1. Setting the context Investment Opportunities on Solar for PSUs Consultation Workshop: 15-Sep 2015 Accelerating Solar Energy Deployment in Public Sector Undertakings Presented by Vinod Kala (EVI) Lead consultant RE Deployment and Financing Partnership to Advance Clean Energy – Deployment (PACE-D) Technical Assistance Program

2. Mainstreaming EE in Corporate Loans Contents  Investment Opportunities for PSUs  Large RE projects  Roof Tops  Financing constructs

3. INVESTMENT OPPORTUNITIES FOR PSUS

4. Mainstreaming EE in Corporate Loans Tax incentives –Accelerated depreciation benefits as an operating entity Business Portfolio benefits –RE assets are stable cash flow generators –Diversification of cash-flow mix Energy Security –Self consumption- cost lock-in –Energy access/security for distributed infrastructure Aligned with Green priorities and Sustainable Development. –RE-INVEST Commitments –Greening of energy mix used in operations –Projects can be designed to yield ESG benefits for community – CSR Commitments Solar park development can be an attractive business opportunity in itself –Many PSUs have commitments –Need development support Large PSU’s competitive advantage in setting up RE –Competitive Financing of large scale projects –Access to GW scale sites –Attractive for high quality suppliers –Ability to create large scale programs Rationale for PSUs to invest in RE

5. Mainstreaming EE in Corporate Loans Areas to Invest Large, Ground Mounted RE Plants Roof TopsProcess RE Community Projects Can be a few MW to GW scale projects. Grid Connected Wind, Solar, Hybrids, most likely choices Plants Distributed Infrastructure (e,g platforms, petrol pumps, mobile towers, post and telegraph centers, e- governance kiosks, bank ATMs etc Solar PV, Wind-Solar Hybrids Industrial Processes may use solar thermal cost competitively for -HVAC systems -Supplementing thermal energy inputs -Process steam generation. Potential use for bio-fuels, Agri/MSW waste etc. Micro Grid, Irrigation, Drinking Water RE enables rural infrastructure in communities near plant operation Company’s infrastructure can serve as anchor load (e.g platform, petrol pumps or mobile towers) 80 GW+40 GW+ 2 GW+

6. LARGE RE PROJECTS

7. Mainstreaming EE in Corporate Loans Solar Park: a designated land for concentrated solar power generation GOI is targeting 25 solar parks, each with a capacity of 500 to 1000 MW; totaling around 20000 MW in the coming 5 years –INR 25 lacs support for feasibility assessment –Up to 20 lacs/MW of 30% of development cost as support for build infrastructure for SECi/State Anchored parks Key features –Fully developed land along with transmission facilities, provision for water,, roads, drainage –Land approved for installation of solar power plants and necessary permissions including change of land use etc. –Road connectivity to each plot of land –Water availability for construction as well as running of power plants and demineralization plant –Flood mitigation measures like flood discharge, internal drainage etc. –Availability of Construction power and Telecommunication facilities –Provision for transmission facility consisting pooling station (with 400/220, 220/66 KV switchyard and respective transformers) –A minimum of 5 Acre per MW land will be made available Solar Park development structures envisaged –State Nodal Agency (SNA) –SECI –SEC+SNA –PPP of the three types of Govt entities, with a private party Solar Park Policy of GoI

8. Mainstreaming EE in Corporate Loans Even with utilizing 3% wasteland for solar, states have huge solar potential –The table below showcases Solar potential calculated by NISE (all figures in GW) New RE Act –New RE Act aims to have same RPO obligations across the country. –Tough penal provisions; violation of law will not be tolerated. –Renewable Generation Obligation (RGO) will be imposed- mandating the conventional electricity producers to generate RE The revised Electricity Act – OA will be available to all consumers with load of more than 1 MW –Penalty for non-compliance of any provision of the act has been raised to Rs 1 cr. Penlty for RE generators will be INR 10 lakhs State Commitments APGJKAMPMHRJTNDL 3835256164142172

