geothermal energy : india market overview
DESCRIPTION
Frost & Sullivan Analysis of the India Geothermal Energy MarketTRANSCRIPT
Geothermal Conference – 8-10th December 2009 1
Geothermal Energy : India Market Overview
-Outlook & Potential for Geothermal Energy –
Geothermal Conference, 8-10th December 2009
Geothermal Conference – 8-10th December 2009 2
1. Outlook on geothermal sector and its potential as the key resource for clean power generation Globally and in India
2. Government policies in pushing the developments of geothermal power generation
3. Economics and legal challenges for geothermal investments and development
4. Understanding the geothermal project characteristics – Project profitability, project financing sources
Agenda
Geothermal Conference – 8-10th December 2009 3
Geothermal energy uses hot water or steam as an energy resources to drive turbines
• Geothermal Power uses hot water or steam to turn
turbines and generate electricity, and the risk lies with
the IPP
• Several technologies exist in order to achieve this
depending on the form of the energy (water or steam)
and the types of temperatures.
• Most technologies exist in the sector though have their
own particularities, and new technologies are being
developed to target certain conditions.
What is Geothermal Energy?
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Geothermal has been around for a long time and is making a comeback due to a push for “green” backed by subsidies i.e. recent US subsidies
Key geothermal markets globally
Source : Frost & Sullivan
US
Chile
Mexico
Canada
Philippines
ANZ
Indonesia
Turkey
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Indonesia and the Philippines are well placed in terms of potential to further grow their geothermal capacities. This will take time though…
Market Size and Potential for Geothermal Energy
Top Geothermal Countries by Capacity & Pipeline
Source : Emerging Energy Research
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India has around 10.6 GW of geothermal potential overall that can be tapped into
Market Size and Potential for Geothermal Energy
Overview of Key Indian Geothermal Potential by State
Jammu & Kashmir
Himachal Pradesh
Uttaranchal
Punjab
Rajasthan
Haryana
Uttar Pradesh
Madhya Pradesh
Gujarat
Maharashtra
Karnataka
Goa
Kerala
Andhra Pradesh
Orissa
Chhattisgarh
Bihar
Jharkhand West Bengal
Assam
Meghalaya
Mizoram
ManipurNagaland
Arunachal Pradesh
Sikkim
Tripura
Lakshadweep
Delhi
Bangalore
HIMALAYA : 468/ 234
GODAVARI : 104/ 60
SONATA : 280/ 90
CAMBY : 93/ 70
WEST COAST : 129/ 59
MAHANADI
SOHANA : 76-96
HEAT FLOW VALUES / THERMAL GRADIENT
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India has around 10 GW of geothermal potential overall that can be tapped into
Market Size and Potential for Geothermal Energy
Characteristics of Geothermal Provinces in India
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Coal still accounts for a significant percentage of electricity generated in India
Overview of Indian Power Mix
Overview of Indian Power Mix - 2008
Fuel MW Percentage
Coal 76,048.88 53.16%
Gas 14,656.21 10.24%
Oil 1,201.75 0.84%
Total Thermal 91,906.84 64.24%
Hydro 35,908.76 25.10%
Nuclear 4,120.00 2.88%
Renewable 11,125.41 7.78%
Grand Total 143,061.01 100.00%
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India already has a shortage of energy of 8% average, and 12% in peak
Overview of Indian Power Supply vs. Demand
Overview of Indian Supply Demand Gap
Year Energy Requirement (MU)
% age increase
Energy Availability (MU)
% age increase
Energy Shortage (MU)
Energy Shortage (%)
1997-98 424505 NA 390330 NA 34175 8.05%1998-99 446584 5.20% 420235 7.66% 26349 5.90%1999-00 480430 7.58% 450594 7.22% 29836 6.21%2000-01 507216 5.58% 467400 3.73% 39816 7.85%2001-02 522537 3.02% 483350 3.41% 39187 7.50%2002-03 545983 4.49% 497890 3.01% 48093 8.81%2003-04 559264 2.43% 519398 4.32% 39866 7.13%2004-05 591373 5.74% 548115 5.53% 43258 7.31%2005-06 631554 6.79% 578819 5.60% 52735 8.35%2006-07 690587 9.35% 624495 7.89% 66092 9.57%2007-08 (Apr-Jan '08)
608804 NA 554248 NA 54556 8.96%
Year Peak Demand (MW)
% age increase
