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Feasibility study of setting of solar plant in Philippines

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This one of the projects or study done by siddharth Kundu of Asian Institute of Management, 2012 Mba graduate for more info on this project or other renewable energy projects in Philippines contact siddharth Kundu siddharth.kundu@yahoo.com or call at +63 9174251101

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Feasibility study of setting of solar plant in Philippines

  1. 1. Feasibility study of setting up a 10 MW solar farm in Luzon Submitted By Siddharth Kundu MBA 2012 Candidate Asian Institute of Management Proponent Shrinivas Polishetty American orient Capital Partners Philippines Mentors Prof. G Ortigas Prof. F Roxas Asian Institute of Management MANAGEMENT RESEARCH REPORT
  2. 2. FLOW OF PRESENTATION Industry Analysis Internal Analysis PEST Analysis Five forces Framework Demand & supply Key success Factors Opportunities & Threat American Orient Capital Partners Stakeholder Analysis Revenue Model/sources Operations strategy Marketing strategy Financials Risk Recommendation The Company
  3. 3. • Government is supporting and attracting investment in Renewable energy sector Political • Continuous growth of GDP ,Industry Power requirements are increasing Economic • Total per capita of consumption of electricity is continuously increasing Social • Solar technology is getting affordable and non- conventional energy cost is increasing Technology MACRO ENVIRONMENT ANALYSIS - PEST
  4. 4. Threat of New Entrants LOW Bargaining Power of Suppliers Low Bargaining Power of Buyers Medium Competitive Rivalry HIGH Threat of Substitutes MEDIUM Capital Requirement – High Economies of Scale – High Product Differentiation – Low First mover Advantage - High Government and Legal Barriers - High Buyer Propensity to Substitutes – LOW Relative Price of the Substitutes - Medium Buyers Sensitivity to Price – High RPS mandate- Low Buyers Sensitivity to Price – High Relative Bargaining Power – High Industry Concentration – Low Diversity of Competitors – low Product Differentiation – LOW Exit Barriers - High The Industry is attractive for New Players PORTER’S FIVE FORCES – SOLAR DEVELOPER
  5. 5. Supply Side Demand Factors CURRENT DEMAND AND SUPPLY OF ELECTRICITY - Philippines Solar Energy (<0.01%) Dependable Capacity 2011 13902 MW Renewable Energy 44% 6117 MW Locally Produced 55% Imported Sources 45% Total Peak Demand 2011 11226 MW 11226 14311 24434 0 5000 10000 15000 20000 25000 30000 2011 2018 2030 Demand (MW)
  6. 6. Is there Opportunity for solar farming in Pangasinan, Luzon? Distribution Companies  4 distribution companies in vicinity to have bilateral contracts  2 of them do not have renewable sourcing of electricity Consumption  Luzon till 2030 – 11,9000 MW  Pangasinan currently consumes more than 1310 MW First Mover Advantage No proposed or approved solar projects in the Pangasinan
  7. 7. Strategic Land site for setting up project Distance from substation or main transmission line Cost of land Solar generation capacity of land- Pvsyst analysis Initial setup cost( sourcing capability) Cost and quality of RE components Cost and quality of project engineering Initial project startup registration cost and fees Capital structure Interest rate of debt Principal and Interest Payback period for debt Bilateral contracts & CDM rate Bilateral contract rate CDM Rate Price escalation clause Minimum off take Agreement Approvals & registration DOE and NREB of Approval for the project CDM registration with UNFCCC to trade Carbon credits Registry with European Union Emission Trading System (EUETS) Capital Funding Price Place Suppliers and components Political Factors KEY SUCCESS FACTORS
  8. 8. Threat  Approved Solar projects in Luzon  Lack of trust on the legal and judicial system and previously rigid laws on venturing in Philippines reduced the entry of foreign investment.  Costly power transmission capacity may affect the demand and supply of electricity.  Natural calamities Opportunities  All electric power industry participants ( distributors) are mandated to comply with the RPS  No operating solar player in Region- 1, Luzon  Potential Demand and supply gap of electricity  Four Distribution companies in the vicinity of the project.  Solar is given top most priority among all other sources of RE OPPORTUNITIES AND THREATS
  9. 9. The Company
  10. 10. Who are we?  AOCP is an investment and financial advisory services company.  Over 100 major transactions valued in excess of US$10 billion in Asia  They have acquired an unmatched blend of exposure and experience with international financial and industrial sectors. Objective of American Orient capital Partners Why are AOCP interested in Solar ? To check the feasibility of Solar energy Development in Philippines. To produce and sell electricity and CDM generated from project. To benefit by supply RE for the Renewable portfolio Standard set by NREB to meet demand of renewable source of energy.
