Ensuring Profitability - A Practical Persepective
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Presentation given Anmol Singh Jaggi - Director, Gensol Consultants explains how to build profitable solar power projects in spite of competitive reverse bidding under National Solar Mission. Anmol also explains what other options can be explored by Solar Power enthusiasts to setup Solar Power Projects viz Renewable Energy Certificates. Please make sure to read the presentation with notes.
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Ensuring Profitability - A Practical Persepective
- 1. Ensuring Profitability – A Practical Perspective - Anmol Singh Jaggi Director, Gensol Consultants Pvt Ltd
- 2. Few Facts First National Solar Mission Phase 1 Batch 1 17.91 12.76 10.96 11 times Phase 1 Batch 2 15.39 9.41 7.49 7 times Starting Tariff Highest Tariff Lowest Tariff Oversubscription
- 3. Few Facts First National Solar Mission Phase 1 Batch 1 17.91 12.76 10.96 11 times Phase 1 Batch 2 15.39 9.41 7.49 7 times Starting Tariff Highest Tariff Lowest Tariff Oversubscription Phase 1 Batch 3 12.87 6.06 4.02 6 times
- 4. Few Facts First National Solar Mission We are all born ignorant, but one must work hard to remain stupid. - Benjamin Franklin Founding Father of the US Phase 1 Batch 1 17.91 12.76 10.96 11 times Phase 1 Batch 2 15.39 9.41 7.49 7 times Starting Tariff Highest Tariff Lowest Tariff Oversubscription Phase 1 Batch 3 12.87 6.06 4.02 6 times
- 5. Backward Calculations Average Capacity Average Tariff Capital Cost per MW PLF Rate of Interest Tenor of Loan Equity IRR 12.5 MW Rs. 8.77/unit Rs. 8.5 cr/MW 20.5% (approx. 1.8 mn units/MW) 10% and 12.75% 15 and 12 Years 17.5%
- 6. Backward Calculations Average Capacity Average Tariff Capital Cost per MW PLF Rate of Interest Tenor of Loan Equity IRR 12.5 MW Rs. 8.77/unit Rs. 8.5 cr/MW 20.5% (approx. 1.8 mn units/MW) 10% and 12.75% 15 and 12 Years 17.5% SCALE
- 7. List of Project Developers Solaire Direct SA 5 Welspun Solar P Ltd 50 Azure Power India Ltd 35 Sai Sudhir Energy P Ltd 20 VS Lignite Power Ltd 10 Jackson Power P Ltd 20 Symphony Vyapar 10 Shree Saibaba Sugar Ltd 5 LEPL Projects Ltd 10 SunBorne Energy Ltd 5 Sujana Towers Ltd 10 Fonroche Energies AS 20 NVR Infra & Services P Ltd 10 Enfield Infrastructure Ltd 10 Essel Infra Projects Ltd 20 SEI Power Pvt Ltd 20 GAIL 5 Mahindra Solar One P Ltd 30 Kiran Energy Solar P Ltd 20 Green Infra 25
- 8. List of Project Developers Solaire Direct SA 5 Welspun Solar P Ltd 50 Azure Power India Ltd 35 Sai Sudhir Energy P Ltd 20 VS Lignite Power Ltd 10 Jackson Power P Ltd 20 Symphony Vyapar 10 Shree Saibaba Sugar Ltd 5 LEPL Projects Ltd 10 SunBorne Energy Ltd 5 Sujana Towers Ltd 10 Fonroche Energies AS 20 NVR Infra & Services P Ltd 10 Enfield Infrastructure Ltd 10 Essel Infra Projects Ltd 20 SEI Power Pvt Ltd 20 GAIL 5 Mahindra Solar One P Ltd 30 Kiran Energy Solar P Ltd 20 Green Infra 25 70% of Project Developers have a portfolio or plans of 100+ MW
- 9. Building Scale Investing Across Policies Welspun has 5 MW in NSM Batch 1, 15 MW in Gujarat and 50 MW in NSM Batch 2 with plans of 200+ MW Investing Across Geographies Kiran Energy has 20 MW allocation in Gujarat, 20 MW under NSM Batch 2 in Rajasthan and has applied for allocation in Karnataka. Investing Across Countries Sun Edison won a 60 MW allocation in Malaysia the day it won a 20 MW allocation in India under NSM Batch 2. Solaire Direct is one of the largest project developers in France.
