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Serentica Renewables in talks with investors, plans to set up 1,500 mw green energy capacity 

Serentica Renewables is 100% owned by Twinstar Overseas Ltd, run by Volcan Investments Ltd, Bahamas, the holding company of the family trust of billionaire Anil Agarwal. 

September 21, 2022 / 05:01 PM IST
 
 
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The family trust of billionaire businessman Anil Aggarwal, who hit the headlines this month with plans to invest Rs.1.54 lakh crore in a semiconductor plant in Gujarat,  has made a low-profile entry into green energy generation.

Newly launched Serentica Renewables has reached an agreement with three Vedanta Group companies to supply 580 mw of green power to them. The company aims to scale up its capacity to 1,500 mw to cater to other commercial and industrial customers, Pratik Agarwal, director of the company and Managing Director of affiliate Sterlite Power, told Moneycontrol’s Rachita Prasad in an interview.

He also said the group is in talks with potential investors for investment across green energy.

Serentica Renewables is 100% owned by Twinstar Overseas Ltd, which is in turn owned by Volcan Investments Ltd, Bahamas, the holding company of the family trust of Anil Agarwal. Edited excerpts:

Sterlite Power has a strong presence on power transmission. So why this move to enter renewable energy generation and why now? 

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Ever since we entered transmission in 2010, we have been closely tracking renewables. I strongly feel that the power sector is going through a huge change around the world. Power transmission has been critical for the last 10 years and will continue to be so for the next 30 years because the biggest barrier to decarbonization continues to be transmission in a very significant way. So that business will continue. In the renewable space, many players have come up in the last 10 years. And frankly, we couldn't think of what we could do differently from those players then.

Now what has happened is that the business has shifted away from being a pure government-oriented business to one catering to large commercial and industrial (C&I) establishments. C&I players are seriously looking at renewable energy because everybody wants a portion of their power to come from green.

In the last two years, from data centres to carbon-intensive sectors like metals, companies are looking at green energy because their customers are asking for low-carbon products and are willing to give a premium for low-carbon products like metals in some cases. The Carbon Border Adjustment Mechanism (CBAM) will be fully implemented by 2026 in Europe. This will be a real change because then if you want to export anything into Europe, you will either not be able to export if you don't have a low-carbon fuel source, or you will get a premium for having a low-carbon fuel.

Also, India continues to have, in many parts of the country, low-quality power and faces power cuts. There is a chance that if you're connected to the local grid, you face power cuts and pay Rs 8-15/unit on top of that. Factories have to put up DG (diesel generator) sets to ensure uninterrupted power; India has the largest market for DG sets in the world. We cannot compete with China or other large countries with expensive power. So low-quality power, need for green and the need for competitive power price are forces making a case for wind and solar power, which have globally become cheaper than any new coal-fired power plant anywhere in the world.

Our transmission expertise is also going to play a very significant role here because many of the easy locations that are close to the customer and grid have already been taken. Now, if you really want to scale up the business, you have to go after difficult locations and that will need transmission capability.

You pointed out that all the easy locations for renewable energy are taken and many players have come up in the sector in the last decade. Are you late or do you think there is still an opportunity? 

We think about this all the time. There are two things to it, first, are we really late and is that a bad thing?

So when I think of the first question, I am not convinced we are late. The C&I segment in India alone consumes 70,000 megawatts of peak power and only 5-10% of it has successfully moved to green sources. So while it looks like there are so many players, the market size is huge.

Secondly, even if we were to worry about being a late entrant, when we see other sectors like telecom and aviation, it is the late entrants who are dominating the sector. In infrastructure, I don’t think first movers have an advantage. Value is created with patience and by learning from others and by entering at the right time, and exiting at the right time.

Will you only be looking to supply green power to C&I space or would you bid for government projects as well? 

What we will not do are plain vanilla wind or solar government projects. I think that business is largely built on the cost of capital game where everybody is sort of the same and the success in bids depends on who has the (most) affordable rate and cost. We are really an entrepreneurial organization and thrive on innovation. We thrive on doing things differently; if we don’t become the number one renewable company in the country, that's fine as long as we are most impactful, innovative, and may be the most profitable. We are currently seeing a variable pipeline in C&I. We are offering a branded offering from a large group that will give an extra push. Other than C&I, we will be very selective.

What’s the business model and plan? 

At the moment, we are very focused on setting up 1,500 megawatts of installed capacity, of which we have already contracted a vast majority. We have signed power purchase agreements (PPAs). We are currently executing the project and we are raising the capital for it, which is also at an advanced stage. Once we have de-risked this project in the next six months, we will pursue both tracks– long-term PPAs and some capacity on a merchant basis. We will pursue more tracks but a large part of our business model will remain the contracted business model; that is what investors are very comfortable within India. In the US, there is a very big thriving merchant model where people set up capacity and then sell, but India is perhaps three to five years away from the stage where that model can attract capital.

Who are the C&I consumers you have contracted to supply power from the first phase of 1,500 MW and at what rate? 

The rate is confidential. I can share the capacities that they have declared– 200 MW Hindustan Zinc, 200 MW with BALCO, and 180 MW with Vedanta Aluminum. I can’t comment on the tariff, but it’s certainly at par with the market. There's no other way, it's a fully arm’s length contract that has gone through governance checks. It’s a group captive model, each customer owns 26% of the respective SPV (special purpose vehicle) and Serentica owns the rest. The PPA is for 25 years.

You are largely in pacts with Vedanta Group companies right now. Are you looking at customers outside the group? 

We can’t announce at this time, but we are talking.

You announced that the 1,500 mw will be spread across Karnataka, Rajasthan and Maharashtra; have you identified the locations? How soon can you start work on the project? 

The entire 1,500 MW will be commissioned in about 34 months from now, in a progressive manner.  Some of it will be commissioned earlier. The states are final, but we haven't finalized the precise location. The groundbreaking should be in the first quarter of next calendar year.

As a developer in the renewable business, would you continue to own and operate the assets? 

Yes.

At some stage in future would you look at a structure like Sterlite Power where you can transfer operational assets to an infrastructure investment trust (InvIT)? 

I think we will keep the ownership model in this business; that’s the advice we have got and is the model we've chosen. We will be long-term owner of these assets. We could consider an InvIT and still be a long-term owner of the assets.

What's the total investment you're assessing right now and how are you financing it? 

I can't share the actual value because it's market-sensitive. The financing will be in line with the market standard– 70 to 75 percent via debt and the rest equity. Apart from Indian lenders, we have tremendous interest from global lenders because of the decarbonisation story here.

Are you looking at inducting any investors at this stage? 

We are looking at inducting investors. We are having conversations. We think that it is better to have a well-capitalized platform early rather than do it later.

How big is the team at Serentica right now? Who is running the show and have you been appointed for key positions? 

My role is that of representing the shareholder. The specific executive roles, we'll decide in the next few weeks and months; the team is getting in place. Sterlite Power has 800 employees and Serentica has 650 employees now. There will be a lot of common skill sets between these. We are hiring some specialists who have specific renewable energy experience; we hired our first employee a year ago in this business. The CEO and CFO are common at the moment with Sterlite. In due course, we will announce a dedicated CEO and CFO.
Rachita Prasad heads Moneycontrol’s coverage of conventional and new energy, and infrastructure sectors. Rachita is passionate about energy transition and the global efforts against climate change, with special focus on India. Before joining Moneycontrol, she was an Assistant Editor at The Economic Times, where she wrote for the paper for over a decade and was a host on their podcast. Contact: rachita.prasad@nw18.com
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