Financial viability of renewable power projects: a comparative analysis and advisory options amongst solar, wind, biomass and small hydro in India

Student name: Ms Emandi Hemalata Ramya
Guide: Dr Rajiv Seth
Year of completion: 2011
Host Organisation: SBI Capital Markets Limited
Supervisor (Host Organisation): Mr Yashpal Singh

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Abstract: Abstract

Project Title:
“Financial viability of Renewable Power projects: A comparative analysis and advisory options amongst solar, wind, biomass and small hydro in India”

Background:
According to a report grid interactive power generation capacity of about 8,582 mw has been installed via different renewable energy sources in India during the last 3 years. Honorable Pawan Kumar Bansal, the Parliamentary Affairs Minister said that the Government has created a policy to support in transferring of foreign technologies while the Foreign Direct Investment and foreign technology group effort in the renewable energy sector have been permitted by the automatic approval route.

Last year Government gave permission to Jawaharlal Nehru National Solar Mission to achieve about 20,000 MW of grid connected solar power plants, 2000 MW capacity similar to off-grid solar applications and 20 million sq mtr solar thermal collector area by the year 2022. This may support to increase the use of solar energy system and also support the R&D efforts to develop the efficiencies as well as decrease the costs.

A Research and Development scheme by which the financial support is offered from 50-90% of the project cost for the R&D projects linked with the industry. It would also support to improve the technologies/process which will enter the potential of renewable energy sources very effectively in the nation. The Government has been supporting the renewable power projects by adding financial incentives including capital/interest subsidies, concessional excise, customs duties, accelerated depreciation, he added.

A new scheme on generation was introduced to upscale the generation from wind power and it was based on the incentives to provide interest to private investment by the power producers who are independent. There was also other schemes that were introduced for supporting renewable power plants like solar and biomass, tail end of grid, to steady the grid and also develop the local power supply condition.

Looking at the opportunities lined up for this sector to be explored by the private companies, this project is a route to achieve them.

Statement of problem:
• In next 12 years India’s electricity requirement to grow 2.5 times
• India is dependent on oil imports for 80% of its demand
• Electricity shortage estimated at 25-35 GW
• 400 million people still without access to electricity
• Climate change is also an important issue

The answer to these above issues is to produce more electricity in a sustainable manner i.e generating electricity from renewable sources. But the major concern lies with the huge costs associated with the renewable generation.

The speculations on the financial viability of the renewable power plants has to be resolved to promote them and the task for the developer to get a comprehensive report on this sector has to be met. This would lead to convince the developer to set up a renewable power plant. This project report is the preliminary feasibility study that the developer would have to conduct prior entering this sector.

Research Method:
• A thorough reading of policies, CERC tariff guidelines, regulations, power ministry, MNRE, CDMs, rural electrification, anything and everything related to solar, wind, biomass and small hydro.
• Collection of all secondary data available on internet especially the government websites and segregating the appropriate required data to be used for the project
• Preparing the brief overview report on each sector for the developer
• Giving a basic financial model assuming a 10MW renewable power plant of each sector, so that the developer gets a fair idea about the costs and the related information

Results/ Findings:
• The report comes up with the overview of each sector in terms of scope, technology, approvals, incentives, financials, CDM benefits and risks that the developer can use if he is convinced to put up a renewable power plant.
• Comparisons amongst these sectors on basis of payback, NPV, project IRR, Equity IRR, DSCR, Capital costs, levellised tariffs, Tariff without ROE.

Conclusions/ Recommendations:
Renewable energy is a viable option today. It might not have been a profitable business proposal few years back, but now due to the promotional incentives by the government it is a way to go. This has been proved in the report looking at the results.