- 10. Building Scale Investing Across Policies Welspun has 5 MW in NSM Batch 1, 15 MW in Gujarat and 50 MW in NSM Batch 2 with plans of 200+ MW Investing Across Geographies Kiran Energy has 20 MW allocation in Gujarat, 20 MW under NSM Batch 2 in Rajasthan and has applied for allocation in Karnataka. Investing Across Countries Sun Edison won a 60 MW allocation in Malaysia the day it won a 20 MW allocation in India under NSM Batch 2. Solaire Direct is one of the largest project developers in France. But, what happens to the smaller investors?
- 11. Renewable Energy Certificates REC Tariff from Discom or 3rd Party Power Sale Sale of REC at Rs. 9.3 to Rs. 13.4 per unit. Accelerated Depreciation Visibility of REC Prices for 5 years Balance Sheet Financing
- 12. REC Viability Capacity Minimum REC Price State Discom PPA Price Capital Cost PLF Rate of Interest Tenor of Loan Equity IRR 1 MW Rs. 9.3/unit Rs. 2.7/unit Rs. 10 cr/MW 19% (approx. 1.65 mn units/MW) 12.75% 12 Years 30% +
- 13. REC Viability 10 8 6 4 2 Year 0 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 12 PROJECT COST + INTEREST TAX BENEFITS REC + TARIFF REVENUE
- 14. About Gensol Consultants Pvt Ltd Gensol Consultants, an ISO 19001:2008 certified company is a pioneer in Renewable Energy and Carbon Advisory. Gensol Consultants is an advisor to 250MW+ Solar PV Projects under execution. • Solar Advisory & Project Execution • Carbon Advisory & Trading • Renewable Energy Certificate Advisory & Trading • Power Trading • Energy Management & Audit • Carbon Footprinting & Product Lifecycle Assessment 360o Clean Energy Solutions:
- 15. About Gensol Consultants Pvt Ltd Few Facts: • 70+ Trained Team - all Graduates and Post Graduates in Energy and Environment • 250 MW+ Solar Power Projects under advisory • Recipient of multiple awards including BusinessWorld Hottest Young Entrepreneur and Economic Times Power of Ideas. Offices at: Ahmedabad | Gurgaon | Bangalore Quoted In: Business Dailies: Business Standard | Economic Times Business Magazines: Business India | Forbes India Industry Journals: Power Line | Energetica | EQ International
- 16. Solar Advisory Services Owner’s Engineer: As Owner's Engineer, we guide our clients or investors through the complete process of project feasibility, financial closure, bid process management, vendor finalization and supervision of project execution up till successful project commissioning which meets our strict quality criteria. Lender’s Engineer: Being consultants to some of the leading lending institutions in the country, we assess the key parameters impacting the returns from the project like generation, cost and conditions of the EPC Contract, preparedness of Project Developer for execution etc. Detailed Engineering and Vetting of Drawings: Gensol Solar Division is staffed with experienced Electrical, Electronics, Mechanical and Civil Engineers who undertake detailed engineering of Solar PV Power plants on behalf of EPC Contractors and vetting of drawings for Project Developers and investors. Pre Feasibility Analysis and Bidding Assistance: Every solar power policy is different in terms of eligibility criteria, method of allocation, allowed location of project etc. Gensol’s engineers and analysts help Project Developers select the sites most suitable for setting up solar power projects, assist in price discovery for securing allocation in cases of reverse bidding and in documentation to be submitted for the same. Detailed Project Report: A Detailed Project Report is one of the most important documents to assess the feasibility of project and to get financial closure. Gensol with its sector expertise and established standing in the renewable energy consultancy not only gives the most exhaustive analysis of the project but also enjoys the confidence of industries, investors and banks alike.
