A dynamic market-driven business model along with a regulatory push has led to a transformation in the cost-intensive and risk-prone renewable energy sector. The growth of the solar segment has been especially striking with low tariffs that promise better offtake, decreasing capital costs, greater availability of low-cost finance, and larger capacity installations. While the private sector has played a significant role in promoting the segment, the public sector too is emerging as a growth driver with more public sector units (PSUs) moving towards solar energy for power generation and procurement.
Notably, many PSUs were early movers in the wind power segment. Some of the first wind farms were developed by these companies, infusing the required capital into the segment to drive the market forward in the absence of low-cost funding. Now, a similar scenario is emerging in the solar power segment, which is witnessing low returns. While the risk profile has improved, the profit margins have reduced following a fall in the tariffs discovered in recent tenders. In such a scenario, PSUs are the ideal investors as they have a greater risk appetite and diversified revenue streams to be able to install large capacities.
In 2014, the cabinet approved proposals for providing Rs 10 billion to PSUs for developing over 1,000 MW of solar power capacity to be implemented by the Solar Energy Corporation of India (SECI). This provided the basis for greater PSU participation in the solar power segment. Over the years, this fund has been utilised by companies to develop significant solar power capacity. Most of the solar tenders released by the central government have capacity earmarked for development only by PSUs. The latter do not need to bid for it, making it easier for these companies to invest in the segment.
Sectors such as power generation and oil and gas have a significant number of PSUs. As a result, these are also amongst the biggest polluting sectors in the country. In order to reduce their carbon footprint and diversify sources of power generation, companies like NTPC are embracing different renewable energy technologies. Driven, in part, also by their renewable purchase obligation (RPO) commitments, these companies are investing large amounts to create solar power capacity.
NTPC has one of the largest renewable energy portfolios across all PSUs. As per NTPC, it has 928 MW of installed renewable energy capacity, of which 878 MW (12 projects) is solar power capacity and 50 MW is wind power capacity. Most of its capacity is located in the western and southern parts of the country. In March 2018, the company floated a tender for the installation of 2.75 GW of solar power projects across the country, including 750 MW to be developed in the Ananthapuramu ultra mega solar park in Andhra Pradesh. Reportedly, it has also called for tariff-based bids to buy 2,000 MW of renewable energy, which will be blended with coal-based power and sold to discoms under the existing power purchase agreements (PPAs).
Neyveli Lignite Corporation
In November 2017, the Neyveli Lignite Corporation (NLC) was tasked with covering vacant railway land with solar power generation projects. The power generated from these projects will be procured entirely by the railways. This is one in the series of solar projects that the country’s leading lignite-based power generator has undertaken or commissioned in order to diversify its generation base. As of April 2018, NLC had an installed solar and wind power capacity of 291 MW, with 400 MW of solar capacity to be commissioned by July 2018. In January 2018, it commissioned a 130 MW solar power plant in Neyveli, Tamil Nadu, developed in two blocks of 65 MW each. Meanwhile, NLC’s 250 MW of solar power projects to be built at a cost of Rs 45 million per MW have also been provided in-principle clearance by the Odisha government.
Further, the company has 709 MW of solar projects under development, which are expected to be commissioned by March 2019. These are a part of the 1,500 MW tender that was released by the Tamil Nadu Generation and Distribution Corporation (TANGEDCO), wherein NLC emerged as the winner of the largest capacity. The PPA for this project was signed with TANGEDCO in September 2017 at Rs 3.47 per unit. NLC has already floated a tender for Rs 25.5 billion, which is required to develop a project worth Rs 30.9 billion.
NLC has also been proactive in entering the solar plus storage market. It had issued a tender for the installation of 20 MW of solar power capacity with 8 MWh of battery-based energy storage systems (BESS) in the Andaman Islands, which was later scrapped. The company has now reissued the tender.
Coal India Limited
In 2015, Coal India Limited (CIL) signed an MoU with SECI to install 1 GW of solar power plants across the country. In 2016, the company signed agreements with SECI to develop 200 MW of solar capacity in Madhya Pradesh to be utilised by its subsidiaries – Northern Coalfields Limited and South Eastern Coalfields Limited. To this end, in September 2017, SECI floated an engineering, procurement and construction tender under the domestic content requirement category for two 100 MW projects located at the Neemuch-Mandsaur solar park. These tenders are part of CIL’s target to install 20 GW of solar power over the next 10 years.
In April 2018, NHPC commissioned a 50 MW solar power plant in Tamil Nadu. The company had signed an MoU with SECI to develop 250 MW of solar capacity across the country in November 2015. It has also entered into a joint venture with the Uttar Pradesh government for the development of 50 MW of solar capacity. Currently, NHPC has a 72 MW wind power project under development in Kerala. In addition, it has commissioned a 50 MW wind power plant in Jaisalmer, Rajasthan. The state-owned hydropower generator is undertaking alternative forms of power generation in order to diversify into a holistic energy company.
Oil India Limited has a cumulative renewable energy capacity of 150.3 MW, of which wind power accounts for 136.3 MW and solar power for 14 MW. Downstream oil majors Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) have also indicated their interest in expanding into the renewable energy power generation segment. To this end, BPCL will be setting up rooftop solar power plants at 10 of its oil depots and liquefied petroleum gas refilling plants. HPCL already operates 100.9 MW of wind power capacity in Rajasthan and Maharashtra, and is looking to further expand its portfolio. In August 2017, the Oil and Natural Gas Corporation decided to set up a 1 MW rooftop or ground-mounted solar power capacity in Goa.
In July 2017, the North Eastern Electric Power Corporation’s (NEEPCO) proposal to invest about Rs 9 billion to set up a 200 MW solar power plant in Odisha was cleared by the state. It is expected to be commissioned by December 2019. The company has further evinced interest in participating in Odisha’s solar park programme, which has not elicited much response from private players.
With deep pockets to bear the financial risks and strict RPO targets to fulfil, PSUs are the ideal investors in the country’s booming solar power generation segment. Most of these companies are looking at alternative sources of power generation to become diversified energy companies. Going forward, the participation of PSUs is expected to increase on the back of falling capital costs and better support from the government.