The most logical way in which to address concerns about energy supply and climate change, and to do it quickly and efficiently, is to generate energy from renewable energy sources. In countries where energy systems aren’t yet fully developed, and where there is consequently a huge and growing demand, a huge market is available which companies investing in renewables are well placed to exploit. One such country is India, a market that is even more interesting because wind energy, in particular, is already at grid parity and therefore not dependent on subsidies.
Independent power producer Mytrah Energywas formed in 2010 with its main focus specifically on India, aiming to develop 5000 MW of renewable power. It is already enjoying a competitive advantage in the country with 120 wind turbines already in operation and a large ‘shovel ready’ project pipeline.
REM talked to Mytrah’s Executive Vice President, Bob Smith, in a highly informative interview that reveals much about this exciting emerging market.
Tell me about Mytrah Energy and what it does
We started four and a half years ago, it was an entrepreneurial start-up company and it’s owned 58 percent by a chap called Ravi Kailas. The company raised $80 million [from institutional investors such as Capital Group, Blackrock and Henderson] and today, 4-5 years later, we’ve got a company that is generating roughly $100 million per year revenue. There’s 540 MW on the ground operating in India with a substantial growth trajectory built in as well. We’ve deployed about $600 million of capital so far. We’re in the process of deploying another $300 million now, so this time next year we will be around 750 MW operating assets on the ground.
What differentiates Mytrah from everybody else is that we’re a utility company, we generate power and sell it under long-term contracts to high-quality counterparts [mainly to state grids through 13 to 25 year Power Purchase Agreements], we invest a lot of money, take on a lot of debt. In that respect we look a lot like any other utility, the difference is that we’re operating in a market where there’s no subsidy and where the growth rate so far has been 30 percent per year plus. So we’ve got all the benefits of a long-term stable cashflow but we’ve also got growth as well.
Everything we’ve built so far has been wind. The reason for that is the cost of wind relative to the alternative. Wind is basically grid parity in India, whereas solar up until now has been a lot more expensive. However, solar prices have come down as you know and so right now we’re just in the process of acquiring our first solar projects.
How long has the group been involved in India and what are the particular advantages of investing in the country?
The company was founded in 2010, so although it is listed here on AIM [Alternative Investment Market – currently the most successful growth market in the world on the London Stock Exchange and founded in 1995. Over 3,600 companies from all over the world are listed], the protagonists are all Indian, with the exception of myself. The individuals themselves have been operating in India for a long time, but the company itself only came into existence in October 2010.
Why India in particular?
Essentially because we believe it is the most exciting power market in the world. There are two things about India, one is that it is fundamentally short of power and has been for a long time. That dynamic means your product is in demand. The second thing is, because the way the market works, we are able to build projects very quickly so we can get projects online in a year in India. That means we have a very strong competitive advantage against coal, which is the natural alternative. That in turn means we are producing something that is a quick way to feed that demand at a price that people are willing to pay. That’s sort of unique in the world right now I think.
And what are the main challenges?
There are two very big challenges and lots of little ones. The two big ones are, first of all, the general perception that India is rife with corruption and that is a perception, it is not a fact. That, for me, is a big challenge. The second part is that everybody is an entrepreneur and therefore any kind of business negotiation or inter-relationship, particularly where you want to purchase land in our context, becomes quite a tricky process. So I would say doing business in India, getting things done, is hard. And then overlaid on top of that, you have this perception that it’s corrupt and there’s a lot of dodgy dealing going on. Frankly, there probably is, but it’s quite easy to avoid and we set the company up so that doesn’t happen.
What is the current position of wind energy in India at the moment, and renewables in general?
In terms of deployed capacity, there’s 23.5 GW of wind installed already. The potential for wind is hundreds of gigawatts, so it’s not approaching its technical limitations. The government has laid out a target of 60 GW of wind by 2022. That target is just a number, they’re not really doing anything to ensure that happens. So we built this business without government support and will continue to do so. The solar is new on the scene, so this year the government have laid out a target of 100 GW of solar by 2022. That’s interesting because solar right now is very low, there’s only about 2.5 GW of solar in. So the growth is going to be very big. Growth in wind from 23 GW to 60 GW doesn’t make the headlines in the same way but it’s still quite a big market.
