Integrating Storage Key to Solar’s Long-term Success, says Sterling and Wilson Renewable Energy Ltd CEO

In this conversation with Prasanna Singh, Group Editor at Saur Energy, Mr. Chandra Kishore Thakur, CEO, Sterling and Wilson Renewable Energy Limited, reflects on the firm’s current and future plans. Throwing light on solar’s growth potential in India, Mr. Thakur cites inflation, supply chain constraints and GST taxation structure, among others, as key challenges.

Q. What is your outlook for the company in India for the short- and medium-term? Brief us on your road map for the next couple of years.

The past year has been tough for the industry, during which the market has seen unprecedented challenges arising due to the pandemic and a sharp rise in metal and module prices, with copper and silicon prices at an all-time high. However, we feel the impact may be short-term and the industry will come out positively and continue to grow in the long-term.

At Sterling and Wilson Renewable Energy Limited, we have been leveraging India’s solar potential to anchor the development of the electricity sector. Today, we are one of the largest solar EPC players in India and have an EPC portfolio of over 212 projects totalling 6.5 GWp of capacity and an O&M portfolio of 5.8 GWp in the country.

We see a pipeline of roughly over 3 GW and our market share growing in the years to come. We have a long-term plan to do domestic capacity addition of over 2 GW each year. We are targeting a sizeable number of projects that are not only commercially viable, but also open up multiple opportunities in different markets. Despite our expanding geographic presence, our key focus will continue to be on India. This year we are targeting around 1.6 – 1.8 GWp order booking in the country and are hopeful to have a steady growth in the coming years. Most of our clients are looking at significant capacity additions and we continue to remain buoyant and grow at a rapid pace in years to come.

The company has also recently expanded its offerings to include EPC solutions for Hybrid Energy power plants, Energy Storage and Waste-to-Energy. We believe the opportunities in these segments are huge and will allow us to deepen our relationships with customers and provide a range of solutions to meet their renewable energy requirements.

Q. As a leading solar EPC solution provider, how do you assess growth opportunities in the Indian solar sector?

We are highly optimistic of the opportunities in the domestic market. As per the recent announcements made by Hon’ble Prime Minister Shri Narendra Modi, India has decided to raise its non-fuel-based energy capacity to 500 GW. He has also pledged that India will fulfil 50% of its energy requirements from renewables by 2030. With this, India is poised to become the fourth largest renewable energy market worldwide by 2030, accounting for 9% of all global renewable energy use. This is a promising target and provides enough opportunities to all the players – manufacturers, IPPs as well as EPC players – to capitalise on their strengths and build huge capacities.

Though India has come a long way in renewable energy, especially solar, the deployment has seen various policy challenges; renegotiation of Power Purchase Agreements (PPAs), curtailment of solar power, delayed payments from DISCOMs in some states, policy flip-flops on open access, land possession difficulties and more. The roadmap for EPC companies like us is dependent on the timely execution of PPAs. As per the target of 100 GW solar by 2022, there is around 60 GW to be executed in less than 2 years i.e., over 65% CAGR. This would need aggressive execution strategy and open new avenues to deploy solar projects. We need to overcome these few challenges to ensure continued growth.

Q. What is your current order book status and how much growth do you expect in the next couple of years? 

The past year had an exceptional impact both on the company as well as the world at large. We have seen our lowest order booking in the last couple of years, majorly impacted due to the pandemic, that led to delays in signing of PPAs, substantial increase in metal and module prices and cancellation/ extension of bids. All these unprecedented factors have created short term headwinds for the solar EPC industry. This is the global phenomena and has cost large losses across the industry. It has also led to customers delaying new projects as they are waiting for the prices to stabilise. In India, more than 2GW of the market has shifted owing to delays in execution of PPAs or developers facing challenges in procuring the land. However, we continue to see a lot of traction in key markets like US, Australia, Europe, and South America. While the bid pipeline is very promising, we feel that finalisation of large contracts will pick up only from the third quarter.

Our overall addressable market for solar EPC across the globe is expected to grow at 14% to 15% per annum. Additionally, solar projects along with energy storage and floating solar are also poised to grow substantially in near future. We are also expanding our O&M platform and expect to significantly gain market share.

Our unexecuted order book as on 30^th September 2021, stands at Rs. 6,730 crore which is to be executed over a period of next 12 to 15 months. In India, we have had a good start to this financial year and have already booked 623 MWp. We are hopeful of signing another 1 GWp orders in this year, while continuing to have a Y-O-Y growth.

However, a lot depends on the PPA agreements that are pending owing to the exceptions from DISCOMs as well as the module pricing. If all the auctioned projects get signed, we can expect good movement resulting in better order inflow.

Q. What are the critical challenges the country is facing in bringing solar energy to scale?

Measures to Curb Inflation – Metal price indexes are at an all-time high. Prices of Copper, Aluminium and Steel have seen a jump of over 30% to 50% from last year, leading to an exponential increase in the cost of projects. With such high tariffs, developers are finding it difficult to execute projects. The Government should come up with measures to curb the exponential price rise of metals including looking at duty interventions.

Land – With most of the optimised parcels getting utilised, we are left with fragmented and undiluted parcels. This increases the overall BOS price thereby making it difficult for developers to match the tariff.

