beyond sustainability

In this edition

In conversation with Sunil Jain — CEO, Hero Future Energies 02

RE Sector generating increased interest among DFIs 05

Quarterly review 07

References 16

Beyond sustainabilityIndia cleantech review

Twelfth editionJanuary 2014

Dear readers,

Wish you and your family a very happy new year.

We witnessed another year of relatively subdued activity in 2013 on the Indian renewable energy front. It is highly debatable whether this is due to state of affairs of the Indian renewable sector or simply given the overall Indian economic/political environment. To support the latter view, one can argue that in relation to most parts of the infrastructure sector, renewable energy has been one of the most prominent.

Some of the noteworthy developments are as follows

• Theprogressmadeunderthefiscalrestructuringplan,especiallybyRajasthan,UttarPradeshand Tamil Nadu

• Announcement of the offshore wind policy — a strong statement of intent

• Continued investor interest in the sector evidenced by entry of large Indian business houses such as the HeroandthePiramalGroup;newstrategicforeignplayerssuchasEDFandFortumhavealsocommittedinvestments

• Onthefinancialfront,theannouncementofTataCleantechCapitalofitsINR25billionjointventurewithIFCtosupporttheESCOmodelaugurswellfortheindustry;theinterestexpressedbyCaisseDeDepot,one of the largest global pension funds, is also worth noting.

Key aspects that need immediate attention and await a resolution include:

• EnforcementoftheRenewablePurchaseObligation.TheoutcomeofthepleamadebeforetheAppellateTribunal for Electricity is awaited.

• Policyandtimelinesuncertainty,spanningthroughtheNationalSolarMission,thevariousstatepolicies(signingofPPAsinMaharashtra,TamilNaduandAndhraPradesh,tonameafew)arehurtinginvestorsentiments. The other important policy aspect is the ambiguity in the procurement guidelines.

In this edition of Beyond Sustainability, we are pleased to feature the views of Sunil Jain, CEO Hero Future EnergiesandPresidentofWindIndependentPowerProducersAssociation.Inaddition,wehavealsofeaturedtheviewsofmycolleaguesRajeshSamsonandVikasSharma,partofourTransactionsAdvisoryteamandhavesignificantexperienceinworkingwithDFIs/multilateralontheIndianrenewablespace,animportantaspecttounderstand,specificallyforalldevelopers.

HereiswishingthatimmediatestepsaretakentoaddresstheabovestatedchallengesthatpavewayforIndia to monetize the abundant renewable resources that it has been blessed with.

Sanjay Chakrabarti Partner&CleantechSectorLeader Ernst&YoungPvt.Ltd. [email protected]

2 | Beyond sustainability — quarterly review

In conversation with Sunil Jain, CEO, Hero Future Energies

4. Consolidation, specifically in the wind space is gaining momentum. What are your views and what would be the key parameters that you would consider in evaluating acquisition opportunities

With respect to consolidation the scenario is different in wind and solarsectors.Inthewindsectorwehavetax-basedassets(i.e.,assetswhichhadbeencreatedtotakeadvantageofaccelerateddepreciationbenefit)forwhichthevaluationdemandedseemsunreasonable. Therefore, we have not seen many deals happening, exceptmaybeforDLF,whichagainwasinthemarketforaconsiderable period of time and was able to sell its wind portfolio

1. What were the top drivers for the Hero Group to venture into the renewable space?

HeroGrouphadtwoprimaryreasonstodiversifyintorenewableenergyspace.Firstly,likeotherlargegroups,Herohasyoungfamily members who want to chart their own path and pursue new businessopportunities.Secondly,diversificationintonewbusinesshelps in business growth and establishing the group for the long term. Foraying into renewables helps the group to diversify, since it is more aligned to the services sector as opposed to the current exposuretothemanufacturingsector(throughauto).Apartfromthe natural variability of resource such as wind, it has no downside andisnon-cyclical.

2. How is the Hero Future Energies (HFE) different from other IPPs?

ThereareveryfewrenewableenergyplayersinIndiabackedbyalargebusinessgroup.TatapowerandReliancePowerareconventional utility companies, which have a presence in renewable energybutitisnotadiversificationstrategyforthem.MostoftheotherrenewableenergyplayersarePEbackedandPEinvestorswilllookforanexitatsomepointorother.Wearehereforthelonghaulandarenotlookingforanexit.Wehavepatiencetodevelopourownqualitypipelineoverthelongterm,ascomparedtoPE-backedplayers who have to meet their time bound capacity addition targets. We are aggressively developing our pipeline and will increase our capacity much faster once we have reached a certain scale.BackingbyalargereputedcorporategroupallowsHFEtogetbetterfinancingtermsfrombanks.WeareveryconsciousofthekindofprojectsthatwearedoingandarenotjustlookingatjustIRRnumberwithaneyeonquickexit.

3. What are the short (6-12 months) and medium (12 -36 months) term plans of HFE?

Wearetargeting120MWofinstalledcapacitybyMarch2014andplantodevelop1GWofrenewableenergybytheyear2016–17.The company will operate across various verticals of renewable energy such as wind, solar and hydro, out of which wind and solar areinitialfocusareas.Wehaveapipelineof480MWofrenewableenergyprojects,whichcanbedevelopedoverthenexttwoyears.Weareverybullishonrooftopsolarandexpecttohave3MWofordersbynextmonth.Weareequallyinclinedtowardbothgridconnected and rooftop solar development.

3Beyond sustainability — quarterly review |

5. How is HFE’s development story panning out? One of the key challenges highlighted in the wind sector is the lack of good wind sites. Your thoughts on this subject.

HFEisfocusingonbothturnkeyandgreenfielddevelopment.Thoughreturnsaremoreingreenfielddevelopmentsoaretherisks.Wearelookingatrisk-adjustedreturns.

