Interview with Parminder Chopra: “It’s an exciting time to be a part of the power sector’s growth story”

Parminder Chopra, chairman and managing director, Power Finance Corporation (PFC) Limited

In a recent interview with Power Line, Parminder Chopra, chairman and managing director, Power Finance Corporation (PFC) Limited, shared her views on the current state of the sector and the future outlook. She also spoke about the company’s operational highlights and future plans. Excerpts….

How has the power sector performed over the past year or so?

Reflecting on the past year, it can be said that the Indian power sector has showed notable progress and resilience despite the slowdown caused by the Covid 19 pandemic. During financial year 2022-2023, over 1,500 BUs of energy were generated, setting a new record and registering an increase of 9.5 per cent from the previous fiscal year. We are also witnessing a healthy growth in power demand in the current fiscal, recording an all-time high peak demand of 240 GW in September 2023.

Energy transition continues to be a central focus for the government, in line with the “Panchamrit” targets of achieving a 50 per cent installed capacity from non-fossil fuel-based sources by 2030 and reducing the emission intensity of our GDP by 45 per cent. 2023 also witnessed the ground being laid to create energy storage infrastructure to support the upcoming boom in green energy.

Another interesting development during the year was the launch of India’s green hydrogen mission, with an outlay of Rs 197.44 billion, aiming to make India a global hub for the production, usage and export of green hydrogen and its de­rivatives by 2030.

The distribution sector, which has long faced challenges, saw significant impro­vement during financial year 2023. The government’s impetus on improving the health of distribution utilities is resulting in remarkable improvements across the sector. The introduction of the late payment surcharge scheme by the Ministry of Power (MoP) was a pivotal step in this direction. The scheme has brought in the much-needed fiscal discipline in the sector, resulting in a substantial reduction of more than 50 per cent in legacy dues owed by distribution utilities. India’s power sector is on a gro­wth trajectory, aided by targeted polici­es, improving financial discipline and transition towards green energy.

What is your outlook for the power sector and the role of PFC in it?

The Indian power sector, which has been dominated by coal generation for over 70 years, is now at the crossroads of transformation. The next couple of years will be defining moments for India’s po­wer sector. Everything, from the way we understand energy to the way we consume and produce energy, will undergo a complete transformation. The power sector will witness a technological revolution, with various innovations in the pi­pe­line. Various technologies are currently being explored to establish reliable and clean sources of energy. It will be interesting to observe the unfolding of these technologies and which one will ultima­tely take centre stage. These ambitious endeavours will require massive funding and PFC, being the largest power sector lender in the country, will have a central role to play in advancing this vision.

Another upcoming area on the energy transition front is the development of the carbon market. A well-established car­­bon market mechanism has the po­tential to curtail greenhouse gas emis­s­io­ns to the lowest cost, benefiting both individual entities and the sector as a wh­o­le. This mechanism can accelerate the adoption of clean technologies, particularly in a growing economy like ours.

While promoting energy transition, we also need to consider “energy security”. As India’s electricity demand continues to rise, additional thermal capacity ad­dit­i­­on is necessary until energy storage atta­­ins the scale to make renewable power re­liable and available round the clock.

The power sector is in the midst of a tra­nsformative shift, underpinned by un­tapp­ed demand and strategic financial support from institutions like PFC. The future appears encouraging as we move towards a greener energy landscape.

What is the current investor sentiment with respect to the power sector?

Electricity is a crucial catalyst for the economic growth of India. Our current per capita electricity consumption is one-third of the world’s average, so a huge un­tapped demand potential exists within the country. Additionally, by the next de­cade, India is expected to become a $5 trillion economy. This would further re­sult in a massive demand for electricity, go­ing forward. As per the National Elec­tricity Plan (NEP), India’s electricity de­mand is set to grow at an impressive an­nual rate of 7.2 per cent until 2027. Investors consider this level of demand to be a compelling driver for vast investme­nt opportunities in the power sector.

Looking ahead, investments in the po­wer sector are likely to be fuelled by a mix of factors, including a transition to­wards clean energy, expansion of conventional generation and the strengthening of the distribution sector.

India’s ambitious renewable energy targets of adding 500 GW of non-fossil fuel capacity by 2030 and its pledge to be net-zero by 2070 have become a magnet for investment. The NEP projects app­ro­ximately Rs 300 billion of capital investments by 2032 to reach these targets. Further, to achieve the net zero goal, as per a Council on Energy Environment and Water report, massive investments of $10.1 trillion, with $8.4 trillion earma­rked for transforming the power sector, would be required.

“A well-established carbon market mechanism has the potential to curtail greenhouse gas emissions to the lowest cost, benefiting both individual entities and the sector as a whole.”

Moreover, the government is actively committed to establishing conducive and enabling policy frameworks such as the production linked incentive scheme for high-efficiency solar PV modules, the viability gap funding scheme for battery energy storage systems and the National Green Hydrogen Mission.  Seeing the government “walk the talk” is a huge affirmation for investors.

Lastly, it is crucial to highlight that the health of the distribution segment is a key pillar for a robust power sector. The government is well aware of this and is actively pursuing reforms in the sector. Its continuous focus on strengthening the distribution side of the business enhances the trust and confidence of investors in the power sector’s growth trajectory.

In a nutshell, investors are seeing a promising investment landscape for India’s power sector, driven by the need for ca­pa­city expansion, a transition to clean energy sources and strong government policy support. It’s an exciting time to be part of the power sector’s growth story.

What is your assessment of the current state of the power distribution segment? 

The role of the distribution segment in the power sector value chain is critical. In recent years, discoms have grappled with financial and operational challenges, putting strain on the entire value chain. Recognising these challenges, over the past two to three years, the government has undertaken significant reforms aim­ed at revitalising the health of discoms.

