Moser Baer to target 300MW of solar power

Gunthawada, Gujarat, is the perfect place for Asia’s largest solar farm. CNBC-TV18’s Mehak Kasbekar spoke to Chairman of Moser Baer Projects Limited, Ratul Puri about the company’s 30 megawatt solar project.

Below is an edited transcript of his interview.

Q: We have not seen anything of the likes of it in India. We have seen 5 or 10 megawatt solar farms. What is the logic behind a 30 megawatt solar farm?

A: As we look at our strategy and philosophy of building out solar in India and solar globally, we think it’s important to get to a reasonable size and scale. You start to see costs falling off as you are implementing a farm starting at about 5 megawatt and as you get out to about 20-25 megawatt, the cost start to level off. We think 20-30 megawatts is the right size for us and our solar ambitions are fairly large.

We are looking at establishing somewhere in the range of around 300 megawatt of solar capacity between now and June of next year. This month alone we will commission about a 100 megawatts of solar capacity on a global basis and so if you are looking at commissioning 300 megawatt, it’s very difficult to do it in small sizes. The size and scale which we are operating globally in solar makes it necessary to look at project sizes that are between 20-30 megawatt.

Q: How much have you invested in the project? How soon are you going to breakeven on this project? How is this project viable right now for your solar vertical?

A: Cumulatively in this project we have invested about Rs 460 crore. Our investment plans in solar this year are a little over Rs 4,000 crore out of which about Rs 3,500 crore are in India and about Rs 1,500 crore are in Europe. Besides India, we are major developers in Germany, Italy, Spain and UK. We recently commissioned UK’s largest grid connected solar farm.

We will return our investment bank in about five-six years. But these are long gestation projects. At the end of day, it’s a utility business. We are generating and selling energy. But the life of the asset is 30-40 years. It’s a long life asset and long past my prime, this farm will be generating megawatts of energy.

Q: Tell us about power purchase agreements that you have already put in place for this. What kind of a generation are we going to see from this farm?

A: We have entered into a power purchase agreement with Gujarat Urja Vikas Nigam Limited (GUVNL), which is the nodal arm for the Government of Gujarat for the procurement of energy and this farm should produce around 54-55 million units of energy in a year. It would take care of the needs of energy of about 50,000 households. As electricity works on a displacement principle, the energy from here will get consumed locally within a 20-30 kilometer radius.

One of the challenges that we face as a nation besides having inadequate levels of generation capacity is the fact that we have got significant levels of transmission and distribution capacity to build up. Building these types of 20-30 megawatt generating assets, spread across the length and breadth of India, can significantly bridge the demand-supply gap that we have as a nation in our energy supply.

Over the last few weeks, we have seen a lot of noise around the non-availability of coal and finally all these types of resources like coal, oil, and gas are all finite resources. We are going to increasingly see challenges around the supply of these resources. It’s going to be critical for us as a nation to go out and build out our renewable capability. As India develops over the next 10-20 years, energy is going to be one of the critical inputs that is going to drive India’s development.

We have the opportunity like we did in telecom; we jumped passed the fixed line. Today we leapfrogged straight into mobility. We have a similar opportunity on the energy side where it’s possible India could completely bypass conventional sources of energy and 10-15 years from today a significant part of our energy needs could come from renewable sources like wind, solar, biomass and other types of renewable sources.

Q: Moser Baer has been an early player in solar and most of your work has been done abroad. Are you looking at expanding in India? Why would you say this is the right time for solar in India to really expand?

A: There are a number of reasons for that. Our focus always was India. You need a confluence of things to come together for India to take off. The central government has put together an exceptional policy with the Jawaharlal Nehru National Solar Mission. Multiple states recognizing the potential that the Centre saw put in place very forward-looking policies around solar. This is the era for solar in India. Starting next year onwards, we are going to see substantial solar capacity being added in India. We are one of the earliest people to enter into solar five years ago.

We are already a leader on the manufacturing side. We want to be a leader when it comes to establishing generating capacity across India. This year, we will probably be the largest solar power generator globally. We will own more solar power generating capacity than any other company in the world and certainly that would hold true for India also.

Q: In the next two years, what other commissioning can we see? What does your project pipeline or your investment pipeline look like in the next couple of years?

A: This is a heavy month for us. We commissioned a 30 megawatt farm here. In another weeks time or so we commission a 25 megawatt asset in Germany and towards the latter part of the month we commission the worlds largest greenhouse solar farm which will be 20 megawatt which is in Sardinia in Italy. Then between the end of October and the middle of next year our goal is to commission 200 incremental megawatt of capacity. At the end of this month we would have 100 megawatt of operational capacity and by the summer of next year we would have about 300 megawatt of operational capacity.

Q: Because solar development is different from other power projects, what kind of bottlenecks are there that are issues right now for the solar sector in India? As a developer what are the bottlenecks that you would like to see ease out in the coming years?

A: We are building out coal thermal power plants in Madhya Pradesh and Chhattisgarh. We are building out hydel assets in Himachal. It’s a lot easier to build out solar farms than it is to build out more conventional forms of energy. Transporting millions of tonnes of coal, dealing with the supply chains associated with a lot of conventional forms of energy is difficult. The Government of India has actually put in place what we consider to be one of the best solar policies overall and we benchmark this against the policies that Germany, Italy and the US have got.

