Anvesha Paresh Thakker, KPMG USAID PACE-D TA PROGRAM September 2015 Opportunities for PSUs - Solar Parks Consultation Workshop: Accelerating Solar Energy Deployment in Public Sector Undertakings (PSUs) Anvesha Paresh Thakker, KPMG USAID PACE-D TA PROGRAM September 2015

Central Government Scheme for Solar Parks Solar Park Implementation Models PSU investment in Solar Park Why PSU? Which PSUs? Opportunities for PSUs in Solar Parks Business model for Solar Park Development involving PSUs Key Considerations

Introducing Solar Park Scheme

What is a Solar Park The solar park is a concentrated zone of development of solar power projects and provides developers an area that is well characterized, with proper infrastructure and access to amenities and where the risk of the projects can be minimized.

Objective of Solar Parks “To provide an impetus to solar energy generation by acting as an integrated infrastructure facility; encouraging project developers and investors, prompting additional projects of similar nature, triggering economies of scale for cost-reductions, technical improvement and achieving large scale reductions in GHG emissions”

Tx company & System Operators Lower cost & Better infra Cost effective evacuation from a larger pool Common site appraisal for multiple projects Easier to mobilize resources/Multiple projects SOLAR PARK IPPs Tx company & System Operators Lenders/PEs EPC Contractors Value proposition offered by Solar Parks Value Proposition for Stakeholders Access to developed land and infrastructure Removal of regulatory hurdles Economies of scale in capital and operations cost Better network planning Access to low cost finance (owing to lower risk perception) Better skill availability and utilization

Government of India Solar Parks Scheme Target 2022: 25 Solar Parks pan India with a total installed capacity of 20 GW Minimum capacity of 500 MW SECI is responsible for administrating scheme and disbursement of incentives on behalf of the Central Government. State nodal agency is responsible for procurement and provision of land for the Solar Park. State government responsible for infrastructure development beyond solar park boundary Implementation Agency responsible for development of common infrastructure at the solar park, obtain clearances, conduct necessary social & environmental assessments MNRE will enable a grant of INR 25 lacs for DPR, surveys, etc.; and a grant of INR 20 lacs/MW or 30% of the projects cost including grid connectivity cost (whichever is lower) to the solar park developer

Current Solar park Implementation Models

Government of India Solar Parks Scheme - Model Options Implementation Agency SECI as nodal agency State Government owned Private sector owned 1 2 3 4 State designates SECI as nodal agency to undertake development & management of solar park on mutually agreed terms 50-50 Joint venture between State nodal agency & SECI for development & management of solar park State designated nodal agency (State PSU or SPV) to undertake development & management of solar park Private entrepreneurs promote solar park without equity participation of SECI, but may have equity participation of State government or its agencies

Solar Parks: Current Model Adoption MNRE Approved Solar Parks State Model 1 Model 2 Model 3 Model 4 Implementing Authorities State Nodal Agency/PSU JV between State Nodal Agency and SECI 100% SECI JV between State Nodal Agency & Private Players Andhra Pradesh - 1   √ JV of SECI, NREDCAP & APGENCO Andhra Pradesh - 2 Gujarat  √ SECI Karnataka - 1 JV between SECI and KREDL Karnataka - 2 Madhya Pradesh - 1 JV between SECI and MPUVNL Madhya Pradesh - 2 To be decided Meghalaya Rajasthan Phase - 2 JV between RRECL and IL&FS Energy Development Company Limited Rajasthan Phase – 3 Rajasthan Jaisalmer Solar Park Telangana -1   √ Telangana State Industrial Infrastructure Corporation Ltd & Telangana New and Renewable Energy Development Corporation Ltd Uttar Pradesh - 1 JV of SECI & UPNEDA Apart from MNRE scheme, the other solar parks that have been successful operated are developed by GPCL in Gujarat and RRECL in Rajasthan.

