India’s renewable energy market is evolving, with the focus shifting from just utility-scale stand-alone wind and solar projects to round-the-clock power, green hydrogen, C&I solar, energy storage and manufacturing. Faced with these changing market dynamics coupled with an uncertain policy environment and lingering challenges of transmission, land, and unpaid dues from discoms, renewable energy independent power producers (IPPs) have had to constantly upgrade their strategies to stay ahead in the race. Founded in 2012, Hero Future Energies (HFE) has had a long and fruitful journey in the green energy space, with valuable lessons gained along the way. As India’s renewable energy sector turns a new leaf and moves towards greater diversification, so does this decade-old IPP, with a greater focus on its C&I portfolio alongside developing its round-the-clock energy storage and green hydrogen capacity. Srivatsan Iyer, Global Chief Executive Officer, HFE, talks to Renewable Watch about the company’s plans in these emerging areas, as well as his take on the current state of the sector…
What is the current portfolio of HFE? What is the target for the coming years? What is your vision for HFE in emerging sectors such as utility-scale storage, round-the-clock projects and green hydrogen?
HFE currently has about 1.6 GW of operational renewable energy capacity, and an operational and/or business development presence across six countries. Nearly 70 per cent of this capacity is solar PV, while wind projects account for the remaining 30 per cent. We have another 280 MW of capacity that is currently under construction. Our target is to significantly expand this current portfolio to over 5 GW of operational capacity across at least five countries within the next five years. A key part of this growth will also come from our end-to-end energy solution offerings in the C&I space in India and other countries. HFE aims to become an integrated energy solutions partner for our C&I customers, while also growing our presence in utility-scale assets, including advanced utility-scale round-the-clock and firm power solutions with integrated battery-enabled storage solutions. We are also planning to emerge as the “Go-to Partner” for green hydrogen energy and mobility solutions.
In the past year, what have been the biggest disappointments in the renewable energy sector? What have been the key learnings for HFE?
The past year has been very challenging for the renewable energy sector as it grappled with successive waves of the Covid pandemic. The pandemic led to extended lockdowns, supply chain disruptions, increase in logistics and raw material costs due to inflated commodity indices, and long project delays on the development front. A sharp rise in PV module prices, coupled with a high duty burden on solar cells and modules, is making some under-development projects unviable. Also, unilateral tariff renegotiation by some states has increased uncertainty and jolted investor confidence, making financing of renewable power projects more challenging. We hope that good sense prevails, and these actions are reversed, enabling us to offer bankable renewable power projects to international investors.
One of the biggest challenges for investors in the sector has been the issue of delayed payments from discoms to IPPs, as reflected in the mounting dues. To stimulate further growth of the renewables sector, in line with the target of 500 GW by 2030, the sector needs some sort of long-term structural support mechanism aimed at maintaining the financial viability of state discoms to enable timely payments. This will ease the liquidity crunch across the sectoral value chain and spur fresh investments.
Coming to open access (OA), despite many states having OA policies in place, getting an OA or group captive project approved on the ground is a different challenge altogether, and the process needs to be far simpler and more business-friendly.
Looking at these challenges, HFE is looking at expanding its business in order to better service large C&I clients across their entire spectrum of energy service requirements, and targeting more secure Solar Energy Corporation of India (SECI) and other central government-backed projects.
How has the wind power sector fared over the years? What should be done to give a fillip to this sector? What is your perspective on repowering of wind power projects?
In India, wind power is primarily driven by resource availability and is somewhat limited in geographic spread to a few “wind-rich” states. We have also seen that the average wind resource over the last couple of years has been less than the projected numbers from just a few years ago.
For various reasons, wind power has clearly played second fiddle to solar power in recent years, falling short of annual capacity installation targets. The shift from a feed-in tariff regime to competitive auctions has driven down tariffs sharply, squeezing margins and putting pressure on developers, while difficulty in acquisition of land has also acted as a dampener. Offshore wind has not really taken off in a big way yet, mostly due to concerns around its financial viability.
Some of the best wind power generation sites in India are already occupied by low efficiency older turbines, which in our opinion are long overdue for an overhaul. Repowering, given the multifold increase in efficiency we are seeing in recent model turbines, along with improvements in evacuation infrastructure for these sites, is one of the best ways to better utilise our wind potential. Such repowering may drive capacity utilisation factors to as high as 40 per cent from the current 15-20 per cent levels. This requires a specific policy framework which safeguards the interest of existing renewable energy players while enabling the nation to take full advantage of this critical resource.
There is also a major constraint on the supply side, with some of the major suppliers not being able to support Indian renewable energy players. The wind O&M segment requires a serious overhaul to effectively service the installed capacity and maintain site utilisation at full potential.
What is your perspective on the current status of financing in the sector? What are the big opportunities in this space going forward?
Renewable energy, being a priority sector and given the huge growth potential of renewables in India, has attracted capital from domestic and international lenders. The financial market is getting more and more structured, and the rising acceptability of both USD and INR bonds is a positive development. Having said that, financial closure for greenfield renewable power projects remains a challenge, and is particularly tough if the offtaker is anyone other than large central agencies such as NTPC or SECI. The increasing level of receivables from state discoms has put pressure on projects, along with an increase in the cost of borrowing.
In your opinion, what are the key reforms required from policymakers and regulators to transform the renewable energy sector going forward?
Policy certainty: Renewable energy projects typically have long gestation and payback periods, and planning requires careful consideration in terms of legal and policy compliance. Frequent policy flip-flops are detrimental to effective capacity planning and financing of renewable energy projects. A stable and consistent policy framework will go a long way towards soothing investor concerns.
Improvement in the financial health of discoms: Cash-strapped discoms need a boost that will allow them to meet their payment obligations to IPPs in a timely manner, and this will have a positive ripple effect right across the sectoral value chain.
Revisit duty on raw materials: The fillip required by manufacturing cannot come at the expense of renewable energy project development. High levies may make some projects unviable and ultimately increase the cost burden on the final consumers of electricity. That being said, we are all for promoting domestic manufacturing, and we welcome progressive measures such as the production-linked incentive scheme where innovation and R&D are rewarded, and manufacturers get sufficient time to reach global cost parity and create a level playing field.
Support for new the age technologies: We hope to see clear policy interventions that will enable the industry to support our Prime Minister’s vision of making India the world’s green hydrogen hub, by bringing the green hydrogen cost at, or closer to parity with hydrogen produced via conventional processes. This should include both supply-side measures, such as viability gap funding for new projects, as well as demand-side measures, such as mandated use levels for green hydrogen in hard-to-abate industries such as refineries and fertilisers.
We also expect incentives for integrated battery energy storage systems in the form of provisions such as customs duty exemption for import of lithium-ion batteries, introduction of storage purchase obligations for discoms, and financial incentives for C&I customers using battery storage power.