Incorporated in 2017 with equity infusion from Actis, Sprng Energy has a contracted portfolio of around 2.7 GWp. By next year, the company aims to find a new investor for its entire platform as Actis is planning to exit. In an interview with Renewable Watch, Gaurav Sood, chief executive officer, Sprng Energy, discussed the growth of the company over the years, current issues in the regulatory framework and solutions to revamp it. He also shares his views on the financial health of discoms and the future outlook for the renewable energy sector. Excerpts…
What is Sprng Energy’s current portfolio?
Sprng Energy’s current operational portfolio is over 2.1 GWp, and contracted portfolio is 580 MW. Put together, our total portfolio is around 2.7 GWp. Of this, wind accounts for 500 MW of capacity while the remaining is solar capacity.
How has the company grown over the years?
The company was established in early 2017 with Actis as the 100 per cent equity stakeholder. The team has grown to around 110 employees today. Through these years, we have grown both organically and inorganically. In February 2017, the company won its first auction, a 250 MW solar project at Rewa at a tariff of
Rs 2.974 per kWh. In December 2017, it won a 197.5 MW wind project in Gujarat at a tariff of Rs 2.43 per kWh. In 2018, Sprng Energy won two 250 MW solar projects each at the Anantpur and Kadapa solar parks, with NTPC Limited (Rs 2.72 per kWh) and the Solar Energy Corporation of India (SECI) (Rs 2.70 per kWh) as the implementing agencies respectively. In 2018, Sprng Energy also won a 300 MW wind project under the SECI Tranche IV tender auction at a competitive tariff of Rs 2.51 per kWh.
The company acquired 235 MWp of operating solar assets in 2019. In 2021, it acquired 683 MWp of operating assets. It also won a 120 MW solar project at a tariff of Rs 2.20 per kWh under the auction conducted by Gujarat Urja Vikas Nigam Limited this year. Our engineering, procurement and construction partners include L&T, Siemens Gamesa, Envision and Nordex.
What is your opinion on the planned sale of Sprng Energy by Actis?
Sprng Energy was given an equity commitment of approximately $500 million. The deployment has been more or less completed. The next natural phase for the investor is to exit and provide liquidity and returns to its limited partners. Moreover, Actis specialises in greenfield investments while there are other investors interested in brownfield investments. Sprng Energy’s new investors could be pension or infrastructure funds or bigger companies. Also, our objective is to find the right partner to grow the company further.
Will there be a diversification in business areas post getting a new investor?
Certainly, a lot depends on the ultimate buyer and its plans. Overall, a transition in the energy sector is taking place, with greater capacities of renewables, from stand-alone solar and wind projects to hybrid, round-the-clock and storage projects. Also, there is focus on moving to the commercial and industrial (C&I) solar segment along with utility-scale solar and wind projects.
What is your perspective on diversifying into the green hydrogen business?
It is too early for the green hydrogen sector to create a dent in a price sensitive market like India. The focus right now is only on small-scale pilot projects.
How has the renewable energy space evolved over the past four years since the inception of Sprng Energy?
Over the years, the renewable energy sector has become more competitive. Many new players with significant capital have entered the sector. However, the flow of tenders has reduced substantially, leading to further competition, thereby reducing tariffs and returns. Overall, the renewable energy sector has matured over the years and investors’ return expectations have also lowered. Regulatory challenges have always remained in the sector. These issues do get resolved, but with a significant time lag, thus hampering the growth of the sector.
Over the years, the key challenge has been the imposition of GST and safeguard duties. Also, companies have struggled in terms of change in law declarations and getting paid by their respective offtakers. Moreover, there have been delays in getting regulatory approvals, be it for signing of power sale agreements, tariff adoption or power procurement approvals by the respective state regulators. The falling tariff regime has made such delays more challenging.
Most recently, the imposition of basic custom duties and the Approved List of Models and Manufacturers requirement for modules has been a key regulatory obstacle. There is a big question mark on whether the Indian module and cell manufacturing sector will be able to expand its production base to meet the demand, and provide cost-competitive good quality modules. If this does not happen, the growth of the Indian renewable energy sector could derail in the next couple of years.
Furthermore, the Supreme Court ruling to lay underground transmission lines in the potential Great Indian Bustard (GIB) arc across Rajasthan and Gujarat to protect the GIB is technically and commercially not viable. Also, there have been delays in setting up power evacuation infrastructure, leading to delays in signing of long-term access agreements. The impact of Covid-19 has been felt across the entire value chain. On the positive side, India is one of the few countries across the world that has set a clear and ambitious target for the renewable energy sector.
What is the bigger issue with the regulatory framework – complexity or delays in project execution?
The issue is not with the sheer number of regulations. I think the main problem is that the regulatory framework is not completely thought out upfront. Also, getting regulatory approvals from the state regulators is a time-consuming process. In addition, there are many stakeholders in the power sector that work in silos – the intermediary floats the tender and the offtakers like state discoms adhere to the state regulations. There are other stakeholders as well such as Powergrid that execute power transition projects. In this space, there is confusion regarding delays in the deployment of power transmission infrastructure and the resultant time lags between the execution of the power project and power transmission lines. All these issues impact the open access network as well.
What should be done to revamp the regulatory framework?
One, before the bidding is done, there should be an upfront power sale agreement with the offtaker. Two, the power purchase agreement and power evacuation should be in sync so that power transmission and power generation projects can be set up simultaneously. Three, any change in law should lead to immediate solutions for the independent power producers.
Is the future of India’s renewable energy sector centralised or decentralised?
The focus on centralised projects was key to the growth of the renewable energy sector. With the current focus on interstate transmission system (ISTS)-connected projects, new projects are concentrated in Rajasthan, Gujarat and Tamil Nadu. Free evacuation infrastructure is used to send power to states with low renewable energy potential. Once the ISTS waivers are withdrawn, the focus would also shift to states with less renewable energy resources. This will promote a balanced growth of the sector across states.
With the reduction of renewable energy tariffs, many state regulators are becoming open to the idea of having more renewable energy capacities. However, the bankability issues of the state discoms remain. With amendments to the Electricity Act, these bankability issues of may get resolved. In the decentralised space, the C&I rooftop solar segment may see significant growth post the amendments. In the rooftop solar segment, the challenge is with scalability, but that will be resolved with time.
The industry needs to acknowledge that storage costs are still too high to make 24×7 supply of renewable energy possible anywhere, even in rural areas. This is a necessity, but it will be feasible in the next five years when storage costs come down.
What is the future outlook for the financial health of discoms and the renewable energy sector?
The reforms planned for discoms will certainly help. The only question is how quickly they will be implemented, because there will be resistance from the state governments. For electricity subsidies, the government is suggesting that discoms should charge for the entire cost of power. Then the subsidies will be directly disbursed to the bank account of the respective beneficiaries. This will lead to certain benefits. One, discoms will recover their dues. Two, they will not have to cross-subsidise, leading to a reduction in the cost of power for C&I segments. Apart from this, the delicensing of the distribution sector will lead to multiple service providers for the sale of electricity, which will drive competition.
Once the firmness of renewable energy is ensured and a compelling tariff is discovered, it will lead to exponential growth of the renewable energy sector. The energy storage sector needs a significant drop in costs as witnessed in the solar power sector, where tariffs decreased from around Rs 18 per unit to around Rs 2 per unit within a decade.