The Indian power transmission segment has demonstrated resilience in the challenging Covid times, notes Pratik Agarwal, managing director, Sterlite Power, one of India’s largest private transmission companies. In a recent interview with Power Line, Agarwal spoke about the current state of the sector, Sterlite Power’s achievements and plans, and the outlook for the transmission segment. Excerpts…
How would you rate the response of the industry to the Covid crisis?
The basics of India’s power system are being stress-tested as the country deals with the unprecedented health and economic crisis caused by Covid-19. We saw one of the largest electricity demand slumps globally, falling sharply by 28 per cent as of end March 2020, as per Power System Operation Corporation Limited (POSOCO). The lack of adequate liquidity has hit capacity additions in the sector and has added to the long-standing financial distress of the discoms. That said, the POSOCO report for August 2020 indicates a recovery in demand. The government has also been swift to take some strong remedial measures. The Rs 900 billion financial stimulus package offered significant relief to the discoms. Be it Electricity Act amendments, tariff policy reforms, or the financial stimulus package, all are aimed at turning around the distribution segment. The time is opportune to keep this momentum going and allow the necessary private capital to flow into the distribution segment. I am happy to share that the Indian power transmission sector has particularly demonstrated immense resilience and was among the first to bounce back. With the Ministry of Power (MoP) at the helm, the industry has been agile and efficient in ensuring the resiliency of the power sector and providing essential services.
What has been Sterlite Power’s response to the pandemic?
Life in the times of Covid-19 has been an unprecedented one. At Sterlite Power, we were quick to think on our feet to create a special task force across India and Brazil to navigate this situation, which helped in keeping our employees safe while maintaining business continuity. We were also agile in embracing the digital way of working, thanks to our digital capabilities that we have invested in over time. We focused on project execution and delivering high-impact projects. Being in an essential services sector, we were quick to restart critical operations at many of our project sites and manufacturing plants in compliance with the government norms. We are thankful for the support from the union ministry and local authorities for our project execution work. One of the strategies has also been to conserve cash, cut down on spending and be discretionary, till there is more certainty. As a company, we have also invested in employee well-being and development during these times.
What have been the key business highlights for Sterlite Power in the past year?
This year has been challenging, but we have had our share of silver linings. Despite weak market conditions, we have sold three assets in Brazil to leading developers and investors. Even during the pandemic, we have successfully sold two of our completed projects to IndiGrid. Besides a strong financial performance, we have won coveted global awards from the International Project Management Association, S&P Global Platts and the Asset AAA Infrastructure Awards. In April, during lockdown 1.0, we commissioned our marquee Gurgaon Palwal Transmission Limited (GPTL) project. This critical project not only provides reliable power to more than 3 million households in Haryana, but also plays a vital role in reducing the use of highly polluting DG sets in Gurugram and adjoining areas. In this challenging market scenario, we were successful in concluding the sale of GPTL and ENICL projects to IndiGrid. Our efforts to improve the transmission of renewable energy also paid off with the acquisition of Vapi II North Lakhimpur Transmission from PFC Consulting in June 2020. Through the SPV, the company will execute another complex and large interstate transmission system (ISTS) project across Maharashtra, Gujarat, Assam and Arunachal Pradesh. The project will integrate almost all forms of clean energy – solar, nuclear and hydro – into the national grid. The construction of our first GEC project, Lakadia Vadodara Transmission Project Limited (LVTPL), is also in full swing. It will connect the wind energy zones of Bhuj in Gujarat to the load centres in Gujarat and Maharashtra.
What are some of the unresolved challenges in the transmission segment?
There exists a strong enabling policy framework for power transmission at the centre, which includes the Electricity Act, the Tariff Policy and the Tariff Based Competitive Bidding Guidelines for Transmission. They all aim to ensure the availability of electricity to consumers at reasonable and competitive rates and promote competition. The MoP is in the process of finalising new standard bidding documents (SBDs) for the transmission sector. It is expected that the new SBDs will balance the risks and rewards and be aligned with the regulatory framework of the Central Electricity Regulatory Commission. The transmission service agreements, being long-term contracts, need to have adequate flexibility and provisions, allowing costs and tariffs to be revisited in events that are unforeseen at the time of entering into contracts. Cost-plus and competitively bid projects should be treated equitably under regulations as well as contracts when impacted by the same incident. Further, with incidents of storms, floods and extreme weather conditions increasing in frequency and intensity, it is necessary that the contractual and regulatory framework provide for revisiting contracts. The government also needs to identify and support the key power demand drivers. Under the Saubhagya scheme, the government has electrified every village and every household in the country. Once the rural economy gains momentum, it will have a multiplier effect on consumption, manufacturing and service. A key enabler for this is the cost of delivered power, and the government needs to address this issue forthrightly. Electricity should be priced at cost, just like petrol and LPG, and any subsidies should be paid directly to the beneficiaries. If we are to electrify our economy and achieve the objective of Atmanirbhar Bharat, then the input to the economy, electricity, needs to be low cost, clean and green.
