In a brief interaction on the sidelines of quarterly results, Prashant Jain, Joint managing director (MD) and CEO, JSW Energy reveals that the company is eyeing stressed assets ranging from 1,000 MW to 2,000 MW.
Considering tepid power demand, any new areas or initiatives considered by JSW Energy?
We have formed a special purpose vehicle-JSW Solar-for pursuing our interest in renewable energy opportunities. We have approved the capital expenditure (capex) budget for setting up additional 10-MW solar power projects implying total solar power projects of 17 MW under implementation. These projects consist of 4 MW of floating type, 3 MW of rooftop solar and 10 MW of ground mounted. We have already procured major equipment for the same. The entire capacity is secured by long-term power purchase agreement (PPA) and is expected to be ready, in phases, by the end of September 2018. That apart, we continue to make steady progress towards putting together the building blocks in respect of product and technology strategies; business partnerships and organisation structure for our electrical vehicle (EV) business. The positive developments in the market environment and strong government push provide encouraging tailwinds to our efforts in this respect.
Are you worried about falling tariff prices in solar sector?
No. This is mainly because we are not in a rat race, and if you notice, we are doing the portfolio (solar) within the company. Hence, we do not have any market price risk here which is why we are not worried. In the interim, let's see how the solar sector pans out. We feel that lot of projects which have been bidden at low price are unlikely to be commissioned. This year, the capacity addition is not taking place as envisaged by the government because the target was 20 GW and the country has managed to complete only 5.6 GW. One of the reasons for this enormous shortfall is increase in solar module price which were at 27 cents at the time of bidding process and are now 37 cents.
Your entry in this space is little later than your peers. So, wouldn't that be a better idea to look at inorganic growth?
As mentioned earlier, we are hungry for growth and are looking at every possible opportunity in thermal and renewable space. In fact, I hope the next couple of years 'consolidation' in the (renew) sector will be the theme for next couple of years owing to stress. Meanwhile, as a group, currently we are looking at assets ranging from 1,000 MW to 2,000 MW for acquisition in mineral-rich areas.
Do you see the current trend in power as encouraging?
Indian power demand growth picked up to 6.6 per cent in Q3FY18 compared to 5.1 per cent and 5.8 per cent, respectively in the previous two quarters. Such kind of growth has been witnessed after a gap. Trends were very much visible from states like Madhya Pradesh with 24 per cent demand growth in power, Uttar Pradesh was nine per cent followed by Gujarat which was six per cent and Telangana was eight per cent. These are very encouraging trends in demand growth country-wide. On the other side, for last two-three quarters, we are witnessing contraction in supply-side. On the supply side, thermal power capacity declined 490MW QoQ in Q3FY18 following the QoQ decline of 1,126 MW in Q2FY18 thereby enabling a better demand-supply situation. Led by higher demand and supply side moderation, thermal plant load factor (PLF) inched up from 59.3 per cent in 9MFY17 to 59.9 per cent in the ninth month of FY18.
Since the sector is marred with increasing non performing assets (NPAs), how JSW is managing its debt to equity ratio?
During the quarter, we reduced our debt by Rs 783 crore and for the 9MFY18 period, we reduced our debt to Rs 2,490 core. Because of this, our debt to equity ratio came down to 1.04 as compared to 1.29 starting March of the 2017. So there is a significant improvement in the balance sheet of the company. And we also reduced our cost of funding for blended basis. Overall, for blended basis the cost of funding has come down to 9.4 per cent. So these are the changes which reflected in our credit ratings. Our Himachal Baspa Power Company credit rating was upgraded by two notches to AA- and our subsidiary Raj West Power was upgraded by one notch to A+.
Give us an understanding on PPAs. How much capacity you have tied-up till now and how much is in the process?
At present, we have about 69 per cent of our capacity tied-up under long-term PPA (LTPPA) in the third quarter of financial year 2018- (Q3FY18), up from 64.6 per cent in Q2FY18. Our total capacity is 4,440 MW of which is 3,078 MW is tied-up. We expect 200-MW open capacity in Himachal Baspa to be tied-up very soon, taking our effective PPA level to 73.50 per cent.
What is your outlook for the sector?
The economic survey of government indicates the worst is behind for the economy. The survey expects GDP growth rate to pick up to 7 per cent-7.5 per cent in FY19, up from an estimate of 6.75 per cent for FY18 led by the structural policy reforms undertaken by the government. The downside risks to India's growth are trade protectionism, spike in crude oil prices and tighter global monetary conditions. We have seen green shoots in India's industrial production growth which hit a two-year high of 8.4 per cent Y-o-Y in November 2017 but its inherent volatility entails a wait-and-watch approach. Nevertheless, the disruptive effects of introduction of goods and services tax (GST) in July 2017 seem to be waning.
Over the next three to five years, we expect power demand to grow steadily considering the various macro-economic reforms and measures taken by the government-steady operational improvement under the Ujwal Discom Assurance Yojana (UDAY) Scheme, "Power for All" by 2019 initiative and the "Saubhaghya" scheme, to name a few. With limited capacity addition, which is likely to be significantly below targets, plant loan factory (PLFs) may firm up over the medium to long term. This may also provide more visibility on signing of new long-term PPAs. We are also likely to see consolidation in the power sector in this phase which will further aid the demand-supply balancing. However, higher coal prices and constrained availability of coal, especially for private sector power plants, continue to remain key concerns to watch for.
Over the next three to five years, power demand expected to grow given the various macro-economic reforms and measures taken by the government-steady operational improvement under the Ujwal Discom Assurance Yojana (UDAY) scheme.
- Rahul Kamat