L&T Infra
Lender’s Perspective – Financing of Renewable Energy G. Krishnamurthy, General Manager L&T Infrastructure Finance Company Ltd. August 2012 Infra Project Finance
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Renewable Energy in India 60,000 50,000
Potential and Installed Capacities - Renewable Sources
50,000
45,000
MW
40,000 30,000
30,000
17,875
20,000
15,000
10,000
3,421 Small Hydro Potential
Solar
Biomass & Waste
Installed Capacity
Source: As on 31st July 2012, MNRE
E&Y Renewable Energy Country Attractiveness Index Rank
Country
All Renewable
Wind Index
Solar Index
1
China
70.4
77
66
2
USA
67.5
65
73
3
Germany
65.1
68
69
4
India
65.0
65
69
5
Italy
58
58
61
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12th plan target for capacity addition translating to large financing requirements
1,286
1,040
0 Wind
Total renewable installed capacity in India is 25.7 GW which is about 12% of total power installed capacity
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Source: E&Y Renewable Energy Country Attractiveness Survey, May 2012
Wind:15 GW;
Solar: 10 GW;
Small hydro: 2.1 GW
Bio-power: 2.7 GW
India ranked among top 5 - most attractive countries worldwide based on regulatory environment, feasibility for renewable energy generation and other incentives for development (Renewable Score 65/100)
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Key Elements – Renewable Energy projects Project Specific
Regulatory
Financing
• Site specific Resource Assessment • Seasonality of output • Short gestation period • Improvement in risk profile post COD • High capital costs and Low Variable cost • Technological evolution • Evacuation and grid availability • Shift to IPP based models
• Continued policy impetus with subsidies / RPOs / RECs / Preferential Tariffs • Continuity of CERs
• Banks reaching power exposure limits • Need for access to wider range of sources of funds (Domestic: Retail, Pension funds, External – ECBs) • Availability of long term finance (10-20 years) • Well structured project finance • Financial health of SEBs • Availability of global equity funding through PE led groups
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• PPA related issues • Bankability • Clauses such as Stepin rights/ termination/ Exit • Ways of Project allocation (MoUs, Bidding, etc.)
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Renewable Energy sectors
Wind
Solar
Renewable Energy Sectors Small Hydro
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Investment rationale - Solar Power
Indian Conditions are ideally suited –
Sunlight is available
in abundance for 250 to 300 days a year
through most of the year – close to 10 months
Adequate Government Support
across the country unlike other renewable sources which have geographical limitations
Central as well as State Governments have launched progressive policy for the development of Solar in India – JNNSM/ State level policies (Gujarat & Rajasthan), RECs
Decentralized / off-grid applications – addressing rural electrification issues Modularity and scalability
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Funding Solar Projects - Challenges Technology Technologies are at a nascent stage
Newer technologies like thin-film may provide lower upfront costs, but are yet to be proven for long periods
Radiation Data High quality historical solar radiation data not available for most of the project sites Requires several months for ground measurement
Capabilities of PV manufacturers
On-ground solar radiation data from IMD is inaccurate
Guarantees & warranties from technology providers
PPA issues
Terms of performance coverage, duration of warranty & quality of the provider Longer tenure O&M contracts including overhaul cost
Contractors
Funding Challenges
Evacuation from power plants located in isolated areas Payment schedules of State Discoms
Off-taker
Involvement of Lenders from an early stage would generate more confidence in the project Infra Project Finance
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Investment rationale - Wind Power
Fastest growing renewable energy sector in India
5th largest wind power nation accounts for 70% of the total installed renewable generation capacity
Tariffs for wind generation have increased over the last few years Decreasing cost curve (KWh level) due to economies of scale & technology improvements Relatively short and easy implementation Policy Support for the sector (Preferential tariffs/ RECs / CERs)
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Funding Wind Power - Challenges Area Resource Assessment
Project Execution – land issues Power Evacuation
Challenges
Poor data to support long tenure debt funding
Conversion of land for non agriculture purposes
Off taker/ Revenue risk
Financing Supplier led project configuration Infra Project Finance
Grid Interconnections especially in remote areas Grid stability & availability Growth in transmission capacity slower than growth in wind capacity PPA terms (Long term contracts with penalty clauses, Step-in rights, Effective termination clauses etc.) Off taker strength Consistency in tariff framework by ERC Funding does not support (i) Seasonality (ii) APPRC + REC models Industry led by OEM integrated models Structured Products
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Investment rationale – Small Hydro
India is one of the largest producers of hydropower
Accounts for 14% of total renewable energy generation capacity
One of the oldest modes of power generation
With mature technology
Highest energy density
Hydro power projects attractive on various counts
Proven Technology
Equipments have longer lifetime
High energy conversion efficiency
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Funding Small Hydro Power Projects - Challenges Areas
Challenges
Project related
Regulatory
Funding
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Need for good quality DPRs, adequate escalation & contingency provisions in project cost Completion Risk due to geological surprises, complex terrain is a major issue in specific geographies Low Regulatory Tariff compared to other renewable sources Open access required to incentivise developers Large upfront investment required for hydro projects Need for longer tenor funding of 15-18 years
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Investment rationale – Biomass
In India biomass & waste accounts for the 14% of total renewable energy production Climatic conditions offer an ideal environment for biomass production. Over 90 percent of potential capacity lies untapped
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Funding Biomass Power Projects - Challenges Areas
Challenges
Project related
Regulatory
Control over availability & pricing of biomass is a major issue Dealing with small sized & unorganized suppliers without enforceable contracts Appreciation of ‘local’ factors critical for success Briquetting plants to be integral part of project due to seasonal nature of biomass Pragmatic and stable policies of state nodal agencies key to long term sustainability
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Debarring another biomass plant within a radius of 50 km to avoid shortage of biomass
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LT Infra’s presence in renewable sector LT
Infra has strong focus in financing of renewable power projects ~20% of portfolio in renewable sector Largest
financier of Solar projects on non-recourse basis Extensive experience in financing mini-hydro and wind projects across diverse geographies Financed around 700 MW of projects across renewable sector Financed 140 MW of small hydro projects in Karnataka Offers
“Tailor-made solutions” through financial innovation in the sector Repayments stitched to match cash flows Top up & securitization transactions post completion
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THANK YOU
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