Growth Of Renewable Energy In Sri Lanka

Interviewee : Manjula Perera; Interviewer : Dilusha Gamage;
Date of Interview : 02/08/2021

List of Acronyms : MP = Manjula Perera, IN = Interviewer

IN:

To start off the conversation, can we enlighten the viewers on your company WindForce PLC and some insight into who Manjula Perera is?

MP:

WindForce started in the year 2010. Before that, I was working for one of the biggest private power producers in Sri Lanka. In 2006, I was studying the potential for wind based power generation in Sri Lanka. At that time, the wind study report for Sri Lanka was published by the National Renewable Energy Authority of USA. They identified about 20,000 megawatts of potential wind power for Sri Lanka. I saw that as an opportunity as during that period there wasn’t a single private power produce in wind power development. There was only a small scale pilot project done by the Ceylon Electricity Board in Hambanthota in the year 1998, which was a failure. I left my previous place of work and applied for 3 wind power development licenses in Puttalam. I was granted all 3 licenses and started immediately looking for investors such as Akbar Brothers, Hirdaramani’s & Debug Computers who were keen on partnering with me.

 

We pioneered the wind industry by developing the first private sector wind plant in Puttalam in 2010. And since then for 11 years, we have been a successful renewable energy developer in the country.

IN:

What is the driving force behind WindForce going public?

MP:

As I said earlier, the initial investment was through the aforementioned 3 family-owned companies. Within a short period of about 4-5 years, we became the leader in renewable energy development in Sri Lanka. If you compare us with other renewable energy developers in Sri Lanka, many started in 1996 but we managed to go above them and managed to become the leader in a short period. Down the line, as we were been funded by these 3 family owned companies, many small scale shareholders joined the company. As these small scale investors were joining, we made a promise saying that we will go public once we are a stage of doing so in the future enabling benefits such as transparency and liquidity of the company. That is what led us to an IPO in 11 years.

IN:

What was your experience in the listing process at the CSE? What were the challenges and how did you overcome them?

MP:

We were lucky to be the first IPO in 2021 and the first company to do so after the digitalization of the CSE. For us, it was a small process where our financial advisors CAL (Capital Alliance Limited) and CT Finance also supported us throughout. We also made the listing within 3 weeks as we were well prepared. That is, after submitting the application, we were able to get the CSE approval in 3 weeks.

IN:

How long have you been preparing for this listing?

MP:

Originally, we had two holding companies; WindForce for wind & solar and Renew Gen for small hydropower projects. Two years ago, we had a valuation where we merged both the above holding companies as one, WindForce. After the merger, we immediately started preparing for an IPO.

IN:

What are the challenges between running a privately held company and publicly traded company?

MP:

When we were a privately held entity, we had a family culture but as we grew and got listed in the stock exchange, we had to bring in the corporate culture. The main challenge was balancing the corporate culture without damaging the family culture. But there are new things coming in that were not there previously such as the corporate governance, quarterly reporting, annual reporting, HR functions and cybersecurity. So, you could say that it was challenging but interesting as well.

IN:

Did you receive prior advice on preparing for regulatory and compliance requirements?

MP:

We did it by ourselves.

IN:

What is the secret behind your highly successful, oversubscribed IPO that attracted a lot of foreign investors?

MP:

This has mainly to do with the renewable energy industry. The entire world is moving towards green energy. If you look at the growth in the power sector in 2020 and 2021, you can see that more than 60% of the growth has come from the renewable energy sector. There are a lot of DFI (Direct Foreign Investors) keen on investing in the renewable energy sector and some countries have mandates to invest in renewable energy. Before the IPO, we had discussions with many foreign investors and they were quite keen to see the growth of WindForce beyond Sri Lanka as well. So, you can now see us in Africa, and Pakistan.

IN:

Can you tell us about the renewable energy industry in Sri Lanka and how do you see it going forward?

MP:

I’ll discuss this in two steps. I will tell you how the renewable energy sector was and how it will look like.

 

The private renewable energy sector was started in 1996 in Sri Lanka. Mr. Sumanasekara started the first private sector small hydropower plant in Sri Lanka. Thereafter, this was under the feed-in tariff. The feed-in tariff is determined by the CEB (Ceylon Electricity Board) every year when they publish the tariff for wind, solar, and hydro. Whomever that has the funding as well as the technical capacity, can identify a site and develop it. Up to 2015, the industry was growing at a rapid rate but in 2015 the feed-in tariff was changed to tendering. It was a complete change in the system and there was a lull period for about 2 years where nothing happened. This change in policy was when we decided to look for opportunities abroad and in 2017 we got the first project in Uganda. But in our country due to the tendering process, many that weren’t in the industry bid low rates and did not complete the projects. And up to date the growth has been in a very low rate.

