Power Sector - Opportunities

Agenda
Evolution of the Indian Power Sector Industry Structure and Present Scenario Thermal Power Projects Hydro Power Projects Renewable Energy Projects Transmission Distribution Conclusion

Evolution of the Indian Power Sector Industry Structure and Present Scenario Generation - Thermal Power Projects Generation - Hydro Power Projects Generation Renewable Energy Projects Transmission Distribution Conclusion

Earlier Structure and Liberalisation

Earlier Structure failed

Development of the power sector has traditionally been the responsibility of the Central & 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

Liberalised policy (post 1991)

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 returns on investment and reduced legal hassles to allow the private investors to set-up generation capacities or operate as licensee in distribution segments, which were hitherto a monopoly of the SEBs

Post-liberalisation Developments
Revised Mega Power Policy 2009

Mega Power Policy Liberalisation 1991

CERC & SERCs set up 1998

Electricity Act 2003 2003

Competitive Bidding Guidelines / UMPPs 2005

National Tariff policy 2006

National Hydro Policy 2008

1995
Introduced Open Access

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 fix tariffs;

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The existing condition of privatization of distribution by power purchasing states has been replaced by the condition that power purchasing states shall undertake to carry out distribution reforms as laid down by the Ministry of Power.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.

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.

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 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

Case 2: Plant location and Fuel type fixed

Evolution of the Indian Power Sector Industry Structure and Present Scenario Generation - Thermal Power Projects Generation - Hydro Power Projects Generation Renewable Energy Projects Transmission Distribution Conclusion

Industry Structure
State Sector Policy & Regulation Generation Inter State Transmission Intra State Transmission Central Sector Private Sector Ministry of Power / *Central Electricity Authority / Central & State Electricity Regulatory Commissions SEBs, GENCOs NTPC, NHPC, NPCIL, DVC, Neyveli Lignite PGCIL Torrent, Essar, Reliance,Tata, GMR, Jaypee, GVK, Jindal, JSW, Lanco, Adani

SEBs, TRANSCOs

Trading

PTC, Tata, NTPC, Adani, Reliance, GMR SEBs, DISCOMs Reliance, TATA, CESC, Torrent

Distribution

*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

Power Scenario in India

Installed Capacity (MW)
Renewable 11% Coal Hydro, 21% Coal , 56% Gas, 10% Diesel, 1% Nuclear, 3%

Total installed capacity as on December 2011 is 1,86,655 MW

Gas
Diesel Nuclear Hydro Renewable

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% of total)

As on December 11

Per Capita consumption of Power

3000 2500 2000 1500 1000 500 0 1991 1991 2001 2005 2006 2008 2010 2012 World 2001 2005 2006 2008 2010 2012 World

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 2,750 kWh
Under its Power for all by 2012 initiative GoI aims to increase Indias per capita consumption to 1,000 kWh

UNITS COMMISSIONED, DURING DECEMBER. 11

1)SVL TPP, U-1 (63 MW) of SV Power Ltd. has been commissioned 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 full load) 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 Power Supply Company Ltd has been commissioned successfully ( Full load) on 28-12-2011
12

Power shortages remain high

1000 800 Bn units 600

Demand-Supply

20%

15%

10% 400
200 0 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Demand Supply %Shortage %Peaking Shortage 100 5%

The total electricity generation in the country increased from 558 Billion Units (BU) during 2003-04 to 788 BU during 2010-11 However, the Deficit is still high at:

0%

Energy Deficit: 8.5% Peaking Deficit: 9.8%

90,000 75,000 60,000

Sluggish historical performance in 5-yr plans

80 60

Deficit still at high levels due to

45,000 40 30,000 15,000 0 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th Target Achieved % Shortfall 20 0

Slow capacity addition owing to delay in equipment supply Heavy congestion Transmission corridors on

Huge AT&C losses in distribution sector around 27% at national level.

