sample report - project appraisal

7/30/2019 Sample Report - Project Appraisal

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Solar power plants 2010

1

Sample Report

Prepared by employee of

JaZaa Financial Advisory Pvt. Ltd.

PROJECT APPRAISAL MODEL FOR

SOLAR POWER PLANTS


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1. Acknowledgement:There is always a sense of gratitude, which everyone express to others for the helpful and

needful services they render during different phases of life and help to achieve the goals. We too,

want to express our deep gratitude to each and everyone who have always been helpful to us in

getting this project to a successful end.


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2. Executive Summary:Energy is considered a prime agent in the generation of wealth and a significant factor in

economic development. Limited fossil resources and environmental problems associated with

them have emphasized the need for new sustainable energy supply options that use renewable

energies. Solar thermal power generation systems also known as Solar Thermal Electricity (STE)

generating systems are emerging renewable energy technologies and can be developed as viable

option for electricity generation in future.

Solar energy has many direct uses, including passive architectural applications such as lighting

and thermal comfort provided by the use of proper building materials and orientation, as well as

active water and space heating. Solar photovoltaic (PV) cells and concentrating solar power

(CSP) systems can generate electricity on a small or large scale. In addition, PV cells are used in

a variety of cost-effective and off the grid applications, including calculators, wrist watches,

road and railroad warning signs, flashing school zone lights, telecommunication equipment and

emergency lighting on offshore oil rigs.

India is both densely populated and has high solar insulation, providing an ideal combination

for solar power in India. India is already a leader in wind power generation and Suzlon Energy is

one of the India-based pioneering industries in world to generate non-conventional energy. In

solar energy sector, some large projects have been proposed, and a 35,000 km area of the Thar

Desert has been set aside for solar power projects, sufficient to generate 700 to 2,100 giga watts.

Jawaharlal Nehru Solar Mission envisages grid connected Solar Power Capacity at 1000 MW by

2013and 20000 MW by 2022. Hence lots of subsidy and benefits are being given by the

government to firms setting up Solar Power Plants.

This project entails preparation of detailed project appraisal model for Solar Power Plants

(Photovoltaic and Solar Thermal Power Plants). The tariff calculation of the project is based on

CERC Regulations for renewable energy projects. CERC (Central Electricity Regulatory


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Commission) is the regulatory body which lay down guidelines regarding all issues of

commercial energy sector.

CERC has laid down guidelines for tariff calculation for renewable energy sector in order to

promote standard tariffs for such projects and to bring in uniformity in power purchaseagreements. Also since no historical data are available for most types of renewable energy

projects, the guidelines help in setting normative tariffs for the projects.


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CONTENTS:

1. Acknowledgement .............................................................................................................. 2

2. Executive Summary ........................................................................................................... 3

3. Introdution .......................................................................................................................... 6

4. Market Analysis ................................................................................................................. 9

4.1 Porters 5 forces ........................................................................................................... 9

4.2 Demand Forecasting ................................................................................................. 10

4.3 Market Charecterization ........................................................................................... 10

5. Technical Analysis ........................................................................................................... 11

5.1 Manufacturing Technology ...................................................................................... 11

5.1.1 Proposed Technology ....................................................................................... 12

5.2 Solar thermal power plant ......................................................................................... 12

5.2.1 Parabolic trough system ................................................................................... 13

5.3 Capacity utilization factor ........................................................................................ 14

5.4 Location .................................................................................................................... 15

5.4.1 Solar radiation over rajasthan ........................................................................... 16

5.5 Capital cost ............................................................................................................... 17

5.6 Operation and Maintenance ..................................................................................... 18

6. Implementation Schedule ................................................................................................. 18

7. Financial Analysis ............................................................................................................ 19

8. References ........................................................................................................................ 25


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3. Introduction:With more and more focus on sustainable development, clean and renewable energy is the most

contemporary topic of discussion at the various world forums.

With Kyoto Protocol and Copenhagen Agreement, Solar Power is once again in prominence.

However the issue is grid parity (cost of solar energy in comparison to cost of conventional

energy) with conventional power plants which still drive the world.

