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Hero Future Energies (HFE), the Hero Group’s green energy arm, aims to diversify its offerings portfolio and geographical presence supported by the recent $450 million investment by global private equity major KKR, Srivatsan Iyer, global Chief Executive Officer (CEO) of HFE said. In an exclusive interview with Moneycontrol’s Rachita Prasad and Sweta Goswami, Iyer talks about supply chain issues faced by the industry and the opportunities in the new energy space. While he held his cards close to his chest on a possible initial public offering of the company, Iyer said that as the business demands they will continue to raise equity funding.

Edited excerpts:

Now that KKR and Hero group have committed $450 million to HFE, what is the big picture here and why now? 

India is on the cusp of a massive aspiration in renewable energy going forward. India’s 2030 target is to have half of its electricity generation come from renewables, as well as reduce its carbon intensity by at least 45 percent. To achieve both of these, renewable energy has to play a huge role. We (HFE) are going to be 10 years old later this month; we've been committed to growing renewable energy and providing clean energy solutions. With the increasing uncertainty in the energy markets globally, several countries are looking at renewable energy not just to address sustainability and climate change but also for energy independence. This is the right time for this investment for us to not just grow in India but also in other targeted geographies. We have a presence in Asia as well as in the UK. It’s a good time for us to grow in renewable energy and also test some of the newer solutions that will help decarbonisation.

We're going to participate in renewable energy – solar and wind power – and also grow in emerging technologies like battery storage, round-the-clock RE and green hydrogen. We have had discussions with our shareholders that we want to grow in conventional as well as in new technologies.

Can you cite some more tangible targets in terms of what kind of capacity you would be looking at in wind and solar? And when you're saying other forms, what kind of plans do you have there?

We've not set explicit capacity targets for ourselves because generally capacity is associated with just solar and wind. If you were to invest in battery storage, for example, you can't necessarily add that capacity only to solar and wind. We have bagged our first battery storage bid from Kerala and in that sense, we are leading the pack. There are going to be several other battery storage bids over the next six months as states look to use it to balance the grid or to maintain grid stability. We are certainly looking at upcoming round-the-clock bids.

We're waiting for the unveiling of the green hydrogen policy, which we expect sometime this month. But in the meantime, we are in active discussions with many customers in India and some in the UK for pilot projects in green hydrogen so that we know what are the levers to reduce costs going forward that would make green hydrogen economically viable versus conventional sources of energy. For us, the quickest win is to try to convert grey hydrogen projects into green hydrogen. Parallelly, we're looking at how to use green hydrogen to do things where hydrogen is not being used today. We will be a producer of green hydrogen. Our role will be to supply green hydrogen to various end users.

You don’t want to specify targets, but with the KKR investment, are you fully funded for your expansion plans? Is there an appetite to get more investors? 

We're funded for now. The good problem to have is, "Can I finish using all those monies in the next two to three years?" And if we find the right mix of projects and the right growth, we hope to use it up in the next two to three years. And then at that point, we will decide the next course of action.

The next big step for you would be going to the market at some stage. Do you have in place a plan for an initial public offer (IPO)?

No, we don't have a timeline or a deadline. At some point, we'll have to go back and raise more equity as we grow and as this market grows. Now, whether that will take the form of a market listing or whether additional equity from the same or new shareholders is yet unknown. We'll keep raising new equity every so often.

Do you have any other plans of monetization of assets?

Everything is on the table at this point. The shareholders obviously have to consider what's the best way for them to monetize their investment in the company. It can take multiple routes.

What are your expectations from the Indian government with regard to its upcoming phase II of the green hydrogen policy? 

If you rewind 10 years, the solar and wind energy tariff was as high as Rs 10-15 a unit. The government stepped in because they were keen to grow this space and they wanted to ensure the sector learns, grows and reduces cost. Today you can get solar power for as low as Rs 2.5 per unit. We're looking for something similar from the government in terms of green hydrogen as well. Whether it be demand mandates, viability gap funding or something completely revolutionary, like dollar-link contracts rather than rupee-link contracts – there’s a lot that can happen.

Indian renewable energy companies are now seeing an opportunity in the commercial and industrial (C&I) space. What is the mix of government and C&I in HFE’s portfolio? And is that a space you would be looking at increasingly? 

The corporate sector accounts for roughly half the energy consumption in India. So for us to get to the targets we have set ourselves as a country, the corporate sector has to be an important participant. Hence, C&I is going to be important for multiple reasons. One is they are looking at sustainability because they made commitments to their shareholders and the markets in terms of the overall sustainability targets or carbon footprints. Secondly, they are looking at this for the lowest cost of energy supply. Today, C&I is roughly 10 percent to 15 percent of our portfolio.

How is the supply chain looking like right now, whether it's wind or solar, in terms of equipment? 

The supply chain is still tight globally. The only thing that has improved over the last 12 months is freight rates; container costs have come down and that part of the supply chain has stabilised globally. In non-solar space, there is still a shortage of semiconductors. This impacts RE in a fairly significant way. On the solar side, there is a global shortage all the way from polysilicon to modules. The good news is a lot of capacity is being added globally.

How effective have the production-linked incentive (PLI) schemes been overall?

The PLI scheme is certainly a step in the right direction and it has been focusing on backward integration all the way to polysilicon which is the last bit of a solar PV (photovoltaic) system. Otherwise, we are still supply-chain dependent on China. In the short term, we don't see PLI making a huge impact in the Indian market context because it would take two to three years to build capacity. But in terms of energy self-sufficiency and in terms of meeting our 10-year goal I think the PLI should help set up enough capacity in India to at least meet domestic growth. It should also allow some of the big players to export. The US is starting to put restrictions on imports from China and so I'm sure the Indian module manufacturers will look at that as an export market that's valuable for them. We really hope module prices come down. Many in the C&I sector are looking at the module prices today and say, "Look, we will just wait." It will take a little bit of time, globally, for the new capacity to come online. In the meantime, we are really looking at some kind of ALMM (approved list of module manufacturers) scheme to broaden the list of suppliers that allows the independent power producers (IPPs) to have a slightly larger range of suppliers.

