What JSW Energy’s electric vehicles bet tells us about India’s power sector

JSW Energy’s decision to spend as much as Rs4,000 crore to set up electric vehicle (EV) and related businesses has been met with the usual scepticism by analysts. Photo: Reuters

JSW Energy Ltd’s decision to spend as much as Rs4,000 crore to set up electric vehicle (EV) and related businesses has been met with the usual scepticism by analysts.

The questions they ask include: how can an electricity producer with no experience in automobile manufacturing quickly churn out an EV? Will it be able to build the business with Rs4,000 crore? How feasible and profitable is that venture going to be, considering that JSW will have to compete with entrenched automobile companies with vast retail networks?

JSW has some simple answers. Most automobile companies’ investments in the segment are in a similar range. They say they will go for technical tie-ups avoiding upfront development costs.

One cannot fault JSW for the audacious move. Growth is increasingly difficult to come by in the core electricity generation business. The company generates good amount of cash flows from the existing business. It has pursued inorganic growth. But decent bets are increasingly hard to find.

The Bina thermal power plant purchase from Jaiprakash Power Ventures Ltd, for instance, is stuck for more than a year now. The sector has several power plants up for sale. But valuations are anything but cheap, the management lamented in the conference call with analysts.

The outlook on organic growth is also dim. Demand remains subdued and power purchase agreements (PPAs) which ensure long-term power offtake are hard to find. Generation during the June quarter, arguably the peak demand season, fell 4%. Even the biggest power utility NTPC Ltd reported lower generation (it dropped by 0.8%).

Of course, companies are increasingly seeing the benefits of the central government sponsored UDAY scheme, aimed at reviving bankrupt state power utilities. Even so, it’s hard to be optimistic. The existing capacities in the sector would be sufficient to cater to any notable rise in demand in near future, many say.

Also, a risk is the changing energy landscape. Falling renewable energy tariffs are putting conventional energy players at a disadvantage. Further, renewables are increasingly capturing the PPAs and taking away demand. If storage technology and costs soon reach the inflection point, as JSW believes, it can accelerate renewables adoption, capping the growth of conventional energy.

The disruption is seen in two ways. One is in the grid-connected renewable power. The second is on-site generation, say, the rooftop solar segment. Capacity targets in rooftop adoption set by the government are slowly gaining traction. Rooftop tariffs are falling and cost arbitrage vis-à-vis the grid is driving all sorts of users to this power segment. “Where we used to be able to offer fairly marginal savings, we can now offer power at a 30% discount to grid tariffs, and even more in some states,” says Andrew Hines, co-founder, CleanMax Solar.

With savings estimated between 10% and 40%, commercial and industrial customers are moving to rooftop solar, says Amit Bansal, director-finance, Vivaan Solar. They are still using grid power. But they plan to move towards 100% own power, Bansal adds.

Pranesh Chaudhary, founder and chief executive office, ZunRoof Tech Pvt. Ltd echoes these views. Once customers realize the cost benefits, they accelerate rooftop adoption. ‘As battery costs fall, they may as well move completely to go off-grid, maybe in a decade’s time’, Chaudhary adds.

Of course, that’s a long time and there are many ifs and buts. But the current trends do not paint an encouraging picture for conventional energy demand, especially for companies in the private sector. And with JSW already struggling to find enough buyers, it has even less reason to look at its existing business for growth. Getting into the EV business seems to be more a case of push, rather than pull.

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