L&T Infra

Lenders’ Perspective
Renewable Energy sector

G. Krishnamurthy, Head – Project Finance

L&T Infrastructure Finance Company Ltd.

December 2010

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Renewable Energy sector

Sr. No. Type of Renewable power Installed as on June 30, 2010
(MW)
1. Biomass Power (Agro residues) 901
2. Wind Power 12,009
3. Small Hydro Power (up to 25 MW) 2,767
4. Cogeneration-bagasse 1,411
5. Waste to Energy 72
6. Solar Power 12
Total (in MW) 17,174
Source: MNRE (> 10% of total installed power generation capacity in India)
 Increasingly significant role to be played by renewable sources
 Absence of fundamental economical viability without regulatory supports
 Reliance on continued policy impetus with subsidies/ RPOs/ RECs
 Continuity of CERs post Kyoto Protocol is a question mark
 Lack of scalability at single location and resultant economies of scale
 “Green” being a Buzzword - “Me Too” syndrome of project developers
 Location specific factors & Capital Cost have a large impact on feasibility

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Small Hydro Power (SHP)

 Capacities < 25 MW considered as SHP
 Typically, Run-of-the-river or canal-based plants
 ~2,700 MW has been installed so far
 Spread across states like Karnataka, H.P., Uttarakhand, Punjab

 L&T Infra a significant player in financing this sector

 Assisted ~ 300 MW of SHPs till date
 Unique solutions including long tenure securitization & Acquisition
funding
Type of financing Stage
New project Development
Bridging Financial Gap Implementation
Securitization of cash flows Operational
Consolidation / Aggregation of capacities Any stage

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Critical issues for Lenders in SHPs

Project issues:
 Completion Risk is a major issue followed by hydrology & evacuation in
remote areas
 Good quality DPRs, Adequate escalation & contingency provisions in project cost
Regulatory issues:
 Preferential tariffs with typically 3 year control periods for review
 Good mechanism by ERCs – need to ensure consistency of principals/ philosophy
behind such tariffs over a longer period
 State Govt. Implementation Agreements restrict transferability of Sponsors’
shares
 Open Access issues: invoking emergency provisions by States
Funding issues:
 Template based approach by domestic lenders leading to mis-financing
 Need for longer tenor funding of 15-18 years
 Room for top-up funding post demonstrated record of power generation

L&T parentage helps us appreciate specific requirements for offering

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Solar Power
 Nascent stage of Grid-connected solar capacity in India - on learning curve
 Off-grid Rooftop solar PV has been the main driver in past
 Rapidly changing towards larger grid-connected capacity due to policy impetus through
preferential tariffs, specific solar RPOs, RECs etc
 Central initiatives: JNNSM
 Seeks to achieve capacity of 20,000 MW by 2022: 1,000 MW in first phase
 CERC: Tariff of Rs. 17.91/ kWh for PV and Rs. 15.31/kWh for solar thermal
 Reverse bidding to reduce it to Rs. 12-13/ kWh
 Mechanism of sale of bundled power (from 15% unallocated quota of NTPC of ~4,500
MW) through NVVN as an optical solution for higher solar tariffs
 Counterpart risk: A Payment Security Fund proposed as a backstop in default situations
 State initiatives: Gujarat
 GUVNL has signed firm PPAs for >700 MW solar PV capacity vis-à-vis ~10,000 MW of
existing installed capacity
 Higher feed-in tariff of Rs. 15/ kWh for limited period of 12 years only
 12 months more for achieving COD till Dec 2011 for getting applicable tariff

Significant policy impetus by Central as well as State Govts

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Critical issues for Lenders in Solar Power

Project issues:
 Irradiation measurement risk & technology risks in solar thermal
 No operational history of generation: Sole reliance of satellite data without IMD
ground weather stations close to proposed locations
Regulatory issues:
 Sustaining specific quota in RPO & Preferential tariffs over long term till grid
parity
 Trade off between encouraging domestic capacity & quick low-cost
implementation
Funding issues:
 Expectations of 70:30 or higher debt equity from Sponsors appears aggressive
 Tariffs quoted in reverse bidding seem aggressive
 Gujarat PPAs: only 12 years of higher tariff allows short tail
 Technology & implementation risk – higher for solar thermal
Bankability yet to be established in the domestic banking system
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Wind Power
 Highest contributor in renewable energy installed
capacity so far (~ 70%)
 Accelerated depreciation benefits
 Relatively short & easy implementation

 Side-effects of Capex based benefits to developers so far

 Focus of corporates on putting up plants for depreciation & not
on generation
 Hurrying through technical studies/ wind assessment to catch
October/ March capitalization deadlines
 Generation-based Incentives adopted now is the better approach

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Critical issues for Lenders : Wind Power

 Need to insist on a good initial technical study/wind potential
assessment
 Design of turbine blades, PLF assumptions
 Experienced in-house/ contractor team for O&M with built-in
incentives
 Evacuation issues in remote areas
 Different slabs of tariff set as per Wind Zones by some states
 Combination of PLF & tariff to offset each other’s effects
 Consistency in tariff framework by ERC is more important
 TN, Karnataka, Gujarat have benefited on this count
 Need loan tenor of at least 12 years for financial viability

Utility based business model yet to be established

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Biomass Power
 Significant contributor so far in renewable installed capacities other
than wind in India
 > 2,300 MW in aggregate comprising many smaller capacities
 Cane Bagasse, Rice Husk, Juliflora, Coconut Shells used as fuel
 Uses conventional rankine cycle plants
 Modifications for handling multi-fuels and potential corrosion effects
 Higher preferential tariffs in most of the states besides MNRE
subsidies
 Two-part tariffs with energy charge components linked to average prices
of biomass in the state to be reviewed more frequently

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Critical issues for Lenders : Biomass Power

 Fuel security issues:
 Control over availability & pricing of biomass is a major issue
 Has witnessed multi-fold increase in prices once plant dependence is
established
 Dealing with small sized & unorganized suppliers without enforceable
contracts
 Collection & logistics management for small quantities of fuel
 Configuration for diverse types of biomass coupled with availability in
vicinity
 Appreciation of ‘local’ factors critical for success
 RDF/ MSW-based power plants yet to demonstrate financial viability

Selective exposures being taken by L&T Infra

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L&T Infra- A Snapshot

Asset Size Rs. 5000 Cr.

Disbursements Over Rs. 10,000 Cr.

Debt Syndicated Over Rs. 12,500 Cr.

Syndication pipeline Over Rs. 14,000 Cr.

Underwriting Capability Over Rs. 450 Cr.

 Projects financed across all infra sectors

 L&T parentage helps better appreciate technology & implementation issues
 Offers “Tailor-made solutions” through innovation especially in renewables
 Ticket size of Rs. ~250 cr: Offers one-stop solutions for complete debt tie-up

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THANK YOU
G. Krishnamurthy, Head – Project Finance
L&T Infrastructure Finance Co. Ltd.
3-B, Laxmi Towers, 2nd Floor
Bandra Kurla Complex, Bandra (E),
Mumbai – 400 051, India
Tel: +91-22- 4060 5382
Fax: +91-22-4060 5353
g.krishnamurthy@ltinfra.com
www.ltinfra.com

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