Tailor Fit Green Energy | ft. Vivek Subramanian

Guest: Vivek Subramanian, Co-founder and Executive Director of Fourth Partner Energy

Hosts: Shreya Jai and Sandeep Pai

Producer: Tejas Dayananda Sagar

[Podcast intro]

Welcome to Season 3 of The India Energy Hour podcast! The India Energy Hour podcast explores the most pressing hurdles and promising opportunities of India's energy transition through an in-depth discussion on policies, financial markets, social movements and science. The podcast is hosted by energy transition researcher and author Dr. Sandeep Pai and senior energy and climate journalist Shreya Jai. The show is produced by multimedia journalist Tejas Dayananda Sagar and is presented by 101Reporters, a pan-India network of grassroots reporters that produces original stories from Rural India.

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[Guest intro]

In this episode, Vivek Subramanian - Co-founder and Executive Director of Fourth Partner Energy discusses the market dynamics and trends in the decentralised green energy industry. He shares his entrepreneurial journey and the growth of his company. He emphasized on long-term contracts in the decentralised space especially with commercial and industrial consumers. He said the increasing desire of end consumers to control their energy mix and the price of power will drive the sector further.

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[Podcast interview]

Shreya Jai: Thank you so much, Vivek, for joining us here at The India Energy Hour. We have been in touch for quite some time and I can say that I've seen the company grow in front of my own eyes. So it is great to witness this journey, but you will be the best person to talk about it. And I will take the liberty to say that since the time you started this company, the sector has also changed quite a lot. And I would like to believe more in good ways.

So thank you again for joining us here today.

Vivek Subramanian: Thank you, Shreya. Thanks for having me in this chat. Given that we've been in this business for 13 years, you've not seen us growing. You've probably seen us aging. I think that's the right word. But hey, pleasure speaking.

Shreya Jai: Great. Thank you.

So, you know, before we delve into this topic that we are guilty of not covering much is decentralized solar or anything beyond utility scale renewables. And I would say the country as a whole is guilty for not paying much more attention to decentralized solutions. But we will get to that.

Before we do that, I would like our audience to know a bit more about you for you to tell us your personal and professional journey. Where are you from? How did you land up in the sector? And decided to start your own firm. So can you tell us that?

Vivek Subramanian: Thanks, Shreya.

So I was brought up in Bombay. I did my mechanical engineering and passed out in 1996. I then worked as a management consultant for 6 years, primarily given my mechanical engineering background, (worked with) plenty of industrial firms helping them sort off realign their operations, reduce their costs, and strategically rethink where they wanted to be. Did some work also in some off our neighboring international markets like Malaysia. Also was in the UK briefly. And after 6 years of practically moving project to project and living out suitcases, I decided to take a break. I wanted to study further. I did my MBA at INSEAD in France. And from there, I joined an ex-client of mine, my Arthur Anderson days. And for them, I did a year of what I would call business development. So they had investments around the world. I was based in London, helped the family sort of bring all of these together. We made some acquisitions happen. But then one of the ideas or investments that they had put together was a private equity fund called Avigo Capital based out of Dubai and Delhi. And at the family's behest, I moved into the fund in 2004. If you sort of remember some of what was happening there in India, India was just about taking off and, you know, to get to do private equity in India was very exciting. Built a team in India, focused our three funds with a total assets under management of almost $380 million dollars all in growth stage companies in India. And a lot of them were in the power sector. So saw the power sector mostly only focused on the traditional thermal sector and service providers to the same. All the drivers of the sector clearly understood that this sector is sort of with private participation, quite right for a transformation of sorts. And even though it sort of played under the realm of policy, government entities and so on, but we could clearly see in the West why renewable energy was becoming more and more relevant. So we saw in Germany, we saw in the US how distributed energy was becoming relevant and we felt this is a new field allowing us entry into a traditional sector with a new perspective. My reasons, of course, to move out of private equity was, you know, after several years of being a consultant, I think in private equity, I was there for almost 6-7 years. I felt that I wanted to test out my capability to be an entrepreneur before I lost all the hair that I have and decided that if I don't do this now, it could become difficult later.

And it was so Fourth Partner Energy is actually a personal quest. You know, can we be entrepreneurs? My family hadn't had an entrepreneurial background, you know, very traditional South Indian brought up just working as professionals in most places. Thankfully, I had a couple of other idiots who thought like me. So we were three partners who started this and the company is called the Fourth Partner, which is it's about the “Fourth Partner”, whose everybody else are all our stakeholders put together.

We brought in two or three key rules that we thought we will build our business around. So one was to service the corporate sector. We didn't see our ability to sort of cater to large government establishments because we didn't have that kind of experience or network before. Whereas given our previous avatars, we had worked in the corporate sector before, felt that renewable energy should appeal to the corporate sector. We also didn't see value in getting to supply to B2C, because in India, sort of homes are quite disparately shaped and quite different. And therefore started by only looking at B2B renewable energy driven by primarily solar.

In those days, I mean, 2010 - 11, when the Jawaharlal Nehru National Solar Mission was still in force, price of renewable energy was 18 - 20 rupees. It couldn't have been a cost reduction tool, whereas we expected the price of solar energy to come down and become cheaper than grid power. But in the interim journey, we built our EPC capabilities. And the idea was that if we can build the plant with the kind of quality we would like and make sure that we service the customers in the form they want, we should be able to eventually migrate ourselves to becoming developers and owners of assets.

That journey took us a few years. The price of renewable energy kept dropping down. And the moment in, you know, I would say by 2016 - 17 or so, the migration had happened where grid price was now more expensive than solar energy, which this became a very compelling story to pick to corporates. We could talk to them about renewable energy, not just being an esoteric, nice to have form, but also a business imperative and so that they can reduce their costs. And slowly started offering financing solutions to go alongside. That journey has now migrated on MOFT from just being on site solar to, off site solar as well, because India allowed for open access supply of renewable energy just as you could have supplied open access to thermal and have recently about a year and a half added wind to that capability. That way we can have larger chunks of renewable energy given to the same corporate customers and develop alongside.

