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This document summarizes a study on the financial viability of various renewable power projects in India, including solar, wind, biomass, and small hydro. It finds that India's electricity demand is growing significantly but it remains dependent on oil imports and has electricity shortages. The study models hypothetical 10MW renewable power plants of each type to compare their costs, tariffs, profitability metrics, and risks. It finds that biomass has the shortest payback period at 3 years 7 months, while solar PV and thermal also show strong returns. All renewable options help reduce carbon emissions and qualify for CDM benefits. The analysis provides an advisory report for project developers on the various renewable sectors in India.
Major_Proj_Ramya
- 1. “Financial viability ofRenewable Power projects: A comparative analysis and advisory options amongst solar, wind, biomass and small hydro in India” Ramya Emandi MBA Infrastructure Internal Guide Capt. Rajiv Seth External Guide Mr. Nitin Naveen Singh
- 2. Statement of Problem •In next 12 years India’s electricity requirement to grow 2.5 times • India is dependent on oil imports fro 80% of its demand • Electricity shortage estimated at 25-35 GW • 400 million people still without access to electricity • Climate change is also an important issue •The country’s overall power deficit—11% in 2009 •Villages (17%) remain unelectrified •400 million Indians are without electricity coverage •India’s per capita consumption (639 kWh) is one of the lowest in the world •Every 1GW of additional renewable energy capacity reduces CO2 •Emissions by 3.3 million tons a year •Estimated at 334 lives saved/million tons of carbon abated
- 3. Statement of Problem •In next 12 years India’s electricity requirement to grow 2.5 times • India is dependent on oil imports fro 80% of its demand • Electricity shortage estimated at 25-35 GW • 400 million people still without access to electricity • Climate change is also an important issue •The country’s overall power deficit—11% in 2009 •Villages (17%) remain unelectrified •400 million Indians are without electricity coverage •India’s per capita consumption (639 kWh) is one of the lowest in the world •Every 1GW of additional renewable energy capacity reduces CO2 •Emissions by 3.3 million tons a year •Estimated at 334 lives saved/million tons of carbon abated
- 4. Objective • To promoterenewable power projects and hence making a viable report on it. • An advisory option to the client by giving a holistic view in terms of financials, approvals, incentives, CDM’s and risks involved with each of solar, wind, biomass and Small hydro. • Creating a hypothetical 10 MW power plant by solar, wind, biomass and others and making a comparative study under certain parameters.
- 5. India’s potential andinstalled Renewable energy As of March 2010.
- 6. Key legislation andincreases in renewable energy capacity, 1993/94–2009/10
- 7. Applicability of policyinstruments at various stages of renewable energy market development
- 8. CERC Re Tariffregulations 2009 • First RE specific tariff regulation by central electricity regulatory commission • Based on cost plus method
- 9. Methodology • Athorough reading of policies, CERC tariff guidelines, regulations, power ministry, MNRE, CDMs, rural electrification, anything and everything related to solar, wind, biomass and others. • Collection of all secondary data available on internet especially the government websites, SBI caps database & reports and segregating the appropriate required data to be used for the project • Preparing the brief overview report on each sector for the developer • Giving a basic financial model assuming a 10MW renewable power plant of each sector, so that the developer gets a fair idea about the costs and the related information
