Project & Infrastructure Financing- SPV for Solar Park

PREPARED BY,
1. AKHILESH KR . UPADHYAY 2. SUJEET KUMAR 3. RAHUL SINHA 4. DEEPAK KR . SINGH 5. UDAY SHANKAR SAHAY
Project & Infrastructure Finance
Module Project
Course Instructor:
Prof Anand Project & Infrastructure Finance Group 1: PGEXP 2017-19 IIM Ranchi
Proposal for an SPV in Jharkhand

Course Instructor:
Prof Anand Project & Infrastructure Finance PGEXP 2017-19 IIM Ranchi
1. Power Scenario in India
2. Future Trends and Sustainability of Energy
3. Prospects of Renewable Energy
4. Feasibility of Solar Energy
5. Technical Feasibility of Solar Park
6. Legal & Statutory requirement of Solar Park
7. Essentials for Solar Park Installation and Operation
8. Why Project & Infrastructure Financing.
9. Structure of SPV
10. Timeline for SPV
11. Term Sheet for SPV
12. Financial due diligence
CONTENTS
1. Forecasted Income Statement Balance Sheet
2. Cash Flow Analysis
a) NPV
b) IRR
c) Pay Back Period
d) Break Even
e) Sensitivity
f) Scenario
CHAPTER 1: Topline and Line Items CHAPTER 2: Financial Model
Role 2: Lead Banker’s Point of View
1. Risk Analysis for Capital Investment
a) DSCR
b) LLCR
2. Capital Structure & Syndication
a) League table
b) Tier Arrangement

Course Instructor:
Power Scenario
State
30%
Central
25%
Private
45%
Power Generating Owners
State
3%
Central
2%
Private
95%
Renewable Power Generating
Owners
Sector
Non Renewable Renewable (MW)
Total (MW)
Thermal Nuclear Hydro
Other
Renewable
All India 222,692.59 6,780.00 45,293.42 69,022.39 343,788.39
Thermal
65%Nuclear
2%
Hydro
13%
Other
Renewable
20%
Energy Sector in India with Source %
Total Thermal
70%
Nuclear
0%
Hydro
27%
Other Renewable
3%
Energy source in Jharkhand
Total Thermal Nuclear Hydro Other Renewable
State Total Thermal Nuclear Hydro
Other
Renewable
Total
Jharkhand 1.25% - 0.48% 0.05% 0.95%

Course Instructor:
• National Action Plan of Climate Change. Govt. Of India mandates increase of renewable penetration in energy
from 5% to 15% by 2020.
• National Solar Mission. Targets 20 GW Solar energy capacity additions by 2022.
• State policies. Individual State specific solar policy targets 10GW+ capacity addition by 2022.
• Renewable Purchase Obligations. States have already specified; ranging from 2% to 14% of the total energy
demand to be met by renewable energy.
• Renewable Energy Certificate. Delinking green and brown power, facilitating regional transfer and equitable
sharing of costs.
 GOI has set an ambitious growth target of installation of 175
GW aggregate capacity of renewable energy by 2022.
 Out of total 175 GW, target of 100 GW is set for Solar Power
under which 40 GW is to be achieved from GC RSPV.
Future Trends and Sustainability of Energy
The Ministry of New and Renewable Energy (MNRE) is the nodal Ministry of the Government of India
for all matters relating to new and renewable energy.

Course Instructor:
Future Trends and Sustainability of Energy
Electricity Demand Projections
Year Total Electricity Required
( Billion kWhr)
Installed Capacity (MW)
GDP Growth Rate
7% 8% 7% 8%
2021-22 1838 2118 368592 424744
2026-27 2397 2866 480694 574748
2031-32 3127 3880 627088 778095
6% Increase in GDP would contribute to 9% increase in energy demand.
0
1000
2000
3000
4000
5000
Hydro Other Renewable Total
Hydro, 200.93
Other Renewable,
20.05
Total, 2,625.91Hydro, 2504.07
Other Renewable,
287.74
Total, 4981.21
Jharkhand Power Projection in 2022
Jharkhand at Present 2,404.93 - Jharkhand in 2022 6567.31 -