Lackofgoodwindsitesisachallengefortheindustrybutwithnew technology turbines we can open new vistas of sites. However, the bigger challenge is the land acquisition and many players are struggling with the same. Since the number of players in the segment has increased so has the aggression to acquire sites for pipelines which in turn increases the cost of acquisitions and thus theprojectcost.WehavebeenallottedlandinMadhyaPradeshforoneofourprojectsandhavealreadyputupawindmastthere.However,wearenoteyeingprojectcompletioninthenexttwoyears.Similarly,wehavelandforour50MWprojectinGujarat.Therefore, currently we are not facing any issue with respect to land.

6. How much renewable energy capacity addition do you foresee in FY14?

Wemayseewindcapacityadditionsof1,800MWinFY14,whichisexpectedtogoupto2GWifthereisayear-endpushincapacityadditionsinMaharashtra.Solarcapacityadditionsaregoingtobedisappointingthisyear.ThedelayinPhaseIIofJNNSMisasetbacktothesector.ThedelayisalsolikelytoimpactsolarinstallationsinFY15withthecountrygoingforpollsinthefirsthalfoftheyearandthesigningofthePPA’smaygetpushedtolatterhalfof2014.

7. What are your views on the number of international companies entering the sector?

It is a very positive sign for the industry. It will help the sector to scaleupfasterandlearnfromgoodprojectpractisesprevalentabroad, e.g., energy forecasting and scheduling are quite advanced inEurope.Theflowofmoneywillincreaseandmoreinvestorswillbewillingtobackthecompaniesintherenewablesector.

insmalldeals.TheotherexceptionwherewehaveseenatransactionhappeningiswheretheMNCdeveloperwantstoexitthecountry.ManyoftheseassetsareinTamilNaduwhereevacuationinfrastructureisaconcernandhence,ariskfactorforM&Atransactions.

In case of the solar sector, almost 50% of the assets are for sale. However, for an investor/a developer to acquire these assets,whichhadahighcapitalcostofsayINR130–140millionper megawatt two years ago, would require increased equity investment. However, since the capital costs have come down toINR70–80millionpermegawattnow,adevelopercandomoreprojects/capacitywiththesameamountofequity.Hence,transactionsinvolvingolderassetsareanexceptionandarebeingdonebyplayerswhoaredesperatetoenterthemarket.


besignificantforwhichtheguidelinesinNationalActionPlanonClimateChange(NAPCC)withrespecttoRenewablePurchaseObligations(RPO)shouldbeadheredtobyallthestates.TheGovernmentofIndiashouldalsofocusonstrengtheningoftheRECmarket,whichwouldenablemarketdiscoveryofpriceandwouldobviate the need for competitive bidding.

TheindustryisnotfullycomfortablewiththeVGFmechanism.AstheVGFispaidover5years,investorsareconcernedthatpoliticalenvironment/regulations may change during that time period, whichmayimpactprojectviability.InJawaharlalNehruNationalSolarMission(JNNSM)PhaseItherewasCentralGovernmentguaranteethroughGrossBudgetarySupportofINR4.86billiontoMNREintheeventofdefaultbystateutilities/discoms,whichprovided a level of comfort to developers. Similar guarantee should alsobeprovidedforVGF.

10. What are top policy changes that you would like to see in the Indian renewable space?

TheCentralGovernmenthasformulatedseveralplansforthesector,e.g.,theTwelfthfiveyearplan;however,theseplansaregenerally not in sync with the state plans. It is essential that different state governments are involved in the planning process withtheCenter(consideringpowerisaconcurrentsubject)sothatthey are equally committed to its success.

Moreover,fortheindustrytosucceedandgrow,itshouldhavelong-termregulatorycertaintyandastrongpipelineofrenewableprojects.Forexample,ifwehavetodo3GWofwindcapacityinayearweshouldhaveapipelineof6GWtostartwith.Thereshouldbe regulatory certainty for a longer period of time as currently tariffs change or charges change by the time the pipeline is ready forcommissioning.Thelackofpipelineadverselyimpactstherenewable industry, e.g., while the wind turbine manufacturers hadthepipelineofprojectstheydidnothavethefinancialmusclewhereas the wind farm developers did not have adequate pipeline ofprojectsandhence,thewindinstallationscollapsed.Asimilarthinghashappenedincaseofsolarinstallationsduetolackofpipelineofprojectsorstateprograms,thecapacityadditionhasbeenveryslow.Furthermore,ahealthypipelineofprojectshelpsinattracting investors.

The renewable industry has a lot of potential and is gradually coming on its own. If some of these concerns are addressed by the Governmentitwouldleadtosteadygrowthintheindustry.

8. Moving beyond India, does Hero have plans of investing in the global renewable space?

WearecurrentlyfocussedonIndiabutarealsolookingatsmallopportunitiesoutsideIndiawithanobjectiveofgettingafeelandunderstandingofthosemarkets.Wehaveglobalambitionsandhaveidentifiedregionsforinvestmentbuttheseplansarelikelytochange as the business evolves.

9. What are your thoughts on competitive bidding and viability gap funding (VGF) mechanism for renewable energy?

Competitive bidding in wind will happen, though it may be some time before it becomes a reality and industry should prepare for that. However, the government should give the industry some time to understand the basis on which competitive bidding will happen in this sector. Capacity for which bids will be invited should also


DFI’s/Multilateral institutions are playing a vital role in financing RE projects in India

IFCcommittedclosetoUS$110millioninfinancingREprojectsinthecountryinFY13ascomparedtoapproximatelyUS$73millioninFY12.Globally,IFChasthelargestinvestmentexposureinIndia.Similarly,IndiaisADB’sbiggestbeneficiaryinAsiaandtheMFIiscurrentlyimplementingitsdefinedIndiastrategyoffinancingprojects,whichsupportcleanenergydevelopment,transport,urban services and water to meet growing energy demands in a sustainablemannerwithasupportofUS$10billionintheTwelfthPlanperiod.InOctober2013,ADBhadapprovedaloanofUS$700milliontosupportinfrastructureprojectsinIndia,whichincludesrenewable energy. ADB is also in discussion with an Indian solar developer for equity investment.

