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Geothermal Energy : India Market Overview

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Frost & Sullivan Analysis of the India Geothermal Energy Market

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Geothermal Energy : India Market Overview

  1. 1. <ul><li>Geothermal Energy : India Market Overview </li></ul><ul><li>Outlook & Potential for Geothermal Energy – </li></ul><ul><li>Geothermal Conference, 8-10 th December 2009 </li></ul>
  2. 2. <ul><li>Outlook on geothermal sector and its potential as the key resource for clean power generation Globally and in India </li></ul><ul><li>Government policies in pushing the developments of geothermal power generation </li></ul><ul><li>Economics and legal challenges for geothermal investments and development </li></ul><ul><li>Understanding the geothermal project characteristics – Project profitability, project financing sources </li></ul>Agenda
  3. 3. Geothermal energy uses hot water or steam as an energy resources to drive turbines <ul><li>Geothermal Power uses hot water or steam to turn turbines and generate electricity, and the risk lies with the IPP </li></ul><ul><li>Several technologies exist in order to achieve this depending on the form of the energy (water or steam) and the types of temperatures. </li></ul><ul><li>Most technologies exist in the sector though have their own particularities, and new technologies are being developed to target certain conditions. </li></ul>What is Geothermal Energy?
  4. 4. Geothermal has been around for a long time and is making a comeback due to a push for “green” backed by subsidies i.e. recent US subsidies Key geothermal markets globally Source : Frost & Sullivan US Chile Mexico Canada Philippines ANZ Indonesia Turkey
  5. 5. Indonesia and the Philippines are well placed in terms of potential to further grow their geothermal capacities. This will take time though… Market Size and Potential for Geothermal Energy Top Geothermal Countries by Capacity & Pipeline Source : Emerging Energy Research
  6. 6. India has around 10.6 GW of geothermal potential overall that can be tapped into Market Size and Potential for Geothermal Energy Overview of Key Indian Geothermal Potential by State Jammu & Kashmir Himachal Pradesh Uttaranchal Punjab Rajasthan Haryana Uttar Pradesh Madhya Pradesh Gujarat Maharashtra Karnataka Goa Kerala Andhra Pradesh Orissa Chhattisgarh Bihar Jharkhand West Bengal Assam Meghalaya Mizoram Manipur Nagaland Arunachal Pradesh Sikkim Tripura Lakshadweep Delhi Bangalore HIMALAYA : 468 / 234 GODAVARI : 104 / 60 SONATA : 280 / 90 CAMBY : 93 / 70 WEST COAST : 129 / 59 MAHANADI SOHANA : 76-96 HEAT FLOW VALUES / THERMAL GRADIENT
  7. 7. India has around 10 GW of geothermal potential overall that can be tapped into Market Size and Potential for Geothermal Energy Characteristics of Geothermal Provinces in India
  8. 8. Coal still accounts for a significant percentage of electricity generated in India Overview of Indian Power Mix Overview of Indian Power Mix - 2008 Fuel MW Percentage Coal 76,048.88 53.16% Gas 14,656.21 10.24% Oil 1,201.75 0.84% Total Thermal 91,906.84 64.24% Hydro 35,908.76 25.10% Nuclear 4,120.00 2.88% Renewable 11,125.41 7.78% Grand Total 143,061.01 100.00%
  9. 9. India already has a shortage of energy of 8% average, and 12% in peak Overview of Indian Power Supply vs. Demand Overview of Indian Supply Demand Gap Trend in Peak Power Demand Supply Gap (MW) Trend in Energy Demand Supply Gap (Million Units) Year Energy Requirement (MU) % age increase Energy Availability (MU) % age increase Energy Shortage (MU) Energy Shortage (%) 1997-98 424505 NA 390330 NA 34175 8.05% 1998-99 446584 5.20% 420235 7.66% 26349 5.90% 1999-00 480430 7.58% 450594 7.22% 29836 6.21% 2000-01 507216 5.58% 467400 3.73% 39816 7.85% 2001-02 522537 3.02% 483350 3.41% 39187 7.50% 2002-03 545983 4.49% 497890 3.01% 48093 8.81% 2003-04 559264 2.43% 519398 4.32% 39866 7.13% 2004-05 591373 5.74% 548115 5.53% 43258 7.31% 2005-06 631554 6.79% 578819 5.60% 52735 8.35% 2006-07 690587 9.35% 624495 7.89% 66092 9.57% 2007-08 (Apr-Jan '08) 608804 NA 554248 NA 54556 8.96% Year Peak Demand (MW) % age increase Peak Met (MW) % age increase Peak Shortage (MW) Peak Shortage (%) 1997-98 65435 NA 58042 NA 7393 11.30% 1998-99 67905 3.77% 58445 0.69% 9460 13.93% 1999-00 72669 7.02% 63691 8.98% 8978 12.35% 2000-01 78037 7.39% 67880 6.58% 10157 13.02% 2001-02 78331 0.38% 69189 1.93% 9142 11.67% 2002-03 81492 4.04% 71547 3.41% 9945 12.20% 2003-04 84574 3.78% 75066 4.92% 9508 11.24% 2004-05 87906 3.94% 77652 3.44% 10254 11.66% 2005-06 93255 6.08% 81792 5.33% 11463 12.29% 2006-07 100715 8.00% 86818 6.14% 13897 13.80% 2007-08 (Apr-Jan '08) 107010 NA 90793 NA 16217 15.15%
