Sample Report - Project Appraisal

Solar power plants 2010
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Sample Report
Prepared by employee of
JaZaa Financial Advisory Pvt. Ltd.

PROJECT APPRAISAL MODEL FOR
SOLAR POWER PLANTS


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1. Acknowledgement:

There is always a sense of gratitude, which everyone express to others for the helpful and
needful services they render during different phases of life and help to achieve the goals. We too,
want to express our deep gratitude to each and everyone who have always been helpful to us in
getting this project to a successful end.

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2. Executive Summary:
Energy is considered a prime agent in the generation of wealth and a significant factor in
economic development. Limited fossil resources and environmental problems associated with
them have emphasized the need for new sustainable energy supply options that use renewable
energies. Solar thermal power generation systems also known as Solar Thermal Electricity (STE)
generating systems are emerging renewable energy technologies and can be developed as viable
option for electricity generation in future.

Solar energy has many direct uses, including passive architectural applications such as lighting
and thermal comfort provided by the use of proper building materials and orientation, as well as
active water and space heating. Solar photovoltaic (PV) cells and concentrating solar power
(CSP) systems can generate electricity on a small or large scale. In addition, PV cells are used in
a variety of cost-effective and off the grid applications, including calculators, wrist watches,
road and railroad warning signs, flashing school zone lights, telecommunication equipment and
emergency lighting on offshore oil rigs.

India is both densely populated and has high solar insulation, providing an ideal combination
for solar power in India. India is already a leader in wind power generation and Suzlon Energy is
one of the India-based pioneering industries in world to generate non-conventional energy. In
solar energy sector, some large projects have been proposed, and a 35,000 km area of the Thar
Desert has been set aside for solar power projects, sufficient to generate 700 to 2,100 giga watts.
Jawaharlal Nehru Solar Mission envisages grid connected Solar Power Capacity at 1000 MW by
2013and 20000 MW by 2022. Hence lots of subsidy and benefits are being given by the
government to firms setting up Solar Power Plants.

This project entails preparation of detailed project appraisal model for Solar Power Plants
(Photovoltaic and Solar Thermal Power Plants). The tariff calculation of the project is based on
CERC Regulations for renewable energy projects. CERC (Central Electricity Regulatory

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Commission) is the regulatory body which lay down guidelines regarding all issues of
commercial energy sector.
CERC has laid down guidelines for tariff calculation for renewable energy sector in order to
promote standard tariffs for such projects and to bring in uniformity in power purchase
agreements. Also since no historical data are available for most types of renewable energy
projects, the guidelines help in setting normative tariffs for the projects.


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CONTENTS:
1. Acknowledgement .............................................................................................................. 2
2. Executive Summary ........................................................................................................... 3
3. Introdution .......................................................................................................................... 6
4. Market Analysis ................................................................................................................. 9
4.1 Porters 5 forces ........................................................................................................... 9
4.2 Demand Forecasting ................................................................................................. 10
4.3 Market Charecterization ........................................................................................... 10
5. Technical Analysis ........................................................................................................... 11
5.1 Manufacturing Technology ...................................................................................... 11
5.1.1 Proposed Technology ....................................................................................... 12
5.2 Solar thermal power plant ......................................................................................... 12
5.2.1 Parabolic trough system ................................................................................... 13
5.3 Capacity utilization factor ........................................................................................ 14
5.4 Location .................................................................................................................... 15
5.4.1 Solar radiation over rajasthan ........................................................................... 16
5.5 Capital cost ............................................................................................................... 17
5.6 Operation and Maintenance ..................................................................................... 18
6. Implementation Schedule ................................................................................................. 18
7. Financial Analysis ............................................................................................................ 19
8. References ........................................................................................................................ 25


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3. Introduction:
With more and more focus on sustainable development, clean and renewable energy is the most
contemporary topic of discussion at the various world forums.
With Kyoto Protocol and Copenhagen Agreement, Solar Power is once again in prominence.
However the issue is grid parity (cost of solar energy in comparison to cost of conventional
energy) with conventional power plants which still drive the world.

