are renewables back in vogue?
TRANSCRIPT
Are Renewables back in vogue?
Aurum-DealCurry CXO Dialogues__________________________________________________________
Webinar on the 7th of May 2015: 3pm – 4pm
Aurum Equity Partners LLP
An investment banking firm, with a depth of diverse-sector experience.
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Sanjay has over 20 years of experience ,with a deep and on the ground understanding and exposure of handling more than a 100 mid and large sized transactions, across a range of sectors.Work Experience:• Ambit Corporate Finance , Co Founder and Managing Director• Arthur Andersen Global Corporate Finance• KPMG Corporate Finance• AF Ferguson and Co.Qualifications and Memberships• Chartered Accountant (The Institute of Chartered Accountants of India)• Advance Management Program (Kellogg Business School)• Bachelor of Commerce (Honors) - Shri Ram College of Commerce at University of Delhi• Member of RICS (A global real estate body) • Investor member - Indian Angel Network
Sanjay Bansal Founder and Managing Partner - Aurum Equity Partners
Speaker Profiles
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Sanjay has over 25 years of experience in the energy & electricity sectors of India & Nepal, spread over multiple engagements for project development, investments & public private participation, consulting, reforms & restructuring, power market development and other associated segments.Work Experience:• Partner, Aurum Equity Partners• Head Power, Cairn India • Sr. Vice President, IL&FS• Head (BD), Crisil Infrastructure AdvisoryQualifications and Memberships• MBA, Indian Institute of Technology, New Delhi• PG Diploma, Indian Institute of Foreign Trade, New Delhi• B.Tech., Indian School of Mines, Dhanbad• Member, All India Management Association
Sanjay Kumar Co-founder and CEO – Karaat Infra
Speaker Profiles
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Disclaimer
Source: CEA
Indian Power Market
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State37%
Private36%
Central27%
Coal 60%
Gas 9%
Diesel0%
Nuclear2%
Hydro16%
Renewables12%
Installed Capacity by Ownership (Jan 15) Installed Capacity by Fuel (Jan 15)
FY11 FY12 FY13 FY14 FY15E -
200
400
600
800
1,000
1,200
855 877 912 967 1,048
India: Electricity Generation (TWh) India is the 3rd largest producer of electricity in the world behind only US and China.
The country has been augmenting its generation capacity at a CAGR of 10% (FY10 to FY15)
India’s per capita power sector consumption, around 940 kilo watt-hour (KWh), is among the lowest in the world. (China 4,000 kWh, developed countries average ~15,000 kWh)
Since 2003, the Government of India (GoI) has allowed the private industry to generate power
Indian Power Sector by Volume (TWh)
Total: 259 GW Total: 259 GW
Source: Ministry of Coal, CEA, US EIA, Hindustan Times, The Hindu, Business Standard, IDFC
The need for renewables in India
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Prevailing Demand Supply Gap Rising coal imports
Need to curb emissions Falling Thermal PLFs
FY10 FY11 FY12 FY13 FY14 FY15E -
50
100
150
200
250
73 69 103
143 169
200
CAGR: 22%
India’s coal import bill stood at INR 888 billion in FY1425% of India’s population does not have access to electricity
FY10 FY11 FY12 FY13 FY1455%
60%
65%
70%
75%
80%
78%75% 73%
70%66%
India’s CO2 emissions from the Consumption of Energy
2008 2009 2010 2011 2012 500 700 900
1,100 1,300 1,500 1,700 1,900
1,449
1,643 1,715 1,753 1,831
Million Metric Tons
India is the world’s 3rd largest CO2 emitter PLF for gas based power plants was only 25% for FY14
FY10 FY11 FY12 FY13 FY14 Jul-140%2%4%6%8%
10%12%14% 13%
10% 11%9%
6%4%
Peak Deficit (%)
Source: GWEC, Pure Energies, REN 21
Renewable Power – Global Perspective
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In 2014, a record number of wind and solar power capacity was installed (95GW)
Global Renewable Power Capacity (GW, Dec 2013)
Solar PV Solar CSP Wind Bio-Power Geothermal0
50100150200250300350
139
3
318
88
12
Total: 560 GW*
*Does not include heating applications
Leading Countries – Installed Capacity (2014)
Rank Wind (GW) Solar PV (GW)
1 China (114) Germany (35)
2 US (66) China (18)
3 Germany (39) Italy (18)