Power: Key Sector for Investment

11th Plan: 78,577 MW to be added
Nuclear, 3380

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 Thermal 76% Coal, 52850

Gas, 6843

Year 2007-08 2008-09

Target (MW) 16,335 11,061

Achieved (MW) 9,263 3,454

Achieved (%) 56.71% 31.23%

2009-10
2010-11 2011-12*

14,507
21,441 13,989

9,585
12,160 11,465

66.07%
56.71% 81.96%

*As on December 2011

Power Trading & Merchant Tariffs

Increasing Power trading volumes
40 35 30 5%

4%

BUs
Traded Power (BUs) Traded Power as % of Generated

25
20 15 10 5 0

3%
2% 1% 0%

Punjab, Rajasthan, Haryana, Delhi Maharashtra and Andhra Pradesh have been among the top buyers of 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

Price of Short term Transactions

8 6 4.16 4 7.04 7.57 6.89 6.37 5.73 4.99

2 0 2007 Traders 2008 Power Exchanges UI 2009

US and India
Generation Capacity in US
Hydro, 8.67% Oil, 5.49% Coal , 30.06% Nuclear, 9.37% Coal Gas Nuclear Oil Gas, 41.31% Hydro Other Other, 5.10%

Fuel Type Coal Gas Nuclear

Capacity in MW 342,296 470,344 106,731

Oil
Hydro Other Total As on December 2010

62,504
98,742 58,021 1,138,638

Generation Capacity in India

Renewable 11%
Coal Hydro, 21% Gas

Fuel Type Coal Gas Nuclear Oil (Diesel) Hydro Other Total

Capacity in MW 1,04,021 17,743 4,780 1,200 38,748 20,162 186,655

Coal , 56%
Gas, 10% Diesel, 1% Nuclear, 3%

Diesel Nuclear Hydro Renewable

As on December 2011

Indian Power Sector: Future Target

Capacity addition by 2030: MoP
2031-32 762 655 785 962 1207

2026-27

543 510 445 387 331 303 276

2021-22

9% GDP 8% GDP

2016-17

2011-12

7% GDP 215 206 Installed Capacity in GW 197

200

400

600

800

1000

1200

1400

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.

Future Outlook

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.

Evolution of the Indian Power Sector Industry Structure and Present Scenario Generation - Thermal Power Projects Generation - Hydro Power Projects Generation Renewable Energy Projects Transmission Distribution Conclusion

Overview of Thermal Power

Key source of power in India with around 66% of installed Capacity contributing more than 70% of the units produced

Imported Coal Captive Coal

Domestic
Linkage Coal Thermal Gas Domestic

R-LNG
Oil

Key Challenges Thermal Power Projects

Land Land Acquisition Issues and procedural delays Agricultural Land Fuel Domestic Coal Availability Volatile markets for Imported Coal Changing regulations in source countries (Indonesia / Australia) Domestic Gas Availability High costs of R-LNG Clearances Environmental Clearance Forest Clearance (Go / No-Go Areas for Coal)

Fuel supply scenario: Coal Reserves in India

Reserves in Mn tons Balance : Total reserves minus that given out as captive allocation and expected requirement for linkages upto 2012

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

Depth (m) 0-300 300-600 0-600 (for Jharia only) 600-1200 Total Proved Indicated Inferred Total % share 82,771 65,784 13,760 1,62,315 60.7% 7,661 45,453 18,105 71,219 26.7% 13,710 1,678 1,05,820 502 11,730 1,23,469 0 14,212 6,056 19,464 37,921 2,67,210 5.3% 7.3%

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.

Coal Production & Imports

600 Million tonnes

Coal Production
22 11% 25 7% 398.7 28 35 10% 6% 422.6 459.6 8% 487.8

15%

44 10%

400
12 200

347.1

375.5

5%

0 FY05 FY06 Production (Mn MT) FY07 FY08 Imports (Mn MT) FY09 FY10 % Change

0%

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.