  10. 10. India already has a shortage of energy Overview of Indian Power Supply Electrification Percentage in India No. of Villages (Census 1991) Villages Electrified  (30 th May 2006) Electrification percentage 593,732 471,36 0 79.4% Rural Households (Census 2001) Having access Electrification percentage 138,271,559 60,180,685 44%
  11. 11. <ul><li>Outlook on geothermal sector and its potential as the key resource for clean power generation in Indonesia and Philippines </li></ul><ul><li>Government policies in pushing the developments of geothermal power generation </li></ul><ul><li>Economics and legal challenges for geothermal investments and development </li></ul><ul><li>Understanding the geothermal project characteristics – Project profitability, project financing sources </li></ul>Agenda
  12. 12. Government policies for pushing geothermal have been better in certain countries compared to others and this has changed over time Government Policies for Geothermal Source : Frost & Sullivan US Chile Mexico Canada Philippines ANZ Indonesia Turkey Strong policy/ must have Weaker policy
  13. 13. <ul><li>Outlook on geothermal sector and its potential as the key resource for clean power generation in Indonesia and Philippines </li></ul><ul><li>Government policies in pushing the developments of geothermal power generation </li></ul><ul><li>Economics and legal challenges for geothermal investments and development </li></ul><ul><li>Understanding the geothermal project characteristics – Project profitability, project financing sources </li></ul>Agenda
  14. 14. Gestation time and nature of project impacts the economics Snapshot of Geothermal Project Time Frame Site Location Exploration Field Development Construction Startup Operation 3 Years 2 Years Level of Risk by Stage Ideal to Have Support & Funds at this Stage!!!!
  15. 15. Price of the off-take has the single highest impact on the economics <ul><li>Big projects of over 100 MW will get ????? cents kw/h. Indian PPA’s not always that atttactive. </li></ul><ul><li>Smaller projects can get ????? cents kw/h. Would there be an incentive for smaller projects? </li></ul><ul><li>Location can also make a difference. Are the projects near power lines in India? </li></ul>Economic Impact
  16. 16. Legal impact relating to financing, taxation, etc. need to be scrutinized clearly. Definition that the country has may not be the same definition you have! <ul><li>What are the power tariffs, structure, and security? Opaque process and inadequate PPA provisions exist in the market. </li></ul><ul><li>How is taxation structured? </li></ul><ul><li>Are there duties on imports? </li></ul><ul><li>Opaque tender processes. How are bidders awarded projects? </li></ul><ul><li>Poor resource data or no data compared to other countries. </li></ul>Legal & Other Impact
  17. 17. <ul><li>Outlook on geothermal sector and its potential as the key resource for clean power generation in Indonesia and Philippines </li></ul><ul><li>Government policies in pushing the developments of geothermal power generation </li></ul><ul><li>Economics and legal challenges for geothermal investments and development </li></ul><ul><li>Understanding the geothermal project characteristics – Project profitability, project financing sources </li></ul>Agenda
  18. 18. Geothermal energy risk is similar in many ways to oil & gas exploration but also has fundamental differences. Are you getting rewarded for risk. <ul><li>Geothermal risk profile is not that different compared to oil & gas where you have to find resources and drill other than: </li></ul><ul><ul><li>Most of the risk is taken upfront in a project </li></ul></ul><ul><ul><li>Is very site and location specific, therefore comparables are hard </li></ul></ul><ul><li>Once the geothermal plant is up and running, however, virtually risk free, non-polluting energy can be made available. </li></ul><ul><li>Risk management has to be hands on by the developing party to mitigate changing risk profiles. </li></ul>What is Geothermal Energy’s Risk Profile?
