Interview with J.N. Swain

“We cannot say how long it will take to return to full scale”

The year 2020 has proved to be extremely challenging for all businesses including renewables due to the coronavirus outbreak and the subsequent lockdown. Projects will face delays as supply chains have been disrupted and imports have been halted. To discuss the implications of the ongoing pandemic, Renewable Watch organised a webinar on the “Impact of Coronavirus on Solar Project Delivery in India”. During the webinar, J.N. Swain, managing director, Solar Energy Corporation of India (SECI), shared his views on the current state of the solar segment, the status of project development, SECI’s plans for future tenders, and the short- and long-term outlook. Excerpts…

What is the expected impact of the coronavirus pandemic on the power and renewable energy sectors?

We are still at a relatively early stage and it is difficult to comprehend and predict what is going to happen or how long it will continue. Considering the impact of the coronavirus pandemic, the Ministry of New and Renewable Energy has declared that any delay in the scheduled commissioning of renewable projects due to supply chain disruption will be treated as a force majeure event. The date announced for the lockdown will be considered for the standard extensions.

Overall, the lockdown has had a significant impact on the power segment. According to Power System Operation Corporation Limited, electricity demand during this period (up to March 26) has fallen by about 20 per cent. From the power sector’s perspective, renewable energy is better placed to counter the disruption caused by the pandemic when compared to conventional power since it requires relatively less manpower once it is installed. However, there will be difficulties in project implementation in terms of mobilising resources, especially labour resources.

Is the frequency of tenders being issued for solar and wind projects likely to be impacted?

SECI has committed to issuing tenders for about 20 GW per year, which will be required to meet the renewable energy targets. Assuming a loss of one to two months, the frequency of tenders will increase in the latter part of the year. The plan is to increase the total tender capacities. There would be bids for capacities of 3-3.5 GW every three to four months. Extensions may be granted for some deadlines, which were scheduled for dates in the near future. Overall, we can expect solar capacity addition to be pretty much on track.

Since the supply chain crisis has been disrupted by the pandemic, will more support be given to domestic manufacturing? What packages can the government consider to support it?

The government has already announced the imposition of basic customs duty. That should be enough to provide a level playing field for existing and potential manufacturers. In view of the impact of the coronavirus on manufacturers internationally, as well as the growing market for renewable energy in India, many global manufacturers are actively looking to set up manufacturing units in India. Domestic manufacturers, too, are gearing up to expand their facilities.

SECI proposes to enter power generation with the development of 5 GW of hybrid projects. Is there any guidance that can be provided on the means of financing and how the credit profile of SECI will be preserved?

Originally, SECI was designed as a generating company with an authorised capital of Rs 20 billion and paid-up share capital of Rs 3.54 billion, which can be increased through equity infusion by the government. Eventually, in view of the National Solar Mission and its demand, SECI turned into a trading company. SECI may have to diversify into generation if the Re 0.07 margin is not sufficient for the company to maintain its strength.

We do plan to enter into the commercial business and set up our own generation projects. SECI is a profitable entity and if the reserve balances are included, the company’s total equity would stand at more than Rs 6 billion, which could be used for equity investment in the projects. SECI will set up 5,000 MW of solar and wind hybrid power generation capacity with storage over 10 years. The plan is to initially set up 500 MW of this capacity at a cost of about $400 million over two years. This cost would be met through 80 per cent debt and 20 per cent equity. We have already tied up with the World Bank for funding of $200 million through debt. We will also invest $80 million of our own equity. The remaining debt will be met through domestic institutions. Although this initiative encountered some issues initially, they have been resolved and we do not expect any major impact on SECI’s ability to run as a trading company.

What impact do you expect on tariffs that are going to emerge in the subsequent tenders?

It is very difficult to speculate in the current situation. Many factories in China are closed and Indian solar projects depend significantly on China for most of the solar components. When these companies reopen, the demand for components will have to be observed. Despite a lot of projects being in the pipeline, all the projects will not resume work at the same time, so the effect will be staggered. There may also be problems in terms of finances for developers. The Chinese factories may ramp up their production when they begin again in order to meet the demand. The wind segment is bound to get affected since certain components for wind projects come from China. Overall, there may not be a major shift either way, since both the demand and supply sides have experienced a similar slowdown. We cannot say how long it will take to return to full scale.

What delays do you anticipate in the upcoming projects?

There are two kinds of issues that are expected to crop up. One is related to the existing projects that are in the implementation or the preparation stage, and the second pertains to the tender trajectory – whether we will put out new tenders. For existing projects under implementation, a delay of three months can be expected. However, requisite extensions might be given to developers by the government. Developers may not face penalties on delays due to force majeure. In terms of the tender trajectory, there may not be too much of a delay unless the virus continues for a year.

The rooftop capacity may be affected a bit more since the mobility of people is restricted. It is more difficult under present circumstances to get the rooftop segment back on track. As things start unfolding and the lockdown gets lifted, there will be more interactions with the local authorities in terms of improving connectivity.

Are there new tenders with an energy storage component in the pipeline?

SECI is trying to develop different products. The ministry has consulted with discoms regarding the kind of products they would prefer although currently there are only plain vanilla products. Depending on the response from the discoms, new products will be declared. We have already worked on new products such as solar plus storage with despatchable power, hybrid projects with capacity utilisation factors of 60-70 per cent and projects with guaranteed peak power supply. SECI is also considering the introduction of guidelines for stand-alone storage projects to kick-start the storage market. It may take a while to materialise, but we have started working on potential projects for pumped storage as well as battery storage. The tender will likely be technology-neutral. Earlier, we had rolled out tenders with total capacities of 1.2 GW, while we recently put out another tender for 2 GW. We want to further increase tender sizes to 3-4 GW. It will also give the market some time to prepare for the tender. This is expected to help in achieving the national targets.

Do you expect a change in the discoms’ appetite for the absorption of new renewable energy?

The journey to decarbonisation will ensure that renewable energy is adopted. With an expected retirement of 20-25 GW of old thermal assets (assets that are unable to install FGD), there will be a considerable supply gap that renewable energy will have to fill. Further, RPO compliance will be made stricter with stiff penalties. Projects like solar plus storage will help with the storage component by providing ancillary services, thus eliminating the need for coal plants to be on standby. When the current situation passes, power consumption may surge to make up for the lost time. In line with the wholesale price index, power consumption is also expected to rise by about 4 per cent.

What is the change in the short-, medium- and long-term outlook for the sector due to Covid-19?

In the short term, the impact could be negative since projects are stalled. However, in the medium and long term, no major impact is expected considering we are committed to renewable energy procurement in line with the INDC targets.

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