Course Instructor:
Prospects of Renewable Energy
State wise Renewable Energy Potential (in MW)

Course Instructor:
Feasibility of Solar Energy
India is endowed with huge solar energy potential with most states including
Jharkhand having about 300 sunny days per year with annual solar radiation
in the range of 4.5-6.5 kWh/m2/day.
In most parts of Jharkhand, clear sunny weather is experienced 250 to 300
days a year. The annual global radiation varies from 1600 to 2200 kWh/sq.m.
The equivalent energy potential is about 6,000 million GWh of energy per
year.
If tropical area of Jharkhand were to convert just 1% of the 3,00 Million
kilowatt-hour of solar radiation (or, simply, sunlight) it receives a year into
energy, the state will have enough to meet its energy needs. Stand-alone
Solar Project
Solar Project in
Solar Park
Solar
Park
INVESTORS /
LENDERS
Common site appraisal
for multiple projects
CONTRACTOR
-Easier to mobilize
-Multiple projects
TRANSCO
Cost effective to evacuate
from a larger pool
POWER PRODUCERS
- Lower overheads
- Better infra
Value Proposition
Benefits
•Utilization of large available wastelands
•Better network optimization, better grid integration and reduced
transmission losses
•Huge potential for savings in terms of basic infrastructure facilities like land,
water, construction power, roads,
power evacuation system
•The removal of regulatory hurdles allowing for accelerated deployment
•A 20% reduction in CAPEX from building within a Solar Park can lead to
almost 18% reduction in tariff

Course Instructor:
Feasibility of Solar Park
Land and Other
Infrastructure
Project
Economics &
Costing
Profitable
Sales Models
Commercially
Viable solar
Project
• Well structured EPC cost
• Low finance options for
supply and project
• Efficient project
management
• Well designed contracts and
agreements
• Analysis of various sales
options
• Selection of right power
purchase agreements
• Well designed contracts
and agreements –
construction and plant
maintenance
Right mix of
both factors:
costing & sales
model will result in
commercially
viable projects
• Land banks with good
solar irradiation and
access to grid
connectivity and
infrastructure .
• Fast approvals and
clearances
Benefits are available in commercial & industrial categories:-
• Custom Duty Concessions
• Excise Duty Exemptions
• Accelerated Depreciation
• Fiscal and other concessions from State Governments

Course Instructor:
Legal & Statutory requirement of Solar Park
Top 10 Things to Consider During Legal Due Diligence Review
1. Size of Solar Project
 Max per property allowed!
 Beware of any misrepresentations about project size and review the
FIT Rules
2. Interconnection
 Is transmission or distribution capacity available to connect the
project?
 Obtain copy of written evidence from local distribution or
transmission company
3. Land Classification
 How are the lands at the proposed project site for ground‐mounted solar
classified?
 No commercial scale ground‐mounted solar on Class 1 & 2 prime
agricultural lands.
4. Are the Project Land Rights Secured?
 Review lease/option agreements to ensure that they are financeable
 Notices of Options/Leases must be registered on title.
 Mortgage Registered on Title? Obtain a non‐disturbance agreement.
 Is the proposed site located on mining property?
5. Project Timeline & Delays
 Understanding of matters delaying realization of project (ex: Renewable
Energy Approval up to 2 years for MOE approval)
 Liquidated damages for failing to achieve commercial operation by the
milestone date for commercial operation are chargeable per kilowatt (kW)
per day
 Termination of FIT Contract
6. Identify Options to Mitigate Risk
 Extension of up to 1 year offered to existing FIT
contract holders
7. Connection Cost Estimates
 Connection costs can jeopardize economic
viability of project
8. The EPC Contractor
 Who is the EPC Contractor? Is the price being
VALUE reasonable?
 How will the domestic content requirements be
met?
 Is the EPC Agreement bankable?
9. When should I invest?
 Prior to issuance of Notice to Proceed, the risks
are the highest with the greater upside as well
 Equity financiers who seek to finance projects
after NTP may be too late in the game.
10. Change of Control Restrictions
 Once the FIT application is submitted to the OPA,
OPA consent is generally required where an
interest of more than 75% is acquired in the
project prior to commercial operation.

