements.
Why wouldn’t corporates be demanding only RTC power supply?
Not everybody is connected to an ISTS line, then the company has to get a separate connection. It really epends on which state you are in. If that state does not have a good supply of natural resources for wind or for solar in which case the company might want to go for only wind or only solar. But generally agree with you that even corporations, as we go forward, will start preferring round-the-clock solutions because it allows them to maximize their savings, because in the same line, they are able to get a lot of renewable energy. And therefore if they are going for wind or solar, they will have a saving against their connected load.
Can you give me some idea on the additional yield you get in corporate PPAs?
The returns in corporate PPAs are slightly better. But, you know, it’s not like there is a massive difference either. So there is a slight improvement but here we are talking about a couple percent higher, so it’s not a massive change.
So that is not therefore incentive enough for you to move out of SECI and get into corporate?
The Corporate market is not as big as the SECI market is. And therefore, we will continue to do both. We will optimise on the corporate PPA market but we will also continue to do the SECI bids.
So the sense I get here is that the corporate market here may not be the biggest but it has potential for growth.
Yeah, that is right.
What is generally the average duration of corporate PPAs? Is it also 20-25 years or is it shorter?
No. It can be shorter, ranging anywhere between 15-25 years.
And the lenders are okay with that?
Yeah. They are okay with that as long as they get paid between the duration of the PPA.
How do the open-access charges impact these?
Depending on how the project is structured, whether it’s open access or group-active and so on. Every state has different regulations, so companies have to keep that in mind. And when the charges are added in, whatever they might be, it obviously has to make sense to the customers, which it does in most cases.
So, all these open access charges are built into the tariffs?
Exactly, that’s right. Because if a corporate customer looks at; if I get power from the grid, it will cost me X and if I buy from ReNew, it will cost me Y. But then you also have to add all these charges on it and then ‘Y plus the charges’ has to be less than X for them. Otherwise it does not make sense from an economic standpoint.
But if open-access charges go on increasing, would it have an impact on PPAs? Or, is it not a deal-breaker?
No, I think that of course, if the charges keep increasing then obviously at some point it wont make sense. But we are not at that point yet, so there is no need here for regulators to keep increasing those tariffs.
You do not have any merchant capacity in your portfolio?
We do have a very small amount of merchant capacity.
Is there a reason why your portfolio contains such little merchant capacity?
You have to recognize that merchant tariffs are higher right now, but ultimately, keep in mind, that we are unaware of how much longer they are going to be higher for. So, its a bit of a punt. And as you rightly observed, you asked yourself the question, who is going to debt finance it? So you know all of this is not as straightforward.
A financier, I would presume would look at your company differently than they would look at other companies.
No, ultimately, everyone is looking for non-recourse project financing therefore the project has to support the debt repayment and lenders will also be very wary of giving debt financing for merchant projects.
When do you think they(financiers) will develop confidence in merchant projects? It seems to be a good growth area.
Keep in mind that merchant prices for the longest time have not been so high. They have been high for the last year-and-a-half, or so. We do not know how much longer they will be higher for.
But haven’t they always been higher than SECI prices?
No, not necessarily. Keep in mind, the merchant market in India is also a very thin market and suddenly there’s a huge amount of capacity that shows up, then where is the demand going to come from? If most of the demand is going through SECI, then where is the demand going to come from? It is not that straight-forward. I think it’s good to have a small part of your portfolio in the merchant, but if you have nothing in ‘merchant’ that’s fine too.
We hear that SECI market is now finding it difficult to power-sales agreement?
I don’t think that is true. I don’t know if your statement is accurate. In anycase that something that SECI will have to opine on.
In all these discussions about tariffs and so on, we hardly know anything regarding the income coming from the carbon market. Why is that?
We get carbon credits because we can prove that there is some additionality in your project, that your project would not have happened if the carbon credit was not there. But in India renewables are not based on carbon credits. Therefore, there is an issue to prove that additionality. And carbon credits under the CDM-Kyoto Protocol are available but even that has no got shut off as of 2021.
But if the same power capacity were to be built with coal, it would be bad for the world, right?
The point is, there is now a commercial reason to build renewables than coal and since renewables are cheaper, people would rather build that than coal. I am building a renewable energy plant because it is cheaper for me.
The world over, carbon credits for avoidance has no takers, but those for removal of carbon is becoming popular.
(Business Line has learnt that ReNew Power has 4GW of capacity registered for carbon credits with another 5GW in the pipeline. When asked about this later, Sumant Sinha said: “For new RE projects it is harder to get new carbon credits. Some of the older projects get them but under the CDM mechanism that is stopping from 2021.”)
Coming to solar, after this 40 per cent basic customs duty protection goes and PLI scheme, will you be competitive with the Chinese?
The short answer is ‘No’.
Then how long can the developers keep bearing higher prices? Is it not better off buying cheaper?
You are asking a very fundamental question, which you should ask the government of India. You tell me why did solar and wind energy get a sudden increase from 5% to 12%? The answer is simple, the government feels that the default price for electricity in India is the coal base price. Anything cheaper than that is just a bonus. And so therefore if wind and solar are much cheaper than coal, then perhaps there is some opportunity to make some revenue out of there.
But doesn’t that put things directly in conflict with the government’s net zero pledges?
No, absolutely not. Ultimately it’s the consumer that pays for the power, who would pay the extra GST amount, right? Why? Because it ultimately helps the government in meeting its own revenue objectives which has many other repercussions and benefits for the government. Similarly, if they ask you to buy a slightly more expensive module, which allows us to get independence from China from a sourcing standpoint. And you know with all the stuff that is going on, it has value or no? And if that means that if the cost of solar goes from ₹2.30-2.40 to ₹2.70-2.80, does it matter that the coal based power is ₹5?