Eai presentation investment challenges in small hydro in india delhi mar 2010

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Eai presentation investment challenges in small hydro in india delhi mar 2010

  1. 1. Potential and Investment Challenges in Small Hydro in India<br />N arasimhanSanthanam<br />EAI – www.eai.in<br />
  2. 2. About EAI<br />Leading Indian renewable energy business intelligence, market strategy consulting firm<br />Work on all primary renewable energy sectors – solar, wind, bio-fuels / biomass, waste-to-energy and small hydro<br />Work on market research, entry and diversification strategy, economic and financial modeling and pre-feasibility analysis<br />Team comprises professionals from IITs and IIMs, with renewable energy, industry research and economics backgrounds<br />Based out of Chennai, India<br />More at www.eai.in<br />
  3. 3. Will be Speaking On…<br /><ul><li>Small Hydro in India – Intro and Potential
  4. 4. Investment Trends in Small Hydro in India
  5. 5. Costs
  6. 6. Tariffs and RoI
  7. 7. Key Challenges
  8. 8. Looking Forward
  9. 9. Take-aways for Investors</li></li></ul><li>Small Hydro in India – Intro and Potential<br />
  10. 10. Small Hydro in India – Intro and Potential<br /><ul><li>Estimated potential - 15,000 MW.
  11. 11. Potential sites of small hydro and 5,415 potential sites with an aggregate capacity of 14,305.47 identified.
  12. 12. MW Total installed capacity = approx 2500 MW (15% of total)
  13. 13. Target capacity addition 11th plan (07-12): 2000 MW</li></li></ul><li>Small Hydro in India – Intro and Potential<br />The second largest RE contributor to electricity<br />
  14. 14. Small Hydro in India – Intro and Potential<br />High capacity factors<br />
  15. 15. Small Hydro in India – Intro and Potential<br />Advantages<br /><ul><li>Renewable
  16. 16. Proven technology
  17. 17. Indigenously available.
  18. 18. More enviro friendly than large hydro.
  19. 19. Low scales of investment make them affordable to small and medium entrepreneurs.
  20. 20. Shorter gestation periods than large hydro
  21. 21. Relevant for off-grid, rural, remote area applications.
  22. 22. Clean Development Mechanism (CDM) applicable</li></li></ul><li>Small Hydro in India – Intro and Potential<br />Disadvantages<br /><ul><li>Remoteness – Many small hydro projects located in remote places. Therefore, transmission of the surplus power to other places is costly.
  23. 23. High operation and maintenance cost - Inaccessibility of small hydro plants could result in high O&M costs.
  24. 24. Statutory clearances – Getting the various clearances required take considerable amount of time in some cases.
  25. 25. Transmission lines - Non-availability of high voltage transmission lines, resulting in heavy line losses.</li></li></ul><li>Small Hydro in India – Intro and Potential<br />SHP Capacity Addition (M W )<br />
  26. 26. Small Hydro in India – Intro and Potential<br />SHP High Potential States (M W )<br />
  27. 27. Small Hydro in India – Intro and Potential<br />SHP Implementation Timeline<br /><ul><li>Total period from concept to commissioning – 30-36 months
  28. 28. Pre-construction period – 15-18 months</li></ul>Surveys and investigations<br />Feasibility studies<br />Detailed project report<br />Clearances<br />Detailed designs and drawings<br />Financial closure<br />Finalization of contracts<br /><ul><li>Construction period (including commissioning): 15-20 months</li></li></ul><li>Small Hydro - Investment Trends<br />Small hydro investment in India grew by 300% 2007-08<br />$543 million in 2008 (15% of total RE investments)<br />$140 million in 2007<br />
  29. 29. Small Hydro - Investment Trends<br />Installed capacity grew from 1693 MW in 2005 to 2403 in 2009. (CAGR of 9.2%).<br />CAGR expected to be higher for the 2010-2015 period – approx 13%<br />
  30. 30. Costs<br />Capital Costs<br /><ul><li>Rs. 5.5-6 crores per MW
  31. 31. Significant variation in capex based on scales (10-15%), locations (15-20%).
  32. 32. Capital cost break-up</li></li></ul><li>Private Sector Participation<br />SHP projects installed in Private Sector (as on 31.03.2009) <br />    <br />
  33. 33. State Policies For Private Sector Small Hydro Power Projects <br />
  34. 34. Costs<br />Levelized Cost of Electricity (LCOE)<br /> Total levelized cost for electricity generation: Rs. 2.0-2.5 per kWh<br /><ul><li>O & M cost (including insurance): Rs. 0.5-0.7 per kWh