Peak Met (MW) % age increase
Peak Shortage (MW)
Peak Shortage (%)
1997-98 65435 NA 58042 NA 7393 11.30%1998-99 67905 3.77% 58445 0.69% 9460 13.93%1999-00 72669 7.02% 63691 8.98% 8978 12.35%2000-01 78037 7.39% 67880 6.58% 10157 13.02%2001-02 78331 0.38% 69189 1.93% 9142 11.67%2002-03 81492 4.04% 71547 3.41% 9945 12.20%2003-04 84574 3.78% 75066 4.92% 9508 11.24%2004-05 87906 3.94% 77652 3.44% 10254 11.66%2005-06 93255 6.08% 81792 5.33% 11463 12.29%2006-07 100715 8.00% 86818 6.14% 13897 13.80%2007-08 (Apr-Jan '08)
107010 NA 90793 NA 16217 15.15%
Trend in Peak Power Demand Supply Gap (MW)
Trend in Energy Demand Supply Gap (Million Units)
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India already has a shortage of energy
Overview of Indian Power Supply
Electrification Percentage in India
No. of Villages (Census 1991) Villages Electrified (30th May 2006)Electrification percentage
593,732 471,360
79.4%
Rural Households (Census 2001) Having accessElectrification percentage
138,271,55960,180,685 44%
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1. Outlook on geothermal sector and its potential as the key resource for clean power generation in Indonesia and Philippines
2. Government policies in pushing the developments of geothermal power generation
3. Economics and legal challenges for geothermal investments and development
4. Understanding the geothermal project characteristics – Project profitability, project financing sources
Agenda
Geothermal Conference – 8-10th December 2009 12
Government policies for pushing geothermal have been better in certain countries compared to others and this has changed over time
Government Policies for Geothermal
Source : Frost & Sullivan
US
Chile
Mexico
Canada
Philippines
ANZ
Indonesia
Turkey
Strong policy/ must have
Weaker policy
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1. Outlook on geothermal sector and its potential as the key resource for clean power generation in Indonesia and Philippines
2. Government policies in pushing the developments of geothermal power generation
3. Economics and legal challenges for geothermal investments and development
4. Understanding the geothermal project characteristics – Project profitability, project financing sources
Agenda
Geothermal Conference – 8-10th December 2009 14
Gestation time and nature of project impacts the economics
Snapshot of Geothermal Project Time Frame
Site Location ExplorationField
DevelopmentConstruction Startup Operation
3 Years 2 Years
Level of Risk by Stage
Ideal to Have Support &
Funds at this Stage!!!!
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Price of the off-take has the single highest impact on the economics
• Big projects of over 100 MW will get ????? cents kw/h. Indian
PPA’s not always that atttactive.
• Smaller projects can get ????? cents kw/h. Would there be an
incentive for smaller projects?
• Location can also make a difference. Are the projects near power
lines in India?
Economic Impact
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Legal impact relating to financing, taxation, etc. need to be scrutinized clearly. Definition that the country has may not be the same definition you have!
• What are the power tariffs, structure, and security? Opaque process and inadequate
PPA provisions exist in the market.
• How is taxation structured?
• Are there duties on imports?
• Opaque tender processes. How are bidders awarded projects?
• Poor resource data or no data compared to other countries.
Legal & Other Impact
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1. Outlook on geothermal sector and its potential as the key resource for clean power generation in Indonesia and Philippines
2. Government policies in pushing the developments of geothermal power generation
3. Economics and legal challenges for geothermal investments and development
4. Understanding the geothermal project characteristics – Project profitability, project financing sources
Agenda
Geothermal Conference – 8-10th December 2009 18
Geothermal energy risk is similar in many ways to oil & gas exploration but also has fundamental differences. Are you getting rewarded for risk.
