Power Sector Opportunities

7/29/2019 Power Sector Opportunities

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Power Sector - Opportunities


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Agenda

Evolution of the Indian Power Sector

Industry Structure and Present Scenario

Thermal Power Projects

Hydro Power Projects

Renewable Energy Projects

Transmission

Distribution

Conclusion


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Generation - Thermal Power Projects

Generation - Hydro Power Projects

Generation Renewable Energy Projects

Transmission

Distribution

Conclusion


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Earlier Structure and Liberalisation

Introduction of Independent Power Producers (IPPs)

Facilitated Private Participation in Power sector

Foreign ownership up to 100% was allowed

Facilitated tapping of domestic and foreign capital markets, provided assured returnson investment and reduced legal hassles to allow the private investors to set-upgeneration capacities or operate as licensee in distribution segments, which werehitherto a monopoly of the SEBs

Development of the power sector has traditionally been the responsibility of theCentral & State Utilities

Govt. utilities (SEB) monopoly buyers

Poor financial health of SEBs mainly due to Low tariff & High commercial losses (theft)

Minimal Participation by Private Sector

Earlier Structure failed

Liberalised policy (post 1991)


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Post-liberalisation Developments

1991

Competitive

Bidding

Guidelines /

UMPPsElectricity

Act 2003CERC &

SERCs set

upMega

Power

Policy

Liberalisation

National

Tariff

policy

National

Hydro

Policy

1995

1998

2003

2005

2006

2008

Introduced

Open Access

Revised

Mega

Power

Policy

2009


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Mega Power Policy

Mega power projects are entitled to several concessions and benefits, such as

Exemption from customs duty on imports of equipment Refund of terminal excise duty paid by various domestic supplier on supply of equipments and

material based on Deemed Export Benefit

- In order to qualify for the mega power project status power to be sold to more than one state

and thermal power projects would have to have power plant of a capacity of 1,000 MW or

more located in states other than Jammu & Kashmir and NE states

The power purchasing States have constituted the Regulatory commission with full powers to fixtariffs;

The power purchasing States shall undertake to carry out distribution reforms as laid down by

the Ministry of Power.

Modification to the Mega Power Policy* (2009)

The existing condition of privatization of distribution by power purchasing states has

been replaced by the condition that power purchasing states shall undertake to carry

out distribution reforms as laid down by the Ministry of Power.

The conditions requiring inter-state sale of power for getting mega power status has

been removed.

*Another round of modification is being discussed, to be announced shortly.


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Electricity Act 2003

Encouraging investment by introducing competition and reforming distribution

Reduction in entry barriers by:

Delicensing generation

Freedom to the captive generation and group captives

Recognition of trading as separate activity

Introduction of Open Access

Open access to consumers consuming more than 1 MW by January 2009; Multiple licenses in distribution;

Setting up of regulatory commission to fix tariff and develop the sector

Independent Regulatory Commissions in the States as well as in the Center

Freeing up of thermal generation from the requirement of any prior approvals/

license

Full freedom for setting up captive power plants including group captive plants

Competitively bid generation tariffs to be accepted by Regulatory Commissions.

Power purchase costs of customers availing open access to be market determined.


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Competitive Bidding Guidelines

Objective To ensure competitive tariffs, financial turnaround and commercial

viability of state utilities and providing electricity at reasonable rate

Opening the sector for private sector participation by introducing competitive

bidding as the basis for all future projects (except for Central & State Utilities)

Enforcing adoption of multi-year tariffs by all regulatory commissions

Tariff benchmarks discovered through competitive bidding has primarily replaced

the cost-plus method of tariff determination with effect from January 2011 Case 1: Plant location & Fuel independent

Tariff in recent bids in Noida have been bid at Rs 4/unit

Recent bids in Rajasthan, Maharashtra, Gujarat have been upwards of Rs 3/unit

Adani Power bid Rs 3.25/ unit in Rajasthan; Adani Power, Indiabulls & GMR bid Rs 3.3/unit, Rs

3.27/unit and Rs 2.88/unit resp. in Maharashtra

Case 2: Plant location and Fuel type fixed

Recent long term tariffs determined via Case 2 have also been around Rs 3/unit

Many states have taken up the Case 2 bidding route for meeting their power requirements

Some recent Case 2 bids won are: Jaypee groups winning bids of Rs 2.97/unit and Rs 3.02/unit

for Karchana and Bara project in UP, and L&Ts Rs 2.89/unit bid for Rajapura project in Punjab


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Transmission

Distribution

Conclusion


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Industry Structure

State Sector

Generation

Central Sector Private Sector

SEBs, GENCOs NTPC, NHPC,

NPCIL, DVC,

Neyveli Lignite

Torrent, Essar,

Reliance,Tata, GMR,

Jaypee, GVK, Jindal,

JSW, Lanco, Adani

PGCIL

Inter State

Transmission

Intra State

Transmission

Trading

SEBs, TRANSCOs

PTC, Tata, NTPC,

Adani, Reliance, GMR

Distribution SEBs, DISCOMs Reliance, TATA,

CESC, Torrent

Policy &Regulation

Ministry of Power / *Central Electricity Authority / Central & StateElectricity Regulatory Commissions

*CERC is the regulatory body for matter related to tariff and other issues whereas CEA is the

authority related to technical matters and overall planning


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Power Scenario in India

0

500

1000

1500

2000

2500

3000

1991 2001 2005 2006 2008 2010 2012 World

Per Capita consumption of Power

1991 2001 2005 2006 2008 2010 2012 World

Total installed capacity as on

December 2011 is 1,86,655

MW

Thermal (Coal + Gas + Diesel):

122,964 MW (67% of total)

Hydro: 38,748 MW (21% of total)

Nuclear: 4,780 MW (3% of total)

Renewable: 20,162 MW (11% oftotal)

Per capita consumption in

India is low at 733 kWh as

compared to Chinas 2,180

kWh, USAs ~13,000 kwh and

current world average at 2,750kWh

Under its Power for all by

2012 initiative GoI aims to

increase Indias per capita

consumption to 1,000 kWh

As on December 11

Coal , 56%

Gas, 10%

Diesel,

1%

Nuclear, 3%

Hydro, 21%

Renewable

11%

Installed Capacity (MW)

