Interview with Anil Sardana: “Tata Power aims to build 20,000 MW of capacity by 2025”

“Tata Power aims to build 20,000 MW of capacity by 2025”

According to Anil Sardana, managing director and chief executive officer, Tata Power, the mood of the power sector has transformed from despair to optimism during the past year. However, issues related to stressed assets and power distribution still need attention. Excerpts from a recent interview…

What have been the most noteworthy achievements of the power sector in the past one year?

The power sector has undergone a number of reforms. The year 2016 was an eventful one. We are happy that the government, in tune with the criticality of this sector, is addressing the issues that need attention. After a long period, domestic coal production is higher on a year-on-year basis and generation capacity addition has registered decent growth. While the going is good for all formats of generation, distribution reforms need additional attention. The issues pertaining to stressed assets and imported fuel-based projects also need to be suitably addressed. The amendments to the Electricity Act will hopefully give the much-needed impetus to the distribution segment and help developers to be more committed to the sector.

What have been the most impactful policy moves in the past one year?

In the past one year, the government has managed to dispel the air of negativity surrounding the power sector and replaced it with a sense of optimism by implementing several reforms. Measures have been taken to achieve the aim of 24×7 affordable and environment-friendly power for all by 2019, which includes the preparation of state-specific action plans and the implementation of green energy corridors for renewable energ transmission. India has become an associate member of the International Energy Agency, which makes the Paris-based body more significant and indicates India’s growing prominence in the global energy dialogue. The government’s plans to auction coal blocks for commercial mining by end-2017 will also end the monopoly of state-run firms in coal mining and help achieve the target of producing 1 billion tonnes of coal by 2020. The Cabinet Committee on Economic Affairs’ approval of a new coal linkage policy will help provide the necessary fuel supply to power plants through reverse auction. The ratification of the Interna-tional Solar Alliance’s framework agreement by the union cabinet will  give India a platform to showcase its solar progra-mmes and put it in a leadership role on climate and renewables issues globally. All these decisions and changes have contributed to sector growth. That said, there are areas that still need intervention like reforms in distribution and resolution of issues relating to stranded assets.

What are the key concerns of IPPs that need to be addressed on priority?

The fast-paced developments in the sector got the better of the private sector, which participated aggressively in the capacity addition programme and eventually landed up with demand not being able to absorb the entire capacity that came onstream. The outlook for the sector remains negative with the industry facing persistent challenges including high fuel  supply risks, time overruns at plants operated by IPPs and limited capacity to pay on the part of financially weak distribution utilities. Some IPPs are also locked into PPAs that have become unviable. High exposure to off-taker risks and fuel shortages are some of the other challenges concerning IPPs. It is seen that the trend of oppression exists in renewables too. This needs to be better planned to prevent renewables from being stranded in the future.

What are your capacity addition targets for the next few years? What are the company’s inorganic growth plans?

In line with the government’s objective of promoting renewable energy, Tata Power has a well-defined growth plan and is taking necessary action towards achieving the same. The company aims to build a total capacity of 20,000 MW by 2025, of which 30-40 per cent would be non-fossil. In 2016-17, we added about 1,400 MW of capacity and have various projects in the pipeline. For the next three years, the company has sketched out a well-defined plan to shape up its balance sheet. Moreover, we wish to increase our solar business significantly as the government is expected to bid out large-scale projects to meet its target. As far as wind is concerned, we will continue to look at opportunities as and when they arise. We are exploring multiple options, both greenfield and acquisitions, to be able to capture the market for solar, wind and hydro-based generation. The company is also in the process of acquiring suitable land parcels in various states to support solar and wind development.

What are the current under-recoveries at the Mundra plant and what strategies are being adopted to mitigate them?

The losses incurred at the Mundra UMPP  have eroded a significant part of Tata Power’s net worth in the past four years. In the current year, coal prices have again increased in the global market. The plant continues to post losses due to under-recoveries on account of cost being higher than the cost of coal ($34 freight on board) prevailing at the time of bidding. Our earlier proposal to expand capacity at the Mundra plant has not been pursued as demand for new thermal power is absent. Our aim is to source coal from cheaper alternative sources. To prevent sustained losses on account of the Mundra UMPP, we have looked at options if procurers are willing to buy and compensate us for the under-recovery. In this case, they will have the benefit of increasing MUs at a low cost and pursue the plant after 20 years of the remaining life of the PPA because after 20 years, they will continue to get the cheapest power.

