1. “Financial viability of Renewable Power projects:
A comparative analysis and advisory options
amongst solar, wind, biomass and small hydro in
India”
Ramya Emandi
MBA Infrastructure
Internal Guide
Capt. Rajiv Seth
External Guide
Mr. Nitin Naveen Singh
2. Statement of Problem
• In next 12 years India’s
electricity requirement to grow
2.5 times
• India is dependent on oil
imports fro 80% of its demand
• Electricity shortage estimated at
25-35 GW
• 400 million people still without
access to electricity
• Climate change is also an
important issue
•The country’s overall power deficit—11% in 2009
•Villages (17%) remain unelectrified
•400 million Indians are without electricity coverage
•India’s per capita consumption (639 kWh) is one of the lowest in the world
•Every 1GW of additional renewable energy capacity reduces CO2
•Emissions by 3.3 million tons a year
•Estimated at 334 lives saved/million tons of carbon abated
3. Statement of Problem
• In next 12 years India’s
electricity requirement to grow
2.5 times
• India is dependent on oil
imports fro 80% of its demand
• Electricity shortage estimated at
25-35 GW
• 400 million people still without
access to electricity
• Climate change is also an
important issue
•The country’s overall power deficit—11% in 2009
•Villages (17%) remain unelectrified
•400 million Indians are without electricity coverage
•India’s per capita consumption (639 kWh) is one of the lowest in the world
•Every 1GW of additional renewable energy capacity reduces CO2
•Emissions by 3.3 million tons a year
•Estimated at 334 lives saved/million tons of carbon abated
4. Objective
• To promote renewable power
projects and hence making a viable
report on it.
• An advisory option to the client by
giving a holistic view in terms of
financials, approvals, incentives,
CDM’s and risks involved with each
of solar, wind, biomass and Small
hydro.
• Creating a hypothetical 10 MW
power plant by solar, wind, biomass
and others and making a
comparative study under certain
parameters.
8. CERC Re Tariff regulations 2009
• First RE specific tariff regulation by central electricity
regulatory commission
• Based on cost plus method
9. Methodology • A thorough reading of policies, CERC
tariff guidelines, regulations, power
ministry, MNRE, CDMs, rural
electrification, anything and
everything related to solar, wind,
biomass and others.
• Collection of all secondary data
available on internet especially the
government websites, SBI caps
database & reports and segregating
the appropriate required data to be
used for the project
• Preparing the brief overview report
on each sector for the developer
• Giving a basic financial model
assuming a 10MW renewable power
plant of each sector, so that the
developer gets a fair idea about the
costs and the related information
10. Report
consists of
SOLAR THERMAL
SOLAR PV
WIND
SMALL HYDRO
BIOMASS
Demand and Potential
Technology
Approvals
Policies
Specifications
Financial Modeling
RISK ANALYSIS OF RENEWABLE POWER
&
CDM Benefits
Reports of CRISIL, PwC,
etc ant Internet sources
Government websites
MNRE, IREDA, CERC, etc
CERC guidelines and SBI
caps experience &
information
FINANCIAL RESULTS & CONCLUSIONS
11. Basic Flowchart of financial model
Concept: Minimise the costs & Maximise the profits
12. Actual Assumptions Vs CERC Assumptions
ACTUAL CERC
95% Maximum depreciable value 90%
11.50% Long term interest rate 13.75%
(LPLR+150bps)
11.50% Short term interest rate 14.25%
(SPLR+100bps)
(according to the sector) O&M (according to the sector
given by CERC)
(according to the sector) P&M (according to the sector
given by CERC)
12 Loan Tenure 10
18. Risk Analysis:
RISK HEAD DESCRIPTION RISK RATING RATIONALE
RISK MITIGATION /
ALLOCATION
Promoter Risk
Capability to
implement
projects
Low-Med Risk
The Promoter has promoted &
implemented successfully 4
power projects in the past.
The EPC contractors are experienced
in project implementation and
have a good track record
Ability to bring in
Equity
Low Risk
Promoter's personal net worth >
Equity required to be brought
in.
The promoter will bring in a substantial
portion of equity upfront;
suitable conditions would be
incorporated
Market Risk Price of Power High Risk
Guarantee market through a specified
renewable portfolio standard in
some states, as decided by the
state electricity regulator by
way of power purchase
agreements
To get CDM or CER to enhance more
revenues and to meet breakeven
faster before the government
withdraws its support
Demand Risk Low-Med Risk
There is high potential and neccesity
for power in India. There is
scope of 62 GW of renewable
energy which India needs to
explore.
Enter into medium and long term
PPA’s
Construction Risk Capability to construct Low Risk
The promoter has experience in
implementing projects.
The Promoters and EPC contractors
have the adequate experience and
expertise in power projects
execution
Equipment Quality Low Risk
The key equipment (the EPC
contractor) which has sufficient
experience in construction.
The EPC contractor is having the
proven technology for the power
plant and safe guards are taken in
EPC aggrements in terms of
warranties and LD’s
Delays Low-Med Risk
Most of the clearances required
(except environmental
clearance) have been obtained.
Environmental clearance is
expected within 3 weeks. The
Suitable conditions are proposed to
ensure that all clearances are
obtained prior to disbursement.
19. Technology Low Risk The technology is a proven technology
EPC contractor is providing the proven
technology
Realistic Budget Low Risk
very necessary to avoid unnecessary
speculations.