The other migrations that naturally we made was to think about servicing our customers in the neighboring regions as well. So we were also in Sri Lanka, Bangladesh, Indonesia, Vietnam. And we saw that these markets were probably, where India was about 5-10 years back and will grow to becoming as large as India is. At least we expect the Indonesian markets, etc., to be as large as India is and thought that with our kind of credentials here, we should now be able to service those markets as well with the same customers following suit across the board.

And finally, if I look at the entire mix of what our customers need, it's about energy, you know, it's just not about power. And therefore we are thinking, how is it that we can get them finally towards the round the clock spectrum? So, you know, move towards a play where they can have fully renewable energy powered operations and in that we've added capabilities to add storage. So we're not as financially viable today as on a per unit basis, but at least the capability exists and in certain states like Maharashtra, etc., it still becomes financially viable. So that's been the journey, Shreya, and that's the background in how I got to, where I am.

Shreya Jai: But just a quick question, why choose, you know, we will discuss what decentralized and offsite solar is, but why did you not get into this rat race of, you know, tariff bid project, utility scale project, because that's where from my angle, that's where the headlines are being made. And, you know, that's where the action was heating up as compared to whatever action was happening on the other segments of this economy.

Vivek Subramanian: Yeah, absolutely, Shreya. So I think for the first 7-9 years, we always saw all the action in terms of reporting, financing, fundraising, all happening in the areas around us, rather than in that core area that we operated. So I'll just draw that distinction out. Essentially, when we looked at our business model, we felt we should target the customer's price of power rather than the discoms cost of power.

You know, so we drew that distinction first. You know, we said, if you look across the board, across all states in India, the price of power to C& I that is commercial and industrial India is always increasing. And it is, you know, sort of historical rates of between 3 to 5% a year. As against that, the cost of power being supplied to the discoms is a function of what's the scale, what's the technology. So for example, solar there is competing with nuclear, was competing with thermal or hydro in that the discom will always attempt to try and find the cheapest source.

In our case, when we supply energy as a service to supply to our corporates, we are constantly benchmarked at a higher level. So my average portfolio price today across my gigawatt plus assets that we today own, the average PPA price is about 3.9 rupees. You go to any of the large bids at the discoms level, at its lowest, it was sub two rupees. So we never saw value in trying to make this a bidding game. We are always looked at us as an energy as a service provider to corporates and their benchmark, mind you, even at our 3.9 rupees price, my customers are saving between 50 to 70% in the price of power for their own operation. So we just chose to operate at a different level.

We were banking, Shreya on two or three key facets, right? I mean, one is we wanted our business to be run on what you would call market dynamics. So my typical contract with a customer is for 25 years, you know, so power purchase agreements are for 25 years. Now that's a fairly long period with a lot of risk associated. The biggest risk mitigation method that I can build into my contracts are not terms of the power purchase agreement, but being in the money of the contract. So the moment I know that I am saving the customer, say 30 to 50% in the price of power, I know that he's never going to renege on the contract. He'll clear up bills at the earliest and the contract is always in the money. So that was one trend that we kept insisting.

So to put that in context, for example, we haven't as yet signed a project in Chhattisgarh because the price of power, for example, in Chhattisgarh has been low. I have not managed to do a lot of work in the Northeast because the price of power there has been lower compared to the grid. So we keep that benchmark in mind as we are going to where we are going. So that's, I think, point number one.

Second is there is an undeniable global trend that we predicted. And I'm very happy I'm seeing it materialize more and more now that there will be greater disintermediation in the power sector where end consumers will want to control their energy destiny. So corporates today globally want to buy power themselves, want to make sure that the mix is what they want. They are unwilling to continue the structure where their power continues to be 70% thermal, which is what they get from the grid today. So they want to control that mix towards renewable energy.

And finally, if you look at what the war in Ukraine, for example, has brought about in Europe, the flashes of price increases have shut down businesses. You know, so they also want to control the price of power. So they want fixed contracts for the duration of 25 years. They want to control their business risk to that extent. We predicted this. We wanted to make sure that we at no point are running a scenario.

So this is a very market driven phenomenon, right? It's not driven out of policy. It's not driven out of any government norm. It's driven out of just your demand supply economics. And that's where we want to operate.

Shreya Jai: I think that now I believe it looks like the right decision. Before as we dig deeper into the sector that you operate or the allied industry, let's start a bit from the basics for the sake of our listeners. What exactly are on site and off site projects. You can explain it on site a bit, but go a little deeper into what are off site projects and what role do they play in this whole green energy economy of the country?

Vivek Subramanian: Right. Perfect. A very relevant question. Thank you. Sometimes we use these terms, assuming it's all pretty standard. I apologize for that. So let's go with the basics. So if I'm a customer, where do I get my power from? I get it from the distribution company. He gets power to their building or to their premises, and that power is then distributed amongst the various factory buildings or and consumed by the customer.

Now, if you had a power generation source yourself on your roof or on the ground within your premises, in essence, think about it like a simple battery bank or imagine a diesel generator that is running within your premises. It's your own captive power source. So a solar energy plant can be within your premises and whatever it generates, you consume that's called on site solar. So it's on the site of the customer. Right.

So imagine a world where every roof anywhere in the world has a solar power generating unit there. Traditionally, the power sector always thought that it should be closer towards the pit heads or the coal supply zones. And power is generated in one corner of India and it is transmitted and distributed across the consumers everywhere. Whereas ideally, if you distribute the generation alongside where the consumption is, then the grid remains stable. It's a very different methodology. And actually, if you analyze a little deeper, solar has the strength where it is actually the only power source that can be localized and generated where the consumption is happening.