Coal

Gas

Diesel

Nuclear

Hydro

Renewable


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1)SVL TPP, U-1 (63 MW) of SV Power Ltd. has beencommissioned successfully (i.e. Achieving of full load) on

07-12-2011

2) Kasaipalli TPP , U-1 (135 MW) of ACB India Ltd. has

been commissioned successfully (i.e.Achieving of fullload) on 13-12-2011

3)Sipat St-1 STPP, U-2 (660 MW) of NTPC Ltd. has been

commissioned successfully ( Full load) on 24-12-11

4) Coal based Rosa TPS, U-3 (300 MW) of Rosa PowerSupply Company Ltd has been commissioned successfully

( Full load) on 28-12-2011

UNITS COMMISSIONED, DURING DECEMBER. 11

12


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The total electricity

generation in the countryincreased from 558 Billion

Units (BU) during 2003-04 to

788 BU during 2010-11

However, the Deficit is still

high at:

Energy Deficit: 8.5%

Peaking Deficit: 9.8%

Deficit still at high levels due

to

Slow capacity addition owing to

delay in equipment supply

Heavy congestion on

Transmission corridors

Huge AT&C losses in

distribution sector around

27% at national level.

Power shortages remain high

0

20

40

60

80

100

0

15,000

30,000

45,000

60,000

75,000

90,000

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th

Sluggish historical performance

in 5-yr plans

Target Achieved % Shortfall

0%

5%

10%

15%

20%

0

200

400

600

800

1000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Bn

units

Demand-Supply

Demand Supply %Shortage %Peaking Shortage


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Power: Key Sector for Investment

Targeted generation capacity addition

for the 11th Five Year plan is 78,577

MW

Till December 2011, approx. 45,927

MW (59.39% of planned capacity) has

already been commissioned and

around 63,000 MW of total capacity

is expected to be commissioned by

2012 with high level surety.

Hydro, 15627

Nuclear, 3380

Coal, 52850

Gas, 6843

Thermal

76%

11th Plan: 78,577 MW to be added

Year Target (MW) Achieved (MW) Achieved (%)

2007-08 16,335 9,263 56.71%

2008-09 11,061 3,454 31.23%

2009-10 14,507 9,585 66.07%

2010-11 21,441 12,160 56.71%

2011-12* 13,989 11,465 81.96%

*As on December 2011


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Punjab, Rajasthan, Haryana, Delhi

Maharashtra and Andhra Pradesh

have been among the top buyersof the traded power

Presently there are two power

exchanges in India namely Indian

Energy Exchange (IEX) and Power

Exchange of India (PXIL). The total

number of power trading license

holders in India as on March 2010

is 45.

High Volume of Power is Trading in

price band Rs 4-6/unit in recent

years

From 2012-2017, huge peak

shortage and capacity shortfall will

lead to rise in merchant tariffs

Power Trading & Merchant Tariffs

0%

1%

2%

3%

4%

5%

0

5

10

15

20

25

30

35

40BUs

Increasing Power trading volumes

Traded Power (BUs)

Traded Power as % of Generated

4.16

7.046.37

7.57

5.73

6.89

4.99

0

2

4

6

8

2007 2008 2009

Price of Short term Transactions

Traders Power Exchanges UI


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Generation Capacity in US

US and India

Coal , 30.06%

Gas, 41.31%

Nuclear,9.37%

Oil, 5.49%

Hydro, 8.67%Other, 5.10%

Coal

Gas

Nuclear

Oil

Hydro

Other

Fuel Type Capacity in MW

Coal 342,296Gas 470,344

Nuclear 106,731

Oil 62,504

Hydro 98,742

Other 58,021

Total 1,138,638

As on December 2010

Coal , 56%

Gas, 10%

Diesel,

1%

Nuclear, 3%

Hydro, 21%

Renewable

11%

Generation Capacity in India

Coal

Gas

Diesel

Nuclear

Hydro

Renewable

Fuel Type Capacity in MW

Coal 1,04,021

Gas 17,743

Nuclear 4,780

Oil (Diesel) 1,200

Hydro 38,748

Other 20,162

Total 186,655As on December 2011


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197

276

387

543

762

206

303

445

655

962

215

331

510

785

1207

0 200 400 600 800 1000 1200 1400

2011-12

2016-17

2021-22

2026-27

2031-32

Installed Capacity in GW

Capacity addition by 2030: MoP

9% GDP

8% GDP

7% GDP

States like UP, Haryana, Bihar, Gujarat, Maharashtra faced huge peak deficit and this is

likely to continue in future if capacity addition is not made on time.

Indian Power Sector: Future Target


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To achieve the 11th and 12th Plan target, the required rate of capacity

addition to be ~5 times the present rate.

A total of about Rs. 650,000 Crore would be required by generation

segment alone during the 12th plan period.

Traded power volumes have grown at the CAGR of 59% and short term

power are being traded in Rs. 4-6 /kWh

Imported coal requirement will rise in future

Gas based plants will increase in number subject to timely availability of

domestic natural gas from various fields under development.

Future Outlook


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Transmission

Distribution

Conclusion


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Overview of Thermal Power

Thermal

Coal

Imported

Domestic

Captive Coal

Linkage Coal

Gas

Domestic

R-LNG

Oil

Key source of power in India with around 66% of installed Capacity contributing more

than 70% of the units produced


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Key Challenges Thermal Power Projects

Land Acquisition Issues and procedural delays

Agricultural Land

Land

Domestic Coal Availability Volatile markets for Imported Coal

Changing regulations in source countries (Indonesia / Australia)

Domestic Gas Availability

High costs of R-LNG

Fuel

Environmental Clearance

Forest Clearance (Go / No-Go Areas for Coal)

Clearances


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Large Coal Reserves are available in

Orissa, Jharkhand & Chhattisgarh.

Majority of the proven reserves has

is of the Low Grade Non-Coking Coal

suitable for power generation.

