Interview with Vipul Tuli

“There is a method to our madness”

Vipul Tuli, Managing Director, Sembcorp Energy India Limited

Better operational performance and the commencement of a new wind power project have helped Singapore-based energy firm Sembcorp’s India unit to turn around. It posted a net profit of SGD28.9 million in the quarter ended September 2018 compared to a loss in the corresponding quarter in 2017. In an interview with Renewable Watch, Vipul Tuli, managing director, Sembcorp Energy India Limited, spoke about the company’s strategy for the Indian renewable energy market, the key policy and regulatory issues and the challenges that need to be addressed. Excerpts….

In your opinion, have renewable energy developers in India become more cautious in recent times?

Developers work in a macro-environment where interest rates are likely to go up, but it is difficult for developers to predict the interest rates. At the same time, we are experiencing a currency devaluation. Developers have to not only build projects but also ensure that the performance of renewable energy plants is not compromised. In fact, the long-term performance of some of the recently bid out solar projects is yet to be evaluated. The system needs to get comfortable with all the macro-economic changes. Steps need to be taken by all participants to resolve these issues. From the industry’s side, developers need to be realistic with regard to the tariff they are bidding and with the assets they are acquiring. On the policy side, policymakers have to think about how to ensure a steady pipeline of projects, which allows equipment suppliers and original equipment manufacturers (OEMs) to have some predictability in their volumes. Therefore, policymakers should ensure a stable macro-economic environment and developers should factor in the changes in the economy while bidding for renewable energy projects.

This is by no means an easy thing to do because there are objectives that the country has in place. One of them is to put competitive pressure on the sector to ensure that tariffs remain low. But at the end of the day, the policymakers have to decide whether focusing on low tariffs is a long-term solution.

The cost of renewables is higher than the tariffs determined in recent auctions. How do developers manage to survive in this scenario?

It is very straight-forward. If the developer incurs a generation cost of Rs 2.50-Rs 3 per unit and an additional Re 0.50-Re 0.60 per unit of transmission cost, the total generation cost comes out to be around Rs 3.50 per unit. However, the power from these plants is intermittent and non-despatchable. Now, in order to compensate for the intermittency, the developer invests in storage technologies or takes a step forward to build hybrid projects. These investments add an additional Re 0.50-Re 1 per unit to the generation cost. The total cost then adds up to Rs 4-Rs 4.50 per unit (which is roughly similar to the generation cost of thermal power). My assessment is that there is not much difference between the fully loaded cost, including the cost for ensuring reliability and despatchability, of renewable energy and the cost of thermal power. Obviously, thermal plants release more carbon emissions. So, the long-term direction that the country should take is clear.

What is your opinion on the renewable energy-based open access segment? Has Sembcorp Energy tried to get into the open access market?

Open access is indeed an attractive market if it is accessible. When you have to invest capital to build a plant that will generate electricity for around 30 years, the developers have to be sure that they can make money for all 30 years. They cannot assume that open access will be possible throughout the life of the plant. Sembcorp has some group captive projects, but not much of open access. We have open access plants in Tamil Nadu and Karnataka with a capacity of around 200 MW. We are continuing to look at it. To digress, the country took the initiative to start open access of renewables with some strategic intent. We have to look back and see if we have been able to achieve that. The answer is clear. We haven’t.

What has been the experience in terms of the regulations and charges applicable for open access?

Overall, the discoms have been reluctant to permit open access as it does not allow them to recover the costs they have incurred. This resistance sometimes translates into open access charges. It is very fashionable to criticise the discoms. But the discoms work in the toughest environment to meet their finances. Again, we have to step back as a country and ask ourselves one question – if we want to transition into an energy powerhouse of the future, can we do so without the discoms playing a role? Are we building discoms of the future? Or do we want the discoms to keep working in the old way, and put more and more performance pressure on them? No, we have to infuse new capabilities in the discoms so that their performance level improves.

Sembcorp recently commissioned a 250 MW wind project in Chandragiri, Tamil Nadu. What were the best practices followed in the development of this project?

This is the first wind project to be commissioned under the Solar Energy Corporation of India’s (SECI) wind programme. It has been commissioned six months ahead of schedule. There were several differentiating factors. First, we stuck to our motto till the end. Our motto is that if we make a promise, we must deliver it. Probably deliver more than what was promised. Second, we were able to achieve financial closure quickly due to our strong balance sheet and governance ethics. Third, the project team was extremely innovative. Sometimes the human resource is not well appreciated. But during the process, there was a five-month delay due to some complexities regarding the transmission of energy. Despite this, we were able to commission the project six months before the new timeline. We took just 65 days to commission the project after getting transmission approval. This means that the designing of the substations, manufacturing and transportation from China, and installation and connection to the grid happened in just 65 days. Fourth, we worked collaboratively and cooperatively with Suzlon (our OEM).

What are Sembcorp’s future plans and targets for India?

We are hoping to add 300 MW to 500 MW capacity per year to our portfolio. But, as I said in a different context, the target is not about achieving the volume but about building high quality plants that give us reasonable, sustainable and predictable returns. Apart from this, our strategy is to invest in innovative technologies and smarter projects.

In the feed-in tariff regime, we never catered to large volumes. We built small projects. Meanwhile, we were always preparing for the competitive bidding regime. When the competitive bidding regime began, we were one of the largest bidders in the first three SECI tenders and won bids for over 800 MW of renewable capacity. When the industry started thinking that we would continue to bid for larger amounts, we thought of taking a break from the bidding process. This was done to make sure that we deliver what we had promised. We also wanted to improve our capabilities to develop wind projects (which we did with the wind project in Chandragiri).

Now, everybody is taking a cautious view of the solar segment. But in our view, this is the right time to invest in this segment. We are able to foresee what other developers don’t. So, I must say, that there is a method to our madness.

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