Now, this is a very big strength that solar has. It can also be run at a fairly small scale. So I can even have a one kilowatt plant, a 10 kilowatt plant or 100 kilowatt plant. It's just different solar panels connected together in cities. Right. Or whereas in thermal or nuclear or hydro scale matters, the scale actually there's a different technology. So the moment you move from thermal power plants to ultra thermal plants and so on, the technology of the turbine changes and therefore becomes more efficient.

In the case of solar, there is no such technology change. It's just a larger agglomeration of panels. So more panels connected to each other. So actually, the best use case for solar would have been if every roof has a solar generating plant or every small ounce of space available is covered by a power generating unit. And that power is consumed by the consumer who is at that location per se. So that's on site solar.

Offsite solar is very similar to power generation at a certain scale. So think about I'm a fairly large commercial complex. I'm a real estate player. I have office complexes in my building. My energy intensity is very high, but the space available on my roof is very small. So, you know, what power I can generate there is very limited. Now, if I am in the same state, I build a plant, say about 100 kilometers away and create a fairly large solar power generating unit there. That power is fed into the grid I consume from the grid and I set off what I have consumed from the grid against what is being generated from my plant at a third party location. That's called offsite solar or offsite wind, essentially.

Now, this is more an accounting adjustment. You know, there is no wire that connects my plant to me where I consume it. It's more an accounting adjustment. So I consume from the grid. I set it off against what I have fed into the grid. Now, this has been allowed in India. It's called open access. And it is it has been allowed in India thanks to the 2003 Electricity Act, which allowed for consumers to have a captive power source for themselves. And this brought about a complete revolution in the consumption of energy from the end consumers themselves. So large industries could set up their own coal power plant and consume from the same. Similarly, now they can consume from renewable energy plants.

Just to put it in context, in most of our neighboring markets where we operate, this is not a policy that is prevalent. And therefore, the growth of renewable energy has been limited by the extent of space available on your roof or on the ground within your premises. So that's the distinction between on-site renewable energy and offsite renewable energy. Mostly on-site renewable energy is solar. You could have small wind turbines installed on your roof, but, you know, wind patterns could change and therefore gets fairly unpredictable from a technology.

Shreya Jai: Taking this further, if I were to talk about specifically what kind of products or solutions Fourth Partner offers in this space and what is typically a business model in this segment? And in that, what is the model that your company follows?

You know, just to understand that what is the kind of revenue generated? Because it's easier to understand that how utilities scale function. You construct a project, you sell the power. But in this, you have, first of all, a variety of customers to tackle. You might have a commercial customer, might have a real estate, domestic customer, several things.

So if you can explain these two things.

Vivek Subramanian: Correct. So I'll break this down from a demand and supply perspective. Let's start with demand, because customers are always most important to any business model. So typically we have about 200 plus customers on our platform. Most of these customers are multi-locational and have different needs in each location. So they may have factories across multiple states. And what the size of these facilities may vary significantly.

For us, first, it's important we partner with customers. And I want to take a minute on this one to partner with what I would call creditworthy customers, because my contracts are over a duration of 25 years. In fact, think of us like a lending agency or a bank. You know, we're giving a loan to a customer and he's paying us back in 25 years. So I have to first assess if the industry will last 25 years, in that if the customer will last 25 years and really then make good my payments over that duration. So my credit assessment is a lot more meticulous than even a bank or a lending agency, because their loans are typically 10 - 15 years. You know, my loan is 25 years. And so we first make sure we're partnering with the right kind of creditworthy customers. Typically good creditworthy customers are also going to be higher scale and will be multi-locational in their premises.

Once I partner with this customer, I sort of map to a customer where are all his premises, what are his energy sources, what is his energy consumption at each location from each of those sources. And therefore, what is their mandate that they are trying to achieve? You know, so certain corporates, the RE100s, etc., are committed to achieving full around the clock renewable energy consumption by say, 2030. So we now know that what goals they have from an overall corporate objective that we need to sort of leverage, benefit and deliver for them. We think of ourselves as a service provider.

Now, in this journey, there are two aspects to fulfilling the customer's needs. One is where I can supply from. So do I have some supply? Let's say this customer has a premises in Maharashtra, has a premises in Karnataka. Now, do I have plants that can supply from these locations? That's point one. Point two is what are the policies prevalent in those states? You know, and do they allow me to supply in the form and shape that the customer wants? You know, so the rules in that are typically one, should I be on site on the roof? Because clearly on site renewable energy is the cheapest source because I don't use the grid at all. Right. So I'm simply generating and consuming at the location. So it saves plenty of other costs, therefore. But then there are policy restrictions on how much I can generate on the roof, how much space there is available. So I have to make those assessments and then marry the policy demand to what I can then supply.

Now, my supply, I have to add constraints like, you know, is there enough land there? What is the cost of building that supply capability there? Are there substations with spare capacity where I can feed my power into? What is the load balance at that substation upstream and downstream so that I know that at no point I'm generating renewable energy and it is not getting consumed by the grid. Right. So I have to assess for the next 25 years, I don't have any surprises there. So there are these supply and demand matches that I'm doing.

But essentially, I then go back to the customer and detail out to them what I think should be their roadmap. And that roadmap says this year you should target doing AB states, then, you know, next year, maybe C and D can get covered. And if you do both of these, then by 2026, you have already achieved, say, 60 - 70 percent renewable energy, which is great progress on your road towards getting to 2030. And the rest, let's wait because technology is coming in, costs will reduce. So these two things you should do. But the rest will work out with you, the rest to go alongside. Now, this is the kind of conversations we are having with our customers.

