IFCs have be­come very ac­tive in the RE space, says Man­ish Choura­sia, CEO – Tata Clean­tech Cap­i­tal Ltd in an interview.

Man­ish Choura­sia, CEO – Tata Clean­tech Cap­i­tal Ltd, speaks about the role of in­fra­struc­ture fi­nance com­pa­nies (IFCs) in sup­port­ing the government’s am­bi­tious re­new­able en­ergy targets in an interview with Mon­ica Chaturvedi Charna...

Power Watch India - - CONTENTS -

Kindly elu­ci­date on the role of in­fra­struc­ture fi­nance com­pa­nies (IFCs) in pro­mot­ing In­dia’s RE ca­pac­ity tar­get of 175 GW.

The cur­rent government’s am­bi­tious tar­get of in­creas­ing the re­new­able en­ergy ca­pac­ity 3.5 times by 2022 (from 50 GW cur­rently to 175 GW) would re­quire ad­di­tional funds in the range of US$ 130150 bil­lion, de­pend­ing on the global price sce­nario of so­lar and wind tech­nol­ogy. Of this, 25-30% is ex­pected from spon­sors’ eq­uity and the rest through debt in­stru­ments. Tra­di­tion­ally, debt financing for clean en­ergy projects was pro­vided pri­mar­ily by com­mer­cial banks and a few non-bank­ing financial in­sti­tu­tions (NBFCs). How­ever, in last 2-3 years, IFCs have be­come very ac­tive in the re­new­able en­ergy (RE) space and their share in fund­ing has in­creased sig­nif­i­cantly. As fund­ing re­quire­ment to the sec­tor is huge, IFCs will have to play a sig­nif­i­cant role. Banks alone will not be able to meet the huge fund­ing re­quire­ment of this sec­tor as their ex­po­sure to the tra­di­tional power sec­tor is al­ready large.

What are the key driv­ers for IFCs to in­vest in In­dia’s clean en­ergy pro­gramme?

There are es­sen­tially 3 key driv­ers for IFCs to in­vest in the clean en­ergy seg­ment: a) Clean en­ergy is now a sur­vival im­per­a­tive for hu­mankind; b) Ef­fec­tive financial in­ter­me­di­a­tion is fun­da­men­tal to the growth of this busi­ness in In­dia; and c) Exponential growth in tech­nol­ogy is slowly but surely elim­i­nat­ing sub­sidy el­e­ment in this busi­ness. Even with all the pledges made in the 21st meet­ing of the Con­fer­ence of Par­ties (COP 21) of United Na­tions Frame­work Con­ven­tion for Cli­mate Change (UNFCCC), the tem­per­a­ture rise would be 2.7oC, while the goal of UNFCCC is to re­strict it to 2.0oC pos­i­tively and 1.5oC on best ef­fort ba­sis.

The key in­fer­ence from this is that we are go­ing to see much higher cuts in emis­sions than the ef­forts made ear­lier since it is es­sen­tial for the sur­vival of hu­mankind. As far as In­dia is con­cerned, we are al­ready the world’s 3rd largest emit­ter of green­house gases, and have a re­spon­si­bil­ity to do some­thing unique i.e. bring power to our en­tire pop­u­la­tion and grow at the rate of 6-7% per an­num, with­out dra­mat­i­cally in­creas­ing car­bon emis­sions.

Re­al­is­ing this, the government is tar­get­ing more than 3.5 times in­crease in RE ca­pac­ity by FY22. This tar­geted growth would re­quire debt in­vest­ment of about US$ 105 bil­lion (50% of cur­rent out­stand­ing to in­fra -sec­tor) and eq­uity in­vest­ment of US$ 35 bil­lion as­sum­ing a debt: eq­uity ra­tio of 3:1. Fur­ther, the government has vol­un­tar­ily com­mu­ni­cated to UNFCCC to re­duce emis­sion in­ten­sity of its GDP by 33-35% by 2030 from 2005 lev­els, and to achieve 40% cu­mu­la­tive power in­stalled ca­pac­ity from non­fos­sil fuel based en­ergy re­source by 2030. To hon­our this com­mit­ment, the to­tal in­vest­ment re­quired is US$ 2.5 tril­lion. Thus, there is huge op­por­tu­nity for financial in­ter­me­di­a­tion in this seg­ment.

What are the key chal­lenges in achiev­ing this tar­get?

The key chal­lenge in our re­new­able en­ergy pro­gramme is that it is based on sub­si­dies. For ex­am­ple, to­day it is pos­si­ble to pur­chase power from ex­change at Rs 2.5 but state power util­i­ties have com­mit­ted to re­new­able power pro­duc­ers

to buy power at around Rs 4-6 or even higher in some cases through power pur­chase agree­ments. The is­sue is that the com­mit­ment is from agen­cies, most of which have neg­a­tive net-worth. How­ever, tech­no­log­i­cal in­no­va­tions con­tinue to drive down the cost curve in this in­dus­try and this will even­tu­ally lead to elim­i­na­tion of sub­si­dies. For ex­am­ple, the cost of so­lar pan­els has re­duced from US$ 100 per watt in 1970 to less than 45 cents per watt to­day, a re­duc­tion of over 200 times. This is as against the cost curve for fos­sil fuel based power where the cost curve continues to in­crease.

How is Tata Clean­tech Cap­i­tal en­gaged in this space?

