world bank energy week 2006 march 4 –6 panel...
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WORLD BANK ENERGY WEEK 2006
MARCH 4TH – 6TH
PANEL DISCUSSION – ENERGY SME’S – FINANCING
BY
S. CHANDRASEKHAR
MANAGING DIRECTOR
BHORUKA POWER CORPORATION LIMITED
BANGALORE- INDIA
Email – sekhar@bhorukapower.com
ENERGYENERGY SMESME’’s s –– ELECTRICITY SECTORELECTRICITY SECTOR
WHO ARE THEY?
-RENEWABLE ENERGY DEVELOPERS
-ENERGY SERVICE COMPANIES
-CARBON EMISSION TRADING COMPANIES FOR RE & EE PROJECTS
AMONG THESE RENEWABLE ENERGY DEVELOPERS CONSTITUTE MORE THAN 80% OF THE SME SECTOR.
RENEWABLE ENERGY PROJECTS ARE RURAL BASED.
RURAL POPULATION AS PER AVAILABLE DATARURAL POPULATION AS PER AVAILABLE DATABANGLADESH 76%
CAMBODIA 81%
INDONESIA 57%
LAO PDR 75%
MONGOLIA 43%
PHILIPPINES 40%
VIETNAM 74%
INDIA 65%
LATIN AMERICAN COUNTRIES 65% PLUS (AVERAGE)
AFRICAN COUNTRIES 75% PLUS (AVERAGE)
RENEWABLE ENERGY MAKES LOT OF SENSE FOR THESE COUNTRIES
ADVANTAGE : RURAL POPULATION
RENEWABLE ENERGY BUSINESSRENEWABLE ENERGY BUSINESS
MAINLY CONSISTS OF PROJECTS USING FOLLOWING RESOURCES:
WIND
SMALL HYDRO
BIOMASS
SOLAR THERMAL
PHOTO VOLTAIC
SOLID WASTE
TODAY 90% OF THE SME BUSINESS ARE IN DEVELOPMENT OF WIND, SMALL HYDRO AND BIOMASS PROJECTS.
RURAL POWER RURAL POWER –– OTHER THAN POPULATIONOTHER THAN POPULATION
IRRIGATION CANALS / RIVULETS – SMALL HYDRO POWER
ABUNDANT WASTE LAND AND GOOD BREEZE –WIND POWER
AGRICULTURAL WASTE – BIOMASS POWER
FROM VALUELESS RURAL RESOURCES TO HIGH VALUE RURAL PRODUCTS
FROM POVERTY TO PLENTY, INCREASE IN RURAL GDP
RENEWABLE ENERGY RENEWABLE ENERGY –– RURAL ECONOMY:RURAL ECONOMY:--IRREVOCABLY LINKEDIRREVOCABLY LINKED
AVAILABILITY OF RENEWABLE RESOURCES MAINLY IN RURAL AREAS
IMPROVES RURAL ECONOMY – GIVES VALUE TO LOCAL RESOURCES
INCREASES EMPLOYMENT OPPORTUNITIES – NEW AVENUES IN THE RURAL AREAS
IMPROVES QUALITY OF POWER –DISTRIBUTED GENERATION
IMPROVES RURAL INFRASTRUCTURE – LOCAL FACILITIES BECOME BETTER
CENTRAL GENERATION
GEN SET
SMALL HYDRO
CUSTOMER EFFICIENCY
WIND
REMOTE LOADS
BIO MASS
DISTRIBUTED UTILITYDISTRIBUTED UTILITY
DISTRIBUTED POWERDISTRIBUTED POWER
REFERS TO A VARIETY OF SMALL MODULAR POWER GENERATION TECHNOLOGIES THAT CAN BE COMBINED WITH ENERGY MANAGEMENT AND STORAGE SYSTEMS THAT CAN IMPROVE THE ELECTRICITY DELIVERY SYSTEM.
