States should privatise transmission network for quality power and renewable integration: Pratik Agarwal

Give us the big picture on India’s power sector. What is working, what is not?

Let's start with what's working. We’re a country that consumes 1.2 trillion units of power per year. In February, India’s growth in power consumption was 9 percent, probably one of the highest in the world. If you grow annually at about 7-8 percent, or even 6-7 percent, India will consume 1.5 trillion units of electricity.

On generation, we have somewhere to the tune of 450 to 500 GW of installed capacity. Out of that, about 300-odd (GW) are (based on) fossil fuel, and the rest is hydro and renewables. We know that renewables run at a lower PLF (plant load factor). India's capability to attract global capital into renewable generation is a phenomenal success story. Capital from around the world has come into this segment. Today, there are more than 15-20 platforms that are participating in government procurement contracts, and they're creating wind and solar assets, and now even battery assets, at prices that are globally competitive.

Recently, India also announced more regulations that support the C&I (commercial and industrial) market, where not renewable for utilities but renewable for direct sale into large C&I establishments is now becoming very attractive. The price points are very good and there are more investments getting into that area.

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Let’s start with the 1,500 MW. What is unique about our capacity is that we are going to be supplying this power on the national grid, including the ISTS (interstate transmission system) network. We're setting up solar projects in three locations, one in Rajasthan and two in Karnataka. We're setting up wind projects in three locations as well, one in Maharashtra and two in Karnataka. We have currently finished about 40 percent of the land acquisition for this phase and we expect to hit the ground running as early as this month, and expect some amount of power to flow in the early part of next year (calendar year 2024), with the full commissioning towards the later part of next year. So that's the plan in phase 1.

In phase 2, all I can say at this stage is that we are in advanced discussions with existing customers and new customers. We have found that this industry of materials and metals is a very large one and it is very hungry for green power. Our offering of giving them close to round-the-clock power at prices that are significantly cheaper than power produced from imported coal, and sometimes even matching the price of power produced from pithead coal, has turned out to be a big success story. We hope that soon we will announce some more PDAs (power delivery agreements) with current and new customers.
Our goal is to have 5 GW (5,000 MW) of installed running renewable energy capacity by 2025- 26. That is almost more than three times of the current capacity. We won’t back those contracts in one go, we will go step by step and it's very important that we prove ourselves to customers and to ourselves, before we take on large projects. I think we will be able to achieve our 5 GW goal in the next three to four years.

Will any fresh investments be announced this year by Serentica Renewables?

New announcements, firstly, could be on the additional PDAs. I think on the debt side, we'll be looking at tying up about $1.1-1.2 billion of debt from various sources, which is project finance debt. So hopefully, you'll be hearing announcements around that as and when it works out well for us. We should also be looking at the second phase of equity finance to fund phase 2, over and above what the current platform already has. I think those announcements should happen in the current calendar year.

Global private equity giant KKR has invested $400 million in Serentica Renewables. How much is KKR’s stake in the company?

It is a confidential item which we’re not at liberty to disclose. But KKR is a significant shareholder in that platform and they are providing the capital for phase 1, along with other sources of our internal capital and customer capital. This $400 million is part of KKR’s $8-billion Asia Infrastructure Fund and a meaningful part of that fund. So we look forward to the deployment, which will start as soon as next month. And, of course, we will be raising money in the future because every new expansion requires more funding. We will be talking to them and to other parties as well.

The government has this mega plan of building transmission systems to integrate 500 GW of renewable energy capacity that is expected by 2030. What are the challenges and what is in it for a company like Sterlite Power?

Sterlite has been in the business of transmission concessions ever since 2010. We are the first entrant in the country with the first ever project awarded. We have backed more than 18 projects that have been executed, representing close to 28 to 30 percent of the entire market. We have executed more projects than any other player in the country and we are extremely proud to say that we have brought down the commissioning time, where the average project used to be delayed by two to three years. Now, most projects are commissioned on schedule or before schedule. And some of our own projects have been commissioned as much as one year ahead of schedule.

A lot of credit also goes to the government for allowing private sector participation in transmission, which is something that only two large countries in the world have done, which are India and Brazil. Because of this, India has a single unified grid, and somebody can produce wind power in Tamil Nadu and sell that to Srinagar, without any challenges. That's the beauty of having a single grid in the country.

Coming to the 500 GW transmission plan. This is a much-needed and very timely effort done by the government. They understand that one of the biggest challenges in achieving 500 GW renewables is going to be transmission. The other challenges, of course, are land and storage. And on transmission, you know, while you can build a wind and solar plant in 18 months, building a transmission line usually takes two to three years. More importantly, it is getting harder and harder with more organisations and more right-of-way issues.

