One of the significant developments in the renewable energy sector in 2016 was Tata Power’s acquisition of Welspun’s solar and wind power portfolio, making it the largest player in terms of installed renewable capacity in the country. In an interview with Renewable Watch, Anil Sardana, managing director and chief executive officer, Tata Power, expresses his views on the sector’s progress and the company’s achievements in this space…
How would you rate the performance of the renewable energy sector in the past one year? What were the high and the low points?
The government is promoting renewable power in a big way. The target of generating 20 GW through solar power has been enhanced to five times to 100 GW by 2022. The total installed solar capacity crossed the 8 GW mark recently and there is a clear line of sight to get to 20 GW in the next 18 months, which is commendable. Wind power, with an installed capacity of over 23 GW, is already a mature technology in India. The government is also aggressively aiming to increase wind generation by adding 10 GW every year. Other sources like biomass and small hydro have not been as popular as solar and wind, mostly because they lack strong policy support.
The government has announced a number of new reforms and policies to provide an impetus to the sector. The Renewable Energy Bill is a step in the right direction. Also, the repowering policy for wind assets, which can facilitate the replacement of old wind assets with modern, high efficiency wind turbine generators, is a good initiative but needs review as it does not provide enough incentives to developers to re-power old assets.
How has Tata Power’s perspective of the renewable energy sector changed during the year? Accordingly, how have the company’s strategies evolved for developing its renewable portfolio?
In line with the government’s renewable energy thrust, Tata Power has reiterated its commitment to clean energy by increasing the share of non-fossil fuel energy to 30-40 per cent by 2025, up from its earlier target of 20-25 per cent. This move complements the government’s target of 100 GW from solar and 60 GW from wind. Although solar was a very small part of Tata Power’s total portfolio, it has increased significantly as the company has won organically through projects bid out, as also recently, by acquiring a significant renewable portfolio.
Tata Power will strive to add about 150 MW of wind and about 50 MW of solar every year, depending on market opportunities. The company is also in the process of acquiring suitable land parcels in Maharashtra, Rajasthan, Gujarat, Andhra Pradesh and Karnataka to develop solar and wind projects. Tata Power currently has an installed generation capacity of 3,042 MW through green sources. Of this, 1,800 MW is wind energy, 693 MW is hydro capacity and 941 MW is solar capacity.
What was the rationale behind the acquisition of Welspun’s renewable energy portfolio?
The rationale behind the recent acquisition was to add quality assets and improve our renewable (especially solar) portfolio. After a detailed review of the entire asset base, we found that this would be a good move. When choosing between inorganic versus organic acquisitions, we remain open to both and do a complete risk-reward portfolio analysis. In this case, we found that 1,000 MW of the 1,140 MW capacity is operational and will thus give us immediate returns.
The other interesting aspect is that this acquisition has assets spread across 10 states and, therefore, it will be a derisked one. Also, many of the acquired projects, especially the wind project, are contiguous with our own wind projects. This not only gives us the advantage of familiarity but also allows us to manage the entire assets with the same set of paraphernalia that exists at those locations. Our assessment of the assets shows us that Tier I modules have been used, so it is top-class capex. This is not only a good investment but it comes with extra land where we can grow.
What are the group’s growth plans in this space? Are you likely to go for further inorganic growth?
Tata Power, together with its subsidiaries and jointly controlled entities, has an installed gross generation capacity of 10,477 MW, of which clean energy comprises 3,042 MW, making it one of the largest non-fossil fuel-based energy players in India. The company itself and through its 100 per cent subsidiary, Tata Power Renewable Energy Limited (TPREL), has upwards of 500 MW of operating wind assets. TPREL has a further 500 MW of wind capacity under development and construction in Gujarat, Andhra Pradesh, Madhya Pradesh and Karnataka. We are exploring opportunities for setting up solar plants overseas, in Southeast Asia and Africa. In certain cases, we may also acquire operating portfolios in solar. The plan is to have at least 30-40 per cent of our generation capacity from non-fossil fuel assets. However, it would be difficult to give more guidance on the allocation of resources as this would depend on the opportunities and assets available at a given point of time. Our mandate is to add 150-200 MW of wind and 50 MW of solar capacity every year. Since the wind power segment in India has developed for over 20 years, whereas solar power is more nascent, the policy framework for wind is more established.
How do you see the industry and market structure evolving over the next few years? Are we likely to see further consolidation?
India is still very much a developing nation, with low per capita consumption. In line with the low-carbon growth strategy, the government is pursuing aggressive targets for generating energy from renewable sources. The government should, therefore, evolve an energy security policy and issue guidelines on how state regulators should determine tariffs using bulk sourcing of power based on a prudent mix of fuels. This is akin to the Central Electricity Regulatory Commission’s guidelines for percentage share of bulk sourcing from renewable sources. Energy is the engine that drives the pace of the economy and it is in the interest of the country’s economic development that the sector is given its due importance. The sector has witnessed steady growth through private sector participation. There is a need for concerted efforts by all stakeholders to overcome the key obstacles hindering sector growth. Also, the government would do well to divest from the power generation and distribution businesses, and be a catalyst to promote investments. It should act as the custodian of the customer’s voice and demand performance from private utilities. One would want to see the power sector cater to customer needs in terms of quantitative and qualitative aspects, benchmarked with best-in-class utilities across the globe. Fortunately, this exists in pockets and needs to be replicated elsewhere in India, through the strong will of the government.
What are the key unresolved challenges in this space?
The expansion of renewables is hampered because of the following challenges:
- Poor enforcement of the renewable purchase obligation mechanism
- Lack of a robust financial structure for the renewable industry
- Absence of a robust market for solar renewable energy certificates
- Lack of standardisation of basic technical features/parameters to provide enhanced comfort to project financiers
- Identification and development of land banks in appropriate areas, and a transparent method for acquiring land
- Poor financial health of many discoms
- Arbitrary backing down by discoms.
What is your outlook for the renewable energy sector over the next few years?
Over the next few years, India’s focus would largely be on renewable energy. Solar power is a focus area of the government with 100 GW of installations being targeted by 2022. As conventional grid-connected and rooftop solar projects continue at their own pace, the sector needs to look at various innovative technologies to achieve the 100 GW solar target. Floating solar power plants can help address the problem of land availability. Tata Power has already achieved proof of concept by installing a small plant on lake in Lonavla. New technologies in photovoltaics have reached incremental efficiencies in lab tests; we need to look at these technologies in order to have better output.
As a key industry player, what would be your three suggestions for policymakers to address current or upcoming challenges in this space?
Many renewable projects have been facing challenges related to evacuation. Grid management becomes a problem as, due to seasonal variations, renewable capacities increase or decrease. In such situations, it is imperative that infrastructural enhancements are made along with the announcement of new policies and targets. In order to tap the potential of off-grid technologies, there is an urgent need to have commercially viable storage technologies. Commercialisation of hydrogen and fuel cells is the need of the hour. Special research and development centres and funding will help in commercialisation and bringing down costs.
With the announcement of the Smart Cities Mission, smart grid technologies are expected to gain importance. Smart metering will be the first step towards this cause. Successful implementation would require the support of government programmes to provide incentives for investment. Enabling policies along with regulatory directives/mandates will propel faster implementation of smart metering.
Anil Sardana is Managing Director and Chief Executive Office, Tata Power.