EQ in Exclusive Conversation With Mr. Gaurav Sood, CEO at Sprng Energy

Excerpts from conversation with Mr Gaurav Sood, CEO at Sprng Energy Pvt Ltd

1) What are the biggest challenges in India’s goal of 175 GW by 2022 and 450 GW? How much can we achieve by 2022, 2025 and 2030?

We could achieve 110 GW by 2022, 150 GW by 2025 and may reach between (250 – 300) GW by 2030. Over the last two years, the pandemic has disrupted every geography across the world, including India, leading to a slowdown in growth and a reduction in energy demand. Although we have recovered to pre-pandemic levels, the economic recovery of India will take a few years to return to the earlier levels. This is the key contributor to the lack of growth and demand.

There are various other challenges such as the financial health of DISCOMs, GDP growth (even though showing signs of recovery), suppressed power demand, connecting the unconnected 25% population to the grid, supply chain dependence on China for solar, regulatory & policy issues etc. that will cause less volume in coming years until we address various issues holistically.

2) When will Module Prices stabilise? What will be likely the pricing and tech roadmap?

Module price should become more competitive as efficiencies improve over time. But the module price trend would depend upon the overall demand and supply situation, as well as the commodity cycle.

The demand for solar modules is going to increase substantially across geographies as majority countries will add more and more renewables in their energy mix. The supply expansion needs to keep pace with the demand and hopefully the commodity prices for aluminium, glass etc. come down. The price stability is difficult to predict unless all the factors go hand in hand.
On the technology front, we would see mainly monoperc and bifacial as the dominant technologies going forward. The price for these modules could be between 23 to 26 $c/Wp.

3) What will be the impact of BCD, ALMM, BIS, etc.? It’s 25% on Cells and 40% on Modules. Will it protect Indian manufacturing as it’s just a difference of 15%?

BCD imposition is an incentive for attracting manufacturers to set-up domestic cell & module manufacturing capacity. We have a substantial capacity for modules in India, and it is being further expanded because Capex is on the lower side for setting up module facilities. 40% BCD on modules and 25% on cells is a good enough delta to grow the sector.

For the domestic manufacturing to grow, it is important that the domestic companies consider this duty as an opportunity to invest in the Indian sector, particularly in cell manufacturing, and further try to establish their capacities and become competitive with the latest technologies and turn out to be reliable suppliers. Today, the biggest issue is that the IPP community as well as lenders need to see the track record of these suppliers resulting in reliable & bankable modules.

As ALMM is currently being qualified by Indian suppliers, so the government could have made BCD mandatory for modules immediately as sufficient capacity exists for modules, whereas BCD for cells could have been applied two years down the line so that there was good enough time for domestic cell suppliers to build capacities and module suppliers are given the market immediately.

The government should anyways put a timeline to conduct an assessment on the application of BCD and ALMM in the growth of the solar sector, to evaluate the outcome and see if any amendments are required or not.

4) BCD is not yet gazetted. Is there a possibility that it might not be applicable from April 2022? There is also rumour that some projects are given grandfathering from BCD due to PSA’s not signing up, they are being delayed. Is this true?

The chances of delay in BCD applicability are less. Some manufacturers have started investment keeping the BCD deadline of April 2022. It is learnt that, so far, the finance ministry has not agreed to any grandfathering.

5) What will be the impact of the PLI Scheme for Solar PV Manufacturing in India?

PLI incentive is given once you have set up the capacities, etc. It is a performance or production capacity linked incentive. Hence, the capacities would come up. Whatever assistance the companies would get, should be passed on to the customers in the market in the form of competitive product. It adds incentive for companies to get into manufacturing.

This is the key point that the developer community has been saying all along, ‘Rather than putting tariff barriers, how do we make our manufacturing more competitive?’ It is a good start in the right direction towards Atmanirbharta, and it will eventually have a positive impact.

How the pending PSAs going to affect the Indian Solar Industry? We believe there are PSAs worth 20 GW pending, and still, SECI is issuing new tenders and getting good responses from the developers.

