Energy storage business is going to be phenomenal, we are excited about it: JSW Energy’s Jain – EQ Mag

We are working to have a capacity of 1,000-2,000 MW of hydroelectric power in various states in due course.

In an interaction with Moneycontrol, JSW Energy’s CEO and joint managing director Prashant Jain spoke of the company’s earnings for the December quarter, apart from throwing some light on the company’s plans to scale up its renewable energy capacity, including battery storage systems and hydroelectric power projects. He also explained the delay behind completing the acquisition of Mytrah Energy.

JSW Energy on Friday reported a 45 percent decline in its consolidated net profit to Rs 180 crore for the December 2022 quarter. What are the reasons for such contraction?

Look, 83 percent of our power is sold in long-term contracts. Now, in long-term contracts, all our fuel prices are passed through, and you know that coal prices hit the roof throughout the year. During the third quarter also, it was higher 37 percent year-on-year. So when you look at a contract where fuel price goes up substantially as compared to fixed costs, you will be seeing why the EBITDA (earnings before interest, taxes, depreciation and amortisation) margin is contracting. However, the company’s absolute EBITDA is perfectly fine, although the EBITDA during the quarter went down by 18 percent. Primarily, the reason was low merchant volumes. In October, power demand was negative or almost flat compared to the previous year when demand was robust. At that point of time, power prices were ruling close to Rs 20 per unit. And this year, the power prices in the December quarter were on an average Rs 4.35-4.55 kind of a range, compared to a 37 percent increase in coal prices. Because of this, there was lower merchant volume.

But if you look at the year as a whole, for the last nine months, our merchant volumes are up by 65 percent compared to last year and our EBITDA is up 5 percent. In April-May alone, we sold more than 500 million units of power.

Going forward, what is happening in the current quarter (January-March) is that power demand for the first 22 days is up by 15 percent. Power prices have gone up from Rs 4.50 to Rs 6.50-7 per unit. Coal prices have come down from $240 to about $160. So now the situation will get better and merchant volumes will again go up.

What I am trying to explain is that we have to consider the seasonality factor and see the results in totality. Also, we should never look at the EBITDA margin in our (power) business.

Maybe not in October, but power demand was fairly high in November and December…

But you know, even then the power prices were not high. During Q3, power prices were Rs 4.55 on an average, whereas the cost of imported coal was $245, which ideally should translate to an average of Rs 6.50. So, if your coal is at that high a price, you will not be able to sell it in the merchant volume.

Could you give us an overview about the company’s debt situation?

Right now our total gross debt is approximately Rs 9,800 crore and it’s going to go up because out of this Rs 9,800 crore, around Rs 3,000 crore is for capital work-in-progress and rest Rs 6,800 crore is on the operating assets. We have close to 2,300 MW worth capacities under construction, which will get commissioned in the next 12 to 15 months’ time frame. So that’s what is going on.

Is the company looking at investors, ESG funds?

So, for 10 GW of operating capacity, we are fully capitalized. We don’t need any kind of capital. However, we continue to look at various growth opportunities. And as and when any opportunity arises, we want to raise further capital. We are fully equipped to do that at that point of time. So, we are not averse. But that raise will be only for further capacity enhancement.

The merchant power market cap at Rs 12 per unit continues and prices have been hitting the upper circuit. Given that coal prices remain high, how are companies like JSW looking at the short-term market?

It’s not in our hands, which is why we want to contract mostly the long-term agreements. Our portfolio is 83 percent in the long-term market. The short-term market is beyond anybody’s control, because we have no control over coal prices.

But will it be profitable to sell at Rs 12 per unit?

Absolutely, but if it is throughout the day. If it is only for two hours, then it’s not.

You received letters of award (LoA) for a total of 500MW/1,000MWh battery energy storage systems (BESS) from Solar Energy Corporation of India (SECI) earlier this month. What is the order pipeline looking like and what is your target for FY23 and FY24?

This is the world’s largest tender for 1,000MWh for which we have already got the LoA. From the LoA, the project needs to be completed within 21 months. So we will be completing this project by October 2025. This project will be set up in Rajasthan and it will be the first of its kind in the country.

Along with this, we are also working on hydro pumped storage projects, which is also going to be the future. We are building multiple verticals—generation, storage and then the electron to molecule business. The energy storage business vertical is going to be a very phenomenal vertical and we are very excited about it.

Talking about targets, apart from this battery storage project, we are working on multiple other opportunities. We will be starting our first pumped hydro storage project during the current calendar year. This will be for our steel plant where we are building our own micro grid for solar farm, wind farm. This will give us round-the-clock renewable energy and, thus, will help in decarbonising our plants.

What are your expectations from the upcoming budget? Anything in the pumped hydro sector that you are hoping for?

The government is really mindful that when we are building such a large capacity for generation by renewable resources, storage solutions become very important for the stabilisation of the grid. For this, the government is working on both sides, hydro pump storage and lithium-ion battery storage projects.

As and when these policies are announced, we will be working on that because we have already identified and got allocated up to 50KWh of hydro pumped storage projects in various states, where we have already started works in terms of seeking various regulatory approvals, land acquisition and preparation of the feasibility studies. As and when the government comes out with a policy and tenders for pumped hydro projects, we shall also participate.

As an industry stakeholder, for both pumped hydro storage projects and green hydrogen, I would request the government to look into policy framework and long-term offtake agreements.

JSW Energy has not made any clear announcements about its plan in the green hydrogen segment. Please give us some details.

Yes. These projects are at the conceptualisation stage at this point of time. We are waiting for the policy framework from the government.

We are already in touch with various leading companies that have done a lot of research and built large capacities of electrolysers. We are working with them and as and when there is a policy framework in place, we will be in a position to get those contracts signed and then build those kind of capacities.

Do you think the land subsidence incident in Joshimath will affect the future of hydroelectric projects in the country?

Hydroelectric projects are a part of the development needs of the country. They need to be built with a lot of safety and precautions for which India is well equipped. India has so many large hydro projects that are operating for several decades.

JSW Energy has been operating its hydroelectric plant for close to two decades and there has been no problem. I can say that hydroelectric projects are good for the country, good for mankind as well as nature, if executed well.

So, does JSW Energy plan to expand its hydropower portfolio?

Oh yes. Right now, our one project in Himachal Pradesh is under construction which will be commissioned in the next 12-15 months. Next, there are a couple of more projects we are working on. We are very optimistic about the future of the hydroelectric projects and we feel that this is a very good space to be in.

We are working to have a capacity of 1,000-2,000 MW of hydroelectric power in various states in due course. But they take a lot of time to develop. Each project takes five to six years to be built.

Are there any plans to get into the offshore wind business?

Offshore wind gives power at Rs 6-8 per unit, not less than that. And I don’t think India wants to buy power at Rs 8 at this point of time.

The last time we spoke, you said the acquisition of Mytrah would happen at the end of the third quarter. But that has not happened. What are the reasons for the delay?

There are 17 lenders we need to take approvals from. Each lender has to go to its board which sometimes takes time. Now it’s a matter of days, not even weeks. I’m expecting that maybe within this month or early next month, we should see that happening.

Source: PTI