– MS Unnikrishnan, Managing Director and CEO, Thermax Limited

Thermal sector has been facing challenges owing to many factors, the announcement of phasing out of thermal capacity addition added fuel to the fire. What is the effect on a company like Thermax who caters to captive power segment?
First and foremost, all sectors are not heading to negative. Phasing out of thermal will take significant time. India doesn’t have gas available; no oil available, the only fuel available in the country is coal. There is a lot of industry segment, which is dependent on captive power, e.g. cement plant. It would require firm power. If there is infirmity of power, it will lead to a shutdown affecting the production. Such disruption significantly affects the annual output of the company, which is a very dangerous thing to happen. So cement plants will continue to have captive power plants. Infact, cement is an industry, even though there is an economic slowdown, companies in this segment is investing in cement manufacturing units and captive power plants.

Secondly, cements plants have waste heat available. Depending on the capacity to invest, almost up to 50 per cent of the total power requirement can be met from the energy produced from this route. It varies from 30 to 50 per cent from plant to plant. If you go for 30 per cent energy from waste recovery, then your payback would be five years; whereas if you go for up to 50 per cent, then your payback would be seven to eight years. If the company has got a policy, the treasury can invest only in safe instruments; in that case, the payback of 10 years is absolutely good. As coal is used in making cement, there is a renewable purchase obligation (RPO). Waste to energy would help meet the RPO compliances.

In the case of sponge iron industry, there is a lot of waste gas. If you don’t convert it into electricity, it reflects on the viability of the plant. Similarly, there are companies from food processing and chemical industry where steam is required for the processes. Here one can look at a cogeneration plant, where both electricity and steam (heat) could be produced from the same plant; thus, the viability increases for the company.

So these niche segments are going to be continuing to have captive and cogeneration power plants. The investment climate in India is not good currently. It will capture back when the industrialisation catches back.

When do you see the current situation improving in terms of investment climate?
I am not a negativist in the current circumstances. It is a temporary affair; there is undoubtedly pressure on any investment right now. Consumption capture in the country is under negative sentiments. In my opinion, it will take another few quarters, and in some case, it may take six quarters, and some sectors may turnaround in two to three quarters time. A combination of money in hand and the sentiments improving will result in consumption going up. Once that happens, the FMCG improves, then durables and ultimately, the automobile also will pick up. This is because India got a population growth happening.

As these start reflecting, the power demand also will start climbing. The Indian urban population is steadily growing, and they use energy guzzlers like the air conditioners.

In recent years the quality of power from the grid has gone up. Do you think this is going to toughen the competition for companies like yours?
There is even now, an arbitrage of generating your own power apart from the security of power. One can generate electricity based on the current coal prices prevailing in India or on imported coal. The cost of the generated electricity will be between Rs 4.50 to 4.75, including the defraying of investments. Who will supply power at this to an industry consumer? I am also an industry consumer with 11 factories running. Nobody supplies electricity at that rate. For a factory that consumes 20/30/40 MW, captive generation is much economical than grid power. To remain competitive, if energy is a major cost factor in running the factory, then certainly one would look at economical options to bring down the production expenses.

Will captive have a robust market going forward?
Remember, the population of India and that of China are almost the same. China produces four times of electricity than India. Even if you have to develop up to China level, India needs to generate four times the current levels. Do you think India has the money to generate that much electricity? So, the industry has to fend for them for development to be happening.

Captive power industry/cogeneration industry in India will continue to remain in existence. But the relevance may come down 20 or 25 years down the lines. We are not there yet. In a fully developed infrastructure like that of the developed world, when India reaches that level, captive power will suffer.

Where does India stand in terms of grid power for industries?
When India would have a reliable grid like the one in the lines of the Euro Grid, where they give two feeders. Even if one feeder fails, the other feeder will automatically start operating. India has developed, in my reckoning, 15 to 20 per cent now. About 80 per cent development is still to happen. This would take at least three to four decades minimum.

– LIZA V