Perspective on Financing Wind Energy Projects. June 16, 2016

Transcription

1 Perspective on Financing Wind Energy Projects June 16, 2016

2 Agenda 2 1 Risk Matrix 3 Context Setting Way Forward KEY SEGMENTS IN THIS PRESENTATION

3 3

4 Indian Energy Sector Landscape Bank Lending Sector wise (Nov 2015) Other 74.5% Steel & Mining, 5.8% Infrastructure 15.0% Textiles 3.4% Power Projects - Capacity Mix (Mar 2016) Thermal GW Nuclear 5.78 GW Hydro GW Renewable GW 58% Energy 21% Transport 10% Telecom 11% Other GW Wind 6.76 GW Solar 4.27 GW SHP 4.83 GW Biomass Lending to Infrastructure accounts for the single largest sectoral exposure for Banks with the energy sector on stand alone basis contributing to ~60% Installed capacity of Renewable Energy Projects ~14% of total installed capacity in Power sector Share of capacity addition under Renewable Energy is ~28% of total power projects capacity addition in FY16 India added 6,937 MW of grid-connected wind and solar energy during FY This is one and a half times more than the target of 4,460 MW set at the start of the financial year by MNRE

5 Global Wind Energy Sector Evolution Global - Installed Wind Capacity (GW) GW 14 GW 23GW 26 GW 45 GW 74 GW 145 GW Canada UK Spain India Germany US China Wind as % of Total Energy Generation (2014) Declining Cost of Energy % 7% 34% 17% 6% 2% 3% 2% T E C H N O L O G Y 1 V100(1800W) G97(2000W) GE116(2300W) S97(2100W) E 53 (800W) G58 (850W) WWD 60 (1000W) S52 (650W) TIME 2 3 Rotor Dia Hub Height V82(1650W) GE 82.5(1500W) V77(1500W) S82 (1500W)

6 Indian Wind Energy Sector Evolution Path WIND CAPACITY GROWTH - INDIA ,155 MW 17,352 MW L&T INFRA FINANCE POWER PROJECTS MIX ,051 MW 12% 26% 62% ,177 MW 15% 26% 59% ,444 MW 36% 24% 40% ,743 MW 49% 32% 19% Wind Other Renewable Thermal Tax incentive focussed developers. Primarily balance sheet funding. Serious IPP players. Non-recourse project financing Accelerated Depreciation Benefits Introduction of Generation Based Incentive Introduction of REC Mechanism Accelerated Depreciation and GBI withdrawn GBI benefit reintroduced AD reduced to 40% after reintroducing in 2014

7 Deal Origination Filter Technical Framework Filter Financial Framework Filter Sanction

8 Risk Perception Wind Energy Project Sponsor Risk Implementation Risk Technology Risk Operation Risk Market Risk Financing risk Foreign Exchange Risk High Risk Medium Risk Low Risk

9 Risk Matrix Promoter Risk Assessment Sponsor Risk Relatively less dependent on promoter strength considering the nature of non-recourse funding and sustainability of project on its cash flows Construction Phase Dealing with promoters with prior experience in similar sector Short construction period 100% Equity upfront unless backed by strong promoter Fixed price EPC Cost overrun if any is primarily due to Interest during construction (IDC). However low gestation period, financing structure, contract LDs create buffer for IDC Operation Phase Long term comprehensive O&M contract with OEM/EPC Nature of O&M amenable to management using contractual/ professional assistance Proper project appraisal is critical for right selection of projects 9

10 Risk Matrix Implementation Risk Assessment Low degree of intricacy & modularity of implementation supports a reasonably high probability of on-time/on-budget completion. Construction Risk Simple Construction Turnkey solution offered by OEM players/epc players 100% land acquisition as Pre Disbursement Condition Low-complexity civil work & low dependence on labour Modularity allowing for activities to be carried out in parallel than in sequence allowing flexibility of isolating & fixing errors in one segment of the project before affecting the overall critical path Mitigants inbuilt in Fixed Time Fixed Price EPC contract Events Liquidated Damages Cost Overrun Delays Force Majeure Contingencies Selection of Right OEMs /Module Supplier is essential Insurance 10

11 Risk Matrix - MRT Framework Ability to Differentiate enables Disciplined Origination Market Risk Assessment Evaluating Business Models Mitigating Counterparty Risk Regulatory Risk Assessment Assessment of PPA execution risk Insights into Regulatory/ Policy framework of states or Centre Technical Risk Assessment Selection of Equipment Supplier Critical examination of technical elements of Project site & Grid 11

