Singapore-based Sembcorp entered the Indian power sector a decade ago. Today, its Indian arm, Sembcorp Energy India Limited (SEIL), is a leading genco with a balanced portfolio of renewable and thermal assets. The company has weathered the Covid-19 crisis through digital measures and is now gearing up for the next level of growth. In an exclusive interview with Renewable Watch, Vipul Tuli, managing director, SEIL, shared his views on the state of the sector, the outlook for the future as well as the key issues. Excerpts…
How has the country’s renewable energy sector evolved over the past decade? What have been the key highs and lows in this energy transition?
The Indian power sector continues to aggressively pursue its efforts to transition to a cleaner energy portfolio. In pursuit of achieving its long-term target of 450 GW, the Indian renewable energy sector is today one of the world’s largest, fastest growing, and most competitive markets. It has witnessed rapid growth in the past decade, today contributing 8-9 per cent of India’s electricity, steadily moving towards contributing 15-20 per cent in the next 10 years.
At Sembcorp, we have a global carbon target. Therefore our thrust is on growing our renewable business. The recent successful commissioning of the entire 800 MW of generation capacity won in our three SECI wind projects is an example of our focus on renewables. With this, SEIL now has the largest operational capacity of SECI’s wind projects in India.
The next level of renewable energy growth in India, beyond 10 per cent of the power generated, will require a fresh set of reforms. These must include the recognition of the true cost of renewables by making subsidies explicit, since the policy of passing on the costs of renewable interstate transmission and intermittency to conventional generators and discoms now appears to have run its course.
What is your perspective on the current state of the power sector?
The power sector has been coping with the Covid challenges – fluctuating demand patterns, tight liquidity and working capital difficulties. As an essential service, the sector has the responsibility to continue generating uninterrupted power for the country. During the past few months, every player in the power value chain rose to the occasion – state discoms, grid operators, regulators, and the state and central governments have all gone out of their way to ensure uninterrupted power. The sector has shown remarkable resilience in the face of the Covid-19 pandemic, with supplies holding up admirably, despite the global turmoil in financial and commodity markets. However, this has come at a cost. As nearly one-third of the global population stayed indoors and thereafter gradually started returning to work, power demand fluctuated drastically. Supply, which had already been surpassing requirements and thereby putting pressure on prices, was deeply impacted by the demand fall-off. While the electricity sector has been comparatively insulated from oil price fluctuations, the sudden dip in revenue and cash collections has left a large section of energy companies financially stressed.
“Our next level of renewable energy growth will require a fresh set of reforms, which includes recognition of the true cost of renewables.”
What steps have been taken by SEIL to mitigate the impact of Covid-19 on operations?
The pandemic has necessitated the introduction of new standard operating procedures (SOPs) and technological solutions. At Sembcorp, all our sites have been fully operational. The new SOPs were introduced in early March, even before the lockdown. A near-universal theme – globally and across all sectors – will be an acceleration in the adoption and integration of technology in the way we live, work and play post-Covid-19. Whether it is forecasting demand in the midst of volatility, managing supply chains, collecting dues efficiently, managing and maintaining critical assets or responding to rapidly evolving ground situations, all these aspects of day-to-day operations are swiftly incorporating the latest technological tools.
Our Virtual Brain Renewables is one such advanced analytics-based digital asset management platform that provides real-time data and indicators on wind speed, temperature, power output, plant load factors, etc., as well as wind versus power generation efficiency curves. This helps our operations teams with insights for predictive maintenance by providing them real-time data of over 30 assets situated at remote locations.
What are the key issues and challenges being faced by the sector?
One of the foremost issues facing the power sector is the frail financial health of discoms, which continues to cause liquidity risks and adversely impacts the return on equity of IPPs. Against the backdrop of a sharp reduction in electricity demand, a slowdown in receivables collections due to the lockdown and uncertainty regarding future economic recovery, a number of measures have been announced by the government to support the sector. The recently announced liquidity package for discoms is highly welcome. The introduction of the Draft Electricity Act (Amendment) Bill, 2020, proposing rationalisation of tariffs, obligation to supply, competition through open access and the setting up of the Electricity Contract Enforcement Authority is another crucial step taken to fundamentally reform the sector. This is the single most game-changing initiative in the sector, and we hope that it will be enacted at the earliest. A new national tariff policy is also in the final stages of approval.
As I have mentioned earlier, our next level of renewable energy growth will require a fresh set of reforms, which include recognition of the true cost of renewables.
What are some of the recent key highlights of the company’s renewables business?
Our renewables business unit has successfully commissioned the entire 800 MW of generation capacity won in the first three wind auctions conducted by SECI. With this, SEIL now has the largest operational capacity among the SECI wind projects. For Sembcorp, this represents a promise fulfilled and a promise of things to come. We are a long-term investor, and we take pride in meeting our commitments. These projects have given us confidence in our capabilities, and we are now ready to move into the next phase of our growth journey and participate in future opportunities. Moreover, we have strengthened our in-house operations and maintenance (O&M) capabilities and processes, bringing 624 MW under self-O&M. We own the largest fleet of wind assets under self-O&M among IPPs in India, which helps us drive cost benefits with high operational efficiencies.
“The power sector has witnessed a transition in the past two decades, with structural and regulatory policies providing the necessary impetus for growth.”
Which emerging segments (floating solar, energy storage, hybrids, etc.) have the highest potential in the near future?
India has plans to reach a total of 175 GW of renewable energy by 2022 and 450 GW by 2030. However, relying solely on wind and solar to achieve the target is a suboptimal option. Experience in countries that have achieved renewable energy penetration of over 15 per cent indicates that some flexible energy resources, which can rapidly ramp up or down, are needed. These could include hydro-or gas-based power or energy storage solutions or even clean coal in the Indian context.
As this energy transition accelerates, we need to explore various options, technologies and business models – aside from plain vanilla contracts – to expedite the adoption of low-cost but intermittent renewable energy. Hybrid projects are fast emerging as viable new renewable energy systems in India.
The economy and businesses will be faced with multiple headwinds due to this pandemic. At Sembcorp, we continue to focus on issues within our control. Our balanced portfolio provides us an edge in capturing the imminent rebound in the nation’s energy demand and contributing to a sustainable future.
The power sector has witnessed a transition in the past two decades, with structural and regulatory policies across the value chain providing the necessary impetus for growth. With ambitious renewable energy targets and the transformation of thermal plants into environment-friendly units, the power infrastructure is set to witness a marked change. Having established capacities and capabilities, Sembcorp is well positioned to continue its steep trajectory of performance improvement and sustainable growth in the country.