Essentially, there are two parts to that again. One technology to a large extent tries to match their consumption of power with the supply of power from our plants. Now, this is important because more and more, as you know, renewable energy is intermittent. Right. So I generate in the day in the case of a solar plant or maybe in certain key months in the case of my big plants. But the customer's consumption may be continuous to a large extent. So I have to then see, does the state allow banking, which power source can meet what they need? What should be the policy overlay on top of that?

The final or actually very fundamental conversation with the customer is also, do you want to own the renewable energy plant or do you want us to own the plant and supply only the power? Essentially for the customer, is it a capex or is it an opex? If it's an opex, that means it's an operating expense means he buys power from us. And therefore I own the asset. I maintain it. I develop it. I run the plant and supply to the customer month on month with a delivered benefit that he sees coming through. So he passes on to us the technology risk, financing risk, the operating risk, and pays us a premium for the same so that he anyway is covered for the risk. So that's roughly the way we approach our customers with a business model.

For Fourth Partner Energy, irrespective of how the customer chooses to contract with us, whether he owns the plant or we own the plant, we say we will design and build the plant for you because we are fundamentally a technology company that can deliver to you that. Second, we will also maintain the plant for you because we have a hundred percent O&M team that can give you the services that you need. The final only question is, does the finance come from us or does it come from you? So should we own the asset or you own the asset? We are happy to own the asset if that's what you want. Needless to say, Shreya, 9 out of 10 customers choose to only buy power because they look at power as an auxiliary investment. If they have the money, they would rather put it into their core operations there and build their capacities.

Shreya Jai: And what is typically the mix of customers that you have currently? And also has the customer mix change in these many years of your operations?

Vivek Subramanian: So, yeah, if you think about auto components in 2010 was so hot in our stock markets today, when we look at auto components, we are very careful to ensure that IC engine component manufacturers don't feature very high on our preference list because we strongly believe that in 10 to 15 years, India would have made the full migration to electric vehicles, which a significant part of the market would have migrated. So we have to take industry level calls. Textiles. India was having a strong presence in before. They were big energy guzzlers. Bangladesh and Sri Lanka have become more competitive now. And I'm seeing that the competitive strength in bulk textile, yard manufacturing, etc., is diminishing to some level. So there are certain industry level calls we take on that front. Not to say that we sort of don't believe that some of them will never exist, but it's just that we have to be careful about how they go.

Very early, we were one of the first service providers to Flipkart, to Myntra's fashion warehouses because even though they were loss making at their balance sheets, had no debt because of the extent of loss making that they were at that time, we took a view that this is fairly large, strategic, and eventually will have very marquee investors come in. And that theory sort of panned out. So we have to take some industry level calls on that. But otherwise, if you see, we have, I would say, a large concentration of what we call industrial players who are more process based, industrial 24/7 kind of Nuzleurs, basically. So think about a chemical plant and so on. So that would be fairly large setups. Commercial establishments are also very important. So, you know, most buildings with large office complexes are also going to be a fairly large consumers of energy for what we do.

The way we look at my portfolio is at the end of the day, we supply power. So, you know, what the power is driving is not as important as the credit of that customer. So I actually take a more credit view to our portfolio. So no customer should exceed 10 - 15 percent. No industry should exceed 20 percent. So we have these norms that we build that allow us to feel that at the end of the day, it's like how a bank would look at its portfolio.

Shreya Jai: That's a very interesting approach. And I think something you don't hear much from the supplier thinking about the credit worthiness of the industry that they're investing in or the future growth for that matter makes it more sound like how would you make a stock market investment or something. But, you know, it gives the idea that solar is something that is to be invested in and solar itself or renewable itself can decide where to invest in as a company you're looking at. It does.

Why I asked if there has been a change in the mix is because we are seeing a spurt of industries or companies coming forward, wanting to get some investment in green energy to meet, say, their emission standards or their ESG goals and everything. Have you also witnessed something similar happening and has that helped your business in any way?

Vivek Subramanian: Yes. So first, let me get to the first part of it. So industries like, for example, data centers didn't exist five years, seven years back for us to even consider it as a vertical. Today, we have a dedicated team sort of just only focused on devising solutions for data centers because data centers measure their capacity in terms of power. You know, so it's a very interesting way of looking at businesses there.

But overall, I think sustainability is very much at the forefront of every corporate. So if you look at most corporates today, they all are wanting to have firmer commitments on the sustainability journey. And in that, renewable energy has been ticked off as a must have in the sense that it's proven, it's tested, it's cheaper. There's a strong business case. So that kind of approach basically is how most corporates look at renewable energy. So our business is much easier. 7-8 years back, I had to sort of hand hold my conversations with customers where we had to tell them which technology works. What is the meaning of solar? How will it coexist alongside their existing supplies? And we obviously had all kinds of difficult questions that would come as well on that front. I think most corporates today are extremely well educated on that front. In fact, I would say even sophisticated to an extent where they appoint sometimes consulting, some of our big fours, etc. to go out and contract for them from the best possible supply options, renewable energy sources for what they need to do and so on. So I think that journey is behind us. The sale process is far more sophisticated.

There was a time, think about it as well, right? There was a time when corporates, I would say about five years back, corporates would sign PPAs with whoever gave the lowest price of power because they are saying, you're taking all the risk. You know, how does it matter to me? I'm not taking any risk. So let me just sign with whoever gives me the lowest cost of power. Now, corporates are recognizing that if the counterparty fails in supplying the power at that price, it is as much their loss because their savings is off the table. Therefore, if the plant was running, they would have made the savings. If the plant is not running, they're not making that savings. And therefore, this has now become so the first call usually we get when any of our plants anywhere are down is from the customer because he's tracking it on our app. He has our app on his phone. He's tracking the power generation on the app and every, you know, 15 minute basis, it gets refreshed. And therefore, he knows when the plant is down and he's saying, that's my savings going down. So, you know, when are you getting up? Who's coming to maintain? Now, this is a good, healthy contract to have. That means both parties are interested to maximize the generation of a plant. That means the contract is what I would call well aligned and therefore very much running.