- 10. Report consists of SOLAR THERMAL SOLARPV WIND SMALL HYDRO BIOMASS Demand and Potential Technology Approvals Policies Specifications Financial Modeling RISK ANALYSIS OF RENEWABLE POWER & CDM Benefits Reports of CRISIL, PwC, etc ant Internet sources Government websites MNRE, IREDA, CERC, etc CERC guidelines and SBI caps experience & information FINANCIAL RESULTS & CONCLUSIONS
- 11. Basic Flowchart offinancial model Concept: Minimise the costs & Maximise the profits
- 12. Actual Assumptions VsCERC Assumptions ACTUAL CERC 95% Maximum depreciable value 90% 11.50% Long term interest rate 13.75% (LPLR+150bps) 11.50% Short term interest rate 14.25% (SPLR+100bps) (according to the sector) O&M (according to the sector given by CERC) (according to the sector) P&M (according to the sector given by CERC) 12 Loan Tenure 10
- 13. Financial modeling• ActualAssumptions (page1) • Gross capital costs (page2) – IDC (page3) • Revenues (page4) – Cost of generation (page5) • CERC Assumptions (page6) • Total costs (page7) – IDC (page8) • CERC Revenues (page9) – Cost of generation (page10) • P&L (page11) • Cashflows (page12) • Balance sheet (page13) Project Cost Generation Units CDM Benefits Tariffs Project IRR NPV Payback Equity IRR DSCR
- 14. Actual Assumptions 1880919235 6134 7025 6224 PARAMETERS SOLAR THERMAL SOLAR PV WIND SMALL HYDRO BIOMASS CERC Assumptions 21980 21375 6219 6771 6605 COSTS LEVELLISED TARIFF PARAMETERS SOLAR THERMAL SOLAR PV WIND SMALL HYDRO BIOMASS Actual Assumptions 14.09 18.19 5.05 4.57 1.86 CERC Assumptions 20.04 23.77 5.29 5.10 2.26
- 15. Actual Assumptions 1880919235 6134 7025 6224 PARAMETERS SOLAR THERMAL SOLAR PV WIND SMALL HYDRO BIOMASS CERC Assumptions 21980 21375 6219 6771 6605 COSTS LEVELLISED TARIFF PARAMETERS SOLAR THERMAL SOLAR PV WIND SMALL HYDRO BIOMASS Actual Assumptions 14.09 18.19 5.05 4.57 1.86 CERC Assumptions 20.04 23.77 5.29 5.10 2.26
- 16. PARAMETERS SOLAR THERMAL SOLAR PVWIND SMALL HYDRO BIOMASS PAYBACK 4 years 2 months 4 years 9 months 5 years 4 months 4 years 4 months 3 years 7 months NPV Rs Lakhs 8904 6913 1296 2701 3963 PROJECT IRR 20.39% 17.43% 14.69% 19.76% 24.40% EQUITY IRR 28.29% 26.08% 20.14% 23.8% 37.98% Avg DSCR 1.78 1.54 1.57 1.60 1.94 CAPITAL COSTS Rs Lakhs 18809 19235 6134 7025 6224 LEVELLISED TARIFF Rs/kWh 20.04 23.77 5.29 5.10 2.26 TARIFF W/O ROE Rs/kWh 12.23 14.48 3.33 3.49 1.57 CDM SOLAR THERMAL SOLAR PV WIND SMALL HYDRO BIOMASS IRR % without CDM: 19.47% 17.05% 12.88% 17.55% 18.65% IRR % change: 0.57% 0.38% 1.81% 2.21% 5.75% Carbon credits (Rs Lakhs): 1800.32 1460.13 2037.97 1503.79 5049.96 Carbon emissions abated: Tons/yr 15094.61 12214.448 17125.8 22114.62 51704.72 Results: CDM benefits:
- 17. PARAMETERS SOLAR THERMAL SOLAR PVWIND SMALL HYDRO BIOMASS PAYBACK 4 years 2 months 4 years 9 months 5 years 4 months 4 years 4 months 3 years 7 months NPV Rs Lakhs 8904 6913 1296 2701 3963 PROJECT IRR 20.39% 17.43% 14.69% 19.76% 24.40% EQUITY IRR 28.29% 26.08% 20.14% 23.8% 37.98% Avg DSCR 1.78 1.54 1.57 1.60 1.94 CAPITAL COSTS Rs Lakhs 18809 19235 6134 7025 6224 LEVELLISED TARIFF Rs/kWh 20.04 23.77 5.29 5.10 2.26 TARIFF W/O ROE Rs/kWh 12.23 14.48 3.33 3.49 1.57 CDM SOLAR THERMAL SOLAR PV WIND SMALL HYDRO BIOMASS IRR % without CDM: 19.47% 17.05% 12.88% 17.55% 18.65% IRR % change: 0.57% 0.38% 1.81% 2.21% 5.75% Carbon credits (Rs Lakhs): 1800.32 1460.13 2037.97 1503.79 5049.96 Carbon emissions abated: Tons/yr 15094.61 12214.448 17125.8 22114.62 51704.72 Results: CDM benefits:
