Engie’s Amit Jain on seeking growth partner in India, capacity expansion and more Mint - We are hoping to double capacity to 2.4GW by 2025
Amit Jain, MD, Engie India
French energy company Engie has been looking to expand its Indian renewables business, albeit at a more conservative pace than many of its peers in the South Asian country. The company sold a majority stake in its operational solar assets to a fund managed by Edelweiss in early 2020 and is again now looking for partners to more than double its capacity in India over the next couple of years.
In an interview with VCCircle, Engie India managing director Amit Jain talks about the process of finalising a new partnership model and searching for a new partner in India. He also speaks about Engie’s projects, capacity expansion plans and the challenges the company faces. Edited excerpts:
Engie India is raising $200 million from AIIB and ADB for its Gujarat project. Could you give more details on this?
This is for a 400MW project in Gujarat that we won late last year where the offtaker is GVNL. The financing is getting in place. We are discussing [this] with financial institutions such as AIIB and ADB and some others as well. We should finalize that process by November this year to get the project finance lender on board.
The ADB actually was a power finance lender to our other project in Gujarat, a 200MW project which has already been commissioned. So, it was but natural that we went back to them because we had a good working relationship with them. But we have not finalised yet whether we would go with them.
Who are the other investors you are talking to?
We can’t disclose the names but it’s all the standard power finance lenders—I mean the government, and the private ones as well. Also, the NBFCs.
Are you talking to the likes of Power Finance Corp and REC?
So, PFC, REC, IREDA as well as private banks and institutions. We run a process usually for this and we have a shortlisting process which is ongoing at present, so I cannot divulge much. But it is in the final stages now and we should be announcing it by November or December.
From which other non-Indian backers is Engie likely to raise funding for future projects? Is Engie looking to partner any PE investors, sovereign wealth funds, pension funds or family offices for funding?
This works at two levels—one is at the project financing level where we have another 300MW project that we recently got the LOA (letter of allotment) for. It is an NTPC project which is going to come on the block to raise project finance.
On the partnership side, Engie globally works with partners in some way. In India, we are looking at how we will grow in the next phase. In the past, we had partnerships with Edelweiss. We sold a 74% stake in about 600MW of our operational assets a couple of years back.
We are seeing what kind of partnership model we want in India. It is under discussion at the group level. We will have a partner in some form. It could be an operational partner but will most likely be a financial partner. The idea is to see how this partnership plays out. Whether they will come at the development stage or after commissioning date or after four years of commissioning. We don’t know that yet.
We had Kotak Investment Banking helping us structure it, not helping us find a partner but structure the whole partner universe to see what partnership model will align with our ambitions. We want to grow in India and are open to different kind of partners—pension funds, sovereign funds, family offices, or HNIs.
But the idea would be to see what we can provide, as we are an industrial player and not a financial player. Our strengths are on the utility side, in developing projects, and in building and operating them. So, somebody with a complementary skill set in terms of better financing, better leverage, more financial engineering, those kinds of things will be the right fit.
Engie said it is looking to focus on India even after selling a 74% stake in its solar assets to EYIP in 2019-2020. Does Engie still continue to run the O&M for the projects?
At that time, the group strategy was the DBPSO (design, build, partial sell and operate) model. We went through a strategic change at the group CEO level about two years ago. This was prior to that. Under that model, the idea was to recycle capital, get the margins from development and put that back into new business, and, of course, continue operating the plant.
As of today, we have a 25-year O&M contract with the individual SPVs. We have a board seat and have a significant minority stake of 26%. So, we are involved in the day-to-day activities. We provide the industrial know-how and they come with the capital.
Engie began sharpening its focus on India in 2019 even as it decided to pull out of 20 other countries. What was the rationale behind focusing on India? Has the gamble paid off?
We have been in India for quite a while now, since we acquired Solairedirect in 2015. We have seen the entire renewable space evolve. The first project, in fact, was commissioned in 2014, if you go back to Solairedirect. So, we see what works and what does not.
Being French, we take a very conservative view. We want to make our foundation strong. That is what we did over the past years; we became more local. Earlier, we had a small team of four-five business developers. Now, we have a full-fledged engineering office and about 100 people. Now, we are a more ‘glocal’ company.
We understand the regulation and how the market is evolving. If you see, 1GW in nine years is not huge in terms of operational capacity.
We have a group ambition of about 4GW commissioned capacity every year till 2025 and then 2026 onwards we will commission 6GW of renewable capacity at the group level globally. India is one of the key markets to drive that capacity. So, we are strong in the US, Europe, Brazil and then in terms of scale, India is that level of scale. We don’t operate in China in the renewable space, so which other market could give you that growth? The plans by the government on the market side helped us leverage growth on that scale.
We are hoping to double our capacity from 1.1GW to 2.3-2.4GW by 2025. Now that we have a foundation set, the idea is to use that to accelerate growth.
How much capital infusion will this capacity addition require?
Roughly $800 million of investment, of which 30% will be equity.
Last year, you said that Engie had a partnership with EDP Renewables, Ocean Winds, which was scouting for offshore wind projects in India. What has come of this?
Ocean Winds is a 50-50 JV between Engie and EDPR, the Spanish company. The team did visit and did some market sounding and are still interested, but because the government tenders are not out yet, there is no concrete plan as of today. We will bid for the tender, when it does come out.
In the 1.1GW that you operate, what is the solar-wind mix? How will this change as you double your AUM?
We have about 250MW operational wind, and the rest is all solar. In the short term we will be focusing primarily on solar bids. We will gradually now move to hybrid as pure solar and wind have their own challenges. So, gradually it is moving towards more hybrid or wind-solar stowage kind of tenders as well.
Are most projects likely to be wind-solar hybrid ones?
Intermittency of renewables is a given. Today, it cannot compete with the round-the-clock power generation that coal offers. The Central Electricity Authority said in a report that to reach a 50% renewable in our mix we need a combination of technologies. It cannot be wind and solar. We need different kinds of storage—it could be battery storage or pump storage or something new. Today, the answer is not there, but there will be trials and errors.
How does Engie view the emerging policy play vis-a-vis the renewable energy sector in the country? Are measures like basic customs duty counterproductive for players like Engie?
We operate in 30 countries and policy changes happen globally. So, India is no different. Policy flip-flops are a part of regulated markets such as electricity. It’s about how you adapt to it.
We are a part of some associations and from those platforms we do tell the government what we want. But at the end of the day, they decide. We know the risks and we factor that in our tariffs.
So, we factor the basic customs duty in our tariffs. And if at that price it works for us to be competitive and we hit our returns, fine. If it doesn’t, there are enough markets for us globally to be a player.
That’s why when people were bidding at crazy tariffs in India, at Rs 2 per unit and below, we were not part of the market as it did not offer us an opportunity to get our returns and build an asset that can last 25-30 years. We stayed away from the market at that point in time.
How does the trajectory of tariffs look for both solar and wind projects?
The tariffs have corrected, which shows the market is maturing. It’s a function of the interest rate cycle. If the interest rate cycle goes down, we can see lower tariffs and vice versa. Then, as cell capacity in India comes up, tariffs should see a down trend as well. Today, if people are importing cells, they are taking 25% basic customs duty.
If people are manufacturing locally, tariffs should settle down a bit. Modules and wind turbines are 60- 70% of the cost of the equipment. Today, there is a shortage as there are not many wind turbine players out there, so the costs are elevated.
Tariffs are dependent on interest rates and equipment costs. But over the past year or so, it has stablised a bit and these are the levels at which we will have to play now.