Perceptionsfromtheprivatesector AnIndiansolardevelopersperspective

AlanRosling

KiranEnergy
BangladeshSolarEnergy DevelopmentForum 20th September2011

KiranEnergy AnOverview
Introduction Kiran Energy Solar Power Private Limited (Kiran Energy) aims to become a leading green power company in India with a focus to build a portfolio of grid connected and corporate captive solar photovoltaic power plants within high isolation zones of India. Kiran Energy has secured a Series A financing round of US $ 50 Mio from a consortium of private equity investors Bessemer Venture Partners, Argonaut Private Equity and New Silk Route.

Kiran Energy is a professionally run organisation promoted by : Alan Rosling: Former Executive Director of Tata Sons and Chairman of the Jardine Matheson Group in India, Alan has also been a Special Advisor to the British Prime Minister, John Major. Alan was educated at Cambridge University and Harvard Business School. Ardeshir Contractor: Former Managing Director at KPMG India, Ardeshir serves on several international company Boards and Government Committees. Ardeshir has a BTech from IIT Mumbai and an MS from Ohio

Professional Management Team Proven experience in growing businesses within well-established corporations like Tatas and KPMG, backed by a highly acclaimed advisory board Project Management Project team with well-established experience in solar industry backed by reputed independent engineering firms such as TCE

Strong Equity Backing Funded by three Global Private Equity Funds with commitment to invest in Indias Solar potential Strategic Relationships Essential relationships with potential stakeholders including financing institutions, engineering firms, other corporate for potential clients

Land Banking Kiran Energy is building a significant land bank in high insolation zones in India to prepare itself for its development plan Project Financing Continuous endeavor to use innovative and globally acceptable structures to reduce debt burden such as export credit and securitization

CurrentProjectsUnderConstruction

SolarProjects:Criticalfinancingcriteria
Equity
Internal Rate of return/(IRR) higher than risk adjusted WACC

Debt
Debt Service Coverage Ratio(DSCR) on conservative case higher than 1.3

RISKS
Risks
Climate Technology Implementation Financial Evacuation PPA risk

Mitigation
Analysis of historic data Field Performance. EPC contractor guarantees Fixed term EPC contract Hedging Track record of grid/transmission company, contract Credit profile/rating of off-taker, potentially insurance

KeypolicyrequirementsfromGovernment
Policy: Clear policy supported by political will to promote and scale solar power until economics converge with grid alternatives Tariff: Off-take regime such as Feed-in Tariff to support economics PPA: PPA on terms acceptable to banks from a creditable counter-party Evacuation: Clarity and predictability of evacuation of power through the grid Clearances: Clear and timely licensing and permitting regime Land: Where private land procurement is an issue, support on securing acceptable land
Mr.ArdeshirContractorcollectingAllotmentLetter fromMr.NarendraModi,ChiefMinisterofGujarat

Policy
Commitment to strategic importance of solar in the energy mix Support of solar economics until convergence with grid alternatives Predictable roadmap to achieve industry scale with annual allocation Widely debated and accepted Independent regulator Economic support through one or more of:
Feed-in Tariff set annually by Regulator (Europe, Gujarat) Competitive bidding on discount to regulated rate (Indian National Solar Mission, South Africa) Regulated solar requirement with tradable certificates (Indian RPO system) Tax concessions and incentives (USA)

Private and Confidential

Bhumi Puja during Ground Breaking

Tariff
Attributes
Positive

Feed-in Tariff
Clear and simple Secures maximum participation Regulator may set rate incorrectly Potential excess applications

Reverse bidding
Market discovers proper pricing Open competitive process Complex process Potential for winners curse

Negative

Budget pressure, if not capped upfront Requires participants to commit resources Allocation of scare resource

TARIFF (Rs.)

PowerPurchaseAgreement
Timeline of 20-25 years Credit status of counterparty (or credit enhancement) Payment terms Committed dispatch Dispute resolution and consequences of default

Support Structures for modules at our 20MW Site at Gujarat Solar park

Modules being fitted at our 20MWSite at Gujarat Solar park

Evacuation
Responsibility to connect Capacity of substations Cost of any connection to substation Grid stability and availability Responsibility for deemed generation Timelines

Electrical layout for the Solar Park as proposed by GETCO

Clearances
Clarity on required permits and sanctions Timelines involved Comfort on delays for improper motives

Attribute
Land Related

Clearances
Land Use State Pollution Control Board Ministry of Forest and Environment Environmental Impact Study Airport Authority of India Clearance Defense Clearance Water Supply Clearance Rehabilitation & Resettlement Road and Railway Clearance Mining Clearance Archaeological Clearance Central Sales Tax State VAT Customs and Excise Duty Exemptions Import Export Code Industrial Entrepreneurs' Memorandum Labour Commissioner Approval Factories Act Transmission scheme approval Report from electrical inspectorate Approval from electrical inspectorate

Financial

Business Compliance Evacuation

Land
Considerations
Availability of private land and efficiency of market Alternative availability of Government land Title risks and consolidation Land use changes Issues of encroachment or social claims Political or community issues Environmental considerations Timeline risks

Land Purchase Process in India

SolarParks:OurexperienceintheGujaratSolarPark
Advantages
Good land for solar use Speed of land acquisition Single Window for most clearances Higher certainty on evacuation Common services Clustering of developers

Disadvantages
Government entity as landlord Lease rather than freehold Cost of land, including development charges Inflexibility on lease terms

Learningsfromearlierengagementwith projectsinBangladesh
Extreme shortage of large land plots due to population density Vulnerability to floods and tropical storms Intense political debate on most issues Speed and certainty of decision taking and clearances Importance of wider society and media Grid weaknesses and financial position of DISCOMs Important role for Multi-Laterals and donor countries Sensitivity to investment from India given bi-lateral issues

SummaryofpolicyasksfromGovernmentofBangladesh
Clear solar policy with future roadmap to scale and wide support in the country Tariff to reflect costs, risks and insolation Bidding process almost certainly better for all World standard PPA with credit enhancement Facilitation of issues over land, evacuation and permitting with timescales established Solar Park on a turnkey basis for successful applicants/ bidders Developed land Common clearances including EIA Assured evacuation