Interview with Balram Mehta

“Investments in renewables will grow”

Balram Mehta, Chief Operating Officer, ReNew Power

ReNew Power, established in 2011, commenced operations with a 25.2 MW wind power project in Jasdan, Gujarat. Since then, the company has grown rapidly, backed by strong investors, and has emerged as one of India’s largest independent power producers (IPPs) in the renewable energy domain. A series of acquisitions and active participation in renewable energy tenders have taken ReNew Power’s total portfolio to over 10.3 GW, including commissioned and committed projects. For further diversification of its portfolio, the company is now making a foray into other emerging renewable energy segments such as green hydrogen, solar manufacturing and round-the-clock projects. Last year, the company began a new innings as it became the first Indian renewable energy company to get listed on the NASDAQ. In an interview with Renewable Watch, Balram Mehta, chief operating officer, ReNew Power, shares his views on the key opportunities and challenges in the renewable energy sector, repowering and financing. He also offers some bold suggestions to resolve the current challenges facing the sector. Edited excerpts…

What have been the major achievements in India’s renewable energy sector that have led to the growth of renewable IPPs?

In the early 2000s, the wind power sector was a favourite investment option for most IPPs. There were many incentives being offered for investment in wind energy. The size of the investment from a MW point of view was limited. Thanks to original equipment manufacturers (OEMs) and small investors, the sector was booming. It was a perfect combination of small investors, OEMs, and proactive and investor-friendly policies by the state governments. All the windy states were periodically coming out with feed-in tariff (FiT) policies and the sector was flourishing. For ex­am­ple, our first wind farm of 25 MW in Gujarat was inaugurated by the then chief minister of the state. This shows the kind of importance that was given to this sector and the involvement that the state government had in the initial period.

The years 2010 to 2016 were an excellent grow­th period for this sector. Many IPPs came into existence, the sector attracted interest from foreign investors. The central government came out with many new initiatives such as renewable pu­r­­cha­se obligations, the renewable energy cer­tifi­cate mechanism, and the generation-bas­ed incentive scheme to promote and attract investment in this sector.

On the solar power front, except for the initial FiT-based projects in Gujarat, the segment started with the auction regime and has grown at a better rate than the wind power segment in the past few years. Now, the government is promoting manufacturing of solar modules and related accessories in India.

In the past decade, what have been the biggest disappointments in the renewable energy sector?

The renewable energy sector has witnessed un­precedented support from the government, policymakers as well as climate vigilantes. How­ever, the sector has also experienced several challenges when it comes to the execution and deve­lop­ment of projects.

The introduction of the tariff-based competitive bidding model in the wind segment back in 2017 promoted fierce competition among developers, thereby putting extreme pressure on IPPs and OEMs to lower their capital expenditure. With the rising cost of modules, wind turbines and land, revenue margins shrank drastically. Now everyone is working to reduce capex, operating expenditure and interest costs, and finding sites with high plant load factors to be competitive in the market.

There are a few states that are not adhering to the must-run status given to renewable power projects by the central government. This is affecting the wind and solar farms connected with the state grids. Also, due to the financial distress of state discoms, the receivable overdues are mounting at an exponential rate, although the central government is coming out with all possible options to ensure that IPPs get their dues on time. The state electricity regula­to­ry commissions too have given favour­able verdicts on these aspects.

In the past couple of years, a few state governments have initiated renegotiations of power purchase agreements (PPAs), thus questioning the sanctity of PPAs. Back in 2019, Andhra Pradesh had invited wind and solar power developers to renegotiate their PPA tariffs and other cove­na­n­ts, and most recently, the Punjab govern­ment also passed a bill to renegotiate PPAs with renewable power developers. The central government continues to be prudent in maintaining its ground and op­p­­osing such renegotiations, thereby res­to­ring the sanctity of PPAs and providing assurance to developers.

How has the wind power segment fared over the years? What should be done to give a fillip to this sector? What is your perspective on the repowering of wind power projects?

In the last decade, the renewable energy sector has been the most talked about sector and one of the most prioritised are­as for the central government. Wind manufacturing, in particular, is a “Made in In­dia” sector and has generated a lot of em­ployment. The sector took a hit after wind auctions were introduced in 2017. Most of the bids were fiercely contested and were won at very competitive tariffs by various IPPs. But execution has not matched the bidding fervour. The low tariffs have hit wind turbine manufacturers, as most of them were not able to supply the ma­chi­nes at the desired capex. The vicious cyc­le of low tariffs, low expected capex, redu­c­ed margins, increased commodity pri­ces, increased land costs, land allotment challenges in some states, and right-of-way issues for most sites have affected the growth of the wind power segment.

The vicious cyc­le of low tariffs, low expected capex, redu­c­ed margins, increased commodity pri­ces, increased land costs, land allotment challenges in some states, and right-of-way issues for most sites have affected the growth of the wind power segment

In the past three years, India could install only around 6 GW of wind capacity, at an average rate of 2 GW per annum. This is in spite of the fact that there is overall availability of more than 10 GW of production capacity in India. In these centralised auctions (being conducted by the Solar En­ergy Corporation of India), wind power is being sold to non-windy states through the central grid. This type of arrangement is de­manding lengthy transmission lines from pooling substations to the Power Grid’s substation and, in turn, a minimum size of wind farm (typically, around 300 MW). The sheer size and amount of investment are driving away small investors, which have been the major contributors to growth in the wind segment.

Today, as solar-wind hybridisation and de­mand for round-the-clock (RTC) power are increasing, the wind segment is ex­pec­ted to play a pivotal role. With the high cost of storage and persistent tariff pressures, wi­nd is one of the optimal sources to combi­ne with solar in order to provide renewable power during peak hours of consu­mp­tion with minimal storage installation.