DISTRIBUTED POWER SYSTEMS RANGE IN SIZE AND CAPACITY FROM A FEW KILOWATTS TO 50 MW.
NEED FOR DISTRIBUTED POWERNEED FOR DISTRIBUTED POWER
ELECTRICITY DELIVERY SYSTEM IS HIGHLY STRAINED.
DEMAND FOR POWER CONTINUOUSLY ESCALATING.
QUALITY PROBLEM ON THE INCREASE.
LARGE CENTRAL PLANTS TAKE YEARS TO COME
MATCHING INVESTMENTS IN TRANSMISSION SYSTEMS REQUIRED.
ENVIRONMENTAL IMPACT OF LARGE STATIONS COSTLY TO MITIGATE.
DISTRIBUTED POWER OFFERS QUICKER ALTERNATIVES.
ADDRESSES SOME OF THE CONSTRAINTS MENTIONED ABOVE.
Renewable Energy Potential and Current Renewable Energy Potential and Current Achievements in IndiaAchievements in India
SlNo.
Sources/Technologies Units Aprox Potential
Achievements
1 Wind MW 45,000 1,870
2 Small Hydro Power MW 15,000 1,519.28
3 Biomass Power/Cogeneration MW 19,500 484
4 Biomass Gasifiers MW 53.17
5 Energy Recovery from Wastes MW 1,700 25.75
6 Solar Photovoltaic Power MW 20 MW/sq.km 2.50
Power from Renewables (Total)
MW 81,200 3,950.93
Sector Capital Cost (US$ Million/MW)
Cost of Generation(US Cent/kWh)
Small Hydro 0.9 to 1.3 5 - 6
Wind Energy 0.95 to 1.10 6 – 7
Biomass Power 0.8 to 1.00 5 to 6
Bagasse Cogeneration
0.6 to 0.8 4.5 to 5.5
Biomass Gasification
0.6 to 0.8 5 to 6
Solar PV 5.21 to 6.25 18.80 to 41.70
ECONOMICS OF RENEWABLE ENERGYECONOMICS OF RENEWABLE ENERGY
SME SECTOR SME SECTOR –– ENERGY ENERGY –– STAKE HOLDERSSTAKE HOLDERS
PRIVATE SECTOR THE MOST IMPORTANT PLAYER IN RENEWABLE ENERGY DEVELOPMENT WORLDOVER
THE OTHER KEY STAKE HOLDERS ARE GOVERNMENT, UTILITY, BANKERS & REGULATORS
GOALS AND RISK PERCEPTIONS DIFFERENT FOR EACH OF THEM
RURAL ECONOMY AND RURAL POPULATION A VITAL FACTOR IN ENERGY SME BUSINESS
RISK PERCEPTIONRISK PERCEPTION
ENTITY GOAL RISK PERCEPTION VISION
PVT. SECTOR-
MAXIMISE PROFITLEAST RISK
LOSS / BANKRUPTCYMED. TERM
BANKER - MAXIMISE PROFITLEAST RISK
LOAN TURNINGNPA
MED. TERM
UTILITY - MAXIMISE GEN.LEAST RISK
HIGH COST OF ENERGY PURCHASE
SHORT TERM
REGULATOR - CONSUMER INTEREST
HIGH COST TO CONSUMER SHORT TERM
GOVERNMENT - ENERGY SECURITYEMP. GEN.GHG REDOTHER EXTERN
MISPLACEDSUBSIDIES ANDINCENTIVES
LONG TERM
VIEW POINTVIEW POINT
NO SINGLE POLICY CAN SATISFY ALL THE STAKEHOLDER
A BALANCED OUTLOOK SHOULD BE BASIS OF POLICY
ANY POLICY SHOULD BE DRIVEN BY LONG TERM VISION
EVERY RISK MITIGATION ADDS TO COST
MOSTLY WE TALK OF RISK MITIGATION THROUGH FISCAL POLICIES
THERE ARE NON FISCAL POLICIES OF EQUAL IMPORTANCE
RISK AVOIDANCE THROUGH MORE INFORMATION AND NOT SIMPLY RISK MITIGATION THROUGH FISCAL MEASURES SHOULD DRIVE POLICY INTERVENTION FOR PROMOTION OF RENEWABLE ENERGY
PROJECT ECONOMICSPROJECT ECONOMICSKEY FACTORS THAT DETERMINE THE ECONOMICS ARE:
