EQ In Exclusive Conversation With Mr. Parag Sharma, CEO At O2 Power
- What is your 2021-2022 market outlook? How many installations are in the pipeline?
Last year, the market was down due to Covid-19 (as most players got extension in CoD timelines). But this, year it is expected to pick up. We expect around 15GW installation next year.
- How many tenders are expected to take place?
Till date, we have around 90GW of commissioned assets, around 20-25GW under construction, and around 20GW awaiting signing of the PPAs. Adding all this, we are, at max, at around 130-135GW of capacity. We need to bid for a lot of projects in the coming six months to be anywhere near 175 GW of installed capacity by 2022.
The challenge is that there are about 18 GW of unsigned PPAs. I am not sure whether SECI will first tie up this power, before going ahead with new bids. Hence, the key is discoms’ eagerness to buy out these tenders and enter PSAs.
- What will be the impact of the the ultra-low bids of INR 2 and INR 1.9 we witnessed in the recent two tenders on the entire solar market?
Yes, the last two bids went very competitive, and it was largely because they were low risk bids. Connectivity and Power evacuation infra is a big risk, and both these bids had this risk hedged. Moreover, there was no risk in signing of PPAs. We therefore witnessed this kind of a fierce competition as many players are hungry for some actual construction on the ground.
We believe this is a temporary phase, and that tariff will correct in the near future. We have seen this happen in the past as well — developers’ demand dragged the tariff down but it corrected shortly thereafter.
- What will be the challenges in achieving the pipeline of projects & tenders in the coming year?
The biggest challenge is to first sell out the unsold PSAs. Once that is done, we need to keep selling the projects that are tendered out rather than trying to bundle. Secondly, we are running out of good solar sites with CTU substations available near them. Proactive planning and delivery of transmission infra is the need of the hour. Further, there are some regulatory issues like ISTS waiver expiring in June’23, which will expose the bidders to higher transmission charges making projects unviable. To solve these issues, we can expect smooth buildup of pipeline in the coming year.
- How, as an industry, have you planned to ensure that upcoming bids will not witness another Andhra Pradesh-like issue?
First of all, we need to be wary of the offtaker risk. The PPAs should have relevant clauses to safeguard bidders’ interest. As an Industry, most of the IPPs are not keen to participate in state (other than Gujarat) tenders . The key reason has been the financial health of discoms. Industry has moved to bids organized by Central Government entities like SECI, NTPC, NHPC etc, where there is not only better creditworthiness of the offtaker but also policy stability. We need to push the states to add sovereign guarantee in the PPA to show their intent and raise the investor confidence,besides strictly following the Standard Bidding Guidelines while conducting the bids.
- What are your views regarding the proposed BCD? When will it be implemented?And at what rate?
BCD is in the government’s plan, and we all know that it will be beneficial for the Indian solar manufacturing industry in the long run. As for the rate, there is no point in speculating about it, since it is about to be announced in the upcoming budget . Once the BCD is rolled out, we will have to adapt to the changed market dynamics. This might cause some market disruption during the transition phase, but eventually it should smoothen out. But yes, we will have to put in a lot of hard work to make the manufacturing story a success.
- There are many tenders for which the PSA’s are not getting signed. What is the current status in this as per your knowledge and why do you think the PSA’s are not getting signed?
The PSAs were not signed largely because of higher tariff discovered in slightly complex bids such as manufacturing, peak power etc. These bids are the need of the hour, but it requires more synergy at the center and state level to adopt such tenders. If we can have buying entities on board for such kind of bids beforehand, it should be a win-win for all. As per our information, SECI has changed the approach for selling the power and they are not going with bundling of tariff. They have started closing offtake PPA wise. It will take time as about 18 GW of PPAs are yet to be signed.
- Your wish list from the Budget 2021 that is going to come in January end?
The detailed Budget 2021 wish list from O2 Power is available in our blog (Link — https://www.o2power.in/2021/01/16/expectations-of-the-renewable-energy-industry-budget-2021-22/). Some of the key suggestions are as follows:
- Base tax rate of 5% under section 194LC should be extended to include INR denominated ECBs.
- Extend time of commencement of manufacturing under section 115BAB by another 5 years to 31st March 2028 to attract more foreign capital under Make in India initiative.
- Change in explanation to Entry 234 of Notification No. 1/2017 – Integrated Tax (Rate) dated 28.06.2017 – In case of composite supply deemed proportion of 70:30 in a Solar Power generating system to be changed to 90:10
- Presently Renewable Energy is clubbed within definition of Power under priority sector lending provided by RBI. Due to stressed thermal power assets, majority of Banks are not lending to RE sector citing that their Power sector exposure is full. Industry request is to create separate category for Renewable Energy (Solar, Wind, Solar Wind storage Hybrid, Biomass, small Hydro) under Priority sector lending to enable RE IPPs to get more bank funding.
- Creation of large-scale specialized Infrastructure funding Institution which can refinance the operating renewable energy assets at competitive rates and help Banks/NBFCs/ Public Financial Institutions to recycle their Infra debt book and free up their capital to fund more of green field projects.
- Capitalizing Indian Renewable Energy Development Agency (IREDA) further at concessional rate of funding lines to enable it to fund larger scale green field RE projects without limitation of project & group exposure.
- 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?
Grandfathering would have been the ideal solution for BCD. Although we have well documented provision for change in law in the PPA, and we expect that there should not be any glitches in SGD / BCD pass through and reimbursement via increased tariff, but key thing is the whole processing time for implementing change in law. The processing time should be shortened. Secondly, in PPAs where there is no formula-driven change in law for BCD, CERC has to clearly narrate the latest formula for change in law implementation.
- 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 have a negative impact on rooftop solar market, but no impact as such on utility scale. Although what I can foresee is that decentralized micro grid and net metering is inevitable, but sometime away.