Mytrah Energy (India) Ltd (MEIL) is a wholly owned subsidiary of Mytrah Energy Ltd that is listed on AIM, a market of the London Stock Exchange, intends to own a portfolio of wind farms with a target total installed capacity of 5,000 MW by the year 2017. The Company intends to acquire and develop these wind farms in conjunction with some of the world’s leading wind turbine manufacturers. MEIL is headquartered in Hyderabad, Andhra Pradesh.
India currently relies heavily on coal, oil, and natural gas for its energy. Fossil fuels are non-renewable, that is, they draw on fi nite resources that will eventually dwindle, becoming too expensive or too environmentally damaging to retrieve. In contrast, the many types of renewable energy resources, such as wind and solar energy are constantly replenished and will never run out. The country is slowly realizing the value of R&D investment in these greenfi eld technologies.
Vikram Kailas, Managing Director, Mytrah Energy (India) Ltd shares his views with Sandeep Sharma about his company, challenges before the RE industry, potential of the RE development in India especially wind energy market, project funding mix, industry consolidation, budget expectations and solution to growing power defi cit. Edited Excerpts…
What’s the contribution of Mytrah Energy to the development of Renewable Energy (RE) in India till date?
The current annual wind power market is about 2,349 MW with forecasts predicting a 5,000 MW annual market by 2015. Mytrah Energy (previously known as Caparo Energy) has established itself as a leading player in the Indian wind energy sector with its plans for large utility scale wind farms across the country. Mytrah Energy’s Contribution focus on the following areas: • Improving the effi ciency of the wind energy plants in the country. • Encouraging & steering the development of successful wind energy projects in India. • Work towards meeting the wind energy targets.
The company targets to install 5,000 MW power capacities in India by 2017 and has partnered with Suzlon which is the largest wind power company in India and with Gamesa, the third largest wind power company in India. We are the fi rst true end-to-end company in the wind energy domain having capabilities across the value chain. We have thorough expertise in wind resources assessment- Identifying the right sites, Installation of Wind masts, analyzing data, designing capabilities, Selection of equipment, Contracting, project management and execution.
What are the current challenges before the independent power producers in India?
Some of the major hurdles that independent power producing companies face while doing business in India include, challenges in land acquisition and project execution. The Government is liable to the people of the State to provide a progressive environment. The Land Acquisition Bill which the Government will be passing soon is being closely watched, to see what it holds for the industry.
Further to this, following are the other challenges faced
by the IPP’s in India:
- Ineffi ciency of the wind energy plants in the country.
- Slowdown of development of successful wind energy projects in India.
- Slackening in meeting the wind energy targets.
- Lack of co-operation between operators & manufacturers
- High initial costs
- Low product responsiveness to user needs
- Weak markets and market-support infrastructure including networks of suppliers, dealers, credit facilitators, maintenance and spares supply organizations etc.
- Weak linkage between R&D on the one hand and market requirements for product development, deployment and technological up gradation on the other hand.
- Absence of attractive and consistent policies in certain states with respect to grid-based renewable energy, inadequate evacuation networks in some resource-rich regions and the current power tariff structure that subsidizes the use of conventional fuels.
- Lack of confi dence amongst developers and fi nal users in the merits of NRSE due to biased perceptions.
- Age-old land acquisition policies
- Market barriers such as the lack of access to credit. Therefore, we would like to take this opportunity to highlight that the future of Wind Energy in India critically depends on successful and timely commissioning of projects, effi cient collaboration of an operator and a manufacturer and favourable Government policies for investments.
What’s your take on the potential of the wind energy market in India? Do you see consolidation happening in the fragmented sector?
The potential for the development of wind energy hasn’t been capitalized so far. Presently, the economy is more focused on the tax advantages rather than the production of renewable energy. There is a dedicated need to create a proper infrastructure for transporting power, overhauling the grids to reduce the transmission losses and policy changes to enable a wider access.
On a positive note, as India’s wind energy market matures, we will continue to see regulatory incentives move away from tax-based depreciation toward IPP production. Today, turbines are being purchased to show 80% depreciation on the book of accounts, just to save tax. As a result, people are not buying turbines to produce energy but for other fi nancial reasons. The Government has now realized this and to promote energy security, it’s now rewarding people who are primarily focused in producing energy rather than using it to evade taxes. Some of the Government schemes like – GBI (Generation Based Incentive) and REC Mechanism (in the likes of the CER mechanism of Europe) is already yielding results and rewarding independent power producers.
Could you provide us a glimpse of your current wind energy asset portfolio?
In sync with the set targets, Mytrah has operating assets of 92.7 MW and well on its way to achieve the stated objective of 5000 Mw by 2017. MEIL’s business partnership agreement with Suzlon Energy Ltd is to develop and own up to 1,000 MW of wind power generation farms. The Company also has an agreement for purchase of 2,000 MW of wind power assets from Gamesa India Pvt Ltd.
How do you plan to achieve portfolio of 5,000 MW wind energy assets by the year 2017?
The Company is targeting to add 1,000 MW of generation capacity by March 2013, of which 500 MW are under various stages of construction for commissioning by March 2012. Wind Energy is now regarded as a mainstream energy; hence it’s quite simple to secure long-term and short-term fi nances. We have already secured fi nances upto 1000 crores from fi rms such as Blackrock on long term basis. Being an emerging company in India, we are waiting eagerly to capitalize on the vast opportunities that lie ahead.