Shreya Jai: But, you know, has the competition increased in these years? Because I see a lot of players coming into this segment. And what is the differentiating factor? Like if I were a customer or a consultant, how would I decide? Obviously, the L1 is no longer the differentiating factor than what is.

Vivek Subramanian: So both extremely relevant questions. So first is when we started in 2010, I think we were the only one who decided that we'll focus on the C&I sector. I think there was an I can imagine at least one more player who was there at that time. But that's about it. Now, the last count we had, we had about 10 or 15 new players catering to what they also call the C&I sector. And a lot of these are people who are catering to the utility scale sector.

Shreya Jai: As we were talking, I realized that even the big players are now looking at this segment. You know, everyone's talking about it.

Vivek Subramanian: Correct. Because they also now see that this trend is there to stay. That the end corporates are going to move out of the discoms and have their own sources of energy. And your discoms are forever distressed. Their receivables are between whatever three months to 12 months. Let me not get there. But more importantly, the pricing here is also better. So they see value, what we always saw to that extent, and now think that they can get here. But please, let me turn this around.

Anybody who does business in India should recognize that supplying anything to the corporate world is not going to come easy. Corporates are demanding. Again, I go back to the definition of my business's energy as a service. And corporates being served are very, very demanding. I can give you a million examples of this. My favorite example, though, is ICICI Bank. I mean, some of the first orders we did for them, we've done 400 rural branches of ICICI Bank in 20 different states. The plant sizes between one to three kilowatt. I did that in those days because I knew ICICI as a consumer is fairly large. And eventually I'll get to their data centers, which we have. But when I look at a corporate, I have to then cater to all their needs. I can't selectively tell the corporate, I'll give this to them and nothing else. Then you're not going to have a partnership with them. And that is how we work.

Today, we've been with the bank, with ICICI Bank for now eight and a half years as a partnership. And that means that, you know, anytime they have any new requirement for solar energy, they should come back to us, right, as a default option.

We've done almost 200 different stores of DMART. Each is a, you know, is a new project by itself, you know, as you can imagine. So there is a lot of intensity to that engagement. And if I were a customer, what would I look for in a player to answer that second part of the question is, does this guy who's coming and selling the job while wearing the fourth partner energy logo also going to be the same guy who's going to execute the project, who's going to service the project over the duration of 25 years and finance it also and be my partner for the next further office? You know, so does he just come in saying, you know what, I'm a utility scale supplier. I have eight gigawatts under operation. You know what I can also do for corporates. I'll give out the execution to somebody else, but I'll sign the PPA with you because you don't know if it's going to hurt him as much as it hurts you. So that's what the corporate wants to assess.

The plant not being available even for 15 minutes is no longer a loss to the developer. It is also a loss to the corporate. And that recognition has to come out in that service mindset that the customers are now assessing. So this is what they look out for in that player. And that is how we distinguish ourselves. You know, we have a team of 430 odd people today in the organization. We have the end to end capabilities. We have 11 office presence in India alone, four outside of India. And all of these places is what you would call we're being as close as we can to the customer so that we can be immediate in our response on whatever we need.

Shreya Jai: Okay, I have two observations. You choose which is correct. One is that say last decade, I'll take that timeline. Last decade, the growth of I'll say decentralized solar has been slower when compared to utility scale. And I'm talking purely in terms of megawatt, not investment or anything, just in terms of megawatt or the size of project, a scale or even the regulatory attention of the government. Utility scale has had the lion's share compared to decentralized, all kind of decentralized solutions. So if you can tell me if that's correct or not and if it is, you know, what are the reasons driving that?

But the second observation is completely opposite to that, which is as you and I both observed is that big players are also entering into it, you know, providing energy as a service. So what changed? DISCOMs is one example, not everyone wants to have that headache anymore. Till when will a utility scale player wait for DISCOMs to clean their books? So apart from that, what changed in the market?

Vivek Subramanian: So two or three things here. So first is being on site and supplying renewable energy from your own premises is, like I said, technically and commercially the right solution. However, policy has not allowed it to progress as much as it should. For example, for your on site solution to have what is called a net metering. Net metering is where I have the provision where at any point if I am generating but not able to consume, I feed it back to the grid and I get back credit for it, say in the night when I'm consuming from the grid. This has been limited to, for example, one megawatt in most states. So I can have only a one megawatt plant within my premises for it to be net meter. Policy has prevented the growth of of on site renewable energy to a large extent.

The other aspect of on site renewable energy is that it is limited by the extent of space it has. So if, you know, if I'm in a building, you know, a small terrace is not good enough for power generation for where I need to be. And the other critical aspect there is the fact that it is. And therefore, when you talk about smaller sized plants, the commercial viability of that drops dramatically. So when you talk homes, imagine a scenario where every home owner has a solar plant on their roof. That is not envisageable even today because the commercial viability of that solution is poor. At that smaller scale at a home level, solar is not viable. You know, it costs a lot and therefore requires government subsidy to make happen. The moment you touch government subsidy as a subject, it will never succeed because the market forces won't apply. Therefore, so in this context, those have been the limiting factors for on site. So India had a 40 gigawatt plan for rooftop solar. You know, we've done phenomenally lower than that, to say the least. But I think that if policy allowed for it even more and there would be a lot more spurt of that and it is limited by by that front to go alongside.

Coming to your second part of the question, which is why is there still a larger scale pull from from on the what you would call the C&I solar to still come about or distributed solar to come about? Because open access is still added scale to that entire equation. So now when I'm I can be in the same state and still build a 50, 100 megawatt and have my off takers of high credit corporate customers. Now, this is a much better mix to get financed and run a business on than building, say, a 100 megawatt utility scale project with supplies to the local discoms because the disk comes credit may not be as good as a Coke, Pepsi, Ferrero, Mars, ultra tech kind of customers. I mean, they may just offer you greater comfort. So that's why the growth of the C&I sector is coming about there.