  35. 35. Amortized costs and other interest costs (taking 30 years amortization period): Rs. 1.75 per kWh</li></li></ul><li>Costs<br />Future Cost Reduction Possibilities<br /><ul><li>“ SHP is a mature technology” – Not entirely true
  36. 36. Significant advances are being made in hydroelectric equipment.
  37. 37. Developments focused on low-head installation, turbines (Eg. “ fish friendly” turbines), improving environmental integration.
  38. 38. Significant cost reductions in near/medium term expected especially in turbines - improved turbine designs, better pump turbines</li></li></ul><li>Small Hydro – Revenue Components<br />The primary revenue components are:<br />Revenue from selling electricity<br />Revenue from carbon credits<br />
  39. 39. Tariffs(2009)<br />
  40. 40. CDM Benefits<br /><ul><li>SHP qualified for CDM benefits
  41. 41. Approx 0.5 Rs per kWh as carbon credits</li></li></ul><li>RoE<br />Projected RoE for the Industry<br /><ul><li>PLF = 35%
  42. 42. Lifetime = 30 years
  43. 43. Project capex = 5.5 crores/MW
  44. 44. D/E = 70:30
  45. 45. Interest on loan = 12%
  46. 46. O& M = 17 lacs / MW / year (5.7% escalation annual)
  47. 47. Depreciation = 3% SLM
  48. 48. Residual value = 10% of capex
  49. 49. Tariff + carbon credits = Rs 3.35 per kWh
  50. 50. RoE = 1 9. 8 % pre-tax</li></li></ul><li>Payback Period<br /><ul><li>The payback period for small hydro systems is in the range of 5-7 years.
  51. 51. Owing to its ease of installation and operation, the payback period for small hydro systems is better than that for large hydro sources.</li></li></ul><li>Key Challenges<br /><ul><li>Delays & Long Timelines
  52. 52. Poor Transmission and Distribution
  53. 53. Geological and Social Uncertainties
  54. 54. Regulatory Challenges</li></li></ul><li>Key Challenges<br />Delays and Long Timelines<br />Delays O wing to Clearances Required for Land Acquisition<br /><ul><li>Examples of statutory clearances</li></ul>Gram Panchayat<br />Pollution Control Board/Environment<br />Irrigation & Public Health<br />Fisheries<br />Wild Life (Forest)<br />Essentiality Certificate<br />
  55. 55. Key Challenges<br />Delays and Long Timelines<br />Long Implementation Phase Owing to Relative Inaccessibility<br />Resource mobilisation<br />Installing safety measures<br />Delays owing to transportation issues<br />Testing procedures<br />Overcoming geological surprises<br />Grid connectivity<br />Commissioning<br />
  56. 56. Key Challenges<br />Poor Transmission and Distribution Infra<br /><ul><li>Lack of understanding of control processes to synchronize with grid
  57. 57. More acute owing to the relative remoteness and inaccessibility of SHP sites
  58. 58. Results in power evacuation
  59. 59. Transmission line inspection and maintenance difficult owing to terrain</li></li></ul><li>Key Challenges<br /><ul><li>Geological and Social Uncertainties</li></ul>Geological surprises<br />Inaccessibility of the area<br />Law and order problems<br />
  60. 60. Key Challenges<br />Regulatory Challenges<br />Tariff fixing still contentious<br />Regulators need to curb tendency to change rules and targets on which investment decisions are made<br />Regulatory commitment need to be sustained through long term contract <br />
  61. 61. Looking Forward<br /><ul><li>To take care of many clearance and implementation delays, it will be good idea to have a active single window system for clearances.
  62. 62. State utilities more proactive in improving the grid infrastructure and connectivity with SHP projects
  63. 63. Regulators sticking by contracts and more “generous” on incentives
  64. 64. More investment in R & D</li></li></ul><li>Take-aways for Investors<br /><ul><li>Over 85 % of total SHP potential is unexploited
  65. 65. SHP can provide economically sustainable power production
  66. 66. SHP could be favored by states owing to its ability to provide power to remote areas
  67. 67. Has fewer environmental bottlenecks than large HP
  68. 68. Key challenges involve implementation delays & long timelines, poor T & D infrastructure, lack of commitment from regulators and geological & social uncertainties.</li></li></ul><li>Thanks!<br />NarasimhanSanthanam<br />Energy Alternatives India - EAI – www.eai.in<br />narsi@clixoo.com<br />Mob: + 91-98413-48117<br />

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