Fig. 1 Grid Parity for Solar Power Plants
While launching Indias National Action Plan on Climate Change on June 30, 2008, the
Prime Minister of India, Dr. Manmohan Singh stated:


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Our vision is to make Indias economic development energy-efficient. Over a period of time, we
must pioneer a graduated shift from economic activity based on fossil fuels to one based on non-
fossil fuels and from reliance on non-renewable and depleting sources of energy to renewable
sources of energy. In this strategy, the sun occupies centre-stage, as it should, being literally the
original source of all energy. We will pool our scientific, technical and managerial talents, with
sufficient financial resources, to develop solar energy as a source of abundant energy to power
our economy and to transform the lives of our people. Our success in this Endeavour will change
the face of India. It would also enable India to help change the destinies of people around the
world.
Continuing with this policy, India moves ahead in renewable energy sector with Jawaharlal
Nehru Solar Mission. India is endowed with vast solar energy potential. About 5,000 trillion
kWh per year energy is incident over Indias land area with most parts receiving 4-7 kWh per sq.
m per day. Hence both technologies, namely, solar thermal and solar photovoltaic, routes for
conversion of solar radiation into heat and electricity can effectively be harnessed providing
huge scalability for solar in India. Solar also provides the ability to generate power on a
distributed basis (non grid connected) and enables rapid capacity addition with short lead times.
Off-grid decentralized and low-temperature applications will be advantageous from a rural
electrification perspective and meeting other energy needs for power and heating and cooling in
both rural and urban areas. The constraint on scalability (increase in size) will be the availability
of space, since in all current applications, solar power is space intensive. In addition, without
effective storage, solar power is characterized by a high degree of variability (variance in terms
of degree of sunshine received and energy produced). In India, this would be particularly true in
the monsoon season.
Current scenario is that at least 25 companies have come forward, with investment proposals
totaling over Rs 1,00,000 crore over the next three to 10 years.
This sudden trend of investment in Solar Power sector is due to the following:
10-year tax holiday for photovoltaic (PV) and thermal solar plants set up by 2020,
reduced customs duty and zero excise duty on specific capital equipment, critical
materials and project imports
Generation Based Incentive (GBI) Max. Rs 11.4 per unit in case of solar photovoltaic
and Max. Rs 9.5 per unit in case of solar thermal power

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High equity returns (19% for first 10 years and 24 % from 11
th
year onwards) envisaged
in Tariff calculations
CDM benefits Carbon Trading benefits could be utilized by companies
Financial appraisal is done to ensure the project feasibility in terms of risk and return and
sensitivity analysis. Both discounted and undiscounted methods of financial appraisal could be
used.
With so much focus on Solar Power Plants, the development of financial appraisal model for
Solar Power Plants is pre requisite to move ahead. The financial model developed in this paper is
based on Central Electricity Regulatory Commission (CERC), New Delhi, Tariff Regulations for
Renewable Energy Projects.
By calculating the Tariff (based on the CERC Regulations) we are able to calculate the total
revenues to be generated by the project and subsequently the cash flow and P&L account are
prepared for useful life of the plant i.e. 25 yrs. Based on the cash flow the Internal Rate of Return
(IRR) and DSCR (Debt Service Coverage Ratios) are calculated.


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4. Market Analysis:
4.1 Porters Five Forces Model

- Entry Barriers:
The establishment of a solar power plant requires huge investments in capital which can be
approximately four times compared to a thermal power plant. The entry barrier is thus high.
However there are no such industry standards for comparison.
- Bargaining power of Buyers:
The bargaining power of buyers is less as there are not many suppliers of power with whom
the buyers can negotiate.
- Bargaining power of suppliers
The bargaining power of suppliers is more since there are a limited number of suppliers and
hence power supply can be controlled to a greater extent by them
- Substitute:
Rivalry:
Presently no rivalry since
its a relatively virgin
territory
Substitute:
No substitute for power,
source of power can have
substitutes. Coal is a
substitute due to its
abundance.
Bargaining power of
Supplier:
More, since number of
suppliers is limited
Bargaining power of
Buyers:
Less, Not many suppliers to
negotiate with
Entry Barriers:
Cost of entry is exorbitant
No industry standards for
comparison