Reserves in Mn tons

Balance : Total reserves minus that given out as captive allocation and expectedrequirement for linkages upto 2012

Fuel supply scenario: Coal Reserves in India

Depth (m) Proved Indicated Inferred Total % share

0-300 82,771 65,784 13,760 1,62,315 60.7%

300-600 7,661 45,453 18,105 71,219 26.7%

0-600 (for Jharia only) 13,710 502 0 14,212 5.3%

600-1200 1,678 11,730 6,056 19,464 7.3%

Total 1,05,820 1,23,469 37,921 2,67,210

Category-wise & Depth-wise Resources as of Apr 2009


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India is the 3rd largest producer of coal in the world after China and USA

Coal caters to 53% of the total countrys energy needs

Domestic coal pricing is regulated by Ministry of Coal

Coal India Ltd. produces around 80% of the total coal in the country.

power sector is the major consumer of coal, consuming approximately 73% of the coal

produced. In 2009-10, approximately 88% of the coal consumed was from domestic

production and around 12 % was imported.

Coal Production & Imports

347.1 375.5398.7 422.6

459.6 487.8

1222

25 28

3544

11%

7% 6%

10%

8%

0%

5%

10%

15%

0

200

400

600

FY05 FY06 FY07 FY08 FY09 FY10

Million tonnesCoal Production

Production (Mn MT) Imports (Mn MT) % Change


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Fuel supply scenario : Natural Gas

Sector Total (Firm+Fall

back (MMSCMD)

Power 43.17

Fertilizer 15.51

CGD 2.83

Steel 4.19

Refineries 11.00

Petrochemicals 1.918

LPG 3.00

Captive Power 10.00

Total 91.61

Gas Allocation from RILs KG D-6

Going forward, natural gas supply in the country is expected to increase due to production

from RILs KG D6 field, KG basin satellite fields, NEC field; GSPCs KG Block, ONGCs KG block

and Mahanadi field and upcoming and expansion of LNG facilities

Projected Gas Supply


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Financing Options

Rupee term Loan

Most widely used source of financing SBI is at the forefront of RTL financing

NBFC

IDFC, PFC, IL&FS, REC has been actively participating in funding of

Power Projects

ECA

EXIM Banks financing the export of equipment

KEXIM funding for Mundra UMPP

BoC recently sanctioned ECA facility for Sasan UMPPs

External Commercial Borrowing (ECB)

Funding via ECB route permitted

However, issues related to tenor / project risks has led to lessparticipation


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Key Risks & Mitigation

Risk Mitigation

Fuel Availability Conditions Precedents to Drawdown Timelines for fuel arrangement (Including transportation & handling) Adjustment of Debt Equity vis--vis increased fuel costs impact

Land Acquisition

R&R issues are extremely important Can lead to considerable delays if not addressed adequately Conditions Precedent for main plant, ash pond and green belt

Approvals/

Clearances

Environment / Forest / Coastal Regulation Zone/ Pollution Control asconditions precedent

Off-take risk Long term power purchase agreements crucial Minimum Quantum for long term tie-up to be assessed

Cost overrun/Delays Fixed price lump sum construction contracts with adequate LDs preferred Cost overrun undertaking by promoters

Performance Adequate Liquidated Damages / Rectification clauses in contracts

Evacuation Assessment of available transmission network Adequate stipulations to cover evacuation risks


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Ultra Mega Power Projects

Ministry of Power (MOP) initiated UMPP Process

MoP, CEA and Power Finance Corporation working together for developmentof seven ULTRA MEGA POWER PROJECTS under tariff based competitive

bidding route

Awarded on Build, Own and Operate (BOO) basis

Capacity of 4000MW each with scope of further expansion at Pithead or

Coastal Locations Faster Capacity Addition with Crashed Timelines

Lower Pollution on account of more efficient technology

Economies of Scale and Availability of Power at Cheaper Rate

Bid Process: Three stage bid process EoI, Request for Qualification and Request for Participation


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Ultra Mega Power Projects

Projects Envisaged (Pithead as well as Imported Coal Based)

4 Awarded:

Coastal Gujarat Power Limited , Mundra (Gujarat)

Transferred to Tata Power Limited in April 2007.

Levellized Tariff : Rs. 2.26 per Unit.

Financial Agreement Signed in April 2008.

Sasan Power Limited, Sasan (Madhya Pradesh)

Transferred to Reliance Power Limited in August 2007 Levellized Tariff : Rs. 1.196 per Unit.

Financial Agreement Signed in April 2009.

Coastal Andhra Power Limited, Krishnapatnam (Andhra Pradesh)

Transferred to Reliance Power Limited in January 2008.

Levellized Tariff : Rs. 2.33 per Unit. Jharkhand Integrated Power Limited, Near Tilaiya Dam (Jharkhand)

LOI Awarded to Reliance Power Limited in February 2009.

Levellized Tariff : Rs. 1.77 per Unit.

2 in Bid Stage: Bedabahal, Sarguja


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Transmission

Distribution

Conclusion


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Development of Indian Hydropower Sector

1897

Sidrapong Hydel Power Station, Darjeeling

(Oldest Hydel Power Plant in India)

1991

Private Sector Participation inGeneration

1998

Policy on HydropowerDevelopment

CEA Vision Document &Ranking of Schemes totaling

1,07,000 MW

20012003

PMs 50,000 MW

Hydroelectric Initiative100% foreignparticipation

1992

Inter Institutional Group

comprising SBI, ICICI, LIC, IDBI, IDFCformed

2004

2005

Guidelines for determination ofTariff based on competitive

bidding

Guidelines for development by

Private developers

New Hydro Policy

2008


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Hydropower constituted 37,567 MW (21%)

Public sector has predominant share of ~96% State sector: 73% / Central sector: 23% / Private Sector: ~4%

Hydro resources predominantly located in northern and north-eastern part of country

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1956

1961

1966

1969

1974

1979

1980

1985

1990

1992

1997

2002

2007

2010

Percentage

Installed

Capacity

Growth of Hydropower

Hydro Capacity (MW) Total Capacity (MW) Share of Hydro (%)

Low hydro-thermal mix in India

Share of Hydropower in the total installed capacity decreasing (from over 40% in 1960-61 to

around 22% at present)

Overview of Hydropower in India


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India ranks fifth in the world in terms of usable hydro potential

Economically exploitable potential assessed at 84,044 MW at 60% load factor(corresponding to an installed capacity of ~149,000 MW)

Additionally, total pumped storage capacity assessed at 94,000 MW

RegionFeasible Installed

Capacity (MW)

