The evolution of the renewable energy sector in India began with harnessing potential energy from run-of-the-river and dam water in the hilly regions by setting up hydropower projects. Large hydro projects such as Bhakra-Nangal dam on the Punjab-Himachal Pradesh border and mini-hydropower projects in Kerala and Karnataka set the ball rolling. The projects set-up by large EPC players like Jaiprakash, Patel Engineering, etc, gradually unleashed a new growth era in the hydropower segment. However, limited availability of all-weather river water, deforestation, and lack of power evacuation infrastructure coupled with high gestation period for setting up such projects in the high-altitude area hindered the growth of hydropower generation.
In the mid 1990s, wind energy with a lower gestation period, small size projects with multiple power generating units, and minimal conflict with forest sites started emerging as an alternative to hydropower. They were fully exploited by early entrants like NEPC and late entrants such as Enercon, Suzlon, etc, who made use of government support in terms of availability of 100 per cent depreciation on windmill assets and an easy power purchase agreement (PPA) regime.
Further, availability of wheeling arrangement by state power grids in favour of industrial consumers, who enjoyed good delta of savings between cost of alternative power and unit price charged by the state electricity boards expanded the market. This substantially attracted large investments by mid and large size groups who set-up wind farms, with multiple power generating units — 0.75 megawatt (MW), 1 MW, 1.5 MW — in Maharashtra, Gujarat, Rajasthan, Andhra Pradesh, etc. During the last decade, large global players such as Gamesa, GE, and Siemens also joined the bandwagon with large sized — 2 MW, 2.5 MW and 3 MW — units having better plant load factor (PLF) with their technological innovation to increase wind power generating capacity from the same wind sites and brought the economy of scale, attracting large financial investors and independent power producers. As the PLF of wind power generation capacity started to increase, the per unit generation cost — adjusted for PLF/interest cost — also started coming down drastically. This made the sector fiercely competitive and resulted in unattractive unit rates offered under PPAs by state discoms, making this space just another income generating play instead of a business on its own.
Difficulties in acquiring large parcels of good wind sites, deforestation, access to viable sites in the hilly area for setting up new windmills, and the logistical challenges in transporting huge wind turbine to high-altitude area further stifled the growth of the wind power sector. But, with the evolution in the green energy space and government’s mission to balance its carbon footprint, solar energy emerged as the next wave in alternative energy having vast potential to grow in large capacities. However, a big deterrent was high capital cost of over Rs 15 crore per MW — almost two to three times of per MW project cost of thermal, hydro or wind projects — followed by low PLF of 18 per cent to 22 per cent, and substantially increasing cost of generation forced state grids to offer high PPA unit rates exceeding Rs 15 per unit of power purchased.
However, as the volume started going up and large players like ILFS, Shriram, Shapoorji, SunEdison, Mahendra, and Essel Infra joined the race in building up income generating assets and starting to get aggressive, the project cost started falling down drastically and bottomed out to just ~Rs.3.5 crore per MW and power purchase unit rate being offered by discoms touching rock bottom level to ~Rs.2.25-2.5 per unit of power purchased. At this level, the space became too crowded and much less attractive for most domestic players, having a much higher cost of borrowing as compared to ‘risk adjusted’ yield on the assets, gradually taking the sheen out of this space for the new entrants to build fresh capacities. This got compounded further with big players like SunEdison, and ILFS falling out and credit squeeze in the power sector by most lenders, making it unviable for most new entrants.Even the existing small players started feeling the heat of rock bottom tariffs leading to margin pressures and rise in financing costs casting a long shadow over their viability.That opened the gates for consolidation of existing capacities by mergers and acquisitions (M&As), sparked off by well capitalised companies or large financial investors like Tata, Brookfield, ReNew Power, Hero Future, etc, who started acquiring completed/income generating assets or under implementation projects for achieving scale. The wave continues till date and will be the game ahead in this space.
Further, the model of generating power in one place and selling the same to state discoms at unattractive unit rates (PPA’s) or consuming their own generated power at some other location (place of consumption) by using state power grid under cost based “wheeling arrangement” proved futile and quite expensive. On top of it, increasing losses by state discoms or possible re-negotiations by states electricity boards on the existing PPA’s (like Telangana) are a cause of major worry for many serious players in this space who don’t wish to depend upon “other layer” in between and want to reach the consumers directly.
That opens fresh line of activity and next big thing emerging is in the form of ‘distributed energy’.In distributed energy, the power is generated at the point of consumption (like solar pumps, rooftop solar power, street lighting, village/community power play, etc) without the nuisance of state grid or associated transmission and distribution losses. On the technology side, solar power companies will extend themselves into energy storage and energy management space while integrating their business with smart grids and smart cities. In short, consolidation and integrated power solution business (power back-upand storage devices) will drive the deal street in the renewable energy and distributed energy will be the buzzword going forward.
Source : indiatimes.com