Apart from directly providing debt/equity/mezzanine funding to renewable energy companies, such institutions also provide fundingtoPrivateEquityfunds/financialinstitutions,whichprovidecapitaltothesector.IFChasprovidedfundstoPEfundssuchasNereusCapital(aRE-focusedprivateequityfund),whichtheninveststhesefundsinIndia’sREsector.Furthermore,nearlyhalfofIREDA’sfundsaresourcedfromotherdevelopmentbanks,sinceitisalsothepreferredvehicleforinternationaldevelopmentbanksfor channeling funds to RE in India. DFIs such as KfW, ADB, World Bank,AFD,JICA,IDAandtheNordicInvestmentBankhavefundedIREDAwithclosetoUS$380millionintheformoflow-costcreditlinesguaranteedbytheGoI.ADBhasaUS$150millionpartialrisk

guaranteeprogramforsolarprojectswithgovernment-backedPPAs.JBIChasformedaUS$200millionfundwithICICIBanktoprovideloanstocleanenergyprojectsinIndia.

Multilateralinstitutionsleveragetheirstrengthsasamulti-stageinvestorintheRE sector with their ability to support companies right from the venture stage till theiroperationsmature.Domainexpertise,coupledwiththeirglobalnetwork,makesMFIs/DFIsuniquelypositionedtofulfillfunding requirements in the sector. Each of theMFIs/DFIshavetheirowninvestment

India’srenewableenergy(RE)capacityhasgrownataCAGRof~17%since2008andstandsat~29.5GW,currently.ToachievethetargetssetfortheTwelfth/Thirteenthfiveyearplanperiods(capacitygrowthof3.5XbytheendoftheThirteenthFiveYearPlan),Indiawillneedtofurtheracceleratethismomentum.Favorable dynamics of the sector such as increasing cost competitiveness of wind as compared to conventional power, and shift of solar power toward grid parity pricing are contributing towardinvestorinterestinthissegment.Giventheopportunity,size and attractiveness, the renewable energy space in India is witnessingaconsiderableriseintransactions(seeFig1).Foreigninvestorsandmultilateralinstitutions’outlookiscautiouslypositiveduetothesector’sfundamentaldrivers.Indiandevelopersarealsokeentoscaleuptheirportfolio,whichisexpectedtodriveM&Aactivity domestically.

Renewable energy deal volume at a three-year high:ThefirsthalfofFY14,i.e.,1April–30September2013,witnessedasignificantnumberoftransactionsintherenewablespace,morethanthenumberoftransactionsinFY13.REdealactivityhaspickedupconsiderablywithincreasedinterestfromDFIsandforeignplayers.InMay2013,agroupofinstitutionsincludingADB,IFC,DEGandAsiaCleanEnergyinvestedatotalofUS$95millioninNSLRenewablePowerLimited.EDFEnergies,NouvellesandERENacquired50%equitystakeinACMESolarEnergyPvt.Ltd.andFortumCorporationacquiredasolarPVpowerprojectinJune2013.

RE Sector generating increased interest among DFIs

Fig 1. Renewable energy deal activity


strategy for India in terms of the nature of product offerings (equity versusmezzaninefundingversusdebtcapitaletc.)andlimitsavailable for investment within different product categories. The nature of investment instruments within the same product offering, forexamplemezzaninefunding,alsotendstovaryfrominstitutiontoinstitution(forexample,investmentasCCD’sascomparedtoCCPS,orsecuritymechanisms,etc.).

AvailingoffundingfromMFIs,DFIsalsoworkstotheadvantageof Indian renewable energy developers in several ways. Tailored productssuchaslong-termfixedratelocalcurrencydebtfromspecificinstitutionsisverycostcompetitiveascomparedtoloansfromIndianfinancialinstitutions(althoughbecauseoftherecentvolatilityinUSD/INRmovement;hedgingcostshaveincreasedsignificantly,whichhasloweredthecostadvantagefordevelopers).Fixedratefundingalsomitigatestheinterestrateriskinsuchprojects,whichisthesinglelargestoperationalcostcomponentfor wind and solar sector. Association with these institutions also helps improve corporate governance/environmental compliance of investee companies, which enhances their positioning in the marketenablingaccesstomorefunds.IndividualMFIs/DFIstypically have internal restrictions on funding the entire debt requirementforprojects,whichnecessitatepartneringwithotherMFIs/DFIsorIndianlenders.Althoughtheinvestmentstructure/securityrequirementsofMFIs/DFIsarealignedtoalargeextent,gettingIndianlenderstopartnerwithMFIs/DFIsunderacommonloanagreementbecomesdifficultfordevelopers.TheprocesstimeforMFIs/DFIsisalsorelativelylongercomparedtoIndianlenders.AftergaininginvestmentexperiencefrommultipleprojectsinIndia,MFIs/DFIsshouldnowlookforwaystomaketheirproductofferingmore aligned with domestic lending institutions and identify areas of improvement such that processing time can be reduced going forward.

Renewable energy commitments are in line with the strategic focus of such institutions and accordingly their investment activity in this sectorislikelytocontinue(however,someDFI’sarereachingtheircountry limit for further investments in the sector and therefore, theymayhavedifficultygivingfurthercapitalintheshortterm).In our opinion, it will be useful if some institutions reconsider their internal allocations for various product categories in line with the changingrequirementsofafast-movingsector.Forexample,whileIndian lenders have become much more comfortable with debt fundingtowindandsolarsector,feweroptionsexistforIndiandevelopers to raise equity or mezzanine capital. Keeping this in mind,itisimportantforMFIs/DFIstonowlookatincreasingtheirfocusonallocatingmoreriskcapitalforthesectorgoingforwardtosustainthesector’sgrowth.Therearealsoafewkeyareas,whichwouldneedtobeaddressedtofurtherenhancethecapitalflowfromMFIsandDFIssuchasclearprojectpipeline(evidencedbycompliancewithRPOobligations)andclarityofpolicyframework(e.g.,competitivebiddinginwindpowersector).Giventhefundingrequirements of the sector and the pivotal role being played by these institutions, it is critical for regulators/government agencies toassuageDFIs/MFIsinvestmentconcernsandhelpcontinuetheinvestment momentum.