From the sector’s growth point of view, it is not a good situation for the companies whose PSAs are currently stuck; but it is also not fair to the companies who have not won bids and the tender flow has been restricted till backlog is cleared.

Another fallout of this is that a lot of bids have been done where LOAs were given, and companies have gone and blocked the precious connectivity on the substations. Neither the projects are progressing, nor the available evacuation infrastructure being judiciously utilized. . So, connecting to any other project is also becoming a challenge. The government needs to consider that the projects having the approved PSA’s in place should be granted connectivity..

The latest bids which have recently happened have shown much lower tariffs in places with lower radiation. I think clearing the earlier PSAs will become even a bigger challenge.

6) India Made Target of 40GW RoofTop Solar by 2022 and not even achieved 15-20% of it. What is the main reason? How much can India realistically achieve?

The rooftop power is mainly sold to high end consumers such as industries and the commercial sector, and some power is also sold to residential clients. DISCOMs get regular payment at a higher tariff from these customers, and if they lose them, their financial gap will further increase because these were cross-subsidizing other segments where tariff recovery is a challenge or where subsidies are given.

Therefore, they keep on having disruptions of various policies that should be there to have a good rooftop solar. It will not be possible unless the reforms happen or Electricity Act Amendments happen. Concept of net-metering also needs to be made effective to provide boost to this segment.

7) Which state is most favorable, and which is worst for Solar / RE in terms of Policy, Grid Availability, PPA Honouring, Payment Timeliness, etc.?

Most of the projects are happening through SECI and NTPC. It is immaterial which state is the off-taker because we look at SECI as our off-taker from a developer’s perspective. From an ecosystem point of view, Rajasthan is the best state for solar for high radiation, cheaper land etc. Gujarat, Tamil Nadu, Karnataka states fit well for both wind and solar. Apart from Gujarat and to some extent Karnataka, no other state PPAs are considered bankable from a state policy perspective.

8) What will be the role of Energy Storage- Technology and price curves and preparedness of Make in India and role of PLI Scheme for Battery Manufacturing?

Energy Storage is in the initial stage in India, and it will start playing an important role once we have significant renewable capacity pumping into the grid.
If the Electricity Act Amendments happen, every consumer will have the right to choose their off-taker, and storage will come into play because renewable energy companies will have to meet the complete demand profile of those companies. Storage will also be important from an ancillary services point of view to ensure the working of the grid. It will be crucial for the EV ecosystem in the country as well.

Storage will take more time, especially in a price-sensitive market like India. Storage costs have come down more than 80% over the last decade and we expect another 80% reduction in storage costs over the next few years.

9) In upcoming tenders, what will be the ratio of Plain Vanilla Solar/Wind, Hybrid Tenders, RTC, etc.?

RTC depends on the system configuration we offer. The cost has to be competitive. Plain Vanilla and Hybrid would also work. The challenge with hybrid is that there are few states where one can collocate both. RTC will surely come, but it depends on how the storage cost comes down. We will see a lot of RTC tenders coming into the market in the next two to three years.

10) What is the need for Wind – Solar Hybrid, Dispatchable power on demand, RTC? What are the present and future scope?

There is a strong impetus in the direction where every corporate procurer wants to be carbon zero. The delicensing of the sector is also taking place. So, there will be a lot of demand in this direction, and hence the way we meet the requirement, where storage comes into the picture along with solar and wind, is crucial. And then, it is a complete RTC requirement to be fulfilled, which is the main driver. In order to reach that stage, certain reforms and amendments are needed, and the storage cost has to come down. Future wise, the scope is pretty huge, whereas today, it is limited.

11) How much capacity do you currently have in the operation, construction and development phase? What is the plan in a realistic scenario?

We have done majority greenfield development and some acquisitions as well. Today, we have an operating capacity of close to 1.7 GW, between solar and wind, around 1.2 GW of solar and 500 MW of wind. We have another 120 MW under construction and 250 MW under development. Therefore, our AC capacity is around 2.1 GW, but in terms of DC capacity, we will be around 2.5 GW and, we are considering adding another 200 MW-300 MW capacity.