Are you witnessing any kind of slowing in existing jobs?

It's very hard even for IPPs to compete with each other because we all buy modules more or less at the same price; it's not like one can outbid the other by 30 percent. We saw a lot of activity on hybrid bids and on the solar park bids but IPPs are still bidding based on the expectation of future module pricing because the tariffs that we are bidding at don't reflect today's module pricing at all. They do have a view of the future and they are bidding based on that. I expect softening of prices to happen in the 12- to 18-month range, certainly not in the coming 6 to 9 months.

The 2022 United Nations Climate Change Conference, or COP27, is happening in November. How different would the conversations be from earlier, given the changes in the energy market in the last one year?

The current volatility in the energy markets is going to be the focus of all discussions. Countries would have to defend ramping up their conventional or thermal energy generation. At the same time, I believe that the countries are going to make a deeper commitment to speed up renewables growth for precisely these reasons.

There was a lot of talk in COP26 about supporting investment for adaptation for global regions that are going to be impacted. Because of what's happening in the world around us today, I suspect that conversation may be a little more muted. I suspect it's going to be more about let's not think more about investments in adaptation, let's focus all our investments in building out renewable energy.

With the fresh funding, what is the biggest challenge you foresee for your company right now?

The Oxfam’s India Discrimination Report 2022, released in September, criticise gender discrimination as the major reason for low female work force participation in India.

Laws in many countries reflect and perpetuate gender norms, and often act as an impediment for women to achieve full economic empowerment. A 2014 World Bank study shows that 90 percent of the countries have at least one law that limits the opportunities for women by restricting them from working in certain occupations. India is no exception; it has many laws that restrict opportunities for women to enter the women workforce.

Indian Factories Act 1948

In order to protect women workers from health hazards in factories, they were restricted from working near cotton openers, and were banned from lubricating and cleaning machinery in motion. The law also prescribed the amount of weight a woman can lift in a factory. They were also not allowed to work in night shifts, and certain ‘dangerous’ activities carried out in a factory.

Section 66(1) (b) of the Factories Act, 1948 that prohibited women from work at night was struck down by several high courts as unconstitutional and discriminatory, violating Articles 14, 15, and 16 of the Constitution. Acting in furtherance of these judicial decisions, states such as Haryana, Rajasthan, Punjab, Andhra Pradesh, Madhya Pradesh, Karnataka, and Maharashtra allowed women workers to do night shifts by amending state laws.

Occupational Safety, Health, And Working Conditions Code 2020

The Factories Act 1948 is now superseded by the Occupational Safety Health and Working Conditions Code 2020 (OSH code). Most of the prohibitions in the Factories Act were lifted in the OSH code, including the night shift ban on women. But the employer has to comply with conditions to ensure the safety and security of the women workers, as mandated by the corresponding state rules.

The OSH code also allows women to work in all establishments; this includes factories and in all types of work, hazardous or otherwise. But the necessary safeguards and safety measures have to be ensured by the employer, and they need to be regularly inspected as per the OSH code, and/or state rules.

Additionally, the provision of crèche is now gender neutral, and is applicable to those factories with more than 50 workers. Under the Factories Act, a crèche was mandated in an organisation which employed 30 or more women. The OSH code is progressive in a way that it breaks the social stereotype that women are responsible for childcare.

Can The OSH Code Help Improve Women's Workforce Participation?

The Factories Act 1948 and various state rules were acting as a hindrance to many women to get employed in the factory floors, especially those factories that engaged in three shifts a day, or are engaged in hazardous/dangerous activities. The OSH code, by removing these barriers, can possibly rectify the legal barriers, and provide a viable ecosystem for employers to engage more women workers.

But OSH code can be said to be effective, only if the corresponding state rules are in compliance with and in similar lines with the code. Further, the state rules must focus on the implementation aspect of the law, rather than being too idealistic. Often the overarching emotion of protecting women blinds the lawmakers from looking into the practicality of the provisions.

While the night shift ban was lifted in certain states, studies have shown that employers have frequently evaded their responsibility by making use of strategies such as under-reporting the number of female workers in the muster roll of the factory to evade compliance of the laws. This has hindered women's employment, especially when it comes to smaller organisations, and entry-level jobs. Enforcement costs are one of the reasons for the non-compliance of factories laws, and the cause for low numbers of medium-sized firms.

The larger problem with this protectionist stance towards employing women is that it has some unintended consequences. First, it dis-incentivises employers to employ more women as they would have to incur additional expenses and effort to ensure all the stipulations provided in the Act and rules; and second, it legitimises the traditional gendered notions about women, and that in turn plays a role in reinforcing the same hierarchical structures. Moreover, there is an active correlation between safety measures and the efficiency of workers. If proper functional welfare measures are taken, then productivity will also increase.

The NITI Aayog, in its report titled ‘India’s Booming Gig and Platform Economy’, released in June, suggests fiscal incentives like tax breaks or startup grants for companies with about one-third of their workforce women, to increase the labour force participation of women in the gig economy. This suggestion can be applied in factories and establishments as well. The enforcement costs will be offset by the incentives provided.

Anu Maria Francis is Research Associate, and Gauthaman V is Research Intern, CPPR. Views are personal, and do not represent the stand of this publication.