An instrumental reform introduced last year was the Late Payment Surcharge sc­he­me to improve the financial health of discoms. The scheme has yielded a re­ma­r­kable reduction of over 50 per cent in le­gacy dues payable by distribution utilities

I believe that the implementation of smart metering under the Revamped Distribution Sector Scheme (RDSS) has the potential to be a game changer for the power industry. Smart metering will not only help discoms improve their collection efficiencies but also enable consumers to manage their electricity consumption.

The reform-based integrated rating of discoms, introduced by the MoP, is an­other innovative tool aimed at instilling discipline in the business operations of the discoms. The impact of these reformative measures is evident in the reductions achieved in various operational parameters of discoms. At the all-India level, aggregate technical and co­m­mercial losses stood at 16.5 per cent in financial year 2021-22, which is significantly lower than the 2020-21 figure (21.5 per cent). The financial deficit of the discoms has nearly halved in 2021-22 compared to 2019-20, despite an 8 per cent increase in gross input energy.

What has been the progress under RDSS?

There are some impressive numbers to share regarding RDSS.  Projects worth over Rs 2,550 billion have already been sanctioned under this scheme, covering 48 discoms across 30 states and union territories. Approximately Rs 1,200 billion has been sanctioned for loss reduction works and Rs 760 billion has been awarded to infrastructure works (64 per cent) and is currently under implementation. Further, balance works are in different stages of tendering/award. It’s worth mentioning that Madhya Pradesh discoms have already commissioned new substations under RDSS, benefitting the people of the state.

When it comes to smart meters, there has been significant progress. Approximately 200 million smart prepaid consumer meters and 5.6 million smart meter systems for distribution transformers and feeders have been sanctioned across on-boarded states. Out of this, 70 million me­ters have been awarded and around 93 million meters are under different sta­ges of tendering/award.

What have been the key business highlights of PFC in the past twelve months?

It’s been a good year for us. Our financials are looking robust. We’ve hit a record-high net profit of Rs 116.05 billion, a remarkable 16 per cent increase from the previous fiscal. This is the third consecutive year for setting a new record for achieving the highest annual profit. Our loan asset book also saw a remarkable double-digit growth, increasing by 13 per cent. On the asset quality front, we’ve made significant headway in reducing non-performing assets (NPAs), resulting in NPA ratios dropping to their lowest levels in seven years. For the fi­nancial year 2023, our net NPA ratio sto­od at an impressive 1.07 per cent

On the business front, we had some exciting developments:

We have ventured into infrastructure financing, expanding our financing op­portunities to encompass projects acro­ss the infrastructure spectrum, including power sectors such as ports, roads, railways and metros. In a short span of time, we have already sanctioned infrastructure projects worth Rs160 billion. It’s part of our strategy to diversify our portfolio and drive the growth of our loan assets.

Also, last year, we were one of the first to support electric vehicles (EVs). We lent Rs 6.33 billion to BluSmart Mobility, making it the biggest EV financing deal in India. This move is expected to save over 100,000 tonnes of CO2 emissions. To put it simply, that’s like planting over 5 million trees in a year. PFC remains committed to its vision and is well-positioned to deliver robust performance year on year.

What are PFC’s future plans and key focus areas?

At PFC, we are excited about supporting the energy transition value chain, going forward. In addition to the traditional solar/wind projects, we are also exploring financing projects in the fields of renewable equipment manufacturing, energy storage, green evacuation corridors, green hydrogen and ammonia production and small nuclear reactors.

We also see great potential in financing the complete ecosystem of electric mo­bi­lity, including the electrification of public transportation, the establishment of charging infrastructure and participation in the latest technological innovations within this sector.

In addition to this, we will continue lending to distribution utilities, conventional generation projects and explore more opportunities in infrastructure financing. Another important focus for PFC is de­veloping our environmental, social and governance strategy (ESG). Given the global concern about climate chan­ge, the company is taking steps to integrate ESG principles into its business operations and become a more environmentally conscious institution.

What is your view on financing new and emerging technologies in the clean energy space?

PFC is the largest renewable energy financer in India, supporting almost one-fifth of the country’s renewable en­ergy capacity. The company is a pioneer in the renewable energy space. We have been consistently supporting India’s re­newable energy transition journey since 2016 when solar and wind power technologies were at a nascent stage.

Now that solar and wind technologies ha­ve stabilised, the next frontier of innovation lies in improving the reliability of re­ne­wable power through storage techno­logies, implementing carbon reduction technologies in coal plants to lower em­issions and developing sustainable fuel.

PFC’s strength lies in facilitating low-cost funding for these emerging technologies. It will play a pivotal role in fi­nancing innovations in the clean energy space.  In this regard, we have recently inked MoUs worth Rs 2.37 trillion with approximately 20 companies in the cl­ean energy space, with a major focus on new and emerging technologies.

We are also actively collaborating with international and multilateral/bilateral institutions such as the KfW Develop­me­nt Bank, the Japan Bank for Interna­tional Cooperation, the Asian Develop­ment Ba­nk and the European Invest­ment Bank to ensure low-cost financing for India’s en­ergy transition goals. PFC has signed loan agreements worth JPY 30 billion for funding projects that effectively reduce greenhouse gas emissions and contri­bute to global environmental conservation.

We are the first Indian company to join the Asia Transition Finance Study Group, an initiative led by Japan’s Ministry of Economy, Trade and Industry, aimed at promoting sustainable transition finance in Asian countries.

PFC is dedicated to leading India’s transitions toward cleaner and more sustainab­le energy, fostering innovation and res­ponsible financing in the power sector.