Developed

Capacity (MW)

Balance

Potential (%)

Northern 53,405 13,623 74%

Western 8,928 7,447 17%

Southern 16,446 11,260 32%

Eastern 10,965 3,882 65%

North-Eastern 58,956 1,116 98%

Total 148,700 37,328 75%

Source: CEA

Potential of Hydropower in India


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Longer gestation period and capital intensive nature of the projects

Dearth of good contractors for construction Inter-state aspects (incl. issues regarding common river systems)

Environmental impact and rehabilitation issues

Valuation of forest land based on net present value

Law and order problems (have affected projects such as Dulhasti, Upper Sindh, Doyang

and Dhansiri)

Land acquisition problems (have seriously affected Thein Dam, Doyang, Ghatgar)

Geological surprises

Inadequate power evacuation facilities

Lack of private sector interest

Tariff and regulatory issues (free power to state and cost plus approach)

The barriers above pose higher risk, which is detrimental to private sector participation

Challenges in Hydropower development


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Review by the Standing Committee on Energy, identified following project types

for private participation: Extension projects where dam & major structures have already been constructed

Projects at the toe of existing dams

Run-of-river schemes involving minimum underground works

Government Initiatives:

Prime Ministers 50,000 MW Hydroelectric Initiative Streamlining of clearance procedures, provisions of open access and trading as per

Electricity Act 2003

guidelines for the development of hydropower project sites by private developers

PFC is giving loans to private projects for up to 70% of the project cost with max

repayment period of 20 years with moratorium for construction period + 6 months

MOP constituted inter-institutional group of FIs with an objective to expedite financialclosure of private sector generation projects and to address last-minute issues

impeding project development and financing

MOP has also issued guidelines for tariff based bidding

GoI initiatives - Encourage private sector


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Uttarakhand

Projects are allocated for initial period of 45 years on a BOOT basis

Developers of the project have the right to sell the power outside the state No guarantee for purchase of power by state agencies

12% of electricity generated is to be made available free of cost to the state

Sikkim

State Govt has formed the Sikkim Power Development Corporation Ltd (SPDCL), to

facilitate JV projects between a private developer and government 12% of electricity generated to be made available free of cost to the state

For JV projects Govt participation ranges from 10% to 49%

State initiatives - Encourage private sector

Himachal Pradesh

Projects up to 100 MW via MoU route and those above 100 MW via ICB route No clearances from CEA for projects, upto Rs 2,500 crores, selected on ICB basis

Premium on peak power

100% foreign equity permitted on the automatic approval route provided it exceed

Rs1,500 crores

Also for projects above 100 MW installed capacity, the government has reserved the right

of equity participation up to 49% on a selective basis.


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Nepal

Four hydro schemes Implemented with Indias technical and financial assistance -

Pokhra, Trisuli, Western and Gandhak and Devighat

PTC nominated as nodal agency to deal with matters relating to power exchange

The bilateral exchange of power presently at a level of 50 MW

Three major multi-purpose projects in Nepal presently under discussion Karnali

(10,800 MW), Pancheshwar (5,600 MW), and Saptakoshi (3,000 MW)

Bhutan

Chukha hydropower project (336 MW) is the 1st Joint Venture between India and

Bhutan. About 84% of energy generated from Chukha plant is exported to India

Kurichu Hydroelectric Project (60 MW) implemented with Indian assistance

Tala Hydroelectric Project (1020 MW) the biggest joint project between India and

Bhutan. Entire Power is being supplied to India

DPRs of Wangchu (900 MW) and Bunakha (180 MW) have also been prepared

India has agreed to provide assistance for development of Mangdechhu (360/600

MW) and Punatsangchhu (870/1000 MW)

Regional Cooperation with Neighboring Countries


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Plant Load Factor(dependent on water

flow of river)

Plant Load Factor

dependent on

water flow of river

Potential for

secondary energy

Peaking

Cost & Reliabilityfactors

Tariff Rates

State Policies (for

merchant sales)

Reliable Surveys

Access to Site

Availability of

Evacuation

Arrangements

Technical Aspects

Overrating to tap

excess flows

Availability of land

& Govt support for

acquisition

Environment and

other clearances

Regulatory Aspects

R&R issues

Investors Perspective


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Rupee Term Loan

Most widely used source of financing

World Bank

10 hydropower schemes funded since 1980. Upper Indravati (600 MW),

Indira Sarovar (500 MW), Sardar Sarovar (1,450 MW), Nathpa Jhakri (1,500

MW), Lower Periyar (180 MW), Kalinadi River (270 MW), Gerusoppa (240

MW), Srinagar (330 MW), Koyna IV (1,000 MW)

IFC has funded 2 hydro projects in India - Allain Duhangan Hydro Project

(carbon finance) and CF IHDC (small hydro)

IREDA (Indian Renewable Energy Development Agency)

Kotla Hydro Power Private Ltd, Punjab: Debt financed by IREDA through the

World Bank 2nd line of Credit

Financing Options


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ECA/Bilateral

OECF/JBIC have approved 28 soft loans for hydropower projects since 1978

incl. Srisailam Left Bank (900 MW), Dhauliganga (280 MW), Purulia (900 MW),

Nagarjunasagar (960 MW), Teesta Canal (67.5 MW), Tuirial (60 MW), Ghatghar

(250 MW)

DFID (former ODA) and SIDA funded the Uri I HEP (480 MW)

CIDA has granted loans for Idukki (780 MW), Lower Periyar (182 MW), and

Kuttiyadi (75 MW)

KFW has approved export credits for Nathpa Jhakri (1,500 MW) and Tehri

(1,000 MW)

Hermes covered contracts for Baspa II HEP (300 MW)

NBFC

PFC is funding private projects for up to 70% of the project cost with 20 yrsmax repayment period with moratorium for construction period + 6 months

Teesta III (1200 MW) and Teesta IV (360 MW) promoted by Teesta Urja and

Lanco respectively.

