Interview with Srivatsan Iyer

“We are seeing an upsurge in renewable energy adoption”

Srivatsan Iyer, global chief executive officer, Hero Future Energies

The renewable energy sector in India has been transforming at a rapid pace. The industry is evolving from standalone utility-scale wind and solar projects to round-the-clock (RTC) power projects by integrating different technologies and battery energy storage systems (BESS). In addition, green hydrogen is becoming a priority for developers. Many of them have announced green hydrogen pilot projects and industry collaborations. Apart from these changing market dynamics, developers’ focus is on the impact of global supply chain disruptions, legacy issues with regard to policy uncertainty, land and grid unavailability, and unpaid dues from discoms. In an interview with Renewable Watch, Srivatsan Iyer, global chief executive officer, Hero Future Energies (HFE), shares his views on the various developments in the renewable energy space…

What have been the key developments in the past one year that have shaped the Indian renewable energy sector?

With India updating its Nationally Determined Contributions and setting an ambitious target of non-fossil fuel sources accounting for 50 per cent of the total installed power capacity, the renewable energy sector is bracing for significant growth after a period of delays and pandemic-induced challenges. On the demand side, we are seeing an upsurge in renewable energy ad­o­ption due to the government’s and India Inc.’s push for decarbonisation. We have seen a spate of new-age tenders recognising the need for sustainable dispatchable renewable energy in the form of hybrid, RTC and BESS from the Solar Energy Corporation of India (SECI), setting in motion a trend away from plain vanilla renewable energy projects. The commercial and industrial (C&I) segment is seeing an increasing number of net zero mandates and is consequently looking at firm, despatchable RTC green power, where wind is expected to play a bigger role along with BESS and green hydrogen. The recently issued Green Open Access Rules will be critical in en­abling this transition, especially for small and medium C&I players that together form a large chunk of the demand, but were earlier missed out due to a smaller quantum of their individual energy requirements.

Looking to boost self-reliance and establish India as a manufacturing hub, the government is working to establish robust domestic solar, BESS and green hydrogen manufacturing eco­systems. To this end, it has introduced several measures like manufacturing-linked tenders, production-linked incentive schemes for solar, BESS and electrolyser manufacturing and a de­dicated green hydrogen policy. All of these offer a portfolio of incentives aiming to make domestic manufacturing cost competitive. An­other positive step has been the implementation of the late payment surcharge scheme to address the mounting dues of discoms to renewable en­ergy developers and restore their financial he­alth. This, along with the doubling of the RBI len­ding limit for the renewable energy sector, and implementation of a uniform voluntary carbon market mechanism, will go a long way in boosting investor confidence and enabling the dep­loyment of the 40 GW of annual capacity needed to reach our 2030 goal.

What has been the impact of the global inflationary tendencies and supply chain disruptions on the project development strategy for developers?

Globally, Covid-19 wreaked havoc on the mo­mentum built up in favour of the clean energy transition before the pandemic and India did not remain insulated either. The renewable energy manufacturing ecosystem is concentrated in China, which was one of the worst hit geographies. As a result, the annual renewable en­ergy deployment in India fell to 5-6 GW due to disruptions in the supply of modules and other key BOP items in 2020-21. The increase in steel prices and logistics costs led to an approximately 50 per cent increase in project procurement costs in addition to schedule disruptions. As the restrictions eased and deployments re­sumed, developers faced another wave of supply chain throttling due to the im­ple­mentation of basic customs duty (BCD) and App­roved List of Models and Manufacturers (ALMM), and diversion of a large part of domestically manufactured modules to export geographies to encash the temporary premium available in developed markets caused by supply volatility. One of the key lessons for de­velopers has been the need for the diversification of the supply chain and maintenance of a wider vendor eco­system to prevent such issues in the futu­re. In fact, we have seen many players an­no­un­ce plans for backward integration into solar/wind equipment manufacturing. An­other key lesson is proper project planning and inventory management, which has been the difference between successful project implementation and stall­ed projects for many players.