Rajesh SamsonPartner-TransactionAdvisoryServicesInfrastructure,Industrial&ConsumerErnst&YoungLLP

Vikas SharmaAssociateVicePresidentInfrastructure,Industrial&ConsumerErnst&YoungLLP


Quarterly reviewDomestic cleantech players

Investment-related announcements

Other updates2

Table 1.1. Major investments announcedi

Company Key business activity Investment plans Amount (INR billion)

Investment horizon

Solar

GreenEnergyDevelopment Corporation of Odisha Ltd(GEDCOL)

Renewable energy developer

Tosetupa50MWsolarpowerplantinOdisha 4.0 NA

MahindraEPC Solution provider for bothon-gridandoff-grid solar

Tosetup200MWofsolarcapacityinTamilNadu,acrosstwolocationsnearMaduraiandTiruchi

14.0 NA

WelspunEnergyLtd. RenewableIPP Tosetuptwosolarplants—a55MWprojectinRajasthananda25MWprojectinAssam

7.0 NA

Waaree Energies Solar energy solution provider

Toincreasesolarmodulemanufacturingcapacityto500MW 4.5 2014

Wind

Hero Future Energies Motorcycleandscootermanufacturer

Todevelop1,000MWofrenewablecapacity—wind,solarand small hydro

60.0 2017

OrientGreenPowerLtd. RenewableIPP Tosetupnewwindenergyprojects 7.0 2016

Bioenergy

RamkyEnviro Environmental services provider

Tosetupanindustrialwastemanagementprojectincludingarenewableenergyprojectandawaste-to-energyprojectof2MWeach

2.7 2016

Other updatesii

SolarTata Power gets approval to postpone solar target until 2016: TheMaharashtraElectricityRegulatoryCommission(MERC)hasallowedTataPowertopostponecompliancewithannualsolar-powerprocurementtargetsbyfiveyearsto2016.TataPowerwasgivenasolarprocurementtargetof0.25%inMaharashtra,whereitgenerates and distributes electricity. It has been unable since 2010 tosourceenoughsolarpowertomeetgovernment-mandatedrenewablepurchaseobligation.MERC,initsorder,saidthatthecompanyfaced“genuinedifficulty”asIndiadoesnothave3,500MWofinstalledsolarcapacityrequiredtoallowallcompaniestocomplywiththeirobligations.Ithasaskedthecompanytofulfilfiveyearsoftargetsby31March2016.

Lenders refuse to recast Websol’s INR3.5 billion loan: A consortium of seven lenders has refused to refer Websol Energy Systemtothecorporatedebtrestructuring(CDR)cellfortherestructuring of its loans worth INR3.5 billion.

WindContinuum Wind Energy acquires 178.7 MW wind farms: MorganStanleyInfrastructurePartners-backedContinuumWindEnergyLtd.hasacquiredDJEnergyPvt.Ltd.andUttarUrjaPowerProjectsPvt.Ltd.fromDelhi-basedSravanthiGroup.Thetwoacquiredcompaniesownandoperate98.7MWand80MWwindfarmsinRatlamandMandsaurdistrictsinMadhyaPradesh.

Tata Power acquires 39 MW wind farm in Gujarat; plans more acquisitions: TataPowerhasacquireda39.2MWwindfarminJamnagardistrictofGujaratfromAESCorporationandisfurtherevaluating370MWofprojectsforpossiblepurchase.TataPowercurrentlyoperatesaround400MWofwindprojectsand30MWofsolarandistargeting150–200MWofwindand30–50MWofsolarcapacity additions annually.

Leap Green Energy buys DLF’s 33 MW Rajasthan wind farm: LeapGreenEnergyPvt.Ltd.,throughitssubsidiaryVioletGreenPower


Other Indian companies

Announcements about investments

Table 1.2. Major investments announcediii

Company Key business activities

Investment plans Amount (INR billion)

Investment horizon

NeyveliLigniteCorporation(NLC)

Ligniteminingandpower generation

To set up a wind farm at an investment of INR3.6 billion and a solar powerprojectrequiringINR133.2billion

136.8 2017

ACMEGroup Solar power solutions provider

Todevelopsolarpowerprojectswithacombinedcapacityof1GW 90.0 2018

Oil India Integrated oil and gas company

Tosetupwindandsolarenergycapacityincludinga5MWsolarpowerprojectinRajasthan

6.0 2014

Railway Electricity ManagementCompany

Railway transportation services provider

Tosetupa25MWwindenergyprojectinJaisalmer,Rajasthan 2.5 NA

National Thermal PowerCorporation(NTPC)

Powergenerationcompany

Tosetupa15MWsolarpowerplantinUttarPradesh 1.0 2015

V-Guard Consumer electrical and electronics products

TosetupasolarwaterheatermanufacturingfacilityatPerundurainearErode, Tamil Nadu

0.2 2013

ModernIndiaLtd Diversifiedbusinessentity

Tosetupa5MWsolarpowerplantinSataradistrictofMaharashtra NA NA

Pvt.Ltd.,haspurchaseda33MWwindfarmlocatedinRajasthanfromDLFHomeDevelopers(DHDL),asubsidiaryofrealestatemajorDLFLtd.bywayofslump-saleforINR674million.ThepartieshadsignedadefinitivebusinesstransferagreementinApril2013.