12 Risk Matrix - Market Risk Assessment Fixed price PPA for 25 years Cash flow certainty Hedge against rising cost of thermal Unit for State Discoms With each passing year PPA reneging risk by Discoms for renewable project reduces Yr 1 Yr 2 Yr 3 Yr 4 Yearly tariff per Unit Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Thermal Tariff overtaking Renewable 4.83 Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr THERMAL RENEWABLE Counter party Risk Provision of sufficient cushion in terms of working capital and DSRA for projects having PPAs with relatively weaker Discoms Periodic monitoring of Discoms operational and financial health and our indirect exposure Stringent Group Captive Financing Framework Petition by GUVNL to revisit solar tariff under solar PPAs on retrospective basis quashed by APTEL No event of reneging of PPAs by State Discom on account of high cost of procurement (under the PPA) COUNTERPARTY RISK DEFAULT RISK... But... COUNTERPARTY RISK = DELAY RISK 12

13 Risk Matrix Evaluating Market Risk in Revenue Models REVENUE MODEL STATE DISCOMS PRIVATE PARTIES FEED IN TARIFF + GBI APPC+ REC+GBI GROUP CAPTIVE THIRD PARTY FIT CERC/ SERC guidelines (3.20 to 5.92 Rs / kwh) GBI Rs / kwh APPC Filed by Discoms (2.70 to 3.90 Rs / kwh) GBI Rs / kwh Benchmarked with higher Tariff commercial & industrial consumers (5 to 7 Rs / kwh) Exempted from Cross subsidy surcharge Benchmarked with higher Tariff commercial & industrial consumers (5 to 7 Rs / kwh) Moderate project IRRs Credit worthiness of DISCOMs Fixed revenue profile till the tenor of Power Purchase Agreement with Discoms Low project IRRs Credit worthiness of DISCOMs Illiquid REC market Min requirements on shareholding and off-take Credit Risk of off-takers Subject to Open access approval Subject to Banking & Wheeling charges Credit Risk of off-takers Subject to Open access approval Subject to Cross subsidy charges in addition to wheeling and banking charges - impact net realization

14 Risk Matrix Group Captive Model Alt. Source of Cheap energy Idle Merchant Capacity Evacuation Constraint Technology Disruption Solar Module Efficiency Solar Capex per MW Insight Timing the Point of Inflection Making the project competitive beyond Point of Inflection Tools/ Strategy Option 1 Option 2 Concessional Open Access charges Continuity of Cross subsidy Continuity of Favourable Regulatory Regime 14

15 Risk Matrix - Regulatory Risk Assessment Regulatory Risk Measurement Clearances to Project Good/Established track-record for grant of clearances Single window mechanism for granting clearance evolving in several states PPA Tie up PPA signing (Upfront/post COD) for Wind projects is as per state specific policy PPA Execution Risk Assessing RPO Compliance Status Assessing Energy Deficit/Surplus Status Political Will / Track record of OUR APPROACH meeting / exceeding RPO target Financial health of Discoms /Ability for RPO Compliance Current pooled power purchase cost & economic rationale of procuring high cost RE Upcoming fossil fuel based power capacities & likely tariff 15

16 MP & Rajasthan - In a difficult spot Difference between Wind FIT and APPC Agriculture & Domestic Customers (%) 3.50 Low APPC Raj 62% % -7% -6% -5% -4% -3% -2% -1% 0% TN, 0.13 Kar -6.70% Mah -1.80% Guj, 0.86 Kar, 1.44 AP, 1.43 Power Surplus/ Deficit (%) Guj & TN -0.30% Raj, 2.34 Mah, 2.01 MP, Raj, AP 0% MP, 3.13 MP Kar TN AP Mah Guj TN Kar Raj Guj Mah AP MP 18% 40% 43% 31% 30% 34% 51% 54% 57% 48% 59% 30% 40% 50% 60% 70% RE as a % of Peak Demand 51% 63% 15% 25% 35% 45% 55% 65%

17 Risk Matrix Insurance as Mitigant ALOP : Does not cover normal delay only insurable perils Stand alone MBD program where maintenance/operation are warranted by third party not allowed Computation of Annual Gross profit /Timelines for loss computation Customer Premise Extension for MLOP and FLOP Availability & Applicability 17

18 Risk Matrix Operational Risk Assessment Operation Risk Perceived Risks Resource Variability Performance risk- turbines/not functioning properly or technical problem in gear box / inverters Grid curtailment/ Unavailability of electrical lines Mitigants Resource assessment done by Lender s Engineer and conservative debt sizing based on P90 Established track record of stable and predictable operating regime for power plants Comprehensive O&M services (replacement of spare parts) provided by turbine manufacturers in wind sector with guaranteed machine availability (usually 95% - 97%) Black Box Future wake effect O&M reserve for 20 years operational life Economic/Technical Curtailment Selection of Right OEMs is essential 18

19 Way forward : Sustainable Wind Energy Target 60 GW Structural Reforms for Addressing Discom Health & RPO Enforcement Affordable Energy Storage Technologies Scheduling & Forecasting, TOD tariff Design for Grid Management, Green Transmission Corridor Competitive bidding Route

20 THANK YOU