Workshop on Solar Power Project Development, Sept 20-21, 2012

1Firstgreen Consulting Pvt Ltd. B 1202 Millennium Plaza, Sec 27 Gurgaon 122002

Project Financing

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Project Financing Options

Bankability of Solar PV Project

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Is the yield assessment reliable?

Are there any power evacuation risks?

Is there reliability of the PPAs

Is the technology proven?

How about degradation?

Any generation guarantee ?

How about performance in the

Indian dusty and high temperature conditions?

What about skilled labour for

maintenance?

How about future policy framework?

Has the EPC demonstrated the

ability to deliver the projection-time and

on-budget?

What is the anticipated ROI?

How quickly can the project start

generating a return?

Site evaluation

Solar resource analysis.

Initial equipment selection.

Evaluating permits and consents.

Evaluating Grid Connectivity

Evaluating PPA.

DPR

How a Lender Evaluates a Project ?

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• Legal Due Diligence – assessing the permits and contracts (EPC and O&M).

• Insurance Due Diligence – assessing the adequacy of the insurance policies andgaps in cover.

• Technical Due Diligence – assessing the technology, integration and technicalaspects of the permits and contracts.

Due Diligence by Lender

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Typical Areas for Technical Due Diligence

• Sizing of the PV plant

– Appropriate buffer zone around the plant

– account for shading/other activities.

– Overall size appropriate for the grid connection.

• Layout of the PV modules, mounting and/or trackers, and inverters:

• Assessment of level of inter-row shading.

• Access to plant components for maintenance and installation activities.

• Electrical design layout and sizing:

– Assessment of cable losses in the DC/AC cabling.

– Assessment of appropriateness of the cable placement and connectors.

– Appropriateness of the earthing and protection systems.

– Compliance to safety standards.

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• Technology review of major components (modules/ inverters/mounting or trackers):

– Suitable for environment.

– Integration of components.

– Track record of suppliers and models.

– Quality and compliance certificates.

– Compliance to safety standards.

– Warranties.

– Design life.

– Degradation assumptions.

Typical Areas for Technical Due Diligence

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• Energy Yield Assessments

– Appropriateness of any assumptions made.

– Source of solar irradiation data.

– Assessment of shade.

– Degradation assumptions.

– Uncertainty analysis.

– Model used and modelling techniques.

– Check the theoretical Performance Ratio.

Typical Areas for Technical Due Diligence

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Typical Areas for Technical Due Diligence

• Contract assessments (EPC, O&M, grid connection, power purchase and FiTregulations)– Looking for interface points and areas where there could be risks.

– Examining construction timelines and ensuring that the critical path is clearly identified and mitigated in the contracts.

– Assessing the warranty and guarantee positions within the contracts – protection for the lenders.

• Financial model assumptions:– Assessing that the assumptions used are complete and appropriate

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• The Investors in solar projects have typically four Options for Financing.

• Non Recourse Financing

• balance Sheet Financing

• EXIM Bank Financing

• Low Cost Foreign Funding

• Currency Hedging

Low Cost Financing

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• Indian Renewable Energy Development Agency (IREDA)

• Rural Electrification Corporation (REC)

• Ministry of New and Renewable Energy (MNRE)

Financing Options in India

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• Financing for companies seeking to purchase US – made Renewable EnergyProducts and Services

• Loans made on a Limited Recourse Project finance basis are typically to a SPVborrower

Example: Direct loan of $84.3 million to Dahanu Solar Power Pvt. Ltd. for thepurchase of advanced thin-film solar panels from First Solar Inc.

EXIM Bank Financing for Solar Projects in India

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• Asian Development Bank (ADB) - India Solar Generation Guarantee Facility

• ADB’s Asia Solar Energy Initiative (ASEI)

• The Partial Credit Guarantees (PCGs)

• Provide hands on support to partner banks to complete technical due diligence

• A PCG provides comprehensive coverage for all commercial and political risks

The Government of the United Kingdom, acting through its Department of Energyand Climate Change, as approved a £6 million ($10 million) grant for thisproject. The grant is part of DECC’s low-carbon growth strategy.

ADB Financing for Solar Projects in India

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• Construction and operation of a solar power generation facility in India usingsolar technology from USA

• In order to qualify for Overseas Private Investment Corporation (OPIC)financing, either of the following conditions should apply

– The Borrower should be owned at least 25% directly or indirectly by a U.S. party; or

– The Borrower will enter into agreement(s) with a US party for the provision ofproducts, services, or warranties over the long term of the Project.

• The appropriate leverage in the transaction will be dependent upon:

– The creditworthiness of the off taker;

– The Borrower’s foreign exchange hedging strategy;

– The strength of contractual arrangements;

– The investors’ track record in implementing similar projects; and

– Other factors impacting the overall Project economics.

