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Study of factors affecting project cost, risk analysis and financial modeling of UMPP
Introduction Why UMPP?
Economies of scale, supercritical technology Power a key driver of growth Demand supply mismatch
Why the project?
Understanding the decision variables, financial modeling and analysis
To understand as to how costs can change with project
Factors affecting project’s cost Factors affecting capital expenditure
Factors affecting Operation expenditure
Risk Risk during construction Operational Risks
Factors affecting project’s cost- Capital Expenditure
Land Requirement (Hectares)
Use of Land Total
Plant Area 818.98
Ash disposal 329.74
Employees’ Colony 181.53
Road from colony to plant
13.73
Corridor Ash Pipe 0.73
Intake Water Pipeline
6.34
Coal Mine 2965.00
Land Requirement for Project
4,316.05
Resettlement and Rehabilitation
192.62
Total 4,508.67
Land Costs (in Rs Cr) Land R&R Total
Power Plant Area
110 136 246
MGR Land
80 34 114
Water & Ash Pipeline Corridor
1 1
Total
191 170 361
Coal Block
land costsLand
Afforestation of
Forest Land
R&
R
Geolo
gical
Repor
t
Total
Total
142 35 75 19 271
Project Capacity (MW)
Unit Size (MW)
Project Cost (Rs. crore)
Cost per MW (Rs. crore)
Sasan UMPP
(excluding apportioned Coal
Block Development cost)
3960 660×6 16,243 4.10
APL Phase-III
(Including Coal Supply
Advance)
1320 660×2 5,796 4.12
NTPC Sipat Phase I 1980 660×3 8,323 4.20
Tata UMPP 4000 800×5 17,024 4.26
NTPC Barh 1980 660×3 8,693 4.39
Cuddalore Power 1320 660×2 6,379 4.83
PFC –long term Private Sector
BORROWER
State(Category 'A+')/
CPSUs/ AAA rated Companies
State(Category
'A')/ Central/
Private(IR-1)
IR2/ E I & E II
IR-3 /E III & E IV /D-A IR-4
IR-5 / D-B/E V/Non
graded
Generation 12 12.25 12.75 1313.2
5 13.5
Factors affecting project’s cost- Capital Expenditure
Factors affecting project’s cost- Operational Expenditure
Parameters Post Tax IRR Avg. DSCR Min. DSCR
Base Case 10.37% 1.36 1.07Station Heat Rate =2175 kcal/kWh 10.72% 1.41 1.08
Increae in Aux. Consumption by 0.5% 10.28% 1.35 1.06
Decrease in PLF by 5% 9.71% 1.30 1.00
Increase in O&M cost by 5% 10.13% 1.32 1.06Increae in FI Interest Rate by 0.5% 10.38% 1.35 1.06
Source: Analysis, and British High Commission’s report
Risks 10.1 Fuel Availability and Fuel Price Risk 10.2 Demand Risk 10.3 Payment Risk 10.4 Land Acquisition & Environmental Clearances 10.5 Financial Risk 10.6 Foreign Exchange Risk 10.7 Political Risk 10.8 Regulatory/Policy Risk 10.9 Equipment Shortage 10.10 Manpower Shortage 10.11 Technology Risk 10.12 Interest Rate Risk 10.13 Performance Risk 10.14 CDM Risk
Risk Description Severity Allocation Mitigation
Fuel Availability Risk High Project Sponsor Long Term fuel supply
contracts, Vertical Integration
Fuel Price Risk High Project Sponsor or DISCOM
through escalation clause
Long Term contracts with
proper escalation clauses,
Vertical Integration
Payment Risk High Project Sponsor Escrow Mechanism for central
and state utilities; Trust and
Retention Account for others.
Foreign Exchange Risk Medium Project Sponsor
Interest Rate Risk Medium Project Sponsor Fixed Rate loan, Refinancing
Cost and Time Overrun Medium EPC Contractor Penalty Clause
Regulatory Risk Medium Project Sponsor
Demand Risk Low Project Sponsor Long Term PPAs
Land Acquisition and
Environment Clearance
High Project Sponsor Involve all the stakeholders
and negotiate directly
Political Risk Medium Project Sponsor
Manpower Availability Medium Project Sponsor Training
Financial Risk Medium Project Sponsor
Water Availability Medium Project Sponsor
Technology Risk Low Project Sponsor Upgrade plant with new
technology or diversify
generation
Plant Performance Risk Low Equipment Manufacturer Suitable clause in the contract
Financial Modeling To study the effect of factors mentioned in the
report, a financial model was made taking suitable assumptions where applicable.
The model used Discounted Cash Flow method for arriving at the NPV and IRR figures.
Indicators calculated NPV IRR Equity NPV Equity IRR DSCR
*NPV = Cr INR
Project EquityNPV (Rs) 6336.741 4213.449IRR 12.47% 21%DSCR (min) 1.84
DSCR
IRR Risk analysis with Changing PLF (95 mean and 5% Std deviation)
Entire range is from 19% to 23%
Base case is 21%
NPV Risk analysis with Changing Coal price (1.8 to 3.6 Kg)
Thank You
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