Fuel supply scenario : Natural Gas

Projected Gas Supply

Gas Allocation from RILs KG D-6

Sector Power Fertilizer CGD Steel Refineries Petrochemicals LPG Captive Power Total Total (Firm+Fall back (MMSCMD) 43.17 15.51 2.83 4.19 11.00 1.918 3.00 10.00 91.61

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

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 less participation

Key Risks & Mitigation

Risk Fuel Availability Mitigation

Conditions Precedents to Drawdown Timelines for fuel arrangement (Including transportation & handling) Adjustment of Debt Equity vis--vis increased fuel costs impact 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 Environment / Forest / Coastal Regulation Zone/ Pollution Control as
conditions precedent

Land Acquisition Approvals/ Clearances

Off-take risk
Cost overrun/ Delays Performance Evacuation

Long term power purchase agreements crucial Minimum Quantum for long term tie-up to be assessed Fixed price lump sum construction contracts with adequate LDs preferred Cost overrun undertaking by promoters Adequate Liquidated Damages / Rectification clauses in contracts Assessment of available transmission network Adequate stipulations to cover evacuation risks

Ultra Mega Power Projects

Ministry of Power (MOP) initiated UMPP Process
MoP, CEA and Power Finance Corporation working together for development of 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

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

Evolution of the Indian Power Sector Industry Structure and Present Scenario Generation - Thermal Power Projects Generation - Hydro Power Projects Generation Renewable Energy Projects Transmission Distribution Conclusion

Development of Indian Hydropower Sector

Inter Institutional Group comprising SBI, ICICI, LIC, IDBI, IDFC formed 2004 New Hydro Policy 2008

CEA Vision Document & Ranking of Schemes totaling 1,07,000 MW 2001

100% foreign participation 1992 2003 PMs 50,000 MW Hydroelectric Initiative 1998 Policy on Hydropower Development 1991 Private Sector Participation in Generation 1897 Sidrapong Hydel Power Station, Darjeeling (Oldest Hydel Power Plant in India)

2005 Guidelines for determination of Tariff based on competitive bidding Guidelines for development by Private developers

Overview of Hydropower in India

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
Growth of Hydropower
180,000 160,000 Installed Capacity 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1956 1961 1966 1969 1974 1979 1980 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Percentage

1985

1990

1992

1997

2002

2007

2010

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)

Potential of Hydropower in India

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

Region Northern Western Southern Eastern North-Eastern

Feasible Installed Capacity (MW) 53,405 8,928 16,446 10,965 58,956

Developed Capacity (MW) 13,623 7,447 11,260 3,882 1,116

Balance Potential (%) 74% 17% 32% 65% 98%

Total
Source: CEA

148,700

37,328

75%

Challenges in Hydropower development

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

GoI initiatives - Encourage private sector

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 financial closure 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

State initiatives - Encourage private sector

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%

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.

Regional Cooperation with Neighboring Countries

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)

Bidding Criteria for Hydropower Projects

Free Power

Upfront Premium

Bid Criteria
Levellised Tariff Terminal Value

States free to use a combination of any of the above four criteria Bid for Ratle Hydro in J&K utilized all four of the above parameters to evaluate the winner on the Bid NPV basis

Investors Perspective
Cost & Reliability factors
Plant Load Factor Plant Load Factor dependent on (dependent on water water flow of river flow of river) Potential for secondary energy Peaking Tariff Rates State Policies (for merchant sales)

Technical Aspects

Regulatory Aspects

Reliable Surveys Access to Site

Availability of land & Govt support for acquisition Environment and other clearances

Availability of Evacuation Arrangements Overrating to tap excess flows

R&R issues

Financing Options
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
NBFC
PFC is funding private projects for up to 70% of the project cost with 20 yrs max 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.

