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Hero Future Energies Has Been A Consistent Performer In The Renewable Domain With Steady Growth Balanced Between Wind And Solar Assets Creation

Please tell us the various upcoming projects initiated by Hero Future Energies?

Hero Future Energies has been a consistent performer in the renewable domain with steady growth balanced between wind and solar assets creation. Our operational assets are ~1200MW now. Additionally, approximately 550 MW of solar and 400MW wind capacity are in various stages of execution. Our focus lies in greening of private sector through open access and group captive route.

Kindly share your views on how the sector can accelerate its growth in achieving its target of 175 GW by 2022, considering that there has been a slowdown in the growth rate?
The 175GW target constitutes 100GW solar (including 40GW rooftop solar), 60 GW wind, 10 GW bio-power and 5GW in small hydro. Considering the annual installations of solar at 3GW in FY2016, 5GW in FY2017, 9.5GW in FY2018 and 7GW in FY2019 last year may be considered to be slow growth. Cumulative installation at the end of FY2019 stands at 28GW for solar, 37GW of wind and 3.4GW of rooftop solar.
The current rate of installations in all the sectors will not be enough to achieve the target. The reason for the slow down were a combination of different factors viz. focus on lower unviable tariff, uncertainty in policy and taxation regime, inadequate counterparty risk mitigation and cost of financing.
Being a policy driven sector, it is important that a stable policy regime is established, policy transitions are made smoother and tariff is discovered through open competition. Cap on tariff and cancellation of bids leading to rejection of discovered tariff leads to uncertainty. Duties and tariffs that are intended to be imposed should be prospective and industry should be taken into confidence. A pipeline of bids should be available for the industry to participate in.
The combination of land and evacuation is evolving to become a crucial bottleneck. Land acquisition, possibly, has the longest gestation period along the project value chain. Revenue departments in the states need to streamline the availability, accuracy and correction of records when necessary in a proactive manner. Connecting at higher voltage requires higher capacity plants and so larger contiguous patch of land. This is becoming increasingly difficult to find. Solar park, designed to de-risk the projects with respect to land, evacuation and compliances need to have the processes looked into so that the problems do not persist after the projects are awarded to developers. Many solar parks are continuing to face challenges since they are dependent on government agencies like state revenue departments, PGCIL and others for providing encumbrance free facilities to the developers.
Current rooftop installations have reached less than 10% of the target 40GW. C&I consumers have options of installing rooftop, purchasing through open access or setting up group captive plants. Discoms fear losing subsidizing C&I consumers through OA and GC. Strong enabling policy framework is needed to encourage open access and group captive consumers.
Domestic consumers should be encouraged aggressively to install rooftop. The process of installing a net meter and releasing the subsidy amount should be streamlined and monitored for the stakeholders to gain confidence. Encouraging domestic rooftops and smart grids will democratize the solarization of economy.

From a portfolio capacity addition, which strategy suits you the most - Greenfield expansion or Brown field expansion?
As an organization we are focused on meeting our growth targets and fulfilling our commitments to our investors. Hence depending on the market conditions, the decision- making process for greenfield vs. brownfield is expected to remain dynamic. The outcome of our integrated risk assessment and management process determines our expansion strategy and it will continue to remain so in future.

Since your organization has commissioned the country’s maiden Solar Wind Hybrid Project in Karnataka, what is your take in participating in the Wind Solar Hybrid Tender series in the near future?
The solar wind hybrid project has confirmed us as a leader in renewable domain and our organizational abilities to manage innovation successfully. We are gaining further experience gained from operational data of the plant and are more aware of the issues. We have been sharing our knowledge and experience with policy makers and other pertinent stakeholders. Our participation on the tenders in this domain will depend on our integrated risk assessment that we undertake for each project.

What is your take on Safeguard Duty? What impact do you see on the domestic solar industry after its implementation?
Safeguard duty (SGD) was imposed on 30 July 2018 on the imported solar modules. The purported intention was to protect domestic manufacturers. This was imposed after a long- drawn investigation for imposition of Anti-Dumping Duty (ADD). For the upcoming bids, the developers will factor it into the bidding tariff. Ongoing projects who have considered imported modules but are yet to import should be exempted from its imposition or the increase in cost should be a passthrough under “change of law”. So, it will lead to an increase in tariff.
The need to import of modules will continue if we must meet the target of 100GW of solar by 2022 since the need per annum will be more than 15GW whereas the domestic production is approximately 3GW i.e. 20% of the need. A report by NSEFI stated that domestic modules are costing 10-20% more than imported ones even after SDG is imposed. We should see this in conjunction with the focus of government to have the lowest tariff possible since completed bids have been cancelled when the discovered price was perceived as high.
Since SGD will taper off the developers are likely to align the project execution with import of module with reduced SGD. The first such reduction from 25% to 20% is due in July 2019. This will depend on flexibility available in individual PPA conditions for COD.
Going forward it will depend on the view of government on the combination of factors like self-sufficiency in domestic production, the price of domestic and imported modules and the consistent quest for the lowest tariff.

What are your views on the record low tariffs discovered in the recent solar auctions?
Tariff quoted by a developer bidder depends on several parameters viz. cost of material and financing, availability of finance, execution capability and the overall portfolio need. This is further tested during the reverse auction. Each developer has its own risk assessment framework to arrive at the tariff.
Factors contributing to reduced tariff are reduction in execution and financing risk through solar parks, improved payment security etc. States with better payment history have attracted lower tariff. Recently this trend has been reversing due to uncertainties in policy and taxation regime.
We believe that sustaining the initiatives and reducing uncertainties will enable the developers to offer lower tariffs.

 

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