PE-backed Orient Green Power to divest 26% stake in subsidiaries: OrientGreenPower,thelistedsubsidiaryoftheShriramGroup,hassolda26%stakeinitsthreesubsidiariesseparately.ThesubsidiariesareGlobalPowertechEquipmentsLtd.,ShriramPowergenLtd.andShriramNon-ConventionalEnergyLtd.Thedetailsabouttheamountraisedandthebuyerswerenot disclosed. The sale was to enable the subsidiaries to shift to a group-captivemodel,whichentailsparticipationofnotlessthan26% of the shareholding in the subsidiaries by captive consumers of the respective units.

Mytrah Energy may list business trust on Singapore Exchange: MytrahEnergy,theAIM-listedindependentpowerproducermaylistontheSingaporestockexchangebyhivingoffitsoperationalassetsinto a business trust. According to press reports, the company may seektoraiseINR25–37.5billion.Thecompanyrefusedtodivulgedetails on the amount being raised, the quantum of operational assets being transferred to the business trust, the valuations and the timing of the Singapore listing saying that it is trying to comply

with the process required to raise funds through listing on the Singaporestockexchangeandwillbeinapositiontodisclosethedetails only when it becomes eligible.

Financing and investmentWelspun Energy plans to invest INR98.5 billion by 2017: Welspun Energy,apartofthetextiles-to-steelWelspunGroup,willinvestINR98.5billioninnewsolarandwindprojectsoveraperiodofthreeyears.Thecompanyaimstohaveaninstalledcapacityof1,700MWofsolarandwindpowerby2017,aneight-foldincreasefromitspresent capacity.

Tata Cleantech plans to fund INR25 billion for renewable and energy efficiency projects:TataCleantechCapitalLtd.hasplanstofundINR25billionofrenewableandenergy-efficiencyprojectsinIndia.Thecompanyislookingatenergy-servicescompaniesforpotential funding.


Foreign participation

Major tie-ups

Table 1.3: Major tie-ups and agreements announcedv

Foreign player Domestic player Type of partnership/agreement

Chempolis ONGC Toestablishajointbio-refineryprojectfortheproductionofcellulosicethanolandbio-chemicals

CorinexCommunications GenusPowerInfrastructures

TodevelopIndia’sfirstindigenoussmartmeter

EDFEnergiesNouvelles;EREN ACMECleantechSolutions

Tobuild200MWofsolarpowercapacityinIndia

NanoPVSolar Voltechgroup ToinvestINR1billionforsettingupasolarmodulemanufacturingplantof75MWannualcapacity near Chennai

NewGenerationPower PremierSolar TodevelopsolarfarmsinAndhraPradeshataninvestmentofINR25billion

Samsung SDI ACMECleantechSolutions

Tomanufactureandmarketlithiumionbatteriesintelecom,solarpower,defencesectorsand other allied industries

Suez Environment SPMLInfra ToexecutefirstofitskindprojectforleakdetectionandinstallingDistrictMeteringAreas(DMAs)inBengalurucity

Other updatesiv

WindCLP India to pool wind farm assets for debt repayment: CLPHoldingsLtd.’sIndiaunithasreachedanagreementwiththreelenders—StandardCharteredPlc,IDBIBankLtd.andIDFCLtd.–tocreate a common pool of revenues from its wind farms to service debt.Underthepresentstructure,eachwindfarmisfinancedindividuallyanddebtrepaymentscanonlybemadefromaspecificproject’scashflows.Thecompanyisthefirstwind-farmdeveloperin the country to set up such a structure.

Other updatesvi

SolarReneSola plans to capture 25% of India’s solar market by 2020: ReneSolaIndia,theIndianarmoftheJiashan-headquarteredsolartechnologyproviderReneSola,planstodiversifyandexpanditsproductportfoliobycapturing25%ofIndia’sMWscalesolarmarketand50%ofthegridmarketby2020.ThecompanyiscurrentlylookingtoaugmentOEMpartnersinIndia,expandproductportfolio, and open multiple logistic and warehouse facilities to backitsgrowthplans.

DuPont plans solar products in India: DuPont,leadingglobalchemical manufacturer, plans to launch its solar products in India. The new range of products are focused on material that help

Green Infra acquires TVS Energy: Renewable power producer GreenInfraLtd.hasacquiredamajoritystakeinTVSEnergyLtd.,asubsidiaryofTVSMotorCo.Withthe60MWassetsofTVS,GreenInfranowowns377MWofoperatingcapacityandisthusmovingclosertothecompany’saimofreaching500MWbyMarch2014.

Waste-heatMaruti Suzuki plans to complete 37.5 MW waste-heat project by March 2014:MarutiSuzukiIndiaLtd.,India’sbiggestcarmaker,expectstocompleteitssecondwaste-heatprojectbyMarch2014.Theproject,implementedatthecompany’sManesarfactory,willuseheatedexhaustgasestoruna37.5MWsteamturbine.

improvetheoutput,powerandlong-termreliabilityanddurabilityofsolarpanels,loweringoverallsystemcosts,andmakingsolarenergy more competitive compared to other sources of electricity.

Energy storageAlpha Technologies taps India’s solar backup market with NavSemi acquisition:AlphaTechnologies,Bellingham-baseddesigner and manufacturer of advanced power systems, has acquiredNavSemiEnergywithplanstoexpandandtapIndia’ssolarbackupmarket.Bengaluru-basedNavSemiEnergyisadeveloper and manufacturer of solar energy management and storage systems.


Solar Government invites solar bids; makes local sourcing mandatory: TheMinistryforNewandRenewableEnergy(MNRE)hascalledforbidstobuild750MWofsolarplantsinitsfirstnationalauctionsince2011,initiatingphase-IIoftheJawaharlalNehruNationalSolarMission(JNNSM).TheGoIisofferingaroundINR18.6billioningrants,whichwillcover30%ofprojectcosts.Investorswillbeabletoselltheirprojectsafteraone-yearlock-inperiod.Thelastdateforsubmissionofbidsis20January2014.

