Sterlite Power has secured orders worth Rs 2,500 crore in the fourth quarter of FY24, bringing its total orders for the full fiscal year to over Rs 7,000 crore. In March, the company forged a partnership with Singaporean fund GIC to develop a transmission platform in India. Pratik Agarwal, managing director of the company, talks to Raghavendra Kamath about the company’s strategy and challenges in the sector.
How will the JV with GIC contribute to the development of a larger transmission platform in the country?
India has a large pipeline of transmission, which are capital-intensive projects. So, any player who wants to contribute meaningfully to the sector has to bring in large equity capital. The JV will be able to that. It’s very good news for the Indian power transmission sector that large global sovereign funds are willing to take greenfield risks. The government should encourage this and ensure that platforms like this get their meaningful share of the pie.
What’s the update on your listing plans?
Sterlite Power is undergoing a demerger process. We are separating the manufacturing business from the transmission development business, both of which have distinct profiles. Once the demerger is complete sometime this financial year, we will evaluate all options, including an IPO.
What are your capex plans for FY25 for all your businesses, including Serentica?
Our capital expenditure plans for FY25 reflect the diverse needs of our businesses. For our manufacturing business, we plan to allocate approximately Rs 200 crore out of a total budget of Rs 400 crore. For our renewable energy initiatives, we are planning significant investments of around Rs 15,000 crore in developing wind and solar round-the-clock hybrid projects. Additionally, we anticipate a capex of about Rs 6,000 crore in our transmission business.
Do you have any major fundraising plans lined up this year?
Most of our equity has been tied up between the GIC (JV with our transmission business) and the KKR investment of $650 million in Serentica – our renewable energy platform. To fund future growth in Serentica, we will reach out to our existing shareholders and outside investors to raise Rs 25,000 crore. For the transmission business, we will require about Rs 3000 to 4000 crore. These figures are on top of our regular working capital requirements.
India has been positioning itself as a preferred destination for clean energy investment, but the results have been mixed so far. What’s your assessment?
India ranks among the top three countries globally in terms of annual renewable energy capacity additions. That said, we need to add and do more each year to meet our 500 GW target. There just isn’t enough equity capital available for greenfield renewable companies, commensurate to the amount of capital needed. While many new investors are already investing in the sector, more is needed.
Secondly, land is a major challenge. In India, we have a population density that is 9 times the US and acquiring contiguous vast tracts of land for solar or wind remains the single biggest challenge. The third challenge is transmission. While we are planning ahead and we are doing better than most countries in the world, it’s just not possible to build the amount of transmission capacity that’s needed in a short period of time. If somebody has to or wants to install 30 to 50 gigawatts a year, that commensurate amount of transmission is not getting ready every year, not yet.
Finally, while demand for power is growing at 10%, discoms are still not willing to sign PPAs above a certain price. The PPA pricing needs to be commensurate with the effort and the risk that developers are taking.
The next transmission infrastructure has often been overlooked in India’s renewable energy vision. Do you agree with this assessment? How helpful is the five-year rolling network plan in addressing this issue?
I believe that we are amongst the best countries in the world that is aggressively planning transmission ahead of time. And, we are thinking about it, we also have a very good implementation model called the TBCB model, where it is not dependent on only one public sector entity, but there are at least 8 or 9 private sector entities that are sharing the burden of getting this bit right.
However, challenges persist with the dominant role of PSU incumbents, holding 60-70% market share, deterring private players due to mismatched return requirements. This poses a significant challenge as India requires 6 to 10 large transmission developers. Also, during implementation, there are many challenges, because there are large cost overruns on account of changes in law, right-of-way compensation etc. These cost overruns have to be endorsed on time by the regulator, without which it becomes impossible to finish the project.
So, I think these issues need to be urgently resolved, so that India remains on the path of creating transmission ahead of time. According to government data, 80 to 90% of transmission projects are delayed in the country/ And many projects are delayed by more than a year.
