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

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. 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. • 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. 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. 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. 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. 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. 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. The Company

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. Internal Analysis

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. 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. 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. 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. • 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.  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.  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. • 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. 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. 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. 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.  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. 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. Base case scenario
Pessimistic Case Scenario
Optimistic case
PERCENTAGE OF REVENUE SHARE FOR DIFFERENT SCENARIOS

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. 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. 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. 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. • 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