Fig. 1Grid Parity for Solar Power Plants

While launching Indias National Action Plan on Climate Change on June 30, 2008, the

Prime Minister of India, Dr. Manmohan Singh stated:


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Our vision is to make Indias economic development energy-efficient. Over a period of time, we

must pioneer a graduated shift from economic activity based on fossil fuels to one based on non-

fossil fuels and from reliance on non-renewable and depleting sources of energy to renewable

sources of energy. In this strategy, the sun occupies centre-stage, as it should, being literally theoriginal source of all energy. We will pool our scientific, technical and managerial talents, with

sufficient financial resources, to develop solar energy as a source of abundant energy to power

our economy and to transform the lives of our people. Our success in this Endeavour will change

the face of India. It would also enable India to help change the destinies of people around the

world.

Continuing with this policy, India moves ahead in renewable energy sector with Jawaharlal

Nehru Solar Mission. India is endowed with vast solar energy potential. About 5,000 trillion

kWh per year energy is incident over Indias land area with most parts receiving 4 -7 kWh per sq.

m per day. Hence both technologies, namely, solar thermal and solar photovoltaic, routes for

conversion of solar radiation into heat and electricity can effectively be harnessed providing

huge scalability for solar in India. Solar also provides the ability to generate power on a

distributed basis (non grid connected) and enables rapid capacity addition with short lead times.

Off-grid decentralized and low-temperature applications will be advantageous from a rural

electrification perspective and meeting other energy needs for power and heating and cooling in

both rural and urban areas. The constraint on scalability (increase in size) will be the availability

of space, since in all current applications, solar power is space intensive. In addition, without

effective storage, solar power is characterized by a high degree of variability (variance in terms

of degree of sunshine received and energy produced). In India, this would be particularly true in

the monsoon season.

Current scenario is that at least 25 companies have come forward, with investment proposals

totaling over Rs 1,00,000 crore over the next three to 10 years.

This sudden trend of investment in Solar Power sector is due to the following: 10-year tax holiday for photovoltaic (PV) and thermal solar plants set up by 2020,

reduced customs duty and zero excise duty on specific capital equipment, critical

materials and project imports

Generation Based Incentive (GBI) Max. Rs 11.4 per unit in case of solar photovoltaicand Max. Rs 9.5 per unit in case of solar thermal power


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High equity returns (19% for first 10 years and 24 % from 11 th year onwards) envisagedin Tariff calculations

CDM benefitsCarbon Trading benefits could be utilized by companiesFinancial appraisal is done to ensure the project feasibility in terms of risk and return andsensitivity analysis. Both discounted and undiscounted methods of financial appraisal could be

used.

With so much focus on Solar Power Plants, the development of financial appraisal model for

Solar Power Plants is pre requisite to move ahead. The financial model developed in this paper is

based on Central Electricity Regulatory Commission (CERC), New Delhi, Tariff Regulations for

Renewable Energy Projects.

By calculating the Tariff (based on the CERC Regulations) we are able to calculate the total

revenues to be generated by the project and subsequently the cash flow and P&L account are

prepared for useful life of the plant i.e. 25 yrs. Based on the cash flow the Internal Rate of Return

(IRR) and DSCR (Debt Service Coverage Ratios) are calculated.


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4. Market Analysis:4.1 Porters Five Forces Model

Entry Barriers:The establishment of a solar power plant requires huge investments in capital which can be

approximately four times compared to a thermal power plant. The entry barrier is thus high.

However there are no such industry standards for comparison.

Bargaining power of Buyers:The bargaining power of buyers is less as there are not many suppliers of power with whomthe buyers can negotiate.

Bargaining power of suppliersThe bargaining power of suppliers is more since there are a limited number of suppliers and

hence power supply can be controlled to a greater extent by them

Substitute:

Rivalry:

Presently no rivalry sinceits a relatively virgin

territory

Substitute:

No substitute for power,

source of power can havesubstitutes. Coal is asubstitute due to its

abundance.

Bargaining power ofSupplier:

More, since number ofsuppliers is limited

Bargaining power ofBuyers:

Less, Not many suppliers tonegotiate with

Entry Barriers:

Cost of entry is exorbitantNo industry standards forcomparison


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There is no substitute for power. However source of power can have substitutes like coal,

wind, water etc. Coal is the most competitive substitute due to its greater abundance and

efficiency in power production

RivalrySince the power territory is a relatively virgin territory, inter firm rivalry is low.

4.2 Demand Forecasting

It has been estimated that the consumption of electrical energy will rise from 660KWh per capita

to well above 2000KWh per capita by 2032.