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There is no substitute for power. However source of power can have substitutes like coal,
wind, water etc. Coal is the most competitive substitute due to its greater abundance and
efficiency in power production
- Rivalry
Since the power territory is a relatively virgin territory, inter firm rivalry is low.
4.2 Demand Forecasting
It has been estimated that the consumption of electrical energy will rise from 660KWh per capita
to well above 2000KWh per capita by 2032.
The grid connected power generation will scale up from 147GW to 460GW.Immense potential
lies for off grid application in rural areas facing chronic power shortages. Power usage in rural
areas will be required for
Basic electrification
Irrigation pumps
Power backup for cellular towers
All the above factors present an enormous opportunity to the power sector.
4.3 Market Characterization
Breakdown of Demand
As per the demand observed, the consumer groups can be divided into Industrial, Domestic and
Rural.
Price structures
The price structures are as follows:
- Manufacturers price-15-20/unit
- Retail price-Not to exceed Rs 9/unit
- Subsidy- Up to Rs 12/unit(Following policy is applicable for 10 yrs)
Methods of generation/distribution
The methods of generation and distribution of power is mainly through the following two
sources: Solar Thermal Power plants and Photo Voltaic Panels
Competition

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The existing competition involves both public and private players, some of whose names are
listed below.
Azure, Tata BP Solar, RIL Solar Ltd in the private sector and state electricity boards in the
public sector.
Government policy
In the latest budget for 2010-11, the government has announced an allocation of Rs10 billion
towards the Jawaharlal Nehru National Solar Mission. Also there is going to be reduced customs
duty on solar panels by 5 percent and exempted excise duty on solar photovoltaic panels. The
government proposed a coal tax of USD 1 per metric ton on domestic and imported coal used for
power generation. It has also increased the allocation for the Ministry of New and Renewable
Energy (MNRE) by 60 per cent
5. Technical Analysis
Technical analysis is aimed at evaluating the various technologies available for setting up the
project. It attempts to compare the various options brings out the best option amongst the
available ones.
The various items to be considered while doing a technical analysis for a project are
- Manufacturing technology
- Plant capacity
- Materials and Utility
- Location , site and infrastructure cost
5.1 Manufacturing Technology
The technology available for solar power generation is mainly of two types
- Photovoltaic System
- Solar Thermal Power Plants
There are various options available under each of these systems
PV System
Multi-crystalline Silicon Cells
Mono-crystalline Silicon Cells
Amorphous Silicon/Thin film Silicon cells

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Thick-Film Silicon
Solar Thermal Power Plant
Parabolic trough system
Power tower system
Parabolic dish systems
Linear Fresnel Reflector
5.1.1 Proposed Technology
A feasibility analysis of both the available technologies suggests an advantage for the solar
thermal power plant over the PV system.
Factors of differentiation
Factor PV System Solar Thermal Power
Normative Capacity
Utilization
19% 25%
Normative Capital Cost 17 Cr/MW 13 Cr/MW

From the table it can be inferred that a solar thermal power system provides 25% capacity
utilization as compared to the PV system which has a capacity utilization of 19% also the capital
cost associated with the PV system is far more than the solar thermal system.
Thus the solar thermal system seems a good bet.
5.2 Solar Thermal Power Plant
In this report we dwell with the solar thermal power generation methodologies and discuss the
most feasible of the four. We focus on the parabolic troughs and the tower systems because these
have been judged to be the only solar thermal technologies that can make a significant
contribution to electrical grid. Furthermore, troughs and towers are designed for large scale
applications whereas other systems are better suited for small scale distribution. In the
subsequent sections we take a look at the parabolic trough system in detail. The table below
emphasizes the superiority of parabolic troughs


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Technology Type Installed Capacity (MW) till 2009 Capacity under cons. (MW)
Or Proposed
Parabolic Trough 500 > 10000
Power Tower 40 > 3000
Parabolic Dish < 1 > 1500
LFR 5 > 500

5.2.1 Parabolic Trough System
Parabolic troughs consist of long parallel rows of reflectors (typically, glass mirrors) that are
curved to form a trough. At the focal point of the reflector is the absorber tube or receiver. The
receiver is a pipe treated with a low-e coating encased in a glass cylinder, the space between the
pipe and glass cover is evacuated. The rows are arranged along a north-south axis and they rotate
from east to west over each day. Parabolic troughs can achieve concentration ratios (ratio of solar
flux on the receiver to that on the mirrors) of between 10 and 100.
A heat transfer fluid or HTF (typically, an oil) is circulated through the receiver to remove the
solar heat. The HTF can be heated to temperatures of up to 400 C. The fluid is pumped to a heat
exchanger where its heat is transferred to water or steam. The parabolic trough can collect up to
60% of the incident solar radiation and has achieved a peak electrical conversion efficiency of
20% (net electricity generation to incident solar radiation).
A few salient features:
Most Mature technology
Proven Technology
Economies of scale being achieved in manufacturing
Easier sourcing of concentrators
Easy availability of spares
5.3 Capacity Utilization Factor
For a Solar Photovoltaic (SPV) project, Capacity Utilization Factor (CUF) is the ratio of actual
energy generated by SPV project over the year to the equivalent energy output at its rated
capacity over the yearly period. The energy generation for SPV project depends on solar

