EQ In Exclusive Conversation With Mr. Ravi Khanna – CEO & MD At Aditya Birla Renewables Ltd

EQ In Exclusive Conversation With Mr. Ravi Khanna – CEO & MD At Aditya Birla Renewables Ltd

• What according to you 2021-2022 market outlook. How many installations are going to happen?

Around 50 GW of projects were under implementation as of November 2020 across renewables technologies, we expect 10-12 GW capacity addition this year in solar. While the expected pipeline due to come onstream is more than 15GW, past trends have shown challenges and delays in execution. However, developers will also be in a rush to commission or at least procure equipment before BCD applies from April 2022.

• How many tenders are expected to take place?

Going by the previous trend of a normal year, 25-30 GW capacity is annually tendered.  The auctioned capacity is invariably 40-50% of it.  Large tenders such as AP (6.4 GW), Jammu & Kashmir (7.5 GW) and SECI-Karnataka (2500 MW) which did not mature last year for variety of reasons may be re-tendered this year and hence it is expected that substantial capacity will be on offer. We expect developers will also be in a rush to commission or at least procure equipment before BCD applies from April 2022.

• What will be the impact of these ultra low bids of 2rs and 1.9rs in recent to 2 tenders on the entire solar market?

Such low bids will become a reference point for future bids and may prove to be a hindrance in closure of PSAs and PPAs won in past at higher tariffs. In case the Supreme Court judgement for the developers’ petition against AP Govt. goes in favour of developers it will strengthen the confidence of global investors in the sovereign guarantee and will prove to be a deterrent for other state governments to renege on signed contracts.

• What will be the challenges and achieving the pipeline of projects & tenders in the coming year?

The bankable PPAs and track record of payment history of various states will make discerning developers more state specific which will create a situation where some tenders get oversubscribed and push the tariff down while the other tenders go begging.  It will set a differential tariff across states based on the inherent risks in PPA.

However, state discoms will not be able to acknowledge and reconcile this difference which will lead to greater annulment of tenders or failure in signing of PPAs. So the main challenge is for SECI to sign PSAs to enable their tendered capacity to see the light of day. Currently almost all the tendered SECI capacity in 2020 is stuck without PPAs signed, since SECI is trying to sign up back to back PSAs with state offtakers.

No other country who has expanded renewables significantly has retail customers paying tariffs which are significantly below industrial tariffs like India, albeit many of them are more developed countries.

• How as an industry you have planned to make sure in upcoming bids there is not another episode like Andhra Pradesh issue?

It’s very difficult to completely eliminate what is essentially a form of “country” or “political” risk. However, it is critical to be on the ground tracking the political positions of the various state governments and oppositions regarding the sector. We consider the known state risks before participation in tenders and give due importance to state solar policies.  However, at times we are likely to be caught off guard as the situation dynamically changes.  We trust that there may be temporal disturbances but ultimately the central government’s policies and commitment to reduce the carbon footprint will prevail and exercise its power to restore the confidence of investors in the sector

The Ministry of Power recently floated an amended version of the Electricity Act, 2003. The proposed amendment includes establishment of an Electricity Contract Enforcement Agency (ECEA) especially after the Andhra Pradesh episode. The formation of ECEA will ensure the sanctity of contracts in the Indian power sector as it will have the authority to direct the party to perform their obligation under the contract and honour the contract. Such steps are positive but it remains to be seen whether they have teeth.

• Regarding the proposed BCD, what are your views, when it is going to come? & what rate is going to come?

Historically, many countries like USA and countries in Europe have tried this approach to kick-start manufacturing in their country without much success.  In the end it leads to increase in tariff which is passed on to consumers. Given the current financial status of discoms such a step may not be welcome by the consumers. The SGD is valid till July 2021 and my sense is that it will be further extended before promulgation of BCD.  During this period the old PPAs without consideration of BCD would be executed and sometime in middle of 2022 BCD may be introduced.  There will be a differential BCD between cell and module and could be anywhere between 15-25%.

• There are many tenders for which the PSA’s are not getting signed, so what is the current status in this as per your knowledge and what do you think why the PSA’s are not getting signed?

Primarily the reasons for non-signing of PPAs are:

1. The demand of electricity has not grown and hence discoms do not have a dire need for signing long-term PPAs
2. The current discovered tariffs are much lower than previous tariffs and hence discoms are reluctant to ink PSAs.
3. After nearly 4 years of tariffs operating within a range (2.44-~2.80), there is a new paradigm in the pricing, which may further increase reluctance of discoms to sign longer term contracts

• The wish list from the Budget 2021 that is going to come in January end?

1. Greater allocation of clean energy cess to Renewable for strengthening the payment security system of discoms.
2. Concessional GST on equipment used in solar plants in view of recent hike in commodity price,
3. Clarity is required to resolve the disconnect between policies like BCD to help domestic module suppliers (SGD has been shown to have fairly limited impact in boosting domestic supply) and the huge capacity targets of the government, which are only possible with significant imports from the Chinese market.

• As grandfathering might not take place, what do you think is going to be the protection or support that industry can really accept from the government for the tenders & projects which are exposed to the risk of BCD?

The old contracts would be executed by the time BCD is introduced and many new ones have protection clause. Since BCD is in offing and government has given approximate timeline of its introduction also, it is for developers to evaluate and appropriately factor their risk and accordingly decide action.

• What are your views about new consumer rules rolled out by the  government in which they have stopped the net metering about 10KW? 

This will be dampener for the large scale C&I rooftop market segment.  However, at smaller scale it may give a fillip to the storage backed rooftop PV and free some capacity of local transformers for greater proliferation of small size systems.  Electricity being a concurrent subject it will also be dependent on the implementation of the policy by different states.