ReNew Power Ventures, one of the largest Independent Power Producers in India backed by Goldman Sachs and several other international investors, has doubled its capacity last financial year from 1000 MWT to 2000 MWT and now plans to achieve 3000 MWT by end of 2018 financial year investing around $1 billion in capex. The issues associated with renewable sector such as high capital costs and expensive funding, long payback periods, off-take risks and rapidly falling tariffs are making the sector tough for smaller players. Hence, it is a perfect time for asset-hunting, Sumant Sinha, the Founder, Chairman and CEO of ReNew Power, an ex-investment banker, told BusinessLine in an interview. Excerpts:

How much money have you raised so far and what are your further plans for fund-raising?

Total equity raised by now is about $900 million and total debt raised so far is approximately ₹14,000 crore, and with refinancing it might be more than ₹20,000 crore.

How are you planning to fund your future expansion plans?

Some part of what we have raised has been invested, but not all. The equity that we have can take us to some 4,000 plus MWT of capacity. So once we are done with 3,000 MWT we can add around 1,000-1,500 MWT.

We had about 2000 MWT installed at the beginning of the year and the plan is to reach 3000 MWT by the end of this year, out of which about 1800 MWT will be wind and about 1200 MWT solar. Every MWT today costs us roughly a $1 million, less for solar, so roughly we’ll be spending $1 billion and for that we have enough funds.

You have been planning for an IPO, is the plan still on?

Sometime next year. We’d like to finish this year, get to our target numbers, show one more year of performance and then most likely go for listing. What banks have indicated to us is that we could do an IPO size within 20-35 per cent of the post-listing market capitalisation.

The cost of financing has been an issue for the sector?

It is an issue, the cost of debt that we have to pay is around 10 per cent for the new project borrowing, and of my revenues almost 40-45 per cent goes in interest payments. So to the extent that if interest rates come done, the cost of the renewables will also come down quite substantially. The RBI needs to act. With inflation rates going down, there is no sense in keeping 10 per cent interest rates. If interest rates came down from 10 per cent to 8 per cent we could probably shed off another 40-50 paise from the tariff.

The tariffs for solar are already very low, considering some of the latest bidding, how sustainable is it?

In the latest bids that had happened the tariff was at ₹2.44. People were just bidding making certain assumptions, and if their assumptions play out, it is great for them, they’ll make some 13-14 per cent IRR, but if they don’t play out, they will be looking at mid-single digit IRR as well. There is a lot of risk associated with those numbers, and those risks are frankly not worth taking.

What is the price at which projects are making money?

You can’t generalise, it depends upon the time because capital costs fluctuate, it depends upon exchange rates, radiation level, whether you have to source land, how long is the evacuation line that you have to make, all those are very serious impact on the cost. Our lowest bid in the auction where we qualified was a recent tender in Tamil Nadu, it is ₹3.89 per unit. But the tender rule is that you have to match Level-1 to win, and L-1 is at ₹3.47.

How do you deal with off-taking risks?

In some of the Central bids, NTPC or SECI is the off-taker so the risks are somewhat muted. But in State bids you have to assume the delays of payments and other things. Because currently States delay 6-7 months on payments.

How realistic is the government’s target of 160 MWT for solar and wind power by 2022 and where do you see ReNew Power by then?

The Central government is very keen to get to that target. It is trying its utmost to reach that figure, but issue is that a lot of the States are in the situation that they have adequate amounts of power now, because a lot of the fuel supply problem on the coal side has got addressed. So for a lot of States the issue is, do they really need to buy new power. Demand is growing at 6 per cent a year, but maybe it needs to grow faster to absorb a lot of created capacity. So I think it will take a couple of years for this excess supply to get absorbed in the system, within this time there will only be renewables capacity addition. Two-three years later is when excess demand will start surfacing, and then we can see a bigger growth of renewables.

Its very hard to say where we will be by 2022 but the only thing I would say since we started of we’ve got between 8 and 10 per cent market share, we’d love to maintain that share. The constrain is going to be how many MWTs are going to come in the market, what are the returns.

Is the growth only organic or are you looking at acquisitions?

We are looking at acquisitions too. Very interesting dynamics have happened because of the recent bids, and because the market has been very fragmented. The first 15,000-20,000 MWT of wind that has been installed was set up on the asset depreciation framework, that is almost unconsolidated, but subsequent 30,000-odd MWT has been by number of players. Because the most recent bids have such low tariffs, there are a lot of players wondering what will be for them in this business. So lot of the smaller companies are now realising that this is a good time to get out.

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