Interview with Vivek Kumar Dewangan: “REC aims to finance Rs 1 trillion worth of green projects this fiscal”

Vivek Kumar Dewangan, chairman and managing director, REC Limited

In an interview with Power Line, Vivek Kumar Dewangan, chairman and managing director, REC Limited, shared his views on the performance of the power sector, the Revamped Distribution Sector Scheme (RDSS), current investor sentiment and the unresolved issues in the sector. He also discussed REC’s key business developments, future plans and priority areas. Edited excerpts…

How has the power sector performed in the past one year or so?

India’s power sector has undergone a remarkable transformation, aimed at providing reliable, affordable, and sustainable energy to its people. Over the past nine years, significant strides have been made in enhancing power generation capacity, expanding access to electricity, promoting renewable energy and implementing innovative policies. In­d­ia’s journey towards a greener future has gained global recognition. With the addition of over 175 GW of generation capacity in the past nine years, India has transitioned from a power-deficit to a power-surplus nation. The country’s commitment to renewable energy sour­ces has played a pivotal role in achieving this feat. The remarkable growth of solar and wind energy capacity has cemented India’s position as a global leader in re­newable energy adoption. Today, India stands at the fourth position globally in terms of installed renewable energy capacity, with 43 per cent of its total in­stalled electricity capacity coming from non-fossil energy sources. The total pow­er generated in the country increa­sed by more than 8 per cent year on year in 2021-22 and by 9 per cent in 2022-23. As a result of various measures taken by the government to promote renewable energy development in the country, power generation from renewable energy sources increased from 297,547.03 MUs in 2020-21 to 365,650.94 MUs in 2022-23.

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

The power sector  has witnessed India’s bullish growth trajectory, marked by the renewables revolution, rapid expansion of transmission infrastructure, policy support creating a favourable investme­nt climate, and innovative financing mo­dels that are attracting developers. Favourable government policies, robust power demand, a greater focus on electrification, increased capex towards en­er­gy sector projects and improved economics for the renewable energy sector are some fundamental reasons for the resurgence of investments in the power sector. Moreover, strong financial performance, attractive valuations, am­p­le room for growth and revenue visibility are prompting investors to leverage op­portunities in the power sector.

“We aim to surpass our loan book from the current Rs 4.54 trillion to over Rs 10 trillion by 2030.”

What are some of the unresolved issues in the sector?

Over the past decade, we have witnessed several government initiatives in the power sector. These have resulted in the improvement of aggregate technical and commercial (AT&C) losses and reduction of the average cost of supply (ACS) and average revenue realised (ARR) gap. Further, the country has achieved 100 per cent household electrification and we are strongly moving towards a reliable, affordable and sustainable future in the power sector. However, the sector still faces some challenges. These in­clu­de delays in project implementation, inadequate fuel supply tie-ups, difficulty/delays in acquiring land and other permits, offtaker risks such as lack of power purchase agreements (PPAs) and cost overruns/non-viability. AT&C losses and the ACS-ARR gap need to be further reduced. The government is working to resolve these issues on priority through a multifaceted strategy. It be­gins with meticulous planning, encompassing feasibility studies and well-defined project timelines. Comprehen­sive policyma­king is aimed at securing reliable, long-term fuel supply agreements and diversifying power sources to mitigate fuel-related issues. To address offtaker risks, an ecosystem is being developed to fa­cilitate PPA negotiations and diversify offtaker portfolios. Cost management, loss reduction through advanced technologies, and reduction in the ACS-ARR gap will contribute to financial viability. Further, effective risk management, sta­keholder engagement and continuous monitoring are essential for a project’s success. Adherence to legal safeguards, and compliance with environmental re­gulations and social res­pon­sibility standards are also crucial. The government is committed to problem-solving throughout the project’s life cycle to ensure its success.

How has the RDSS performed so far? Do the early results of the scheme look promising?

The Government of India launched the RDSS with an outlay of Rs 3,037.58 billion and an estimated gross budgetary support of Rs 976.31 billion from the central government for the duration of five years, from 2021-22 to 2025-26. The scheme aims to reduce the AT&C losses to pan-India levels of 12-15 per cent and the ACS-ARR gap to zero by 2024-25. The RDSS has significantly reduced the distribution losses of discoms from 21.5 per cent in 2020-21 to 16.5 per cent in 2021-22. These initiatives focus on reducing AT&C losses, improving metering and bi­lling systems, and promoting energy efficiency. The integration of smart grids, advanced metering infrastructure, and demand response mechanisms has enhanced grid stability, and allowed consumers to actively manage their energy consumption. So far, the monitoring committee of the RDSS has convened 16 meetings, wherein action plans and detailed project reports of 46 discoms (28 states/UTs) have been app­roved, and 204.6 million prepaid smart consumer meters, 5.4 million smart distribution transformer meters and 198,000 smart feeder meters have been sanctioned.

“India is well positioned to become a global leader in renewable energy and green hydrogen.”

What have been the key business highlights for REC in the past 12 months? 

At the end of 2022-23, REC’s loan book stood at around Rs 4.35 trillion (13 per cent year-on-year growth) with a profit after tax (PAT) of over Rs 110 billion (10 per cent year-on-year growth), the highest ever sanctions of Rs 2.68 trillion and disbursements of Rs 968.46 billion. REC’s growth trajectory over the past decade has been nothing short of extraordinary, and the past five years, in particular, have seen a 55 per cent rise in the loan book while profits have almost doubled.

In the first quarter of 2023-24, we maintained our growth momentum by achie­ving a record-breaking PAT of Rs 29.61 billion. Our net worth stood at Rs 608.86 billion as of June 30, 2023. Further, REC’s loan book has maintained its growth trajectory, reaching Rs 4.54 trillion. Nota­b­ly, our net non-performing assets (NPAs) de­clined to less than 1 per cent as of June 30, 2023, with no new NPA additions in the past six quarters. All the­se fi­gures have kept our investors moti­vated throughout our journey.

What are REC’s future plans and key focus areas?  What is your view on financing new and emerging segments?

We aim to surpass our loan book from the current Rs 4.54 trillion to over Rs 10 trillion by 2030. REC’s net NPAs declined to less than 1 per cent as of June 30, 2023, and there has not been any NPA ad­dition in the past six quarters. We are working towards becoming a net-zero NPA entity by 2025. In view of the government’s renewable energy targets, we aim to increase our share of renewable en­ergy lending to at least 30 per cent over the next six to seven years, from Rs 300 billion ($3.6 billion) to about Rs 3,000 billion ($36 billion).

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

India’s electricity generation is likely to grow by over 70 per cent over the next decade, marking the largest increase among the world’s largest electricity producers. India will place a strong em­phasis on non-hydropower renewable forms of electricity generation, which is expected to account for approximately 17 per cent of the total generation by 2032. India is well positioned to become a global leader in renewable energy and green hydrogen. However, achieving this target requires the development of the necessary infrastructure, including a robust supply chain network to transmit green hydrogen and enhan­cement of the necessary skill sets within manufacturing enterprises. If we formulate ro­bust plans and policies to advance our infrastructure, we can march ahead of other advanced economies and na­tions. REC is looking to finance up to Rs 1 trillion worth of green projects in the current fiscal. We are also targeting in­vestments in some pumped storage, green hydrogen and green ammonia pro­jects, along with solar, wind and hy­brid projects, starting from the coming financial year.