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)

Key considerations for financing

Assessing project viability at 90% dependability (primary energy) Assessing seasonal flow variation and peaking capability

Structuring repayments to match generation profile Adequate cost over run undertaking from promoters

Secondary Energy and overrating as upsides CDM benefits for plants above 25 MW highly unlikely

DSCR in range of 1.3 to 1.5

Structuring mechanisms for sharing potential upsides (secondary energy and CDM benefits)

Key Risks and Mitigation

Risk Construction Rehabilitation & Resettlement Off-take risk Cost overrun/ Delays Mitigation

Only established developers with proven track record supported. Same is

given high weightage during award/ financing

R&R issues are extremely important Can lead to considerable delays if not addressed adequately Long term power purchase agreements crucial Projects with dam/pondage can act as peaking stations Fixed price lump sum construction contracts with adequate LDs preferred Cost overrun undertaking by promoters

Approvals/ Clearances
Seasonal Variation Geological Uncertainties

Implementation agreement, Environment Clearance / forest clearance

from MoEF - levied as conditions precedent

Repayments structured as per the projected variation and water flows Financing done at P90 / P75 dependability
Sound DPR and extensive site surveys required to be carried out

Evolution of the Indian Power Sector Industry Structure and Present Scenario Generation - Thermal Power Projects Generation - Hydro Power Projects Generation Renewable Energy Projects Transmission Distribution Conclusion

Renewable Energy Potential in India

10% of Indias installed capacity is through renewable sources

Wind Power Small Hydro Power Cogeneration - Bagasse Biomass Waste to Energy Solar Power 0 20000 40000 60000 80000 100000

Installed Capacity
Source: Ministry of Power, Jan 2010

Potential Capacity

Significant Potential for Solar Power in India

Salient aspects of Renewable Energy

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

Overview of Wind Power in India

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

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

Benefits
Zero cost of fuel and low O&M Cost Short gestation period Clean energy with no adverse environmental 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 with immense off-shore wind energy potential Global majors like Areva, Siemens and GE are queuing up to explore off-shore opportunities

Policy Incentives
Central Govt.

Generation Based incentive

Incentive of 50 paisa /unit supplied To be availed within a period of 10 years after commissioning with a cap of Rs 62 lakhs per MW, with disbursements not to exceed Rs.15.50 lakhs/MW/annum during the first four years Maximum capacity limited to the 1st 4000 MW installed upto March 31, 2012

shall release Funds for GBI

as advance to
IREDA to ensure timely release of funds to the projects

Accelerated Depreciation
Accelerated depreciation (80 %) on Written Down Value (WDV) basis for wind mills

Tax Holiday
Tax holiday available to an undertaking which begins to generate power before March 31, 2012

Financing Options
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 year ended Sep 2010 NBFC Active in the Wind Sector IDFC, IL&FS, REC, IFC etc have participated in Debt and Equity funding of Wind Energy Projects ECA EXIM Banks financing the export of equipment DEG granted a long-term loan of 15.3 million euros to Bhoruka Power Corporation Ltd. (2010) in Karnataka

Financing Options
IREDA To give financial support to specific projects and schemes for generating electricity and / or energy through new and renewable sources and conserving energy through energy efficiency. Nodal Agency: Implementation of Generation Based Incentive and Accelerated 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 projects in 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

Optimal Debt: Equity Ratio for Wind Projects

DSCR in the range of 1.2 to 1.3

Equity the promoter is willing to contribute.

Debt to Equity ratio of 65:35

Lenders comfort level of debt to be provided for the project Reduction in Project Cost & favorable O&M terms

Balancing ROI with sustainability

Availing GBI for shorter period than the normal period which is for 410 years.

Structuring repayment schedule so that it is in line with generation profile

Contract for CERs (Certified Emission Reductions) should be entered.

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

Key Risks & Mitigations

Risk Technology Risk Mitigation Measures Only CWET certified turbines with proven track record supported. EPC contractors of repute with proven track-record in setting up Wind Farms supported. 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 Repayments structured as per the seasonal wind profile 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

Wind availability shortfall

Seasonality Approvals & Clearances

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.
Comprehensive provision for liquidated damages payable by the EPC contractor may be stipulated. Promoters undertaking to bear any cost overrun in the Project. Stringent clauses for defect liability backed by guarantees

Cost & Time Overrun Performance

Overview of Solar Energy in India

Most parts receive irradiance of 57 kWh per sq meter per day

Average power generation potential of 20 MW/ sq km

Sites receiving higher levels of insolation: Rajasthan, TN, AP, Ladakh, Gujarat

Assessing Solar Energy Project Financing

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?