The grid connected power generation will scale up from 147GW to 460GW.Immense potential

lies for off grid application in rural areas facing chronic power shortages. Power usage in ruralareas will be required for

Basic electrification Irrigation pumps Power backup for cellular towersAll the above factors present an enormous opportunity to the power sector.

4.3 Market CharacterizationBreakdown of Demand

As per the demand observed, the consumer groups can be divided into Industrial, Domestic and

Rural.

Price structures

The price structures are as follows:

Manufacturers price-15-20/unit Retail price-Not to exceed Rs 9/unit Subsidy- Up to Rs 12/unit(Following policy is applicable for 10 yrs)Methods of generation/distribution

The methods of generation and distribution of power is mainly through the following two

sources: Solar Thermal Power plants and Photo Voltaic Panels

Competition


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The existing competition involves both public and private players, some of whose names are

listed below.

Azure, Tata BP Solar, RIL Solar Ltd in the private sector and state electricity boards in the

public sector.Government policy

In the latest budget for 2010-11, the government has announced an allocation of Rs10 billion

towards the Jawaharlal Nehru National Solar Mission. Also there is going to be reduced customs

duty on solar panels by 5 percent and exempted excise duty on solar photovoltaic panels. The

government proposed a coal tax of USD 1 per metric ton on domestic and imported coal used for

power generation. It has also increased the allocation for the Ministry of New and Renewable

Energy (MNRE) by 60 per cent

5. Technical AnalysisTechnical analysis is aimed at evaluating the various technologies available for setting up the

project. It attempts to compare the various options brings out the best option amongst the

available ones.

The various items to be considered while doing a technical analysis for a project are

Manufacturing technology Plant capacity Materials and Utility Location , site and infrastructure cost

5.1 Manufacturing Technology

The technology available for solar power generation is mainly of two types

Photovoltaic System Solar Thermal Power Plants

There are various options available under each of these systems

PV System Multi-crystalline Silicon Cells Mono-crystalline Silicon Cells Amorphous Silicon/Thin film Silicon cells


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Thick-Film Silicon Solar Thermal Power Plant

Parabolic trough system Power tower system Parabolic dish systems Linear Fresnel Reflector

5.1.1 Proposed Technology

A feasibility analysis of both the available technologies suggests an advantage for the solar

thermal power plant over the PV system.

Factors of differentiation

Factor PV System Solar Thermal Power

Normative Capacity

Utilization

19% 25%

Normative Capital Cost 17 Cr/MW 13 Cr/MW

From the table it can be inferred that a solar thermal power system provides 25% capacity

utilization as compared to the PV system which has a capacity utilization of 19% also the capital

cost associated with the PV system is far more than the solar thermal system.Thus the solar thermal system seems a good bet.

5.2 Solar Thermal Power Plant

In this report we dwell with the solar thermal power generation methodologies and discuss the

most feasible of the four. We focus on the parabolic troughs and the tower systems because these

have been judged to be the only solar thermal technologies that can make a significant

contribution to electrical grid. Furthermore, troughs and towers are designed for large scale

applications whereas other systems are better suited for small scale distribution. In the

subsequent sections we take a look at the parabolic trough system in detail. The table below

emphasizes the superiority of parabolic troughs


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Technology Type Installed Capacity (MW) till 2009 Capacity under cons. (MW)

Or Proposed

Parabolic Trough 500 > 10000

Power Tower 40 > 3000

Parabolic Dish < 1 > 1500

LFR 5 > 500

5.2.1 Parabolic Trough System

Parabolic troughs consist of long parallel rows of reflectors (typically, glass mirrors) that are

curved to form a trough. At the focal point of the reflector is the absorber tube or receiver. The

receiver is a pipe treated with a low-e coating encased in a glass cylinder, the space between thepipe and glass cover is evacuated. The rows are arranged along a north-south axis and they rotate

from east to west over each day. Parabolic troughs can achieve concentration ratios (ratio of solar

flux on the receiver to that on the mirrors) of between 10 and 100.

A heat transfer fluid or HTF (typically, an oil) is circulated through the receiver to remove the

solar heat. The HTF can be heated to temperatures of up to 400 C. The fluid is pumped to a heat

exchanger where its heat is transferred to water or steam. The parabolic trough can collect up to

60% of the incident solar radiation and has achieved a peak electrical conversion efficiency of

20% (net electricity generation to incident solar radiation).

