Tuesday, November 21, 2017

Power Zone

We are aggressive in establishing our solar and CHP portfolio in India

 

 

Founded in 1998, Fortum Corporation’s purpose is to create energy that improves life for present and future generations. Catering to the versatile needs of its customers, the Finnish firm generates, distributes and sell electricity and heat, and offers related expert services. Its operations focus on the Nordic and Baltic countries, Russia and Poland – and more recently, India. In 2013, Fortum’s sales totalled EUR 6.1 billion and comparable operating profit was EUR 1.6 billion. The next generation energy company, whose shares are traded on the NASDAQ OMX Helsinki, employs approximately 9,500 people. SANJAY AGGARWAL, MD, FORTUM INDIA PVT LTD fielded SHRIKANT RAO’s queries about his organisations role in India and its plans to tap growing business opportunities. 

 

 

 

Fortum’s geographical area of focus thus far has largely been the Nordic and Baltic countries, Russia and Poland. India is the first major country outside that zone where you are currently operating. How important is India in Fortum’s scheme and tell us what impelled you to look at India?

 

A company continuously evolves. Ten years back, Fortum was a Nordic focussed company. It gradually increased the footprint to Baltic rim and then Poland. Similarly we looked at Russia towards later part of last decade and started our activities. Today Poland, Baltic Rim and Russia are an important part of Fortum portfolio. We started looking at Asia towards the end of last decade, analysed various countries and couple of years back decided to place our confidence on India. In a sense, we are cautious in our approach, we analyse the markets, do initial seeding, learn from the experience and slowly start placing bigger investments. That’s Nordic thinking. We are not prone to declaring bombastic plans. We pace out our work and always have a long term view. Fortum in its many avatars has been around since 1932 and the long term reflects in our considered moves. We want to be a “Thought Leader” and a “Market leader” in the renewable space. We are building up local competencies, bringing in our well defined way of working and ramping up our organisation. We have studied the market in detail, and are now ready for our next phase.

 

 

 

Give us an understanding of Fortum’s presence and role in India since it began operations here? Tell us about your investments in the solar sector here, notably the Rajasthan Solar plant – with details about its current capacities, investments and future expansion plans?

 

In June 2013, we acquired a 5 MW solar power plant in Rajasthan to understand the Indian energy landscape. The company’s short term ambition is to quickly build a sizeable photo-voltaic (PV) solar portfolio across states to gain experiences in different solar technologies. We are also looking at other renewable opportunities and will elaborate whenever we are ready.

Fortum has a 4382 MW base of hydro power plants. We would also leverage our project management, O&M expertise to work with Indian companies. We are aggressive in establishing our solar and CHP portfolio in India. We are exploring various alternatives that exist in the ecosystem today, both organic and inorganic. The decision will be purely based on the possibilities the transactions offer us.

 

 

 

What are the opportunity zones in India’s renewable and energy sector in which Fortum is looking to contribute – what are the solutions and services you are looking to offer? You have a strong expertise in CHP – what are the prospects for its utilisation here in India?

 

We are looking at solar and hydro power in renewable space. We have long years of experience in building and running hydro power plants. Combined heat and power (CHP) refers to a system for concurrent generation of electricity and useful heat through a process that is generally much more energy efficient than the separate generation of electricity and heat, and which is located on-site, near the point of consumption.CHP systems can reach overall efficiency levels of up to 90 per cent.

CHP when implemented at industrial cluster can result in more efficient use of resources such as fuel, land, water and waste disposal, while also providing other scale benefits. CHP penetration in India is less than 5 per cent as compared 11 per cent share in EU electricity markets. By locally centralising the production of heat and electricity, and supplying industrial clusters, several benefits can be gained for industries as well as the society at large. CHP in an industrial cluster considerably increases reliability, availability of power and steam and also reduces emissions drastically.

 

 

 

Tell us about Fortum’s plans in the waste to energy generation segment? What is your assessment of the business potential in India? Also tell us about the company’s goal is to increase the use of biofuels?

 

We have had good experience in using multiple fuels in our CHP production and aim to bring this competence to India. Our ambition is to use what we call local fuels -- various types of biomass or waste -- whenever possible.

In India this could mean, for example, coconut shell, cashew shell, rice or coffee husk. We strive to work closely with local communities and using local fuels is one important way to bring benefits locally too. However the timing of these initiatives will depend on regulatory framework, expected returns and consistency in the supply of biomass feedstock. Experience in India has been very patchy, with few success stories. We will surely discuss with regulators, showcase our plants to them, share with them the framework required to promote these fuels. So these will remain on our radar, but we will invest when we find that investing opportunity appropriate.

 

 

 

What are the prospects for wind power, hydropower, nuclear and wave power projects in India?

 

From a headline perspective, there is a general consensus that reserves of fossil fuels are fast depleting and the prices are getting firmer as years progress, so renewables have to occupy a special place and grow in a multiplier way. The Government of India also targets to achieve 20 per cent generation from renewables by 2020 up from 12 per cent currently.

As per latest estimates, only about 20 per cent of renewable potential is tapped. Amongst all forms of renewable i.e. wind power, bagasse and biomass, small hydro, solar and other, a total of potential of nearly 140 GW exists. Largest additions have been in wind power. With a estimated potential of nearly 48 GW, nearly 20 GW is already installed. However, most high density wind zones have already been exploited. New sites with lower wind density will require expensive turbines which will have higher logistics cost. But growth in wind power will continue.