RESOURCE AVAILABILITY / GENERATION POTENTIAL / PLF
PROJECT COST
OPERATION & MAINTENANCE COST
ANNUAL RATE OF ESCALATION IN O & M COST
RATE OF INTEREST
RATE OF RETURN ON EQUITY
AUXILLARY CONSUMPTION
MINIMUM TAX
WORKING CAPITAL
LOAN REPAYMENT PEIROD
TODAY WE WILL CONCENTRATE ON THE FINANCING ASPECTS
ACCEPTABLE DEBT SERVICE COVERAGE RATIO
LOAN REPAYMENT PERIOD
RATE OF INTEREST
LOAN SECURITISATION NORMS
BANKER’S HOLD THE KEY ON FOUR MAJOR ISSUESBANKER’S HOLD THE KEY ON FOUR MAJOR ISSUES
COMPARATIVE NPVS FOR HYDRO AND THERMAL COMPARATIVE NPVS FOR HYDRO AND THERMAL FOR A 10 & 15 YEAR TERMFOR A 10 & 15 YEAR TERM
(value in US$)ASSUMPTIONS:
HYDRO THERMALTERM 10 10REPAYMENT PERIOD 10 15.00 CAPACITY 9 9.00 CAPITAL COST (in Million US 7.00 9.00 PLF 33% 70%Gross Generation 26.26 55.19 Aux Consumption 1% 0.26 8%NET GENERATION 26 50.77
Coal Cost 0 0.02 Escalation 0 5%O & M 2.50% 2.5%Escalation 5.00% 5.0%
Debt 70% 70%Equity 30% 30%
Return on Equity 16% 16%
Taxation 1 TO 10 YRS 7.50% 7.50% 11 TO 15 YRS 35% 35%
Discounting factor 5% 5%
SL NO PROJECT 10 YR TERM 15 YR TERM
8% 11% 8% 11%
1 NERIA HYDRO PROJECT 0.039 0.041 0.032 0.034
2 CONVENTIONAL THERMAL 0.052 0.054 0.048 0.049 PROJECT
RATE OF INTEREST AND LOAN TENURE MAKE A LOT OF DIFFERENCE AND HELP IN KEEPING THE TARIFFS AT AFFORDABLE LIMITS IN DEVELOPING COUNTRIES
COST COMPARISON OF HYDRO AND THERMAL COST COMPARISON OF HYDRO AND THERMAL WITH GRID TARIFFWITH GRID TARIFF
(value in US$)
1 2 3 4 5 6 7 8 9 10 11 12 15 14 15
NERIA HYDRO COST 0.048 0.048 0.047 0.046 0.046 0.045 0.045 0.044 0.044 0.043 0.046 0.046 0.045 0.045 0.045 AVG COST 0.046NPV OF COST 0.032
THERMAL COST 0.061 0.061 0.062 0.063 0.065 0.066 0.067 0.069 0.070 0.072 0.076 0.078 0.080 0.082 0.084 AVG COST 0.070NPV OF COST 0.048
GRID TARIFF 0.080 0.083 0.087 0.090 0.094 0.097 0.101 0.105 0.108 0.112 0.115 0.118 0.122 0.126 0.129 AVG TARIFF 0.105 NPV OF TARIFF 0.070
ASSUMPTION : DISCOUNTING FACOR AT 5%
COMPARATIVE RETURNSCOMPARATIVE RETURNS
( Value in US$)
10 YR TERM 15 YR TERMTARIFF IRR TARIFF IRR
GRID 0.075 0.074
HYDRO 0.039 10% 0.032 14%
THERMAL 0.052 9% 0.048 14%
BHORUKA POWER BHORUKA POWER -- FINANCING TRENDSFINANCING TRENDS
PROJECT NAME SHIVPUR SHAHAPUR MADHAVAMANTRI SHAHAPUR D-9 MANDHAGRE NERIA
CAPACITY 18 MW 6.6 MW 4.5 MW 1 MW 3.50 MW 9 MW
DATE OF COMMISSIONING 1992 1999 2001 2003 2005 Underimplementation
PROJECT COST (Rs. In lacs) 3100 3433 2500 537 1900 3152
MEANS OF FINANCETERM LOAN 2170 2403 1880 246 570 945EQUITY 930 1030 620 291 1330 2206
TOTAL 3100 3433 2500 537 1900 3151
FINANCED BY IDBI,ICICI,IFCI IREDA IREDA ,IDFC IREDA SBI SBI
RATE OF INTEREST 16% 12.50% 12.00% 12.50% 9.88% 8.25%