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radiation, measured in kWh/sq m/day and number of clear sunny days. The output of Solar Cell
is measured in terms of Wp (Watt Peak) and refers to nominal power under Standard Test
Conditions (STC) (1000 W/m2, 250C, 1.5AM).
The capacity utilization factor as quoted by the developers, in Rajasthan, varies from 24% to
51% for Solar Thermal Power Technologies. However, various SERCs have considered plant
load factor in the range of 22%~24% while determining the tariff for Solar Thermal plants.
Accordingly, the normative Capacity Utilization factor of 25% has been proposed in case of
solar thermal power projects.
5.4 Location
India is located in the sunny belt of the earth, thereby receiving abundant radiant energy from the
sun. Its equivalent energy potential is about 6,000 million GWh of energy per year. India being a
ropical country is blessed with good sunshine over most parts, and the number of clear sunny
days in a year also being quite high. India is in the sunny belt of the world. The country receives
solar energy equivalent to more than 5,000 trillion kWh per year. The daily average global
radiation is around 5 .0 kWh/m2 in north-eastern and hilly areas to about 7.0 kWh/m2 in western
regions and cold dessert areas with the sunshine hours ranging between 2300 and 3200 per year.
In most parts of India, clear sunny weather is experienced for 250 to 300 days a year. The annual
global radiation varies from 1600 to 2200 kWh/m2. The direct normal insolation1 (DNI) over
Rajasthan varies from 1800 kWh/m2 to 2600 kWh/m2.
Rajasthan is situated in the north-western part of India. It covers 342,239 square kilometers.
Rajasthan lies between latitudes 23o 3'and 30o 12', North and longitudes 69o 30' and 78o 17',
East. The climate of Rajasthan can be divided into four seasons; summers, Monsoon, Post-
Monsoon and winter. A summer, which extends from April to June, is the hottest season, with
temperatures ranging from 32 oC to 45 oC. In western Rajasthan the temp may rise to 48 oC,
particularly in May and June. The second season Monsoon extends from July to September, temp
drops, but humidity increases, even when there is slight drop in the temp (35 oC to 40 oC). 90%
of rains occur during this period. The Post-monsoon period is from October to November. The
average maximum temperature is 33o C to 38o C, and the minimum is between 18 oC and 20
oC. The fourth season is winter or the cold season, from December to March. There is a marked

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variation in maximum and minimum temperatures and regional variations across the state.
January is the coolest month of the year. There is slight precipitation in the north and north-
eastern region of the state, and light winds, predominantly from the north and northeast. At this
time, relative humidity ranges from 50% to 60% in the morning, and 25% to 35% in the
afternoon. The north-west part of the country is best suited for solar energy based projects
because the location receives maximum amount of solar radiation annually in the country.
5.4.1 Solar radiation over Rajasthan
Rajasthan receives maximum solar radiation intensity in India. In addition the average rainfall is
very low in the state, hence best suited for solar power generation. The global solar radiation map
of Rajasthan is presented in Figure below; which is based on the measured data of Indian
Metrological Department (IMD) and satellite data through NASA. The map clearly emphasize
that the western and southern parts of the state receives good amount of annual average solar
radiation. Jodhpur is also one representative location of Rajasthan State.
Jodhpur has been chosen as a site for setting up the solar power plant. Jodhpur is the one of the
largest district of Rajasthan is centrally situated in Western region of the State, having
geographical area of 22850 sq. km. The district stretches between 2600 and 27037 at North
Latitude and between 72o55 and 73o 52 at East Longitude. This district is situated at the height
between 250-300 meters above sea level.
Following table presents the outcome of solar radiation resource assessment for Jodhpur. It has
been estimated that the location receives 2241 kWh/m2 Direct Normal Incidence over the year.
The monthly values of global solar radiation diffuse radiation and effective sunshine hours at
Jodhpur have also been given in the table below.