 

This new government came up with an aggressive policy to develop Sri Lanka’s renewable energy up to 70% by 2030. Currently, we are at 40% so in another 9 years’ time we need to add more than 5500 megawatts (30%) to the system. At the moment, we have only 850 megawatts coming in from non-conventional renewable energy and large scale hydropower plants. But if we are too continue with the tendering process, achieving the target would be quite a challenge. The government is already taking steps to go back to the feed-in tariffs and if they do so successfully, achieving the target for 2030 will be a reality. 

IN:

How do you find doing business in the energy industry especially with the high regulations and government influence?

MP:

It is challenging and beneficial for organizations like ours because we have gone through the process and we know how to exist in the business. When everybody is given equal opportunity the results will not be the best as when it is challenging. At the moment, the CEB generation, transmission, and distribution is a monopoly. At least for the future benefit of the industry, these three sectors should be running on an autonomous basis where they should be held accountable for the various sectors (generation, transmission and distribution). We need to get approvals from 26 authorities in the country which takes about 1 year whereas to develop the project, we need only 6 months. Therefore, there are many things that have to be streamlined to reduce time and effort. There again, we have mastered most of these processes so we can get these approvals in a period of 6 months. For us, this is beneficial but for the country in general this has to be streamlined especially in order to reach the target of 70% renewable energy in 2030.       

IN:

In your opinion what should be the changes that country should undergo in the renewable energy industry?

MP:

The main authority for the renewable energy sector is the Sustainable Energy Authority (SEA). This was formulated in 2008 as a one-stop-shop where the renewable energy developers apply to the Sustainable Energy Authority and they will take care of all the approvals so we can focus on building the plant. But, unfortunately that became “a stop” instead of a “one-stop”. As per the act, the SEA has the power to get all of this done as a one-stop-shop. So, that should take place in order to have rapid growth.

IN:

In your opinion, how important is the capital market to raise funds and is it easier than raising funds through private placements?

MP:

Private placements are good when you are interested in raising smaller chunks of money. We tried the private placement option before the IPO and the problem was that private placement funds come with a lot of conditions so raising 3.2 billion rupees via private placements is not viable. In an IPO, all shareholders are considered equal and your investor portfolio also increases which is definitely better than going for private placement funding. Capital markets may have a lot of regulatory requirements but in time to come we will be used to those.

IN:

Do you think the Sri Lankan share market is well facilitated or is there room for improvement?

MP:

Our IPO would be the best example. We went to the market when the market was down and we were 8 times oversubscribed. So, if the right companies with the right asset values & growth come into the market, I don’t see any difficulty in raising funds via the stock market of Sri Lanka. There are enough keen investors today especially since keeping money is banks is useless.

IN:

So you believe that the current interest rates in banks helped companies raise capital through the stock market?

MP:

Definitely.

IN:

From 2000 to 2019, there was a dark era with very less IPOs happening so even though listed companies performed well the share prices were on the decline. Now that you are heading a listed company, if the aforementioned situation arises again would that be a concern for you?

MP:

Not all because if our market price has gone up significantly while other prices were going down. So, if your organization has provided good returns over the years, have a very good growth plan and have a good asset value, I don’t think the shareholders have to worry. I’m not a share market expert but what I noticed is that many shareholders invest in the market hoping for quick returns but in reality the stock market is for receiving good returns in the long run. If you change your mindset to that then definitely there is nothing wrong with the market but rather the attitude of the investor.

IN:

Do you think that the share price reflects the value of company?

MP:

We went into the IPO at 16 rupees and we are currently trading at 19 rupees. When we did the valuation, it came at 18.50 but we went at 16 rupees because we wanted the shareholders to have a gain in the first instance of investing itself and have confidence in the company. Automatically trading has gone up to the realistic valuation. You will definitely see a better market price because we have stuck to our IPO growth pattern as we have secured all our committed projects for the future.

IN:

How many of the objectives mentioned in the IPO were you able to achieve since the IPO?

MP:

There was one project that was not in the IPO listing that we have already started. This is a 10 megawatt solar project in Batticaloa in partnership with Vidu Lanka and High Energy. There was another project in the IPO which is a 15 megawatt Mannar wind farm that was awarded two weeks ago and we will be starting construction very soon. The third project in the IPO was the 30 megawatt solar project in Senegal which has got delayed due to travel restrictions from Sri Lanka to Senegal. As an alternative project to the aforementioned, we have signed the share sale and purchase agreement for 500 metric tons per day waste energy project for Kaldiyana. This project is under technical evaluation for our new proposal and will go to the cabinet very soon for the share transfer. If that project comes through, it’s quite a big increase to our portfolio.