Tata Clean­tech is a spe­cial­ist in­fra­struc­ture fi­nance com­pany, as a joint ven­ture be­tween Tata Cap­i­tal with IFC, Wash­ing­ton pri­mar­ily in the busi­ness of pro­vid­ing debt so­lu­tions to clean en­ergy, en­ergy ef­fi­ciency and other sus­tain­able in­fra­struc­ture projects. Apart from this, the com­pany is also into clean tech ad­vi­sory cover­ing techno-com­mer­cial ad­vi­sory on clean en­ergy, wa­ter projects and also into financial ad­vi­sory cover­ing eq­uity place­ment, debt place­ment and merg­ers & ac­qui­si­tions re­lated ser­vices. We have built a port­fo­lio of over Rs 1800 crore since in­cep­tion, largely driven by our ex­cel­lent qual­ity as­set book. In the ad­vi­sory space, we have com­pleted a car­bon foot­print study for Chen­nai and Ban­ga­lore as part of the EU funded clean tech ad­vi­sory as­sign­ment and iden­ti­fied a num­ber of projects for fur­ther de­vel­op­ment.

While so­lar and wind sec­tors are get­ting all the at­ten­tion, small hy­dro and biomass are still on the back­burner. Com­ment on the fu­ture prospects of these two sec­tors.

Small hy­dro projects are rel­a­tively more dif­fi­cult to im­ple­ment on ac­count of land ac­qui­si­tion re­lated is­sues, higher ges­ta­tion pe­riod and ge­o­log­i­cal sur­prises dur­ing project im­ple­men­ta­tion. The other is­sue has been high lev­els of sil­ta­tion lead­ing to wear and tear of the ma­chin­ery dur­ing its op­er­at­ing phase. Sig­nif­i­cant de­lays in project im­ple­men­ta­tion has ren­dered a num­ber of projects un­vi­able as the spon­sors did not have the re­quired financial flex­i­bil­ity to fund at­ten­dant cost over­run. To en­sure de­vel­op­ment of this seg­ment, we need to first fac­tor learn­ings from the past. Projects need to be funded more con­ser­va­tively only when land and reg­u­la­tory ap­provals in­clud­ing power pur­chase agree­ments are in place. The government will have to play an ac­tive role in en­sur­ing that only cred­i­ble play­ers are given de­vel­op­ment rights and rel­e­vant in­fra­struc­ture like trans­mis­sion are read­ily avail­able. Sec­ondly, there should not be un­cer­tainty around reg­u­la­tory ap­provals.

In the biomass seg­ment, the key is­sue has been the avail­abil­ity of raw ma­te­rial at a rea­son­able cost. For any project to suc­ceed in this seg­ment, it is crit­i­cal to have a strong en­force­able con­tract for sup­ply of the raw ma­te­rial. How­ever, the avail­abil­ity of raw ma­te­rial is based on con­sump­tion of large amount of wa­ter, which could prove to be a road­block in scal­ing up this seg­ment.

How much ca­pac­ity have you al­ready fi­nanced in the re­new­able en­ergy space and par­tic­u­larly in the rooftop so­lar seg­ment?

Tata Clean­tech Cap­i­tal Ltd (TCCL) is quite ac­tive in the so­lar en­ergy, wind en­ergy and small and mini hy­dro en­ergy space. We have par­tic­i­pated in debt fund­ing for about 2,900 MW ca­pac­ity of re­new­able en­ergy projects. With about 70 projects funded till now, we have been in­stru­men­tal in sav­ing ap­prox­i­mately 4.5 mil­lion tonnes of CO2 emis­sion an­nu­ally. In the rooftop so­lar seg­ment, TCCL has part­nered with some re­puted con­trac­tors and is ac­tively ex­plor­ing vi­able financing mod­els in­clud­ing term loan and op­er­at­ing lease. With the ad­vent of newer, more so­phis­ti­cated tech­nol­ogy in both power gen­er­a­tion and stor­age, we ex­pect this sec­tor to grow sig­nif­i­cantly.

In what ca­pac­ity is TCCL in­volved with en­ergy ef­fi­ciency projects in In­dia?

In the en­ergy ef­fi­ciency seg­ment, TCCL is mainly fo­cused on pro­vid­ing debt so­lu­tions. We have two mod­els of fund­ing – Firstly, where en­ergy sav­ing com­pany (ESCO) gets pay­ment from the user, linked to the sav­ings made from the in­stal­la­tion of new equip­ment, and sec­ondly, in which a fixed pay­ment is made by the user to the ESCO, based on his com­fort level on es­ti­mated sav­ings from the set of new equip­ment. We have funded quite a few projects in this sec­tor and our ex­pe­ri­ence has been very good with no de­lay in any re­pay­ments.

What will be your strat­egy for wind sec­tor projects in view of the fact that in­cen­tives like GBI and AD are likely to be with­drawn?

The wind sec­tor may see in­vest­ments com­ing down if ben­e­fits like gen­er­a­tion based in­cen­tives (GBI) and ac­cel­er­ated de­pre­ci­a­tion (AD) are with­drawn. Con­se­quently, lend­ing to the RE sec­tor is likely to shift even fur­ther to so­lar. How­ever, we be­lieve that even­tu­ally wind tur­bine gen­er­a­tor man­u­fac­tur­ers will come out with bet­ter tech­nol­ogy, which should re­sult in higher plant load fac­tors (PLF) to off­set the ef­fect. We also be­lieve that the government will con­tinue to of­fer some ben­e­fits in order to con­tinue the growth mo­men­tum in the wind sec­tor.

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