Course Instructor:
Essentials for Solar Park Installation and Operation
Requireme
nts
Alignment
for
Concession
•Follow MNRE Scheme on development of solar parks and endeavor to
create necessary infrastructure.
•Designate a nodal agency responsible for the development of solar park
•Focus on utilizing wastelands and buying power through state DISCOMs
Resources (for 100
MW)
• Investment of Rs.
500- 6,00 Cr for
solar PV projects
• Investment of Rs. 5-
6 Cr for
transmission
network
• Shade free area of
approx.
5,00 Acres
• Water requirement
of approx. 0.5
Million Litres per
day
Infrastruct
ure
• Road (Internal and
Approach road),
plots
• Buildings-
Administrative,
storage, residential,
training etc.
• Equipment for
remote monitoring,
SCADA etc.
• Transmission lines
and substation
• Drainage, storage
and treatment
• Boundaries,
lighting, watch
tower, telecom
towers, buffer zones
Strategy
• Suitable model for
developing the park
• Robust framework
to provide certainty
and oversight to
investor/Lenders
• Environmental
clearances, water,
coastal, hazardous
material, airport
clearances
• Standardized Power
Purchase
Agreement (SPPAs),
RFS /RFP
• EPC contract, O&M
contract etc.
Policy
directives
Project
funding
SPV
Structuring
SPV
Transmission
infrastructure
Water
availability
Off Take
Agreement
Infrastructure
development
Land Availability

Course Instructor:
Why Project & Infrastructure Financing.
•Significant benefits to the developers come at a premium, which is being charged by the concerned entities (Corporate/SPV)
 High Leverage
◦ Often 80% compared with 40%
for corporate finance
 Tax Benefits
◦ Interest shield on taxes
 Off-balance Sheet Finance
◦ If joint venture with less than
50% ownership
 Risk Measurement and Risk
Allocation
◦ Parties who can control risk
take the risk
 Transparency
Investment Returns
• Initial upfront investment requirement
• Necessary infrastructure to be set up alone
100% Ownership
• SECI will also invest equity and know how of solar projects
• SECI may also sign PPA
JV with SECI
• Infrastructure to be set up by SPV
• To reduce equity requirement, equity contribution may be the cost
of land as % of project cost
SPV
Options
for Sponsor
Facilities
Required
Adequate land, Road Connectivity, Water,
Drainage network, Environmental clearances,
Fire station, Compound wall, Fencing,
Telecom network, street lights and other
civic amenities.
Power
Evacuation
Transmission line, 66KV substation for
supplying the Auxiliary power, 400 x 220 x
66 x 132 KV Substation to evacuate power to be
provided by State Transmission company
Options • Sell/lease out the plots to prospective
Competant. Allotment Price per metre
square (inclusive of all applicable taxes,
duties, cess etc.) payable by the plot
applicant
• MNRE also planning a subsidy scheme
Power sale PPA/ Off take agreement with Govt
Benefits for Sponsors
• Spreading risk
• Greater leverage, which
may be off-balance sheet
• Hence higher return on
investment
• Enables partnerships with
different financial strengths
to work together
Solar Energy Corporation of India (SECI)

Course Instructor:
Prof Anand Project & Infrastructure Finance PGEXP 2017-19 IIM Ranchi
SPECIAL PURPOSE COMPANY
EPC Contractor
Sponsors-Equity
Investors
Lenders
[ECAs; IFIs; banks]
(Inter-credit. Aggt.)
EPC
Contract
Share Subscription
Agreement
Loan Aggts.
Offtaker
Offshore -Escrow
Acct.
Sales Contract,
Spot sales
Revenues
Debt
Service
Payments
Operating
Payments
Surplus
Dividends
Feedstock Supplier
Operator &
Maintenance
Supply
Contract
O & M Contract
3rd Party
Gtees.
Lenders’ engineers,
finance, legal,
environmental and
insurance advisory
GOVERNMENT
Concessions,
Licenses, other
authorizations
Shippers
FOB
LDs
PSA or other involvement
Structure of SPV