9. Mainstreaming EE in Corporate Loans Business models- General Net/ Gross Metering (roof tops, irrigation, micro grids) User owned- Captive IPP/ RESCO Financier owned Fixed FIT Bilateral PPAs- dis- coms states Third Party Sale Sale on exchanges Surplus power Tariff Bidding Surplus power Significant wind, bio- mass and hydro; some solar Large solar plants, JNNSM, states Large Wind, Bio-mass projects, (AP, KA, TN) Ultra Mega Projects- Solar, Wind, Hydro Small % sold; Mostly coal projects, little renewable Small % sold; Mostly coal projects, little renewable NM concepts- irrigation, roof tops Can become big with re- financing Early days- large scale projects may use Lease financing potential- AD benefits

10. Mainstreaming EE in Corporate Loans Solar cost competitiveness v/s grid- solar competitive in most states – Large Projects Cost of Generation of Solar (W/o AD) Cost of Generation of Solar (With AD) 5.0-5.6 4.5-5.1

11. Mainstreaming EE in Corporate Loans Type of Customers for power from large parks Dis- coms/states Industrial and Commercial customers SEZs/ IT BPO Parks PSU’s/ Government entities Tariff Lock-in Long term cost saving Meeting RPO Meeting green commitments They may prefer meeting commitments from another PSU Railways Defense Ports PSU Operations/ Plants Self consumption Have customer/corporate pressures to go green Can buy in $ linked PPAs and benefit from reduced costs To meet power needs Meet RPO Reduce Long Term Costs

12. ROOF TOP PROJECTS

13. 13 Customer Owned RESCO Owned Utility Owned Gross Metered Net Metered Grid Tied All benefits can flow to customers, incl. depreciation Not all customers want to invest Rural micro grids, large complexes could follow this model Leasing models to get depreciation benefits Utilities can anchor large scale programs reducing costs, risks; including collection risks Utilities need to be strongly aligned if scale up is targeted Models where work is happening Customers get FIT, some state policies support Most on site RE programs currently follow this model Customers get roof top rental: e.g Gandhi Nagar; utility meets RPO Urban, commercial and industrial complexes, SEZs. No Programs as yet Solar city programs; large complexes. DSM + RE type programs Customers with ability to pay-- industrial, commercial All customer segments; incl. residential, commercial, industrial Utilities likely to find it difficult to serve Utilities likely to find it difficult to serve Model to which we need to transition to scale up Legend Off Gird Business models- roof top

14. 14 Sample LCOE Calculations- Roof Top Diesel – Rs 18-30/KWhr Capital subsidy value If grid cost inflation is accounted for, even with no benefits solar PV is competitive with grid in most states Vis-a-vis diesel solar power is competitive everywhere, even if storage required is 6 hrs Capital Cost ~ Rs 65/W assuming programmatic approach; 16% ROE (post tax); Tariffs in Jan 2014

15. NEW FINANCING INSTRUMENTS FOR RE

16. Mainstreaming EE in Corporate Loans Reduced risk profiles of operating RE Assets Resource assessment risks Site acquisition risks, delays, costs, non availability Evacuation access risks Other permits and consents related risks e.g environment, local community etc. Project execution risks, costs; delays Technology performance risk Credit Risk LA RA EA PC PE TP CR FM Force Majeure Event risks Development RA EA TP CR FM Operating Asset Equity Discounting rates 18-22% 10%-14% Depending on tax efficiency and residual risk for equity investors

17. Mainstreaming EE in Corporate Loans Clean Energy is becoming increasingly attractive for investors, due to long term economics * R(C )- R(RE) * R (C): return on conventional power; R(RE) – return on RE without subsidies Time ---  Inflation, as fossil fuel run out their availability Environmental costs Falling costs of RE; repowering at the same sites

18. Mainstreaming EE in Corporate Loans Solutions which are Scalable, Liquid will attract wide participation (including domestic and foreign investors) –Green Bonds – debt with lower cost (by 2%-3%/a), long tenures (15 yrs+), flexible structure (allowing better leveraging depending on cash flow from assets) –Investment Trusts – for equity investors seeking low risk-low return investments With –Appropriate tax provisions, –Simplification of investment rules –Availability of Risk mitigation/management products Can lower the Cost of Finance significantly to reduce/eliminate subsidies (capital subsidy, VGF, GBI) and accelerate achievement of grid parity Summary Ideas