Technology
Most Prevalent Technologies: Photo-Voltaic (PV) & Concentrated Solar Power (CSP or Solar Thermal)
Photo-Voltaic SOLAR THERMAL

Solar Photovoltiac (PV)

Solar PV

Crystalline

Thin Film

Poly crystalline

Mono crystalline

Amorphous silicon

CIS

Cadmium telluride

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 Thermal
Captures the heat from solar radiation and uses BTG Efficiencies of about 15%. Storage of power using molten salts Higher O&M Physical moving parts Water requirement in dry areas

Major technologies
Parabolic trough/Tower Over 700 MW installed capacity world over Major suppliers E-Solar, Abengoa , Acciona, Iberdrola
57

Technology Evolution Future-Proofing

CSP
Higher-output receiver tubes (replaceable?)

Low-cost reflectors (replaceable?)

Higher-temperature, stable towers Dish, Fresnel and other technologies Storage (low-cost)

will mature

for 24-hours solar Hybrid (integrated with gas, coal, wind, biomass, etc.)

PV
Higher-efficiency C-Si Thin-films stabilised, and emergence of CIGS as leader Concentrators in deployment Longer term, nano-dots, full-spectrum PV

Chinese supply-chain

GoI Initiatives JNNSM

TARGETS
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 20000 MW by 2022

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

MECHANISM
Solar power developers
PV: Rs17.91unit x kWh CSP: Rs15.31/unit 4x kWh Rs2.5/unit 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

NTPC unallocated power

NVVN
5x kWh

State Utility

State Initiatives Gujarat a leading state

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 unit for 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 of the 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

Financing Options Exploratory Stage

Private Equity Developers Being a sunrise sector seen lots of investment from PE investors Investments in Azure Power, Sunborne, MoserBaer etc.
ECA Support export of materials(KfW, JBIC) Multilateral Agencies Supporting through direct financing and guarantees to promote this sector

Indian Banks, NBFC (REC, PFC, IREDA) Have shown keen interest Payment security mechanism still being discussed to give government support

Key Risks And Mitigation

Risk Technology Offtake risk Land Mitigation Only established technologies (compliant with IEC Technical Standard for Solar PV systems) and EPC contractors with proven track record supported. High risk due to high cost of the power producer. Strong offtaker and Power Purchase agreement crucial for development of this sector. 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 Aviation clearance from AAI, forest clearance from MoEF & approval for power evacuation from TransCo Incorporated as Conditions precedent

Approvals & Clearances

Cost & Time Overrun

Performance Shortfall Irradiance Risk Seasonal Variation

Comprehensive provisions for liquidated damages may be stipulated as part of EPC contract Promoters undertaking to bear additional costs stipulated.
Stringent clauses for defect liability. Temperature coefficient stipulated Performance Ratio Guarantee to be provided by EPC contractor Combination of various source of data including MNRE, NASA, Meteonorm at conservative levels to be used. Repayments structured as per the projected variation

Evolution of the Indian Power Sector Industry Structure and Present Scenario Generation - Thermal Power Projects Generation - Hydro Power Projects Generation Renewable Energy Projects Transmission Distribution Conclusion

Overview Indian Transmission Infrastructure

Transmission Network in India

Overview Indian Transmission Infrastructure

Transmission Lines (ct. km)
250,000
200,000 150,000 125,347 100,000 131,828

The complex transmission system comprises 236,500 ct. km lines and 305,600 MVA and 14,000 MW of substation capacity at 220 kV & above voltages as of March 2010.
148,667

136,866

142,503

400 KV 77000 ckm and 765 KV 700 ckm

73,138 80,243 87,800

50,000
-

59,314
2005-06

66,579 2006-07

2007-08

2008-09

2009-10*

Intra-state

Interstate

Transmission network and transformation capacity grew at 6.4% and 7.5% respectively during the first 3 years of XI plan. [X Plan growth figures were 6% and 8%]
Interregional transfer capacity increased to 20,750 MW from 14,100 MW at end of X Plan. The XI Plan investment is proposed at Rs 1,400 billion - Rs 550 billion by Powergrid, Rs 650 billion by STUs and Rs 200 billion by private sector.

