DISCOM Credit Risk is High but Risk Perception has Reduced with SECI and NTPC: Interview

India recently achieved the milestone of  25 GW of installed solar capacity but the market has slowed down after safeguard duty announcement and other risk factors. Mercom sat down with Statkraft Solar Solution’s managing director, Pratyush Thakur, to get his view on the issues affecting the solar and wind markets and several other topics. Below are the edited excerpts from the interview:

What verticals is Statkraft involved with in the Indian Market?

Statkraft is owned by the government of Norway. We are a 120-year-old firm with more than 19,000 MW capacity. In addition to hydropower, Statkraft is involved with other renewable energy technologies. We have invested in wind, both offshore and onshore. We are one of the largest power traders in Europe. We also provide services in the commercial and operational optimization of renewable capacity for Germany via virtual owner plants; we aggregate capacities not owned by us to provide commercial solutions aggregated on cloud platforms.

In India, we have been present for 14 years. Recently, we recently acquired a 100 MW brownfield hydropower project in Himachal Pradesh. Since 2012, we have been a Category I power grid licensee in India.  We have developed a unique product in Indian market where we take power price risk on one side. For instance, if we are giving a fixed price and volume PPA to our customers, we take the risk of power market on that side and we optimize that risk by buying from the exchange.



Why hasn’t Statkraft gone for large-scale solar?

Frankly, Statkraft, has avoided taking credit risk on DISCOMs. Even in our hydro plants, we generally don’t sell to DISCOMs under long term PPAs; we may do some short-term PPAs, because for us the credit risk is very high. Previously, when solar policy was not very clear, risks around land and evacuation were significant. So, our idea was to provide services to commercial industrial companies. We developed a 5 MW open access project in Karnataka. We also developed a 5 MW on a campus project on-site which was commissioned towards the end of 2017.

Would you participate in large-scale auctions? If yes, which ones?

In large-scale solar, government has done a fantastic job in taking care of the highest risk areas – two of them being land and transmission risks. Credit risk has not been fully mitigated but with the intermediation of SECI and NTPC, the risk perception has decreased for the investor. This means there are many types of capital providers looking at that risk space, leading to cut throat competition. All these companies have put their acts together and are pricing the risks in. Therefore, we are not looking at large utility tenders as of now; but inorganic growth is certainly on our minds.

What would you say is your overall corporate strategy for the next 5 years?

We are planning to add 8 GW of wind and solar globally of which India could be a major contributor. Acquisition is certainly on the cards. But because we are avoiding DISCOM risks, many targets become uninteresting for us. However, if there is a target company with majority of PPA with DISCOMs of our liking, we may consider it. For example, Gujarat has good DISCOMs in that regard – If we find the right target, we might give it a thought.

What do you think of distributed solar segment?

When it started, people had to convince clients that solar made sense. Today, there is a pull instead of push because the client saves power cost. Clients are also getting mature, so deal sizes are going up. 1 MW to 10 MW projects are being signed. The acceptance has improved significantly, and investors are getting more comfortable with this space.

Do you think policies have evolved too?

As a policy, net-metering can be a good enabler. A lot of states have documented policies around net-metering. However, the implementation and execution are lagging, and a lot is yet to be decided.

It is my belief that for any business to be successful, all stakeholders should be happy. I am not saying that solar has reached that maturity that it does not need incentives. Especially on the distributed side, but those incentives should be more structured and have more transparency, where the main stakeholder, DISCOM, does not feel left behind. The government should come up with policies to address DISCOMs’ pain points.

Both central and state governments are providing subsidies for rooftop solar. Tax breaks have been taken away, but I think they should continue to provide it for rooftops as it is much more expensive than ground mounted solar. Additionally, it is known that rooftop yield is much less compared to ground mounted projects.

What is your view of rooftop solar space?

We know from our as well as peers’ experience how difficult it is to execute rooftop projects. Overheads are significant in small rooftops. With many of the rooftop tenders, being profitable with these projects without extension of timeline for example, has been very difficult.  So, when 1 GW of SECI tender became available, we bid for 2 MW but did not win any capacity. Recent Madhya Pradesh tenders, for instance, were designed in a way that the pain points of the developers were taken care of. They were well designed and implemented and can be a model for SECI. Ultimately, we would rather be a quality leader than a volume leader.

What do you think of the wind sector in India?

It is currently in a transition phase, going from the feed in tariff to a more market-based structure. It has only been one year since the feed-in tariff expired, and the whole value chain getting its act together to come to terms with this reality. Earlier, the model was that the OEM (Original Equipment Manufacturer) would find the best site, develop the project, and sell it at a fixed return, and then sell to investors. They would adjust their CAPEX (Capital Expenditure) price.

The model is changing now. Investors must reduce the tariff to what the market is willing to pay. I believe there is a lot of potential left in the wind sector that can be utilized. If set-up in the right place, wind is the cheapest source of power today. That may change and solar could take over, but it will be a highly competitive space.

Wind has a very good future in India. There is a lot of upside to repowering, if the old sites are repowered with the latest technology. Though Statkraft does not own any wind capacity in India, we are developing 1 GW in Norway

Is India serious about offshore wind?

Offshore is expensive right now and whatever offshore has happened has been supported by huge subsidies. I am not sure how offshore will compete with onshore and solar. Solar prices still have the potential to go down. Offshore business is risky with execution as well as commercial risk. If you do not pad it with subsidy security, the cost of capital will not be cheap. Oil drillers have technical expertise, but this is renewables.