A few salient features:

Most Mature technology Proven Technology Economies of scale being achieved in manufacturing Easier sourcing of concentrators Easy availability of spares

5.3 Capacity Utilization Factor

For a Solar Photovoltaic (SPV) project, Capacity Utilization Factor (CUF) is the ratio of actual

energy generated by SPV project over the year to the equivalent energy output at its rated

capacity over the yearly period. The energy generation for SPV project depends on solar


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radiation, measured in kWh/sq m/day and number of clear sunny days. The output of Solar Cell

is measured in terms of Wp (Watt Peak) and refers to nominal power under Standard Test

Conditions (STC) (1000 W/m2, 250C, 1.5AM).

The capacity utilization factor as quoted by the developers, in Rajasthan, varies from 24% to51% for Solar Thermal Power Technologies. However, various SERCs have considered plant

load factor in the range of 22%~24% while determining the tariff for Solar Thermal plants.

Accordingly, the normative Capacity Utilization factor of 25% has been proposed in case of

solar thermal power projects.

5.4 Location

India is located in the sunny belt of the earth, thereby receiving abundant radiant energy from thesun. Its equivalent energy potential is about 6,000 million GWh of energy per year. India being a

ropical country is blessed with good sunshine over most parts, and the number of clear sunny

days in a year also being quite high. India is in the sunny belt of the world. The country receives

solar energy equivalent to more than 5,000 trillion kWh per year. The daily average global

radiation is around 5 .0 kWh/m2 in north-eastern and hilly areas to about 7.0 kWh/m2 in western

regions and cold dessert areas with the sunshine hours ranging between 2300 and 3200 per year.

In most parts of India, clear sunny weather is experienced for 250 to 300 days a year. The annual

global radiation varies from 1600 to 2200 kWh/m2. The direct normal insolation1 (DNI) over

Rajasthan varies from 1800 kWh/m2 to 2600 kWh/m2.

Rajasthan is situated in the north-western part of India. It covers 342,239 square kilometers.

Rajasthan lies between latitudes 23o 3'and 30o 12', North and longitudes 69o 30' and 78o 17',

East. The climate of Rajasthan can be divided into four seasons; summers, Monsoon, Post-

Monsoon and winter. A summer, which extends from April to June, is the hottest season, with

temperatures ranging from 32 oC to 45 oC. In western Rajasthan the temp may rise to 48 oC,

particularly in May and June. The second season Monsoon extends from July to September, temp

drops, but humidity increases, even when there is slight drop in the temp (35 oC to 40 oC). 90%

of rains occur during this period. The Post-monsoon period is from October to November. The

average maximum temperature is 33o C to 38o C, and the minimum is between 18 oC and 20

oC. The fourth season is winter or the cold season, from December to March. There is a marked


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variation in maximum and minimum temperatures and regional variations across the state.

January is the coolest month of the year. There is slight precipitation in the north and north-

eastern region of the state, and light winds, predominantly from the north and northeast. At this

time, relative humidity ranges from 50% to 60% in the morning, and 25% to 35% in theafternoon. The north-west part of the country is best suited for solar energy based projects

because the location receives maximum amount of solar radiation annually in the country.

5.4.1 Solar radiation over Rajasthan

Rajasthan receives maximum solar radiation intensity in India. In addition the average rainfall is

very low in the state, hence best suited for solar power generation.The global solar radiation map

of Rajasthan is presented in Figure below; which is based on the measured data of Indian

Metrological Department (IMD) and satellite data through NASA. The map clearly emphasize

that the western and southern parts of the state receives good amount of annual average solar

radiation. Jodhpur is also one representative location of Rajasthan State.

Jodhpur has been chosen as a site for setting up the solar power plant. Jodhpur is the one of the

largest district of Rajasthan is centrally situated in Western region of the State, having

geographical area of 22850 sq. km. The district stretches between 2600 and 27037 at North

Latitude and between 72o55and 73o 52 at East Longitude. This district is situated at the height

between 250-300 meters above sea level.

Following table presents the outcome of solar radiation resource assessment for Jodhpur. It has

been estimated that the location receives 2241 kWh/m2 Direct Normal Incidence over the year.

The monthly values of global solar radiation diffuse radiation and effective sunshine hours at

Jodhpur have also been given in the table below.


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(Source: TERI analysis)

SPECIFICATIONS LAID DOWN BY CENTRAL ELECTRICITY REGULATORY

COMMISSION under petition no 255/2010

A. Land Cost

Land Costs norm should be Rs 5 Lakh/acre including conversion charges and legal fee expenses.