- 17. Experience Snapshot Gensol Consultants is among the leading consultants to Project Developers, Financial Institutions and Investors. Total portfolio of Solar Power Projects under advisory at Gensol Consultants is 250 MW. • 60 MW (4 Projects) – Haryana Power Generation Corporation Ltd, Haryana Govt. enterprise • 25 MW – Alex Astral Solar Power Ltd., Gujarat • 5 MW – Konark Group, Gujarat • 5 MW – Swiss Park Vanijya Pvt Ltd, Rajasthan • 5 MW – OPG Energy Pvt Ltd, Rajasthan • 5 MW – Alex Spectrum Radiation Pvt Ltd, Rajasthan Owner’s Engineer: • 25 MW – Sun Group, Gujarat • 25 MW – Sun Edison, Gujarat • 10 MW – Greeninfra Solar, Gujarat • 20 MW – PLG Power, Gujarat • 6 MW – Indiabulls Power, UP & Maharashtra • 10 MW – Millenium Synergy, Gujarat • 5 MW – ESP Urja, Gujarat • 10 MW – Ruchi Soya, Gujarat Lender’s Engineer: • 20 MW – Client Confidential, Gujarat • 8.5 MW – Jain Irrigation, Maharashtra • 1 MW – L&T ECC Division, Rajasthan Detailed Designing • 2 MW – R V Akash Ganga, Uttarakhand Detailed Design Vetting • 1 MW – Sheth Developers, Maharashtra • 200 kW - Natural Dehydrates Vegetables Pvt. Ltd. • 100 kW – Dibrugarh University, Assam • 100 kW – Raheja Builders, Haryana • 12 kW – Residential Rooftop, Gujarat • 5 kW – Raheja Builders, Delhi • 5 kW – Sikar Sahakari Bhumi Vikas Bank, Rajasthan • 2 kW – JSS Academy, Noida Project Execution
- 18. Experience Snapshot • 155 MW Grid Connected Gujarat • 60 MW Grid Connected Haryana • 31 MW Grid Connected Rajasthan • 14.5 MW Grid Connected Maharashtra • 2 MW Grid Connected Uttarakhand • 10 MW Grid Connected Karnataka • 1 MW Grid Connected Himachal Pradesh • 1 MW Grid Connected Maharashtra • 212 kW off Grid Gujarat • 100 kW Off Grid Haryana • 100 kW off Grid Assam • 5 kw Off Grid Delhi • 5 kW Off Grid Rajasthan • 2 kW Off Grid Uttar Pradesh Advisory: Execution: Gensol Consultants is among the leading consultants to Project Developers, Financial Institutions and Investors. Total portfolio of Solar Power Projects under advisory at Gensol Consultants is 250 MW.
- 19. Experience Snapshot Gensol Consultants is a member of the Power Exchange for trading of Power and RECs and also has portfolio in excess of 30 million carbon credits across 16 states in India. • Maize Products • Yes Fashions • Dishman Pharma • Jay Chemical Industries Ltd • Aarvee Denims and exports Ltd. • Texmo Industries • Heavy Metals • Brigade group • B K Developers • Green Ply • Time Technoplast • Paramount Paper Steel Cast Ltd. • Madhu Silica Pvt Ltd Power Trading Clients: • P & R Engineering Services Ltd. • Sayaji Industries Ltd. • Baghauli Sugars • Santlal Industries Ltd • Vishal Paper Industries Pvt Ltd • Shree Bhageshwari Papers Ltd • Daulat Rice & General Mill • Ganga Pulp & Papers Ltd. • RP Basmati rice Ltd. REC Based Projects: • Hotel Golden Emerald • Sree Minerals Pvt Ltd • BVSR Energy Systems • Singrun Realities • RCM Fashion Suiting Ltd • NecLife Science Ltd. • Balaji Waffers Ltd • Texmo Ltd • Pothys • Zaveri & Co. Exports • Sanghvi Forging Eng. Ltd • Ispat Udyog. • Kishco Ltd • Jindal Steels. • P & R Engineering Services Ltd. CDM Clients:
- 20. Gensol Consultants Pvt Ltd Western Business Unit: 205 - 206, Sarthik II, S.G. Highway, Ahmedabad - 380015 Gujarat, India Northern Business Unit: 105-106, Infotech Centre, Plot No. 14/2, Opp. Amdoc's Building, Old Gurgaon-Delhi Road, Gurgaon - 122001, Haryana, India E: solar@gensolconsultants.com W: www.gensolsolar.com Ph: +91 79 39122200 F: +91 79 39122220
Editor's Notes
- Ensuring Profitability in Solar was never an easy task. The recent round of Reverse Bidding has only made it harder.