It has done a very good job in putting together a very progressive solar policy and a policy that will allow a gradual development of this market between here and 2022. Better grid connect, easier processes for land acquisition would be areas where there can be further improvement but by its very nature solar has got the advantage that you can build it on unproductive land. If you look at the land around here, this land is not very productive so there was no farming taking place on this land.

You don’t need any water, so you don’t need to be close to a water resource. By that very nature, the fact that you can use any type of land, the soil doesn't have to be productive means you can use all the unproductive land that is out there in India in order to build out solar farms.

Q: On the new Land Acquisition Bill, India Inc has felt that they have kind of been left out. The bill still has a lot of debate left over it. Do you think the bill in its current form is going to make life tougher for developers?

A: We have been fairly successful in acquiring land and we have been very sensitive to the communities that operate around our plant sites and our locations. We have to recognize the fact that we are going into communities and we are finally taking away their land and the land for a farmer is much more than the association we would have conventionally with land.

With our urban lifestyle, we sometimes don’t realize the important association a typical farmer has with his land. So we have to be sensitive to that. Besides compensation, there is an important sentimental value that is attached to the land and so land acquisition needs to be carried out carefully especially in a country like India. We are a democratic country. It needs to be done in the right way by talking local communities along with you, showing them how they are going to benefit from your plant coming up in their region and then actually delivering on that benefit which makes the land acquisition process significantly easier.

I am not particularly worried about the new Land Acquisition Bill. But certainly I believe it will result in a period of time when there will be a need for people both at the state level and at the central level to understand and put in place the right practices to ensure that it’s implemented smoothly.

Q: What are your plans in India with other states? Are you looking at any kind of other projects as well?

A: We are focusing upon three key forms of energy. We are focusing on renewables but now our major focus is on solar because of our solar heritage. We are also building coal thermal power plants right now in Madhya Pradesh and Chhattisgarh. We are also building our hydel assets in Himachal Pradesh. Our goal is to have a generating portfolio of approximately 5,000 megawatt across these different energy types by 2014. Our goal in solar is about a gigawatt and a half by 2015.

Q: As far as your thermal capacity is concerned what are you looking at? Is this really the right time to get into thermal with all the issues with coal linkages that are happening?

A: Fundamentally, even though renewables are going to form a very critical part of India’s energy infrastructure over the next 10-20 years, the reality is we also as a nation have only one real energy resource. We don’t have much oil, we don’t have much gas as a nation but we do have a fair amount of coal. I believe, if India is going to build out its base load power generating requirements, it has to do that utilizing coal thermal.

What we have tried to do is build what we think are highly efficient assets. We have located these at the pithead, right at the coal mine. We also have a merchant captive coal mine so that we can meet our fuel requirements from our own mining assets and these will allow us to deliver out relatively low cost energy to be consumed across India. In addition to renewable sources of energy; India also will finally need to have low cost energy to power its industry and to drive economic development.

Q: Any kind of target that you can give us as far as thermal is concerned? How much capacity addition are you planning to achieve?

A: Overall, our goal is by 2014 to have over 5 gigawatt of capacity which is split across coal thermal. It’s a little less than 4,000 megawatt of coal thermal. We have got around a gigawatt and a half of solar which is both inside India and outside India and we have 5,000 megawatt which is within India and we have got about 500 megawatt of hydel capacity.

Q: You have a mining company and fuel security I am sure is the logic behind getting into mining. How big is this portfolio really going to be? Are you seriously looking at getting into mining mines per se? Are there any plans of may be generating some revenue from mining as well?

A: At this juncture, our focus on the mining side is to meet the fuel requirements of our generating assets. We will be a large consumer of coal and it’s important for us to have a security around the delivery of that coal. The reason for going into mining is principally in order to meet our own fuel supply requirements. As we get past meeting those needs, if there is excess output, we would certainly look at selling that out into the domestic market in order to meet the energy needs of other power producers.

Q: Moser Baer has one of the largest private equity investments. You have about USD 300 million come in from Blackstone. How is the fund situation now? Are you looking at raising any more? What can we expect on that front?

A: Cumulatively in the projects group which is our energy group we have raised USD 600 million in the last 12 months from a group of investors including Blackstone. Blackstone was the largest with USD 300 million out of that. We do not have any immediate requirement of capital but certainly the way we have structured our business, we have separate holdings for each fuel type. So we have a thermal holding company, a solar holding company.

The company that’s commissioning this asset here is a company called Moser Baer Clean Energy which is our solar holding. We will look at listing these individual holding companies over a period of time as the assets start to get implemented and we start to have substantive operating cash flows. Probably the first asset that will be listed would be Moser Baer Clean Energy and we would certainly do that in the next couple of years.

Q: Any kind of target?

A: Certainly in the next couple of years.

Q: But definitely you are looking at listing this entity for sure?

A: Absolutely.

Q: What according to you is one of the largest issues right now with the solar sector that you see in the next two years?

A: On a longer-term basis, what is important for solar is for the industry to essentially drive the cost of generation down. Solar energy is clean energy. Coal is our only resource as a nation, it’s availability of peaking power and solar delivers to us peaking power. Nonetheless, it’s critical for us as an industry to go out and drive the cost of generation down. The industry overall has done a lot of work in this and the cost of generating from solar has fallen by about 70% over the last 10 years.

I don’t think that pace will continue over the next 10 years but certainly we can expect to see a 5%-10% type of drop each year. While each year we can expect 5-10% type increase in cost of conventional energy. That gap between the two will get bridged in the next five years and that’s always been the holy grail of solar. When solar is cheaper than coal, thermal or gas, when that happens then the sun is the limit.