And to go back to the even more basic question, why is the C&I sector demand being as high? I answered that by saying corporates want to control their energy, destiny, cost strategy. And that is the key driver. That did not exist five years back. Share the corporates were fine running for them. Availability of power was a greater challenge in those days. You know, will we be in states where at least 24/7 power exists, which is why Maharashtra sells the largest investments in the industrial sector. Now, when the availability has improved, corporates are now saying, hey, I now want to control how much renewable energy I get in that mix as well. So let me try and control that. And B, let me now reduce my energy cost by going directly.

Shreya Jai: But on the supply side, what do you think are the reasons? I don't want to take any names, but among the utility scale companies, what has changed for them? You know, if you can also add to the point that what is the kind of market we are looking at in this country, which has evinced the interest of these players and why now?

Vivek Subramanian: Right. So if I'm building a business, the two key considerations for me is the quality of my customer and B, the realization I'm going to get from the customer in utility scale. The quality of the customer was to a large extent the discoms, but they were facilitated by agencies like SECI and NTPC who helped improve the credit quality of that offtake. Even though the discoms are loss making, a SECI kind of entity comes in between and helps you sort of feel the level of comfort there.

The second is the price realization on your contract, which, as you know, because of the extent of capital that came into this play and there became too many developers with a lot more capital that raised as against a few tenders that were coming. The price of that renewable energy came down all the way to about two rupees or so, which by any stretch of imagination will not meet the threshold returns for most investors who have invested into those contracts.

So for both of these, the obvious solution could be that you go towards the corporate side where the credit quality is fine and you have to pick and choose the credit quality. It's not like all corporates are fine with credit. But be the only impediment for most utility scale players to go to the corporate side before was that there was no big scale because on-site renewable energy was a small game. We have today about 400 megawatts of on-site solar that we built over a period of over a decade. So for most large utility players, they wanted to do single orders of 500 megawatts or so in just one contract. So that resource intensity was too high for them to want to get there and build teams to do that. And they always felt that this did not offer scale. Now, with open access becoming quite the norm, we are able to build. So now every year, Fourth Partner Energy is itself building close to about 5 to 700 megawatts a year of just corporate customer supply and a lot of it from open access off-site renewable energy supply.

So now the utility players are saying, hey, we got good credit quality and we are getting larger scale. And you're eventually going to the person who's consuming my power. I'm not going to an intermediary who is then going to supply to the end consumer of power. So at the end of the day, a DISCOM is an intermediary. So they are seeing the value of moving in that direction, therefore, from a realization, from a scale perspective and therefore still getting there. I will still say one more point. This is not to say that utility scale solar will not exist. It will because the larger. So, for example, Prime Minister Modi has made large commitments to what India's renewable energy migration plans will be and the gigawatts that we are committing to. To achieve that scale, we need to green our sources of power. India still gets 70 percent of its power from thermal plants. We need to move more and more renewable energy into those supply of renewable power, into the DISCOMs as well. So that will continue, no doubt. There will be large scale that will still get deployed. If I were a fairly large utility player, I will look at my book to be built by, say, 50 - 70 percent still from utility play, where your returns may be lower, but larger scale gets deployed. And you'll do C&I for 20, 30, 40 percent of what you want to do, where your realizations are better, but the customers are much distributed. But it is more resource intensive. You have to build larger teams to take care of that. Mind you, the larger utility scale players never really had a big marketing team. Right. And at Fourth Partner Energy, we have a 15 man woman marketing team itself. So just my sales process, customer engagement processes is fairly has to be very detailed and meticulous. So a lot of them have to build that.

Shreya Jai: And from here on, how do you think this market will change with these many players coming in? I'd also like to add, and these are just very few examples, maybe you can add some more. You know, I'm seeing different type of companies coming in offering different type of solutions rather than this company I know, which gives solar credits. There's this company which gives solar credit in terms of biscuits or something like an online credit system. You just have this credit system and gets offset in your electricity bill at the end of the month. So would we see more of these solutions coming in because of the tech support now that the sector has and with so many players? How do you imagine the market going forward?

Vivek Subramanian: I won't stick to one or two ideas. I'll give you a larger level trend. So one is again, I reiterate this intermediation, which means that today a discom's role will get more and more towards building and maintaining the grid, the infrastructure rather than being a generator and supplying power. So I think the discoms, you know, the horse and carriage are going to get separated very clearly, and it is going to get more and more apparent in the years to come that the discoms have to play the role of building the grid and managing the grid rather than worrying about being competitive power generators. Okay. So that's one trend level one.

Trend level two is end consumers will control where and who they buy the energy from. Trend number three will be that therefore the suppliers of energy will have to do two things. One, they'll have to bring the cost of generation lower and lower so that the customer benefits the most correct at the end of the day. That could be through technologies coming in. It could be through different mixes coming in to make it happen.

Second, they have to provide to the end consumer the kind of services that are being demanded of them. And typically what are these services going to be? I want round the clock renewable energy. So I just, you know, I don't care if it's solar or wind or hydro or battery storage to go alongside, but my operation should be fully fired by renewable energy, even in the night, even in the rainy season, even in, you know, any time of the day and the night. So to be able to meet this, the developers or the suppliers of energy now have to bring in different kinds of technologies, have to work on deploying these technologies within the policy frameworks that are put on us because power is always going to have the policy overhang on us. Right. So policy will always decide how I can service my customers to that extent. So can I do banking or not? Do I have to be on site or not? Is net metering there or no? Can I supply wind from these assets or no? Do I do wind solar hybrids? What is the wind solar hybrid policy in that market or no? So these aspects will always come into the foray. So I have to get better at managing policy with technology and combining these two to give the customer the service he needs.

