Don't think we can write off conventional power quickly: Siemens India CEO

The new procurement policy creates a level playing field & is in sync with the Make in India scheme

In a chat with Hamsini Karthik, Siemens India managing director and chief executive Sunil Mathur said it is early to say if solar power is sustainable at current rates. The challenge, according to him, is how well renewables feed into the grid. Edited excerpts:

There has been reasonable progress in power sector reforms, pricing policy, etc. 

Government’s focus is on renewable of late. For us, the merger with Gamesa at a global level is helping us in India as well. Gamesa is a market leader in wind energy. On the conventional side, there are about 186 gigawatts of coal-fired power plants. Not much is happening there because of focus on renewables. A lot of these plants are over 30 years, nearing their end of life and not meeting the emission norms. So, the challenge for the government is to address these 186 gigawatts of capacity. The government is converting a lot of this to super-critical energy and upgrading capacities, which means the emission norms are getting complied with. So, for us, that is a huge opportunity. But, I do believe that we need to do more, in terms of working with coal-fired plants because when industrial demand picks up, we need to have the supply.

Reports suggest diminishing relevance of coal-fed power plants over the years. You agree?

We first need to see the viability of solar power at current tariff structure. Increasing the share of renewables is a right thing from the country’s perspective. But, whether the solar tariff will sustain at current rates, only time will tell. But having said that, I don’t think we can write off conventional power so quickly. The commercial and technical viability of commercial power plants, whether gas or coal, is higher than solar and we will need conventional power at least for another 20 years. The government is also targeting only 30 per cent of generation from renewables. The question at the next stage, especially moving to villages, is reducing the number of DG (diesel generator) sets. This means that at some stage, storage will play a key role. Power will be fed at different times to the grid. This is where transmission and distribution (T&D) will be critical to ensure stability of the grid. If 24x7 last-mile reliable power transmission is to be met, the grid should be stable. In the case of renewables, there’s sunlight, rains, and darkness. So, we need to see how these technologies contribute to the grid. 

Has pricing power improved even marginally or do imports remain a threat? 

The new procurement policy is welcomed. It says there would effectively be a price reference of 20 per cent if the product is locally manufactured. So, it limits imports where there is local manufacturing existing. That creates a level playing field and is in sync with the ‘Make in India’ policy. But, the overall pricing scenario is still under pressure because capacities are not fully utilised. Over the next few years, as the new policy kicks in, pricing should stabilise.

Short-cycle orders seem to be the trend for the capital goods sector...

It’s a tricky question and the question is whether I should go for market share and drop my prices. That hurts my bottom line and my shareholders are interested in the quality bottom line. Ever since I took charge, I’ve said we would only go for profitable orders. We are concentrating on growing our orders in cases where we are in the margin corridor on the bottom line. Short-cycle business is product business, coming out of private sector orders. While the private sector investment is muted, for us the business is growing because we have adopted a new model. But, this won’t give the incremental growth we are looking at.  T&D, mobility (railways and metros) and eventually power generation are where we need to concentrate.

Are you happy with the way Indian Railways operates today versus what was a few years back?

From two-three years ago where it was to now, Indian Railways has taken a huge stride. They’ve raised funds independently like a corporate as against their traditional practice. The second unnoticed change is the entire procurement process. It was all centralised earlier. Now it’s the zonal managers in charge of the procurement. For us, as a supplier, while this change makes it difficult for us to operate, the system has become transparent and clear and has allowed capex (capital expenditure) traction. For instance, even routine maintenance activity was centralised earlier. With that being decentralised, the order pipeline is free flowing. That’s another major shift. Where we have to now look at is locomotives, speed upgrades, and such technological stuff.