ROE- 10 YRS 12% 12% 19% 17% 15% 19%
BHORUKA POWER BHORUKA POWER -- FINANCING TRENDS contdFINANCING TRENDS contd……EVOULATION OF INTEREST V/S TARIFF
0.07 0.07
0.09
0.07 0.07 0.07
16%
13%12%
13%
10%
8%
12% 12%
19%
17%
15%
19%
-
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
0.18
0.20
1 2 3 4 5 6UNIT
VALU
E
AVG TARIFF in $RATE OF INTERESTROE- 10 YRS
AT CURRENT GENERATION LEVEL
LOAN SECURITY NORMSLOAN SECURITY NORMS
LATE 1990s
First charge on all the immoveable properties of the company pertaining to the project and of all the moveable properties of the project.
Escrow Account on the receivables of the project.
Bank Guarantee to an extent of 10% of the loan amount.
Furnishing of Post dated cheques in respect of principal repayment of loan as well as interest payments.
2005
First charge on all the immoveable properties of the company pertaining to the project and of all the moveable properties of the project.
Trust and Retention Account on the receivables of the project.
BANKER’S CONFIDENCE FOR ENERGY SME’s HAS INCREASED
MATURING OF SME ENERGY SECTORMATURING OF SME ENERGY SECTOR
THE ATTRACTIVENESS OF THE SME SECTOR CAN BE GAUGED BY THE INCREASE IN NUMBER OF FINANCIAL INSTITUTIONS AND BANKS PARTICIPATING IN FINANCING SUCH PROJECTS.
1994 : IREDA, IDBI (Very Limited) - 2 BANKS
2005 : ALL FI’s AND BANKS EXCLUDING
SOME OF THE SMALL NEW
PRIVATE SECTOR BANKS - OVER 20 BANKS
CUMMULATIVE LOAN SANCTIONS & DISBURSEMENT AS ON 31.12.2004CUMMULATIVE LOAN SANCTIONS & DISBURSEMENT AS ON 31.12.2004(USD in million)
Sector Cumulative Loan DisbursementSanctions Cumulative
Wind Energy 478.22 298.45
Small Hydro 360.24 143.12
Cogeneration 252.02 147.57
Biomass Power 137.12 94.45
Solar Photo Voltaics 130.02 62.90
Biomass Gassification 2.24 0.69
Solar Thermal 23.35 13.13
Biomass Briquetting 4.23 2.02
Biomethanation from 16.01 12.68Industrial Effluents
Energy Efficiency & 60.24 19.12Conservation
Waste to Energy 10.89 8.45
Miscellaneous 5.57 0.67
TOTAL 1480.15 803.25
TERMS OF LENDINGTERMS OF LENDING
Financing Schemes Interest Repayment Minimum promoterrate (%) tenor (years) Contribution (%)
Setting up wind farm on ownership/lease basis 9.00 10 308.50 8 308.00 6 30
Mini Hydro upto 1MW 11.25 10 25Small hydro above 1MW and upto 5MW 11.50 10 30Small hydro above 5MW and upto 15MW 11.75 10 30Small hydro above 15Mw and upto 25 MW 12.00 10 30Biomass cogeneration 11.00 10 30Biomass Power 10.50 10 30Energy efficiency and conservation project 11.00 10 30
10.00 8 30Energy efficiency and conservation (equipment) 11.50 10 20
9.50 7 209.00 6 20
Source: IREDA; Note: Maximum term loan amount varies between 70 and 80 percent of total project cost.
