Avaada Group will be an integrated green molecule business: Founder Chairman Vineet Mittal

After monetizing Welspun Energy to Tata Power, we realised that the opportunity is very big but there are challenges relating to payment security, land, permissions and evacuation, among others. So what we started doing proactively is educating the government on the importance of having a national grid and building a huge grid for power evacuation from solar and wind farms, and other integrated supplies. Second, we started an internal rating mechanism for how promptly states were paying. For example, if a state in southern India, doesn't pay on time, or pays after 12 months, if we don't get 50 percent IRR (internal rate of return), we won't touch that state. We could not do this during Welspun Energy because at the time we had to build a gigawatt (GW) fastest. So whichever state was coming with tender, you had to take the tender. When we sold Welspun’s renewable energy asset to Tata, we had a 20 percent market share.

However, this time we came up with a plan that out of our total businesses, 50 percent would be on ISTS (Inter-State Transmission System) connected network for central utility, 25 percent will focus on DISCOM (distribution companies) which pay on time, and 25 percent of our business will be directly for consumers. Currently, we have around 4 GW capacity, out of which almost 1,300 megawatt (MW) are for private consumers, and the remaining is distributed in central and state governments in a similar proportion. This approach has paid well for us in the last 15 months.

What are the growth targets?

We have installed 2,000 MW of solar projects across different states in the last 15 months and have built the world's largest 1,250 MW project, which is operational now in Bikaner. Going forward, we are working on integrating our supply chain to transition from a cell to a molecule company. We are setting our 5 GW of solar cell to module line, which will be operational next year. Additionally, we have a pipeline of 11 GW of renewable energy projects which we are executing. Our target is to become a 30 GW company by 2030. Seven years from now, our role will be to sell more molecules than selling electrons. Green molecules are now a globally tradable commodity. We will be meeting our Prime Minister's vision that we should be an energy exporter rather than an energy importer.

What we have seen in the renewable industry so far is just the trailer. The movie is going to begin in the next two years; the scale will be unparalleled in the future compared with the last 13 years.

What are the opportunities that make you so optimistic?

In the last 13 years, we have not even added 60 GW of solar power and another 50 odd GW of wind power; we are still far behind our 175 GW target. There are also now multiple opportunities because of what is happening globally. Countries like those in Europe have had their own emission trading scheme since 2005, which has become very strong now.

They will make CBAM [Carbon Border Adjustment Mechanism] mandatory on every import in Europe from 2023 and actual charges will be applied from 2026. If you are selling steel or any commodity from India and emitting millions of tonnes of carbon, you have to pay a sort of import duty into those countries, or CBAM duty. This border taxonomy is going to change behaviour drastically for C&I (commercial and industrial) customers. Almost every manufacturing company is potentially our customer.

There are multiple states which are honouring open access regulation, there are multiple states which are not and that is why the Electricity Act has been revised so that every consumer will have a choice of who they want to source their power from, and what kind of power they want to source from. Once the new Act is legislated, the challenges relating to open access will be solved; that is going to make a huge impact on energy transition as we will be able to sell to private companies instead of just state-owned enterprises.

The electrolyzer technology is fairly old and concerns around bankability are being overcome. And with the high gas prices, the transition has become faster.

Currently, the industry is in the storming phase, and it will enter the norming phase from the last quarter of 2023 to the middle of 2024, and then the performing stage will start where you will see huge growth for decades to come. And the cake is too big; there is space for multiple people to build multi-billion dollar businesses.

How will the different businesses that Avaada Group is getting into be housed?

The holding company called Avaada Ventures will promote the overall business of green ammonia, green hydrogen and electrolyzers. Avaada Energy is the EPC arm to do renewable energy projects of solar and wind; we are a certified vendor for GE and Gamesa. Our plan is to do green ammonia, green methanol, and SAF (sustainable aviation fuel) under the subsidiary Avaada Green Hydrogen Private Ltd. Then there is a manufacturing line. So we have multiple verticals that we are working on right now. We have an integrated energy model, where we are doing equipment manufacturing, solar panel and electrolyzer manufacturing, solar generation, wind generation and storage, and pump hydro under the renewable energy vertical.

When you speak of your target of having a 30 GW capacity by 2030, what will be the mix between government projects and C&I?

