Interview with Rajiv Ranjan Mishra: “The current global energy markets are facing a polycrisis”

“The current global energy markets are facing a polycrisis”

Rajiv Ranjan Mishra, Managing Director, Apraava Energy

With the global energy markets in turmoil owing to the lingering impact of the pandemic as well as the distressing Russia-Ukraine conflict, it is indeed a time for the renewable energy sector to shine. However, the Indian renewable energy sector is also dealing with rising freight costs and commodity prices, as well as high interest rates, along with the longstanding challenges of contract sanctity and overdue payments from discoms. Despite these issues, government intervention and private industry initiative are driving green energy investments in the country. It is an especially interesting time for a company like Apraava Energy, which is pre­sent in both the energy generation and transmission spaces. Rajiv Ranjan Mishra, Managing Director of Apraava Energy, discusses these topical subjects and the outlook for his organisation’s growth.

From CLP India to Apraava Energy, what has been the overall experience for the company in the Indian renewable energy space?

Over the past two decades, we have built a financially resilient business by providing customers with reliable, high-quality energy, while all our sta­keholders have benefitted from our world-class governance and operating standards. Apraava Energy was one of the first co­m­panies to see the possibilities of renewable energy in India, with its first wind farm built in 2009. Since then, we have gradually grown our wind and solar energy portfolio of about 1,174 MW, and now we have a presence in seven states – Rajasthan, Mahara­sh­tra, Guja­rat, Ma­dhya Pradesh, Tamil Nadu, Telan­gana and Kar­na­taka. We are also developing a 250 MW wind power project at Sidhpur in Gujarat, which is expected to be commissioned in financial year 2022-23. We were the first power company in Southeast Asia to issue a green bond and one of the early corporate partners of the In­terna­tional Solar Alliance.

We have witnessed a massive transformation in India’s renewable sector. The government is taking steps in the right direction by scaling up re­newable capacity and developing favourable policies that would bring in the required invest­me­nt in the sector. India has great potential to become one of the leaders in the renewable sp­a­ce and Apraava is well placed to be an important contributor to that new energy future.

What have been the key achievements for Apraava in the past one year? What is the company’s current renewable power portfolio?

We embarked on a transformational journey with the unveiling of our new corporate identity, Ap­raava Energy, in October last year. As a step to­ward strengthening this growth journey, our in­ves­tors, CDPQ, a global investment group; and CLP Group (CLP), one of the largest investor-ow­ned power businesses in Asia, recently ag­re­ed upon the sale by CLP of a 10 per cent stake in Apraava Energy to CDPQ, bringing their res­pe­ctive stakes in the company to 50 per cent. With this, Apraava Energy will have a sharper and more dedicated focus on the investment and development of clean energy and power transmission projects.

We also recently concluded the acquisition of a 49 per cent equity stake in Kohima-Mariani Tran­smission Limited (KMTL) from Kalpataru Power Transmission Limited and Techno-Electric & En­gineering Company Limited; the remaining 51 per cent will be acquired as per the terms of the Transmission Service Agreement. KMTL owns and operates a 254 km, 400 kV double circuit transmission line along with a substation in the North-Eastern part of India. This asset has been operational since December 2020.

Our diverse portfolio comprises over 3,000 MW of installed capacity, which consists of approximately 1,175 MW of wind energy (including an under-co­nstruction 252 MW wind project at Sidhpur, Gujarat) and about 250 MW of solar energy projects across seven Indian states.

What are the company’s short-term and long-term plans? Is it planning investments in em­erging areas of growth like storage, hybrids or green hydrogen?

Apraava Energy is stepping into the future with a vision of creating a diversified business that will help fuel India’s economic growth through clean, reliable, and affordable energy. In October 2021, Apraava En­­ergy announced its ambition to fast-track its growth, through measures such as doubling its energy portfolio by 2025, focusing on low-carbon growth areas, and exploring diversification into power di­s­tribution and other customer-focused en­ergy businesses. It will seek to encourage participation from local shareholders in the medium term. The firm will announ­ce a measurable, science-based emissions reduction objective, which will be validated by the Science Based Targets initiative, this year. It also aims to positively impact two million lives by 2025 through community investment.

A strong pipeline of auction opportunities across sectors such as transmission, wi­nd, solar, advance metering infrastructure (AMI), battery energy storage system (BESS) and hybrid projects has been an­nounced by the Indian government as the Covid situation has improved. Apraa­va is confidently pursuing its growth strategy through active preparation and participation in these opportunities.

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

In November 2021, Prime Minister Naren­dra Modi announced the national target of net zero carbon emissions by 2070. To achieve this target, the prime minister call­ed for increasing the non-fossil fuel  ins­ta­ll­­ed capacity to 500 GW by 2030. Ca­pacity additions in solar, wind, storage and hy­b­rid systems are the biggest opportunities for meeting these targets.

