Interview with S. Nimbargi

“The country may be able to have round-the-clock clean energy”

Shivanand Nimbargi, Managing Director and CEO, Ayana Renewable Energy

With power purchase agreements (PPAs) being reviewed in Andhra Pradesh, tenders being undersubscribed and the emergence of new segments, the renewable sector is witnessing an upheaval. For sustained growth of the sector, a range of issues need to be dealt with. In a recent interview with Renewable Watch, Shivanand Nimbargi, managing director and CEO, Ayana Renewable Energy, shared his perspective on the challenges that need to be addressed in order to revive the sector. Excerpts…

What are the biggest issues that the renewable energy sector is facing today?

There are many challenges in the sector. First, PPAs are being reviewed in Andhra Pradesh. This is an attempt to renegotiate the tariffs that have been determined by the relevant state commissions or have been discovered through competitive bidding under Section 63 of the Indian Electricity Act, 2003, raising many concerns domestically and globally. Second, the sector has moved from a feed-in-tariff regime to a competitive bidding process. This has led to challenges in terms of execution. For example, the project execution timelines are not linked to the effectiveness of the PPA, which is linked to the tariff adoption. Though the GST and safeguard duty reimbursement have been upheld by the CERC, the actual disbursement is taking longer than expected, impacting the ability of developers to further bid for projects. A time-bound mechanism for reimbursement along with a carrying cost is the need of the hour. Lastly, the PPAs must have robust provisions for key matters like payment security, tariff adoption, termination payments and potential renegotiation. Passing on these risks in a subtle manner to developers will prevent the inflow of additional equity capital and impact the bankability of projects.

The companies need to deploy back the money that is blocked in equity capital. As a country, we are facing liquidity issues. The banking system is under a lot of stress and the availability of debt is also getting impacted. The banking system must be assured that the government will perform its obligations under PPAs in true spirit. The government needs to allay their fear about the financial condition of discoms, change in law related reimbursements, delayed payments, tariff renegotiation and PPA termination. Developers cannot underwrite these risks for the banks. To this end, we expect the government to take steps and create an environment of growth where enough equity and debt capital is available for the sector.

Whenever any sector evolves or the country moves from a set way of adding capacities to newer regulations, there are going to be difficulties. It all depends on how quickly the sector is able to learn from these situations and make changes in the bidding guidelines and PPAs to ensure the financial viability of investments. To this end, a lot of solutions have been proposed by the industry to the MNRE.

Has the government made adequate efforts to resolve these issues at the desired pace?

Electricity being a concurrent subject, the government at the centre cannot resolve all these issues alone. It requires a collective approach of the centre and the states. The centre and the states together need to implement structural changes to make the sector viable in the face of huge outstanding dues and the poor financial health of discoms. To this end, with effect from August 2019, the central government mandated opening of letter of credit (LC) in favour of generating companies before any dispatch of power by the NLDC or RLDCs to the distribution licensees. Further, bringing in technology to track T&D losses in a transparent manner will help discoms bring down these losses. Structural reforms like providing cash credit to subsidised consumers including farmers into their account and enabling them to pay for their consumption will eliminate unaccounted for losses and bring in higher efficiency in the system.

There is also a need to take measures for managing supply-demand. This involves integrating clean energy sources while managing the transmission and distribution (T&D) network and the grid. If these measures are implemented, the country may be able to have round-the-clock clean energy in the near future.

Will the industry be able to meet the 2022 targets at the current pace?

It looks difficult, since we are already in 2019. A lot of awarded projects have been facing challenges due to frequent changes in law, lack of connectivity, availability of debt financing and changes in state-level land acquisition procedures mid-way through execution. All the above have impacted the project execution timelines and have also resulted in a decline in bid participation.

It is important to note that capital is not a constraint. Foreign equity investors are keen to enter this sector in India. All we need to ensure is that based on the lessons learnt so far, necessary amendments to bidding guidelines, PPAs and the Electricity Act are made to protect the interest of investors under PPAs and to ensure the sustainability of investments.

What are your expectations from the emerging segments such as hybrids, EVs, floating solar and energy storage?

New technologies are coming up. Electric vehicles (EVs) are going to have a good future. There is a need for large-scale investments in charging stations and battery manufacturing to drive growth in the EV industry.

Under hybrids, wind and solar energy have been integrated at the substation level, instead of injecting solar directly into the turbine. Optimisation is done at the substation level, where solar and wind power is connected. The new tenders including energy storage, floated by the Solar Energy Corporation of India (SECI), are still work in progress. Further, the base tariff along with the peak and non-peak tariffs need to evolve. Storage technologies are expensive at present, but they can be incorporated in the future given the downward cost trend. However, it might be a couple of years before these technologies become competitive with respect to the prevailing peak tariffs.

In the past one year we have seen little fluctuation in solar and wind tariffs. Do you think the tariffs are now sustainable?

India has already reached a very competitive level of tariff and based on the challenges being faced by the developers, we may actually see tariff moving up in the near future.

Every time a low tariff is discovered, the ceiling tariffs for the next tender are pulled down. The government must realise that a single-minded focus on bringing down the tariff may not be in the long-term interest of the country as well as the sector. We have empirical evidence from other sectors regarding this. If we are conducting a reverse auction, the best thing would be not to have a ceiling. This might help in bringing tariff stability and financial sustainability.

What consolidation trends can be seen in the near- to long-term in the solar and wind power segments?

There are many companies with small capacities that are not in a position to achieve the desired level of growth. This presents an opportunity for consolidation. Eventually, we might see only large utility-scale players and large financial investors operating in this industry. Opportunities like InvITs might also lead to consolidation of capacities.

How has Ayana Renewable Energy’s journey been so far? What is its vision?

Ayana Renewable Energy is a company that started with funding from the UK’s CDC Group. Ayana then went on to participate in bidding activities and won two solar energy projects. One was a project for SECI and the other was for NTPC, with 500 MW of capacity. Thereafter, we raised additional funds from the Green Growth Equity Fund and the National Investment and Infrastructure Fund of India.

Currently, Ayana has 800 MW in the pipeline and is actively scouting for good operational assets. We are also looking at bidding for more projects in the hope that suitable amendments to the policy framework will be put in place.

Ayana’s vision is to be a leading clean energy supplier and stay ahead in terms of technology while contributing to the development of the areas and communities it operates in.

What is your outlook for the renewable energy sector? What will be an ideal energy mix for a country like India?

We are quite positive about the future of the renewable energy sector in India. In order to maintain the momentum and accelerate renewable capacity addition, it is important to implement uniform and comprehensive land acquisition policies, which also includes the utilisation of wasteland. The country has started adopting new technologies such as hybrid and storage. This will help make round-the-clock renewable energy a reality, reducing the dependency on fossil fuels and improving the environment.

In terms of the energy mix, India will continue to have fossil and renewable sources, but we expect the share of renewables to increase significantly. This is subject to the implementation of a sustainable policy framework and the adoption of newer technologies.

“The centre and the states together need to implement structural changes to make the sector viable.”

“If we are conducting a reverse auction, the best thing would be not to have a ceiling. This might help in bringing tariff stability and sustainability.”


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