Investors Must Come With Strong Operating Knowledge of The Indian Solar Market
End-to-end project execution key for renewable energy firms' profitability
At the Fireside Chat session held on Day 1 of the Mercom India Solar Summit 2021, Sumant Sinha, Chairman, and Managing Director, ReNew Power, shared industry insights in a freewheeling conversation with Priya Sanjay, Managing Director, Mercom India.
In a talk that set the stage for the rest of the day, Sinha recounted ReNew Power’s journey, which was set up in 2010. The shift in the Indian regulatory market made the climate conducive for long-term renewable energy (RE) independent power producers (IPPs) to set shop in the country and expand the business.
He said that the early funding the firm received from Goldman Sachs gave it the initial impetus to dig its feet in the Indian RE business ecosystem. It had been a roller-coaster ride, but the company has been seeing an upward trend.
ReNew Power had recently announced plans to go public through a merger via a special purpose acquisition company (SPAC).
In October 2020, ReNew Power raised around $325 million through overseas green bonds. The company intended to utilize the proceeds to expand its capacity and to refinance high-cost local debt.
Tread with caution
Sinha said that being cautious about raising capital ahead of time and not getting overleveraged as a company helped ReNew Power in the long run.
“Not being overleveraged at least from a financial standpoint and having a somewhat conservative management strategy covered the risks,” he said, adding that such an outlook helps in creating a sustainable business and keeps in mind the interests of all the stakeholders.
Sinha advised businesses to remain disciplined, execute projects on time, and not get carried away, stating that delivering numbers as promised is crucial not just for a single project but for several projects on a long-term sustainable basis.
Other key factors that helped the firm stay afloat, according to Sinha, are enhancing capabilities and building an end-to-end project execution model instead of outsourcing everything. These measures help manage risks better.
Asked by Ms. Sanjay what the secret sauce of building a successful renewable company is, Sinha stressed being careful about the bids that a firm wins at the decided tariffs and navigating project execution hurdles such as land and permit issues at the local level. He also suggested that staying conservative and not putting too many financial risks onto a business that already has multiple operating risks is important. Businesses should be driven by commonsensical decision-making capability to maintain a balance between being careful and taking risks.
He also suggested businesses invest in development pipelines ahead of time and build domain knowledge.
Making a case for investors eyeing the Indian solar industry market, Sinha felt that the sector is not too complicated when it comes to participating in auctions and bidding a low tariff. He cautioned investors about land acquisition issues and said that the solar sector is not anymore a high-margin business in India. He advised investors to come in with a strong operating knowledge of the Indian market before getting into the business.
Stating that a major share of the investment inflow into the Indian renewables market is from overseas, Sinha urged domestic capital investors and Indian banks to put in money in the sector.
Talking about the government’s role in addressing some of the other challenges faced by the sector, he insisted that it was important that state governments work closely with the industry and reform their distribution utilities.
Utilities need to also invest in and upgrade their systems in a bid to go digital and deploy smart meters.
Drawing attention to the Union Budget 2021, Sinha added that the central government is bringing in amendments to the relevant laws to assist the sector and sought a matching response from the state counterparts.
He also demanded strong grid management and a coherent and strategic battery policy at the central level.
Welcoming the government’s push for a domestic manufacturing ecosystem, he said the government should help make domestic manufacturing as competitive as possible to face Chinese competition.
Sinha said that he is hopeful that 20 years from now, renewable energy will be the only way to go.