TheMNREhasexpandedthecoverageoflocalsourcingnormstoincludesolarthinfilmsforthephaseIIsolarmission.Domesticsourcing conditions, however, will be imposed on only 50% of total capacity.

MNRE plans four solar UMPPs entailing an investment of INR900 billion:MNREhasproposedfoursolarultra-megapowerprojects(UMPPs).Theprojectswithanaggregategeneratingcapacityof15GWwillentailinvestmentofINR900billionatanestimatedpermegawattcapitalcostofINR60million.TheprojectsareplannedinRajasthan(4GW),Gujarat(4GW),Kargil(2GW)andLadakh(5GW).ThefirstprojectinRajasthanwillbedevelopedbyajoint

venturecompany(JVC)withBHELastheleadcompany.Thefirstphaseof1,000MWofRajasthanUMPPisexpectedtobeoperationalinthreeyearsandtheentireprojectinsevenyears.ThebidsforthefirstphaseareexpectedbyMarch2014.

Planning Commission sets up task force to promote solar energy: ThePlanningCommissionofIndiahassetupataskforce to oversee efforts to boost production of solar energy. The terms of reference of the committee include suggestion of policy interventions for improving domestic manufacturing of solar energyproductsandmeasurestoenhanceavailabilityofcost-effectivefinanceforsolarmanufacturersanddevelopers.Thecommitteewillalsoworktoensureeffectiveimplementationoftherenewableenergycertificates(RECs)mechanismandseekinvolvement of state governments for solar capacity development.

WindMNRE becomes party in case by wind energy producers against states seeking RPO enforcement: MNREhasaskedtheAppellateTribunalforElectricitytoallowittobeaparty,or“implead”inthecasefiledbywindenergyproducersagainstall26stateregulators,

Sectoral updatesviii

Table 1.4: Major investments announcedvii

Investor company/group Target/ Investee company

Amount (INR billion)

Mode of investment

Investment details/background

Solar

CDCGroupPlc GreenInfra 1.5 Equity FundingtobeusedtoexpandGreenInfra'swindandsolarcapacitywiththeaimofreaching1,000MWofgeneratingassetsby2016

Water

WorldBank UttarPradeshWater Sector Restructuring ProjectthroughMinistryofFinance

23.5 Debt CredittomodernizethewatersectorofUttarPradesh

Energy Efficiency

European investment Bank(EIB)

IREDA 16.7 Debt Fundstobeusedtofundsmall-andmedium-scalecapitalinvestmentsinrenewableenergyandenergyefficiency

IFC Dewan Housing FinanceLtd

5.4 Debt Fundstobeusedtoexpandfinanceforaffordableandenergy-efficienthousing in India

European investment Bank(EIB)

SREI Infrastructure FinanceLimited

3.3 Debt Fundingtobeusedforprojectsintherenewableenergyandenergyefficiencysectorscarriedoutmostlybyprivatesectorcompanies

Investments (including PE/VC)

Announcement of investments


the Forum of Regulators and the central electricity regulatory commission(CERC)seekingenforcementofRenewablePurchaseObligations(RPO).ThepetitionbytheIndianWindEnergyAssociation and Indian Wind Turbine manufacturers Association (IWTMA)statesthatthoughRenewablePurchaseObligationsRegulationshavebeennotifiedbyvariousstatecommissions,theyare failing in ensuring their strict enforcement.

CERC to review regulation on wind power companies: Central ElectricityRegulatoryCommission(CERC),theapexelectricityregulator,willreviewitsregulationonday-aheadforecastbywindpower producers following opposition from various wind power producers lobbies. The regulation to forecast wind power on day todaybasiswasaimedatlinkingwindfarmstothenationalgrid.Wind power producers have challenged the regulation on grounds of both feasibility and legality.

WaterGovernment to set up agency for monitoring water use efficiency: TheGovernmentofIndiawillestablishtheNationalBureauofWaterUseEfficiency(NBWUE),amonitoringagencyforgovernment,industryandprivateusers,byMarch2014.TheagencywillhelpmeettheGoI’stargetofcuttingleaksandwasteofwaterbyone-fifth,helpingIndiasavearoundINR500billion.

Transmission and distributionIndia receives INR25 billion first tranche for green energy corridor: IndiahasreceivedINR25billionasthefirsttrancheofINR71billionloanfromGermanyforestablishinganetworkofgridtoevacuatesolarandwindpower.IntheINR180billionfirstphase,thegridwillbesetupinRajasthanandTamilNadu.WorkhasbeguninthesetwostatesandwillsubsequentlybetakenupininMaharashtra,Gujarat,KarnatakaandAndhraPradesh.

Climate changeCommittee plans to review all eight missions under the NAPCC: TheGovernmentofIndiahassetupacommitteetostreamlinealltheeightmissionsundertheNationalActionPlanonClimateChange(NAPCC).Theobjectiveofthecommitteewillbetoreviewandtrytoworkoutasynergybetweenthemissions.

TheeightmissionsundertheNAPCCincludethenationalsolarmission,thenationalmissionforenhancedenergyefficiency,national mission on sustainable habitat, national water mission, national mission for sustaining the Himalayan ecosystem, national

mission for a green India, national mission for sustainable agriculture,andnationalmissiononstrategicknowledgeforclimate change.

