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Jan 18, 2019, 16:27
K.P.I Global Infrastructure Ltd. Management walking the talk. Interaction with the management (Equity Right Exclusive) Part 2

Equity Right team: Why the location of your power plants is conducive for the solar power generation?

Shaheedul Hasan: Ambient temperature plays a key role in higher output. Lower the temperature better the generation. In fact regions with the lowest temperature seem to have the highest output. Also our plant is located in the vicinity of black soil. Black soil does not create dust which reduces the efforts which we need to put in for maintenance. Also the neighbouring land is agricultural which serves the same purpose. For maintenance we need adequate water supply which was taken take care of while erecting the plant.

(K.P.I Global Infrastructure Ltd. plant located at Sudi & Tanchha village, Amod, Bharuch, Gujarat)


Equity Right Team: Amod Substation is being upgraded from 66KV to 220KV what are the benefits you seek from this upgradation? Also you already have a previous agreement with GETCO will this upgradation seek an extended agreement?

Shaheedul Hasan: It is an upgradation and will therefore not require to have an additional agreement. The upgradation will increase the reliability of the Amod Substation. The intake capacity of the Substation will increase making it a positive impact and reduce the losses too. Higher the voltage higher the availablity. When the upgradation is completed we may be able to increase our output.


Equity Right Team: You are planning on replacing the 250W panels with the 320W-330W panels in the unit 2, are these panels going to be imported and by what margin will it increase the Capex?

Shaheedul Hasan: The panels are not being replaced they are being added. Previously used panels consisted of 60 cells in a panel. The new ones that are being installed are 72 cells panel. The 250W panels have increased from 250W to 275W. Area remains same and the power output is more. Lesser land is used, lesser mounting of structure , lesser number of cables, in short the balance of system decreases.

(Solar Panels ar K.P.I Global Infrastructure Ltd. plant in Gujarat)


Equity Right team: What is the gestation period for conversion of land from agricultural to commercial?

Faruk Patel: Gujarat has a lower TAT (Turnaround Time). According to which after 90 days of signing the sale deed the government is bound to convert the land from agricultural to commercial if it is applied for. Under 63AA clause under which you purchase any agricultural land it is deemed to be Non-Agricultural (NA) if used for certain purposes inclusive of agriculture. And since it is deemed to be NA we can start our project on the land immediately.


Equity Right Team: The government of Gujarat has waived off Rs 650 crores due of electricity bill of farmers and residential units. They have also been encouraged to get a new connection or renew their old ones at just Rs 500. IPP sales contribute 25.21% to the total revenue how do you think this is going to affect you?

Faruk Patel: As far as the ideology of the people is concerned that if the electricity bill due for farmers is waived off then the revenue of the solar power plants will be impacted, there is an provision in Gujarat that the first settlement goes to solar power producing company. If the industries have an agreement of being supplied with 1000 MW of power monthly but they only use 100 MW which is supplied by the solar power plant the payment will not be made on pro-rata basis. It is a compulsion that bill due of the solar power plants will be settled first. Solar power plant stands to be first priority.


Equity Right Team: Sunborne energy limited based out of Kutch has a 25 year agreement (2012-2037) with the Gujarat Urja Vikas Nigam limited with the tariff of Rs 15 per unit what expansion programme or strategy would you undertake to beat your competitor?

Shaheedul Hasan: Sunborne Energy sells to the government, we do not have our presence in that sector. The contract was signed under fit regime which has now been replaced by reverse bidding. Under reverse bidding the sellers bid for supplying power and the seller with the lowest bid bags the contract. They are also imposing ceilings above which they cannot bid. But this is a part of the company’s supplying power to government in which KPI does not engage. And currently the PPA’s being signed by the government are around Rs.2.44. At that time the cost incurred for generating power was relatively higher than the cost at present which allowed those companies to sign the contracts at those prices. That is not possible today.


Equity Right Team: Has KPI given any thought to energy storage technology, how far can solar energy go without affecting grid stability?

Shaheedul Hasan: The technology currently is in research and experimental implementation. Because it is a costly affair. The combination of renewable energy along with storage will be beneficial for them. If the technology becomes commercially viable for KPI they will certainly get involve in it. if it developed, KPI will be able to generate for the whole day store it and then keep transmitting it at a constant rate. So your transmission booking capacity will be lesser. In a situation where the transmission line is down, today the entire energy generated gets lost but with the storage facility it will be possible to avoid it altogether. Though as published by GETCO the transmission lines work 99% of the time.