How large is the contribution of renewables to India’s overall power demand at present and what targets does the country have to increase this figure?
With those figures I’ve just given you, you’re talking about a total contribution from renewables, including hydro, of about 30 GW. India as a whole has about 250 GW of installed capacity. The generation though is slightly different because of course you’re not generating all the time with renewables, so if you look at generation, it’s about 3-4 percent of entire generation.
What is the main driver of investment in renewables in the country? Is it mainly climate change or are there other factors as well?
I think climate change is an element, there’s no doubt about that, but it’s not the primary mover. As I mentioned earlier, India is fundamentally short of power. There’s a gap between supply and demand all the time, and if you spend any time in India you experience its blackouts pretty much everywhere. So the government’s primary motivation is getting power to people and there are still a very large amount of people who do not have any power at all. For them, they’ve laid out an agenda which is essentially to buy-in power for the country. That’s really their motivation and the fact is that renewables is the fastest way to do it, because you can build renewable plants much more quickly.
The other thing I think is important is that for India, it doesn’t need to grow up the way the UK did, with a centralised hub-and-spoke style power infrastructure and large-scale generation in one spot and a wire that goes out to the customer. In the same way as the phone system, India doesn’t have a wired phone system, it leapfrogged the wired system and went straight to distributed system. I think the same thing will happen with power, it’s not the most efficient way to develop the Indian power sector to be solely reliant on centralised generation. It’s actually much more efficient to develop a system which is a hybrid of distributed and centralised, and if you’re going to do distributed generation, renewables is a very obvious solution to that. So there’s two elements – one is its much quicker to market and the second it’s more efficient to create a power system based on renewables than not. I think that is much more of a driver than the green thing. They will obviously talk about that, but I don’t think it’s the real incentive. India is very much like China – it just needs power for its people, and it needs to do it in the most efficient way it can.
How supportive is the political environment with regard to renewables, and wind energy in particular, in India?
Yes, it is very supportive. There isn’t really a subsidy structure, but the rhetoric is very supportive and the targets I’ve just mentioned are quite aggressive. There’s a lot of big marketing going on, which is very helpful. India is a state-based system, like the US, so each state drives its own agenda. The central government’s role is not as powerful as it might appear from what you might hear in the papers.
How popular is renewable energy among India’s population?
The Indian population like it a lot. For two reasons, one is that it’s a way for them to get access to power quickly and easily, and so for them it’s a good deal because a lot of people don't have it and if they do have it they also have blackouts a lot of the time. The other thing is that I think people, in general, are much more motivated by the green energy thing than perhaps the government is and so people like the idea that the country’s power sector is developing in a way that is more friendly to the environment. India and China are in competition a lot and all the people talk about the way in which China has developed its power sector, but want India to do something different to that.
What other countries do you currently have a presence in?
We don’t. The focus is very much on India.
What are Mytrah’s plans for the future?
We’ve laid out a market forecast that we will grow the company around 200 MW per year, and that is based on the current operating cashflow of the business in the current cash situation, so our base case growth is around 200 MW per year. The reality is that we are operating in a market which could support more like 500 MW per year from individual companies and so our opportunity is to find clever ways of financing to allow them to do that. We don’t lay out any market expectations that we haven’t already nailed down, so we don’t talk about specifics, but our intent is to grow the company significantly faster than the current market expectations, and to do that for as long as the market is conducive.
The only other thing we haven’t talked about is that the stock price today is, in our view, very low, but the benchmark worth looking at is that just recently SunEdison bought a company called Continuum, which looks a lot like Mytrah, and they paid a price which would put us at around £3, and we’re currently at £0.70p, so we think we’re undervalued, the analysts think we’re undervalued and I think the benchmarks starting to come through show that.
Bob Smith is Mytrah Energy’s Executive Vice President and Head of International Business and Investor Relations. Mr Smith has 25 years’ experience in the energy sector, including the last eight in renewables. He was previously Chief Development Officer at BP Solar, building on fifteen years in international oil & gas operations with BP. Mr. Smith joined Mytrah in 2013 after four years as CEO of a renewable energy technology start-up. Mr. Smith is a Chartered Engineer and has Masters Degrees in Engineering from Cambridge University and Management from the Graduate School of Business, Stanford University.
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