MC Interview | JSW Energy CEO Prashant Jain says company to add at least 2.6 GW capacity in next 14 months

Prashant Jain, joint managing director and chief executive officer, JSW Energy

JSW Energy is expected to complete its acquisition of Mytrah Energy by the end of the third quarter of the current fiscal. In an exclusive interview with Moneycontrol, the company's joint managing director and chief executive officer Prashant Jain reveals the plan to foray into the battery storage and green hydrogen sectors.

Jain explained why the company, known for its hydro-projects, steered away from investing in solar projects and instead focused on the wind sector which turned out to be more remunerative. He further pointed out that it is the first time in JSW Group that Sajjan Jindal and Parth Jindal are part of the board of the same business.

Edited excerpts:

JSW Energy has reported an annual increase of PAT by 37 percent to Rs 466 crore in the September quarter. But, the margins have shrunk. What are the reasons?

Between July-September, we saw the power demand growth was 5.7 percent for the year. First half, we saw close to 12 percent power demand growth. Of course, now, the merchant volumes have gone down during the quarter. It was down 20 percent percent year-on-year. And, the prices were also moderated. At the same time, the fuel prices were elevated, because of which we saw the contraction in the margin. However, EBITDA on an absolute basis was very robust and it was maintained. And that's why we saw the EBITDA grow by 2 percent. And during the quarter, we saw the profit after tax grow by 37 percent primarily because of lower tax rate and additional hiring.

We have long term power purchase agreements with our thermal power plants, and in that the fuel passes through. During the quarter, our fuel prices went up by 130 percent primarily because of the higher coal prices. And when this happens, our EBITDA rupees per kilo kilowatt hour is the same. However, because of the increase in the fuel price, the denominator increases and you see the contraction in the margin as a percentage of sales. But in terms of the absolute EBITDA, per megawatt or per kilowatt hour is protected. So there is no change in that.

From a high in the last quarter, you said merchant power sales declined between July-September. Why so?

Merchant volumes have gone down because of moderation in the power demand growth and even the power crisis ebbed this time. That is why we could not sell more volume in the merchant market. Besides, thermal power, coal prices were high. Even in the e-auction of domestic coal, the coal prices were very elevated. Hence, we could not push more volume in the merchant market.

In the second half (of the financial year) also, I'm not expecting that the situation will improve. For the year as a whole, we are seeing our demand between 7 and 8 percent growth.

JSW Energy plans to expand its installed capacity to 10 gigawatts by 2025 and 20 GW by 2030. Have these targets been revised?

We are moving ahead of schedule. We said that by FY25, we will be achieving 10 GW of capacity. We have already logged in 10 GW of capacity, which we will be completing in the next 12 to 18 months' time frame. So, there will be an upside surprise, which will be coming up in terms of our capacity addition.

In addition to that, we have also embarked upon a storage solution. We have recently participated in the world's largest tender by SECI for 1000 MWh of lithium ion battery storage solution for the grid. So that's a new dimension, which has also opened up. It is over and above this 10 GW capacity.

We are also building a large pipeline of 50,000 MWh of hydro pump storage solution which we have already contracted. Now, we will be developing those kinds of capacity going forward. So there will be upside in our planned capacity which we will be executing.

Does JSW Energy plan to foray into the green hydrogen sector?

Yes, certainly, we are entering into the green hydrogen space. We are developing the project at this point of time. So, we are bidding and putting all the blocks together. We are taking the necessary approvals. We are also waiting for various policy directions from the government - various rules and codes which need to be taken out. For example, for transportation of hydrogen, you need various safety regulations, various other higher codes and goals need to be developed. So, all that is required to be done before commercial projects are started and institutionalised in the country.

India, and even European countries, are now going back to their coal-fired thermal power plants. Do you see coal prices softening any time soon? If you could also tell us about JSW Energy’s capacity expansion plan in terms of thermal power plants, if any?

