Consultation Workshop: Accelerating Solar Energy Deployment inPublic Sector Undertakings (PSUs)

Anvesha Paresh Thakker, KPMG

USAID PACE-D TA PROGRAM

September 2015

Opportunities for PSUs - Solar Parks

• Central Government Scheme for Solar Parks

• Solar Park Implementation Models

• PSU investment in Solar Park

– Why PSU?

– Which PSUs?

– Opportunities for PSUs in Solar Parks

– Business model for Solar Park Development involving PSUs

• Key Considerations

2

Introducing Solar Park Scheme

3

What is a Solar Park

4

The solar park is a concentrated zone of development of solar power projects and provides developers an area that is well characterized, with proper infrastructure and access

to amenities and where the risk of the projects can be minimized.

Objective of Solar Parks

5

“To provide an impetus to solar energy generation by acting as an integrated infrastructure facility;

encouraging project developers and investors, prompting additional projects of similar nature, triggering

economies of scale for cost-reductions, technical improvement and achieving large scale reductions in

GHG emissions”

Value proposition offered by Solar Parks

Access to developed land and infrastructure

Removal of regulatory hurdles

Economies of scale in capital and operations cost

Better network planning

Access to low cost finance (owing to lower risk perception)

Better skill availability and utilization

Value Proposition for Stakeholders

Lower cost & Better infra

Cost effective evacuation from a

larger pool

Common site appraisal for

multiple projects

Easier to mobilize resources/Multiple

projects

SOLAR PARK

IPPs

Tx company & System Operators

Lenders/PEs

EPC Contractors

Government of India Solar Parks Scheme

Target 2022: 25 Solar Parks pan India with a total installed capacity of 20 GW

Minimum capacity of 500 MW

SECI is responsible for administrating scheme and disbursement of incentives on behalf of the Central Government.

State nodal agency is responsible for procurement and provision of land for the Solar Park. State government responsible for infrastructure development beyond solar park boundary

MNRE will enable a grant of INR 25 lacs for DPR, surveys, etc.; and a grant of INR 20 lacs/MW or 30% of the projects cost including grid connectivity cost (whichever is lower) to the solar park developer

Implementation Agency responsible for development of common infrastructure at the solar park, obtain clearances, conduct necessary social & environmental assessments

Current Solar park Implementation Models

8

Government of India Solar Parks Scheme - Model Options

State designated nodal agency (State

PSU or SPV) to undertake

development & management of solar

park

50-50 Joint venture between State nodal agency & SECI for

development & management of solar

park

State designates SECI as nodal agency to

undertake development &

management of solar park on mutually

agreed terms

Private entrepreneurs promote solar park

without equity participation of SECI, but may have equity participation of State

government or its agencies

SECI as nodal agency

State Government owned

Private sector owned

1 32 4

Implementation Agency

MNRE Approved Solar Parks

Apart from MNRE scheme, the other solar parks that have been successful operated are developed by GPCL in Gujarat and RRECL in Rajasthan.

Solar Parks: Current Model Adoption

10

State

Model 1 Model 2 Model 3 Model 4

Implementing AuthoritiesState Nodal Agency/PSU

JV between State Nodal Agency and

SECI100% SECI

JV between State Nodal Agency & Private Players

Andhra Pradesh - 1   √   JV of SECI, NREDCAP & APGENCO

Andhra Pradesh - 2   √   JV of SECI, NREDCAP & APGENCO

Gujarat    √   SECI

Karnataka - 1   √     JV between SECI and KREDL

Karnataka - 2   √     JV between SECI and KREDL

Madhya Pradesh - 1   √     JV between SECI and MPUVNL

Madhya Pradesh - 2 To be decidedMeghalaya To be decided

Rajasthan Phase - 2       √ JV between RRECL and IL&FS Energy Development Company Limited

Rajasthan Phase – 3       √ JV between RRECL and IL&FS Energy Development Company Limited

Rajasthan Jaisalmer Solar Park       √ JV between RRECL and IL&FS Energy

Development Company Limited

Telangana -1   √    Telangana State Industrial Infrastructure Corporation

Ltd & Telangana New and Renewable Energy Development Corporation Ltd

Uttar Pradesh - 1   √     JV of SECI & UPNEDA

PSUs investments in solar

11

Maharatna

Listed

Av turnover of Rs 25,000 cr, during the last 3 years.

Av net worth of Rs 15,000 cr, during the last 3 years.

Av PAT of Rs 5,000 cr, during the last 3 years.