Evacuation Infrastructure – PGCIL has come up with dedicated evacuation corridors for solar. Considering the timeline of projects and ROW issues related to evacuation infrastructure, it looks quite challenging. Also, the recent ruling of Supreme Court to change 220 KV transmission line to underground cables have led to complexities, with developers currently putting their projects on hold, as they are seeking change in law and extension of time for their projects.

Supply Chain – With pandemic enforced lockdowns, vendors are finding it difficult to commit on timely delivery of supply. We observed an increase in lead time of critical components.

GST Taxation Structure – The recent recommendation of changing existing GST from 5% to 12% on Specified Renewable Energy Devices and parts would result in an additional burden on developers.

Modules – Since developers must procure modules listed under Approved List of Models and Manufacturers (ALMM) for tenders issued after 10^th April 2021, it has disrupted the module supply. This is because only Indian manufacturers are currently listed, and their manufacturing capacity is not enough to cater to the market needs. They will have to ramp up to meet the demand in the future. Further, the imposition of Basic Custom Duty (BCD) of 40% on imported modules makes it even more difficult for developers to import the modules.

Q. Your O&M business is seeing traction, with 8.1 GW contracted as on 31^st March 2021. Can you share your views on how you have managed to grow this vertical in a challenging year?

Our O&M business is seeing strong traction, with a portfolio of 8.4 GWp as of November 2021 which has nearly doubled in last 4 years. Today, the O&M segment contributes 4.3% to our total revenue and provides steady cash flows, besides better profitability margins in the international geographies.

We see O&M as a very lucrative business for us in terms of the scale that we can achieve. This is due to our presence in almost all emerging markets as well as the markets which have got solar historically built. Besides that, we share a good relationship with almost all global IPPs and most of the plants which were contracted are coming to an end of the O&M period with the existing EPCs. So, it gives us a huge advantage in terms of scaling this business up in those markets. We already have about 44% of our O&M portfolio from third-party contracts.

We are banking on the emerging opportunity in the O&M space. Most solar contracts come with a defect liability period of 3-5 years. Considering a five-year exit clause, the majority of these are likely to come up for grabs into the market by 2022-23. Adding to this, there is a 30 GW project pipeline for solar projects, throwing up a large market in need of operations and maintenance.

SWRE teams are flexible and have been signing both short term and long-term O&M contracts, which provides flexibility to the developers. Providing additional value-added O&M services gives SWRE an edge over competitors for third party O&M services. With a strong O&M base on pan-India basis, we expect more developers reaching out to manage their complete O&M portfolio.

Q. What are your plans to further this vertical? How are you planning to strengthen the Operations & Maintenance portfolio?

With the global O&M market projected to reach 34 GW by the end of 2023, there is a significant growth opportunity. We endeavour to tap growth by identifying profitable opportunities in the international markets by way of extensive market research and global customer mapping.

By leveraging our strong partnership with global IPPs, we aim to increase the share of third-party O&M projects.

We also plan to have proper Service Level Agreements (SLAs) with all OEMs of the equipment installed at sites to avoid/ further minimise any downtime.

Our key focus has been to provide tech upgrades and increase automation to maintain profitability. We deploy advanced technology and equipment including drone-based thermography and thermal imaging, mobile vans to evaluate component as well cable level fault detections and rectifications, robotic cleaning, centralised monitoring and maintenance systems, and data analytics.

Also, with a firm focus to deliver the highest level of plant performance, we have an average availability of 99.72% for our plants, higher than the committed 99%. For operations and maintenance of solar rooftop projects, our state-of-the-art network operations centre gives instant business insights as a value-added service to our customers.

Q. In reference to the recent announcement to expand into newer areas like Waste-to-energy, storage and hybrid projects, what could be the possible share of this ‘non solar’ business in overall business by 2025 for your company?  

Battery storage is playing a revolutionary role in the further advancement of the solar industry. While standalone solar has tremendous growth opportunities, long-term success of the industry depends on the cost-effective integration of storage. Battery storage system is expected to grow in the next four years to reach US$12 billion annually. UK and Europe will be the key markets with UK, Germany, France, Italy and Spain being the top five countries. At Sterling and Wilson Renewable Energy, we believe the opportunities in this segment are huge and will allow us to deepen our relationships with customers both in India as well as globally and provide a range of solutions to meet their overall renewable energy requirements. We are targeting a bid order pipeline of 1.4 GWh across US, Australia, Europe and Latin America.

The Waste-to-Energy segment is growing in developed countries. It is expected to grow by US$ 5.25 billion annually for the next 5-7 years. About 70 new plants are anticipated to come up every year until 2027. We largely plan to focus on Europe and UK, which constitute about 40% of the global market for waste-to-energy. There is a robust pipeline for this business worth US$ 685 million in the UK markets.

Q. How does the firm expect perspectives to change post the Reliance Energy stake acquisition in the firm?

Reliance New Energy Solar Limited, a wholly owned subsidiary of Reliance Industries Limited, executed definitive agreements with promoters of the company to acquire 40% stake in the company through a combination of primary investments, secondary purchase and open offer. Sterling and Wilson Renewable Energy with its engineering talent, deep domain knowledge, global presence and experience of executing some of the most complex projects globally will immensely benefit from Reliance group’s integrated new energy vision. This will further strengthen our position as a leading EPC and O&M player globally and provide us with great opportunity to further accelerate our growth.