4 Spain (23) Japan (14)
5 India (22) US (12)
Global Electricity Production (2013)
78%
16%
3% 2% 1% 0%Fossil FuelsHydro PowerWindBio-powerSolar PVOthers
Unsubsidized Levelized Cost of Energy (LCOE, $/MWh)
Solar
PV Rooftop
Solar
PV Utility Sc
aleW
ind
Diesel
Genera
tor
Nuclear
Coal
Gas Combined
Cycle
0
100
200
300
400
US market estimates (Lazard, 2014)
Source: UNEP
Global Renewable Energy Investment
9
Solar
Wind
Biomass
Biofuels
Small Hydro
Geothermal
- 20 40 60 80 100 120 140 160
150
99
8
5
5
3
Global New Investment by Sub-segment 2014
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -
50
100
150
200
250
300
45 73
112
154 182 178
237
279 256
232
270
Global Investments in Renewables
USD bn USD bn
2010 2011 2012 2013 2014 -
50
100
150
200 162
190
149 135 139
75 89 107 97
131
Developed Developing
Developed vs Developing Countries 2014
USD bnChina: USD 83 bnBrazil: USD 7 bnIndia: USD 7-8 bn
2014 saw a rebound in investments in renewables Solar and Wind energy captured the bulk of new investment
Developing countries, led by China, have upped investments
PE/VC investment by Sub-segment 2014
Solar58%
Biofuels22%
Wind11%
Biomass7%
Others1% Total: USD 2.8 bn
VC/ PE investments in renewables grew by 27% compared to 2013
Source: Tata Power, NISE, Edelweiss, MNRE, National Institute of Solar Energy in India
India’s renewable energy potential
10
Average Solar Irradiation (KWh per sq.m.) Wind Energy Potential (GW)
Gujarat Andhra Pradesh
Tamil Nadu Karnataka Others -
5
10
15
20
25
30
35
40
35
14 14 14
25
India’s solar power potential is estimated to be over 1,000 GW depending on availability of waste land resources
1,000 GW of solar power capacity can be installed in India on 16,000 sq.km.
This would require 0.5% of India’s total landmass (3.5% of total available wasteland)
1,000 GW of solar power could generate ca. 1,500 TWh, 1.5 times India’s current annual power demand
India’s wind power potential is estimated to be over 100 GW at 80 m hub height (MNRE)
Wind potential has been estimated by MNRE at sites having wind power density greater than 200 W/sq. m at 80 m hub-height with 2% land availability @ 9 MW/sq. km.
U.S.-based Lawrence Berkeley National Laboratory in a 2012 study, estimated India’s wind power potential to be much higher (over 2,000 GW)
India Spain USA Australia Italy Japan China Germany -
1.0
2.0
3.0
4.0
5.0
6.0
5.1 4.8 4.7
4.2 3.8 3.6 3.6
2.9
All India: 103 GW (at 80 m hub height)
Source: CEA, Bloomberg, Credit Suisse, Edelweiss
India – Renewables Overview
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2010 2011 2012 2013 2014 2015E -
2.0
4.0
6.0
8.0
10.0
12.0
14.0
9.3
13.1
7.8 7.0
7.9
10.0
Clean Energy Investment in India (USD bn)India Renewables Capacity (Non Hydro)
Wind; 21136.4;
76%
Biomass Power; 4013.55; 14%
Waste to Energy; 106.58; 0% Solar; 2631.93; 9%
Total: 27,888 MW (Jan 2015)
Wind and Solar Capacity Addition
FY12 FY13 FY14 11MFY15 -
500 1,000 1,500 2,000 2,500 3,000 3,500 3,197
1,700 2,079
1,513
906 742 963
736
Wind (MW) Solar (MW)
Wind/solar capacity additions averaged 3GW p.a. since FY12
Cost of Electricity by Fuel Type
Fuel Source Capex (INR mn/ MW)
Cost of Generation (INR/ KWh)
Solar PV 69 9.4Solar Thermal 120 14.7Wind 60 6.2Biomass 60 -80 4.5Small Hydro 55-60 7.8Coal 60-65 3.9Gas 45-50 3.5
Renewable investments to witness a strong rebound in 2015India’s renewable mix is heavily biased towards wind power
New Technology is helping reduce Capex/MW for renewables
Source: NITI Aayog, Edelweiss
Key Support Mechanisms
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AD refers to a tax-based incentive mechanism in which RE projects can take larger than normal depreciation benefits on their tax returns in the initial years of investment
Accelerated Depreciation (AD)
GBI provides wind electricity producers an incentive of Rs 0.5 per kWh fed into the grid for a period of not less than four years and a maximum period of ten years with a cap of Rs 100 Lakhs per MW
Generation Based Incentives (GBI)
Under the VGF mechanism, the tariff to be paid to the solar PV developer is fixed at Rs 5.45 per kWh. The developer will be provided a VGF based on its bid. The upper limit for VGF is 30 percent of the project cost or Rs 2.5 crores/MW, whichever is lower.
