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MC Exclusive | JSW Energy to set up 3,800-tonne green hydrogen plant in Karnataka, sign 7-year supply deal with JSW Steel

The company intends to spend Rs 85,000 crore in the next seven years under its recently unveiled ‘Strategy 2.0’ initiative, wherein it aims to increase its generation capacity to 20 GW and energy storage of 40 GWh/5GW by 2030.

May 25, 2023 / 11:10 AM IST
JSW Energy

JSW Energy

JSW Energy is planning to set up a green hydrogen plant in Karnataka with a capacity of 3,800 tonne. It is also signing a seven-year contract with JSW Steel, from the same conglomerate, for supplying green hydrogen and green oxygen to produce green steel. In an interview with Moneycontrol, Prashant Jain, Joint MD and CEO of JSW Energy Ltd, speaks about the company’s diversification plans and its performance in FY2023.

Edited excerpts:

The company’s revenue has grown but the net profit has declined sequentially as well as year on year. What are the reasons?

In the fourth quarter of last year, there was one regulatory true-up income in our hydro business because of which we got around Rs 582 crore. If you exclude that, then last quarter our EBITDA was up by 8 percent. And for the quarter, the profit was down by 7-8 percent on an adjusted basis, primarily because of higher interest outgo because we have increased our debt to lever up the balance sheet. But if we look at the year as a whole, our profit after tax was up on an adjusted basis by 5 percent. If you look at the total EBITDA for the entire year, which is Rs 3,820 crore, it is the second-highest operating EBITDA in the history of the company. We clocked Rs 4,000 crore EBITDA in 2015 when the merchant tariffs were ruling very high. So the company has transformed into a sustainable long-term PPA (power purchase agreement) backed business with a very stable EBITDA growth.

How much capex has been planned for FY24 and in which segments it will be spent?

In 2021 we announced a capital expenditure programme of Rs 16,700 crore, which is going on. Along with that, we started additional acquisition and capital expenditure of another Rs 5,000 crore. So in total, Rs 32,000 crore capital expenditure program has been undergoing for the last 18-24 months, which will get completed by the calendar year 2024. Of this, I think another Rs 10,000 crore is yet to be spent, which we will be spending in the current financial year.
Going forward, we will continue to spend between Rs 12,000 crore to Rs 15,000 crore per year. In our Strategy 2.0, we have announced that we will spend a total of another Rs 85,000 crore in the next seven years, which will be primarily from internal accruals and additional debt which we will assume on our balance sheet. The next year’s (FY25) capex program is Rs 12,000 crore.

How much was the capex in fiscal 2023?

In 2023, we spent close to Rs 7,500 crore on capital expenditure, plus another Rs 10,100 crore was spent on acquisition. So all this is from the basket of Rs 32,000 crore that I mentioned earlier.

What would be the share of renewables in all of this?

It's all for renewables mostly, except for Rs 1,700 crore, which would be spent in the thermal segment. Balance everything is going into the renewable segment.

Have you firmed up your green hydrogen plans?

In this quarter, the Board has approved setting up a 3,800-tonne green hydrogen plant in Karnataka. We will sign a contract with JSW Steel too for which they will be using both green hydrogen and green oxygen to produce green steel, and this would be a seven-year contract during which the entire plant will be amortised, and post that, the contract will be on a variable cost-plus ROE. Before that, it is a cost-plus ROE where we are expecting mid-teen ROEs from this particular business.
This is very strategically located. This will be using close to 25 megawatt (MW) of round-the-clock renewable power which is already being set up by JSW Energy. And this will be one of the most competitive and the largest green hydrogen plant which is going into construction.
We will be having a first-mover advantage in terms of our learning curve. As and when we see the ecosystem getting developed and more and more opportunities coming up, we will be in a position to capitalise on those going forward. We have a long runway planned for green hydrogen, green ammonia, sustainable aviation fuel, green methanol and green chemical complex going forward. So this is the first step in this particular direction. This plant will be up and running in 18 to 24 months timeframe.

