Presentation:

Study of factors affecting project cost, risk analysis and financial modeling of UMPP

Introduction

Why UMPP?
Economies of scale, supercritical technology Power a key driver of growth Demand supply mismatch Why the project? Understanding the decision variables, financial modeling and analysis To understand as to how costs can change with project

Factors affecting projects cost

Factors Factors

affecting capital expenditure affecting Operation expenditure

Risk

Risk during construction Operational Risks

Factors affecting projects costCapital Expenditure

Land
Availability- R&R issues, Infrastructure. Adaptability, Seismic zone, Soil, Ground water, level, Hydrological, Wind loading

Plant Size/Configuration/ Technology:

Subcritical/supercritical Size of plant/unit OEM/suppliers

Gestation period & delays

Leads to compounding of interest. Raises risk and project cost.

Land Requirement (Hectares) Land Costs (in Rs Cr) Use of Land Plant Area Ash disposal Employees Colony Road from colony to plant Corridor Ash Pipe Intake Water Pipeline Coal Mine Land Requirement for Project Resettlement and Rehabilitation Total Total 818.98 329.74 181.53 MGR Land 80 13.73 Water & Ash Pipeline Corridor 1 0.73 Total 6.34 2965.00
Coal Block land costs Land Afforestation of Forest Land R&R

Land

R&R

Total

Power Plant Area 110 136 246

34

114

191

170

361

4,316.05

Geolog ical Report

Total

192.62

Total

142
4,508.67

35

75

19

271

Project

Capacity (MW)

Unit Size (MW)

Project Cost (Rs. crore)

Cost per MW (Rs. crore)

Sasan UMPP (excluding apportioned Coal Block Development cost) APL Phase-III (Including Coal Supply Advance) NTPC Sipat Phase I

3960

6606

16,243

4.10

1320 1980

6602 6603

5,796 8,323

4.12 4.20

Tata UMPP
NTPC Barh Cuddalore Power

4000
1980 1320

8005
6603 6602

17,024
8,693 6,379

4.26
4.39 4.83

PFC long term State(Category 'A+')/ CPSUs/ AAA rated Companies State (Category 'A')/ Central/ Private(IR-1)

Private Sector

BORROWER

IR2/ E I & E II

IR-3 / E III & E IV / D-A

IR-4

IR-5 / D-B/ E V/ Non graded

Generation

12

12.25

12.75

13

13.25

13.5

Factors affecting projects costCapital Expenditure

Environmental and other norms/regulations:
Affects capital expenditure in additional effluent treatment facilities, other installations. Land cost, greenbelt area etc.

Sources of project Finance

Affects lending rates Cost of capital. Debt to equity ratio

Coal

Type Source Captive Mines

Factors affecting projects costOperational Expenditure

Coal

Price escalation Fuel linkages and availability

Technology Performance under Indian conditions Demand and bottlenecks

Efficiency Fuel, ash handling, etc

Sale over PPA and their cost

Parameters Base Case Station Heat Rate =2175 kcal/kWh Increae in Aux. Consumption by 0.5% Decrease in PLF by 5%

Post Tax IRR 10.37% 10.72% 10.28% 9.71%

Avg. DSCR 1.36 1.41 1.35 1.30

Min. DSCR 1.07 1.08 1.06 1.00

Increase in O&M cost by 5% Increae in FI Interest Rate by 0.5%

10.13% 10.38%

1.32 1.35

1.06 1.06

Source: Analysis, and British High Commissions report

Risks

10.1 Fuel Availability and Fuel Price Risk 10.2 Demand Risk 10.3 Payment Risk 10.4 Land Acquisition & Environmental Clearances 10.5 Financial Risk 10.6 Foreign Exchange Risk 10.7 Political Risk 10.8 Regulatory/Policy Risk 10.9 Equipment Shortage 10.10 Manpower Shortage 10.11 Technology Risk 10.12 Interest Rate Risk 10.13 Performance Risk 10.14 CDM Risk

Risk Description Fuel Availability Risk

Severity High

Allocation Project Sponsor

Mitigation Long Term fuel supply contracts, Vertical Integration

Fuel Price Risk

High

Project

Sponsor

or

DISCOM Long

Term

contracts

with

through escalation clause

Payment Risk High Project Sponsor

proper

escalation

clauses,

Vertical Integration Escrow Mechanism for central and state utilities; Trust and Retention Account for others.

Foreign Exchange Risk

Interest Rate Risk Cost and Time Overrun Regulatory Risk Demand Risk Clearance Political Risk Manpower Availability Financial Risk Water Availability Technology Risk

Medium
Medium Medium Medium Low

Project Sponsor
Project Sponsor EPC Contractor Project Sponsor Project Sponsor Project Sponsor Project Sponsor Project Sponsor Project Sponsor Project Sponsor Project Sponsor Upgrade technology generation plant or with new diversify Training Long Term PPAs Involve all the stakeholders and negotiate directly Fixed Rate loan, Refinancing Penalty Clause

Land Acquisition and Environment High Medium Medium Medium Medium Low

Plant Performance Risk

Low

Equipment Manufacturer

Suitable clause in the contract

Financial Modeling

To study the effect of factors mentioned in the report, a financial model was made taking suitable assumptions where applicable. The model used Discounted Cash Flow method for arriving at the NPV and IRR figures. Indicators calculated NPV IRR Project Equity Equity NPV NPV (Rs) 6336.741 4213.449 Equity IRR IRR 12.47% 21% DSCR DSCR (min) 1.84

*NPV = Cr INR

EBIT
4500.00 4000.00 3500.00 3000.00 2500.00 2000.00 1500.00 1000.00 500.00 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 EBIT

7000.00 6000.00 5000.00 4000.00 3000.00 2000.00 1000.00 0.00 1 2 3 4 5 6 7 8 9 10 Debt Payments NOI

DSCR

NPV Risk analysis with Changing Coal price (1.8 to 3.6 Kg)

IRR Risk analysis with Changing PLF (95 mean and 5% Std deviation)
Entire range is from 19% to 23% Base case is 21%

Thank You