and Conservation IREDAs Experience B.v.rao .rao, , CGM September - - PowerPoint PPT Presentation

Financing of Energy Efficiency and Conservation

IREDA’s Experience

B.v.rao .rao, , CGM

September 09, 2014 New Delhi

Energy Efficient & Environmentally Sustainable Technologies

EE & RE in Indian context 

India – 4th largest GHG emitter



40% energy share in GHG emissions



Vulnerability of large sections of population



High dependence upon energy imports, adds to inflation



high cost of energy (30%) in production costs & high SEC



Energy deficit @ 10%



Power usage - Industry – 46%, Buildings – 29%, Agriculture – 18%, Others – 7%

Multi-pronged strategy

–

Clean-coal technologies

• Super-critical boilers - 2% increase in efficiency
• Integrated Gasification–efficiency @ 40-45%
• Coal quality Improvement - washeries for reduction in ash
• Adoption of higher unit size (660/ 800 MW)

–

Energy Efficiency potential

• Annual fuel savings in excess of 23 million toe
• Cumulative avoided electricity capacity addition of 19,000 MW
• CO2 emission mitigation of 98 million tons per year

–

EE Mission

• PAT scheme covering 8 energy intensive industries (450 industries)
• Business models – Leasing, SPV, ESCO
• Cheap and quick to implement (module-wise implementation)

–

Reduction in T&D losses from 29% to 15%

–

Solar cities programs (54 cities identified)

–

ECBC code for buildings

• Buildings consume 29% of total electricity
• 66% of building stock is yet to be constructed

About IREDA Dedicated FI for Renewable Financing

Inception

Incorporated under the Companies Act on 11th March, 1987 to promote, develop and extend financial assistance for Renewable Energy and Energy Efficiency/ Conservation Projects.

Mission

Be a pioneering, participant friendly and competitive institution for financing and promoting self-sustaining investment in energy generation from renewable sources, energy efficiency and environment technologies for sustainable development.

MOTTO

Energy For Ever

OPERATIONAL AREAS

Sectors financed

• Wind Energy
• Hydro Energy
• Biomass Power & Cogeneration
• Solar Energy
• Waste to Energy
• Energy Efficiency & Conservation
• Infrastructure for Power Evacuation

Schemes/ Services

• Term Loans
• Take-out financing
• Securitization of Project Receivables
• Non-fund based services – Performance Guarantee
• Providing Refinancing to Banks/ FIs under NCEF Funds
• Programme Administrator for GBI Schemes – Wind & Solar

BUSINESS STATISTICS

 Loan Sanctions

: Rs 26,278 Crore (US $ 4.36 Billion)

 Disbursements

: Rs 14,497 Crore (US $ 2.41 Billion)

Cumulative figures since inception

as on 31.03.2014

International Lines of Credit

Lines of Credit availed & utilized Amount (Rs. in Crs.) US$/Million (Approx.)



Govt of Netherlands, 1991 : 18 Million Dutch Guilders 75.00 15.00



World Bank (1st LoC), 1993 : $ 145 Million 394.39 145.00



DANIDA, 1993 : $ 15 Million 74.72 15.00



Asian Development Bank, 1997 : $ 100 Million 464.75 100.00



KfW, Germany (1st LoC), 1999 : € 61.36 Million 301.55 66.13



World Bank (2nd LoC), 2000 : $ 109 Million 498.34 109.00



NORDIC Investment Bank,2010 (1st LoC) : $ 50 Million 228.00 50.00



KfW, Germany(2nd LoC), 2008 : € 50 Million 329.76 72.32 Total 2366.51 572.45 Ongoing Lines of Credit*



KfW, Germany(3rd LoC),2009 : € 19.97 Million 137.86 22.23



AfD (1st LoC) , 2010 : € 70.0 Million 526.66 84.94



KfW, Germany (4th LoC), 2011 : € 200 Million 1682.82 271.42



JICA, Japan (1st LoC), 2011 : JPY 30 Billion 1869.21 301.49



EIB : Euro 200 million 1700 Total 4216.55 680.08

*As sanctioned amount

In the pipeline- US EXIM Bank , ADB and JICA

PERFORMANCE PARAMETERS

1491 1823 3126 3401 3747 3818 770 890 1224 1855 2125 2648 500 1000 1500 2000 2500 3000 3500 4000 4500 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Sanctions Disbursements

Financing Offerings

(*) Based on Credit Rating

Schemes

Project Financing Equipment Financing Finance for Equipment Manufacturing

Terms

Loan

• Upto 70% of Project Cost

Interest

• 11.00% onwards*

Repayment

• Up to 10 Years

New Initiatives

Securitization against future receivables Structured repayment Loan syndication under Consortium Non-recourse financing

