“I have not witnessed a demand like this for the last five years”

Established in 2013, Artha Energy Resources (AER), is a boutique investment bank and developer focusing primarily in the renewable energy sector. It is India\s first and only investment bank focused on the Indian renewable energy sector.

Currently, Artha Energy Resources has advised on renewable energy transactions worth $812 million, including 150 MW in large hydro projects, 100+ MW in solar and wind, and 50 MW in biomass.

Founder Animesh Damani and his team claim to have set up a data-driven business that maps 99% of renewable capacity and 40% of power consumers in India. The granular data on the country’s electricity production and consumption patterns enables intelligence at the micro-level for the choice of geographies, technology, business model, consumer, and plant sizing, according to him. Biman Mukherji spoke to him on behalf of SaurEnergy.

Solar power developers in India are caught in a dilemma. On one hand they face the prospect of higher customs duty on solar panels that are mainly imported from China in the backdrop of Indo-China military tensions. On the other hand, demand for solar power among commercial clients has surged especially for rooftop power due to the lockdown situation, says Animesh Damani, managing partner of Artha Energy Resources. He explains how his company is trying to balance both the perspectives to plot a growth path ahead for solaar generation.

How and why did your company get into solar power generation in India?   

Our journey started in the US where my elder brother Anirudh was working for a company called Stream Energy. What we call open access in India was freely available in the US, so as a consumer you had multiple options in terms of where you got power from. We used to work like a distribution licensee where we used to aggregate these consumers and tied them up for medium term contact for power. In 2011 we came back to India and wanted to do something in renewables space.

We initially got involved in wind, hydro, biogas, biomass and solar eventually. We developed around 175 MW for a North American-based fund across large hydro, wind, biogas and biomass in Japan. From there we worked upon developing the database for renewable generation as well. Our experience in the US taught us how digitalization can help both the power producer and consumer. In India there was not much transparency on pricing of power, let alone the lack of options. We spent four to five years developing the database which now covers 90% of the renewable capacity and about 100 GW power consumption capacity of the country.

This database becomes very useful in offering the right solution to consumers and also in terms of our own investments into power. From there we develop customized solutions for power consumers. We are operational in the greenfield and brownfield side as well. We also conduct some investment banking activities. We also acquire operational wind and solar assets. We are also asset owners.

Can you please tell us about the assets that you own?

We own a few wind mills in Rajasthan and Maharashtra. We believe wind is a very stable and proven technology. We have seen windmills in the Netherlands. We are very conversant with the technology. The PPAs which wind mills have we are very confident about the offtake. Payments can be delayed but as long as we are sure that payments are coming in we are happy investors. We have more assets in wind than solar as of now. I think we would develop solar projects in a rapid space.

In terms of wind we are open to any acquisition opportunity that comes along. We are currently more focused on developing solar in CNI space. I would say 80% of our capacity in the next couple of years would primarily come from solar. Our target for 2023 is to develop about 40 MW of assets, both solar and wind.

On the  financing front we work on the OPEX model where we set up the entire solar plant, in the premises of the consumer where the entire investment of building the plant, maintaining the plant is borne by us. In return what we get from the consumer is a surety that we will be locked up in a contract for say ten year or 15 years and we get a tariff for it. After the end of the tenure of the contract we transfer it to the consumer at 1 rupees. So essentially the consumer has leased out the plant from us.

They are assured of a plant which is of a very good quality because our entire returns from the investment  are completely connected to the generation. It is in our interest to ensure it generates the best it can. We have developed about 15 MW as of now. We have developed 25 projects as of now. Ninety percent of our projects from industries — pharma, auto and FMCG as well. On the commercial front — hotels, malls and corporate houses of larger companies.

Are you facing any challenges due to the proposal of imposing a basic customs duty on Chinese solar modules and panels 

Definitely it is posing a problem. When we entered the lockdown the demand crashed for every single industry worldwide. At that time the Chinese started selling their solar panels at never before seen prices. It was the best time to take advantage of where we could have got great quality solar panels at a very attractive price.

Then there was this uncertainty about safeguard duty and customs duty for the longest time. We did not know what was going to happen. There was uncertainty about what is going to happen. What happens in that context when we are bidding for the projects we are taking certain price assumptions into account. The moment you play into the uncertainty, it makes it very difficult to execute the project.

For example you have signed a contract with a consumer to build a project and then suddenly the cost for the project increase by 10-12 % because of duties, then my entire calculation that I have assumed goes haywire which eventually leads to a revision of tariff – which becomes very difficult — or the project has to be entirely dropped.  This completely hampers the growth prospect for the industry..

Secondly, the entire Indo-China conflict has not worked well. If you look at the entire government focus on building domestic capacity, as a patriot I would definitely love to see more Made in India goods, but looking at the practical side of things the government on one hand wants to promote Make in India, but on the other hand are not giving policy measures that will entice long term investments in manufacturing space. There is also a policy measure short sightedness that only spans for a couple of years. It is not practical for any manufacturer to set up capacities. There has to be long term vision.

Secondly we do not have any vertical integration in this country. Most of the solar module manufacturing capacity also functions on imports. We are just doing assembly in India. We are not manufacturing in India. Adani is probably one of the few that has some cell manufacturing capacity. The entire inconsistency of policies has made projects very difficult and risky to execute at this point of time. Secondly the choices available to us in terms of Indian modules, I would say that they are priced much higher and the technology is at least 8-12 months behind what the Chinese are able to offer.

For example a 335 watt module with polycrystalline cell costs only 5% less than modules with monocrystalline cells of 450Wp, which is the latest technology and has higher efficiency by about 20%. Either I am a consumer/developer — if I want to put up a power project to generate solar power — why should  I not take the opportunity to have the best technology available. Why have these artificial barriers put up, which  will only increase the cost of the projects and eventually does not even translate into more manufacturing capacity in the country. Considering what has happened in the last 7-8 years, there is no indication that this will change.

Have you had to renege or renegotiate tariffs for projects?

To be honest when we entered into projects during the lockdown we kept in mind that a 15% duty will be applicable. we have the safety margin built in. Luckily, most of our panels have already entered the country and are entering in the next one month. Where the uncertainty comes is we don’t know whether a BCD will be imposed, and if it does how much and when? If that comes in then that is when we will get into tariff revision talks.

In fact, we have already inserted a clause on our contracts that if the duty comes then we will renegotiate tariffs on mutual discussions. If it comes it’s not a good scene because as a consumer you never agree to a price increase after you have seen a lower price. It becomes very difficult to convince and eventually the project chances of cancellation increase.

How has been the demand for your projects following covid?

I have not witnessed a demand like this for the last five years. We are working 16 hours a day. The demand has been overwhelming. a factor contributing to that has been the lockdown. Most of our business used to happen when we would go to physical meetings. Everything is happening digitally now and we are able to hold 4-5 meetings in a day. Everything is happening at a rapid pace. Productivity from our client side and our side has completely gone up.

Clients are increasingly looking at solar to reduce electricity spends. Because of which client enquiries have increased. Also, clients have more time on their hands. and everybody is looking at solar as a first option. all of these factors have made the environment very conducive for solar. If bcd were not imposed everybody would be surprised at the kind of growth especially the rooftop segment will witness— at least for the next 12 months.

What kind of additional demand are we talking about? Please elaborate

So in terms of enquiries if I judge we were averaging 2-3 proposals a week last year and today we are averaging about 7-8 proposals a week. In terms of installations we would be installing 3 times last year’s total capacity and all of that is going to happen in the Oct-Dec period. We are able to get 10 decision makers in a virtual room and get them to take a decision. The process has become that much easier with everything moving to a digital platform.