  11. 11. Internal Analysis
  12. 12. STAKEHOLDERS Analysis 10 MW SOLAR FARM WSEM GOVERNMENT Approvals/Sanctions Regulatory Compliances Electricity Trading SUPPLIERS Better deals in procuring RE components UNFCCC Approvals and sanction Carbon credit Trading Electricity Distributors  Bilateral Contracts BANKS Financing Options
  13. 13. Power Interest Hi Mid Lo HiMid G S B D W G Manage closelyKeep satisfied Monitor Keep Informed B Bank D Distributor S Component supplier W wsemGovernment Stakeholder Power grid Matrix
  14. 14. Bilateral contract - For fixed cash flow to meet to long term debt principal and interest amount CDM certificates - To benefit by registering for sale of CDM certificate from the green renewable energy project Trading energy in WESM - By selling at the spot market to enjoy the benefit of spot market rate with a guarded floor price of 9.68 Revenue Model / Sources of Revenue
  15. 15. 1st degree potential customers • PANELCO 3 • CENPALCO • DECORP • PANELCO 1 2nd degree potential customers • INEC • ISESCO • LUELCO • Meralco 3rd degree potential customers • Nor feeds • B Meg • SYGENTA • University of Eastern Philippines Potential Bilateral Contract Customers
  16. 16. • Total Purchase of electricity in a year ? • What are the source generation companies for buying electricity and detailed breakup of energy purchase? • Are you ready for Minimum off take in bilateral contract ? • Is your cooperative ready to buy electricity from solar energy producers ? If yes then at what rate? Factors considered while deciding Bilateral contract Rate
  17. 17.  The price goes high as up to 60 Peso/ KwH  The amount electricity traded at more than 10 Peso is almost to an little less than 10 % of total transactions happening of WSEM.  The average trading rate 6.9 Peso in peak hours is 9am -4 PM.  The floor price for solar energy set by FIT rate is Peso 9.68  Solar energy will be given first Priority among all sources of energy on the trade floor. Picture: Average trading rate Graph of WSEM Electricity trading at WSEM
  18. 18.  Company has to be registered to European Union Emission Trading System (EUETS)  Receiving UNFCCC approval for emissions reduction projects in order to yield carbon credits  Average trading rate is 3 Euro/Ton for CDM CERTIFICATE  52 week high was around 13.5 euro / ton for CDM CERTIFICATE  It is forecasted to be around 20 euro/ ton on average by Year 2020 by big trading houses in CDM trading houses in Europe.  Risk mitigation of fluctuating CDM rate can done by having carbon exchange contracts CDM Trading
  19. 19. • Major task of operation will be keep the site running to its maximum potential. • To look after the regular technical maintainace and cleaning of the plant. • Approval & Permits – 4 weeks • Construction of Site – 3 weeks • Component installation-3 weeks OPERATION STRATEGY Timeline for Project Site operation Employees and Cost
  20. 20. We need to have good relationship with the suppliers to get a attractive rate , good quality RE components and after sales service.  Solar panels are the costliest Component for this project. The rate charged is .69$ per Wp with 10 year warranty and CIS.  Around 38000,265 Wp modules will be required to make 10 MW plant  Land & structure cost are second costliest component and make 25 % of total Capex RE Components/Suppliers