Financing Norms for EE&C

Sector Interest Rate Repayment Period (Max) Term Loan PROJECT FINANCING EE&C Projects (Incl. DSM) & Projects implemented in ESCO 12.25%- 13.00% 10 years with 2 years moratorium Up to 70% of project Cost EQUIPMENT FINANCING EE&C Projects (Incl. DSM) & Projects 13.50%

• 10 years with 2

years moratorium

• 7 years with 1 year

moratorium Up to 80% of project Cost EQUIPMENT MANUFACTURING Energy Conservation/ Efficiency Systems & Equipment 13.50- 13.75% 10 years with 2 years moratorium Up to 70% of project Cost

Source: http://ireda.gov.in/pdf/Financing%20Norms.pdf

Eligibility Criteria



Profit making companies



Debt-equity ratio up to 3:1



No erosion of paid-up



No refinancing/second hand project, equipment and machinery

 No default to IREDA, other FIs/ Banks 

No cost over run financing



Minimum loan amount – Rs 50 Lakhs

Eligible Projects



Projects demonstrating techno commercial viability



Projects incorporating purchase & installation

• f EE systems



Projects for production of EE Equipment



DSM Programs promoted by utilities

Eligible Equipment (Indicative)



EE Drives, Variable Speed Motors etc.



Vapour Absorption Chillers

 Energy Efficient Lighting 

Energy Efficient Boilers



Control Systems for EE

 Waste Heat Recovery Equipment 

Capacitor Banks for pf improvement

Above list is indicative, any equipment/ system contributing to ENERGY SAVING can be considered

Security Conditions



Mortgage of immovables by way of deposit of title deeds

 Hypothecation of movable assets 

Guarantees by Promoters Companies/ Promoter Directors



Post Dated Cheques



Pledge of FDR, Securities



Escrow/ TRA Account



Additional, as may be required

EE Project Appraisal

 Technical

 Energy Audit Reports  DPR

 Financial

 IRR  DSCR  NPV

 Security

 Charge on Assets  Performance/ Bank Guarantee

Types of Projects undertaken by IREDA in EEC sector

a) Waste heat recovery based power projects b) DSM (installation of capacitor banks) c)

Energy efficiency in sugar mills

d) LED manufacturing e) Energy efficiency in cement and paper mills

IREDA Financing- EEC

SECTOR

• NO. OF LOANS

LOAN amt.(Rs- Cr) steel 7 218 sugar 8 214 cement 4 0.44 DSM 2 5.17 paper 3 178 WHR 2 199 Misc. 8 107

CASE STUDIES

Highlights of Energy Efficiency/Conservation Projects Financed by IREDA

Name of the unit ORISSA SPONGE IRON LTD. Palaspanga, District Keonjhar, Orissa

Activity

Manufacture of sponge iron and steel billets

Annual Turnover Rs 995 mn (US$ 22 mn) Profit after tax

Rs 65 mn (US$ 1.4 mn)

Energy Efficiency 10 MW Waste Heat Recovery Measures Implemented Power Plant commissioned in

2001

* Exchange rate considered US$ 1 = Rs.45

THE PROJECT - ORISSA SPONGE IRON LTD.

PRE COMMISSIONING OF Waste Heat Recovery Power (WHRP) Plant

CREDIBILITY OF THE COMPANY AS VIEWED BY THE BANKERS



OPERATION OF BILLET PLANT NOT VIABLE DUE TO HIGH ELECTRICITY COST LEADING TO SHUT DOWN OF BILLET UNIT



COMPANY ABLE TO INFUSE ONLY 15% OF PROJECT COST



EXISTING LENDERS UNWILLING TO FINANCE THE PROJECT

POST COMMISSIONING OF WHRP



BILLET PLANT BECAME OPERATIONAL



BILLET PLANT CAPACITY NOW BEING DOUBLED



5 MW POWER PLANT BASED ON COAL CHAR INSTALLED



MOBILIZED FINANCES OF Rs. 200 mn (US $ 4.5 mn) AS TERM LOANS AND Rs. 128 mn (US $ 2.84 mn) AS WORKING CAPITAL LOAN

 Term loan from IREDA :

Rs 271 mn (US$ 6.0 mn)

 Internal Resources :

Rs 55 mn (US$ 1.2 mn)

 Deferred payment facility:

Rs 36 mn (US$ 0.8 mn)

 Total project cost

Rs 362 mn (US$ 8.1 mn)

 Terms of loan  Repayment :

10 years, Moratorium- 2 years

 Rate of interest:

15%

 IRR:

22.8%

 DSCR

1.68

 Pay Back Period 4.5 years

Security

 Pari-passu charge on movable and immovable properties of the

company both existing and future

 Personal guarantee of Managing Director  Post dated cheques.