Smart gridPower Ministry plans to set up National Smart Grid Mission: TheMinistryofPower(MoP)hasproposedtoestablishaNationalSmartGridMission(NSGM)by2014,throughwhichitplanstolaunch policies and programs to provide uninterrupted life line supplyofelectricity(8hours/dayminimum,includingtheeveningpeak)andelectrificationof100%ofhouseholdsby2017.TheGovernmenttargetistoreduceaggregatetransmissionandcommercial(AT&C)lossestobelow15%by2017,below12%by 2022, and below 10% by 2027. The ministry also has plans for integrated technology trials through a set of smart grid pilot projectsby2015;andbasedonoutcomeofthepilots,rolloutsmartgridsinpilotprojectareasby2017;inmajorurbanareasby2022 and nationwide by 2027.

Waste managementCII task force drafts norms for urban waste management: TheConfederationofIndianIndustry(CII)taskforceonwastemanagement has charted out draft national guidelines for solid wastemanagement.ThefinalpolicywillbeannouncedafterseekingandincorporatingviewsfromtheUrbanDevelopmentMinistry(UDM).

Financing and investmentIndia needs more than INR800 billion of investment to meet solar target under Phase II of JNNSM: WorldBank:AccordingtotheWorldBankIndiawillneedaninvestmentofmorethanINR800billiontomeetits9GWofcapacityadditiontargetunderthesecondphaseofJNNSM.Financingisexpectedtoremainakeychallenge.TheWorldBankexpectsscheduledcommercialbankstoplayalargerpartinfinancingthistime,whileinPhaseIbulkofthefinancingwasprovidedbyexportcreditagencies,multilateralfinancialinstitutionsandsomenon-bankingfinancialcompanies.

Electric vehiclesGovernment plans to roll out subsidies for electric cars by April 2014: TheMinistryofHeavyIndustriesplanstorolloutsubsidiesforelectricvehicles,undertheNationalElectricMobilityMissionPlan,byApril2014.TheGovernmentaimsforapenetrationof1.5millionfourwheelers,and4.5milliontwowheelersby2020.


State level initiatives

Table 1.5. Major state-level initiativesix

State Measures/initiatives

Kerala • AgencyforNon-conventionalEnergyandRuralTechnology(ANERT)willsetupKerala’sfirstsolarfarmatKuzhalmandaminPalakkaddistrictbyMarch2014;the2MWprojectwillbebuiltforINR16billion.

Punjab • PunjabStateElectricityRegulatoryCommission(PSERC)hasapprovedprocurementofINR3.14billionworthofannualsolarpoweratanaveragetariffofINR8.37perunitfrom2015–16.

AndhraPradesh • AndhraPradeshpowerutilitieshaveenteredpowerpurchaseagreements(PPAs)withsolarpowerdevelopersfor147MWandhasalsoissuedlettersofintent(LoIs)foranother142MW

• TheStateEnergyConservationMission(SECM)hasfixeddistrict-wisetargetstopromotesolarandwindprojectsandenergy-efficiencyandconservationprograms.

Tamil Nadu • TheGovernmentofTamilNaduplanstoestablishfirstofitskind,separatecorridorof400kVtransmissionlinetoevacuate solar power.

• TheGovernmentwillprovideacapitalsubsidyofINR20,000foreach1kWsolarrooftopsystemfor10,000customers.

Uttarakhand • TheGovernmentofUttarakhandhasintroducedasolarrooftoppolicywithatargetofproducing2,500kWpowerin2013–14.

• TheUttarakhandRenewableEnergyDevelopmentAgency(UREDA)announcedplanstosetup600biogasplantsinthestateundertheNationalBiogasManureandManagementProgramme(NBMMP).

Gujarat • TheGovernmentofGujaratannouncedplanstobuild60MWofrooftopsolarplantsby2016.

West Bengal • TheGovernmentofWestBengalisdevelopingRajarhatasasolarcitywithaidfromtheGovernmentofIndia.

RECGovernment gets tough on states to meet its clean energy target: TheMNREhassuggestedtothepowerministrytoincludethefulfilmentofrenewablepurchaseobligation(RPOs)by the states as a mandatory condition for their support under thefinancialrestructuringschemeofelectricitydistributioncompanies.

TheMadhyaPradeshElectricityRegulatoryCommission(MPERC)hasalsoissuedadirectiveforitsdiscomstocomplywithRPOtargetsaccordingtotheRPOregulations.

Demand for India renewable credits surges due to enforcement: Demandforrenewableenergycredits(REC)increasedforthefourthstraightmonthinDecember2013asregulatorsinPunjab,Uttarakhand,Maharashtra,ChhattisgarhandGoaenforcedclean power targets for companies and state run utilities. In the Decembersession,demandincreasedalmostten-foldsincealowinAugust2013with403,862bidstobuywind,hydropowerandbiomasscredits.Buyer-sideparticipationisexpectedtoincreasefurtherthroughtoApril2014astheendofthefinancialyearcompliance period nears.


State Measures/initiatives

Odisha • The Energy Department of Orissa has set up a committee to prepare a draft solar policy for the state.

• TheGovernmentofOdishahasannouncedapilotprojecttargeting5MWto10MWofgridconnectedrooftopsolarpower.

• Thestategovernmenthasalsoannouncedplanstofloattendersfornewsoarpowercapacityof48MW.

• TheGovernmentofOdishahasapprovedamendmenttothePlanningandBuildingStandardsRegulations2008,whichmakesrooftopsolarpowerplantsmandatoryforhotelsandhospitals.

Karnataka • TheKarnatakaElectricityRegulatoryCommission(KERC)hasrevisedtherateofwindpowergenerationtoINR4.20/unitfromINR3.7/unitwhichwillbeapplicabletopowerpurchaseagreements(PPA)signedtill2018.

• KERChasalsorevisedthesolartariffs—INR8.4/unitforsolarPV,INR10.92/unitforsolarthermal,INR9.56/unitforsmallsolarPVplantsandrooftopinstallation,andINR7.20/unitforrooftopandsmallsolarPVplantswith30%government subsidy on capital costs.

Goa • TheGovernmentofGoaisconstructinga27MLDwatertreatmentplantatOpawithaninvestmentofINR0.71billion.

