Wind energy in Tamil Nadu - Business Feasibility Report - Preview

Protekan Market Research | Advisory | Consulting Wind Energy in Tamil Nadu

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Protekan

Market Research | Advisory | Consulting

Wind Energy in Tamil Nadu

Business Feasibility Report

Protekan Market Research | Advisory | Consulting Wind Energy in Tamil Nadu __________________________________________________________________________________________

Contents

Section I: Wind Energy in India – Sector Snapshot

Section II: Electricity Sector in Tamil Nadu

Section III: Potential & Installed Capacity in Tamil Nadu

Section IV: Wind Policy and Regulatory Analysis

Section V: Project Cost, Finance and IRR Analysis

Section VI: Contact Info–Central & State Nodal Agencies


Preface

The security of energy supply plays a major role in the economic growth of a country. The International Energy

Agency defines energy security as “the uninterrupted physical availability at a price which is affordable, while

respecting environment concerns”.

India is currently one of the fastest growing economies. For countries like India, addressing the security of energy

supply is important to maintain its economic growth rate. The fluctuating prices of gas, the long gestation periods

of thermal power projects and the shortage of domestic coal has had a severe impact on India. Electricity

demand in India has continuously outstripped supply and this shortage in power supply is set to decelerate the

India growth story.

India is now faced with the challenge of ensuring energy security while dealing with the global threat of climate

change. This threat emanates from accumulated greenhouse gas emissions in the atmosphere,

anthropogenically generated through long-term and intensive industrial growth and high consumption lifestyles.

Climate change may alter the distribution and quality of India's natural resources and adversely affect the

livelihood of its people. With an economy closely tied to its natural resource base and climate-sensitive sectors

such as agriculture, water and forestry, India may face a major threat because of the projected changes in

climate.

To address this dual challenge of ensuring energy security and combating climate change, renewable energy

options including wind power will have to play a crucial role in India’s emerging energy mix. Not only are they

environmentally sound but also their project gestation periods are significantly shorter than those for thermal or

nuclear power plants.

The wind energy market in India has witnessed significant growth over the last few years. The installed capacity

has grown from a mere 1,666 MW in 2002 to 17,352 MW in 2012. The recent withdrawal of the Accelerated

Depreciation benefit for wind projects has opened up the Indian Wind energy market for investors and companies

who wish to enter this sector as an Independent Power Producer (IPP).

The "Wind Energy in Tamil Nadu - Business Feasibility Report" was developed by Protekan, a renewable energy

consulting and advisory firm. The report provides in depth analysis of the wind energy market in Tamil Nadu. The

primary objective of this report is to serve as a useful guide for companies and investors interested in venturing

into the fast evolving wind energy IPP business in Tamil Nadu. This report was last updated in September 2012.


Protekan.in ©Protekan

Section I: Wind Energy in India – Sector Snapshot

Contents:

1.1 Wind Energy Potential and Installed Capacity

1.2 Wind Energy – Growth and Forecast

1.3 Investments in Wind Energy

1.4 Examples of Investment in Independent Wind Power Producers (IWPP)

The Indian wind energy market has witnessed significant growth in recent years due to favourable policy

environment and availability of sites with good wind resource.

The short gestation periods for installing wind turbines coupled with increasing reliability and performance of wind

energy machines have made wind power a favoured choice for capacity addition in India.

1.1 Wind Energy Potential and Installed Capacity

In terms of installed capacity of wind based generation, India ranks 5th in the world. The total installed capacity in

India is 17,352 MW (as of March 2012). The total wind energy potential in India is estimated at 48.5 GW (at 50 m

hub height) by the Centre for Wind Energy Technology (CWET). This is seen as a very conservative estimate of

wind power potential in India. The Indian Wind Energy Association has estimated the potential for wind energy in

India at 65 GW.

Wind energy dominates the renewable energy sector in India and constitutes 70% of the total renewable energy

installed capacity. Tamil Nadu accounts for more than 40% of the total wind energy installed capacity in India.

Other states like Gujarat, Karnataka, Maharashtra and Rajasthan have seen significant growth in wind capacity

over the last five years.

1.2 Wind Energy – Growth and Forecast

During the period of FY2002 - FY2012, wind energy installed capacity in India witnessed a Compounded Annual

Growth Rate (CAGR) of 26.4%. The cumulative installed capacity increased from a mere 1666 MW in 2002 to

reach 17352 MW by March 2012. The cumulative wind energy installed capacity from the year FY2002 to FY2012

is shown in Figure 1-1.



Bhilwara Green Energy raises $15 million from IFC for Wind Project (July 2011)

International Finance Corp., an investment arm of the World Bank, plans to invest $15 million in Bhilwara Green

Energy Ltd. to build a 51 megawatt wind power farm in western India. Bhilwara Green Energy is a unit of Bhilwara

Energy Ltd., in which IFC holds a 5.24% stake.

Caparo Energy raises second tranche of funding from IDFC Project Equity (Aug 2011)

Infrastructure Development Finance Company Ltd (IDFC) is investing $33.5 million or Rs 150 crore in the Indian

subsidiary of London’s AIM-listed (Alternative Investment Market) wind energy firm Caparo Energy Ltd. The

company is aiming to build a portfolio of wind farms with an installed capacity of up to 5,000 MW by 2017. This is

the second tranche of mezzanine funding for the wholly owned unit Caparo Energy (India) Ltd, which had earlier

raised $78.5 million (Rs 350 crore) from IDFC Project Equity’s Indian Infrastructure Fund.

ReNew Wind Power secures Rs 1000 crore investment from Goldman Sachs (Sep 2011)

In what can be termed as the largest investment in India's renewable energy sector, ReNew Wind Power, a

renewable energy independent power producer (IPP), has announced that it had secured an equity investment of

Rs.1000 crore from Goldman Sachs, a leading global investment

bank and active investor in alternative energy/clean technology.