Owing to the increasing demand for power, there exists an incredible opportunity with reference to the booming wind energy sector. We are expecting a 20-30% share of this market with an average of 3000 mw in the next 4 years. We are however interested in markets like – Maharashtra, Gujarat, Rajasthan, Karnataka, Andhra Pradesh, Tamil Nadu with an even split among all and to a smaller extent in Madhya Pradesh.
What’s your project funding mix? How is the scenario in India with respect to raising funds for the RE projects?
Mytrah Energy India Ltd (“MEIL”), has recently secured a further tranche of mezzanine funding. This tranche of Rs. 1,000m (US$20m) has a four year term and is being provided by PTC India Financial Services Ltd (the “Mezzanine Financing”). It is expected that relevant documentation and drawdown of this tranche will be completed by mid-January 2012.
Together with the previous two tranches of similar fi nancing, this latest tranche will take the Company and its subsidiaries’ (together the “Group”) total mezzanine funding to US$132m.
As with the previous tranches, Mytrah Energy’s existing shareholders will experience no equity dilution from the Mezzanine Funding, which the Board believes will result in enhanced equity returns for investors. The Group expects to repurchase all tranches of mezzanine funding from internal cash fl ows and the issue of senior debt instruments, bonds or other debt refi nancing, within three to five years.
In addition, the Company’s wholly owned subsidiary, Bindu Vayu Urja Pvt Ltd (“BVUPL”), has secured new senior loan funding totaling Rs. 9,600m (US$192m) (the “Senior Debt”), comprising Rs. 6,000m (US$120m) which is fully underwritten by Infrastructure Development Finance Corporation Ltd (“IDFC”), and Rs. 3,600m (US$72m) which is at an advanced stage of syndication. The Group believes that this is the largest single senior debt placement for a wind power focused renewable Independent Power Producer (“IPP”) in India. The Senior Debt has been secured at a rate that Board considers competitive and is for a tenor of 14 years.
The Board believes that Group’s continued access to fi nancing will enable Mytrah Energy to maintain its rapid growth and demonstrates the Group’s business strength in India.
Mostly, fi rms in India opt for funding through Financial institutions and through Big Angel Investors due to their robust pay-back policies.
What kind of incentives do you expect from the Government in the forthcoming budget?
Due to the ongoing economic crisis in the Euro Zone and
rising infl ation, the corporate industry is eagerly looking
forward to Budget India 2012, to plan their market strategies
for 2012. Some of the expectations from the industry are –
- Acceleration in implementation of the Goods and Service Tax (GST)
- Stable corporate tax rate and reduction in surcharge
- Reduction in dividend distribution tax
- Tax consolidation in holding companies structure
- Policy focus on bond market development and fi nancing infrastructure development. The Government should provide tax incentives through SEZ’s for infrastructure developers to carry on with their work. Also, a positive environment needs to be established through attractive and consistent policies in certain states with respect to grid-based renewable energy, inadequate evacuation networks in some resource-rich regions and the current power tariff structure that subsidizes the use of conventional fuels. Finally, the land acquisition policies should be favorable for established players in the market to expand and promote opportunities for all.
RE needs a bigger push from the private sector in conjunction with the Government support. Do you agree?
The Government does have an important part to play with private bodies in RE. For this, Government of India has already created the Department of Non-conventional Energy Sources (DNES) in 1982 and a full-fl edged Ministry of Nonconventional Energy Source in 1992, under the overall charge of the Prime Minister, to address the power shortage and making the country self-reliant in its Energy security. Some of the Government schemes like – GBI (Generation Based Incentive) and REC Mechanism (in the likes of the CER mechanism of Europe) is already yielding results and rewarding independent power producers.
Owing to the increasing demand for power, there exists an incredible opportunity with reference to the booming wind energy sector. It’s up to the Government to come out with attractive incentives for Renewable Energy Power Producers, so as to meet the forecasted demand of 5000 MW generation of power on an average, totaling to 60,000 MW by 2020.
Which are the hot geographies in India offering the best and business friendly environment for development of RE?
India’s coastal boarders, offers an excellent place for establishment of wind fi rms due to the high intensity of wind fl ow. Also, places like Maharashtra, Rajasthan & Gujarat offer a great potential for development of wind and other renewable energy projects, due to their robust policy frameworks and infrastructure.
How far R&D efforts are successful in bringing down the cost per unit generated through RE sources?
India currently relies heavily on coal, oil, and natural gas for its energy. Fossil fuels are non-renewable, that is, they draw on fi nite resources that will eventually dwindle, becoming too expensive or too environmentally damaging to retrieve. In contrast, the many types of renewable energy resources, such as wind and solar energy are constantly replenished and will never run out. The country is slowly realizing the value of R&D investment in these greenfi eld technologies. Although the process of turning green has only recently started, the initial results are very clear. In April 2011, the Central Electricity Authority (CEA) estimated renewable energy capacity at 18.5 GW, approximately 11% of India’s total installed capacity, with the view that by 2020 it will be at 20%.
Due to the increase in awareness about the benefi ts of renewable energy power generation, companies across the world are now investing heavily in renewable energy likewind, solar and hydro power. As we move on, these R&D efforts will help in bringing cost-effective technologies, that will yield maximum power generation.
Lastly, what’s the immediate solution for India’s growing power defi cit mainly the peak hour shortage?
While earlier, oil used to be one of the commodities when talking of energy security, it’s now coal which is really impacting the economy. The economy has become so much dependant on it, that it’s causing a lot of defi cit to the exchequer; as we continue to import huge chunks of coal from neighbouring nations. The Government should realize the importance of wind energy as it provides a much cleaner and greener avenue which can help the country earn carbon credits and exchange in the International arena to save a lot of money.
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