‘We took our Delhi example to Odisha, made it successful’

The government expects the demand for electricity to increase. The power ministry may invoke Section 11 of the Electricity Act to direct thermal power generators using imported coal to operate at full capacity between March 16 and June 15. Will it help meet peak electricity demand this summer?

In the last two years, the demand for electricity has increased tremendously after the pandemic. Earlier we used to see consumption of 170-180 GW in summer and around 150 GW in winter. Last summer, it was at 210GW and this winter, it was up to 206GW. In winter, we have never crossed 160GW before. So, the estimated consumption this summer is 229 GW, but I think it will probably exceed 229 GW at peak power requirement. And that means a 10% growth, which is very rare globally.

One can attribute this to a lot of industrial activity, and in construction that missed out during Covid, commercial activity that includes offices and shopping malls. Residential consumption is also on the rise and we are also seeing the full impact of the government’s efforts to electrify villages.

Globally, there is a 1-2% increase in power consumption and in India we used to see an increase of 3-5% in different parts of the country. This year and last year, we find that the scope is immense, especially in the summer months. That is why in order to take care of this need, Section 11 has been put in place to ensure that not only all existing domestic coal based and gas based plants and renewables, but also many coal based plants which have been forced out internationally due to high cost Struggling to work. Coal may be able to operate and recover the cost of coal as it will not be a huge amount in terms of tariff increase in the overall basket.

What is the capacity utilization of Mundra power plant?

When we ran Mundra from May-December 2022, we ran it at 85% capacity, that too Section 11. But at present we are not operating the plant.

So, in that sense section 11 will help restart the Mundra Thermal Power Plant and allow you to earn revenue from it?

Absolutely. So, the whole purpose of section 11 is to make it cost reflective and we will deal to the extent of whatever is the actual cost of coal and shipping and unloading and insurance.

Tata Power witnessed a sea change by transforming from a pure-bred utility company to become more consumer-centric. Investors accepted this along with the re-rating of the company. Can you elaborate on the future course of action?

We need a mix of regulated and non-regulated businesses. Earlier most of our business used to be regulated business but now we are trying to have a fair distribution between the two. Regulated businesses are long term power purchase agreements. We have distribution business, which is again, a very regulated business, where you get return on equity on the capital invested and some incentives if you outperform the benchmark. So, what we said is that we will do both types of business because they both have their advantages and it protects us from some of the market challenges that we face.

We looked at our delivery business, we have done very well in Delhi where we have reduced losses from 53% to less than 7% now. And we said based on our experience and our domain knowledge, can we do it in other places. We went to Odisha, and we took all the four discoms. Delhi had less than 20 lakh customers, Orissa had more than 90 lakh. So, once in a while we went to Orissa in the Covid times, but we were able to make a huge difference. This has also benefitted the state and the government has been able to demonstrate how a public private partnership is capable of delivering better results to the people of this state. The damage they were doing is almost gone. For us, we get a return on equity and incentives for the work we do.

I think it is an arrangement that has benefited everyone. Having said that, we have proved ourselves in Odisha as everyone said Delhi is an urban experience, and it would be difficult to replicate in rural areas. Now, we have also performed in the rural ecosystem. And on the basis of that experience, we now believe that we can go to any state in India. Now that there is a lot of talk that de-licensing is taking place, there is a lot of talk going on across multiple supply licensees and we think we can go to a larger number of cities. We have identified more than 50 cities where we will visit and pitch for multiple licenses. We are looking at the nature of work. This will be one of our biggest growth areas.

What is your outlook for the transmission and renewables businesses?

In between, we were not doing much transmission projects. Now we are going to have a number of transmission projects that will be set up to generate renewable energy in some pockets where you have high solar intensity and then bring it to other parts of India in terms of providing indoor energy availability. We will put all renewable energy into a unique special purpose vehicle, and operate on a large utility scale from solar plants to manufacturing to EPC third parties.