19. Mainstreaming EE in Corporate Loans Green Bonds Fund RE Projects Fixed interest, long tenor Improve Liquidity Funding across Project Cycle Renewable Energy is one of top priority areas for Green Investments. Green investing becoming significant for very large investors Borrowers get benefits of lower cost, fixed interest (v/s variable for bank loans), longer tenure, and non recourse options of financing. Corporates issuances are increasing rapidly. Can be listed on Alternate Investment Markets in London or Luxembourg or other similar exchanges Can be traded bilaterally as well, as they use risk mitigated, ring fenced structures Raise long term debt for new projects Re-finance long term loans Re-finance construction loans

20. Mainstreaming EE in Corporate Loans Renewable Energy Investment Trusts Investment Trusts Attracts Yield Seekers Tax efficient Listed, Liquid Low risk assets Attracts large, low risk investors such as Pension Funds, Insurance Companies, HNIs, Soverign Wealth Funds etc. Also Sharia Compliant- meets Islamic Finance requirements Maximises cash distribution – usually 75%-90% of distributable cash needs to be distributed, by law. In most domains globally, the structure offers tax efficient ways of investing Asset acquisition strategy maximizes availability of tax shelters/ credits. Examples- Singapore Business Trusts Master Limited Partnerships (USA) Listed on stock exchanges Norms to ensure wide public participation. Considered better than investing in utilities, because it isolates development risk Re-finances operating RE assets- lower risk Limits on investing in non operating or financial assets; limited leverage Diversifies risks through the asset portfolio High standards of governance

21. Mainstreaming EE in Corporate Loans Investment Trust- the structure Inv. Trust Project 1 Sponsor Inv1 Inv2 Inv n Trustee Investment Manager Investment Manager Project Manager Sponsor Transfers Assets/ majority SPV stock to the Trust Investors invest in the Trust based on independent valuation; receive units from the Trust, which are listed on a stock exchange Trust pays in cash and in ‘units’ (shares) to the sponsor. Sponsor needs to hold a minimum stock in the Trust Investment Manager – manages asset acquisitions, divestments, investor related processes (incl. listing and trading, distribution of cash/dividends, legal compliances, valuation accounting, audits and reporting) etc. Project Manager – operates and manages assets for efficient performance Trustee- ensure that investor interests are protected.

22. THANK YOU CONTACT: VINOD.KALA@EMERGENT-VENTURES.COM

23. Mainstreaming EE in Corporate Loans Challenges of RE financing and the new approach needed $250 bn+ new debt and equity needed by 2022 Long term investors Investors need exit options low interest costs; low discounting rates for equity Low interest rates and low discounting rates are possible with risk mitigated, diversified ring fenced, project portfolios with no development risks Large investors with long tenor, low risk, low cost capital – pension funds, sovereign wealth funds, insurance co etc Liquidity of instruments, helps attract large scale investors. High level of tax efficiency helps reduce the cost of debt/ equity Market Needs New Approach

24. Mainstreaming EE in Corporate Loans State-wise wise Solar Parks 10 Solar Parks/ Ultra Mega Solar Power Projects are being proposed in the following states who have communicated their interest for setting up of Solar Parks/ Ultra Mega Solar Power Projects ILFS, Essar, Adani, World Bank supprted solar parks in Odisha, MP State Government in which the solar park is developed will sell ~ 20%+ of the power produced through its DISCOM Solar Park Policy of GoI S. No.StateSolar Park Proposed Capacity (MW) Area 1Madhya PradeshUltra Mega Solar Power Plant, Rewa750 3750 2 Andhra Pradesh Anantapur Solar Park 15009000 3Kurnool Solar Park 10005000 4 Rajasthan Bhadla Phase II Solar Park 7004500 5Bhadla Phase III Solar Park 1000 5000 6Jaisalmer Solar Park 100030525 7Uttar PradeshUP Solar Park6003038 8GujaratBanaskantta Solar Park 700 3500 9TelanganaMahabubnagar Solar Park 10005408 10KarnatakaKarnataka Solar Park16008000