The 2030 target positions India as one of the largest and most attractive renewable energy markets in the world. Bloomberg New Energy Finance has estimated a ma­­ssive financing requirement of $223 billion by 2030 just to meet the solar and wind capacity targets, and $175 billion for transmission and distribution network strengthening.

Availability of competitive, long-term fin­ancing through multiple channels would be the key to achieving this target. Bond markets for the renewable energy space need to evolve further with better frameworks/safeguards, which would allow long-term investors such as insurance co­mpanies, and provident and pension fun­ds to invest in this sector. As most of the power purchase agreements (PPAs) in the sector are long-term, these assets are id­eal investments for long-term in­vestors. Any steps to increase their par­ticipation will help deepen the bond markets and provide much-required long-term liquidity to developers.

Further, as power tariffs are fixed for the entire PPA life, it is crucial for developers to have certainty on interest obligations. Fi­xed interest rates (through long-term bonds) will help provide much-required certainty to developers and deepen the investment potential for this sector. Many green/ environmental, social and governance funds are coming up globally that India can seek to tap once the bond m­arkets deepen further, and this will give further impetus to new investments.

What is your take on the rising global energy security concerns and the changing energy landscape? Do you feel the current solar and wind tariffs are sustainable in this backdrop?

The current global energy markets are facing a polycrisis. A polycrisis is not me­rely a situation where we face multiple crises at the same time, but where the crisis “as a whole” is even more dangerous than the “sum of its parts”.

With global inflation at multi-decade highs, there is little doubt whether interest rates will rise. The question is when, by how much and how often? Commodity prices have been driven higher by post Covid-19 economic recovery and exacerbated by supply disruptions due to the Russia-Ukraine War. These factors have squeezed global energy markets and driven up energy prices to uneconomical le­vels. Renewable tariffs are inherently sen­sitive to interest rates and commodity pri­c­es are also facing headwinds feeding the “greenflation”.

Domestically, our renewable sector saw rapid growth in funding from 2013 to 2017 due to state- and central-level policy incentives for higher renewable capacity targets. Solar and wind tariffs declined from 2017 to 2019 due to lower commodity prices and strong competition betw­e­en developers.

The 2020 Covid-19 lockdowns induced uncertainty in electricity demand and commissioning of new projects. Project financing fell as several projects received extensions in commissioning. The Reser­ve Bank of India adopted a loose monetary policy to boost economic recovery and the repo rate remained at a historic low of 4 per cent for about two years starting from March 2020.

Post 2021, project financing recovered as some previously delayed projects secured funding. However, the shortfalls in domestic coal production and logistics caused a stir in the demand-supply situation and me­rchant prices soured. This triggered the Ministry of Power to introduce price ceilings. The overdue payments of discoms have shot to the same levels that had been witnessed at the launch of the financial package introduced in the financial year 2020-21 budget.

The international and domestic factors have only exacerbated the slowdown in green investments. The effects and sc­ale of this poly-crisis are up for debate. Whether it will come to pass, as Stephen Hawking once said, “only time (whatever that may be) will tell.”

What are the key risks in the Indian renewable energy space for a player like Apraava? What are your suggestions towards mitigating these challenges?

The biggest risks for renewable energy players are the prevailing weaknesses in contract enforcement and the poor financial condition of discoms.

Several states, for instance Andhra Pra­desh, Gujarat, Karnataka and Punjab, ha­ve in the past attempted to renege on their PPA commitments and renegotiate tariffs. Many a time, even the regulators have fail­ed to step in and provide relief to the in­ves­tors, despite warnings from the Mini­s­try of Power. Discoms have regularly contested the legitimate claims of independent power producers for force majeure compensation and change-in-law through unjustified litigation. Since legal remedies are long-drawn processes, banks have become wary of lending. This has affected the overall investor sentiment for the sector quite adversely.

The fundamental principle of contracting is to allocate risks to those that can bear them the best. The regulatory framework mu­st ensure such risk sharing mechani­sms. It should allow automatic passth­ro­ugh of any tariff increase on account of change-in-law and force majeure. This will create trust amongst investors in the idea of delivering approximately 500 GW of renewables by 2030.

Another key factor affecting the risk ap­petite is the poor financial position of dis­co­ms, who are the major customers. De­la­ys in servicing of overdue payments and a huge backlog of receivables have ad­versely affected the financing capacity for new projects, with onerous responsibilities on project sponsors for factors beyo­nd their control.

The governments must depoliticise the retail tariff setting to improve the financial condition of discoms. Moving to a Direct Be­­nefit Transfer scheme, accompanied wi­th commensurate allocations within the sta­te budgets, for vulnerable consumer sections will help.

Overall, prompt implementation of the Draft Electricity (Amendment) Bill would bring the desired institutional and structural changes for protecting consumer in­terests, property rights, payment security and contract enforcement.