OPIC Financing for Solar Projects in India

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• Typical terms through China Development Bank (CDB) provide financing ofsolar projects.

– Borrower is of a good credit status and capable to pay back loan and interest;

– Contract value above 2 million USD, and agrees with the terms of the Export buyer’sCredit;

– Chinese elements should worthy more than 50% of the contract value; for theinternational contracting

– Borrower should provides sanctified repayment guarantee

– Borrower should be insured by insurance institution if necessary;

• The typical documentation for securing the CDB financing are

– Commercial contract

– Introduction of borrower

– Introduction of the secured party

– The statutory clearances and approvals of the project from government

– Bankable DPR of the project

CDB Financing for Solar Projects in India

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1%

8%

56%

10%

17%

2% 1% 1%

3%

1%

Land Civil Works PV Modules

Mounting Structures BOS Transmission Line (12 km)

Terminal Evacuation Point Pre Operative Expenses IDC

WC

Cost Breakup of Typical Solar PV Project of 1 MW

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Assumptions Value Data Source

Installed Capacity MW 1.00 Proposed

Working Days / Annum Days 365.00 Industry norms

Plant Load Factor % 21.00% As per the commitment from Vendor

Average Capital Cost/MW Rs Million 100.00 Assumed

Equity Investment % 30% Assumed

O&M Expenses (on Project Cost) % 0.10% CERC RE Tariff Regulations 2012

Escalation in O&M % 5.72% CERC RE Tariff Regulations 2012

Panel Output Degradation per annum % 0.80% As per Vendor Commitment

Interest on Term Loan % 12.30% CERC RE Tariff Regulations 2012

Loan repayment Period / years Years 10 CERC RE Tariff Regulations 2012

Moritorium From COD/Years Years 0.5 CERC RE Tariff Regulations 2012

Inurance Charges on Cost % 0.10% Assumed

Book Depreciation Rate (Weighted Average) - SLM % 3.60% CERC RE Tariff Regulations 2012

Book Depreciation Rate Limit % 90.00% of the Book Value

Depreciation as per IT Act - WDV % 15.00% As per IT Act for Tax Calculations

Accelerated Depreciation Rate - WDV % 80.00% As per IT Act for IT Benefit

Income Tax ( Regular) % 32.45% As per latest Budget 2011 - 12

Minimum Alternate Tax (MAT) % 20.01% As per latest Budget 2011 - 12

Incentives

Generation Based Incentive (GBI) Rs / Unit 0.50 with cap of INR. 6.2 Million per MW

Tax Holiday Years 10 As per Sec. 80IA of Income Tax Act, 1961

CDM Revenue

Carbon Emission Remittence (CER) price Euro / CER 4 Assumed

Emission Factor tCO2/MWh 0.9534 As per CEA Database

Exchange Rate Rs / Euro 68.72 Assumed

Energy Generation

Generation GWh or MU 1.84

Basic Assumptions for Financial Analysis of 1 MW

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Risks

Interest Rates

Module performanc

e

Technology

Solar Irradiation

Pre Completion

Post Completion

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RISKS

Different Insurance Options for risk coverage of the investor.

• Performance (Generation Insurance)

• Contractors Insurance Professional Liability

• Solar Product Liability Insurance

• Machinery Breakdown

• Business Interruption

• Property Damage

• Contract Works

• Employers’ Liability

• Public Liability

• Marine Cover

Insurance Cover for Solar Projects

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• Risk Coverage of Financial Institutions for Solar Projects under the REC Route

• While many financing institutions are apprehensive on financing the REC basedsolar projects, actually there is hardly any risk coverage required for thefinancers after the five years of completion of the project

Risk Cover for REC Route

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• Vulnerability to Weather Damage

• Theft and Vandalism.

• Component Break-downs,

• Unexpected reductions in solar radiation

• Shadowing

• Workmanship and faulty materials-reduced

• The phenomenon of “islanding”

Key Risk Factors

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Solar Performance Insurance Increased costs of working from losses in power generation revenues arising from the failure of solar installations to produce energy at a specified or predicted level.

Contractors Insurance Professional Liability Cover for the engineering and design of solar projects Property damage during installation. Third Party Liability Equipment damage and failures prior to handover

Solar Product Liability Insurance It covers product performance, Manufacturing defects and Third Party Liability. It also cover the losses due to supply shortages of replacement parts arising from a manufacturing defect.

Solar Operational All Risks Cover It covers the property damage and equipment breakdown, Loss of revenue (if grid connected) due to grid failure. Cover might also include liability arising from “islanding” where the insured is grid connected.

