Tata Power Co. Ltd is making a big bet on clean energy. The country’s largest private power utility, which already generates about one-fifth of its power from clean sources, expects to maintain or increase this.
The scale of that ambition becomes apparent in the context of Tata Power’s plan to expand its production portfolio by nearly eight times over the next six years.
The utility has chalked up plans to increase total generation capacity to 25 gigawatts (GW) by 2017 from 3,176 megawatts (MW) now. Energy generated from clean sources currently accounts for 727MW, or around one-fifth of the 3,176MW generated, which is set to rise to 5-6GW in the next six years, managing director Anil Sardana said in a recent interview. One GW is 1,000MW.
Clean energy is generally defined as that which can be generated with minimal pollution. Its sources include wind, small-scale hydroelectric projects, the sun, biomass, tides and waves, among others.
Tata Power’s plans come at a time when Indian utilities have struggled to keep pace with targets set by the Planning Commission for capacity addition even as peak power deficit has expanded to 12.7%, with the possibility of it further rising over the long term. Despite this, large integrated utilities have hesitated from venturing into power generation from alternative energy sources, focusing instead on coal- and gas-based power plants that need lower capital costs to set up, and have more predictable returns.
Of the bigger utilities, producers such as Lanco Infratech Ltd are present in both the hydro space as well as in solar energy, with plans to execute 400MW of solar power by 2013. Reliance Power Ltd has just finalized plans to set up a 200MW solar plant in Maharashtra. State-run NTPC has a presence in wind energy, where others including Thermax Ltd and Welspun Energy Ltd are also present.
But it is newer entrants—Orient Green Power Co. Ltd, Husk Power Systems Pvt. Ltd and Kiran Energy—that focus on clean energy, taking advantage of tax breaks and other incentives. Only 10% of the 170GW that India produces comes from renewable sources, according to data from the Central Electricity Authority. Tata Power’s target comes amid a changing corporate environment more aligned to green issues, rising energy costs, tightening global supply where a few holders of fossil fuels control prices and increased opposition to nuclear power in the aftermath of the Fukushima disaster. “The price of fossil fuel, be it coal, gas or oil is heading northwards which seems to be the trend in the foreseeable future. There are no signs to indicate that this will come down. This gives a huge opportunity for other renewable forms to pick up and gain ground,” said Banmali Agrawala, who heads the alternative energy business for Tata Power as executive director.
The utility has a legacy when it comes to non-fossil fuel-based energy. J.R.D. Tata, the group’s founder, set up a 40MW hydro-electric power generation station at Khopoli near Mumbai in 1915 to supply electricity to the city. It already has 447MW in existing hydro power, 277MW in wind power and 3MW in solar power. It also has about 5,341MW of capacity under implementation, including 100MW of wind power, 25MW of solar power and 126MW of hydro power. By the end of the year, the firm expects wind power capacity to be 400MW with 100-150MW likely to be added every year. It recently commissioned a 3MW solar photovoltaic plant at Mulshi in Maharashtra and expects to commission a 25MW plant in Mithapur, Gujarat, in December.
To be sure, these plans are still on the drawing board. “If it (policy) becomes more encouraging then we could look at even more (capacity), so it entirely depends on what the feed and tariffs are going to be like,” Agrawala said.
Policy has been supportive— at least on paper. The national action plan on climate change recommends India should generate 10% of its power from renewable sources by 2015, and 15% by 2020. But ground realities are different even as regulators let utilities get away without penalties for not meeting renewable obligations.
“It will be a very big challenge as the visibility of assets for that size of renewables is not yet there and it takes at least five-six years of development. Unless the firm is already well on its way to looking at that visibility, it seems more like a distant dream,” said Kameswara Rao, executive director at PriceWaterhouseCoopers. Rao, who heads the energy, mining and utilities practice for the consultancy, reckons that an additional 2-2.5GW is more of a realistic target for the utility in the next six years.
Another fundamental challenge is for the company to clearly establish what its portfolio should look like and, therefore, choose the right mix of assets. “The asset class is important in terms of its basic strategy over cash flows. In renewables, cash flows have a huge impact as both wind and solar take a long time to repay itself, so getting the footprint right is absolutely crucial,” Rao said.
Linked to this is the lack of established data on sunshine patterns or wind patterns, since these sources are still relatively new in India, which banks need to review as part of their due diligence before granting loans.
“Despite wind being a relatively mature technology, only Indian banks fund wind projects, none of the international banks do as they’re unsure of the repayment cycle over the lack of established data,” said R. Chandrashekar, chief executive of IT Power Group, an international consultancy in the renewable energy sector.
There also is a technology risk. For solar-thermal plants (in which the turbines are spun by steam from water heated by energy from solar panels) there are four competing technologies.
In the face of ever-evolving technology in newer forms of renewable energy, life cycles of existing technologies get reduced, putting at risk decisions picking any one current technology. This is because the industry is at a relatively nascent stage of development compared with conventional forms of power generation such as coal and gas, which have already gone through the technology development cycle.
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