In the last two or three weeks, we have seen that natural gas prices have moderated and so have thermal coal prices. So, if the geopolitical tensions ease a bit, and also the natural gas prices come down, then you will be seeing moderation in the thermal coal prices. Until that time, the prices will remain elevated. Still, the thermal coal prices are in the range of $250 to $300. They were as high as $400 a couple of weeks ago. They have moderated, but they need to come down below $100.

My sense is thermal coal prices won’t fall below $100 for a long period of time. Until that time, we are going to see elevated thermal prices.

As for JSW Energy, right now we are heading for 3,300 MW of operating thermal power capacity. We are not certain of adding more thermal capacity as we have recently acquired a 700 MW thermal power plant of Ind-Barath Energy (Utkal) Ltd in Odisha.

Could you give an outlook for the company for the next financial year?

We have undertaken growth projects. We are at 4.8 GW capacity right now. Another 2.6 GW is under construction, which will be going into commissioning from the current month onwards to the next 12-14 months time frame. In addition to that, we are acquiring additional capacity of 1.75 GW. That's all we will be contemplating and doing for the next one and a half year.

Could you update us on the Mytrah Energy acquisition?

We have already received the approval of the Competition Commission of India (CCI). We are in the process of taking various other regulatory approvals and we are expecting the transaction movement to happen in the current quarter. Precisely, it will be done by the end of this quarter.

What are the plans for JSW Neo?

We have created a structure which can enable thermal business separately, and renewable and new age businesses separately, and that's where we have created JSW Neo as a main holding company, which is at this point of time a subsidiary of JSW Energy. Necessary approvals from the National Company Law Tribunal (NCLT) have already come in, and we are now making further regulatory compliances which we are expecting to get completed in the next three to four months or maybe by the end of this financial year.

Once this is completed, then the entire business will be having two structures under the listed company. One is the thermal business and the second is the renewable and new age business. So all storage business, renewable generation business, hydrogen economy and polysilicon – everything will be coming under JSW Neo.

Are you also exploring some unlocking opportunity?

At some point of time, yes.

Parth Jindal, son of JSW Energy chairman and MD Sajjan Jindal, has joined the board of the firm. What will be his role?

It's a commitment of the principal shareholder and the generation next. Incidentally, this is the only business where both Sajjan Jindal and Parth Jindal are on the board of the company. He (Parth) will be bringing a lot of value and shaping up this business for the future.

Do you see the cost of solar manufacturing softening anytime soon?

In the last couple of quarters, we saw hardening of interest rates and commodity prices, and because of which building new capacity at a competitive tariff is difficult. And that has been a challenge.

The second challenge has been that while the government's intention has been to build large scale manufacturing capabilities within the country, and there have been certain basic customs duties and anti-dumping duties, the industry could not cope up immediately with the rising commodity prices to undertake the projects immediately.

So, in the short term, there will be a lot of pain because of moderation in the capacity addition. This is one of the biggest challenges that we are seeing, that capacity has been pitted in the city tenders at very competitive tariffs. Those tariffs are not viable anymore at current interest rates, as well as current commodity prices. Maybe, you will see a lot of challenges in the next 12 to 24 months' time frame, which will see the power tariff also going higher going forward. But once the domestic supply chain is created in the next 24 to 48 months' time frame, it will be a permanent solution.

We did not bid for any solar capacity because we saw it coming, that we will not be able to build the solar plants for the next 24 to 30 months. So, we are building only hydro and wind capacity at this point of time. When we find the opportunity in solar, we will go for that. So we have been agnostic from the sector side, we have been agnostic only for capital allocation policy and returns on the capital employed. For us, the only mantra has been that whatever you plan, you should be able to execute and generate desired returns on the capital employed.

What about wind energy?

Out of 2.5 GW of the capacity under construction, around 2.3 GW is in the wind sector and balance is hydro. And, so, we are building large wind farms. In addition to that, we have already locked in resources which are in excess of 10 GW for wind farms in various states. However, similarly, we have built capability and resources in the solar sector as well. But at this point of time, the projects which are undergoing are in the wind, because we saw that there were more little or less inflationary pressures as compared to the solar sector and the tariffs were more remunerative as compared to the solar sector.