How have the merchant sales been in the first quarter of FY24 so far?

Last year, power demand grew 9.5 percent, which was pretty good. The demand has not been good in April and May in the current financial year because of the sporadic rains all over the country. But, the power demand is now picking up and we expect it to remain quite robust between 6-7.5 percent in the current financial year. The power tariffs are also improving now. The whole year's average was Rs 5. 96. And we expect the power tariffs to continue to strengthen. Thermal coal prices are coming down as compared to the $136 average for the last quarter. Now, the API2 Index is at $102 and in low CV coal, 4,800 kilocalorie coal adjusted for 6,000 kilocalories is close to $92. So the thermal coal prices are coming down, because of which fuel prices will be lower.
In terms of the merchant sales, we should be doing better than what we did last year in terms of the overall volume and also in terms of the contribution because fuel prices are coming down and we expect our contribution margin from the merchant sale to go up for the year as a whole.

JSW Energy has completed the acquisition of Ind-Barath Energy (Utkal) Ltd. Besides the enterprise value of Rs 1,048 crore that you have paid, what is the capex plan for that unit and on what will you spend the money?

The total enterprise value for the completed plant including the FGD and various other compliances will be under Rs 2,700 crore. We are yet to spend close to Rs 1,650 crore, which we are spending in this current financial year. So out of the Rs 10,000 crore capital expenditure I mentioned earlier, Rs 1,650 crore will be going into the commissioning of Ind-Barath. There are two units of 350 MW each. We are expecting to get the first unit commissioned in the first half of this financial year and the second unit will be commissioned in the second half.
This unit will be primarily used for merchant sales for the time being. This is a pithead plant, which is very strategically located where our fuel price will be one of the lowest in the country. And given the macro demand as well as the power scenario, I think it will be quite an attractive investment for us. We will be having a very good contribution from this particular asset in the current financial year and years to come.

Can you give us an update on JSW Energy’s possible deal with Continuum Green Energy? Also, post the interest shown in the stake sale of PTC, is the company also looking at similar bids, say for NTPC’s renewable energy arm?

We continue to look at various inorganic opportunities and it is part of our strategy to grow our balance sheet. I don't want to comment on any specific asset. However, it is very safe to assume that JSW Energy will continue to look at various inorganic opportunities as we did in Mytrah. If we find any attractive opportunity in this space which is lucrative to all our shareholders and also fits into our growth strategy, we will be certainly looking at it.

The company is already working on a 500 MW battery storage project in Rajasthan, you also got the PLI allotted for solar manufacturing from the government, and now JSW Energy also won the tender for a 300 MW pumped storage project in Karnataka. Give us a timeline of all these projects.

Of the two storage projects, one is a battery storage project with SECI. We are expecting it to be up and running in the calendar year 2024 between October and December. PPAs for this are in the final stages. In terms of the PCKL tender for 2.4 gigawatt-hour for the pump storage project, the construction time from the signing of the PPA will be 36 months. We are expecting to sign the PPA in the current financial year and then we will start construction, which will take 36 months.
For the PLI scheme for backward integration of wafer cell and module manufacturing facility, we are in the final stage of negotiations with the state government for an incentive package. We are expecting this to complete by the calendar year 2024 itself. In another 18 months timeframe, this will also be up and running. So all these projects will be funded by internal accruals as well as debt. The project costs for wafer cell and module manufacturing will be around Rs 1,600 crore and for hydro pump storage, it will be approximately Rs 2,000 crore.

For the SECI battery storage project, what’s the rate at which the PPAs are likely to be signed?

This is for 60 percent capacity and it is tied up with SECI, in which there is a lease rental of around Rs 10.8 lakh per megawatt per year contract. So based on that, we are expecting mid-teen to high-teen or maybe higher equity IRRs (internal rate of return).

For the solar module manufacturing project, will there be still some imports that the company will have to do?

We will be importing only polysilicon for the modules. Everything else will be from India only – be it aluminium sections, glass, the insulation.

Sweta Goswami