Breaking away from the Hero Group’s traditional business interest in auto/auto ancillaries, finance and IT enabled services, the new thinking brought in by the third generation at the Munjal family is getting the group to explore new opportunities in here-thereto uncharted territory of renewable energy. Under the leadership of Rahul Munjal, the Hero Group has initiated a business plan to launch a nationwide green initiative by taking up projects in the renewable energy space under the umbrella of Hero Future Energies. The managing director of the company shares his vision of creating a profitable entity that serves a larger national purpose of expanding the country’s green footprint in a conversation with Subhash Narayan. Edited excerpts:
Of all the new sectors, why did you choose to enter the renewable energy space even when it has failed to achieved the desired level of growth?
The story of the group is that we have grown in the past with the new generation entering businesses. Everyone has done this but in the past it was not so much about diversification but expanding opportunities in auto and auto ancillary business. But now the third generation has aspirations and knowledge to diversify. And why shouldn’t we? If we can be in a business that has social relevance and at the same time gives another opportunity for the group to make money, we should be there. A country, which is heavily dependent on fossil fuels for meeting energy needs and faces huge deficit, should develop a strong renewable base for a attaining balanced growth.
So what will be the focus of the new company? Is it going to explore all aspects of renewable energy opportunities or limit itself to ones that are getting acceptable in the country?
Our aim is not to limit ourselves. Opportunities will be explored in areas where it makes a business sense. However, as per the initial plan, we would be exploring solar, wind and hydro power segments. We already have presence in wind with a 37.5 MW project in Rajasthan. For hydro, the strategy is to go for acquisitions, as we are convinced that we will not do greenfield. This will, however, depend on good targets for acquisition coming on board. This strategy would be re-evaluated after three years. If after three years there is a need to re-look this strategy, we will do so.
What is the plan of the company in terms of capital expenditure and expansion?
We want to be a 1,000 MW company by the end of 12th Plan period. Accordingly, we will invest over R6,000 crore by 2016-17. For the current fiscal, we are targeting to add 100 MW of capacity with an investment of R750 crore. An investment of R250 crore has already been made by the company last year to commission the Rajasthan wind power project, which is expected to supply electricity to 70,000 households in the state. We have a pipeline of 400 MW for wind plan and the aim is to do 800 MW wind in next four years. By the end of the next year, we would have finalised our wind power roll out plan.
What about solar power initiative? Is it feasible to have a large portfolio of solar projects considering the prohibitive cost of putting up a project?
On the solar power front, we are participating in projects identified by various state governments. Solar power is no longer expensive power. The cost of power from these projects have reduced by more than 60% in last few years. From a level of R18 per unit price, the price of electricity from solar projects have now fallen to a level of about R7.5-8 per unit. And it is expected to fall further to about R5.5 per unit over next three to four years. At the same time price of electricity sold by thermal projects would raise in coming years bringing tariff very close to that of solar projects. Earlier people were doing renewable because it made green sense but today they are doing it because it makes business sense.
What is the structure of Hero Future Energies?
The company today is completely funded by the group. But we hope that the company would become independent after a period of three to four years. We have enough bankable project that will help us realise this goal.
Is the recently passed land acquisition legislation a stumbling block for renewable energy projects that require large tracts of land?
Unlike previously, wind power projects do not require large amount of land now. In addition, wind power turbines can now be installed without disturbing farming or other activities in the vicinity and there is no need for contiguous stretch of land. But for solar, land is required. This is a challenge. One solution for reducing large land requirement is to limit the size of projects. As of now, we expect most of our solar power projects to be less than 150 MW in capacity. Besides, my understanding is that the land bill is not coming in way of a bilateral deal that the company undertakes with land owners.
Will the company also look for opportunities to invest in projects abroad?
Right now we have given the mandate to the company to look at opportunities in the domestic market. But will also explore opportunities to invest abroad.
Has the recent sharp depreciation of rupee impacted costs in the renewable energy space affecting its competitiveness?
Let us understand that import component in wind power generation is mere 10-15 % so actual impact of rupee depreciation on cost s here would be restricted to a mere 5-10%. But as far as solar goes, there would a larger impact as 60-70% of components are largely imported. We should understand that rupee depreciation has added expenditure for conventional power projects as cost of imported coal has also gone up. In solar the cost of module is going down and this would further reduce pressure from a depreciating rupee.