O2 POWER IS A NEWLY FORMED JOINT VENTURE WITH EQT AND TEMASEK. HOW STRONGLY IS O2 POWER POSITIONED TO SET UP NEW PROJECTS?
India has crossed 70 GW of solar and wind installed capacity and the RE sector has a fairly robust and mature framework in place for carrying the growth momentum forward. However, the dynamics of the sector keep evolving. For instance, green bonds are becoming a preferred financing option and have shown strong growth globally, with India becoming the second largest market for green bonds. Similarly, there is a sustained push to integrate renewable energy with storage systems. O2 Power’s investors have a deep understanding of infrastructure sector globally. By virtue of their credibility and their relationships with OEMs and financial institutions, the platform will be able to bring a set of strong core competencies to India. The Management team also brings a holistic and proven set of capabilities for constructing and operating solar and wind projects in the country. Given this, I believe O2 Power will be able to contribute very constructively to the growth of renewable energy sector in India.
O2 POWER TARGETS TO ACHIEVE 4GW OF WIND AND SOLAR INSTALLED CAPACITY IN INDIA. WHAT IS YOUR STRATEGIC PLAN TO ACHIEVE THE SAME?
O2 Power aspires to be among the leading renewable energy producers in India. With an initial capital commitment of $ 500 Million, we can set up a capacity of 4 GW. We are technology agnostic and will set up both solar and wind assets. We intend to build self-EPC capabilities in both solar and wind as we see this capability as a key differentiator. Additionally, we will focus on the fast-emerging areas of solar-wind hybrid, storage integration as well as floating solar technology. Regulatory and policy certainty is important for us and so we will currently focus on central tenders and a few state specific tenders.
CAN YOU TALK BRIEFLY ABOUT FINANCING PV PROJECTS IN INDIA, AND THE CHALLENGES THAT DEVELOPERS FACE?
Indian renewable energy sector has been attracting equity capital successfully. The challenge is in debt financing. While there is a strong payment security cushion from Central Govt agencies, lenders have shown concerns on the financial health of distribution utilities and the ability of Central Govt agencies to maintain good payment track record in absence of timely payment from the ultimate buyers.Having said that, several measures have been taken over the past few months to improve the payment security in the recent past. A noteworthy measure being the advance LC mechanism that is slowly but surely taking root in the system. Also, the sooner regulatory and policy clarity can be provided on factors such as GIB conservation measures, duty imposition on solar modules etc, the better it would be for the industry. Such measures should go a long way in assuaging lender concerns.
WHAT IS YOUR OUTLOOK FOR THE INDIAN RE MARKET BY 2022? WHAT HAVE BEEN SOME OF YOUR KEY LEARNING FROM INDIAN PROJECTS SO FAR?
Multiple factors are going to shape the Indian RE market going forward. Wind industry faced headwinds in the past and all stakeholders are now working towards reviving the industry. Hopefully, with newer technology and contractual structures coming in place, we will see increased interest in wind and hybrid projects. Indian grid has morning and evening peaks and if competitive tariffs can be discovered for peaking power to begin with and subsequently going on to round the clock tariff competitiveness, it will solve the intermittency and grid balancing issues. Going forward, we might see the emergence of technology agnostic tenders seeking the most competitive firm renewable power.I think, on an overall basis, tenders would move to a higher degree of complexity compared to the plain vanilla tenders being issued today. However, from a technology standpoint, the sector has the answers to solve for the higher complexity. A policy framework, that evolves along with the requirements of the sector and is based on industry consultation, would hold the key to the growth of the sector upto 2022 and beyond.
BUDGET HAS ANNOUNCED A 20% TARIFF ON MODULES. WHAT IMPACT WILL THIS HAVE ON THE SOLAR POWER DEVELOPERS?
After the budget, MNRE has issued a clarification that the duty on cells and modules continues to remain zero. Going forward, duty might be imposed through a fresh notification. In my view, to minimize the impact of duty imposition, 1) duty should be imposed in a phased manner. Imposition of high level of duty in one go will lead to higher tariffs that distribution utilities may not be willing to sign up for. Phased imposition, starting with lower duty, will mitigate the tariff impact. 2) Past regulatory precedents of compensating the developer for duty impact under change in law have not been comforting. Elongated regulatory processes have resulted in considerable delays and the tariff reset mechanisms have not fully compensated the developers.In the recent tenders, SECI has started including tariff compensation clause in the tender terms. Hopefully, the process of establishing the duty impact would be streamlined so that the developer’s financial situation does not remain strained for long.
DO YOU THINK INDIA’S CURRENT POWER DEMAND SITUATION IS GOOD ENOUGH FOR ALL THE CAPACITY BEING BID OUT TO BE ABSORBED BY THE GRID?
India’s GDP has been growing at around 6%-8% in the past two decades. Depending on the growth rate, Indian grid should be absorbing 20-25 GW of renewable energy capacity every year. However, the question is not merely of demand. Grid must also be able to balance demand with the intermittent nature of supply. It is for this reason that MNRE has been keen on storage integrated tenders. The recently auctioned peak power tender has discovered blended tariff of slightly higher than INR 4/kWh. This is a competitive tariff as compared with the base load power plants. As the rates of customs duty and GST are made more favorable, renewable capacity should start acting more and more as base load going forward. Hence, I believe demand situation in the country should not be a hindrance to the growth of renewable energy capacity.