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

Transformation Capacity ('000 MVA)

400 300 200 191 205 228 241

216

100 39 2005-06

45
2006-07

53

60

65

2007-08 2008-09 2009-10* Intra-state Interstate

During the first three years of the Plan, Powergrid invested Rs 252 billion (planned another Rs 130 billion in 2010-11). STUs invested Rs 185.84 billion during the first two years.

*interstate capacity includes 1,440 MVA of private capacity

XI & XII Five Year Plan Targets

Voltage Level (kV) 765 kV HVDC & +/- 500 kV 400 kV 230/220 kV XI Plan Target 5,666 5,400 49,278 35,371 As on Mar 2011 2457 3052 30611 20009 Achievement XII Plan Target (%) 43.4 25000-30000 56.5 4000-6000 62.1 50000 56.6 40000

Total
Source: CEA

91875

56129

61.1 119000-126000

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

Centre
POWERGRID
Monopoly

State
SEB/Transco
Integrated or Unbundled

Joint Ventures
With PGCIL or STUs

Private Players
Projects Identified by Empowered committee /STU

Cost Plus Tariff

Tariff based Competitive Bidding

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.

Private Sector Participation

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
Year SPV Agency PFC kV 400 Km Developer

2009 East North Interconnection Co Ltd

450 Sterlite Technologies

2010 North Karanpura Transmission Co Ltd

2010 Talcher-II Transmission Co Ltd 2011 Raichur Sholapur Transmission Co Ltd

REC
REC REC

400
400 765

1,045 Reliance Power Transmission

592 Reliance Power Transmission 210 Patel+Simplex+BS Transcomm*

2011 Bhopal Dhule Transmission Co Ltd

2011 Jabalpur Transmission Co Ltd

PFC
PFC

765
765

1,000 Sterlite Technologies

635 Sterlite Technologies

Private Sector Participation Contd

Joint Venture with PGCIL
Joint Venture Private Partner Evacuation from Project Parbati-II Koldam Sugen-II Karcham-Wangtoo Teesta III MW 800 800 1148 1000 1200 Location Himachal Himachal Gujarat Himachal Sikkim

Parbati Koldam Trans. Corpn. Ltd Torrent Power Grid Ltd Jaypee Power Grid Ltd Teestavalley Power Transmission Ltd

Reliance (ADA) Group Torrent Power Jaypee Group Teesta Urja Ltd (Athena)

North East Transmission Co Ltd

Powerlinks Transmission Ltd

ONGC + IL&FS
Tata Power

Tripura
Tala HEP

727
1020

Tripura
Bhutan

Intra-State Transmission Projects

Project Jaigad Power Transco Ltd Maharashtra Eastern Grid Transmission Co Ltd Jhajjar KT Transco Maru Transmission Service Co Ltd Aravali Transmission Service Co Ltd UPPTCL Package -1 (Mainpuri-Bara) UPPTCL Package-2 (Mainpuri-Hapur / Mainpuri-Noida) Ownership JSW Energy Adani KPTL+Techno GMR Energy GMR Energy Isolux Corsan Cobra + Megha Mode JV JV DBFOT BOOM BOOM BOOT BOOT State MAH MAH HAR RAJ RAJ UP UP kV 400 765 400 400 400 765 765

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. 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. 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