 

Indian hydro power potential is assessed at 84 GW and at 40 per cent PLF gets translated to a potential of nearly 210 GW of installed capacity. The current installed capacity is at 40 GW. Over 90 per cent of installed hydro capacity is in the public sector, a miniscule 6 per cent is in private sector. This needs to grow. We have exploited hydro potential of less than 20 per cent across big and small hydro plants. Also average PLF of hydro plants is around 32 per cent which can be improved through renovation, modernisation. So a concerted effort is required at putting in more capacity and increasing the PLF.

 

Private sector experience in hydro has not been a great story. Except for a few, all others are struggling to complete the projects. Cost overruns in excess of 50 per cent is the order of the day and the reasons could be many i.e poor investigations, badly prepared DPRs, ill conceived projects, improper geological investigations leading to construction delays, necessary geological data not forthcoming from concerned authorities, hydrology risks etc. Apart from these, exuberance exhibited by several developers while participating in various state bidding have lead to unsustainable power tariffs . So gradually a churn is underway, consolidation and pain is inevitable and it will take another 2-3 years before the companies are able to put their balance sheets in order, complete the projects and start planning for the growth phase.

 

There are still issues in nuclear to be settled before any meaningful addition happens. Wave energy is currently in infancy and gowing forward is the next big wave. Fortum is investing in seeding infancy ventures and clearly wants to occupy this space.

 

 

 

Tell us about the best practices and technologies that you have introduced here or plan to do so in the near future?

 

Largescale CHP requires a long term investment horizon on the part of company which no company has dabbled with till date. Taking into account the technology aspect and factoring in the host of regulatory issues, CHP green field investments need time to materialize. Having said that, the benefits are easily understood by the market and therefore the initial response is good in terms of clients’ interest and we are confident to share some concrete developments soon.

 

 

 

What are the challenges of operating in an Indian environment and your expectations from the government from the doing business perspective?

 

Just as the opportunities in India are well documented and the key to capturing them lies in greater analysis, considered approach and not get swayed by exuberance, similarly the challenges
are pretty well known. Considerable work has been in regulatory space, many issues have been addressed, but ground level implementation is still patchy. Take open access for example. The framework is present. It has been well discussed but when the time comes for implementation, doubts still surface and as a result many states don’t look very enthusiastic to this.  Availability of fuel quantities and qualities, improving health of distribution companies, land acquisition, environmental clearances at state and central government level, and training of skilled manpower to prevent talent shortages for operating latest technology plants are some of the challenges that exist. Energy Conservation also needs to be supported by government initiatives.

 

 

 

Give us a sense of your India strategy and the business volumes expected here? Have you assessed the size of the India business?

 

As I said before, it offers tremendous potential because of the sheer size of the market and the returns available on investment capital. We plan to make full use of the opportunity available and help our consumers avail sustainable means of energy production.

 

 

 

Tell us of Fortum’s plans for India in 2014-2015 and what is your outlook for the country’s energy and renewable sector? 

 

To understand the current state, one needs to revisit the start of power privatisation in India. The past 20-odd years have thrown up lots of learnings for the participants. India GDP growth, its aspirations for reaching the developed world matrices, increased industrialisation, impact on energy needs and consequent baseload/peak load deficits are well documented. One does not need to elaborate on “India Opportunity” – it exists without an iota of doubt. But these headlines only tell half of the story; the other half is the struggle with policy, regulations which have been great in spirit but lacked in execution on the ground. Also various solutions/structures became the flavour of the day at different intervals, participants misread risk appropriately, have not been able to factor them in the quoted tariffs, took big gambles on merchant tariffs which never came true except for couple of early entrants,  made assumptions on hydrology and geology which subsequently came untrue – as a consequence there have been cost/time overruns and today we have a scenario wherein most of private power participants across the thermal/gas/hydro sectors are stressed.
Even with best of optimism, it will still take 2-3 years before balance sheets are cleaned, assets are sold, companies become lighter and the cycle starts again. The private players need to deal with these issues themselves as Government had no role to play in their “Business Calls”. Coal/gas availability has been a bug bear and lately all the issues surrounding the coal block allocations have further put the progress back by couple of years. So, all in all, opportunities exist, but it needs careful consideration. We want to be in solar space and hydro is under consideration as we have deep
competency in hydro space with 4600 MW hydro assets in Nordic markets. Fortum’s purpose is to create energy that improves life for present and future generations. In the next few years, we aim to establish Fortum as a market leader in the sustainable energy space through our innovative technology.

 

 

NEXT GEN ENERGY COMPANY

 

Fortum has been recognised by COGEN Europe for an effective implementation of its resource efficient CHP strategy. Despite challenging business conditions and diverse local legislative requirements, Fortum has in one year commissioned a portfolio of four new combined heat and power (CHP) plants in four different countries in the Baltic Rim area. All those plants increase the share of heat and electricity produced from renewable sources in the region by 86 MWe and 243 MWth, which roughly equals to the heat consumption of approximately 50,000 and electricity consumption of approximately 80,000 households.

 

 




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