- 18. Risk Analysis: RISK HEADDESCRIPTION RISK RATING RATIONALE RISK MITIGATION / ALLOCATION Promoter Risk Capability to implement projects Low-Med Risk The Promoter has promoted & implemented successfully 4 power projects in the past. The EPC contractors are experienced in project implementation and have a good track record Ability to bring in Equity Low Risk Promoter's personal net worth > Equity required to be brought in. The promoter will bring in a substantial portion of equity upfront; suitable conditions would be incorporated Market Risk Price of Power High Risk Guarantee market through a specified renewable portfolio standard in some states, as decided by the state electricity regulator by way of power purchase agreements To get CDM or CER to enhance more revenues and to meet breakeven faster before the government withdraws its support Demand Risk Low-Med Risk There is high potential and neccesity for power in India. There is scope of 62 GW of renewable energy which India needs to explore. Enter into medium and long term PPA’s Construction Risk Capability to construct Low Risk The promoter has experience in implementing projects. The Promoters and EPC contractors have the adequate experience and expertise in power projects execution Equipment Quality Low Risk The key equipment (the EPC contractor) which has sufficient experience in construction. The EPC contractor is having the proven technology for the power plant and safe guards are taken in EPC aggrements in terms of warranties and LD’s Delays Low-Med Risk Most of the clearances required (except environmental clearance) have been obtained. Environmental clearance is expected within 3 weeks. The Suitable conditions are proposed to ensure that all clearances are obtained prior to disbursement.
- 19. Technology Low RiskThe technology is a proven technology EPC contractor is providing the proven technology Realistic Budget Low Risk very necessary to avoid unnecessary speculations. The budgets are based on the EPC and other proven cost estimates as per the industry norms Environmental Risks Low Risk Renewable energy would be encouraged and less hindrances would there for such projects. (such as R&R) Suitable conditions are being stipulated wrt compliance with environmental guidelines / standards & obtaining necessary clearances prior to disbursement. Regulatory Risk of not getting approvals Low Risk All approvals obtained except environmental clearance. Renewable power hence approvals are easy to obtain. The pre- commintment and pre- disbursement conditions are stipulated Risk of changes in renewable power policy Low Risk Long term agreements and contracts executed Operations & Maintenance Risk of unsatisfactory operations & maintenance Low Risk The scope of the O & M contract covers & guarantees performance wrt key parameters. LDs are sufficient. O&M operator is experienced Offtaker Risk Risk that the offtaker cannot receive the power Low - Med Risk The offtaker's ability to receive the power would depend on the market for its products. Some of the purchasers are in cyclical industries and any downturn in the cycle would affect offtake. The off-takers portfolio is fairly well - diversified. Risk that the offtaker cannot pay high Risk All the larger offtakers are well-known profitable companies with a good track record. The –payment mechanism like L/c and Escrow accounts are in place with the offtakers . RISK HEAD DESCRIPTION RISK RATING RATIONALE RISK MITIGATION / ALLOCATION
- 20. Relevance of the findings: Industry/ Developer) • Report gives the holistic understanding of the renewable power generation in India • Developer's preliminary research for setting up a renewable plant is satisfied through this report • Risk appetite of renewable power in India
- 21. Issues (Relevance of the findings: Policy Makers) • Skewed financial incentives for facilitating investments in renewable energy • Too many incentive programs • Failure to adequately address utilities’ long term financial concerns • Failure to develop least-cost resources first • Inadequate long term funding sources
- 22.