Generation capacities failing to achieve deadlines

Forest Clearances

Time consuming process & lack of adequate clarity

Poor creditworthiness of DISCOMs poses significant payment security risks

Financing Options
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

Rupee Loan ECB ECA

Suitable on account of longer tenors Interest cost is not competitive vis--vis other sources Tenor may be a constraint May attempt with refinancing undertaking from promoter Dependent on selection of EPC / Supplier Higher upfront costs and time consuming ADB / IFC funding available to transmission projects Pre-sanction ESDD may be a constraint

Multilateral

Key Risks & Mitigation

Risk Construction Mitigation Challenge in terms of design, geography and terrain (River Crossings, Railway line crossings, Forest Areas etc.) Experienced contractor critical for successful implementation High risk due to high cost of the power producer. Power Purchase agreement with adequate Payment Security Mechanism Obtaining Right-of-Way in a phased manner Assistance of Government for PPP projects in resolution of crop compensation issues. 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 Comprehensive provisions for liquidated damages may be stipulated as part of EPC contract Promoters undertaking to bear additional costs stipulated. Stringent clauses for defect liability. Performance Guarantee to be provided by EPC contractor

Offtake Risk Right of Way

Approvals & Clearances

Cost & Time Overrun Performance Shortfall

Opportunities

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)

Evolution of the Indian Power Sector Industry Structure and Present Scenario Generation - Thermal Power Projects Generation - Hydro Power Projects Generation Renewable Energy Projects Transmission Distribution Conclusion

Distribution
Salient Features

Distribution System could not keep pace with Generation and Transmission Systems 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

Distribution Performance
Aggregate Technical & Commercial (AT&C) Losses (%) in Major States 2007-08 Maharashtra Uttar Pradesh Andhra Pradesh Gujarat Punjab Rajasthan Karnataka Madhya Pradesh 31.37 43.09 16.19 22.81 19.10 33.02 32.13 45.85 2008-09 31.64 40.12 12.99 22.04 18.51 29.83 24.94 46.61 2009-10 28.23 39.65 16.43 22.81 17.73 30.07 25.34 41.03

Aggregate Technical & Commercial (AT&C) Losses (%) - Regionwise 2007-08 Eastern North Eastern Northern Southern Western Grand Total 37.19 36.67 32.59 20.10 31.95 29.24 2008-09 36.62 40.70 31.12 16.92 31.64 27.74 2009-10 33.92 36.44 30.83 19.49 28.23 27.15

Distribution Performance

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 the Power Sector

Way Forward

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

Evolution of the Indian Power Sector Industry Structure and Present Scenario Generation - Thermal Power Projects Generation - Hydro Power Projects Generation Renewable Energy Projects Transmission Distribution Conclusion

Conclusion

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 being undertaken and would participate. At last but not the least, for economic growth in the country, power sector growth should be robust and consistent.

Thank You

Abbreviations
AT&C BOOT CDM CEA CERC ckm CTU CWET DISCOM DPR DVC ECA EOI GBI GENCO GOI GSPC KG kWh MnMT MNRE Aggregate Technical & Commercial Build Own Operate Transfer Clean Development Mechanism Central Electricity Authority Central Electricity Regulation Commission circuit kilometres Central Transmission Unit Centre for Wind Energy Technology Distribition Company Detailed Project Report Damodar Valley Corporation Export Credit Agencies Expression of Interest Generation Based Incentive Generation Company Government of India Gujarat State Petroleum Corporation Krishna-Godavari kilo Watt-hour Million Metric Tonnes Ministry of New & Renewable Energy MoEF MoP MW NBFC NE NEC NHPC NPCIL NPV PFC PGCIL R&R REC RIL SEB SERC STU TRANSCO UMPP Ministry of Environment and Forests Ministry of Power Mega Watt Non Banking Financial Companies North east North Eastern Coalfields
Formerly known as National Hydroelectric Power Corporation

Nuclear Power Corporation of India Limited Net Present Value Power Finance Corporation Power Grid Corporation of India Limited Resettlement and rehabilitation Rural Electrification Corporation Limited Reliance Industries Limited State Electricity Board State Electricity Regulatory Commission State Transmission Unit Transmission Company Ultra Mega Power Plant