The government has given a clear signal that they are going to award Rs 2-3 lakh crore of transmission in the next seven years. This allows companies like us to plan. We need to hire, we need to invest in factories, we need to invest in test beds, we need to invest in design capabilities. This allows us to plan our business well and send a very strong message to the financial community that this is an asset class that has proven itself, but also is an asset class which will attract more dollars in the coming seven years.

So, think net-net, excellent move, and we are currently looking at close to Rs 50,000 crore of projects, which are being tendered as we speak and the tendering process will finish in the current year. And with this, this will be the largest ever transmission project outlay ever done in India. I will also say it's the largest transmission project award on PPP (public-private partnership) basis happening anywhere in the world. To be doing $7 billion in a single year is phenomenal.

Could you give a sense of the cost escalation in a transmission project for RE?

There is no question that the cost of transmission for RE is higher than the cost of transmission for regular thermal energy. If you build a transmission line for RE, that line is only going to be occupied for 30-40 percent of the day. Now, if you do co-located RE, probably the line is going to be occupied 50 percent as opposed to a thermal project where the line is occupied 70-90 percent of the day. So, the same line has a lower utility and, therefore, the cost of transmission is bound to go up. But let's remember that out of the Rs 5 power that you might be paying or that a factory might be paying, the cost of transmission is only 40 paise out. So, the 40 paise going up by 10 percent is not a big deal. What's more important is that you build enough transmission so that nobody has to pay Rs 12 for a unit of electricity because they’re islanded or they are bottled and they're disconnected from the source of the cheap power.

The overall cost of power goes down by investing more in transmission. I think this is a very important nuance that people must understand about transmission.

What would be your ask from the government with regard to the transmission sector in India?

Look, it is extremely difficult to build transmission assets, which is why there are only three or four players building transmission assets, and that too on time. There are the right-of-way challenges, land challenges, wildlife, forests, which makes it all extremely difficult to complete transmission projects in the limited time of two and a half or three years available. So that’s an area that requires a lot of support from the government.

Also, there are two parts of transmission: central and state transmission. Central transmission is what you keep hearing about. We must understand that state transmission needs to be equally upgraded. Ultimately, the customer depends on state transmission as very few customers are connected directly to the central transmission network. That's the next big revolution that needs to happen. There has to be a lot of more private investment in the state transmission network, and a lot more upgrading and modernisation of that network.

But electricity is a concurrent subject. What is the solution to get states to revamp their transmission network?

State government needs to aggressively deploy the PPP model on transmission, just like some of them have done in roads. For example, Uttar Pradesh, Haryana have experimented, Rajasthan has experimented—this now needs to go across the 29 states.

However, this alone will not solve the challenge. Discoms need to be fixed because 90 percent of customers in the country will continue to be reliant on the discom as they are not large enough to directly draw power from the state transmission or the central transmission network. The latest proposal in the Electricity Amendment Bill, which talks about separation of carriage and content, is very important. This is exactly what happened to the airline industry. You had only one PSU (public sector undertaking) monopolistic airline 25 years ago, then six or seven airlines came, they improved the quality of all airlines, including that of the monopolistic airline, and they reduced prices for everybody. So the same thing can happen if you do open access in the last mile in the electricity distribution sector.

In the RE segment, what is the one thing that you’d want the government to look into?

This answer applies not just to renewable energy but also the transmission sector. Both sectors are thriving and have got active foreign investments. What is not going well for both sectors is that the competitive tension and the auctions that are happening and the reverse auctions, they have taken prices to such levels that it has become unviable. Now, on the one hand, you can say that it's up to us to take those prices or to leave. But frankly, if you leave, then you're not going to have any business.

The government has to reduce this effort towards price minimisation, and ensure that there is a healthy industry and even if they make a little bit, you know, 1 percent extra profit, I think it's good for the industry and it's good for the economy at large that there's a vibrancy in the industry.

Is India better-placed this time to meet its electricity demand this summer or are we staring at another crisis?

India’s power crisis is a crisis of the last mile. We all know that fortunately or unfortunately, 90 percent of our power during this time would still come from non-renewable sources. So it really comes down to how much the monopolistic PSUs that supply most of the coal in the country can produce, and how much of that can be transported on time, right down to the last mile.

However, the new policy for commercial coal mining is good. Probably close to 50 mines so far have been awarded and many of these will start producing in the next 24 months. The government has deregulated the coal business and once the private sector comes in, hopefully, coal shortages will be a thing of the past.

But as a renewable player, I hope that the 500 GW RE story comes true and very soon all shortages in power will be met purely by renewables, and not by any extra coal mining.