What are some of the key initiatives lined up for the distribution business going forward?

The company is making steady progress in the distribution business and has crossed 2.2 million connected customers. Of these, 1.515 million are from Delhi, 0.66 million customers are a part of the Mumbai network and around 0.15 million customers are from Ajmer. We are well equipped to deliver quality power to them and have invested Rs 12 billion in developing a backbone network in Mumbai. Being a pioneer in the application of innovation and technology for providing value-added benefits to its customers, Tata Power has many firsts as a power utility. It is known for having used automatic meter reading/ remote reading and access of meters technologies, and has recently launched smart meters in its distribution areas. Tata Power has been a frontrunner in technology adoption and innovation, and also set many benchmarks in sustainability. As a part of our commitment towards sustainability and other green initiatives, we have introduced electric vehicle charging stations in Mumbai and Delhi, and will continue to expand.

What will be the future of coal and renewables in India’s energy mix going forward?

No conversation about meeting India’s energy demand is complete without discussing its potential in the renewable energy space. While fossil fuel is India’s reality today,  non-fossil fuels will also shape its future. In the first 11 months of the current financial year, power projects consumed 439.41 mt of coal (including 60.66 mt of imported coal.) The country has 124,785 MW of power plants designed to run on Indian coal and another 18,580 MW on imported. As such, coal is India’s energy mainstay today. However, with India’s commitment to climate change mitigation, the energy mix is likely to alter significantly. Incre-mental capacity addition is expected mainly through renewables, which will make the mix between fossil-based and non-fossil-based generation almost equal.

What will be the cost of compliance with the new emission norms for the generation industry? What is its readiness to meet the norms?

The reform measures introduced by the government in the form of new environmental norms are at par with the best in the world. These reforms, along with the finalisation of new norms of efficiencies, encouragement to wind and solar power and focus on e-mobility solutions are expected to have a wide socio-economic impact and change industry dynamics. Emission reduction certainly has its own challenges in terms of costs, logistics, land requirement, technology, marketing of by-products, water and competitiveness. It would also affect the cost of electricity. According to initial estimates, the capital expenditure to implement the new norms would be between Rs 7 million and Rs 10 million per megawatt of power generation capacity. The cost of electricity would increase by 40-50 paise per kWh after including operations and maintenance costs for emission control. If the environmental norms are to be implemented in plants with a lifespan of less than 10 years, it is expected that the cost of mitigation may increase by an additional 20 paise per unit. The increase could be mitigated by extending PPAs of such units by five or seven years, provided it does not exceed 30 years of life. Units beyond 25 years could be allowed five years to continue with a choice for developers to replace these units with more efficient units. Meanwhile, stranded assets could be allowed to compete according to the bidding guidelines, with a ceiling limit of normative fixed cost allowed to be incurred on environmental measures as an additional fixed cost. While the initial steps to announce the norms and involve experts from the Central Electricity Authority have been taken, there is a need to consider various scenarios regarding plant life, technology, economic condition of the plant, efficiency, cost, timelines, level playing field, etc., and create a comprehensive implementation policy document. The challenges and recommendations need to be understood jointly by all the stakeholders to implement these norms successfully.

What have been the key business and growth highlights for Tata Power in the past one year?

Tata Power is India’s largest integrated power company with a business presence across the power value chain. It has a gross generation capacity of 10,613 MW, making it the largest power producer in the country. It is also one of the largest renewable energy players with significant capacity in wind and solar. The company has had many achievements in the past one year. Tata Power turned around its solar business to become India’s largest integrated solar company. Its distribution arm, TP Ajmer Distribution, signed a distribution franchise agreement with Ajmer Vidyut Vitran Nigam Limited in June 2017. Further, Tata Power completed the construction of its 187 MW hydro project in Georgia. It became the first power utility to introduce QR code for bill payments in India. Tata Power launched Mumbai’s first electric vehicle charging infrastructure at Vikhroli. The company’s JV synchronised the 186 MW Georgia hydro project in record time.