• Geothermal risk profile is not that different compared to oil & gas where you have to find
resources and drill other than:
Most of the risk is taken upfront in a projectIs very site and location specific, therefore comparables are hard
• Once the geothermal plant is up and running, however, virtually risk free, non-polluting energy
can be made available.
• Risk management has to be hands on by the developing party to mitigate changing risk profiles.
What is Geothermal Energy’s Risk Profile?
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Key fundamentals in any project financing venture
Key Factors in Project Financing
• Project must be doable and of benefit
• Dependable developers and reliable off-taker
• Competitive power prices that are transparent and locked in
• Project risk must be understood and allocated properly.
• All parties must walk away with something!
Financing Considerations
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Before analyzing profitability and financing options must first understand what different parties need to get out of a geothermal project…..
For the Investor…..
• Geothermal project as mentioned previously is all about managing dynamic & changing risks,
experience is therefore absolutely key – solid partner must be involved
• Types of risk along the project must be distinguished and determine what types of investors are
suited in terms of the development stages – geothermal and India centric investors
• A long term approach needs to be adapted and therefore parties with the right level of long term
appetite need to be sought as well as parties that can support IRR’s as low as ~15% on certain
projects – India can accept these types of returns
• Also less potential for big windfall gains – is more a steady asset play when plant is running
Geothermal Project Characteristics?
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Before analyzing profitability and financing options must first understand what different parties need to get out of a geothermal project…..
For the State or Utility and Society….
• Is a very secure source of supply with a high base load factor
• Security of price is present in the deal structure : lower risk = lower financial returns
• Distributed generation gives a very efficient use of transmission system compared to a large
power plant – size of geothermal projects makes them attractive
• Renewable resources allowing reduction of subsidized fossil fuel imports into countries such as
India
Geothermal Project Characteristics?
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Profitability is typically around15-16% IRR in Indonesia but can actually be pushed higher through based on CDM’s and location of the plants
Profitability Example : Indonesia
• 16% IRR typically used in the market though some projects can give less and some more
• Debate always centres around the price that the PLN can provide, however projects can have
good IRR’s in Indonesia that are palatable to investors
• Risk profile of geothermal, especially at early stage should however command a higher IRR than
it currently does though – country risk is also probably overlooked in comparison to project risk
• IRR’s should really be in the higher teens and command an IRR of 20% in Indonesia to our mind
to reflect the risk levels. This level would be OK for an asset based renewable energy projects,
more or less in line with IRR’s found in wind projects in riskier areas.
• Indian IRR’s of 12-15% are being achieved in wind, so Geothermal should be attractive.
Profitability of Projects?
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What lenders specifically look for in a geothermal project
Specific Things that All Investors look for when Financing a Geothermal Project:
• Projects have to be bankable and this will depend on numerous factors including but not
limited to : key sponsors, their track record, and financial capabilities, cash flow and its
dependability, creditworthiness of the offtaker, credit enhancements etc.
• Project construction period : could there be delays and what contingency is required if so?
• Period of operation of the plant : ability to service the debt?
• Risk Allocation/ Management : who is responsible for the risk, can it be shared, how to mitigate
it, cost of risk?
Financing Considerations
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Each and every country, including location within it, has it own set of risks that must be closely identified, and appropriate mitigation strategies put in place
Specific Risks : India
• Credit worthiness of the buyer – state utilities, and contract structures
• Land acquisition
• Clear legislative and fiscal laws applying to geothermal – tax, environmental, etc. – change in
law?
• Local issues where the plant is situated – legal, social, environmental and even monetary
• Political risk, terrorism, currency risk, changes in law, i.e. nationalization, pricing structures
Specific Risk Analysis of Indian Projects
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Hypothetical analysis of an Indonesian Geothermal Power Project
Typical Financials of a Project: Indonesia Example
• Project size 100 MW
• Cost per MW $2.3 to $3 mn depending on technology
• Debt to Equity : Classic 75/25 split
• Interest Rate : ~9%, 10 Year Tenor (high in India – 13%)
• Equity IRR : ~16% based on price of 7.5 to 9 cents kw/h, and 85-90% load rate
Financials of a typical Indonesian Project
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Thank You
Chris de LavigneGlobal VP Consulting Frost & Sullivan
+65 9615 8293
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