The rapidly evolving renewable energy sector has given IPPs such as Sembcorp India ample opportunities to expand their portfolios. However, it has been a complicated journey with many roadblocks for most IPPs. A. Nithyanand, business head, renewables, Sembcorp India, discusses the hits and misses of the renewable energy sector and the company’s outlook…
What have been the key hits in the Indian renewable energy space that have led to the growth of the company?
Over the past 10-15 years, India’s renewable energy sector has taken rapid strides with a steady addition in capacity year on year. Since Sembcorp entered India in 2008, we have played our part in the nation’s impressive rate of capacity addition and witnessed this being matched with a sharp decline in tariffs. Some of the key factors that contributed to this phenomenal growth were private sector-led development, falling technology costs, auction-led project allocation and a vibrant growth environment fostered by the government. Having established capacities, Sembcorp has invested deeply in engineering and operations capabilities. Our investments now provide us a firm base, upon which we are embarking on our next phase of growth. Following the successful commissioning of the entire 800 MW of generation capacity won in our three SECI wind projects in 2020, we maintained our track record by winning the bid for a 400 MW utility-scale solar project in Rajasthan last year. Another winning bid in the 11th nationwide wind power auctions held by SECI for the 180 MW wind power project in Karnataka was one of our most recent achievements towards the end of last year.
What are the key risks for IPPs such as Sembcorp in India’s renewable energy space?
As the industry emerges from the shadow of three successive waves of the pandemic and as project activities gain traction, several legacy risks, both operational and financial, have resurfaced to pose challenges. Foremost among these are land and infrastructure availability and costs. Simplifying land acquisition procedures and digitalising land records would help streamline project development. Easy access to affordable finance has been a long-standing problem for developers in India. Sovereign risks, policy risks and erratic discom payments are some of the project financing hurdles that have put financial constraints. In the coming decade, as renewables are expected to have a sizeable double-digit percentage share in India’s energy mix, we will require a fresh set of reforms. The government has been very encouraging and accommodative of the industry’s suggestions, enabling policymakers and the industry to work in unison to try and fix inherent policy bottlenecks and legacy issues.
What is your perspective on the current status of financing in the sector?
Legacy issues, a heavy compliance burden and conventional approaches are affecting the growth of the industry. The high cost of debt financing, short repayment tenors, and over-reliance on banking institutions create barriers. Given the poor balance sheets of gencos and utilities, and considering the overexposure to the power sector, getting finance for renewable projects is challenging. The sector needs novel financing models such as Capex LC financing, which is cheaper by 2-4 per cent compared to traditional debt instruments. Cashflow pool (obligor-co-obligor financing) offers an improved risk profile due to diversification. It provides a better credit rating and improves terms.
What are Sembcorp’s plans in emerging sectors such as utility-scale storage?
India has good potential in the energy storage segment, as it targets a total of 175 GW of renewable energy by 2022 and 450 GW by 2030. Recent policy measures such as bundling with solar and other renewable energy projects under tariff-based bidding are steps in the right direction. Following COP26, the momentum for energy transition has accelerated. The industry will continue to assess various options, technologies such as green hydrogen and business models – apart from plain vanilla contracts – to expedite the adoption of increasing amounts of low-cost but intermittent renewable energy. Hybrid projects are fast emerging as viable new renewable energy systems in India.
What is your take on India’s 2070 net zero target and before that, the 2030 clean energy target?
India’s path to net zero runs through the electricity sector. A broad range of concurrent efforts will be needed to underpin the transition. We will have to work towards a renewable capacity target of 450 GW by 2030, decarbonise the railway network by 2030, transform fossil fuel companies into energy companies, and shut down inefficient coal power plants. A long-term, holistic and joined-up approach to clean tech innovation will be key, one that considers the full basket of technologies needed for net zero, not just those needed to achieve the next milestone. It will require parallel action across the full portfolio of technologies and maintaining a perspective of the complete innovation journey – from concept to lab and then to prototype and commercial maturity.