Indian dairies are increasingly setting up captive power plants to meet the growing power requirements propelled by improved focus on value-added products, where the power consumption levels went up multi-fold from the time of mere liquid milk production through chilling units.
Attractively lower production costs of renewable energy thanks to falling prices of solar panels, coupled with erratic power supply in many states, were being cited as key reasons for dairy firms tapping the renewable energy sources, helping them significantly reduce power costs and improve profit margins.
While Hatsun Agro and Heritage Foods are among those who had already set up captive power plants, others like Prabhat Dairy are now looking at setting up renewable energy units.
“The demand for power in the dairy industry has grown at a compounded growth of over 20% in the last couple of years, propelled by 15-17% increase in milk volumes and driven by higher manufacturing of value-added products which requires sophisticated equipment and constant temperature control,” said Shailesh Kumar, senior analyst, Sunidhi Securities.
Nara Brahmani, executive director at Heritage Foods, which was founded by Andhra Pradesh chief minister N Chandrababu Naidu, said, “Around 55% of our processing facilities are run on renewable energy based captive power plants which we plan to increase up to 70-80% by 2022. This focus is mainly due to the reducing cost of setting up solar and wind power units coupled with rising per unit power cost from conventional sources.”
According to solar and wind power producer Mytrah, wind and solar energy prices have reduced by 42% and 69%, respectively, in the last five years. In the same period, conventional energy prices have decreased by only 13%.
Heritage Foods has so far invested nearly Rs 50 crore in setting up 8.2 MW of solar and wind power plants and is setting up another 2.1 MW wind power plant at an investment of about Rs 14 crore, which will be operational in the next couple of months. Similarly, Hatsun Agro, early this year, commissioned 12 wind power plants of 2 MW each and a 550 KW solar plant that will meet nearly 75% of its power requirement at an investment of Rs 180 crore.
Heritage’s Brahmani said setting up of captive renewable power plants has helped save over 25% on power costs. The company now plans to take this up to 40% in over the next five years.
The saving on power cost is expected to help dairies improve their financials.
“Section 32 of the Income Tax Act, 1961, allows for up to 80% depreciation in the year of commission itself in renewable energy power plants, which helps in writing off 80% of the investment. This leads to lower tax outgo and, hence, improves cash flow for the company,” said Kumar of Sunidhi Securities.
D Sunil Reddy, managing director at private equity TPG Growth-backed Dodla Dairy, said, “It (captive renewable energy plant) improves EBITDA (earnings before interest, tax, depreciation and amortisation) by 0.5-1%, and the power cost is almost negligible after a couple of years.”
While Hatsun saw an improvement in profit before tax by 0.9%, Heritage posted up to 2.5% growth in EBITDA, thanks to captive renewable energy projects.
The government till last year had allowed exemptions under the Income Tax Act for income generated through captive power plants. RG Chandramogan, chairman of Hatsun Agro, said, “Any income arising out of the captive power plants, when in surplus, in the first 10 years of its commissioning, used to get tax exemption under 80A and, hence, it was an attractive proposition for dairies. However, this benefit was discontinued this year and would only be applicable for units set up before March 31, 2017.
