Deferred renewable projects pulled FY23 capex down to Rs 6,500 crore: Tata Power CEO

Praveer Sinha, CEO and MD, Tata Power

Tata Power, on May 4, announced a 48.5 percent year-on-year (YoY) growth in consolidated profit at Rs 938.8 crore for the quarter ended March 31, 2023, supported by higher other income and low base in the year-ago period. The firm’s Managing Director (MD) and Chief Executive Officer (CEO), Praveer Sinha, spoke to Moneycontrol about Tata Power’s plans for FY24 and the Mundra power plant. He also spoke about the company’s renewable projects and debt reduction plan.

Edited excerpts:

Take us through the Q4 results. Also, out of generation, distribution and transmission, which sector saw the highest growth?

This is the 14th consecutive quarter in which we have shown growth. And what is important is that each of our businesses have stabilised and are giving consistent performance. Whether it is our existing generation from coal, hydro and gas or the transmission and distribution and renewable business – all of them have done very well. Going forward, we will continue to see the same type of performance.

Of course, what also happens is that there are some quarters in which one does a little better than in the other quarters, but I think on an overall basis, there is a huge amount of consistency in each of our operations.

Last year, the company had projected a capex of Rs 14,000 crore, but in actual terms only about Rs 6,500 crore of capex was executed. What is the reason?

Last year, we planned a large capex, but ended up with something like Rs 6,500 crore. This is because a lot of our renewable projects, which we were planning to implement last year, got deferred to this year, and maybe some will get also deferred to the next year – FY25.

This is because there was a lot of supply chain constraints in sourcing from other countries, and also the cost of the solar modules had gone up. So, we thought that it would be better if we defer these rather than implement at very high cost. That has paid dividends, as now in the last six months, the cost of modules is coming down. But we do expect that once we implement these projects in the next 12 to 18 months, we'll get much higher returns than what we had planned. So, that's the reason that the capex got deferred.

This year, we are trying to make up for that by spending nearly Rs 12,500 crore, which mostly will come from our internal accruals.

Could you give a break-up of the Rs 12,000 crore?

In renewables, we have a new manufacturing facility that we are creating for cell and module – that will take about Rs 3,000 crore. And another Rs 4,500 crore will go into our utility scale projects, as well as some of the group captive projects that we will set up.

As far as distribution is concerned, we will have about Rs 3,000-3,500 crore of capex, which includes the transmission and distribution (T&D) in Mumbai, Delhi, and also in Odisha where we are running all the four distribution companies.

What is the company doing to improve its debt situation?

Our debt is very low considering we are an infrastructure company. We were able to bring down our debt last year from Rs 39,000 crore to Rs 35,000 crore. And on a debt-equity ratio, we are 1, which is normally not seen in any infrastructure company. They typically are into 2:1 ratio, and we have been able to manage the debt very well. Also, going forward, we expect to continue to have debt-equity in the similar range. So, I think, we are doing very well on debt considering the amount of capex that we incur every year for growth; and infrastructure projects require huge amount of capex. So, we are able to now generate enough cash to service the debt also, as well as to take care of the growth aspects.

Tata Power’s plant in Mundra hardly operated in the quarter ended March 31. How much loss is being incurred from the plant and what is the long-term solution that the company is working on?

The Mundra plant had operated last year from May 5 to December 31 under Section 11 of the Electricity Act, wherein the cost incurred for operating the plant is reimbursed. From January onwards, we were trying to come to some settlement with the procurers, but that could not happen. Between January and February 13, we did operate one of the four units of Mundra. But since we could not come to a settlement, we had to close down.

Now that Section 11 has been imposed again, Mundra plant is operating from March 15 and will do so till June. Except Haryana, all the procurers are taking full electricity. So, what is important to see is that today our operation of the plant is on a cost-reflective basis or on a cost-plus basis. And that ensures that we do not incur any losses when we are operating.

On a long-term arrangement, there has to be a benefit to everyone – consumers, discoms who will modify the power purchase agreement (PPA), and us, in terms of the losses we otherwise would have incurred if we would have operated as per the PPA. A settlement is under discussion, and hopefully, we should be able to come to an arrangement which is acceptable to all sides.

Tata Power was allotted the government’s PLI for solar module manufacturing. Could you give us an update on the upcoming units of the company?

The plant has two components – a 4 Gigawatt (GW) module unit, and another 4 GW of cell manufacturing unit. The module plant is in advanced stage of construction, and hopefully by September or October, we should start the first phase of the module. And over a period of time, the full 4 GW capacity will come (up). Similarly, the cell plant will start operating from December onwards, and hopefully the full capacity will come (up) by end of March next year. So, this plant will help us meet the local requirements of projects that we implement, whether it is rooftop or group captive or utility scale or third-party EPC. It will help us control the cost and will also provide security of supply that is necessary for such projects.

Where have you sourced the machinery and raw materials for these cell and manufacturing units?

The machinery – many of them are from Europe, some are also Chinese machines, but these are very standard machines and are used globally in different countries. Similarly, the raw material sourcing is done from ASEAN countries. We have a lot of people who manufacture cells and wafers, and we will be procuring from them, as also from China. So, I think, it's a mix and a combination from various places where we can have a long-term arrangement to ensure that consistency and quality of supplies is ensured.

The weather has been unusually kind so far. But, what is your view on the power situation in these three months and the monsoons?

We did not expect rains in the month of April and May. Similarly, we did not expect such high heat conditions in the month of February. So, let's wait and watch. But, whether it is 230 or 240 GW of peak power, I think, we will be in a much better condition to meet the requirements. Also, from June onwards once the rain starts, then the ramp-up of generation from hydropower plants will start, as also the wind speed during the months of June to September are very high. Ramp-up in generation from wind projects will also take place.

So, I think, if we consider the whole generation capability in the country and the capacity which is existing, we should be in a position to meet the requirements of whatever is there in the summer and monsoon months.

There are reports that the government is planning to stop building new coal-fired power plants, apart from those already in the pipeline, by removing a key clause from the final draft of its National Electricity Policy (NEP). Your view, please.

It is important that when we move towards renewable, intermittent power has to be taken care of, whether it is through pump storage, battery storage or hydrogen. Till such time they become more cost-effective and are scaled up, there is a necessity to continue with some of the existing coal-based assets. But, there is a transition roadmap, and I think, the government is considering all these aspects and the timeline to implement many of these new technology projects.

Contribution of renewable energy (RE) in meeting the peak power demand is about 11-14 percent only. When do you see the availability of round-the-clock power increasing?

The government itself has extended the completion deadline of many of the RE projects to March 31, 2024 and September 30, 2024, because they understand that supply chain issues disrupted these projects and the prices of modules also increased. Now the prices have begun to reduce, because of which project implementation will happen.

We can expect in the next 12 to 24 months, a large number of projects to be coming up. Also during that period, many of the manufacturing capacities will come up in the country. So, what you would see is that the capacity additions, especially in renewable to a large extent, will get added in the next 12 to 24 months. And whatever is the future growth or future new requirement of power, (these) can, to a large extent, be met from renewable sources.