There have been many changes in the market as well. Wind energy has moved from the tariff mechanism — in which a tariff that was spelt out and adhered to — the auction mechanism. Solar was always on the auction mechanism.
Increasingly, the central government started aggregating demand from states and using either NTPC or the Solar Energy Corporation of India (SECI) to conduct bids. Power producers have been signing agreements with either of the two and they, in turn, have been selling power to states. If they did a 1000 Mw bid, they could be selling 500 Mw to Punjab, 300 Mw to Haryana, 200 Mw to Chhattisgarh and so on. This allowed the quality of PPAs to improve as my counterparty in the agreement became a central government entity and not, say, Bihar or Haryana.
States could buy wind or solar power from other states. This allowed some states to buy at lower costs and expanded the market. Many of the non-resource rich states and non-high credit quality states can now buy renewable power at lower cost.
Hasn’t the cost of production came down quite substantially?
There has been a dramatic drop in the cost. Technology has improved substantially: Solar modules came down in price and the cost of producing solar energy almost halved. A similar thing happened with wind turbines. The quality of turbines improved and costs fell.
So a combination of things happened as a result of which the cost of supply of renewable energy has almost halved in the last two or two-and-a-half years. This has made it cheaper than coal-based power and made it the preferred source of energy.
What led to the aggressive bidding in 2018?
For six-seven months in 2016-17, there was no solar bid for a variety of reasons. When the new bidding process started in April 2018 or thereabouts, some of the bidders became very aggressive in their bidding. This is the peculiarity of our Indian corporate sector's DNA. If there is a contract, you first win it and then worry about how to deliver it.
What happened is that between March-April and October last year, there were around 7,000-8,000 Mw of solar bids and some people in the industry — three-four players — became very aggressive and won most of the bids. There are two years to execute these projects. But, the financing environment has changed. Capital providers became a bit warier, the rupee was depreciating and then the there was IL&FS situation. Availability of capital in the sector went down. Simultaneously, tariffs went down quite fast and as a result, returns took a hit. So financiers, in general, are less eager. It will be interesting to see how and when the capacity is commissioned and added.
A second thing that happened was that the reserve price was brought down by the government. This reduced the number of bidders. There is no point having a low reserve price and an undersubscribed bid.
Now, the government is re-evaluating the reserve price and we expect it to go up. There is already a price discovery mechanism through the competitive auction. It may be better to have a slightly higher reserve price and let more bidders compete and discover the price.
Why allow this over-aggressive bidding? We have seen it in the roads sector — companies won bids but failed to deliver.
Yes, but as a policymaker, there is no way to stop this. There is a bank guarantee and if the company fails to deliver, it can be invoked. Out of the total capacity, maybe 2,000-odd will not be delivered and can be re-auctioned. You may argue that time is lost but from their (policymakers') point of view, they want to deliver power at the lowest price.
Haven’t the government already missed many of its targets?
The target set was 175 GW by 2022. It was an ambitious target to set when the base was 25 GWs. The total installed base has now gone up to 75 GW.
Another 17-18 GW has been auctioned and should be added in the next 18 months. By the summer of 2020, it should be around 90-95 GW. Then, the government will have to add another 75 GW in two years, at a rate of about 35-40GW a year, instead of 15 GW a year, currently. Even at the current rate, it will reach around 130 GW. The ambitious target would be missed, but a fair bit of renewable capacity would be added nonetheless.
But keep in mind that producing power is not enough. The final buyers of power are state distribution companies
and their ability to buy and pay for power also drives it.
One area where governments have not been able to do enough was reforming state power distribution companies.
Theft (T&D losses) at all-India level is 25 per cent; it should have come down to 20-21 per cent.
Second, tariffs that state discoms charge are so low that they lead a hand-to-mouth existence. Tariffs have to go up to some extent. The gap between the buying and the selling prices amounts to 20 per cent, so either you bring down theft or raise tariffs. Either way state distribution companies cannot function the way they have been.
How and when we will be able to reduce our dependence on coal as a source of power?
Renewable energy currently provides for 10 per cent of the total energy consumption in India. Coal provides for around 60 per cent. India’s power consumption today is 1,000 units per person per year. The global average is 3,000 units. India’s growth will go up to at least 2,000 units per capita. In the next 10 years, we are quite likely to double our per capita consumption and our present production has to double.
We currently consume 1.3 trillion units of power every year and this has to double. If 50 per cent of the additional demand is met by renewables, it means adding 650 billion units. India will have to set up 325,000 Mw of renewable capacity in 10 years.
Coal has its inherent limitations. Besides environmental aspects, can we even mine this much coal? This year we are importing almost $ 20 billion worth of coal. This is unsustainable.
Why did you postpone your IPO?
By the time we were ready, the markets became quite volatile. The rupee depreciation happened. We were looking at raising $ 300 million and a few of our shareholders were planning to sell some of their equity so it was becoming a fairly large transaction. Fortunately for us, none of our projects in the pipeline was dependent on our raising funds through the IPO. The timing was not right. We will now look at it after the general election. We have grown substantially — we have close to 100 sites across rural India and 1,000 employees. We’ll go to the market when we feel we can get the best value.
What happens to your stake, holding and control over ReNew post the IPO?
My holding is 9 per cent and it will go down further. But in general, I’d like to say that "promoters" is a very Indian concept. Promoters in India identify too closely and control their companies too much. It’s almost as if the company would not run if they were not there to run it. Here at ReNew, we operate differently. I continue as CEO if I deliver and if I am the right person for the job. If there is a person better suited for it, so be it. Nobody is indispensable.