Firstgreen Consulting Pvt Ltd. B 1202 Millenium Plaza, Sec 27 Gurgaon 122002 22

Insurance options for solar

Insurance Options for solar

Firstgreen Consulting Pvt Ltd. B 1202 Millenium Plaza, Sec 27 Gurgaon 122002 23

Machinery Breakdown – electrical and or mechanical breakdown of any panelsBusiness Interruption – cover for periods of operational downtime as a result of an Insured peril e.g. fire or storm damage, machinery breakdown and equipment failure.Property Damage – all risks cover to protect from any loss arising out of fire, etc.Contract Works – protection against any loss arising from property damage caused during construction of theEmployers’ Liability – provides cover against risk of accident from usual workplace risksPublic Liability – provides cover for any damage caused to third party property during installation of the panels. Marine Cover – Covers include Marine Transit for any loss of goods and Marine Delay

RISKPROBABILITY OF

OCCURRENCEAPPLICABILITY TO SAMPLE PROJECT (EXAMPLE) SEVERITY OF IMPACT

Power Evacuation Risk

NVVN is the PPA signatory, has a low capital base and a balance

sheet.

PPA is also linked with the with the implementable remedial

framework for delays; penalties for lower) than the guaranteed

generation from a non-firm source

Tariff risk

The risk that may arise in the case of a regulated PPA tariff

is primarily on account of the extent of the tariff revisions

by the regulatory commission. And the risks on account of

merchant sale of power are predominantly linked to the

variations in the market price.

(SAMPLE PROJECT) has signed a PPA at the tariff of Rs. 12 per unit.

The tariff is applicable for the period of 25 years from the COD. The

tariff signed by SSEL is a reasonable tariff as compared with the

other projects of similar nature. NVVN

Technical Risk

Consistent technical performance is critical to successful

plant operations.

(SAMPLE PROJECT) has decided to procure the PV modules from

Solar Frontier. They use the CIS thin-fi lm technology which has been

developed since 1993. The performance ratio is about 85% which is

highest as per the report submitted by Solar Frontier.

LOW MEDIUMOff-takers must have the capacity to meet payments. Also

the project developer should be able to meet the contract

conditions of the PPA

MEDIUM LOW

MEDIUM MEDIUM

RISKS

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RISKPROBABILITY OF

OCCURRENCEAPPLICABILITY TO SAMPLE PROJECT (EXAMPLE) SEVERITY OF IMPACT

Procurement Risk

An efficient procurement mechanism is essential to procure

the different project items at a competitive rates

(SAMPLE PROJECT) has taken the quotations from the leading EPC

contractors for the execution of the project activity. (SAMPLE

PROJECT) has tied up with the AEG for the EPC of the project and the

modules has been sourced directly from Solar frontier to keep the

cost low.

Plant Availability

The failure to maintain adequate levels of plant

availability has significant negative implications for power

and consequently on revenue generation.

1. Plant availability risk for solar PV power project seems to be low

due to the modular nature of the project. The plant availability is

function of O&M related problems in the solar modules, and the

availability of the inverter units. (SAMPLE PROJECT) has undergone

with the AEG to ensure certain level of generation. AEG guarantees

92% of KWH of solar in generated electricity fed into the Inverters at

a minimum insolation of 500W/m2 at grid as recorded on state

government util ity meter.

2. Another risk for plan availability is due to grid unavailability

risk. Currently the grid unavailability risk in such projects has not

been observed.

LOW MEDIUM

MEDIUM LOW

RISKS

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RISKPROBABILITY OF

OCCURRENCEAPPLICABILITY TO SAMPLE PROJECT (EXAMPLE) SEVERITY OF IMPACT

Compliance Risk

Solar power projects must comply with a host of state and

national regulations governing the purchase of land,

util ization of labour, power evacuation, etc.

Failure to comply with the prescribed statutory

requirements could expose projects to punitive measures

by the government up to and including shut-down.

Technology Risk

Solar power projects must select appropriate technology

for the PV modules. There are of number of technology

options available ranging from the thin film technology to

the crystalline silicon technology. The appropriateness of

technology has severe impact on the project performance.

As per the study PV Syst simulation study conducted by the Solar

Frontier for a typical site the CIS technology has a higher

performance ratio as compared to the mono crystalline or the poly

crystalline technology. This because of the two reasons. Due to light

soaking effect in CIS (copper indium selenide) technology the

performance ratio is higher in this technology.

HIGH MEDIUM

LOW LOW(SAMPLE PROJECT) has acquired the required statutory clearances

for the project. As the project activity is under commissioning

phase some of the clearance are underway and will be availed in

due course of time.

RISKS

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FirstGreen Consulting Private Limited

Gurgaon: 1202, Tower B, Millennium Plaza, Sec 27, Gurgaon –122002, India Tel.: (+91) 124 424 1750 , 9899295854 Fax: (+91) 124 424 1751

Web: www.firstgreenconsulting.inEmail: sanjayvashishtha@gmail.com

Thank You

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