RECOMMENDATIONSRECOMMENDATIONSRESOURCE AVAILABILITY STUDIES ON A LONG TERM BASIS
IS KEY FOR VIABILITY PROJECTIONS ON A REALISTIC BASIS
AUTHENTIC DATA NEED TO BE MADE AVAILABLE BY GOVERNMENT DEPARTMENTS
BANKS COULD HELP IN KEEPING LOCAL CURRENCY INTEREST RATES BELOW 10%
BANKS COULD ALSO HELP IN INCREASINGTHE LOAN TENURE TO 15 YEARS WHICH COULD HELP IN KEEPING TARIFF’S DOWN IN THE INITIAL FEW YEARS
WORLD BANK THROUGH IFC COULD HELP IN ACHIEVING BOTH THE ABOVE OBJECTIVES THROUGH LONG TERM DEDICATED FUNDS
THIS COULD SERVE WORLD BANKS OBJECTIVES OF RURAL DEVELOPMENT AS WELL AS SUSTAINABLE ENERGY DEVELOPMENT
ABOUT BHORUKA POWERABOUT BHORUKA POWER
IT IS A LEADING RENEWABLE ENERGY DEVELOPER IN INDIA OWNING AND OPERATING 10 SMALL HYDRO STATIONS AND 2 WIND FARMS CURRENTLY. TWO MORE HYDRO PROJECTS ARE U UNDER IMPLEMENTATION WHICH WILL TAKE THE CAPACITY TO 80 MW BY EARLY 2006 AND TO 100 MW BY 2007. THE COMPANY IS ALSO INVOLVED IN EFFICIENCY IMPROVEMENT IN RURAL ELECTRICITY DISTRIBUTION NETWORK.
THE COMPANY WITH CAPABILITIES RANGING FROM CONCEPT TO COMMISSIONING AND A STRENGTH OF 200 PEOPLE IS CERTIFIED FOR ISO 9001, ISO 9002 AND ISO 14001. IT IS TO RECEIVE THE OSHAS CERTIFICATE SHORTLY.
BHORUKA CHARITIES THE SOCIAL ARM OF THE COMPANY IS INVOLVED IN VARIOUS ACTIVITIES LIKE EDUCATION, VOCATIONAL TRAINING ETC., FOR RURAL UPLIFTMENT
ABOUT BHORUKA POWERABOUT BHORUKA POWER
WE WILL BE GLAD TO LEND OUR EXPETISE IN THE FIELD OF RENEWABLE ENERGY PROJECTS
Contact Address:
Mr. S. Chandrasekhar
Managing Director
Bhoruka Power Corporation Limited
#48, Lavelle Road
Bangalore 560 001
India
Tel: +91-80-2227 3285 (Dir) / 2227 2271-74 (Off)
Fax: +91-80-2224 5246
Email: sekhar@bhorukapower.com
FINANCING ENERGY SMEs
IS A
VERY PROFITABLE BUSINESS PROPOSITION
WITH
A HIGHLY POSITIVE SOCIAL IMPACT ON THE RURAL SECTOR
WHICH IS
A MAJOR OBJECTIVE OF THE WORLD BANK
CONCLUSION
CONCLUSION
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