Davos 2017: Suzlon’s Tanti Hopes Budget Will Extend Exemptions For Renewables Sector
The renewables space is growing rapidly, Tulsi Tanti, chairman and managing director of Suzlon told BloombergQuint's Menaka Doshi on the sidelines of the 47th World Economic Forum at Davos. He aims to 15,000 megawatt (MW) worth of capacity over the next 5 years.
He is hoping for the government to continue with the current set of incentives provided to the renewable energy sector at least till 2022, in order to maintain a steady stream of investments.
Here are edited excerpts from the interview.
Davos is very focused on renewable energy. You have seen substantial cost reduction in the solar business over the last year or so. What’s your outlook on the sector globally and in India?
I think globally this sector has been growing very positively in the last 2-3 years. In 2016, the world has seen an investment of $500 billion in the power sector. Out of that, $330 billion investment has come exclusively in renewable energy– 50 percent wind and 50 percent solar. So this means 62 percent new investment in the global market, including India, is flowing through the renewable energy space. So that shows that now it’s mainstream and not just an alternate energy source. The total investment in the power sector will be almost $10 trillion by 2035. Out of that, the current forecast is that $6 trillion will come into solar - that’s 60 percent. It’s achievable because 2015 has delivered and this momentum will continue in the global market. Now coming to India, our prime minister has announced initiatives for renewable energy and a target of 175 gigawatts by 2022. In 2014, $2.5 billion investment has come into the renewable space in India. And in 2015, that number stood at $5 billion, that’s 100 percent growth. In 2016, $10 billion worth of investment has flowed in. So again 100 percent growth. So in the last two years, we have seen 100 percent growth. So it’s moving well and the (renewable) sector is taking a very strong position in the power sector.
You don’t seem to be in the mood for acquisitions any time soon. You said it was going to be a purely organic growth strategy that will pan out through the course of 2017 and next year. Talk us through what your growth plans are for both the wind business and the solar business. And by when do you expect that the solar business will be almost the same size as the wind business?
In the last year, $6 billion investment has come into solar and $4 billion into wind. So it’s a 60:40 ratio. Because the base for solar is low in our country. Out of 35 gigawatts of renewable energy, just 8-10 gigawatts is solar, and 28 gigawatts is wind energy. So solar has to catch up little bit. But from a system design and system integration point of view, both have to be in a 50-50 ratio. Because then growth can be continuous. It will bring more synergy from the consumer perspective to stabilise these systems. That is why India will need to grow on both energy sources equally.
Your growth plans?
Over the next five years, India will deliver 60 GW of wind capacity from 28 GW. So another 32-34 GW addition will happen. So we are hoping to build capacity worth 15 GW over the next 5 years – 11 GW in wind and 4 GW in solar. But we are not growing solar on a standalone basis. We have developed an integrated system design – wind and solar hybrid. Because of that we are increasing the plant load factor (PLF). Wind is giving 25 percent because of old technology but we have developed new technology which is giving a 35 percent PLF. Solar is giving 18 percent with the old system but we have gone to 25 percent, and we are blending both the energy sources in a common infrastructure to bring 40 percent PLF to 50 percent PLF, depending on the state. So that will give utility scale projects and it’s equal to the standalone projects which is equal to the conventional power plant solutions. Over the next five years, we also aim to reduce the cost of energy by 20-25 percent from today’s level.
When you see some of the bid prices, especially for solar they have come down dramatically. In fact, in solar we have also seen a large bankruptcy. Do you think that the rush of money into these spaces has led to some degree of unviability?
The solar manufacturing companies are highly concentrated in China. So top five companies are based in China. They are not making any money and they are sitting on high debt. And demand is growing. But at the same time, they have built more capacity. In China, growth keeps fluctuating. And that’s why they are suffering. But those who are investing in a solar capacity or wind capacity though IPP, they are making really good money. They are also creating value.
Even in the power producer bids, the prices have come down considerably.
Prices have come down to almost Rs 4.30-4.40 from Rs 6-7. Because technology has matured, the scale has increased and we are importing heavily from China which has surplus capacity and so prices have come down. Wind energy is a different case. Wind is 100 percent produced in India, manufacturing is in India because India has almost 9-10 gigawatts capacity. India is exporting this technology to other parts of the world also. But the advantage in India is, because of the new generation of turbine technology which increases the capacity factor from 25 percent to 35 percent, that has brought down the cost of energy. Second, commodity prices have supported to some extent. And third, we are now going on a larger scale. And because of that, wind is very competitive. At Rs 4.30-4.60, it is possible to make a project economically viable.
So you are saying not only is the business sustainable at these prices but margins can also show some healthy growth?
The scale is increasing. Volumes and demand are increasing which supports the the margin. Pricing is going down. Technology and scale is supporting that. And in the last two years, we have improved our EBITDA margin. We have improved the margin from 12 percent level to 16 percent.
We are only few days away from Budget 2017 and you have a long list of expectations. Predominantly you want that some of the exemptions and the benefits available to the renewables energy sector are maintained by Finance Minister Arun Jaitley even though he has said that starting April 1, 2017 several of the exemptions start falling off across industries and that he wants to go to a fewer exemptions, lower corporate tax rate regime. So what’s your case to make to Mr Jaitley. What is it that you are hoping he will do in this budget?
Our priority is low carbon economy, energy security and affordable energy to consumers. Renewable energy space is bringing down the cost of energy. Ninety percent of investments come from overseas now and foreign investors feel comfortable in the renewables space in India. If you want to maintain the flow of investments in order to achieve by 2022 the target of 175 GW – today we are at 35 GW only. If you want to deliver 140 GW, I think the policy framework and incentive program has to continue up to 2022. We have seen, in the last five years, whenever there has been a withdrawal of incentives, the industry has suffered which is not good for continued growth in the sector.
So three areas are very important. One, generation-based incentive which is expiring by March 2017. We strongly believe it has to continue for the next five years. The second is accelerated depreciation which is available for an Indian company to invest in this sector. That is mainly all manufacturing companies investing for their captive power requirement. So if you want to make ‘Make in India’ successful and if you want to encourage more and more manufacturing in all segments, if companies can start their captive power and can hedge their power cost for the next 25 years, it will lead to really good growth for the manufacturing sector. If you withdraw the incentives that manufacturing growth will be hampered. Third, is the Goods and Services Tax (GST). Today we don’t have any customs duty or excise duty or cess. So we strongly believe to maintain this momentum growth, GST should be zero for renewable equipment and technology.