Viability Gap Funding (VGF)
An RPO is a requirement for an electricity purchaser (e.g., a Discom or an open access [OA] consumer) to procure a certain percentage of electricity from renewable sources.. Currently, RPO levels are set by each State Electricity Regulatory Commission (SERC) independently
Renewable Purchase Obligation (RPO)
REC is a tradable certificate of proof that 1MWh of electricity has been injected into the grid The REC program aims to provide market based incentives for RE developers and distribute the
marginal cost of RE deployment nationwide.
Renewable Energy Certificates (REC)
Feed-in tariffs (FITs) are preferential tariffs for procuring RE by Discoms that are established by a SERC through its usual regulatory process.
Feed-in Tariffs (FIT)
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Recent Policy Action
Revised Targets: The government has announced new targets for installed renewable energy capacity of 175 GW by 2022. 100 GW of this would come from solar power, 60 GW from wind energy, 10 GW from small hydro power, and 5 GW from biomass-based power projects.
Green Corridors: The Government is also working on setting up ‘green corridors’, which will ensure evacuation of power from key centers of generation.
Budget 2015: USD 400 million allotted for renewable energy expansion The government has doubled the tax on every metric ton of coal imported or produced in the
country. The revenue collected from this tax goes to the National Clean Energy Fund (NCEF) Amendments proposed to Electricity Act including open access reforms and enhancement of
Renewable Purchase Obligations
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Investment Announcements
NTPC has agreed to set up 10,000 MW of renewable energy in the next five years.
Reliance Power has also announced plans to set up a 6,000 MW solar park in Rajasthan over the next 10 years.
Hinduja Group announced plans to generate 1,000 MW of power through solar projects
SunEdison and Adani Group announced plans to invest up to USD 4 billion in an Indian solar power factory joint venture
Japanese Softbank is evaluating plans to develop as much as 10 GW of solar in India
State Bank of India (SBI) has committed to lend INR 75,000 crore towards 15,000 MW of projects
ReNew Power Ventures plans to set up 11,500MW of renewable energy in the next five years
Suzlon and Gamesa have committed to manufacture equipment to help generate 11,000 mw and 7,500 mw of power respectively
At a renewable energy event, 'RE-Invest 2015‘ (February 2015), the government claimed it has received 266,000 MW worth of green energy commitments from banks and other private firms
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Financing Renewable Energy
Source: MNRE, USAID
EquityDebt
Domestic Debt
Government Banks Private Banks Government supported NBFCs Private NBFCs
Foreign Debt
External Commercial Borrowing International Development Banks EXIM Banks
Other Debt
Supplier Credit Bridge Finance Takeout Finance Infrastructure Debt Funds Lease Financing
Promoter’s Equity
Corporate Entities Independent Power
Producers
Private Equity
Global/ Indian PE Funds Venture Capital Funds Infrastructure Funds
Multilateral Agencies
International Finance Corporation
Asian Development Bank
Other Equity Investors
Sovereign Wealth Funds Pension Funds
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Policy and Infrastructure Challenges
Pricing of FITs: If the FiT is too high, it leads to unwarranted profits for developers, while if set too low, the FiT can lead to very low financial returns leading to low investments in the sector.
RPO Mechanism Constraints: Poor enforcement of RPO obligations, uneven cash-flows for generators, irrational floor prices for solar RECs, lack of price certainty post 2017.
Accelerated Depreciation Constraints: AD can only be utilized by profit-making entities with appreciable tax liabilities and cannot be transferred, it effectively excludes most IPPs and investors who plan on using a SPV route for project development
Inadequate Infrastructure: Inadequate transmission infrastructure and associated inefficiencies and losses
Key Challenges for Renewables in India
Market Based Challenges
Off-take uncertainty: The creditworthiness of the off-takers (e.g. state distribution companies) has led to uncertainty regarding cash flows and pushed away investors.
Limited financing options: Banks and financial institutions are more cautious lending to RE projects. Participation of equity investors has been muted.