  19. 19. Key fundamentals in any project financing venture <ul><li>Key Factors in Project Financing </li></ul><ul><li>Project must be doable and of benefit </li></ul><ul><li>Dependable developers and reliable off-taker </li></ul><ul><li>Competitive power prices that are transparent and locked in </li></ul><ul><li>Project risk must be understood and allocated properly. </li></ul><ul><li>All parties must walk away with something! </li></ul>Financing Considerations
  20. 20. Before analyzing profitability and financing options must first understand what different parties need to get out of a geothermal project….. <ul><li>For the Investor….. </li></ul><ul><li>Geothermal project as mentioned previously is all about managing dynamic & changing risks, experience is therefore absolutely key – solid partner must be involved </li></ul><ul><li>Types of risk along the project must be distinguished and determine what types of investors are suited in terms of the development stages – geothermal and India centric investors </li></ul><ul><li>A long term approach needs to be adapted and therefore parties with the right level of long term appetite need to be sought as well as parties that can support IRR’s as low as ~15% on certain projects – India can accept these types of returns </li></ul><ul><li>Also less potential for big windfall gains – is more a steady asset play when plant is running </li></ul>Geothermal Project Characteristics?
  21. 21. Before analyzing profitability and financing options must first understand what different parties need to get out of a geothermal project….. <ul><li>For the State or Utility and Society…. </li></ul><ul><li>Is a very secure source of supply with a high base load factor </li></ul><ul><li>Security of price is present in the deal structure : lower risk = lower financial returns </li></ul><ul><li>Distributed generation gives a very efficient use of transmission system compared to a large power plant – size of geothermal projects makes them attractive </li></ul><ul><li>Renewable resources allowing reduction of subsidized fossil fuel imports into countries such as India </li></ul>Geothermal Project Characteristics?
  22. 22. Profitability is typically around15-16% IRR in Indonesia but can actually be pushed higher through based on CDM’s and location of the plants <ul><li>Profitability Example : Indonesia </li></ul><ul><li>16% IRR typically used in the market though some projects can give less and some more </li></ul><ul><li>Debate always centres around the price that the PLN can provide, however projects can have good IRR’s in Indonesia that are palatable to investors </li></ul><ul><li>Risk profile of geothermal, especially at early stage should however command a higher IRR than it currently does though – country risk is also probably overlooked in comparison to project risk </li></ul><ul><li>IRR’s should really be in the higher teens and command an IRR of 20% in Indonesia to our mind to reflect the risk levels. This level would be OK for an asset based renewable energy projects, more or less in line with IRR’s found in wind projects in riskier areas. </li></ul><ul><li>Indian IRR’s of 12-15% are being achieved in wind, so Geothermal should be attractive. </li></ul>Profitability of Projects?
  23. 23. What lenders specifically look for in a geothermal project <ul><li>Specific Things that All Investors look for when Financing a Geothermal Project: </li></ul><ul><li>Projects have to be bankable and this will depend on numerous factors including but not limited to : key sponsors, their track record, and financial capabilities, cash flow and its dependability, creditworthiness of the offtaker, credit enhancements etc. </li></ul><ul><li>Project construction period : could there be delays and what contingency is required if so? </li></ul><ul><li>Period of operation of the plant : ability to service the debt? </li></ul><ul><li>Risk Allocation/ Management : who is responsible for the risk, can it be shared, how to mitigate it, cost of risk ? </li></ul>Financing Considerations
  24. 24. Each and every country, including location within it, has it own set of risks that must be closely identified, and appropriate mitigation strategies put in place <ul><li>Specific Risks : India </li></ul><ul><li>Credit worthiness of the buyer – state utilities, and contract structures </li></ul><ul><li>Land acquisition </li></ul><ul><li>Clear legislative and fiscal laws applying to geothermal – tax, environmental, etc. – change in law? </li></ul><ul><li>Local issues where the plant is situated – legal, social, environmental and even monetary </li></ul><ul><li>Political risk, terrorism, currency risk, changes in law, i.e. nationalization, pricing structures </li></ul>Specific Risk Analysis of Indian Projects
  25. 25. Hypothetical analysis of an Indonesian Geothermal Power Project <ul><li>Typical Financials of a Project: Indonesia Example </li></ul><ul><li>Project size 100 MW </li></ul><ul><li>Cost per MW $2.3 to $3 mn depending on technology </li></ul><ul><li>Debt to Equity : Classic 75/25 split </li></ul><ul><li>Interest Rate : ~9%, 10 Year Tenor (high in India – 13%) </li></ul><ul><li>Equity IRR : ~16% based on price of 7.5 to 9 cents kw/h, and 85-90% load rate </li></ul>Financials of a typical Indonesian Project
  26. 26. Thank You Chris de Lavigne Global VP Consulting Frost & Sullivan [email_address] +65 9615 8293 This document contains highly confidential information and is the sole property of Frost & Sullivan . No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

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