The other problem that the segment is fa­ci­ng is the availability of skilled manpower. Youngsters are not interested or willing to work at the ground level. Life is di­ffi­cult at project and operational sites. Gen X does not want any of that.

On repowering, the good windy sites, es­pecially in Tamil Nadu and Maharash­tra, have been occupied by old, low-PLF ge­ne­rating machines. These low-PLF ma­chi­nes are in operation with valid PPAs. But these sites provide an opportunity to wind developers to replace the older mo­dels with new, advanced wind turbines to boo­st the project’s PLF.

However, the repowering exercise calls for high capex investments and, at the same time, poses a risk to existing revenue stre­a­ms. Thus, small developers are not willing to incur new capex. So, in order to pro­­mote the repowering of old wind proje­cts, there is an urgent need for provisions to secure old revenue streams as well as cover the new capex investments under the repowering policy.

In order to pro­­mote the repowering of old wind proje­cts, there is an urgent need for provisions to secure old revenue streams as well as cover the new capex investments under the repowering policy

What is your perspective on the current status of financing in the sector? What will be the big opportunities in this space going forward?

Renewable energy financing in India has evolved during the last decade. Today, the­re are multiple financial instruments th­rou­gh which investments are pouring into the sector. On the equity investment front, we are seeing rising foreign direct investment amidst favourable norms. India is one of the fastest growing markets and hence many global private equity investors have an­nounced large investment plans in the country’s renewable energy sector.

The debt market in the renewable energy sector has also seen various innovations. Financial instruments offered by the Power Finance Corporation, REC, etc., secured lo­ans, financial institution loans, overseas gr­een bonds, rupee-denominated bonds, etc. have been leveraged by IPPs to raise funds and expand their portfolio.

In the past couple of years, renewable en­er­gy developers in some states faced ch­a­llenges with respect to PPA renegotiations, delays in tariff adoption and other regulatory approvals. This weakened in­v­es­­tor sentiment for a while, but this is be­ginning to improve with constant support from the central government and dir­ec­tives from the regulatory bodies.

Going forward, we are expecting investments to grow in renewables as environmental, social and governance (ESG) aw­areness will spread. Our business already has a high ESG quotient and contributes significantly to the climate change agenda. The trend in Western countries, where in­vest­ments are preferred in renewables and in companies with a high ESG rating, can be expected to be replicated in India. This can act as a catalyst to further augment the flow of investments in the sector in India.

What are the key reforms needed from policy-makers and regulators to transform the rene­wable energy sector?

Land acquisition is one of the major aspects in renewable project developme­nt. Currently, there is differential treatment across states on the applicability of a land ceiling for renewable energy projec­ts and the requirement of non-agricultural land conversion. Holding of land in exce­ss of the land ceiling is inevitable for rene­wable projects and hence there is a need for a uniform reform facilitating the auto-exemption of land ceiling and deem­ed non-agricultural conversion for renewable energy projects.

Holding of land in exce­ss of the land ceiling is inevitable for rene­wable projects and hence there is a need for a uniform reform facilitating the auto-exemption of land ceiling and deem­ed non-agricultural conversion for renewable energy projects

Solar-wind hybrid projects are one of the most adopted ways for enhancing PLFs for renewable energy projects and hence there is a need to increase the minimum ca­pacity utilisation factor requirement to 60 per cent in order to enable high PLFs from these projects. Additional reforms and incentives are needed to reduce the cost of storage solutions to promote utility-scale storage projects.

Most of the states have their own banking guidelines and each of these are in wide variation from each other, ranging from no ba­nking to hourly to monthly to annual banking. Renewable projects, especially wind, are infirm in nature and require banking support for making transactions viable. Hence, there is an urgent need for uniform banking guidelines across the country.

Curtailment of renewable energy projects, despite the must-run status, is one of the major challenges and a recurring occurrence. There is need for a functional co­m­mittee to regularly monitor and evaluate curtailment in states and, at the same time, have full force of law to promote better evacuation of renewable power. Fur­ther­more, the change in GST from 5 per cent to 12 per cent has affected the sector at a time when it actually requires support for growth.

There is need for a functional co­m­mittee to regularly monitor and evaluate curtailment in states and, at the same time, have full force of law to promote better evacuation of renewable power

What are your thoughts on emerging sectors such as module/cell manufacturing, utility-scale storage and RTC projects?

In the past decade, we have seen the ins­talled renewable capacity increase ten-fold to 150 GW (including hydro). As vanilla solar and wind power project de­ve­lo­p­ment matures, new avenues are being id­en­­tified to further strengthen the renewable sector in India.

Solar modules and wind turbines constitute a major portion of the capex. Wind is al­ready a mature industry and there are many Indian OEMs that dominate the do­mestic market. However, there is still a high dependence on foreign suppliers for PV modules. Many IPPs are now exploring ba­ck­ward integration of the value chain and setting up domestic manufacturing of PV modules and cells. In this effort, the go­v­er­nment has also taken several steps to promote domestic manufacturing, in­clu­d­ing the imposition of safeguard duties and ba­sic customs duty, and the introduction of the production-linked incentive scheme. In­termittency of power remains a major dra­w­back for renewable power. Pure solar and wind projects are showing an average PLF of less than 35 per cent. Hybri­di­sation of solar and wind, utility-scale storage systems and renewable RTC projects are becoming popular ways of enhancing project PLFs. They are also very effective in shaping infirm power into firm power for offtake and I am quite confident that this is the future – India’s energy requirements being met through renewables.

The views expressed in this interview are the personal views of Mr Balram Mehta

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