Financing Options


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Structuring repayments to match

generation profile

Adequate cost over run undertaking

from promoters

DSCR in range of 1.3 to 1.5

Structuring mechanisms for sharing

potential upsides (secondary energy

and CDM benefits)

Assessing project viability at 90%

dependability (primary energy)

Assessing seasonal flow variation

and peaking capability

Secondary Energy and overrating as

upsides

CDM benefits for plants above 25

MW highly unlikely

Key considerations for financing


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Risk Mitigation

Construction Only established developers with proven track record supported. Same is

given high weightage during award/ financing

Rehabilitation &

Resettlement

R&R issues are extremely important Can lead to considerable delays if not addressed adequately

Off-take risk Long term power purchase agreements crucial Projects with dam/pondage can act as peaking stations

Cost overrun/

Delays

Fixed price lump sum construction contracts with adequate LDs preferred Cost overrun undertaking by promoters

Approvals/

Clearances

Implementation agreement, Environment Clearance / forest clearancefrom MoEF - levied as conditions precedent

Seasonal Variation Repayments structured as per the projected variation and water flows Financing done at P90 / P75 dependability

Geological

Uncertainties Sound DPR and extensive site surveys required to be carried out

Key Risks and Mitigation


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GenerationRenewable Energy Projects

Transmission

Distribution

Conclusion


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0 20000 40000 60000 80000 100000

Solar Power

Waste to EnergyBiomass

Cogeneration - Bagasse

Small Hydro Power

Wind Power

Installed Capacity Potential Capacity

Source: Ministry of Power, Jan 2010

Renewable Energy Potential in India

10% of Indias installed capacity is through renewable sources

Significant Potential for Solar Power in India


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Location specific potential

Seasonal and Time of the Day variation

Technology Risk

Prevalent Build-Transfer-Operate model (for wind projects)

Accelerated Depreciation Benefits

Generation Based Incentive

Availability of Carbon Emission Reduction

Renewable Purchase Obligations

Proposed Renewable Energy Certificates

Unique studies like ornithological studies to be carried out in wind

Salient aspects of Renewable Energy


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Benefits Zero cost of fuel and low O&M Cost

Short gestation period

Clean energy with no adverseenvironmental effects

Opportunities

Indias wind power potential~48.5 GW

Planned Capacity addition

11th Plan ~ 10,500 MW

12th + 13th Plan ~ 22,500 MW

India has 7,000 km long coast-line withimmense off-shore wind energy potential

Global majors like Areva, Siemens and GEare queuing up to explore off-shoreopportunities

India ranked 5th globally with installed capacity ~ 11,807 MW (Mar 31, 2010 )

Wind energy share in Indias total installed power generation capacity ~ 7 %

Overview of Wind Power in India


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Incentive of 50 paisa /unit supplied

To be availed within a period of 10 years after commissioning with acap of Rs 62 lakhs per MW, with disbursements not to exceedRs.15.50 lakhs/MW/annum during the first four years

Maximum capacity limited to the 1st 4000 MW installed upto March

31, 2012

Generation Based incentive

Accelerated depreciation (80 %) on Written Down Value (WDV) basisfor wind mills

Accelerated Depreciation

Tax holiday available to an undertaking which begins to generate

power before March 31, 2012

Tax Holiday

Central Govt.

shall releaseFunds for GBI

as advance to

IREDA to

ensure timely

release offunds to the

projects

Policy Incentives


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Rupee term Loan

Most widely used source of financing SBI is at the forefront of RTL financing First non recourse debt financing for a wind project done through RTL

External Commercial Borrowing

Funding via ECB route permitted

ECB funding in power sector in India has reached USD 1.5 bn in the half yearended Sep 2010

NBFC

Active in the Wind Sector

IDFC, IL&FS, REC, IFC etc have participated in Debt and Equity funding ofWind Energy Projects

ECA

EXIM Banks financing the export of equipment

DEG granted a long-term loan of 15.3 million euros to Bhoruka PowerCorporation Ltd. (2010) in Karnataka

Financing Options


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IREDA

To give financial support to specific projects and schemes for generatingelectricity and / or energy through new and renewable sources andconserving energy through energy efficiency.

Nodal Agency: Implementation of Generation Based Incentive andAccelerated Depreciation scheme

ADB

Rs 352 Crores to Tata Power Company Ltd. for projects in Maharashtra(2007) 100 MW (Facilities at Ahmednagar & Dhulia)

Rs 445 Crores to Gujarat Paguthan Energy Corporation (GPEC) for projectsin Gujarat and Karnataka totaling 183 MW (2008)

World Bank and IFC 37 MW wind project in India with a loan of $33 million for MSPL (16.2MW,

Kutch, Gujarat & 20.4MW, Karnataka)

Karnataka Wind Power Carbon Finance Project for Acciona (2009)

IFC has also funded a number of wind projects globally

Financing Options

l b f d


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Equity thepromoter is

willing tocontribute.

Lenderscomfort level of

debt to beprovided for the

project

Reduction inProject Cost &favorable O&M

terms

Debt to Equityratio of 65:35

DSCR in therange of1.2 to

1.3

Optimal Debt: Equity Ratio for Wind Projects

l h b l


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Availing GBI forshorter period

than thenormal periodwhich is for 4-

10 years.

Structuringrepayment

schedule sothat it is in linewith generation

profile

Contract forCERs (Certified

EmissionReductions)should beentered.

1 MWh energy generated from a Wind Energy Project is eligible for 0.93 CER

Balancing ROI with sustainability

K Ri k & Mi i i


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Key Risks & MitigationsRisk Mitigation Measures

Technology Risk Only CWET certified turbines with proven track record supported.

EPC contractors of repute with proven track-record in setting up Wind Farmssupported.

Wind

availability

shortfall

Comprehensive Wind mapping carried out by CWET

Track record of established nearby wind farms analysed

Wind assessment study carried out by independent and reputed wind consultants

Financial appraisal at P75 generation levels

Seasonality Repayments structured as per the seasonal wind profile

Approvals &

Clearances

Aviation clearance from Airport Authority of India, forest clearance from MoEF, NOC

from SEB & approval for power evacuation from Transco Incorporated as Pre

Disbursement Conditions

Off take risk DisCom Renewable purchase obligations

High peak deficit in most states Prevailing peak power prices more than wind energy prices

Introduction of Renewable Energy Certificates.

Cost & Time

Overrun

Comprehensive provision for liquidated damages payable by the EPC contractor

may be stipulated.

Promoters undertaking to bear any cost overrun in the Project.