IN:

What are the mechanisms you use to maintain industry relationships as a public company?

MP:

There are CSE requirements such as the annual report and the quarterly report. We are targeting to win the annual report competition as well during the first year itself. One of the strongest methods used today is social media, so we are currently updating day to day business through Facebook, Linked In and Instagram. What I heard is that 90% of shareholders now are below the age of 30 years due to the digitalization of the CSE so social media is the best way to be closer to that demographic.

IN:

What are your views about the digitalization of the stock exchange and how the dynamics have changed?

MP:

That’s the best thing that happened or else we going public in 3 weeks would have been a nightmare. Also as I said earlier, the new generation is on the stock exchange because of the digitalization of the CSE.

IN:

At the moment, there are young investors providing advice on shares, valuations, which companies to invest in, and other market tips and tricks including company profiles such as yours. Would this kind of information be detrimental or advantageous to WindForce PLC?  

MP:

We have been approached by many social media parties and I have not seen anything detrimental being said as we are in the real world projects of renewable energy which they are keen to learn about. I think it’s a very good trend. Even we are using social media to educate the general public on the industry and its trends.

IN:

Do you think that the state owned enterprises like CEB should be a listed company?

MP:

I agree 100% as they too, would be held accountable by the general public. At the moment, CEB is running at a massive loss and this has been so for the last many years. If they go public then they have to run the company in a profitable manner because being a monopoly is not good for any industry. As I said earlier, they will be held accountable and separated into generation, transmission and distribution. Or even go to the extent of being managed as a private organization whilst the ownership is with the state.

IN:

How far is WindForce’s renewable energy concept is sustainable as per global standards?

MP:

We are in the industry of sustainable development. As I said earlier, the biggest growth in the power sector is towards renewable energy because of it being sustainable. The world has realized in order to contain temperature rise that we have to convert to renewable energy really fast. The carbon reduction program in France drastically required most of the countries to hit 100% sustainable energy quickly. Hence why Sri Lanka committed to 70% by 2030. It’s a huge task for all the countries to achieve that.         

IN:

Since WindForce is a global organization, what are the differences in operating in different countries?

MP:

We are in Africa (Uganda), Pakistan, and Ukraine. We went to Pakistan because electrification levels were very low. We went to Uganda in 2015 where electrification was only 20% but now it has come to about 40%. Most African countries are at a very low level of electrification therefore the growth potential for the whole power sector is mainly in Africa. Even though their development rates are low, their regulatory bodies are far better than ours. Doing business is quite easy and the revenues are in US Dollars thereby bringing in money to the Sri Lankan economy. In Pakistan, we have a strong partner that led to an 18 megawatt project, a 50 megawatt project, and now we are aiming towards a 150 megawatt tender. Pakistan is a country with ample opportunity and Sri Lankans are very welcome in Pakistan. We are also looking at Bangladesh for the future as our partner Hirdaramani is strongly situated in Bangladesh. We are very keen to grow in international markets. At the moment, 70% of our revenue is from Sri Lanka and 30% is from overseas. We hope to change it to 60%:40% which would also benefit the country with foreign currency.

IN:

Other than the aforementioned, what does the future hold for WindForce?

MP:

Our biggest strength is human capital. The biggest benefit of the IPO was that we managed to bring the employees also as shareholders into the company. We offered 7.5% of shares to employees on a priority basis and they are now a part of the company. That was one of my biggest dreams to make sure that everyone is part of the growth. And we want to make this organization the best place to work. When we started, we had 10 people and they remain to this day. We have 218 megawatts which is 27 power plants and we wish to grow to 500 megawatts by 2026 and be the leader in renewable energy in Sri Lanka and also grow our footprint into international markets.

IN:

With the recent dividend announcement, what else can investors expect from WindForce PLC?

MP:

In our IPO, we committed a 9.5% dividend yield annually which is what we have been paying in the past as well. We are confident that we can stick to that promise and make it even better in the future. And also, our shareholding will grow in the future as the renewable energy sector is growing in Sri Lanka as well as overseas.

IN:

What would be your advice to the general public when it comes to investing in the CSE?

MP:

My recommendation, as I said earlier, is do not look at CSE investments as short term investments but rather as long term investments. Invest in stable organizations with good growth patterns especially in human capital.

IN:

What are your final thoughts and words for your investors that are watching us?

MP:

I can guarantee that we will stick to our promises and WindForce will continue to be a leader in the renewable energy sector and we will keep on growing.