What is your view on tariff and non-tariff barriers on imported solar components? How have these barriers impacted the developers?

The implementation of BCD and the ALMM, especially in the wake of the global supply chain crisis, has impacted al­most all projects (approximately 50 GW) currently un­der execution, both in terms of cost escalations and schedule delays. While a competitive domestic supply cha­in may be a key contributor for sustained long-term gr­o­wth, the short-term disruptions may have cascading effects on the ability to achieve the 40 GW annual capacity addition requ­ired for the 500 GW goal. Till the announ­ced domestic manufacturing ca­pa­city under the manufacturing-linked tender and PLI schemes be­comes operational, the government must find a reasonable path forward to meet the ambitious renewable energy targets and not lose the momentum that India gained before the pandemic.

Which new technologies (AI, ML, trackers, bifacial, green hydrogen, etc.) are renewable energy project developers investing in? What are the key benefits of these technologies?

HFE has been a pioneer in the large-scale deployment of many such technologies. Today, we have multi-axis trackers installed on nearly a quarter of our solar assets. We are working with several companies in AI/ML to deploy predictive maintenance so­l­­utions to maximise asset uptime and av­ailability, and optimise the day-to-day performance to enhance CUF across our wi­nd, solar and hybrid portfolio.

BESS and green hydrogen are the natural progression in addressing renewable energy variability and consequently, the next exponential growth opportunity. In line with our goal of becoming the industry’s leading energy transition partner, HFE aims to become a leading provider of green hydrogen and its derivatives in the geographies we work in. With strategic partnerships in place with segment leaders across the entire green hydrogen va­lue chain, we aim to provide scalable, flexible and cost-effective green hydrogen solutions for our C&I clients and work with the government to deploy utility-scale green hydrogen solutions.

What are the potential challenges (policy, re­gu­latory, market) that developers may face over the next five years? What are your suggestions to solve these challenges?

Renewables has seen significant growth in the last couple of years but there is a long way to go for the 500 GW goal. The sector needs to address some long-stan­ding structural issues to ensure the grow­th of renewables in line with those targets. These include:

  • The implementation of 40 per cent BCD on modules and 25 per cent on cells is ex­pected to temper renewable energy gr­owth in the short term. This, along with the ALMM and global supply chain dis­ru­pti­ons, has led to an escalation in module prices. This, in turn, is likely to result in higher discovered tariffs in the near term
  • The poor financial health of discoms and associated delays in payment to developers are causing a liquidity crunch, sq­u­ee­­zing expected returns and consequently dampening investor interests. We need solutions like discom restructu­ring, regulatory and operational reforms, and technology upgrades, else the po­wer sector will continue to underachieve.
  • At the current pace of renewable energy deployment, grid expansion and mo­der­ni­sation need to be expedited to deal wi­th the increased variability and redistribution of demand and supply cen­tres. For the renewable energy sector to rem­a­in on a high-growth trajectory, initiatives like de­dicated green energy corridors, es­ta­blishment of renewable energy management centres, co­m­­petitive bidding for tr­a­nsmission in­frastructure and grea­t­er pri­vate participation should be promoted.
  • High cross-subsidy and other wheeling ch­arges imposed on C&I consumers are hampering the growth of open access power across states. The government mu­­­st come up with clear guidelines re­ga­rding captive/group captive projects for small and medium C&I players to act­ually utilise green open access power and maintain the pace of C&I green transition.
  • The varying state-wise regulations and lack of long-term policy visibility in so­me states have somewhat depre­ssed the in­vestment environment in po­wer generat­ion projects in states. The central gover­nment should evolve mechanisms to str­eamline the state policies and regulations.
  • One key point for the government to consider in policy measures going forward is to ensure minimal financial impact on the existing installed capacity. Renewable energy projects typically do not have the financial leeway to absorb retrospective changes unless a specific pass-throu­gh/change in law provision is made avai­l­able, as almost 90 per cent of the capital required to operationalise an asset comes in the form of upfront capex and pro­ject economics are finalised and se­al­ed at the time of commissioning.