India has not yet thrown up a wind power utility firm of any scale. Yet serial entrepreneur Ravi Kailas believes he can build 5,000 MW of capacity in five years. Does he know something that others haven't yet figured?
Ever since the first wind turbine was set up in India nearly 20 years ago, no one has looked at wind energy as a serious business. Much of the installed capacity of 15,000 MW in wind was set up to earn tax breaks via an accelerated depreciation scheme offered by the government. As a result, almost 10,000 MW was owned by 1,500 people, translating into an average shareholding of about 7 MW.
That’s the past. Now stack it against what Ravi Kailas plans to achieve at newbie Mytrah Energy: By 2017, Kailas is betting solely on wind energy to make Mytrah the largest independent power producer (IPP) in the country with a total installed capacity of 5,000 MW. So far, there hasn’t been a single IPP of any scale in the country. Even China Light & Power (CLP), the country’s largest IPP today in the wind business, has an installed operational capacity of about 500 MW built over the last five years.
Now, Kailas is a rank outsider to the wind industry. As a serial entrepreneur, he has built and sold companies in telecom, software and real estate. The 45-year-old Stanford MBA has made his money and fame from Zip Global Network, a telecom services company, which he founded and subsequently sold to Tata Teleservices. Over the last 10 years, he has built and sold two other ventures, Xius Technologies and Altius, a telecom software and real estate financial options company.
So in September 2010, when he announced that Caparo Energy (later renamed as Mytrah Energy) would install wind turbines generating 5,000 MW in the country by 2017 and signed agreements of over $2 billion with Suzlon and Gamesa, two of India’s largest wind turbine manufacturing companies, the entire renewable industry sat up and took notice. Every year, India adds something between 2,500 to 3,000 MW of wind mill capacity on the ground. Suzlon, the largest wind turbine manufacturing company in the country, which also sets up wind farms for its customers, adds about 800 to 1,000 MW every year. “It is a huge number…the largest any company has attempted to do ever in the country,” says Ramesh Kymal, managing director of Gamesa India. Just how could a plain rookie aim to set up 1,000 MW every year over the next five years?
Timing it right
In 2008, Kailas was holidaying in Europe, when the itch to find his next business fix hit him. By his own admission, he wanted to do something in the infrastructure space. “But I could not find any area where I could add some value which existing players were already not doing,” he says. And that’s how he stumbled on wind. What he found in the sector was surprising. India’s wind energy potential is about 80,000 MW; 15,000 MW is already installed on the ground. But there was not a single large IPP in the business. “Countries like Spain have several listed wind entities, but in India it is close to nil. Compare this to about 20 listed thermal companies. And in the next 10 years, wind as an industry will add something like 50,000 MW. That’s a mainstream number,” says Kailas.
The entire incentive structure has begun to significantly change in favour of IPPs. Earlier this month, the government scrapped the accelerated depreciation altogether, slashing the rate of depreciation from 80 to 15 percent. Even before that, new generation-based incentives, renewable energy purchase obligations for state utilities under the National Action Plan for Climate Change (NAPCC) and preferential tariff from state utilities for electricity generated from renewable sources had all contributed to an uptick in the generation of wind energy.
With conventional energy sources like thermal and gas becoming more expensive, the state utilities were now willing to make significantly higher tariffs—as much as 40-50 percent more over the last two years in certain states like Delhi and Rajasthan. Since there is no recurring fuel cost, as wind is free, that meant the cost of generating electricity from wind was now at par with a conventional source like coal. “The price at which we are currently producing power at our capital and interest cost is lower than thermal on the margin, which is a phenomenal achievement. This is a unique position for any country to be in,” says Kailas.
For instance, consider Karnataka, where the listed off take price for wind is Rs 3.70 compared to Rs 5 for thermal energy from new coal plants. “There is an incredible, powerful economic construct coming up. So a green energy company that you can build on a utility scale is today actually viable with no subsidies. That is the reason why we believed that wind can be scaled up very, very quickly as opposed to other forms of energy. Today, wind is the cheapest energy in India on the margin,” says Kailas.
Given the new tariff structure, the big challenge before Mytrah was to peg the cost of generating from wind at Rs 3.50 for every unit (kilowatt hour). But that wasn’t the only issue. Several new firms had already expressed their desire to step in. The two most prominent among them are Re New Power, a startup firm founded by Sumant Sinha, former COO of Suzlon with a $200 million funding from Goldman Sachs and Green Infra, another renewable IPP with a mixed portfolio consisting of wind, solar, biomass and hydro, set up by a team led by Shivanand Nimbargi, a senior executive at French power equipment major Alstorm and funded by IDFC Private Equity. So the moot question was whether Mytrah could retain its first-mover advantage and avoid being overrun by the onslaught of competition.
Next on the agenda was land. “With real estate there are three tenets: Location, location and location. It is exactly the same with wind. I can’t put a turbine wherever I want to. It has to be at a specific place where there is wind. Having access to it is almost like mining rights,” says Vikram Kailas. India has about 80,000 MW of wind potential, of which 18,000 MW is already built up, plus land for another 20,000 MW is owned by existing players like Suzlon, Enercon and Gamesa, among others.
(This story appears in the 27 April, 2012 issue of Forbes India. To visit our Archives, click here.)