Performance Stringent clauses for defect liability backed by guarantees

O i f S l E i I di


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Overview of Solar Energy in India

Most parts receive irradiance of 5-

7 kWh per sq meter per day

Average power generationpotential of 20 MW/ sq km

Sites receiving higher levels of

insolation: Rajasthan, TN, AP,

Ladakh, Gujarat

A i S l E P j Fi i


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Technology Risk: Is solar an experimental technology?

Execution Risk: Can this be done in India?

Off take Risk: How do we manage payment risk of expensive

power?

Obsolescence Risk: Will new low-cost technologies threaten

payment on existing, high-cost technologies?

Regulatory Risk: Will solar RPOs be in place and be

enforceable?

Assessing Solar Energy Project Financing

T h l


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Photo-Voltaic SOLAR THERMAL

Most Prevalent Technologies: Photo-Voltaic (PV) & Concentrated

Solar Power (CSP or Solar Thermal)

Technology

S l Ph t lti (PV)


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Solar PV

Crystalline

Polycrystalline

Monocrystalline

Thin Film

Amorphoussilicon

CISCadmiumtelluride

PV- Exposure to light generates electricity

variants are Wafer Based & Thin Film

Wafer Efficiency 13% to 20%;

Thin film Efficiency 6% to 12%

More than 21,000 MW of installed PV

capacity worldwide

Major Suppliers- QCells, FirstSolar, Sharp,

Suntech, JA Solar, Kyocera, Yingli, Sanyo

Solar Photovoltiac (PV)

S l Th l


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57

Efficiencies of about 15%.

Storage of power using molten salts

Captures the heat from solar radiation and

uses BTG

Physical moving partsWater requirement in dry areas

Higher O&M

Parabolic trough/Tower

Over 700 MW installed capacity world over

Major technologies

E-Solar, Abengoa , Acciona, Iberdrola

Major suppliers

Solar Thermal

T h l E l ti F t P fi


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CSPHigher-output receiver tubes (replaceable?)

Low-cost reflectors (replaceable?)

Higher-temperature, stable towers

Dish, Fresnel and other technologies will mature

Storage (low-cost) for 24-hours solar

Hybrid (integrated with gas, coal, wind, biomass, etc.)

PVHigher-efficiency C-Si

Thin-films stabilised, and emergence of CIGS as leaderConcentrators in deployment

Longer term, nano-dots, full-spectrum PV

Chinese supply-chain

Technology Evolution Future-Proofing

G I I iti ti JNNSM


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20000

MW

by 2022

Phase I

7mn sqm solar collectors, 200 MW off grid capacity & 1000 MW grid power

Phase II

15mn sqm solar collectors, 1000 MW off grid capacity and 4-10000 MW grid power

Phase III

20mn sqm solar collectors, 2000 MW off grid capacity & 20000 MW grid power

TARGETS

MECHANISM

PV: Rs17.91unit

CSP: Rs15.31/unitRs2.5/unitx kWh 4x kWh

Cost of bundled power to NVVN

PV: (17.91x + 10x)/5x = Rs5.58/unit

CSP: (15.31x + 10x)/5x = Rs5.06/unit

Cost of Power to State Utilities for 50:50 ratio of PV and CSP = Rs

5.32/unit

5x kWh

NTPC unallocated powerSolar power developers

NVVN

State Utility

GoI Initiatives JNNSM

State Initiatives Gujarat a leading state


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Minimum project capacity for availing benefits has been fixed at 5 MW for

both Solar PV and Solar Thermal

In the 1st round the State had received EoIs for 365MW PV and 351MW CSP

projects from 34 national and international developers. GUVNL signed PPAs

for 420MW projects (395MW PV and 25MW CSP) in May 2010

For the solar thermal projects to be commissioned before Dec 2011, the

tariff has been fixed at Rs 11 per unit for the first 12 years and Rs 4 per unitfor the rest of the period, for the projects commissioned thereafter up to

Mar 31, 2014, it is proposed at Rs 9 per unit for first 12 years and Rs 3 per

unit for the rest of the period

For the solar PV projects commissioned before Dec 2011, the tariff has been

fixed at Rs 15 per unit for the first 12 years and Rs 5 per unit for the rest ofthe period, for the projects commissioned thereafter up to Mar 31, 2014, it

is proposed at Rs 12 per unit for first 12 years and Rs 3 per unit for the rest

of the period

State Initiatives Gujarat a leading state

Financing Options Exploratory Stage


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Being a sunrise sector seen lots of investment from PE investors Investments in Azure Power, Sunborne, MoserBaer etc.

Private Equity Developers

Support export of materials(KfW, JBIC)

ECA

Supporting through direct financing and guarantees to promotethis sector

Multilateral Agencies

Have shown keen interest

Payment security mechanism still being discussed to givegovernment support

Indian Banks, NBFC (REC, PFC, IREDA)

Financing Options Exploratory Stage

Key Risks And Mitigation


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Key Risks And Mitigation

Risk Mitigation

Technology Only established technologies (compliant with IEC Technical Standard for Solar

PV systems) and EPC contractors with proven track record supported.

Offtake risk High risk due to high cost of the power producer. Strong offtaker and Power

Purchase agreement crucial for development of this sector.

Land Each MW requires about 5 to 8 acres. However most of this land is

inhospitable and are in outlying areas.

Gujarat, Rajasthan, MP developing Solar Park

Approvals &

Clearances

Aviation clearance from AAI, forest clearance from MoEF & approval for power

evacuation from TransCo Incorporated as Conditions precedent

Cost & Time

Overrun

Comprehensive provisions for liquidated damages may be stipulated as part of

EPC contract

Promoters undertaking to bear additional costs stipulated.

PerformanceShortfall

Stringent clauses for defect liability. Temperature coefficient stipulated

Performance Ratio Guarantee to be provided by EPC contractor

Irradiance Risk Combination of various source of data including MNRE, NASA, Meteonorm at

conservative levels to be used.

Seasonal

Variation

Repayments structured as per the projected variation


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Transmission

Distribution

Conclusion

Overview Indian Transmission Infrastructure


64/81


Transmission Network in India



65/81


The complex transmission system comprises236,500 ct. km lines and 305,600 MVA and14,000 MW of substation capacity at 220 kV &above voltages as of March 2010.