  21. 21. Looking at the study on solar projects, our marketing approach will be showing the value proposition of the solar project and promote the affordability to strengthen our possibility of favourable bilateral contract Ways of Promoting • Public Relations • B2B Presentation & seminar • Website Marketing strategy
  22. 22. Project Director/ CEO American Orient capital Partners , Philippines Project Manager , HR manager ,Costing & audit Manager, Sales & Marketing Manager, Operations & Panel Engineer- Experienced Industry Professionals 1-Field engineer, 4-Field operator 6-daily labor, 4- security guard ORGANISATION STRUCTURE - PROJECTS
  23. 23.  This will be a P 560 Million Project  Capital Expenditure is P 498 million  Operating expense is around P 8 million per year.  Contingency Amount-P 158,17,581 3% of total Capital expenditure to factor in any unexpected cost. DEBT – EQUITY Ratio 70:30 Funding structure ( All figures in Peso unless mentioned )
  24. 24. Scenario Pessimistic Base Optimistic Long term interest rate(%) PA 12% 10% 7.45% Bilateral contract rate (peso) 6.4 6.9 9 Generation / Production(KwH) 10,000,000 14,410,000 17,520,000 CDM Credit Certificate(Euro) 0 3 9 FIT rate -WSEM 9.68 9.68 9.68-3 years/ 17 - 4th year onward OPEX escalation (%) 4 4 4 Depreciation Accelerated Depreciation Bilateral Rate escalation Every 5 years Financial Assumptions
  25. 25. Base case scenario Pessimistic Case Scenario Optimistic case PERCENTAGE OF REVENUE SHARE FOR DIFFERENT SCENARIOS
  26. 26. Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 All figures in Peso unless mentioned Units Generated (kWh) 1,44,10,000 1,42,65,900 1,41,23,241 1,39,82,009 1,38,42,189 1,37,03,767 1,35,66,729 1,34,31,062 Tariff 6.90 6.90 6.90 6.90 6.90 8.28 8.28 8.28 Units decided to sold on bilateral contract 79,74,176 79,74,176 79,74,176 79,74,176 79,74,176 79,74,176 79,74,176 79,74,176 Revenue from Bilateral Tariff 5,50,21,815 5,50,21,815 5,50,21,815 5,50,21,815 5,50,21,815 6,60,26,178 6,60,26,178 6,60,26,178 Units to sold WSEM 64,35,824 62,91,724 61,49,065 60,07,832 58,68,012 57,29,591 55,92,553 54,56,886 WSEM ** Tairff 9.68 9.68 9.68 9.68 9.68 9.68 9.68 9.68 Revenue from wsem Tariff 6,22,98,775 6,09,03,887 5,95,22,948 5,81,55,818 5,68,02,360 5,54,62,436 5,41,35,912 5,28,22,652 CDM benefit 2,03,75,812 1,81,54,849 1,59,76,267 1,38,39,441 1,17,43,754 96,88,597 95,91,711 94,95,794 Total Revenues 13,76,96,402 13,40,80,551 13,05,21,030 12,70,17,075 12,35,67,929 13,11,77,212 12,97,53,801 12,83,44,625 Opex 83,31,253 86,64,503 90,11,083 93,71,526 97,46,387 1,01,36,243 1,05,41,692 1,09,63,360 Working Capital 1,14,74,700 1,11,73,379 1,08,76,753 1,05,84,756 1,02,97,327 1,09,31,434 1,08,12,817 1,06,95,385 Outstanding debt 39 30 12 966 37,72,92,446.90 36,15,71,928 34,58,51,410 33,01,30,891 31,44,10,372 29,86,89,854 28,29,69,335 26,72,48,817 Annual debt repayment 1,57,20,519 1,57,20,519 1,57,20,519 1,57,20,519 