Equity investors are shunning Indian wind energy projects due to short-term policies and lack of clarity in norms. The only capital that is currently flowing in is short-term mezzanine. This, too, is close to drying up since there is a limit that can be raised on the back of the equity component, said Sumant Sinha, Chairman, ReNew Power Ventures. In a chat with Business Line, Sinha outlines the issues that dampen the buoyancy of the sector, which could otherwise supplement conventional generation to some extent. ReNew Power has about 400 MW in operation and over 1,000 MW in the pipeline. The company received an equity funding of $380 million (about Rs 2,000 crore) from Goldman Sachs, the largest foreign investment in the country’s renewable space.
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It could be about $1 billion in equity and an equal amount in mezzanine, as most funds that have recently come in are short-term (about 5 years).
Since there is a limit to raising mezzanine, the issue is close to saturation where external financing will become scarce.
Importantly, from the developer’s point of view, short-term funds are expensive and high-risk, as they need to be repaid quickly. This apart, six to seven States are also close to meeting their renewable power obligations.
[RPO mandates electricity distribution companies and large consumers to either buy electricity generated by green sources or purchase renewable energy certificates from the market.]
The issue is simple — why would States which can buy conventional power subsidised by the natural resources of the country and sold at half the price — buy renewable energy without incentives?
Is consolidation happening within the industry. Are assets of people who came in for tax benefits (accelerated depreciation) on the block?
Selling a depreciated asset is very difficult. It is part of your parent balance sheet. They have to demerge it and then the parent company has to look at the capital gains and the whole tax benefit availed of. They would probably have to take a write-off on their books to do the sale. It is not impossible, but difficult. This apart, tell me how many companies have discretionary profits they want to set off against accelerated benefits now?
Were you in talks with DLF for its wind farms?
We did speak to DLF. We are looking at acquisitions and if something interesting comes up, we will look at it. It all depends on the policies. We want to create quality assets. However, tariffs, asset quality, and ease of implementation of projects, are critical to move forward. Ideally, we would like to add 200-300 MW a year.
You do have a presence in the South, but not in Tamil Nadu. Why?
We have 70 MW in Karnataka. Tamil Nadu has issues on backing down (restrained from feeding the grid). Recently, it was as high as 40 per cent in certain cases. Moreover, the credit quality of the discom (State Electricity Board) has not been that encouraging.
We are waiting for the grid issues to get resolved. The southern grid is being linked to the rest of the country. There are three or four wind pockets in the State, where capacities have been set up. However, grid issues have made power evacuation difficult from those locations.
On the positive side, about two to three 400 kV sub-stations and lines are being installed. In addition, The Renewable Energy Ministry has identified six areas for setting up green corridors and Tamil Nadu is one of them. I do know concessional finance from KFW (Germany) for grid improvement has been received.
Once the issues are resolved, we will be there.