400 KV 77000 ckm and 765 KV 700 ckm

Transmission network and transformationcapacity grew at 6.4% and 7.5% respectivelyduring the first 3 years of XI plan. [X Plangrowth figures were 6% and 8%]

Interregional transfer capacity increased to20,750 MW from 14,100 MW at end of X Plan.

The XI Plan investment is proposed at Rs1,400 billion - Rs 550 billion by Powergrid, Rs

650 billion by STUs and Rs 200 billion byprivate sector.

During the first three years of the Plan,Powergrid invested Rs 252 billion (plannedanother Rs 130 billion in 2010-11). STUsinvested Rs 185.84 billion during the first twoyears.

-

50,000

100,000

150,000

200,000

250,000

2005-06 2006-07 2007-08 2008-09 2009-10*

59,314 66,579 73,13880,243 87,800

125,347131,828 136,866

142,503148,667

Transmission Lines (ct. km)

Intra-state Interstate

-

100

200

300

400

2005-06 2006-07 2007-08 2008-09 2009-10*

39 45 53 60 65

191 205216 228

241

Transformation Capacity ('000 MVA)

Intra-state Interstate

*interstate capacity includes 1,440 MVA of private capacity

*interstate lines includes 1,250 ct. km of private line length

XI & XII Five Year Plan Targets


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XI & XII Five Year Plan Targets

Voltage Level (kV) XI Plan Target As on Mar 2011Achievement

(%)XII Plan Target

765 kV 5,666 2457 43.4 25000-30000HVDC & +/- 500 kV 5,400 3052 56.5 4000-6000

400 kV 49,278 30611 62.1 50000

230/220 kV 35,371 20009 56.6 40000

Total 91875 56129 61.1 119000-126000

Source: CEA

XI Plan investments may not fully fructify given the lower than planned generation

capacity addition expected

Planned XII Plan investment is Rs 2,400 billion including Rs 1,400 billion in the

central sector (interstate system) and Rs 1,000 billion in the state sector (intra-state

system) Achieve synchronization of SR grid with NEW grid [to be achieved with the

implementation of Synchronous Interconnection between SR and WR]

Interregional transfer capacity to increase to 32,700 MW by 2011-12 (latest CEA

estimates) further to 57,000 MW by 2015 and 75,000 MW by 2017

Private Sector Participation


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Standalone private investment in transmission segment opened up in 1998

One PPP project Tala transmission system in operation since May 2007

First ITP (awarded in Oct 2007) under implementation by RPTL to come up by July 2011

Private developers considering integrated approach to generation & transmission

Handful of transmission projects being developed by private sector independently or

in JV with CTU / STU.

Projects Identified byEmpowered committee /STU

Tariff basedCompetitive Bidding

Private Players

With PGCIL orSTUs

Monopoly Integrated orUnbundled

Cost Plus Tariff

POWERGRID SEB/Transco Joint Ventures

Centre State



68/81

Year SPV Agency kV Km Developer

2009 East North Interconnection Co Ltd PFC 400 450 Sterlite Technologies

2010 North Karanpura Transmission Co Ltd REC 400 1,045 Reliance Power Transmission

2010 Talcher-II Transmission Co Ltd REC 400 592 Reliance Power Transmission

2011 Raichur Sholapur Transmission Co Ltd REC 765 210 Patel+Simplex+BS Transcomm*

2011 Bhopal Dhule Transmission Co Ltd PFC 765 1,000 Sterlite Technologies

2011 Jabalpur Transmission Co Ltd PFC 765 635 Sterlite Technologies


PPP Transmission Projects Awarded

Empowered Committee identified 14 Projects of which first 6 projects awarded

Private sector likely to be involved in development of evacuation systems for future

UMPPs

Private Sector Participation Contd


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Private Sector Participation Cont d

Joint Venture with PGCIL

Joint Venture Private Partner Evacuation from

Project MW Location

Parbati Koldam Trans. Corpn. Ltd Reliance (ADA) GroupParbati-II 800 Himachal

Koldam 800 Himachal

Torrent Power Grid Ltd Torrent Power Sugen-II 1148 Gujarat

Jaypee Power Grid Ltd Jaypee Group Karcham-Wangtoo 1000 Himachal

Teestavalley Power Transmission Ltd Teesta Urja Ltd (Athena) Teesta III 1200 Sikkim

North East Transmission Co Ltd ONGC + IL&FS Tripura 727 Tripura

Powerlinks Transmission Ltd Tata Power Tala HEP 1020 Bhutan

Project Ownership Mode State kV

Jaigad Power Transco Ltd JSW Energy JV MAH 400

Maharashtra Eastern Grid Transmission Co Ltd Adani JV MAH 765

Jhajjar KT Transco KPTL+Techno DBFOT HAR 400

Maru Transmission Service Co Ltd GMR Energy BOOM RAJ 400

Aravali Transmission Service Co Ltd GMR Energy BOOM RAJ 400

UPPTCL Package -1 (Mainpuri-Bara) Isolux Corsan BOOT UP 765

UPPTCL Package-2 (Mainpuri-Hapur / Mainpuri-Noida) Cobra + Megha BOOT UP 765

Intra-State Transmission Projects

Issues faced by Developers


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Issues faced by Developers

Right of Way & Crop Compensation

A transmission line right-of-way (RoW) and Crop Compensation is the single largest

issue faced by project executors. Other requirements like clearances, financial

closures etc. are secondary.

New private sector entrants face several problems.

Generation capacities failing to achieve deadlines

Delays in the commissioning of generation capacities resulting in risk of revenue

loss

if the transmission line is completed as planned, it would lead to the line being idle

due to a delay in the commencement of power generation.

Forest Clearances

Although Environmental clearance not required, forest clearance is required, if the

transmission line passes through any forest.

