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Financing Opportunities and challenges
in the Renewable Energy Sector
Alok Dayal
Senior Director Credit & Environment Risk
IDFC Limited
22nd
November, 2014
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Power scenario in India
Installed capacity
Capacity addition
Thermal Capacity utilization
Renewable Energy
Renewable snapshot
Edge over thermal projects
Challenges in financing
Opportunities and way forward
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Power Generation - Installed Capacity
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All India Installed capacity: significant dependence on coal based capacity
Renewable capacity: predominantly wind power
Renewable capacity – 13% of total capacity; share in power generation further low ~ 5%
All India Installed Capacity – 253 GW Renewable Capacity - 31.6 GW
Coal60%
Gas9%
Hydro16%
Renewables13%
Nuclear2%
SHP12%
Wind67%
Biomass/cogen13%
Solar8%
Source: CEA reports. Capacity as on Aug 2014
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Power Generation Capacity additions
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FY 08 to FY 14: overall capacity has increased by 66%; renewable capacity has increased by 165%
Private sector has contributed to 62% of overall installed capacity addition and 57% of the coal based
capacity in last 6 years
Renewable energy sector significantly dominated by Private sector – 87% of capacity
0
50000
100000
150000
200000
250000
Coal Gas Hydro Renewable Grand Total
76 GW
11 GW
143 GW140 GW
29 GW
237 GW
2007-08 2013-14
0%
25%
50%
75%
100%
Coal Gas Hydro Renewable Grand Total
7%
29%
3%
81%
14%
30% 36%
7%
87%
33%
2007-08 2013-14
All India Installed Capacity Share of Private Sector
6
Power generation – Thermal capacity utilization
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Fuel shortages leading to sub-optimal use of installed capacity, Private sector significantly affected
High AT & C losses aggravate the problem
Opportunity to optimise contribution of renewable energy
PLFs – Coal based capacity
75%73%
70%
66%
83%
69%
64%
62%
50%
55%
60%
65%
70%
75%
80%
85%
2010-11 2011-12 2012-13 2013-14
All India
Private Sector
66% 60%
40%
25%
70%
59%
35%
18%
10%
20%
30%
40%
50%
60%
70%
2010-11 2011-12 2012-13 2013-14
All India
Private Sector
PLFs – Gas based capacity
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Renewable Energy - snapshot
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Ability to scale, security of raw materials and cost reduction potential make renewable power attractive
play in the power generation sector
Global Trends Market Conditions/Forces
High Conventional Energy Prices
Energy Security
Climate Change Concerns
Site-specific environment
Technological Innovation
Fossil fuel prices, securing supplies and volatility
Technology innovation
Demand for ‘green’ goods
Strong and compelling growth opportunity in the Renewable
Energy Market
Policy Interventions
Quotas, Certificates, Feed-In-Tariffs
Capital grants
Green standards
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Renewable Energy Financing
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The edge over thermal projects .....
Short gestation period (Wind, Solar) – manageable construction risk
No dependencies on fossil fuel
Limited escalation in cost of generation
Limited O&M cost
Environment friendly
The above factors have led to increased investment attractiveness for Renewable Energy projects
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The challenges – lenders’ perspective .....
The structural arrangements need to be in place before financing
(PPA signing: wind- post commissioning, solar – upfront; land acquisition)
Reliable and long term assessment data
Uniform processes across states and sub sectors
Evacuation support & grid stability
Stable Policy framework
Continuation of fiscal incentives – GBI, AD
RPO / REC – enforcement, long term pricing regime
Wheeling & Banking
Feed in tariffs vs bidding
Must run status
Captive usage
Financial health of Off-takers
Renewable Energy Financing
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Challenges in Financing Renewable Energy Project
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Challenges Wind Solar Small Hydro
Tariffs Tariffs close to grid
parity
High tariffs but
southward movement;
Aggressive bidding
Competitive tariffs
Track record Limited Wind
assessment data
Limited solar irradiation
data; technology risk
Long term hydrology data-
usually available
Land
acquisition/
right of way
Land acquisition/ RoW
issues/ sensitive
receptors
Land acquisition/ RoW
issues/ sensitive
receptors
Challenges w.r.t.
topography / sensitive
receptors
Evacuation
infrastructure
Access to grid Access to grid Access to grid
Offtaker risk SEB risk/ captives SEB risk SEB risk
GBI/ CERs Policy risk, CER market
risk
Policy risk, CER market
risk
CER market risk
RPO Enforceability Enforceability Low risk as cheaper tariffs
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The Opportunity and way forward to increase the share of renewables .....
Huge untapped potential
Encourage decentralised generation – Townships, industrial zones - reduce pressure on discoms but
needs to be scalable
Bridge the structural gaps
Encourage innovative funding (offshore sources, multilaterals, business trust listings, NCEF)
Facilitate local manufacturing capabilities to reduce capital costs
Reduction in risk will reduce financing costs, expedite growth of capacity addition, ease overall power
scenario
Renewable Energy Financing
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IDFC exposure to renewable energy projects stands at ~6%
67% of renewable exposure is to wind projects
27% to solar projects
6% to small hydro projects
Significant part of generation exposure approved during last 3 years is towards renewable projects
IDFC’s offering for renewable power generators include
Long term project financing
Structured products
Acquisition financing
Advisory services
IDFC’s presence in Renewable Energy Financing