And over the years, we have grown from a very small capacity to 4000 MW of operational assets today. and another 300,000 MW that are in various stages of construction. So, it could be 7000 MW in next 12 to 18 months’ time. So, I think there is huge demand and opportunity in the renewable space.

Q6. Can you elaborate on Tata Power’s plans on the manufacturing side?

We have this manufacturing unit for cells and modules of about 500 MW and 500 MW respectively. Now, we are adding four gigawatts i.e. 4000 MW cell and 4000 MW module manufacturing at our new facility in Tamil Nadu, which will be commissioned in this calendar year. So, I think you’ll see a huge amount of growth in renewables in each of these utility scale, third party PC, manufacturing, rooftop solar, solar pump and then some new businesses like EV charging.

In terms of EV charging, we are the largest in the country with over 50% market share. So again, we’ll have a leadership role in many of these.

Q7) Is it time to divest some businesses as they are reaching scale? Your colleague has a separate transmission unit and this for his renewable business?

Ans- Let’s bring more scale, right now it is very premature. Let us take advantage of the synergy of one entity and leverage its strengths. Our cross learning within the company is helping us achieve better performance and the flexibility to bring people into practice processes from one business to another. We have seven gigawatts of renewable energy today, so we need to scale that to 15 or 20 GW. Similarly in renewables and distribution. We have 12 million customers, maybe 50 million customers is a good scale. I think what’s important for us is to first build a solid business, grow it and then look at it some other way.

Q8) But Tata Power is growing fast and setting ambitious targets. You are planning to grow by five times from the current capacity in the next 3-4 years. But are the higher multiples offered to utility businesses justified?

Answer- We were not even 2.5 million customers and at one go 9.5 million customers were added so we are almost 13 million customers. So, nothing stops you from growing. We did it during the covid year where everyone said how can you grow and get a new distribution company this year? We were working in Delhi; The area was 510 square kilometers. The area of ​​whole Delhi is 1500 square kilometer we went to Orissa which is 150,000 square kilometer. So can there be bigger growth than this? Wherever there is good opportunity, we will grow.

Q9) Will you be looking at assets like DB Power which are back in the sell zone?

Answer – I have not seen the details. Let me check it out.

q10) Since the main buyer is no longer keen on PTC, is this an opportunity for Tata Power?

Ans- We keep examining various companies what is their business model, what is the intrinsic value, what is the area of ​​business and whether we have value in terms of our growth plan. So, if there’s anything that has value, meaning our development plan, objectives are the kinds of things we look at.

Q11) Is Tata Power looking to sell its business?

We disinvested PT Arutmin about six years ago. We should be getting about $400 million and $40 million this month. We sold our shipping business and our business in South Africa. We will divest some other investments outside India like Zambia and Georgia. The whole purpose of disinvestment is that we get better value of investment for our shareholders.

Q12) Is there any plan to park the EV charging business with Tata Motors Company?

Answer – EV charging is a business being developed by Tata Power. Charging is a standalone thing. It primarily caters to Tata Motors as Tata Motors has over 80% market share, but can charge other vehicles as well. It is agnostic about the make of the vehicle. And to that extent, it’s great for Tata Power to be in this business.

Q13) Power companies are the target of several cyber attacks. How are you improving your company’s defenses against them?

Answer- We have a state-of-the-art, robust cyber security system, and we keep upgrading it. That’s why we keep adding new types of preventive measures to deal with any cyber attack.

Q14) In your renewables business, you have sold 10% stake to Blackrock and Mubadala. Given your plans for scaling, is a second or third round of funding in the offing?

Answer- So I think the motive was that we should have enough money at least for next 2-3 years and hence we disinvested 10% stake. So, it is important for us now to first demonstrate and implement what we have to do in the next 2-3 years and then decide what should be the next step. So, at this stage, we need to implement what we have planned and for which we have found a partner.

satish.john@livemint.com