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(Source: TERI analysis)
SPECIFICATIONS LAID DOWN BY CENTRAL ELECTRICITY REGULATORY
COMMISSION under petition no 255/2010
A. Land Cost
Land Costs norm should be Rs 5 Lakh/acre including conversion charges and legal fee expenses.
B. Civil & General Works
The cost of civil and general Works proposed by the Commission at Rs 0.95 crore per MW. It is
based on 6% of the total project cost. Estimate of civil and general works must be costed on
individual line items and actual cost should be taken as Rs 1.23 cr. /MW.
C. Power Conditioning Unit (PCU)
PCU cost of Rs 1.6 crore /MW is not realistic. Cost of inverters, transformers, erection &
installation of HT yard and other equipments for PE are Rs 2 crore per MW.
D. Financial Cost
The Commission has proposed financial cost at Rs 14.42 Lakh per MW which is under stated. It
should be considered at Rs 96 Lakh /MW which include facility fee of 1% of loan amount i.e. Rs
10 Lakh/MW and expenses towards 6 months debt service as collateral i.e. Rs 86 lakh/MW .
E. Capacity Utilization Factor (CUF)

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CERC RE Tariff Regulation specifies CUF of 19%.
F. Compensation of Degradation
Some project developer may not add modules after 4th year as envisaged. It appears
fundamentally wrong to capitalize the cost of plant that has not been installed and commissioned
on COD and in turn allowing RoE (part of which has not been deployed) and interest on loan
(part of which has not been drawn). It is proposed to allow additional capitalization only after the
plant has been installed, as has been the usual practice along with the O & M charges subject to
the condition that payment shall be allowed only after the additional modules have been installed
and commissioned.
G. Solar PV Capital Cost
The weekly retail price should be considered instead of spot market trend as it is highly
fluctuating. In order to promote Indian make crystalline PV module the cost of module should be
taken as $2/watt, this implies that the total module cost should be Rs9.56Cr/MW including
degradation impact. The total capital cost may be taken as Rs 15.775Cr/MW.
5.5 Capital cost of solar thermal project
The Commission, while proposing the project cost at Rs 15 Crore/MW, has considered the
different technologies available in the Solar Thermal power project category, the data submitted
by the project developer to Rajasthan Electricity Regulatory Commission (RERC),
indigenization of balance of system including power block, structures and lower labor cost
prevailing in India. The capital cost for Solar Thermal power plants (without storage facilities)
which is under development and to be commissioned by 2012 in the developed countries, have
been reported around US $ 3.4/ W (equiv. Rs 15.87 Crore/MW). The Commission is of the view
that it can be reduced further up to 15 Crore/MW with indigenization of balance of system
including power block and structures along with lower labor cost prevailing in India.
Considering the same, the Commission decided not to make drastic reduction in the benchmark
capital cost of solar thermal project for the FY 2011 12 for determination of tariff. Moreover,
solar power projects are able to get finance at lower interest rates, considering that the overall
project cost as proposed seems reasonable.

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The Commission hereby determines Benchmark Capital cost norm for Solar PV power projects
for the year 2011 12 at Rs 14.42 Crore per MW and Benchmark Capital cost norm for Solar
Thermal power projects for the year 2011 12 at Rs 15 Crore per MW.
5.6 Operation and Maintenance
There is no operating experience of MW scale solar thermal power plant till date in India. It is
observed that none of the State Electricity Regulatory Commission has specified break up of
operating expenses which comprises of employee expenses, A&G expenses, and maintenance
expenses. The information available about few projects and assumptions contained in the Orders
in few States indicate that O&M cost for solar thermal installations varies in the range of 0.75%
to 1.5% of capital cost. In view of the limited availability of data a normative O&M expense of
1% of the capital cost, which amounts to Rs 13 Lakh/MW has been considered during the first
year of operation which will be escalated at a rate of 5.72% per annum over tariff period.
6. Project implementation schedule
6.1 Project implementation period
26 months from date of approval. Based on international practices and technological
advancements, it is estimated that 1 MW capacity phase of the project will be supplied, installed
and commissioned in 13 months from project approval and additional 9 MW of phase II of the
project will be installed and commissioned in 26 months from project approval. Proposed
electricity tariff Project will be implemented as IPP (Independent Power Project) and envisages
sale of generated electricity to the grid. The technical and financial parameters are also listed
therein. The tariff works out to be at Rs. 19.03/kWhr for the whole project life of 25 years. This
tariff has been considered with 16% post tax return on equity.
The solar power plants are entitled to CDM benefit. The Developer shall endeavor for CDM
benefit. CDM benefit, interalia, depends on non firm/firm nature of supply of power and is
market driven. On account of these, it will attract lower CDM credit. Therefore, it will not be
possible to quantify it beforehand. Its certification also involves cost and time. Developer will

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share the CDM benefits as per RERC regulations. It is anticipated the average CDM credit of 30
paisa/KWh and corresponding reduction in annual tariff.