Course Instructor:
Prof Anand Kumar Project & Infrastructure Finance Group 1: PGEXP 2017-19 IIM Ranchi
Critical Factor for the Structure of SPV
MNRE
Local Govt.
Special Project
Vehicle
(SPV)
Off Taker
Financial
Institution
EPC
Contractor
O&M
Contract
Regulations&
Concession
Financing
Agreement
EPC
Contract Power Purchase
Agreement Municipality
Utility
agreement
DISCO
M
Water Availability
Land
Agreement
Sponsor SponsorTechnical
Master-plan (Term Sheet) for
development of solar park
•Detailed action plan and
timelines in association with govt.
agencies.
•Advise state transmission
company plan to evacuate power
•Assess technical issues and
propose solutions
•Identify best practices and
propose optimal arrangement for
equipment & facilities for the solar
park.
Financial
•Drawing Cost estimates
•Economic and financial
model for the transmission
line and evacuation
infrastructure
Analysis of Financials of
Transmission companies
Propose and evaluate
appropriate business models.
Organizing/Integrating
•Consultations with central and
state government, regulators,
international and national private
sector investors and development
partners.
Policy & Regulatory
•Preparation of procurement plan,
contract packages and related due
diligence for the project.
•Advise state government agencies
for the development of conducive
policy & regulatory framework for
establishment of solar parks.
•Assessment of existing
arrangements for industrial parks,
SEZ in India and abroad
•Propose legal status of the solar
park agency, appropriate
organization structure, governance
and management mechanism,
dispute resolution etc.

Course Instructor:
Prof Anand Kumar Project & Infrastructure Finance Group 1: PGEXP 2017-19 IIM Ranchi
Timeline for SPV
Few key dates include:
Development Phase
◦ Period during which the project is conceived; contracts are negotiated;
end of this phase is the financial close.
Financial Close
◦ The date on which all project contracts and financing documentation
are signed and conditions precedent to initial drawing of the debt have
been satisfied or waived.
◦ Prior to financial close, development costs incurred, no construction,
feasibility study (development costs 2-5% of project).
Commercial Operation Date (COD)
◦ The date on which the project's cash flows become the primary method
of repayment. It occurs after a completion test typically involving both
financial and physical performance criteria. Prior to completion, the
primary source of repayment is usually from the sponsors or from the
contractor.
Debt Repayment Date
Retirement Date
Conceptuali-
sation
Execution of
initial business
documentation
Operation
Pre-feasibility,
feasibility and
technical
conceptual
design studies
Financial
and
Economic
Project
Analysis
Negotiation
&
Scrutinizing
of Long
Term
Agreement
Permitting
SPV
Structure
Finalisation
Detailed
Engineering
Desgn
Procurement
&
Construction
Commissioning
Subsidy timeline for Solar park

Course Instructor:
Prof Anand Kumar Project & Infrastructure Finance PGEXP 2017-19 IIM Ranchi
Financial due diligence
Cash Flow
◦ Project Cash Flow (No Financing)
◦ Equity Cash Flow (Including Financing Effects)
Project IRR
◦ Compare to the interest rate on debt issues
◦ Use in break-even analysis
◦ Ignores any debt effect
Equity IRR
◦ How much put in and how much take out
◦ Used by private investors
Payback Period
◦ Theory and practice
◦ Equity or Free Cash Flow
Discount Rate
◦ Town
◦ Private
Net Present Value of Free Cash Flow Related to the project IRR
◦ See what it takes to make negative
Net Present Value of Equity
◦ Related to Equity IRR
◦ Value to Investors

Course Instructor:
1. Forecasted Income Statement Balance Sheet
2. Cash Flow Analysis
a) NPV
b) IRR
c) Pay Back Period
d) Break Even
e) Sensitivity
f) Scenario
CHAPTER 2: Financial Model
Role 2: Lead Banker’s Point of View
1. Risk Analysis for Capital Investment
a) DSCR
b) LLCR
2. Capital Structure & Syndication
a) League table
b) Tier Arrangement

Course Instructor:
THANK YOU

Project & Infrastructure Financing- SPV for Solar Park

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