The Union Budget 2023-24 is almost here and as companies are preparing themselves to brace for some changes, they are also hopeful of contributing to India’s positive outlook for 2023. In the renewable energy space, Hero Future Energies (HFE), the renewable energy arm of the reputed Indian industrial conglomerate Hero Group, has been gaining traction.
With green hydrogen and decarbonisation picking up momentum, companies like HFE become strategically important from both domestic and international standpoint. As an independent power producer (IPP), HFE is also familiar with the various challenges in the sector. In an exclusive conversation with Outlook Business, Srivatsan Iyer, Global CEO, Hero Future Energies, elaborates on his company’s growth plans, India’s green energy goals, and the support measures required from the government in the renewable energy (RE) space. Edited excerpts:
The world economy is seeing an economic slowdown and the RE space is facing some supply side issues. What does the way forward look like for renewable energy in 2023?
There is an overall global slowdown but whether we go into recession or not, is for time to tell. However, there are some tailwinds for the RE space that will continue in 2023, including some barriers to the speed of implementation. But with the current situation in Europe and the Russia-Ukraine war, the world’s focus has shifted to ‘energy security.’
Interestingly, renewable energy is also more cost competitive as compared to conventional fossil fuels-based energy generation. Apart from this, the momentum that’s been created for decarbonisation is really strong all over the world with countries and corporates making several commitments. Although there may be a temporary slowdown due to supply chain disruptions, overall, I see a very positive future for renewable energy in 2023.
As per a report, India is aiming to capture about 10 per cent of global green hydrogen market. How do you see Hero Future Energies contributing towards it?
In the last two years, we’ve spent a lot of time looking at ‘green hydrogen’ and we also signed an MoU with Ohmium. In my opinion, green hydrogen will play a really critical role in the overall energy transition and decarbonisation. Renewable energy generation coupled with battery and pumped hydro storage will replace fossil-based energy generation in about two decades.
But there are some hard-to-abate sectors that actually have to burn fuel to generate heat. That’s where hydrogen will play a crucial role and we, at HFE, have committed ourselves to being a green hydrogen player in India. The best thing is that India has one of the lowest renewable energy costs in the world.
If India tackles the issue of scale, the country has a great potential to not only transform this sector but also at being a global hub for exports of green hydrogen. Even at HFE, we are looking at various cases like a blend with LPG or natural gas for industrial heat. We are also talking to players in the cement and steel industry, green ammonia and so on. The key is to take all these areas, see where and how you can decarbonise, and start looking at green hydrogen as a solution.
What should the government do in the upcoming Budget 2023 to meet the target of India becoming the Hydrogen Hub by 2030?
The National Green Hydrogen Mission has already earmarked a certain amount of money. There are a few other things in line like the setting up of an advisory board. I’m not certain if Budget 2023-24 will address the specifics but I'd like to see two different things. First, if India wants to take a giant leap in green hydrogen, the fund allocation needs to go up right now. There are countries like the US and even the European Union (EU) that have allotted much higher amounts just for green hydrogen.
Second, support is required on two sides. On the supply side, the government has historically done a wonderful job and because of those efforts, renewable energy is cost competitive today. Now, we need something on the demand side like mandates in some of the heart-to-abate sectors like refining fertilisers, steel, heavy duty transportation, etc. This is required because, presently, green hydrogen is not coming down to be cost competitive with conventional sources of energy.
I believe the roadmap that the government should take is to give time-bound support, then withdraw it and let the players be cost competitive. The learning curve has to develop where people actually produce green hydrogen and learn how to reduce the cost year after year. In the meantime, the cost differential has to be supported, otherwise, it’s a big economic barrier. To get over this barrier, one either needs some viability funding or a demand mandate that the private sector has to adopt.
Independent power producers (IPPs) often face the challenge of having to operate when external factors keep changing. Do you expect the government to address this in the upcoming Budget 2023?
As IPP players, we are really looking for consistency and uniformity. We don’t want policies to be introduced and then changed after some time. This is because we are in a high capex game and if the rules change quickly, it hurts the economics of the project. You know, some changes introduced by the government, such as Green Open Access and LPS Scheme, are extremely helpful. Some changes, like how the DSM regulations work, may have caused some disturbance here and there. Once we are already invested in a project, we don’t want to keep looking behind our backs.
HFE has adopted 5X5Y approach which is 5 times growth in 5 years. How do you plan to achieve this target?
Yeah, first, we have KKR as a strategic investor and so we are ready to hit the ground running. Since corporates have committed to decarbonisation and renewable energy is still cost competitive in India, the country is poised for huge growth. Second, I see a lot of growth in India’s utility sector in the form of hybrid beds, battery energy storage, etc, and HFE certainly plans to be a part of it. Third, we also have international growth aspirations and have almost ready-to-build projects in the United Kingdom (UK), Vietnam and Bangladesh. We also have new technologies like green hydrogen and battery storage. In many of these areas, there are dimensions of growth that we plan to follow. We have required teams and equity in place, so now it’s the time to get working.
Basic Customs Duty (BCD) implementation has been much talked about for this sector. Is the deferment still a demand? If yes, do you see any hope in the Budget 2023-24?
There has been a lot of conversation with policymakers on deferring BCD. Since I mentioned energy security earlier, I do believe that developing a domestic supply chain will be in the national interest and so, that needs to happen. One can’t be held captive to international supply chain disruptions. It’s not just India, but even the EU and the US have started to move towards being ‘Aatmanirbhar’ or self-reliant in the solar module value chain.
That being said, just to feed the domestic demand, we've got to have domestic manufacturing in solar modules. There are multiple ways to achieve this like the very helpful PLI scheme, the BCD, Approved List of Models and Manufacturers (ALMM) etc. So, from an IPP standpoint, we would like to see a deferment of BCD implementation till the domestic supply chain catches up with domestic demand. Maybe eventually one can consider a complete phase out of BCD because domestic markets will need to learn to compete with global market and their economics. A similar issue exists with ALMM as well; so, we’ll see how the government tackles these issues. In India, we definitely need some action in terms of BCD and ALMM to debottleneck the supply of available modules.
How do you think the government can help in the context of 'land reforms' for the renewable energy space?
Again, this brings us back to uniformity and consistency. In India, different states have different policies with regards to land acquisition and its use. So, we would love to see some uniformity on that front, at least for the RE sector. We would also love to see the government doing something to start moving towards a single window clearance for land acquisition. But not for everything because it is a massive task in India.
You know, even setting up of RE parks like the ones in Madhya Pradesh, Rajasthan and other states could open the area for developers and will take away huge uncertainty. This is where I see the government playing a role, like they can start by aggregating land, making contiguous parcels available and so on. I think this can really kick-start the RE in India, because land acquisition is probably the single largest pain point for renewable energy development in India.