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

FACTORY

OFFICES

CUSTOMERS

OFFICES

CUSTOMERS

CENTRAL UTILITYCENTRAL UTILITY

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

PHOTOSPHOTOS

MADHAVAMANTRIMADHAVAMANTRI

WIND PROJECT WIND PROJECT --JAISELMERJAISELMER

SRD KATTEPHOTOSPHOTOS

NERIA

CHAYADEVI

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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