HimachalPradesh • TheGovernmentofHimachalPradeshhasannouncedplanstosetupacommitteetosortoutproblemsofsmallhydro-powerprojectsandensuretheirexpeditiousexecution.

Jammu&Kashmir • TheJammuandKashmirEnergyDevelopmentAgency(JAKEDA)hasissuedarequestforqualification(RFQ)forsettingup23minihydropowerprojects.

MadhyaPradesh • TheGovernmentofMadhyaPradeshtargets3,800MWrenewablepowerby2015,whichincludes1,900MWofwind,1,400MWofsolar,300MWofbiomassand200MWofsmallhydroprojects.

Maharashtra • ThePimpriChinchwadMunicipalCorporation(PCMC)hasproposedtosetup10biogasplantswithaninvestmentofINR100 million.

Haryana • TheGovernmentofHaryanahassignedamemorandumofunderstanding(MoU)with6independentpowerproducers(IPPs)forsettingupof6biomassplantsof63MWcumulativecapacitywithaninvestmentofaboutINR2.84billion.

New Delhi • DelhiJalBoardhasannouncedplanstospendINR39.6billionformodernizingcity’streatmentanddistributioninfrastructure.

UttarPradesh • TheNewandRenewableEnergyDevelopmentAuthority(NEDA)hassignedsolaragreementsworthINR23billionwith8companies—includingtheNationalHydroelectricPowerCorporation(NHPC)forsettingupa100MWsolarpowerplantin Jalaun.

• TheUPPowerCorporationLimited(UPPCL)hasenteredanagreementwithsolarpowerdevelopersforpurchasing110MWofpower.

• UttarPradeshHousingandDevelopmentBoard(UPAVP)hasdecidedtomakeinstallationofsewertreatmentplantandawater-recyclingprojectmandatoryinallfuturehousingprojectsonandabove2acreland.


Table 1.6: Major tie-ups announced with countriesxi

Country Type of collaboration

UK • IndiaandtheUKhaveformedagreenenergyforumtoenhancecleanenergycooperation.Theforumseekstobringtogetherbusinessandpolicymakers,think-tanksandpoliticianstocollaborateonenergyconservationandenergyefficiency.

Australia • TheCommonwealthScientificandIndustrialResearchOrganisation(CSIRO)andIndia'sCouncilofScientificandIndustrialResearch(CSIR)announcedapartnershiptoimprovetheproductionprocessfordimethylether(DME),aclean-burningsyntheticfuel.DMEisexpectedtohelpreducerelianceonimportedpetroleumproducts.

SolarKerala approves solar energy policy: TheGovernmentofKeralahasapprovedasolarenergypolicythatseekstoraiseinstalledcapacityofthesolarsectorto500MWby2017and1,500MWby2030.Theplansincludepromotionoffloatingunitsatcanalsandreservoirs, and offsite generation at locations such as wastelands andquarries.Thepolicyalsoproposestomaketheuseofsolarpowerandwaterheatermandatoryforresidentialflatsandbuildingswithfloorareaofmorethan2,000squarefeet.

TNERC introduces net metering and puts annual cap on solar power users: TamilNaduhasbecomeoneofthefirststatestointroduce net metering in the country. The Tamil Nadu Electricity RegulatoryCommission(TNERC)hasmadeinstallationofbi-directional meters optional for solar rooftop owners. The TNERC hasalsofixedacapondomesticconsumersinstallingrooftopsolarphotovoltaicsystemsat90%oftheirannualpowerconsumptiontoensure grid stability.

APSPDCL plans to implement solar energy net metering: The AndhraPradeshSouthernPowerDistributionCompanyLimited(APSPDCL)planstoimplementnetmeteringpolicyonawiderscale.TheGovernmentofAndhraPradeshhasgivenaboosttonetmeteringbyallowingsingle-phaseconsumerswithrooftopsystemsupto3kWcapacitytoinstallbi-directionalmeters.

Gujarat plans to appeal against rejection of solar-tariff cut: Gujaratplanstofileanappealwithregulatorsontheirdecisiontorejectatariffcutforphotovoltaicplants.TheGujaratElectricityRegulatoryCommission(GERC)willheartheappealbysolardeveloperswhoareopposingthestate’sattemptstoreducetheratepaidforsolarpower.GujaratUrjaVikasNigamLtd.,thestatepowerpurchaser,hadearlierfiledapetitionseekingtolowerthetariffforsolarpowerby28%,citingexcessiveprofitsearnedbyplant owners.

WindIWPA challenges Tangedco’s decision to buy thermal power: The IndiaWindPowerAssociation(IWPA)haschallengedthedecisionofTamilNaduGenerationandDistributionCorporation(Tangedco)topurchase2,122MWthermalpower.TheassociationhasappealedtotheAppellateTribunalforElectricity(APTEL)againsttheTamilNaduElectricityRegulatoryCommission’s(TNERC)orderallowingthepowerpurchase.TheAPTELhasacceptedtheassociation’spetitionagainsttheTangedco’sdecisionandpostedthecaseforhearingon21January2014.

BiomassBiomass plants across Tamil Nadu close down:Manycompanieshave shut biomass plants in the state of Tamil Nadu as they no longerfinditviabletooperateatcurrenttariffs.Thewithdrawalofpower cuts for industrial users has aggravated problems as many companieshavebackedoutofpowerpurchaseagreementssignedwith the biomass power producers.

Waste managementTamil Nadu plans to launch solid waste management policy: The GovernmentofTamilNaduhasannouncedplanstolaunchanIntegratedSolidWasteManagement(ISWM)policyinthestate.Undertheproposedpolicy,theGovernmentplanstosetup29decentralizedbio-methanationplantsinfivecorporationsand24municipalitiesbytargetingthebulkgeneratorsoforganicwaste.

Sectoral updatesx


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