The other aspect of what the customer will need is the customer is going to get less and less nuanced about this being electricity and this and move more and more towards this being energy. So this will be electricity plus heat plus maybe clean transportation, plus some, you know, so all of these industries will get hazy and will get bucketed under the customer sustainability umbrella for energy, whether it is energy efficiency, whether it is bringing in heat there, whether it is clean transportation that is coming there. All of these aspects, I have to think about adding to my basket of offerings for what the customer is going to need and demand from us. If he continues to want to deal with me as his energy partner, I have to constantly keep adding these facets of service and keep upgrading my capabilities to meet what all they need. These are the compelling trends.

You may see some specific questions that you ask. Look, I can be smart about some the way I package a service. I can give you credit here, take credit there. You know, I can do all of these. I can help you get offset some of your carbon footprint through say renewable energy certificates from another market. These are shorter term measures. The customer wants to go from 10% renewable energy that he currently has through some contracts today towards 100% renewable energy. That renewable energy can be helping him meet his electricity needs. Maybe some of the process heat can be transferred from furnace oil to electric boilers and therefore move towards energy. I have to help make all of these migrations for the customer so that his overall sustainability goals is achieved. His sustainability goals that he's committing to his financiers, to the board, to the markets globally and to his customers. My customer's customer is today demanding that their premises be renewable. And this is a very fascinating trend that we are seeing across the board in India.

Shreya Jai: I'll shift the gear a bit and just wanted to know out of curiosity. I'm sure this question pops up in a lot of people, whoever would be listening it. In middle of this, is there anything for say a retail customer, a domestic customer? Are there any instruments or solutions? Is the market developing towards that side or are we leaving it up to the government to give them green energy? Retail customers, even agriculture for that matter, apart from a handful of schemes which aim at greening the irrigation systems, is there any level of interest from there? And if there is, then what are the solutions that such customers can look at?

Vivek Subramanian: No, absolutely. So India has come out, at least the central government came out with a green open access policy. It was a guidance to all state discoms to adopt in its form and shape a version of that. But some of the guiding principles in that are allowing open access to get more what I would call democratized. So earlier for you to get an open access solution, if you had to buy power from a third party location, you had to be at least a one megawatt connected load. That has already been guided to be brought down to a hundred kilowatt, which means now what you're saying is that smaller businesses, smaller buildings, establishments can also get green energy from a third party location. Now, this can move, you could argue this can move down a level further to say 20, 30 kilowatt, 50 kilowatt solutions, because of course I can generate what I can on my roof. But if I can also buy it from an offsite source, why will I not want to be green, especially when it is cheaper? So if you ask me, where do you see fourth partner, say, I don't know, 10 years from now, I see myself as a green utility, you know, and I should be able to supply green energy to not just corporates, but to SMEs and maybe smaller establishments, homes and supply renewable energy on site, offsite, wherever I want to be.

Again, I go back to the point that we want to be, you have to combine, you have to have that mix of technology service within a policy framework that I have to deliver to my customer. And this mix, I have to make it as democratic as possible and move down to homes, move down to smaller consumers. Now come to the rural sector, the rural farming sector, Shreya has other challenges in front of it. First, you know, to a large extent, while India has ticked off the boxes on availability of energy, that energy is not always 24/7 available in rural India. And even if it is, the quality of that power is very poor. I think first the grid needs a significant transformation. The quality of power has to improve in these locations. Availability of power in a lot of locations also has to improve. And the mindset that power has to be free to our agri base has to change, because actually there's a cost to that free power. You know, when you demand free power, then it will be intermittent. Then you're not getting what you want when you want. Farmers today are getting smarter about that. And I think rural India has to eventually accept that there is a price that you have to pay to get uninterrupted power with good quality supply to go alongside. A lot of the discoms' ill health is because it has not come because, you know, they are not sustainable. It has come because they've given away free power a lot for political reasons that is governed through. Now that has to stop. We have to make the migration. There are technology solutions like solar pumps that just, you know, that are wonderful because, you know, water offers head. You can store it. You can pump when the sun is shining and use it whenever you want through the day. But and those solutions are being implemented by the government through various schemes that they're coming out with time to time. But I think the more pertinent transformation that we need to do into rural India is make it more the commercial norm. Let market forces operate.

Shreya Jai: I want to ask about regulation. But before that, I want to understand how is the financing for the sector and has it improved the attitude of the finances towards this sector? Is more capital available for domestically and internationally? And what is difficult getting domestic finance or international global finance, which is much more active in this space?