ReNew Wind plans to have 1,000 megawatts of wind-generation

capacity by 2015.

Mytrah Energy Raises Rs 100 Crore from PTC India (Dec 2011)

Mytrah Energy India Ltd (formerly Caparo Energy) has raised Rs

100 Crore – mezzanine funding from PTC India Financial Services

Ltd. This was the third tranche of funding received by Mytrah

Energy as part of a total mezzanine funding to $132 million. There

would be no equity dilution for Mytrah Energy's existing shareholders from the funding. The Group expects to

repurchase all tranches of mezzanine funding from internal cash flows and the issue of senior debt instruments,

bonds or other debt refinancing, within three to five years.

Mytrah Energy, an independent power producer intends to acquire a portfolio of wind farms with a target total

annual installed capacity of up to 5,000 MW by 2017. Its investors include Henderson, Eton Park, Capital

International, and Black Rock.

Bindu Vayu Urja Private Limited, subsidiary of Mytrah Energy has secured new senior loan funding of Rs 960

Crore, comprising of Rs 600 Crore, which is fully underwritten by IDFC and Rs 360 Crore, which was at an

advanced stage of syndication.

By end of December 2011, the company will have 500 MW of projects distributed over 11 sites that are either

commissioned or are under construction.

IFC to Invest $130 Mn in Inox Renewable (April 2012)

IFC is planning to invest $130 Mn in INOX Renewables Limited, a subsidiary of Gujarat Fluorochemicals Limited.

The funds raised will be used to fund 400 MW of wind projects in the states of Rajasthan and Gujarat.

Note:

Investment policy in India allows

Foreign Equity participation up to

100% in the power sector under

the automatic route.



Section IV: Wind Policy and Regulatory Analysis

Contents:

4.1 Wind Policy in Tamil Nadu

4.2 Renewable Purchase Obligation - Regulation

4.3 Pooled Power Purchase Cost

4.4 List of Wind Projects under REC mechanism

4.2.2 Renewable Purchase Obligation

Every obligated entity shall purchase not less than defined minimum percentage of its consumption of energy

from renewable energy sources under the Renewable Purchase Obligation (RPO) during a year as specified

below:

Year Minimum Quantum of total renewable purchase obligation in percentage (in terms of energy in kWh)

Minimum Quantum of solar renewable purchase obligation in percentage out of the total renewable purchase obligation (in terms of energy in kWh)

Distribution Licensee

Captive and Open Access Consumers

Distribution Licensee

Captive and Open Access Consumers

2011-12 9% 9% 0.05% 0.05% Table 4-1: Renewable Purchase Obligation in Tamil Nadu, Source: TNERC

Provided that if the obligated entity has established the fact that the minimum quantum of power purchase from

solar energy is not available in the market either in the form of solar Renewable Energy Certificate (REC) or solar

energy in a particular year and the Commission is satisfied with the fact, then in such cases, the other renewable

energy sources shall be purchased for fulfilment of the solar RPO:

Provided further that such obligation to purchase renewable energy shall be inclusive of the purchases, if any,

from renewable energy sources already being made by concerned obligated entity:

Provided also that the renewable power purchased from the following sources and means mentioned against

each obligated entity shall be accounted for RPO purpose:

(a) Distribution Licensees:

(i) Power purchased from Renewable Energy sources under preferential tariff as fixed by the

Commission and consumed in their area of supply;

(ii) Power generated from their own renewable energy sources and consumed in their area of supply;

(iii) Power purchased from NTPC Vidyut Vyapar Nigam Ltd. (NVVN) as solar part of bundled power at

the rate specified in the Central Electricity Regulatory Commission’s regulations/orders.

(b) Captive consumers:

Power wheeled and actually consumed from their own renewable energy sources without availing RECs

or any preferential measures in the form of concessional/promotional transmission or wheeling charges,

banking facility benefit and waiver of electricity duty/tax.

(c) Open access consumers:

Power wheeled and actually consumed from any renewable energy sources without availing RECs or

any preferential measures in the form of concessional/promotional transmission or wheeling charges,

banking facility benefit and waiver of electricity duty/tax.



Section V: Project Cost, Finance and IRR Analysis

Contents:

5.1 Wind Project Cost

5.2 Financing a Wind Project

5.3 Assumptions – Cash Flow Analysis & IRR Analysis for 3 MW Wind Project

5.4 Business Model 1: Preferential tariff + GBI

5.5 Business Model 2: APPC + REC + GBI

5.6 Business Model 3: Group Captive + REC

5.7 Recommendations

5.2.2 Financing Options

Typically, in financing a project, the project owner would seek to

maximize the level of debt finance and reduce the level of equity

finance. This reduces the costs of finance for the project

owner/developer. The different debt financing options are:

(i) Limited Recourse Financing:

In the case of limited recourse project financing, there are no extra

obligations by the shareholders to the bank, apart from the agreement

to subscribe to a certain level of equity. The project would be financed

on a standalone basis, with no recourse to other company assets to

support the debt repayment.

The lender repayments are only secured by the project assets and

cash flow. This type of arrangement involves a complex series of

contracts between the bank and the project owner, and is costly to

arrange. By offering such form of financing, a bank will be interested in ensuring that payments are secured.

The fixed assets of the project, such as machinery, equipment and property, could also be used as collateral, as

could bank accounts, share holdings or endowments.

Note:

Majority of wind projects in India

are financed based on the

balance sheet of the company.

Few Independent Power

Producers (IPPs) have managed

to secure debt financing based on

project cash flow and project

assets.

Wind energy in Tamil Nadu - Business Feasibility Report - Preview

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