We will first support our own expansion into the downstream business. Eventually, we want to someday become a sand-to-molecule company; an integrated business working on energy transition for decarbonisation. We don't want to be dependent on others and be at their mercy for supplies, solar cells, and modules. Our manufacturing business is going to be the upstream business and the renewable energy business is a midstream business. Our green hydrogen, ammonia and methanol, and SAF are all businesses that will be based on our green energy potential. We will be doing a lot of pacts with our own company too. Our agenda is very clear that we want to be a green molecule company and that's our downstream business.

Have you started work on the silicon cell manufacturing unit?

We have not yet started construction for silicon due to our tender. Our target for solar manufacturing capacity of three GW for cells and modules by 2024 and five by 2025. We are exploring several sites in India and we are open to a few sites across the world as such.

How much will the total investment be and how will you fund it?

We are not allowed to disclose the investment as per the board directive. But it will be fair to say that for our current business plan, we are fully funded. And with 4,000 MW of operating assets, we will also generate cash; we are fairly bankable. In 2021 the family office bought out the stake of our early equity investors-- Asian Development Bank (ADB, Asia), DEG (Germany), FMO (Netherlands), and Proparco (France). We also introduced a new investor PTT Thailand, which invested around $480 million into the company. After that, we raised another Rs 4,000 crore in debt, bonds, etc. We keep raising money continuously.

You recently announced an investment of Rs 40,000 crore for a green ammonia plant in Rajasthan. The government is yet to announce the second part of the green hydrogen/ ammonia policy, what is your expectation?

We are expecting the green hydrogen purchase obligation would be made mandatory by December 30 for consuming industries like refineries, city gas distribution, fertilisers and chemicals. That would create a 5-million-tonne green hydrogen target locally, which means 25 million tonne of green ammonia. The Government of India is putting its money where its mouth is; there will be a huge opportunity in the domestic market and European Union, given its targets.

By when will you start manufacturing green ammonia and what do you expect the price to be?

We are looking at April 2026 for our first million tonne to get operational. We don't discuss pricing in public.

What is the long-term plan for this business? Would you continue to own it or look at monetizing it as you did in the past?

We should not predict anything in business and rather evolve with time. I have a strategy today and maybe I will have a different strategy a year from now. We are no more into the game where you decide on a six-year strategy on day one; we evaluate our strategy every six months and weigh what the world would be without Avaada and then we find the right answer.

Would you consider hitting the capital market any time soon with an initial public offer (IPO)?

Every company will have to go in for an IPO, especially when you have a private investor sitting on your balance sheet. But when the private equity market is so active, why even bother about that? Wherever we need money, it's available. If you have a good project, money is not a constraint.

During the recent visit of the Bangladesh Prime Minister, you said that Bangladesh should provide better business conditions for energy companies. Are you planning to expand the business in Bangladesh or other neighbouring countries?

As a company, we are going to expand globally but right now our plate is full. So for the next 12 months, we are focusing on what we have in hand and that will keep us very busy.

The government recently approved another tranche for the performance-linked incentive (PLI) scheme of about Rs 19,500 crore for the solar power industry. As an early mover in the industry, do you think this is enough to achieve the growth rate that the government aims for?

PLI is the right incentive. I think it should not have got delayed. We all were waiting in the previous scheme itself when the government announced that PLI will be given to all the wait-listed people and it took longer because the Cabinet approval got delayed. It's a very strong step and it demonstrates the government’s commitment to decarbonisation and towards becoming a hub for the supply chain.

The Electricity (Amendment) Bill, 2022 has been referred to the standing committee and the expectation is that it will be taken up in the winter session of the parliament. What is your expectation?

The challenge is that power being the concurrent topic limits the government's ability to fulfill its green energy, COP-27 and COP-26 commitments. So they need to have an enabling clause that helps them to enforce the utilities to clean up and to start paying on time. That is very essential.

What we have been telling the government is to make a GST Council-like power council, where the state and Centre come together and it becomes a topic of national interest. Where you look at energy security, energy independence, the greening of the planet, and what sources of energy should be considered for the future growth of India. Otherwise, we are looking at an energy crisis in the making. With so much of PLI across the sectors, where is all the power going to come from in the next two years?