- 23. Fixed and Variable costs •Fixed costs – O&M – Depreciation – Interest on term loans – Interest on working capital – Return on equity • Variable costs – Fuel costs (if applicable) BACK
- 24. O&M • Technology specific,given in per MW basis • Escalation : 5.72% per annum Technology O&M (Rs lacks / MW) • Wind 6.50 • Solar PV 9.00 • Solar thermal 13.00 • Small hydro 12.00 – 21.00 • Biomass 20.25 BACK
- 25. Depreciation • 90% ofproject cost can be depreciated ; 10% is salvage value Rate of depreciation: BACK For first 10 years 7% of project cost Remaining Period (Life minus 10 yrs) Remaining depreciable amount equally distributed
- 26. Interest on termloan • Loan tenure : 10 Years • Moratorium period : Zero • Rate of interest : SBI PLR (of previous year) plus 150 basis point (e.g. 12.25% + 1.50% = 13.75%) • Repayment schedule : yearly / half-yearly / quarterly / monthly/ daily BACK
- 27. Interest on workingcapital • Working capital components are (Wind, Solar, SHP): 1 month O&M , Receivables of 2 months , • Maintenance spares @ 15% of O&M • Working capital components are (Biomass and Co – gen): 4 months fuel costs, 1 month O&M , Receivables of 2 months , Maintenance spares @ 15% of O&M • Interest rate is SBI short term PLR (of previous year) + 100 basis points BACK
- 28. Return on Equity •Return on equity (per annum) = Amount of equity * Rate of return • Rate of return: Pre-tax 19% per annum for the first 10 years. Pre-tax 24% per annum 11th years onwards. e.g. Project cost = Rs 500; Equity = Rs 150; Return on equity (in first 10 years) = Rs 28.5 and for remaining years = Rs 36 BACK
Editor's Notes
- #3 In next 12 years India’s electricity requirement to grow 2.5 times India is dependent on oil imports fro 80% of its demand Electricity shortage estimated at 25-35 GW 400 million people still without access to electricity Climate change is also an important issue
- #4 In next 12 years India’s electricity requirement to grow 2.5 times India is dependent on oil imports fro 80% of its demand Electricity shortage estimated at 25-35 GW 400 million people still without access to electricity Climate change is also an important issue
- #7 The country’s overall power deficit—11 percent in 2009—has risen steadily, from 8.4 percent in 2006. About 100,000 villages (17 percent) remain unelectrified, and almost 400 million Indians are without electricity coverage. India’s per capita consumption (639 kWh) is one of the lowest in the world. The government plans to provide universal access and to increase per capita consumption to 1,000 kWh by 2012. This translates into a required generation capacity of 800GW compared to 160GW today. The need to bring on new generation capacity—and to improve operational efficiency in transmission and distribution—is clear. On average, every 1GW of additional renewable energy capacity reduces CO2 emissions by 3.3 million tons a year. Local ancillary benefits in terms of reduced mortality and morbidity from lower particulate concentrations are estimated at 334 lives saved/million tons of carbon abated. The country’s overall power deficit—11 percent in 2009 villages (17 percent) remain unelectrified 400 million Indians are without electricity coverage India’s per capita consumption (639 kWh) is one of the lowest in the world every 1GW of additional renewable energy capacity reduces CO2 emissions by 3.3 million tons a year estimated at 334 lives saved/million tons of carbon abated
- #10 Collection of all secondary data available on internet especially the government websites and segregating the appropriate required data to be used for the project Preparing the brief overview report on each sector for the developer who is interested to put up a plant Giving a basic financial model assuming a 10MW renewable power plant of each sector, so that the developer gets a fair idea about the costs and the related information