Current tariffs in solar are not viable: Sanjay Sagar

JSW Energy has no plans to enter the renewable energy sector in the foreseeable future, says joint managing director and CEO Sanjay Sagar

Sanjay Sagar. Photo: Aniruddha Chowdhury/Mint
Sanjay Sagar. Photo: Aniruddha Chowdhury/Mint

Sanjay Sagar, joint managing director and chief executive at JSW Energy Ltd, says in an interview that the company has no plans to enter the renewable energy sector in the foreseeable future. “Every developed nation in the world has developed on the basis of thermal power so it’s unfair for them to expect that India should try and develop on the basis of green power,” he said. Edited excerpts:

Would JSW Energy look at entering the renewable energy sector?

We are a country where essentially a lot of our population is poor and can’t pay for expensive solar power. So, our only choice in at least the foreseeable future of 30-50 years is thermal power. It sounds very nice to be talking about wind power and ills of thermal coal, but you have to take a holistic view. The Western world, which is today suddenly so conscious about the ills of thermal coal, each of those countries has developed on the basis of thermal power. So, for us to start thinking that we will grow on the basis of solar (energy) I don’t think is fair. Now, when I talk to you about growth in this sector, I am talking on the basis of this belief that this latent demand. Then we have to put up generation capacity and for PPAs (power purchase agreements) have to come. The second thing is if you look at the history of the distribution sector, for a long time, it has been owned by the government and continues to be owned by the government except for a few pockets where privatization has taken place. If you look at the history, every 8 to 10 years, discoms run themselves to the ground and the government comes out with a package to revive them. Now, the package is becoming tougher and tougher. With UDAY (Ujwal Discom Assurance Yojana) starting to fall in place in another six months and once the discoms’ fiscal health is improved, they all need power. It’s not that they don’t want power; it’s just that they don’t have the financial muscle to buy power. The moment their balance sheets are cleaned up, they (will) start buying power. In fact, I am looking at a scenario in India that by 2019 we might run into shortage of power. It’s not because people can’t consume it but because discoms can’t buy power. This will lead to a situation where people with deep pockets or those who have done things prudently in the past can survive.

Do you find tariffs in solar sector to be unattractive?

We had the option of tying Rs1.5-2 PPAs also three-four years back. But we consciously kept out of that rat race and so we did not get into a mess. Similarly, we had the option of going in bidding ridiculous premiums on coal blocks. But we believed that process was flawed from day one. And even now, a lot of people are asking me why don’t you bid in solar. Because I again believe we are in a similar situation that we were in as far as thermal is concerned when people signed unviable PPAs. Today, they are doing the same thing in solar. Current tariffs in solar are not viable. They are not viable by any stretch of imagination, despite falling module prices. As long as there is a component of foreign and unhedged currency, these prices are not viable. The prices are viable if you don’t take the hedging or currency risk into consideration. But you can’t do that; you’re entering into a 25-year PPA. What you’re actually doing here is playing the currency game. It has nothing to do with generation of power.

Given government is putting so much stress on solar energy, there might be more incentives for power companies...

When solar prices were Rs13-14 per unit, even at that stage, JSW Energy had kept out. We kept out because at that stage there was a huge element of subsidy built into the tariffs. We as a company believe that any business model which is trying to base its viability on subsidies is a non-starter. Because there is a limit to the amount of subsidy the government can give. We are a country which is plagued by subsidies; our power sector is plagued by subsidies. And for some strange reason, we sort of believed that the people in this nation need subsidy. I don’t really believe that the consumer in this country needs subsidized power or even wants subsidized power. The same consumer is paying for his mobile phone; the poorest of the poor today are carrying mobile phones. Why should we presume that for power they are going to ask for subsidies? Why do we continue to believe that the farmer or the rural consumer or urban consumer wants subsidized power? Give him 24x7 power and he will pay for it.

So you are saying you see no merit in entering the renewable power sector? Not even in the next five years?

No, not if things continue in the manner that they are. Unless there is a drastic change or we are certain of the viability of the tariffs that are there in the bids. The second issue is that most of these bids—the low bids that we have seen— these are based on Chinese equipment. It is known that the efficiency of solar modules goes down year-on-year. The Chinese equipment is still to be proved; at what rate will it deteriorate? Suppose after 10 years it goes kaput, then you are sunk and then you have to make the whole investment again.

So it is just not economies of scale which is leading to a price drop?

No, it is not economies of scale. To the best of my knowledge, a huge amount of manufacturing capacity in China has been shut down. So, it is no longer economies of scale. In fact, Japan today is going back to thermal.

Given the concern for the environment, what happens if there are punitive taxes on thermal energy?

Even if there are, they will be counterproductive. For practical reasons itself, you cannot wish thermal away. If it becomes punitive, then the consumer has to pay. I don’t think it is a very viable proposition just to boost up solar to make the consumer pay higher price for thermal power. On the face of it, it appears to be counterproductive. When you are sitting in a country which is consuming one-third of the world average, we should be encouraging consumption of electricity. About the environment cess, I was just doing a back-of-the-envelope calculation the other day. The price of Coal India Ltd coal, because of the cess and taxes, has gone up by 53% on an ex-mine basis since May 2014. So, in over two years, the ex-mine price of Coal India coal has gone up 53% for the grade generally used by thermal power. So, those cesses and taxes are already being introduced. There is a cess of Rs400 per tonne of coal. Today, solar can become successful only if they come out with an economically viable solution for storage of power, which does not appear to be coming in near future. We need a solution which on a mass scale can store solar power. Then, you also have to look at space constraints. Today, every state wants a solar plant. You require 4.5-5 acres for setting up one megawatt (MW) of solar capacity, and for thermal, you require less than one acre per MW. Will you get that kind of space? Just think of putting up a 100,000MW solar plant, you’re looking at 500,000 acres of land. These are practical problems. Every developed nation in the world has developed on the basis of thermal power, so it’s unfair for them to expect that India should try and develop on the basis of green power.