Hi Friends,

Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do. There is just no time to look back, no time to wonder,"Will anyone read these pages?"

With regards,
Hemen Parekh
27 June 2013

Now as I approach my 90th birthday ( 27 June 2023 ) , I invite you to visit my Digital Avatar ( www.hemenparekh.ai ) – and continue chatting with me , even when I am no more here physically

Monday 29 January 2018

Solar Power


Attn : Shri Sumant Sinha


Dear Shri Sinha ,


I write with reference to your interview in today’s Eco Times ( Renewable Energy to See Consolidation ) , where you made following points :


·         Clean Energy business is capital intensive and not everyone can raise that kind of capital in the long run

·         Entire game is about the ASSUMPTIONS you make for the future and whether you are able to deliver on those assumptions

·         The few issues are… GST  /  proposed Safeguard Duty

·         The expectations on RETURNS has gone down due to a steep FALL in renewable energy TARIFFS

…. But , they MUST RISE , to make the business more sustainable


All of these are VERY VALID / IMPORTANT issues

In my following blog ( sent as email to all Policy Makers ) , I have tried to show a way out of this “ not so sunny “ scenario


With Regards,

hemen  parekh / Mumbai
( M ) +91 - 98,67,55,08,08


Saturday, 27 January 2018

 

 

 

Solar Power : Internal Rate of Return




Indian Express ( 26 Jan ) carries following news :




“ Govt estimates 9 – 11 per cent IRR for renewable projects “



The Ministry of New and Renewable Energy ( MNRE ), has proposed Internal Rate of Return ( IRR ) of major renewable energy projects to be in the range of 9 – 11 %



While computing IRR for “ Utility scale Solar “ projects , following have been assumed :


=================================


ASSUMPTIONS :


·         Zero government incentives

·         No subsidy

·         No market Risks ( Payment delays / curtailment )

·         Capacity Utilization = 20 %

·         Capital Cost ( Rs Cr / MW ) =  4.10

·         Average Tariff ( Rs / kwh )  =  3.0

·         Weighted Average Cost of Capital  =  10.5 %

·         Corporate Income Tax rate  =  34.61  %




=================================


MY OWN INPUTS :


·         Target for Solar                 =    100  GW  by 2022

·         Achieved till Dec 2017        =      15  GW

·         Remaining by Dec 2022      =      85  GW  ( app. 1.5 GW per month for each of next 60 months )

·         Capital cost / GW               =      Rs  4,100 Cr  (  @ Rs 4.1 cr / MW assumed in MNRE study )

·         Capital needed per month  =  Rs  6.150 Cr   ( for 1.5 GW per month )

·         Current maximum installation of solar PV ground mount projects done in a year is 3700 MW




QUESTIONS :


Given the following “ Negative Factors “ , are Private Indian businesses likely to come forward with investment of Rs 6,150 Cr , every month , month after month , for next 60 months ?



·         Solar tariff have already hit Rs 2.4 / kwh and continue to drop year after year @ 15 %



·         Will any bank come forward to lend huge amounts to Solar projects whose IRR is only 10 % - and might further go down as Solar Tariff drop ?



·         How will IRR work out when DISCOMS back out of legally binding PPA  ?



·         What happens if proposed “ Safe-Guard Duty “ ( of 70 % ) on imported Chinese PV panels , push up the Capital Costs ? or , when projects are constrained to buy locally manufactured panels at much higher prices ?



·         What would it do to demand situation if Roof Top Solar become a cheaper alternative to the consumers ( as compared to  Utility Solar Projects ) , since there is no “ Transmission Costs “ involved and there is possibility to sell the surplus power to DISCOM under “ Reverse Metering “ ?



Despite these “ Negative Factors “ , is there some way , by which Private Sector can be motivated to come forward to invest Rs 6,100 cr / month , month after month , for next 60 months ?



I believe , there is  !



If the IRR , instead of hovering around 10 % , can be raised to 50 % , then we can expect Private Sector to put up 1.5 GW projects, EVERY WEEK , instead of every month !



Now , calculating IRR is a bit lengthy / trial-and-error process , employing formulas comprising “ variables “ such as :




·         Weighted Average Cost of Capital, adjusted with the long-period consumer price index for the past 20 years to arrive at the real discount rate. (  Taken at 10.5 % by MNRE study )


·         Corporate Income  Tax rate ( taken at 34.61 % by MNRE study )


·         Initial Amount of Capital


·         Potential Opportunity Costs


·         Initial Cash Flow


·         Subsequent Period-wise Cash Flows ( Future stream of benefits )




QUESTIONS :



How would the IRR look if ,


·         Weighted Ave Cost of Capital was  “ 0 % ( Zero per cent ) “ instead of 10.5 %  ?


·         Corporate Income Tax rate was “ 0 % ( Zero per cent ) “ instead of 34.61 %  ?



In such a case , could IRR become 50 %  ?  (  MNRE study does not provide enough data for figuring out )


But if IRR  does really turn out to be somewhere near 50 % , will Private Sector rush in to set up 1.5 GW of Solar projects EVERY WEEK ?


And , would they be bothered even if Solar Tariff drops to  ONE RUPEE  per kwh ?



This is NOT a fantasy !



Masdar and EDF Energies consortium recently placed the lowest-ever bids for a solar PV project. The consortium placed a bid of 1.78¢ / Kwh for a 300 megawatt project in Saudi Arabia. ( ie : approx. Rs 1.17 / kwh )







One of the reasons , is :



The lending rate in Saudi Arabia has remained constant at 2% since 2009 !



Chile recently awarded 2.2 GW in renewables tenders at an average LCOE of $ 32.5/MWh (  approx. Rs 2.11 / kwh  )





HOW CAN WE GET “ RISK-FREE “ CAPITAL AT “ 0 % “ INTEREST RATE ?



Besides showing “ how “ , in my following blog / email , I also suggested that the Govt approved Solar Power Project SPVs , be exempted from payment of Corporate Income Tax for 10 years :


Solar Power at Rs 1 per Kwh ?  [  29  Jan  2017  ]

https://myblogepage.blogspot.in/2017/01/solar-power-at-rs-1-per-kwh.html

 

I hope , Shri Dipesh Pherwani, Scientist-B, Ministry of New and Renewable Energy (Email: dipesh.mnre@gov.in) , gets to read my suggestion

 

28  Jan  2018

www.hemenparekh.in / blogs




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