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Energy in India:
I li ti
Implications fforr P
Policy
li
A CPI-ISB Energy and Environment Program Publication
Authors:
Gireesh Shrimali, David Nelson, Shobhit Goel, Charith Konda, Raj Kumar
1
Group introduction:
CPI works in places that provide the most potential for policy
impact – Brazil, China, Europe, India, Indonesia and the US.
2
Motivation:
• India has ambitious renewable energy goals
– Solar Mission: 20GW of solar by 2022
– Wind Target: 31GW of wind by 2017
3
How did we assess the impact of policy?
• Use of levelized cost of electricity (LCOE) metric
– LCOE: Minimum price per kWh to meet investment criteria (e.g., hurdle
rates at P50,, DSCR at P90,, etc.)
4
What data did we use?
5
Govt. policies helped renewable energy
development in India
Policy assistance as a % of total project cost
Policy Wind Solar
Feed-in/ Preferential 35% 61%
tariff
Accelerated - 21%
depreciation
Generation-based 11% -
incentive
Clean development 6% 2%
mechanism
6
But, higher financing costs increase Indian
renewable energy costs by 22-28%
* LCOE – Levelized Cost of Electricity 7
Equity returns are similar to US/Europe but debt
cost is much higher
R
Range off required
i d returns on equity
i anddddebt
b ffor renewable
bl energy
India versus US and Europe
8
Debt cost and terms are the main driver of higher
finance costs, contributing 24-32%
Comparison of US and Indian Financing costs for renewables
9
In the US and Europe, policy can have a large
impact on financing costs
10
In India the high base rate of debt overwhelms
other policies
11
An interest-rate subsidy can reduce subsidy
burden significantly
12
Conclusions
• Cost (and terms) of debt is the most pressing issue: adds 24-32% to the
cost;
– Cost of debt adds about 12-19% to the cost.
– Loan terms – debt tenor and variable rate debt – add about 13-14%
13 14% to the
cost.
13
BRAZIL Indian School of Business,
CHINA Gachibowli,
G hib li HHyderabad,
d b d
EUROPE India
INDIA
INDONESIA Climatepolicyinitiative.org
UNITED STATES Isb.edu
Backup
15
The high cost of debt is the biggest issue facing
renewables in India
Issues with cost and availability of debt and equity for renewable projects in India
16
U.S. Cases & Modeling Assumptions
17
European Cases & Modeling Assumptions
18
India Cases & Modeling Assumptions
Acciona Reliance Dahanu Lanco Chinnu CSP
Tuppadahalli Wind Solar PV Project Project
Project
Project Size (MW) 56.1 40 100
PLF (%) 28 21 35
Project Cost 6.05 14.02 18.0
(Cr/MW)
PPA Price 3.39 14.95 10.50
(Rs./kWh)
PPA Length 20 25 25
(years)
Debt/Equity 60:40 75:25 70:30
Debt Interest Rate 11.8 12.0 11.0
(%)
ROE (%) 16.0 16.0 16.0
19
BRAZIL Indian School of Business,
CHINA Gachibowli,
G hib li HHyderabad,
d b d
EUROPE India
INDIA
INDONESIA Climatepolicyinitiative.org
UNITED STATES Isb.edu