Sterlite Power

Expanding its transmission business across geographies

Sterlite Power Transmission Limited has emerged as a leading private transmission company within 10 years of its entering the transmission segment. The company, which won its first transmission project under competitive bidding in 2010, today has a portfolio of 22 transmission projects in India and Brazil, totalling over 12,000 ckt. km. The company has set new benchmarks in project execution by deploying advanced technologies and launching innovative financing models. Notably, in May 2019, Sterlite Power commissioned its first transmission project in Brazil, ahead of schedule. Another high point for the company has been securing investment from global private equity major KKR and Singapore’s sovereign wealth fund GIC for the India Grid Trust (IndiGrid), an infrastructure investment trust sponsored by Sterlite Power.

Operations

Sterlite Power operates across four business verticals – infrastructure, solutions, convergence and IndiGrid. The company’s infrastructure vertical is responsible for executing transmission projects, while the solutions vertical manufactures and supplies power cables, conductors and optical ground wire. The convergence business leases out fibres and towers to communications service providers. IndiGrid was established in 2016 to own and manage power transmission assets in India.

The company has a portfolio of 12 transmission projects in India and 10 projects in Brazil. Of the 12 projects in India, the company has commissioned seven projects, one project (common transmission system for Phase II generation projects in Odisha) is ready for commissioning, and the rest are under construction (creation of 400 kV GIS substations at Palwal and Gurugram, connectivity scheme for the Khargone TPP, the NER system strengthening scheme, and additional 400 kV feed to Goa).

In 2018, Sterlite Power commissioned one of the toughest transmission projects in the country, the Northern Region Strengthening Scheme XXIX, which connects Kashmir to the national grid, two months ahead of schedule. This 414 km long project is expected to ensure reliable power access in the Kashmir Valley by augmenting the state’s power transmission capacity by at least 33 per cent.

Sterlite Power ventured into Brazil in April 2017 and today has an investment of over $2 billion across 10 projects in the country. In May 2019, it kicked off operations in the Arcoverde project in Pernambuco 28 months ahead of schedule. Recently, in April 2019, the company signed a concession agreement for the Pampa project in Rio Grande do Sul, which entails an investment of BRL 777.8 million.

Focus on technology

Sterlite Power has always been at the forefront of technology in all phases of transmission project development, from concept to commissioning. The company extensively uses aviation technologies such as drones, LiDAR and heli-stringing for undertaking surveys, finalising route alignments, and execution. On the operations and maintenance side, Sterlite Power is moving towards predictive maintenance of transmission lines so as to increase reliability and optimise costs.

Another area that the company has recently forayed into is battery energy storage systems (BESS). In February 2019, it submitted bids for two storage projects in an auction by the Salt River Project utility, Arizona. This marked Sterlite Power’s first foray into grid-connected BESS.

IndiGrid

In October 2016, Sterlite Power launched IndiGrid with the aim of reducing its debt burden and investing in future projects. The trust currently manages a portfolio of six transmission assets aggregating over 3,361 ckt. km across nine Indian states. In May 2019, KKR and GIC invested Rs 10.84 billion and Rs 9.8 billion respectively, to collectively own 42 per cent of IndiGrid’s outstanding units. KKR has also applied for becoming a sponsor of IndiGrid and plans to acquire an additional 15 per cent of IndiGrid’s total units from Sterlite Power. Following the closure of these transactions, KKR and GIC will collectively own approximately 57 per cent of IndiGrid’s outstanding units. With the capital infusion provided by the new unit issuance, IndiGrid has signed agreements to acquire five transmission assets from Sterlite Power, subject to unit holder approval.

Future plans

Sterlite Power plans to continue expanding its transmission business across geographies with the aim of increasing the access to power. The company has a vision to revolutionise the transmission industry by addressing constraints relating to time, right of way and funds through alternative solutions. The company aims to become one of the leading global players in the power transmission industry by 2021.

Neha Bhatnagar

 

 

 

 

 

 

“BESS is our next area of investment”

Interview with Ved Mani Tiwari, CEO, Global Infrastructure, Sterlite Power

 

 

What have been the key business highlights for Sterlite Power in the past six to eight months?