B. Civil & General Works

The cost of civil and general Works proposed by the Commission at Rs 0.95 crore per MW. It is

based on 6% of the total project cost. Estimate of civil and general works must be costed on

individual line items and actual cost should be taken as Rs 1.23 cr. /MW.

C. Power Conditioning Unit (PCU)

PCU cost of Rs 1.6 crore /MW is not realistic. Cost of inverters, transformers, erection &

installation of HT yard and other equipments for PE are Rs 2 crore per MW.

D. Financial Cost

The Commission has proposed financial cost at Rs 14.42 Lakh per MW which is under stated. It

should be considered at Rs 96 Lakh /MW which include facility fee of 1% of loan amount i.e. Rs

10 Lakh/MW and expenses towards 6 months debt service as collateral i.e. Rs 86 lakh/MW .

E. Capacity Utilization Factor (CUF)


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CERC RE Tariff Regulation specifies CUF of 19%.

F. Compensation of Degradation

Some project developer may not add modules after 4th year as envisaged. It appears

fundamentally wrong to capitalize the cost of plant that has not been installed and commissionedon COD and in turn allowing RoE (part of which has not been deployed) and interest on loan

(part of which has not been drawn). It is proposed to allow additional capitalization only after the

plant has been installed, as has been the usual practice along with the O & M charges subject to

the condition that payment shall be allowed only after the additional modules have been installed

and commissioned.

G. Solar PV Capital Cost

The weekly retail price should be considered instead of spot market trend as it is highly

fluctuating. In order to promote Indian make crystalline PV module the cost of module should be

taken as $2/watt, this implies that the total module cost should be Rs9.56Cr/MW including

degradation impact. The total capital cost may be taken as Rs 15.775Cr/MW.

5.5 Capital cost of solar thermal project

The Commission, while proposing the project cost at Rs 15 Crore/MW, has considered the

different technologies available in the Solar Thermal power project category, the data submitted

by the project developer to Rajasthan Electricity Regulatory Commission (RERC),

indigenization of balance of system including power block, structures and lower labor cost

prevailing in India. The capital cost for Solar Thermal power plants (without storage facilities)

which is under development and to be commissioned by 2012 in the developed countries, have

been reported around US $ 3.4/ W (equiv. Rs 15.87 Crore/MW). The Commission is of the view

that it can be reduced further up to 15 Crore/MW with indigenization of balance of system

including power block and structures along with lower labor cost prevailing in India.

Considering the same, the Commission decided not to make drastic reduction in the benchmark

capital cost of solar thermal project for the FY 2011 12 for determination of tariff. Moreover,

solar power projects are able to get finance at lower interest rates, considering that the overall

project cost as proposed seems reasonable.


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The Commission hereby determines Benchmark Capital cost norm for Solar PV power projects

for the year 2011 12 at Rs 14.42 Crore per MW and Benchmark Capital cost norm for Solar

Thermal power projects for the year 2011 12 at Rs 15 Crore per MW.

5.6 Operation and Maintenance

There is no operating experience of MW scale solar thermal power plant till date in India. It is

observed that none of the State Electricity Regulatory Commission has specified break up of

operating expenses which comprises of employee expenses, A&G expenses, and maintenance

expenses. The information available about few projects and assumptions contained in the Orders

in few States indicate that O&M cost for solar thermal installations varies in the range of 0.75%

to 1.5% of capital cost. In view of the limited availability of data a normative O&M expense of1% of the capital cost, which amounts to Rs 13 Lakh/MW has been considered during the first

year of operation which will be escalated at a rate of 5.72% per annum over tariff period.

6. Project implementation schedule6.1 Project implementation period

26 months from date of approval. Based on international practices and technological

advancements, it is estimated that 1 MW capacity phase of the project will be supplied, installed

and commissioned in 13 months from project approval and additional 9 MW of phase II of the

project will be installed and commissioned in 26 months from project approval. Proposedelectricity tariff Project will be implemented as IPP (Independent Power Project) and envisages

sale of generated electricity to the grid. The technical and financial parameters are also listed

therein. The tariff works out to be at Rs. 19.03/kWhr for the whole project life of 25 years. This

tariff has been considered with 16% post tax return on equity.The solar power plants are entitled to CDM benefit. The Developer shall endeavor for CDM

benefit. CDM benefit, interalia, depends on non firm/firm nature of supply of power and is

market driven. On account of these, it will attract lower CDM credit. Therefore, it will not be

possible to quantify it beforehand. Its certification also involves cost and time. Developer will


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share the CDM benefits as per RERC regulations. It is anticipated the average CDM credit of 30

paisa/KWh and corresponding reduction in annual tariff.