Equity Right Team: How is financing scenario for solar sector? Are banks and NBFC’s willing to lend to you?

Faruk Patel: SBI has already lent 2 term loans to KPI. If we compare the equity with the debt that the company has taken, the Debt/Equity ratio is comfortable. PFC has lent KPI a loan of Rs. 86cr under open access this shows that they are willing to provide us with the credit.


Equity Right Team: If the government changes will it affect your business. Also the Niti Aayog wants the solar sector to be competitive will that ideology affect your rates?

Faruk Patel: Solar is essential to the country. So the government can say no to any industry but not solar projects. Also policy till 2022 has already been declared by the government. And even after that India has given certain commitments to the world which they are obliged to fulfil.

Shaheedul Hasan: We do not avail to any subsidy from the government, so any changes that they make, we are away from their grasp. Also the policies are decided by the state governments; they are overlooked by the central government but are mostly agreed upon as decided by the state. And the tariffs are regulated by independent commissions -CERC (Central Electricity Regulatory Commission) and GERC (Gujarat Electricity Regulatory Commission). They do not report to the government and they are the final deciders. Therefore the management should be influenced by the government at a minimum. We also believe that the developments that the government brings about have been beneficial to the market, sector, consumers. Competition opens up the market.


Equity Right Team: The panels are being imported from the China with the government imposes extra tariffs on Chinese imports? The alternative option that we have is European  technology so what is the cost difference?

Shaheedul Hasan: Safeguard duty (SGD) was the tariff which was expected to be imposed by the government and which has already been imposed. And whatever projections and designs which have been released by them have already taken this aspect into consideration. The cells are imported from China but are integrated into a panel in India. The tier 1 manufacturers in China are as good as the European manufacturers. Europe comparatively has a high cost of production but the qualities of the cells do not have huge differences.

Faruk Patel: Also why do we only pay attention to European manufacturers. We have other options like Taiwan, Japan and Vietnam. If there are constraints we will find a way but currently this issue is irrelevant for us.


Equity Right Team: What is the net capacity of the panels dependent upon?

Shaheedul Hasan: The output of solar plants is decided by the Plant Load Factor (PLF). PLF is dependent on factors such as radiation of sun, ambient temperature, your design and your execution, inter-road distance, cable selection, transformer, generator, etc. Selection of equipment is an important factor for higher output. Maintenance is as important as the rest of the procedures. And as we mentioned cleaning is simple in case of solar plants. Our current CUF is around 20%.


Equity Right Team: What is the outlook on the renewable energy space with possibilities of unfavourable policy decisions and overall sector?

Shaheedul Hasan:The management is quite optimistic for solar sector for the coming years. India is a power deficit nation so you do require power. Government is laying emphasis on renewable sources of energy. The current policy for 2022 has estimated the output to be 100 GW from solar. And we have just completed 25 GW and are yet to complete the next 75 GW. Also India as a country has made certain commitments to the United Nations, under which a certain % of electricity will be from renewable resources and we have to fulfil that commitment.

Faruk Patel: Renewable energy is the only fixed alternative for power being produced through non-renewable sources. The policies are also conducive for the solar energy producing companies. Suppose we are unable to obtain coal from the foreign nations due to some problem like deficits or falling foreign exchange reserves. At that point of time there is a high possibility that we may face blackout. Renewable energy is the only permanent solution to this.

Shaheedul Hasan: The potential of India has an estimated capacity of 750 GW, out of which the government has given a conservative target of 100 GW. Out of the 100 GW the target for Gujarat is 8 GW. The potential of Gujarat at present is around 30-32 GW. This is because Gujarat and Rajasthan are god-gifted states which have maximum radiation. At policy level there is maximum positive thrust from the government but at execution level there are some ground issues.


Shaheedul Hasan while closing the informative interaction said, “In a nutshell as far as this project is concerned or our idea is concerned, our endeavours are concerned, it is unique from several perspectives. One is the advantage that we have from location perspective and the unique model of PPA that we have devised in which both the consumer and the seller get the benefit since it is not fixed for either of the parties. The team that we have at the ground level the dedicated and knowledgeable team. So because of these factors I think that this IPO will be a great success and we seek co-operation from your end also.”


Salim Yahoo added a few words saying, “Leveraging on the power of nature for the benefit of humanity as well as the businesses.”


Equity Right Team thanks the KPI Global team for their valuable insights.


Watch this space for the equity right research report on KPI Global Infrastructure.


K.P.I Global Infrastructure Ltd. Management walking the talk. Interaction with the management (Equity Right Exclusive) Part 1

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