Significant global presence

Navratna

A score of 60 (out of 100), based on six parameters

Parameters:

(i) net profit to net worth (ROE)

(ii) manpower cost to total cost of production/services,

(iii)PBDIT to capital employed,

(iv) PBIT to turnover,

(v) EPS and

(vi) inter-sectoral performance

Miniratna I and II

Continuous profits in last three years

Positive net worth

12

7 in Number• Coal India Ltd• IOCL• NTPC• SAIL• GAIL• ONGC• BHEL

17 in Number• Spanning Oil & Gas,

Steel, Minerals and metals, Financial services, Engineering, power companies, etc

73 in Number• Includes AAI, Indian

Railways, Steel, Minerals and metals, coal , ports, shipyards, etc

• ~250 PSUs

• Of which 97 are likely to be profitable with positive net worth

• Have defined financial autonomy

• Includes companies which have means: cash rich companies, with land banks

• And RE motivations: having RPO obligations, CSR targets, board directive for RE investments, etc

Why CPSUs: Presenting a strong investor base for Solar

Source: Department of Public Enterprises, as on October 2014

13

CPSUs: Having the means

• Strong cash reserves with Maharatnas as well as other PSUs• Significant land banks available with PSUs such as Indian Railways• Availability for solar parks can be explored

14

CPSUs: Motivations for solar foray

Sustainability / CSR

objectives

RPO obligations

Reduction of power cost

Business diversification

Accelerated Depreciation

benefits

BPCL Annual Report 2014-15

IOCL Sustainability Report 2013-14

Indian Railways, As reported in LiveMint in Feb 2015

SAIL Annual report 2014-15

Opportunities for PSUs in Solar Parks

Reduction of power purchase cost

Sustainability/ CSR objectives

RPO Obligations

Accelerated Depreciation

Diversification

PS

U O

bje

cti

ve

s

YES

YES

YES

YES

Investment in solar Parks

1Development of solar projects in the solar

park

Offtake of power from Solar Park

2 3

Possible Opportunities for PSUs

YES

YES

Objectives can be maximized through a combination of roles

Benefits for the development model

Access to cash/ land/ engineering

capabilities, etc

Large anchor project developers

Reduction of offtake risks

YES

Models for PSUs participation

16

Implementing Agency (IA)

Development of Solar Park

Lease Rental & O&M Charges with Annual

escalation

Power Purchase Agreement

Power Sale Options

Revenue from sell of power

NSM

State Utility

OA/Third Party Sale

PSU for Captive

use

Solar Projects

D1 D2 D3

Implementation Agency

The objective is to create appropriate models utilizing PSU capabilities backed by resources and motivation to participate

Options for PSU involvement:

• Consortium of PSUs with complementary capabilities

• PSUs + Private Sector (EPC Player or Infra developer)

• PSUs + SNAs +Private Sector

Land / Cash Rich PSU, Power sector players, Engg. Company, etc

o Cash Rich PSU: Provide funds for investment into solar parkso State Nodal Agency: Identify and provide land against equityo Private Company: Brings expertise in managing infrastructure projects

o Land Rich PSU: Provide land banks for solar parkso Private Company: Brings EPC/ infra development expertise for park

development

PSU

• PSUs objectives for solar entry and capabilities/ resources• Applicability of MNRE capital subsidy only for prescribed

implementation agencies• Applicability of Center VGF announced under Batch V of Phase II

JNNSM for PSUs upto Rs1000 cr

17

Key Considerations

Thank You!

18

Business model adopted for Charankha Solar Park - Gujarat

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Business model adopted for Bhadla Solar Park Phase- 1 - Rajasthan

20

Key drivers for participation of PSUs in the solar space

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Government of India has announced scheme for implementation of UMPP/Solar Parks to deploy solar power in a faster way with a target of 20 GW with an option to involve PSUs

Various ministries including Railways, Civil Aviation, Defense and Shipping have been shown interest to participate in solar revolutions

One of the most expensive aspects of setting up solar projects is the land. Since Indian PSUs have significantly large land banks available, it is probably easier and quicker for them to undertake solar projects

To promote investments from PSUs, GoI has announced INR 1000 Cr central support in form of VGF

Draft Amendment to Electricity Act 2003RGOs: Generators mandated to generate/procure 10% of thermal capacity through renewable energy based power. RPOs: Higher penalty for non-compliance of RPO

India came out with world’s first mandatory initiative for CSR activities in April 2014 where companies are required to invest up to 2% of their profits into CSR activities.

o Indian PSUs are said to be sitting on cash surplus of ~ INR 200,000 crores. o Investment can be done in developing large scale solar power infrastructure like solar

parks to inspire more private sector companies and instill confidence in them.

PSUs investing in the new and renewable sectors are entitled to accelerated depreciation tax benefits