7. Financial AnalysisForm 1.1 based on CERC Format (for Solar Thermal Plant) is as below. All expenses are

detailed in the form. In case of renewable energy tariff calculation we do not need to calculate

the whole project costing as CERC has defined the base capital cost. All calculations regardingthe value of the project is based on this capital cost. For sample calculations we have considered

a plant of 100 MW

S.No. Assumption Head Sub-Head Sub-Head (2) Unit

Parameter

Values

1 Power Generation

Capacity

Installed Power Generation

Capacity MW 100

Capacity Utilization Factor % 23

Commercial Operation Date mm/yyyy

Useful Life Years 25

2 Project Cost


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Capital Cost/MW Normative Capital Cost

Rs

Lakh/MW 1300

Capital Cost Rs Lakh 130000

Capital Subsidy, if any Rs Lakh

Net Capital Cost Rs Lakh 130000

3

Financial

Assumptions

Tariff Period Years 25

Debt:Equity

Debt % 70

Equity % 30

Total Debt Amount Rs Lacs 91000

Total Equity Amount Rs Lacs 39000

Debt Component

Loan Amount Rs Lacs 91000

Moratorium Period Years 2

Repayment Period (incld

Moratorium) Years 12

Interest Rate % 12

Equity

Component

Equity Amount Rs Lacs 39000

Return on Equity for First 10

years %p.a. 19

Return on Equity 11th year

onwards %p.a. 24

Discount rate % 14.619312


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Depreciation

Depreciation Rate for first 10

years % 7

Depreciation Rate 11th yearonwards % 2.45

Incentives

Generation Based Incentices, if

any

Period for GBI Years

4 Operation & Maintenance

Normative O&M experience

Rs

Lakh/MW 13

O&M expense per annum Rs Lakh 1300

Escalation factor for O&M expense % 5.72

5 Working Capital

O&M expense Months 1

Maintenance

Spare (% of O&M expense) % 15

Receivables Months 2

Interest on Working Capital %pa 12.5

Levelised Tariff based on the above calculation (for 100 MW Solar Thermal Power Plant)

comes out to be Rs. 11.75/Unit

6.1 Calculations

The following is the detailed formulas used in the financial model


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I) Discount Rate It is the discounting factor for calculation of Present Values oftariffs in order to calculate levelised tariff. CERC Regulations says discount factor

should be equal to Weighted Average cost of capital. Hence

where

WACC is Weighted Average Cost of Capital re1- Equity return for first first ten years (19%) re2Equity return eleventh year onwards (24%) rdInterest rate on debt ( SBI LTPLR+1.5%) wweights of capital

t- tax rateII) Debt Annuity Payment It is used for the calculation of per year Annuity payment

to lenders for debt coverage.

AnnuityAmount to be paid to bank every year till the repayment period P - Total Debt Amount i- Interest Rate for Long Term Loan (SBI LTPLR+1.5%) nrepayment period (10 years)

In the financial model the excel function PMT has been used to calculate the annuity

amount.

III) Net Generation It is the amount of electrical energy generated in Mega Units peryear

NG = Installed Capacity (MW)*1000*CUF*365*24/1000000-Aux.Con.

where

NG - Net Generation in Mega Units CUFCapacity Utilisation Factor Aux. Con.Auxiliary Consumption

IV) Interest on Working Capital Working Capital is defined as the amount held up incurrent activities of the firm or the amount required for smooth operations of current

25/]15*)(10*))1([( 21 ddeeddee rwrwtrwrwWACC

niii

AP)1(

11


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activities. Interest in working capital is calculated here as the opportunity cost of the

amount help up as working capital. Net working capital for tariff calculation as

defined in CERC Regulations is the sum of one month of O&M expenses,

Maintenance Spares at 15% of O&M Expenses and receivables for two months atLevelised Tariff. Further

Where

IwcInterest on Working Capital WCWorking Capital iwcinterest rate (SBI STPLR+1%)

V) DepreciationIt is a cost recorded to allocate tangible assets cost over its useful life.As per regulations the depreciation is to be charged at the rate of 7% by Differential

Depreciation method for loan repayment period and further by straight line method

with salvage value of 10% of Capital Cost.