1,57,20,519 1,57,20,519 1,57,20,519 1,57,20,519 Interest component 3,93,01,297 3,77,29,245 3,61,57,193 3,45,85,141 3,30,13,089 3,14,41,037 2,98,68,985 2,82,96,934 Depreciation 3,05,50,257 3,05,50,257 3,05,50,257 3,05,50,257 3,05,50,257 3,05,50,257 3,05,50,257 3,05,50,257 Taxable Income 4,37,93,078 4,14,16,028 3,90,81,979 3,67,89,632 3,45,37,678 4,33,29,156 4,30,72,348 4,28,13,555 Taxes 42 81 356 NET INCOME 4 37 93 078 4 14 16 028 3 90 81 979 3 67 89 632 3 45 37 678 4 33 29 156 4 30 72 348 3 85 32 200 BASE CASE INCOME STATEMENT
  27. 27. year 0 1.00 2.00 3.00 4.00 5.00 6.00 7.00 Cash in Flow from Operating Activities Cash flow from sales of unit 11,73,20,590 11,59,25,702 11,45,44,763 11,31,77,634 11,18,24,175 12,14,88,614 12,01,62,090 Cash flow from CDM units 2,03,75,812 2,44,46,572 1,59,76,267 1,38,39,441 1,17,43,754 96,88,597 95,91,711 Total Revenue 13,76,96,412 13,40,80,561 13,05,21,030 12,70,17,075 12,35,67,929 13,11,77,212 12,97,53,801 Cash Out flow from Operating activities Operating Expenditure 83,31,253 86,64,503 90,11,083 93,71,526 97,46,387 1,01,36,243 1,05,41,692 Total OPEX 83,31,253 86,64,503 90,11,083 93,71,526 97,46,387 1,01,36,243 1,05,41,692 EBIT 12,93,65,160 12,54,16,058 12,15,09,947 11,76,45,549 11,38,21,542 12,10,40,969 11,92,12,109 Taxes - - - - - - - NOPAT 12,93,65,160 12,54,16,058 12,15,09,947 11,76,45,549 11,38,21,542 12,10,40,969 11,92,12,109 Depreciation 3,05,50,257 3,05,50,257 3,05,50,257 3,05,50,257 3,05,50,257 3,05,50,257 3,05,50,257 Change in Working Capital (3,01,320.96) (2,96,626.75) (2,91,996.28) (2,87,428.77) 6,34,106.85 (1,18,617.55) (1,17,431.37) Capital expenditure 49,89,32,243.90 salvage value (After Tax) Cash Flow (49,89,32,244) 16,02,16,738 15,62,62,942 15,23,52,201 14,84,83,234 14,37,37,693 15,17,09,844 14,98,79,797 Cumulative Cash Flow (49,89,32,244) (33,87,15,506) (18,24,52,564) (3,01,00,364) 11,83,82,871 26,21,20,563 41,38,30,407 56,37,10,204 IRR 29.86% NPV 67,26,28,437 IRR -29.89% NPV - 672,628,437 PHP Payback Period -3.20 years BASE CASE CASH FLOW
  28. 28. Scenario Analysis Scenario Pessimistic Base Optimistic IRR 16.91% 29.86% 54.07% NPV 155,778,382 672,628,437 2070,395,676 PAYBACK 5.78 years 3.20 years 1.92 years SCENARIO ANALYSIS
  29. 29. Risk analysis RISK CATEGORY Reason Risk Mitigation Project Finance Risk High leveraged Bilateral contracts Cost overrun Contingency Fund, Advance Contract Bad Quality Product Service & warranty contract with reputed Companies Labour Risk Third Party Employment Low Electricity Generation Minimum Off take contract Market Risk Low Demand- High Price RPS Mandate of RE Act 2008, FIT RATE Political Risk Subsidies and Law First Mover Advantage to have Bilateral contract for long term Operations Risk Construction Risk RISK ANALYSIS
  30. 30. • Get the Registration and Approval from DOE basis of Project Plan. • Be the First Mover to secure Bilateral contracts. • Take advantage of bilateral contract to get the Long term loan. • Utilize economies of scale to Procure RE components to procure RE components at the cheaper price. Go Ahead with Plan! RECOMMENDATION

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