- A quick recap on the rounds of Reverse Bidding till date. We have had 2 batches of PV Projects with Reverse Bidding breaking all barriers of conventional wisdom both times.
- Just for my personal amusement, I would like to extend the trend to a hypothetical 3rd round of Reverse Bidding as well. We see that the prices of Solar Power might go down to Rs. 4 to 6 based on linear extrapolation. A joke it might seem to most of us, but we all know Rs 7 to 9 was as much of a joke before it finally happened.
- I can’t help but think that Benjamin Franklin might have been faced with a similar situation when he said – “We are all born ignorant, but one must work hard to remain stupid.” But, if we look through the names of the Project Developers, they are probably of the best pedigree with years of experience and MWs of solar power plants in their portfolio already. So, what explains the logic of the bidding?
- Doing some backward calculations, the average capacity of the Projects allocated was 12.5 MW and the average tariff was Rs. 8.77/unit. We would be able to explain a PLF of 20% + in Rajasthan which is also reflected in the bids considering that 70% bidders were from Rajasthan and 80% of selected bidders are from Rajasthan. Further, it wont be a stretch of imagination to say that half of the project can be financed by Exim Bank at a hedged interest of 10% for 15 years and for the balance amount at about 13% for 12 years from domestic bank. At a Capital Cost of Rs. 8.5 crores, the plant shall offer an Equity IRR of 17.5% The Big question that remains unanswered though is how to get the cost of the entire project to as low as Rs. 8.5 crores per MW.
- One can go into breaking the plant into separate modules and appoint different subcontractors or even do the entire EPC in-house in some cases. But, that will not be able to get the EPC Cost to the required levels. The only possible answer is to build SCALE in power projects.
- IN front of you is the list of Project Developers selected to setup projects under National Solar Mission Phase 1 Batch 2.
- Amongst the list of selected Project Developers about 70% of them have plans or portfolio of 100+ MW.
- A few case studies into the scale of power plants is explained.
- Not everybody has the appetite to setup a 100 MW portfolio. So, what about the smaller investors?
- Renewable Energy Certificates offer a welcome break from the mad race to reduce costs and competitive bidding. But, to template it to one of our National Solar Mission or state policies might be foolhardy. REC is a different animal. On one hand it has the prospects of a better tariff of minimum Rs. 12 to Rs 19 per unit for the next 5 years and Accelerated Depreciation for the profitable ones after that, on the other hand there is uncertainty post 5 years leading to tough financing climate for Project Developers.
- Going by conservative assumptions in REC based Solar Project, a project developer with profits to justify Accelerated Depreciation stands to get as high as 30% Equity IRR.
- To explain simply, if your cost of setting up the project is Rs. 10 crores and one accumulates the interest of about Rs. 2 cores on top of that. With a 2.4 crores in tax saving on account of Acceerated Depreciation immediately on commissioning of the power plant and an annual revenue of justifiable Rs. 2 crores, the Project Developer is able to get payback with in the first 5 years.