7. Financial Analysis
Form 1.1 based on CERC Format (for Solar Thermal Plant) is as below. All expenses are
detailed in the form. In case of renewable energy tariff calculation we do not need to calculate
the whole project costing as CERC has defined the base capital cost. All calculations regarding
the value of the project is based on this capital cost. For sample calculations we have considered
a plant of 100 MW
S.No. Assumption Head Sub-Head Sub-Head (2) Unit
Parameter
Values
1 Power Generation

Capacity
Installed Power Generation
Capacity MW 100

Capacity Utilization Factor % 23

Commercial Operation Date mm/yyyy

Useful Life Years 25
2 Project Cost


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Capital Cost/MW Normative Capital Cost
Rs
Lakh/MW 1300

Capital Cost Rs Lakh 130000

Capital Subsidy, if any Rs Lakh

Net Capital Cost Rs Lakh 130000

3
Financial
Assumptions

Tariff Period Years 25

Debt:Equity

Debt % 70

Equity % 30

Total Debt Amount Rs Lacs 91000

Total Equity Amount Rs Lacs 39000

Debt Component

Loan Amount Rs Lacs 91000

Moratorium Period Years 2

Repayment Period (incld
Moratorium) Years 12

Interest Rate % 12

Equity
Component

Equity Amount Rs Lacs 39000

Return on Equity for First 10
years %p.a. 19

Return on Equity 11th year
onwards %p.a. 24

Discount rate % 14.619312


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Depreciation

Depreciation Rate for first 10
years % 7

Depreciation Rate 11th year
onwards % 2.45

Incentives
Generation Based Incentices, if
any

Period for GBI Years

4 Operation & Maintenance

Normative O&M experience
Rs
Lakh/MW 13

O&M expense per annum Rs Lakh 1300

Escalation factor for O&M expense % 5.72
5 Working Capital

O&M expense

Months 1

Maintenance
Spare (% of O&M expense) % 15

Receivables

Months 2

Interest on Working Capital %pa 12.5

Levelised Tariff based on the above calculation (for 100 MW Solar Thermal Power Plant)
comes out to be Rs. 11.75/Unit
6.1 Calculations
The following is the detailed formulas used in the financial model


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I) Discount Rate It is the discounting factor for calculation of Present Values of
tariffs in order to calculate levelised tariff. CERC Regulations says discount factor
should be equal to Weighted Average cost of capital. Hence

where
- WACC is Weighted Average Cost of Capital
- r
e1
- Equity return for first first ten years (19%)
- r
e2
Equity return eleventh year onwards (24%)
- r
d
Interest rate on debt ( SBI LTPLR+1.5%)
- w weights of capital
- t- tax rate
II) Debt Annuity Payment It is used for the calculation of per year Annuity payment
to lenders for debt coverage.

Annuity Amount to be paid to bank every year till the repayment period
P - Total Debt Amount
i- Interest Rate for Long Term Loan (SBI LTPLR+1.5%)
n repayment period (10 years)
In the financial model the excel function PMT has been used to calculate the annuity
amount.
III) Net Generation It is the amount of electrical energy generated in Mega Units per
year
NG = Installed Capacity (MW)*1000*CUF*365*24/1000000-Aux.Con.
where
- NG - Net Generation in Mega Units
- CUF Capacity Utilisation Factor
- Aux. Con. Auxiliary Consumption
IV) Interest on Working Capital Working Capital is defined as the amount held up in
current activities of the firm or the amount required for smooth operations of current
25 / ] 15 * ) ( 10 * )) 1 ( [(
2 1 d d e e d d e e
r w r w t r w r w WACC + + + =
(
+
=
n
i i i
A P
) 1 (
1 1

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activities. Interest in working capital is calculated here as the opportunity cost of the
amount help up as working capital. Net working capital for tariff calculation as
defined in CERC Regulations is the sum of one month of O&M expenses,
Maintenance Spares at 15% of O&M Expenses and receivables for two months at
Levelised Tariff. Further

Where
I
wc
Interest on Working Capital
WC Working Capital
i
wc
interest rate (SBI STPLR+1%)
V) Depreciation It is a cost recorded to allocate tangible assets cost over its useful life.
As per regulations the depreciation is to be charged at the rate of 7% by Differential
Depreciation method for loan repayment period and further by straight line method
with salvage value of 10% of Capital Cost.