The budgets are based on the EPC and
other proven cost estimates as per the
industry norms
Environmental Risks Low Risk
Renewable energy would be
encouraged and less hindrances would
there for such projects. (such as R&R)
Suitable conditions are being
stipulated wrt compliance with
environmental guidelines / standards &
obtaining necessary clearances prior to
disbursement.
Regulatory
Risk of not getting
approvals
Low Risk
All approvals obtained except
environmental clearance. Renewable
power hence approvals are easy to
obtain.
The pre- commintment and pre-
disbursement conditions are stipulated
Risk of changes in
renewable power
policy
Low Risk
Long term agreements and contracts
executed
Operations &
Maintenance
Risk of unsatisfactory
operations &
maintenance
Low Risk
The scope of the O & M contract
covers & guarantees performance wrt
key parameters. LDs are sufficient.
O&M operator is experienced
Offtaker Risk
Risk that the offtaker
cannot receive the
power
Low - Med Risk
The offtaker's ability to receive the
power would depend on the market for
its products. Some of the purchasers
are in cyclical industries and any
downturn in the cycle would affect
offtake.
The off-takers portfolio is fairly well -
diversified.
Risk that the offtaker
cannot pay
high Risk
All the larger offtakers are well-known
profitable companies with a good track
record.
The –payment mechanism like L/c and
Escrow accounts are in place with the
offtakers .
RISK HEAD DESCRIPTION RISK RATING RATIONALE
RISK MITIGATION /
ALLOCATION
20. Relevance of the
findings : Industry/
Developer) • Report gives the holistic
understanding of the renewable
power generation in India
• Developer's preliminary
research for setting up a
renewable plant is satisfied
through this report
• Risk appetite of renewable
power in India
21. Issues
(Relevance of
the findings :
Policy Makers)
• Skewed financial incentives for
facilitating investments in
renewable energy
• Too many incentive programs
• Failure to adequately address
utilities’ long term financial
concerns
• Failure to develop least-cost
resources first
• Inadequate long term funding
sources
23. Fixed and
Variable costs
• Fixed costs
– O&M
– Depreciation
– Interest on term loans
– Interest on working
capital
– Return on equity
• Variable costs
– Fuel costs (if applicable)
BACK
24. O&M
• Technology specific, given in per MW basis
• Escalation : 5.72% per annum
Technology O&M (Rs lacks / MW)
• Wind 6.50
• Solar PV 9.00
• Solar thermal 13.00
• Small hydro 12.00 – 21.00
• Biomass 20.25
BACK
25. Depreciation
• 90% of project cost can be depreciated ; 10% is salvage
value
Rate of depreciation:
BACK
For first 10 years 7% of project cost
Remaining Period (Life minus 10 yrs) Remaining depreciable amount
equally distributed
26. Interest on term loan
• Loan tenure : 10 Years
• Moratorium period : Zero
• Rate of interest : SBI PLR (of previous year) plus 150
basis point (e.g. 12.25% + 1.50% = 13.75%)
• Repayment schedule : yearly / half-yearly / quarterly /
monthly/ daily
BACK
27. Interest on working capital
• Working capital components are (Wind, Solar, SHP): 1
month O&M , Receivables of 2 months ,
• Maintenance spares @ 15% of O&M
• Working capital components are (Biomass and Co –
gen): 4 months fuel costs, 1 month O&M , Receivables
of 2 months , Maintenance spares @ 15% of O&M
• Interest rate is SBI short term PLR (of previous year) +
100 basis points
BACK
28. Return on Equity
• Return on equity (per annum) = Amount of equity *
Rate of return
• Rate of return:
Pre-tax 19% per annum for the first 10 years.
Pre-tax 24% per annum 11th years onwards.
e.g. Project cost = Rs 500; Equity = Rs 150; Return
on equity (in first 10 years) = Rs 28.5 and for
remaining years = Rs 36
BACK
Editor's Notes
In next 12 years India’s electricity requirement to grow 2.5 times
India is dependent on oil imports fro 80% of its demand
Electricity shortage estimated at 25-35 GW
400 million people still without access to electricity
Climate change is also an important issue
In next 12 years India’s electricity requirement to grow 2.5 times
India is dependent on oil imports fro 80% of its demand
Electricity shortage estimated at 25-35 GW
400 million people still without access to electricity
Climate change is also an important issue
The country’s overall power deficit—11 percent in 2009—has risen steadily, from 8.4 percent in 2006. About 100,000 villages (17 percent) remain unelectrified, and almost 400 million Indians are without electricity coverage. India’s per capita consumption (639 kWh) is one of the lowest in the world. The government plans to provide universal access and to increase per capita consumption to 1,000 kWh by 2012. This translates into a required generation capacity of 800GW compared to 160GW today. The need to bring on new generation capacity—and to improve operational efficiency in transmission and distribution—is clear.
On average, every 1GW of additional renewable energy capacity reduces CO2 emissions by 3.3 million tons a year. Local ancillary benefits in terms of reduced mortality and morbidity from lower particulate concentrations are estimated at 334 lives saved/million tons of carbon abated.
The country’s overall power deficit—11 percent in 2009
villages (17 percent) remain unelectrified
400 million Indians are without electricity coverage
India’s per capita consumption (639 kWh) is one of the lowest in the world
every 1GW of additional renewable energy capacity reduces CO2 emissions by 3.3 million tons a year
estimated at 334 lives saved/million tons of carbon abated
Collection of all secondary data available on internet especially the government websites and segregating the appropriate required data to be used for the project
Preparing the brief overview report on each sector for the developer who is interested to put up a plant
Giving a basic financial model assuming a 10MW renewable power plant of each sector, so that the developer gets a fair idea about the costs and the related information