Approval from Forest Officer required even for carrying out a route survey

Time consuming process & lack of adequate clarity

Poor creditworthiness of DISCOMs poses significant payment security risks

Financing Options


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Financing Options

Suitable on account of longer tenors

Interest cost is not competitive vis--vis other sourcesRupee Loan Tenor may be a constraint

May attempt with refinancing undertaking from promoterECB

Dependent on selection of EPC / Supplier Higher upfront costs and time consumingECA

ADB / IFC funding available to transmission projects

Pre-sanction ESDD may be a constraintMultilateral

Key factors for financing

Longer tenor requirement (especially for Projects won with competitive bidding)

Revenue stream - annuity type Interest expense is the most significant cost during operations

Structured repayments with bullet is favoured



72/81


Risk Mitigation

Construction Challenge in terms of design, geography and terrain (River Crossings, Railway

line crossings, Forest Areas etc.)

Experienced contractor critical for successful implementation

Offtake Risk High risk due to high cost of the power producer.

Power Purchase agreement with adequate Payment Security Mechanism

Right of Way Obtaining Right-of-Way in a phased manner

Assistance of Government for PPP projects in resolution of crop compensationissues.

Approvals &

Clearances

Environmental Clearance not required for Transmission Projects

Majority of the clearances and approvals are obtained during implementation

Forest clearance (if any) from MoEF for route survey may be Pre Disbusement

Condition

Cost & TimeOverrun

Comprehensive provisions for liquidated damages may be stipulated as part ofEPC contract

Promoters undertaking to bear additional costs stipulated.

Performance

Shortfall

Stringent clauses for defect liability.

Performance Guarantee to be provided by EPC contractor

Opportunities


73/81

Transmission

Rs.140,000 crore (USD 28 billion) required for proposed 220 kV and above

transmission schemes in XI Plan

Transmission planning moved away from the earlier generation evacuation

system planning to integrated system planning

Power Grid and State Utilities Driving the Growth in Transmission

Many Transmission Project planned to be awarded to Private Sector through

Competitive Bidding

6 Projects already awarded through Competitive bid

Initiative driven by PFC / REC

22 large transmission projects have been identified for competitive bidding

(outlay in excess of Rs 30,000 Cr)

Opportunities


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Transmission

Distribution

Conclusion

Distribution


75/81

Distribution

Distribution System could not keep pace with Generation and TransmissionSystems

Of the aggregate losses of the State Power Utilities, 93% were at the

Discom Level

Costs of generation and transmission companies are pushed to DISCOM

level which are unable to recover the same from the consumers

Aggregate Book loss of Discoms have doubled in FY 10 to Rs 274 billion

since FY 07

Unfavourable mix of consumer mix and pricing

High AT&C losses Low realization of subsidy

Due to weak financial profile fresh loans have been curtailed by banks and

financial institutions

Salient Features

Distribution Performance


76/81

Distribution PerformanceAggregate Technical & Commercial (AT&C) Losses (%) in Major States

2007-08 2008-09 2009-10

Maharashtra 31.37 31.64 28.23Uttar Pradesh 43.09 40.12 39.65

Andhra Pradesh 16.19 12.99 16.43

Gujarat 22.81 22.04 22.81

Punjab 19.10 18.51 17.73

Rajasthan 33.02 29.83 30.07

Karnataka 32.13 24.94 25.34

Madhya Pradesh 45.85 46.61 41.03

Aggregate Technical & Commercial (AT&C) Losses (%) - Regionwise

2007-08 2008-09 2009-10

Eastern 37.19 36.62 33.92North Eastern 36.67 40.70 36.44

Northern 32.59 31.12 30.83

Southern 20.10 16.92 19.49

Western 31.95 31.64 28.23

Grand Total 29.24 27.74 27.15



77/81


With the approval of the Prime Minister the Planning Commission in July 2010 appointed a

High Level Panel (Shunglu Committee) to look into the financial problems of SEBs.

This Committee recommended a plan of action to achieve financial viability in distribution of

power by 2017:

Review of accounts and financial projections of SEBs and Discoms; tracking of capital

work-in-progress

Review Electricity Tariff and role of State Governments, State Regulators and SEBs/

Discoms in periodic revision of tariff

Evaluation of functioning of SERCs

Assess system improvement measures

Energy to agricultural sector to be supplied through a separate feeder

Series of anti-theft measures for urban and rural areas

Way Forward

Distribution being the last link in the value chain of the power industry needs to be

healthy

Sound health of Discom is essential for healthy and efficient functioning of thePower Sector


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Transmission

Distribution

Conclusion

Conclusion


79/81

Way Forward

Diversifying the fuel mix and the source of supply

Political stumbling blocks and change in social behaviour poses a challenge

Long term tie up for power purchase

Timely fixation of tariffs and timely truing up

Lowering of transmission and distribution losses

Timely receipt of subsidy Substantial opportunities emerging in power sector post the reforms being

undertaken by government.

Sector exposure by Banks brings new opportunities for capital raising for

power sector.

Foreign financial institutions are keenly observing the reforms beingundertaken and would participate.

At last but not the least, for economic growth in the country, power sector

growth should be robust and consistent.

Conclusion


80/81

Thank You

Abbreviations


81/81

Abbreviations

AT&C Aggregate Technical & Commercial

BOOT Build Own Operate Transfer

CDM Clean Development Mechanism

CEA Central Electricity AuthorityCERC Central Electricity Regulation Commission

ckm circuit kilometres

CTU Central Transmission Unit

CWET Centre for Wind Energy Technology

DISCOM Distribition Company

DPR Detailed Project Report

DVC Damodar Valley CorporationECA Export Credit Agencies

EOI Expression of Interest

GBI Generation Based Incentive

GENCO Generation Company

GOI Government of India

GSPC Gujarat State Petroleum Corporation

KG Krishna-Godavari

kWh kilo Watt-hourMnMT Million Metric Tonnes

MNRE Ministry of New & Renewable Energy

MoEF Ministry of Environment and Forests

MoP Ministry of Power

MW Mega Watt

NBFC Non Banking Financial CompaniesNE North east

NEC North Eastern Coalfields

NHPC Formerly known as National Hydroelectric PowerCorporation

NPCIL Nuclear Power Corporation of India Limited

NPV Net Present Value

PFC

Power Finance CorporationPGCIL Power Grid Corporation of India Limited

R&R Resettlement and rehabilitation

REC Rural Electrification Corporation Limited

RIL Reliance Industries Limited

SEB State Electricity Board

SERC State Electricity Regulatory Commission

STU State Transmission Unit

TRANSCO Transmission CompanyUMPP Ultra Mega Power Plant

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