Mahindra group gearing for clean technology, not just solar power

The $15.4-billion Mahindra group has major ambitions in clean technology. The group is already into solar and electric mobility and says it is close to getting into wind.

In an interview to Business Line , Parag Shah, Head of Mahindra Cleantech and a Managing Partner of Mahindra Partners, a $700-million private equity division of the group, speaks about what the group intends to do in this sphere. What is Mahindra Cleantech gearing itself to be?

Mahindra Cleantech will look at the entire renewable energy space, energy efficiency and even water. That is the broad mission. Renewable energy would include solar, wind and biomass, and to a certain extent small hydro. Under energy efficiency we look at minimising distribution losses so as to maximise output. The third is water. We do not want to get into production or distribution of water, but our interests would be to explore areas such as water treatment pre and post distribution and water waste management.

But solar is what you have started off with.

Yes. We have launched solar to start with. Within solar, we have launched three entities — developer entity, an EPC entity and an off-grid. Let me first tell you about the second and the third because they are horizontally deployable across other renewable energy sectors. For instance, nothing stops the solar EPC Company from becoming a large ‘green EPC’ company. We can create a very nice large ‘green EPC company’ that will be technology agnostic. Today we are tech agnostic only within solar, but we can look at wind and other technologies also.

But generally, we want to be a good systems integrator player. There are enough good technologies around, you choose horses for courses, have a tie-up with them and focus on execution and project returns.

Similarly in off-grid, our focus is to look at brand Mahindra’s presence in rural India. Through our distribution and service network we are positioned to offer products. While we are looking at solar lighting, solar lanterns, solar water heaters, solar pumps, what we are also finding is that finally it is the hybrid model that is working very well. Even in telecom, we are looking at a combination of solar and wind. We can try and co-create something which will be the best.

You see synergies with Mahindra group’s existing businesses?

Yes. A lot of this integrates well with the existing businesses of Mahindra. We’ve got Mahindra Reva, which manufactures the electric car. Can we, for example, tie-in solar there? We have a company called Mahindra Hinoday which makes induction lamps. Can we possibly do a tie-up there? We’ve got Powerol, which is India’s largest telecom genset company. As you know, there is a huge RPO obligation on all the telecom service providers. We could come out with a model which will encompass the existing Mahindra operations, such as our distribution network and our vendor partners.

And you intend to put up solar power projects also?

Yes. In the ‘developer’ business, we are going to be very opportunistic. The right PPA (power purchase agreement) with the right offtaker – everything on a non-recourse basis. As a policy we have nurtured this business in a manner that it doesn’t use the group balance sheet at all. It has been necessarily non-recourse. In fact, our first project, the 5 MW was fully non-recourse. Now it is a lot easier to bring that more projects.

We will soon have 35 MW of Solar PV assets in the country. Of this, 5 MW came up last year. The other 30 MW will go on stream next month.

In the developer model, we have tied up with players who are institutional investors. In the long run, we have the choice of either ourselves becoming a PPA owner, or we might have a partner becoming a larger PPA owner.

How do you see the policy regime for solar today?

What we mainly need today is for the Government to enforce the ‘renewable purchase obligation’.

There is a lot of scope for private play. Solar is at a stage where you can easily look at a contract which could have an inflation-adjusted rate of about Rs 7-8 per unit. If various State Governments support us with wheeling facility and keep the cross subsidy charges nominal, then we could see a large scope for private sale of power. Time is not far when you are not going to need government subsidy at all. Today, developers are concerned about the health of the state electricity distribution companies. If the Central Government is there to back it up, it will be fine.

Are you saying that if the State Government does not pay, the Central Government will have some mechanism of paying the developers?

That’s right. That comfort is not just for us, the developers. It is more for the lenders.

What is your view on domestic content requirements?

You see, this is a global play. If China wants to under-cut others and offer low prices, why shouldn’t we take it? But at the same time, if you want to promote the local manufacturing industry, give them some subsidy.

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