What is the company’s current portfolio of projects? What are some of the new technologies being implemented?
Sterlite Power’s overall project portfolio includes 15 projects in India and 10 projects in Brazil, some of which have been completed and sold to InvITs or other investors. We are currently executing six projects in India, including the very important NERSS in the Northeast, our first GEC project – LVTPL – which we won in 2019. Our Lakadia Vadodara project will feed clean and green energy from solar, hydro and nuclear sources to four states in western and northeastern India. In Brazil, we currently have seven projects under construction. We have several firsts to our credit, which include the use of aerial technology like helicranes and drone-stringing for our NRSS project in Jammu & Kashmir. We also built India’s first vertical GIS substation for our GPTL project, which reduces the land requirement by 75 per cent and reduces carbon dioxide emissions more than 18,000 tonnes annually. Sterlite Power has deployed robotics technology through its semi-autonomous robot, SkyrobTM, for the safe and efficient installation of optical ground wire on high voltage power transmission lines under energised conditions. Recently, we undertook reconductoring of a 1.1 km stretch of the 400 kV Purnia-Bihar Shariff line across the river Ganga. The ACCC ULS Ganga, a product developed for this project, will transform the way long-span reconductoring is done in the future. We were also the first to bring in zero shutdown reconductoring in India and successfully execute a project in Bengaluru’s Electronic City, where we uprated a 66 kV transmission line and doubled the capacity.
What are some of the opportunities for private developers in the transmission space over the next one to two years?
While a lot has changed in the world during these past six months, the government is still strong on its commitment towards renewable energy deployment. An, important prerequisite for meeting India’s high renewable energy investment target will be continuous investment in the country’s national transmission grid. The current ongoing transmission bids announced by the government are among the largest thus far, with a total portfolio of Rs 150 billion worth of renewable energy-linked ISTS projects. As our power systems evolve with the huge influx of renewable energy, other innovative solutions such as grid-scale battery energy storage systems also demand a relook. Investments in critical infrastructure like power and telecom would continue since it is the bedrock on which the post Covid-19 economic revival would be founded. We are also seeing continued investor appetite for a risk-free asset class such as power transmission, which has annuity-like returns.
What is your outlook for the sector? What would be your priorities in the post-Covid world?
The growth of the transmission sector would come from developing evacuation infrastructure for renewables and strengthening the state grids to transmit renewable power. The past 15-18 months have seen transmission projects with a value of around Rs 270 billion come up for bidding. There are 14 live ISTS projects, which are currently under bidding. This clarity in outlook has encouraged private developers to enter the market. The International Energy Agency anticipates India’s power system to grow to an installed capacity of up to 1,500 GW by 2040, with 450 GW of renewable energy by 2030. This will push the scale of India’s power market beyond the size of the EU’s synchronised grid, which connects around 1,000 GW of installed generation across 27 countries.
Going forward, the key priority would be to make the power sector resilient, both physically and financially. Despite repeated bailout packages, the state discoms in India lose over 25 per cent (AT&C loss) of the electricity supplied, due to a poor distribution infrastructure, theft, poor billing and non-payment of bills. The draft Electricity Act (Amendment) Bill 2020 proposes some critical reforms including tariff rationalisation, privatisation of key discoms and direct benefit transfer of subsidies, which can be the biggest needle movers for the distribution segment. The MoP has recently issued the draft SBDs for the privatisation of the power distribution business. A framework that provides equitable sharing of risks and rewards, and ensures regulatory and policy consistency, will be important for generating interest among domestic and international investors. The successful privatisation of the distribution department of union territories will pave the way forward.