MEANS OF FINANCE

LESSONS LEARNT

Technology

*

Waste Heat Recovery project completed successfully.

*

Demonstration effect leading to replication.

Project Structuring

*

Promoter’s contribution - 15% of total project cost

*

10% by way of deferred payment (24 months) credit from equipment supplier.

*

Due to delay in project commissioning, deferred payment credit became payable before the stabilization of the project.

*

Deferred payment credit to be structured to match the stabilization of the project

Project Appraisal Criteria and Assumptions

*

Project got delayed by about 18 months resulting in

• verrun in IDC component of project cost.

*

IREDA had to reschedule the loan twice.

*

Envisaged implementation period of 12 months was too

• ptimistic

Implementation Mode

Project was implemented by borrower themselves. Implementation could have been faster through an EPC route.

Illustration 2:ESCO Financing

DSM Program for Improving Power Factor of Grid

• ESCO signed MoU with Private Utility for

improving reactive power drawl with a target of power factor of 0.95 under the DSM Program of the Utility.

• Scope of work : Supply, installation, own and

maintain capacitors at consumers’ premises on lease basis. A Tripartite agreement signed between each of the consumer, Utility and ESCO.

• Performance guarantee for equipment to perform

at least 90% of the designed value.

Illustration 2:ESCO Financing

Arrangement Between Various Partners

IREDA ESCO Repayment User Equipment Lease Utility Rental with Billing Escrow Account Rental First Charge Loan Rental

Illustration 2: ESCO Financing

Lessons learnt

• Lease rental payments not contingent to

actual savings

• Tripartite agreement couldn’t be reached

between IREDA,ESCO & Utility

• Small loan, extra effort for security creation
• IREDA only retained first charge on “Escrow

Account”

Illustration 3: Kraft Paper Unit

Retrofit of Energy Efficient Equipment

• 50 TPD paper unit manufactures kraft &

absorbent paper

• Energy Cost 16-26% of manufacturing
• cost. Plant operates 2.5 MW biomass

based captive power plant

Illustration 3: Kraft Paper Unit

Retrofit of Energy Efficient Equipment

• Total cost of the project is Rs. 144 lakhs.

IREDA sanctioned Rs. 93.75 lakhs as term loan.

• The project would result in annual energy

cost savings of Rs 74 lakhs.

• Payback - 2.5 years.

Illustration 3: Kraft Paper Unit

Retrofit of Energy Efficient Equipment

Lessons Learnt

 Single banker for term loan and working

capital

 Not willing to share pari-passu charge on

existing assets

 Cluster approach not necessarily leading to

replication

Business Models

Illustration 1: Direct User (Lease-based)

BANK/ FI Repayment User Equipment Lease Leasing Company Loan 2 Rental Loan 1 Repayment

Illustration 2: Vendor ESCO Financing

BANK/ FI ESCO Repayment User Equipment Lease Utility Rental with Billing Escrow Account Rental First Charge Loan Rental

Illustration 3: Performance Guarantee/ Shared Savings

BANK/ FI ESCO Repayment User Equipment Shared Saving Escrow Account Shared Saving First Charge Loan Performance Guarantee

Illustration 4: SPV Arrangement

BANK/ FI SPV Repayment Parent Company Power Hot Gasses Escrow Account First Charge Loan Payment for Power Payment for Power

Illustration 5: Direct User

IREDA Wor Repayment Current Operation

• f the

Company Portion Earmarked to IREDA Cash Flow Energy Efficiency Project First Charge Loan Energy Saving Revenue king Capital A/c Free WC limit

Lessons Learnt in EE Financing

 New Territory

– Unfamiliarity with EE

 Borrower Profile

– Not very strong

 Contracts/protocols

– Non standardized

 Security

– Diff to securitize assets

 Budgeting issues

– CAPEX vs. OPEX

 Transaction cost

– Large due to small size

 Experience

– Few success stories

 Benchmarking

– M&V risks

 Notional savings

– Megawatt Vs Negawatt

 ESCO Implementation

– Weak balance sheet

 Energy pricing

– Realistic/ Practical

Way Forward

 Standardized project appraisal process  Fiscal Incentives (Tax/ duty exemption)  Credit enhancement/ risk guarantee products  Financial products for ESCOs  Micro-credit schemes for small projects  Performance guarantee Insurance  Monetizing CDM Revenues (Programmatic CDM)

Th Thank ank yo you

www.ireda.gov.in