VI) Levelised Tariff It is the average tariff allocation for the tariff period. It is
calculated as

and

where
WACC Weighted Average cost of capital
DF Discount Factor
n Period/Year
u useful life
T
d
Discounted Tariff
wc WC i WC I * =
on Depreciati of Rate Value Book on Depreciati LoanPeriod . . * . ) ( =
) ( * ) * 1 . 0 . ( ) ( LoanPeriod UsefulLife t CapitalCos Value Book on Depreciati riod PostLoanPe riod PostLoanPe =
PUTariff
WACC
T
n
D *
) 1 (
1
+
=
=
=
=
=
=
u n
n
u n
n
D
DF
T
L
1
1

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L Levelised Tariff
VII) IRR (Internal Rate of Return) - IRR of an investment is the interest rate at which
the costs of the investment lead to the benefits of the investment. This means that all
gains from the investment are inherent to the time value of money and that the
investment has a zero net present value at this interest rate.
It is calculated as

Where
NCF Net Cash Flow
u- Useful Life (25 Years)
In the model the excel function IRR has been used to make the calculations.
Based on the all the above formulas the financial model prepared on Excel Worksheet contains
the following
i) Form 1.1 Based on CERC Regulations
ii) Form 1.2 Determination of Tariff Components
iii) Debt Annuity Payments
iv) Depreciation Calculations
v) Interest on Working Capital Calculations
vi) Cash Flow (IRR and DSCR Ratios calculated)
vii) P&L Account
viii) Interest during Construction
ix) Project Costing
Refer Excel sheet attached.
1. Conclusion - Sensitivity Analysis
Cases
Capital
Cost CUF
Rate -
Term
Loan
Rate-
Working
Capital
IRR
Firm
IRR
Equity
Avg.
DSCR
Base Case 1300 23 12 12.5 15.33% 15.94% 1.242553
+5% Capital Cost 1365 23 12 12.5 14.34% 13.58% 1.183384
=
=
+
=
u n
n
n
IRR
NCF
0
) 1 (
0

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+10% Capital Cost 1430 23 12 12.5 13.44% 11.64% 1.129594
-5%Capital Cost 1235 23 12 12.5 16.43% 18.82% 1.307951
-5%CUF 1300 21.85 12 12.5 14.21% 13.27% 1.175768
+5% CUF 1300 24.15 12 12.5 16.46% 18.89% 1.309338
+100 basis point
rate 1300 23 13 13.5 15.43% 14.22% 1.181505
+150 basis point
rate 1300 23 13.5 14 15.47% 13.40% 1.152534
-50 basis point rate 1300 23 11.5 12 15.29% 16.84% 1.274722
-100 basis point
rate 1300 23 11 11.5 15.24% 17.76% 1.308053

8. References
8.1 Books
- Chandra, Prasanna (2008), Financial Management, TATA-McGraw Hill, New Delhi.
- Helfert, Erich A. (2001), Financial Analysis: Tools and Techniques, McGraw Hill, USA.
- Chandra, Prasanna (2002), Projects Planning, Analysis, Selection, Financing,
Implementation and Review, Tata McGraw-Hill, New Delhi.
- Khan B.H (2009), Non Conventional Energy Resources, The McGraw Hill, USA
8.2 Government Publication

- Central Electricity Regulatory Commission, Government of India (2009), Notification
No.L-7/186(201)/2009-CERC
- Ministry of New and Renewable Energy, Government of India (2008), Guidelines for
Generation based incentives

26

- Ministry of New and Renewable Energy, Government of India (2008), Mission
Document Jawaharlal Nehru Solar Mission
8.3 Journal Paper
- Lorenz, Peter; Pinner, Dicken and Seitz, Thomas (2008), the Economics of Solar Power,
the McKinsey Quarterly.
8.4 Project Reports
- Detailed project report for developing Solar Power Plant at Bap, Jodhpur, Rajasthan
(2009), Energy and Resources Institute, TERI
8.5 Websites
- www.mnre.gov.in
- www.inwea.org
- www.wikipedia.com
- www.livemint.com
- www.business-standard.com
- www.triplepundit.com
- www.ongrid.net

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