PSUs investments in solar

Why CPSUs: Presenting a strong investor base for Solar Maharatna Listed Av turnover of Rs 25,000 cr, during the last 3 years. Av net worth of Rs 15,000 cr, during the last 3 years. Av PAT of Rs 5,000 cr, during the last 3 years. Significant global presence Navratna A score of 60 (out of 100), based on six parameters Parameters: (i) net profit to net worth (ROE) (ii) manpower cost to total cost of production/services, (iii)PBDIT to capital employed, (iv) PBIT to turnover, (v) EPS and (vi) inter-sectoral performance Miniratna I and II Continuous profits in last three years Positive net worth Why CPSUs: Presenting a strong investor base for Solar ~250 PSUs Of which 97 are likely to be profitable with positive net worth Have defined financial autonomy Includes companies which have means: cash rich companies, with land banks And RE motivations: having RPO obligations, CSR targets, board directive for RE investments, etc 7 in Number Coal India Ltd IOCL NTPC SAIL GAIL ONGC BHEL 17 in Number Spanning Oil & Gas, Steel, Minerals and metals, Financial services, Engineering, power companies, etc 73 in Number Includes AAI, Indian Railways, Steel, Minerals and metals, coal , ports, shipyards, etc Source: Department of Public Enterprises, as on October 2014

CPSUs: Having the means Strong cash reserves with Maharatnas as well as other PSUs Significant land banks available with PSUs such as Indian Railways Availability for solar parks can be explored

CPSUs: Motivations for solar foray Sustainability / CSR objectives RPO obligations Reduction of power cost Business diversification Accelerated Depreciation benefits IOCL Sustainability Report 2013-14 SAIL Annual report 2014-15 Indian Railways, As reported in LiveMint in Feb 2015 BPCL Annual Report 2014-15

Opportunities for PSUs in Solar Parks 1 2 3 Possible Opportunities for PSUs Investment in solar Parks Development of solar projects in the solar park Offtake of power from Solar Park Reduction of power purchase cost Sustainability/ CSR objectives RPO Obligations Accelerated Depreciation Diversification PSU Objectives YES YES YES YES YES YES YES Benefits for the development model Access to cash/ land/ engineering capabilities, etc Large anchor project developers Reduction of offtake risks Objectives can be maximized through a combination of roles

Models for PSUs participation Implementing Agency (IA) Solar Projects Power Sale Options Power Purchase Agreement Development of Solar Park D1 D2 D3 NSM OA/Third Party Sale Implementing Agency (IA) Lease Rental & O&M Charges with Annual escalation State Utility PSU for Captive use Revenue from sell of power Implementation Agency The objective is to create appropriate models utilizing PSU capabilities backed by resources and motivation to participate Options for PSU involvement: Consortium of PSUs with complementary capabilities PSUs + Private Sector (EPC Player or Infra developer) PSUs + SNAs +Private Sector Land / Cash Rich PSU, Power sector players, Engg. Company, etc Cash Rich PSU: Provide funds for investment into solar parks State Nodal Agency: Identify and provide land against equity Private Company: Brings expertise in managing infrastructure projects Land Rich PSU: Provide land banks for solar parks Private Company: Brings EPC/ infra development expertise for park development

Key Considerations PSUs objectives for solar entry and capabilities/ resources Applicability of MNRE capital subsidy only for prescribed implementation agencies Applicability of Center VGF announced under Batch V of Phase II JNNSM for PSUs upto Rs1000 cr

Thank You!

Business model adopted for Charankha Solar Park - Gujarat

Business model adopted for Bhadla Solar Park Phase- 1 - Rajasthan

Key drivers for participation of PSUs in the solar space Government of India has announced scheme for implementation of UMPP/Solar Parks to deploy solar power in a faster way with a target of 20 GW with an option to involve PSUs To promote investments from PSUs, GoI has announced INR 1000 Cr central support in form of VGF Various ministries including Railways, Civil Aviation, Defense and Shipping have been shown interest to participate in solar revolutions India came out with world’s first mandatory initiative for CSR activities in April 2014 where companies are required to invest up to 2% of their profits into CSR activities. Draft Amendment to Electricity Act 2003 RGOs: Generators mandated to generate/procure 10% of thermal capacity through renewable energy based power. RPOs: Higher penalty for non-compliance of RPO One of the most expensive aspects of setting up solar projects is the land. Since Indian PSUs have significantly large land banks available, it is probably easier and quicker for them to undertake solar projects PSUs investing in the new and renewable sectors are entitled to accelerated depreciation tax benefits Indian PSUs are said to be sitting on cash surplus of ~ INR 200,000 crores. Investment can be done in developing large scale solar power infrastructure like solar parks to inspire more private sector companies and instill confidence in them.