VI) Levelised Tariff It is the average tariff allocation for the tariff period. It iscalculated as

and

where WACCWeighted Average cost of capital DFDiscount Factor nPeriod/Year uuseful life TdDiscounted Tariff

wcWC iWCI *

onDepreciatiofRateValueBookonDepreciati LoanPeriod ..*.)(

)(*)*1.0.()( LoanPeriodUsefulLifetCapitalCosValueBookonDepreciati riodPostLoanPeriodPostLoanPe

PUTariffWACC

Tn

D *)1(

1

un

n

un

n

D

DF

T

L

1

1


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LLevelised TariffVII) IRR (Internal Rate of Return) - IRR of an investment is the interest rate at which

the costs of the investment lead to the benefits of the investment. This means that all

gains from the investment are inherent to the time value of money and that theinvestment has a zero net present value at this interest rate.

It is calculated as

Where

NCFNet Cash Flow u- Useful Life (25 Years)

In the model the excel function IRR has been used to make the calculations.

Based on the all the above formulas the financial model prepared on Excel Worksheet contains

the following

i) Form 1.1Based on CERC Regulationsii) Form 1.2Determination of Tariff Componentsiii) Debt Annuity Paymentsiv) Depreciation Calculationsv) Interest on Working Capital Calculationsvi) Cash Flow (IRR and DSCR Ratios calculated)vii) P&L Accountviii) Interest during Constructionix) Project Costing

Refer Excel sheet attached.

1. Conclusion - Sensitivity Analysis

Cases

Capital

Cost CUF

Rate -Term

Loan

Rate-Working

Capital

IRR

Firm

IRR

Equity

Avg.

DSCR

Base Case 1300 23 12 12.5 15.33% 15.94% 1.242553

+5% Capital Cost 1365 23 12 12.5 14.34% 13.58% 1.183384

un

nn

IRR

NCF

0 )1(0


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+10% Capital Cost 1430 23 12 12.5 13.44% 11.64% 1.129594

-5%Capital Cost 1235 23 12 12.5 16.43% 18.82% 1.307951

-5%CUF 1300 21.85 12 12.5 14.21% 13.27% 1.175768

+5% CUF 1300 24.15 12 12.5 16.46% 18.89% 1.309338

+100 basis point

rate 1300 23 13 13.5 15.43% 14.22% 1.181505

+150 basis point

rate 1300 23 13.5 14 15.47% 13.40% 1.152534

-50 basis point rate 1300 23 11.5 12 15.29% 16.84% 1.274722

-100 basis point

rate 1300 23 11 11.5 15.24% 17.76% 1.308053

8. References8.1 Books

Chandra, Prasanna (2008), Financial Management, TATA-McGraw Hill, New Delhi. Helfert, Erich A. (2001), Financial Analysis: Tools and Techniques, McGraw Hill, USA. Chandra, Prasanna (2002), Projects Planning, Analysis, Selection, Financing,

Implementation and Review, Tata McGraw-Hill, New Delhi.

Khan B.H (2009), Non Conventional Energy Resources, The McGraw Hill, USA

8.2 Government Publication

Central Electricity Regulatory Commission, Government of India (2009), NotificationNo.L-7/186(201)/2009-CERC

Ministry of New and Renewable Energy, Government of India (2008), Guidelines forGeneration based incentives


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Ministry of New and Renewable Energy, Government of India (2008), MissionDocumentJawaharlal Nehru Solar Mission

8.3 Journal Paper

Lorenz, Peter; Pinner, Dicken and Seitz, Thomas (2008), the Economics of Solar Power,the McKinsey Quarterly.

8.4 Project Reports

Detailed project report for developing Solar Power Plant at Bap, Jodhpur, Rajasthan(2009), Energy and Resources Institute, TERI

8.5 Websites

www.mnre.gov.in www.inwea.org www.wikipedia.com www.livemint.com www.business-standard.com www.triplepundit.com www.ongrid.net
http://www.mnre.gov.in/http://www.inwea.org/http://www.wikipedia.com/http://www.livemint.com/http://www.business-standard.com/http://www.triplepundit.com/http://www.ongrid.net/http://www.ongrid.net/http://www.triplepundit.com/http://www.business-standard.com/http://www.livemint.com/http://www.wikipedia.com/http://www.inwea.org/http://www.mnre.gov.in/

sample report - project appraisal

Documents