Lack of exit options for investors: Private equity investments in the Indian RE space are more than five years old as investors have not been able to find exits.
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Uncertain cash flow for RE developers
Slowdown in investment into
RE projects
Renewables do not replace
coal
Rising, volatile Coal costs
High burden of energy subsidy (e.g. agriculture)
Poor financial health of DISCOMs
Failure to honor RPOs
Vicious Circle for Renewables in India
Finance Cost burden on RE Projects
US LCOE
India Lo
wer Cap
ex Costs
India Lo
wer Ouput E
fficiency
India -H
igher
Finan
ce Costs
India LC
OE0%
20%40%60%80%
100%120%140%
100%
75% 75%
98%
126%
-25% +23%
+28%
US LCOE
India Lo
wer Cap
ex Costs
India Lo
wer Ouput E
fficiency
India -H
igher
Finan
ce Costs
India LC
OE0%
20%40%60%80%
100%120%
100%
71% 66% 66%
88%-29%
-5%+22%
Solar PV
Onshore Wind
Source: Edelweiss, CPI ISB Report
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Recent M&A Activity
Date Sub Sector Acquirer Target Value (USD mn)
Apr 15 Solar Power Generation
Surana Telecom and Power
Arhyama Energy NA
Feb 15 Wind Power Dilip Sanghvi (Sun Pharma)
Suzlon Energy 293
Feb 15 Renewable Energy
Semborp Utilities Green Infra 171
Sep 14Wind Power Generation
Ghatge Patil GroupBharati Shipyard - wind power business
9
Jun 14Solar Power Generation
Concept Solutions & Innovation (Cyprus)
CaptureSolar Energy 125
Jun 14Solar Power Generation
ADBWelspun Renewables Energy
52
Apr 14Wind Power Generation
Suzlon EnergyEdison Mission - Big Sky Farm
NA
Apr 14Solar Power Generation
GE EnergyWelspun Solar Madhya Pradesh
24
Source: Databoard
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Recent PE/VC Activity (1/2)
Date Sub Sector Investor Target Value (USD mn)
Feb 15Solar Power Generation
Blackstone, Gujarat Venture Finance Ltd
Rays Power Experts Private Limited 65
Feb 15 Solar – Offgrid Fidelity Growth Greenlight Planet 10
Dec 14Biomass/ Waste Generation
Intellecap Impact Investment Network (I3N) and existing investors
Banyan Green Fuels Private Limited
0.2
Nov 14 Cleantech Villgro InnovationsSustainearth Energy Solutions Private Limited
NA
Oct 14Renewable Power Generation
EIG Global Energy Partners
Greenko Energies Private Limited
125
Oct 14Solar Power Generation
Core Infrastructure India Fund Pte Ltd. (CIIF),GEEREF
SolarArise India Projects Pvt. Ltd
33
Aug 14Solar Power Generation
Opes Impact FundRainta CapitalSumantra Roy
Boond Engineering and Development Private Limited
NA
Source: Databoard
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Recent PE/VC Activity (2/2)
Source: Databoard
Date Sub Sector Investor Target Value (USD mn)
Jul 14Wind Power Generation
GE Energy Financial Services
Atria Power Corporation Limited
15
Jul 14Solar Power Generation
Chennai AngelsFourth Partner Energy Private Limited
NA
Jul 14Wind Power Generation
Goldman Sachs, ADB and South Asia Clean Energy Fund
ReNew Power Ventures Private Limited
140
Jun 14Solar irrigation solutions
Intellecap Impact Investment Network (I3N)
A K Surya Power Magic Private Limited
0.5
Apr 14Renewable Power Generation
Lightbox Ventures Kotak Urja Private Limited NA
Feb 14Solar lighting and power products
DFJ, Omidyar Network, Nexus India Capital, Gray Ghost Ventures, Acumen Fund and Garage Technology Ventures
D.light Energy Private Limited
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Renewables Outlook
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Vast RE potential
Ever increasing energy demand
Increasing affordability of RE
Visible recent policy initiatives
Aggressive RE targets set for 2022
Increased foreign investor interest in Indian RE
Policy implementation uncertainty
Inadequate transmission and evacuation infrastructure
High debt finance cost
Limited participation from equity investors due to exit challenges
Opportunity for small investments through off-grid projects
Poor financial health of DISCOMs
The drivers for renewable energy in India outnumber the hurdles. If challenges related to policy implementation and financing can be resolved, the next decade could see unprecedented
investment activity in Indian renewable energy sector
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