According to reports, the Munjal family has traditionally been associated with cycles, auto parts and two-wheelers. Now Rahul Munjal , son of the late Raman Kant Munjal, the first managing director of Hero Honda Motors Ltd, has started a new venture in renewable energy.
In an interview, he talks about his company, Hero Future Energies Pvt. Ltd, and the challenges in the sector. Edited excerpts:
Tell us about your new venture.
We like to do businesses which are the need of the economy, be it bicycles when we started, or be it motorcycles when we started. This seems to be a right fit. Today, 10% of coal is imported and that is going to go up to 23% in the next five years and, given our power deficit, I don’t think India could afford not to encourage this sector. There is already around 8-9% deficit and these deficits are alarming. If we want to develop, we would need energy and the answer is renewables.
Now you would ask why renewables and not conventional sources of energy. First, India has enough of sun and wind resources. Close to 172 gigawatts (GW) of resources we have in India. Of which, we have tapped 30GW. People’s mindset is that renewables are expensive but that’s no more the case. If you see, in the last three years, the cost of solar has more than halved, the cost of the wind today is almost in parity. If you put up a new coal plant, that generation of electricity will be more expensive than wind power. It is time to be in green business. It saves forex for the country. So, all in all, it is a win-win situation. Government encourages it and you will see this industry leading the power demand of the country.
But renewables are dependent on state subsidies.
It’s not. Let me answer that question in two ways. If I was to take out the subsidies given to coal today, renewables will be cheaper. We have never spoken about the subsidies, which have been directly or indirectly given to coal. If you take out subsidies from all energy and put everything on a level playing field, renewables are cheaper. If you talk about imported coal, renewables are cheaper. If you talk about life-cycle costs, renewables are cheaper. Of course, if a power plant has run for a long time and depreciated, and you are putting in low quality coal into that, that may be cheaper but that is not the answer. You cannot replicate that any more and those sources were subsidized heavily when they were done.
Today, if you produce diesel power for your factories and home, the cost is anywhere between Rs.14-16 per KWh, but if you put up a solar panel, the cost is almost half of that. As far as grid parity goes, in the next three-four years, wind and solar will be able to achieve it. So, we are not expensive.
There is a perception that firms get into renewables to get tax benefits.
That time is over. In the last three-four years, independent power producers are a very new concept. People who were into renewables to get tax benefits had small generation in the range of 5-20 megawatts (MW). They were not serious player or GW player. Now the business is making sense because of the cost, availability of capital and the need of power.
Will you focus on wind or solar power?
We did a 40MW wind project in Rajasthan last year and we launched it within 150 days of the company being formed.
So, that was our pilot.
Then we decided that we need to be a larger player. This year, we are planning to do 100MW of wind and 10MW of solar. As far as solar goes, we won a 10MW project in Karnataka and other than that we are also doing rooftop solar. We are doing 1,000KW this year in that sphere. Other than that, we secured a 400MW pipeline for near to medium term.
Are you doing it on your own or do you have a partner?
We are doing it on our own. We don’t need a partner.
Are you setting up new facilities or have you acquired assets?
As of now, we have done greenfield, but in the medium- to long-term we are looking at acquiring assets.
Solar and wind acquisition will require a lot of land. How do you look at that when there is a new land acquisition law on the anvil?
It is going to be a challenge. With the Bill, land acquisition is going to get expensive. But needless to say, every industry has its challenges.
At the moment renewables are costlier, land will get more expensive and distribution companies don’t have the money to buy your power. What makes you so confident?
India needs power. If india needs to grow at 6-8%, we need to double the power that we have. We need to add another 200GW in another two years. I don’t see that coming up. If there is a shortage, price is secondary. Somebody needs to fill that gap. Energy is the backbone of the economy. If we are unable to take care of the deficit, the country will come to a standstill. Average consumption of an Indian household is 873KW per annum. It’s extremely low. One needs to understand that these businesses are made for 8-10 years. Interest rates are higher but they will come down in the future. From a long-term perspective, India is still a consumer-driven country. Overall, by 2016, wind and solar will be cheaper.
Your group does not get into a business where you are not in the top three. What is your target?
Yes, we wish to be in the top three. We want to be a 1GW player by 2016-17. But this year we will do 100MW. Last year, we did 30 or 40MW.