“Building a greener portfolio”

Interview with Tata Power’s Anil Sardana

For Tata Power, renewable energy investments are key to future growth. The country’s largest private producer aims to build a portfolio of 20,000 MW of capacity by 2025. Of this, renewables are expected to have a share of 35-40 per cent. In an interview with Power Line, Tata Power’s chief executive officer and managing director Anil Sardana talks in detail about the company’s expansion plans across verticals, including renewables and distribution, and the Tata Power-ICICI Bank platform for asset acquisitions, recent business highlights such as the Mundra project, and the overall outlook for the sector. Excerpts…

How would you assess the current state of the power sector?

The power sector needs growth as per macro indicators, as our per capita consumption is one-third that of the global average and given that the consumption of fuel oil used in diesel generator sets is on the rise. However, as per a report released by the Central Electricity Authority (CEA) in 2016, the country had a surplus of 3.1 per cent during non-peak hours and 1.1 per cent during peak hours.  A power-surplus scenario is, however, paradoxical, as one would wish that there were no black outs and brown outs across the country and all households that do not have electricity connections are also brought under the ambit of grid supply. As per the CEA report, India can meet its power demand without further capacity addition for the next three years. Coal output, which was stagnant for years, has increased significantly, helping many fuel-starved plants to have adequate stocks. The government’s efforts to promote clean energy have resulted in a rising share of renewables in the energy mix, which has helped meet not only the power demand, but also the daytime peak power requirements.

Another breakthrough has been the Ujwal Discom Assurance Yojana (UDAY). This scheme for distribution is one of the enabling policies that have brought in investment confidence in the sector. UDAY is giving state discoms the opportunity to ensure that losses do not once again pile up on their balance sheets. Energy efficiency improvements, coupled with demand-side management, are also helping reduce the energy intensity of households, and commercial and industrial establishments, which has reduced losses to a great extent. The discoms are trying to reduce their aggregate technical and commercial losses too, which will improve their commercial health and ensure more power availability.

How has the company’s overall performance been in the past one year?

The company’s performance in the past one year has been positive. This is a testament to our strong operational efficiencies and good business acumen. Our consolidated profit after tax for the third quarter of financial year 2017 was up 38 per cent, mainly due to improved performance by key Indian subsidiaries and coal companies coupled with favourable tax credit. Profit from operations stood at Rs 15.55 billion, up 16 per cent from the third quarter of financial year 2016, mainly due to our recent solar acquisition, full capacity tie-up for Maithon Power Limited and the turnaround of Tata Power Solar. Together with its subsidiaries, Tata Power achieved a generation of 13,022 MUs from all its power plants till the end of the third quarter. As a company, we will continue to improve our generation capacities and operational performance in order to fuel growth and create stakeholder value.

What is the way forward post the Supreme Court’s order on the compensatory tariff issue for the Mundra project?

Tata Power is managing the Mundra project as the company has a hedge with its stake in Indonesian coal mines. We are not looking at expanding the capacity at the Mundra plant, as the demand for thermal power is constant. We are also planning to work on reducing our under-recovery. Our aim is to source coal from alternative sources at cheaper rates.

What are Tata Power’s expansion plans in the conventional and non-conventional power space?

The company aims to build a total capacity of 20,000 MW by 2025. We are working towards achieving this target and have various projects in the pipeline to this end. Over the next few years, India’s focus would be largely on renewable energy, given its promise and the government’s efforts to promote the sector. Tata Power has chalked out a well-defined growth plan for the next three years, and is making efforts to achieve the same. Without giving specific guidance, the company will continue to do a capex of Rs 15 billion-Rs 20 billion per annum as in the previous years. The capex plans would be commensurate with the growth plans and would be more competitive than the average market prices.

Solar power is a key focus area of the government with 100 GW of capacity being targeted by 2022. In line with the government’s target, Tata Power too will focus on solar. We have recently revised the share of non-fossil fuel-based capacity upwards to 35-40 per cent by 2025, of which solar power will be an important component. As the conventional grid-connected and rooftop projects continue at their own pace, we also need to look at various innovative technologies to achieve the target of 100 GW of solar. New technologies like Third-Generation Photovoltaic have reached incremental efficiencies in lab tests; we need to look at these technologies in order to have better output.

How are the company’s plans for acquiring power projects shaping up with the setting up of the Tata Power-ICICI platform?

Tata Power’s wholly owned subsidiary, Tata Power International, and ICICI Venture have created a platform to facilitate investments in power projects  that are at an advanced stage and near operational readiness or are already operational. The platform, co-sponsored by Tata Power and ICICI Bank, has commitments from its partner investors, Caisse de dépôt et placement du Québec of Canada, the Kuwait Investment Authority and the State General Reserve Fund of the Sultanate of Oman. These are some of the largest investors globally. The platform plans to raise an initial capital of up to $850 million, to be contributed by the sponsors and partner investors either directly or through their affiliates. This can be upsized going forward, depending on market opportunities. The platform targets the acquisition of controlling stakes in power generating companies, both conventional thermal and hydroelectric, and transmission assets in India. We are in the process of identifying feasible projects.

What have been the yields from the Welspun acquisition?

In September 2016, we completed the acquisition of Welspun Renewables. With this, we have become India’s largest renewable energy company. Welspun Renewable Energy Private Limited has about 1,141 MW of renewable power projects comprising 990 MW of solar power projects and about 150 MW of wind power projects. Today, Tata Power’s total generation from non-fossil fuel operating capacity stands at 3,060 MW, which amounts to almost 30 per cent of the company’s total generation capacity. The company’s robust non-fossil fuel portfolio comprises 693 MW of hydro, 918 MW of solar-, 1,074 MW of wind-, and 375 MW of waste gas-based generation. Taking a step further towards building a greener portfolio, the company last year revised its share of non-fossil fuel-based capacity upwards to 35-40 per cent by 2025. Its wind generation capacity increased by 82 per cent in financial year 2017, growing from 591 MW in financial year 2016 to 1,074 MW in financial year 2017, while solar generation capacity rose 1,539 per cent, from 56 MW to 918 MW during the same period. The company has several renewable energy projects located in states such as Maharashtra, Gujarat, Madhya Pradesh and Rajasthan. It is also in the process of implementing nearly 500 MW of renewable power projects at various locations.

How has been the performance of the company’s coal business? What is the update on the sale of Indonesian coal mine assets?

The company’s coal business is at present entirely in Indonesia and, with coal prices firming up in the past few months, it has been doing well. Tata Power has announced the sale of the Arutmin mines while three other mines in Indonesia will still have Tata Power’s participation.

What are the major focus areas for the distribution business going forward?

We are aiming to further expand our network in Mumbai and give our consumers better power supply and service, subject to regulatory approvals. Tata Power’s total customer base crossed the 2.6 million mark, as Mumbai Distribution’s consumer base crossed 670,000 customers with over 100,000 consumers on Tata Power’s wires. We recently executed a distribution franchisee agreement (DFA) for electricity distribution in Ajmer city, forming a special purpose company, TP Ajmer Distribution Limited. The company signed the DFA with Ajmer Vidyut Vitran Nigam Limited to cater to the power requirements of customers in Ajmer for a period of 20 years. Our Delhi subsidiary, Tata Power Delhi Distribution Limited, is continuing to perform well and is a benchmark distribution and transmission company in the country. Tata Power signed a DFA with the Jharkhand State Electricity Board through its subsidiary, Tata Power Jamshedpur Distribution Limited, on December 5, 2012 for power distribution in the Jamshedpur circle for a period of 15 years. We look forward to more distribution opportunities in other states as well.

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