12) Can India achieve its dream of one sun, one world, one grid?

We are capable of producing competitive renewable energy. We sell to nearby countries like Nepal, Bangladesh, etc. The key point is connecting this grid network. We can take advantage of the time zones, but laying that network and connecting it is the key question and the cost involved vis-à-vis the benefits. It will all boil down to financial analysis and the technical challenges in building the grid. If both the financial and technical criteria are met, there is no reason why we can’t do this.

13) If compared globally, tariffs in India are high, like recently in Saudi, it touched 1 USD Cents per kWh and in India its around 3 USD Cents. That’s a whopping difference of 3 times. What are the top reasons?

The main reason is the cost of financing, which has a major contribution to the resultant LCOE, since it is mainly Capex, which is incurred upfront and the operating costs are negligible. Another factor is the return expectation. Hence the cost of debt and the expected return on equity are the key factors.

Currency risk is another factor as Indian PPAs are rupee-denominated rather than dollar-denominated in those geographies. If all these factors are addressed, tariffs in India will be lower than those tariffs.

14) We’ve generally seen M&A’S, asset sell and acquisition model for exiting as an equity investor, but we haven’t seen a lot of IPO’S in India or abroad so, why not the green energy companies can go through the IPO route and lead successfully in India or other markets?

It’s mainly because of the nature of the business. These are not growth businesses it’s an Annuity business. This isn’t meant for IPOs because there is no upside to this business. The assets are exchanged between strategics and financial investors mainly those who are looking for yield. With every churn of investors, the yield will keep on getting compressed over the years.

15) What are the major requirements or expectations of the renewable energy sector to achieve dispatchable power on demand through a combination of solar + Wind + Energy storage? How can we achieve this technologically, and what will be the price implications etc.?

Key reforms are required that will result in making Discoms bankable and secondly open up the market of retail and C&I customers. Both are key requirements which once met, will open this RTC requirement in a big way. On the technology side, we need storage cost to come down. The combination of these factors will lead to the sector opening.

The government could look at providing VGF at the beginning to promote storage. The cost will come down with scale, and an ecosystem will be created in India. PLI will surely help it to some extent, but I think VGF would surely help to kick-start the sector by having a substantial number of tenders using storage which will create the entire ecosystem to bring storage cost down. The combination of few reforms would take up the RTC sector in a big way.

16) What are your views on Policies and Regulations such as DISCOM Privatisation and ISTS charges?

I think ISTS charges are important. Otherwise, there will not be any renewable development in the states which are not RE rich. Investment in a particular state has an impact on the cost of energy production but it also has a big impact on the overall development in that state. Jobs, infrastructure and industries are also created. How long will we keep putting everything in Rajasthan or a few states? It has to spread in the country, and this has to go out. The good thing is that renewables keep on dropping in terms of tariffs. So, the cost increase will get absorbed, eventually.

DISCOM privatization and delicensing have to be done. The consumer should have the right to choose who they want to buy electricity from. When there is a choice, there is competition, and that will also bring the cost down. Those reforms are a must. Our ATC losses are very high. Sometimes getting the private parties to manage these assets will reduce these losses, which are beneficial for the country.

17) What will be the impact of these ultra-low bids of Rs 2 and Rs 1.9 in recent to 2 tenders on the entire solar market?

Tariffs up to Rs 2, 2.20, 2.30 or Rs 2.40/ kWh should be acceptable to the DISCOMs. Anything beyond that would be a challenge, at least in the short term. The tariffs may eventually go up due to the ISTS charges, BCD, etc. The general tariff range of Rs 2 to Rs 2.50 should fly easily as of now.

Another point which we need to talk about is that MNRE has reduced the bank guarantee requirement substantially. Having those bank guarantees is also important, and it helps to bring only serious players into the picture.