Sterlite Power has taken major strides in the past six to eight months. In India, we are the largest private transmission player under the public-private partnership model, with about 30 per cent market share. In Brazil, we have successfully commissioned our first project 28 months ahead of schedule, showcasing our ability to continue building high quality assets ahead of time across geographies. We continue to scout for opportunities across geographies, which help us live up to our core purpose of “empowering humanity by addressing the toughest challenges of energy delivery”. Sterlite Power is also now joined by global funds like KKR and GIC as sponsors for its infrastructure investment trust, IndiGrid.

 

How has Sterlite Power’s experience been in the Brazilian market? What are the other geographies that the company is interested in?

We chose Brazil as our first investment market outside India owing to the size of opportunity in the country, the need for private capital in the transmission segment and the synergies that exist with our core strengths. We established our presence in the Brazil market in April 2017 and have already committed an investment of close to $2 billion, the largest ever by an Indian company in the Brazilian power sector. Our investments in the Indian and Brazilian transmission segments have reached similar levels. In fact, we won 10 out of the 30 auctions we participated in. We plan to bid for more projects in Brazil. Going forward, Argentina, Chile, Mexico and possibly Peru, BIMSTEC and the US are potential countries of interest, and our foray could take place over a period of one to three years.

 

What is the idea behind the SANQALP initiative? What are the activities proposed under it?

Sterlite Power has joined hands with India’s leading power transmission players to announce common benchmark practices for quality, health, safety and environment (QHSE) in this segment. These benchmarks will focus on institutionalising quality and HSE practices. This charter will operate under the jointly created forum, SANQALP – Safety and Quality Association of Leading Partners. SANQALP is a big step towards achieving global standards in the Indian power transmission industry.

 

What are the company’s plans in the BESS space in India?

On the BESS front, we must emphasise that battery storage is the best solution to address peak deficits, intermittent renewable energy operations and uneven demand curves. In addition, BESS does not have locational constraints, has a low gestation period (six months to a year) and can create significant additional value through DSM penalty reduction, frequency regulation and congestion relief. Owing to these reasons, BESS has huge potential, requiring an investment of $5 billion-$7 billion over the next five to seven years. It is also our belief that BESS is primarily a transmission grid element and the benefits are accentuated by locating these closer to the load centres. We view BESS as the next area of investment for us and are assessing the available opportunities.

 

What are the company’s key issues and concerns? What is your wish list for the transmission segment for the new government?

The gestation period for renewable energy projects in India is 18-24 months, while the pace of adding transmission capacity to evacuate this incremental renewable energy generation has typically been 30-36 months under cost-plus. This has caused a large-scale mismatch between the generation capacity contracted and the matching availability of the evacuation system. Such transmission constraints have led to renewable energy tender cancellations, subdued responses and higher tariffs in renewable energy bids. This could be best avoided by rolling out competitive tenders under tariff-based competitive bidding (TBCB) for building the transmission system to evacuate renewable energy. Going forward, we expect the new government to have a long-term transmission plan in place wherein transmission pre-empts generation, and the planning is more participatory with the inclusion of private developers, and more flexibility is provided to developers in the designing of transmission lines. Lastly, all transmission lines being built in the country (whether interstate or intra-state) should be brought under the ambit of TBCB by the new government.

 

What is your growth outlook for the transmission segment in India?

The government aims to achieve 175 GW of renewable energy by 2021-22 and a further 5 GW of offshore wind and 23 GW capacity in Leh region. None of this can happen without matching transmission being built at the same pace. The government plans to award most of the transmission projects for renewable energy evacuation through the TBCB framework. Bidding for about Rs 90 billion of transmission projects is currently under way, and bidding for another Rs 300 billion would soon be announced. Overall, we are highly optimistic of the government supporting the transmission industry growth. We are also witnessing a lot of traction as states are opting for TBCB development of intra-state transmission. The states are also building transmission projects worth Rs 400 billion-Rs 500 billion annually. Already transmission projects worth Rs 120 billion are being awarded/bid under the competitive TBCB framework across Uttar Pradesh, Madhya Pradesh, Maharashtra and Jharkhand, while many other states are warming up to the idea. Overall, we see a market of more than Rs 5 trillion opening up in transmission over the next eight to ten years, which would be competitively built using the TBCB framework to the benefit of citizens.

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