Vivek Subramanian: Very pertinent question, Shreya. So for us, actually, while there is a renewable energy engineering front to the business, in effect, at the back end, we are actually a financing vehicle, you know, and it's a large lending agency working for over 25 years with the customers, like I was saying. So for us, being able to raise capital is super important. And in that, if I may add, raising all different types of capital is important for that. So one is, you know, of course, there is equity, then there is project finance, there is construction finance, which is something that we need in between to sort of get the project rolling. There is sometimes working capital we need in terms of LCs and to buy components and we construct out the plants. There is sometimes receivable financing that we can have because my contracts for 25 years are stable. So financiers can come in and operate. There is then the entire world of InvITs, because once the asset stabilizes, you know, there is generating history to go alongside. We can bunch these, move it down and allow for a different category of financiers to come in on those assets with more stable cash flows coming out from them. So the world of finance is super important to make this world of commercial and industrial renewable energy work at the front end. And that share has been, I would say, transformational. And one of the big reasons why the sector is now growing as fast as it is. Across the board, all financing houses have themselves committed to ESG mandates that their projects should have what you would call clean impact on the ground. And in that renewable energy is right, you know, is very ideally suited to meet those norms. So you take most banks, most NBFCs or even large private equity houses. All of them are very happy to have an exposure to this sector because one, it ticks off for them their ESG boxes. But two, they are also seeing that this sector amongst the other sectors in the extended power space, offers a good mix of healthy customers, high credit quality, credit assessment, energy as a service. So it's not a power usually suffers from the dogma of being a very commoditized supply, L1 only, supplying to government entities. So that, you know, all of these perceptions at least go away and lenders feel comfortable that here is a play where you're talking about corporates, their sustainability demand. You're talking about higher pricing. You're talking about services to be given for their tight agreements to go on. You know, so there's things like all of this that they feel they can assess and feel more and more comfortable about. The growth we have seen in the last few years in the project finance side, you know, suggest classical 15 to 20 year tenured loans to build my renewable energy plants. The availability of such options have gone up dramatically in India. You know, earlier a lot of renewable energy players had to go and raise capital internationally through bonds and so on to bring that kind of financing back into India. Today, most of us are able to get what we want from the domestic sources. And as we now know, because of the interest rate spikes in the international markets, it's actually been remunerative to actually raise it in India rather than the capital abroad. Of course, if you still want to. So let's say I'm going to go through a process of refinancing of our existing portfolio. So, as you know, once the assets stabilize, if I can then go through a process of refinancing and bringing in financiers with a slightly lower return threshold, but more valuing lesser risk of the of the asset already built up, that's value that I'm creating for myself as an equity owner of the plants.

And we went through an entire process of refinancing our portfolio as well. And for larger chunky refinancing, we probably still need to tap the international markets. But we are seeing a lot of that still being available through domestic sources and banks coming out with IDFs and so on, which allow us to source capital from domestic supply as well.

So high level, quick answer to that question again, a lot more domestic capital available than there ever was for this space. B, even amongst the international financiers, there is a lot more appetite for renewable energy than there ever was before, because they see it meeting their return objectives as well as their risk objectives to go alongside. And three, sorry, and I must add, I forgot to add this point that in the larger renewable energy space, India is a beacon when you compare it to what is happening in the rest of the world. So across the board, across all industries, India is coming out as an alternative to China from a setting up of manufacturing base, etc. Everybody recognizes that the Indian government has been encouraging building manufacturing capacities here, but alongside as also very supportive that some of those establishments need renewable energy to fire them. So corporates who are coming in and saying, before I set up base here, I need to know that you are allowing me to get renewable energy to these facilities from outside sources. So they are making it as a necessary condition of their investment, you know, which really helps us. I'm just saying that it's a very strategic shift in that market. Therefore, financiers backing all of this are very comfortable that India will be a fairly large renewable energy base going forward.

Shreya Jai: Want to come to my concluding question, but this is something for to ponder upon probably, first before I delve into that, I want to understand that are there any policy level regulatory challenges that remain in this sector?

And but apart from that, do you think that this market, given that it has operated for so long, sans any regulations, that it is at last ready to operate without any assistance? It's a utopian to say that. But is it a true market driven industry now?

Vivek Subramanian: So tough questions, Shreya, but let me try and break it down to two or three parts.

So first is for somebody like us who's been there over a decade. I have to look back and say that every year is better than the other, right, from a regulatory perspective or a policy perspective. It's getting better and better. And sometimes while entrepreneurs will always be restless and say that, you know, all such barriers should go away, that's not a fair assessment at all. Policies are meant to think more comprehensively about all parties concerned, want to ensure that there are no big mistakes that pull back the sector. It continues to grow. And I'm a big fan of there being oversight on that front. So there I have no disconnect. For example, last year, India imposed a basic custom duty on the import of solar panels, right. And it was a 40 percent duty. It had a huge impact on the on the industry. We were, you know, we were, of course, frustrated that why can't they simply give incentives to domestic manufacturers of solar panels? You know, give them a tax holiday, give them what they need, rather than impose a duty for the developers to actually source where it can be from. But I understand what India is trying to achieve. We are saying we must have a strong supply chain domestically. We can't be reliant too much on China for all of this. And therefore, if we take the next 10 to 15 year kind of view, it's a right decision. You know, we can go through a year or two of pain, but let's you know, the graph should continue to go upwards and forward. You know, that's the way I look at most of these policy calls.

However, there is one point that I would as an entrepreneur do like to place this back, which I touched upon, you know, that while world over power sector is always policy-driven and managed, but we must be careful that policy is not an excuse to safeguard legacy businesses of the government. If the government is playing the role of a generator, it must do so at the best possible terms to the customer. It should give the customer the lowest possible tariffs that they want. If it is unable to play that role as efficiently, then it should stop playing that role, essentially. A policy should not help safeguard that legacy business of a certain government entity. That is my only consideration. Therefore, should policy ensure that you compensate the government for managing the grid? Absolutely. I want to stop actually making it a ‘us versus them’ game. I would like my distribution company, the government entity to be a co-signatory for every power purchase agreement I signed with a customer, for example. You know, so imagine I have a three-way agreement, the customer, me, and the discom, as entities who have signed the power purchase agreement, that would be the best structure, it will take away all the risks of the contract. The discom is also incentivized today. The customer feels comfortable that, you know, all parties are in the prey and we can all proceed ahead.

But somehow, right now, it looks like we are competing with the DISCOMs. On the generation side, I am competing with them, but in terms of managing the infrastructure, on ownership of the grid, I don't want to compete with them. I am dependent on them and I need their support, essentially.

So policy, as long as it makes all parties beneficial, I'm fine with that. But policy to safeguard the interests of legacy businesses, we should guard against is my only submission there.

Shreya Jai: Great. Thank you so much. This was such a well-rounded discussion. I think we covered every aspect. Thank you so much.

Vivek Subramanian: Thank you, Shreya. Thank you for organizing this.

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