EAI Presentation @ Renewable Energy Finance – Singapore

I had the opportunity to be a speaker at the Renewable Energy Finance conference and seminar organized by IBC Asia at Singapore earlier this week.

Originally I was asked to co-ordinate a workshop in which I would be meeting with a few people interested in investing in the Indian renewable energy sector. But I was later asked if I could also present at the conference that came after the workshop.

I am providing the highlights and the key take-aways from the event.

1. The workshop was attended by about 10 people; this group comprised 3-4 investors (private equity companies and banks), while the rest were either from government departments or companies keen on knowing more about investing in renewable energy, and not always specifically in the Indian context.

2. The key inputs that the attendees wanted were the potential for India for various renewable energy sectors, the government incentives for the sector, and the costs and cost breakdowns for each sector. I provided these details for the following renewable energy domains: solar PV, solar CSP, wind (onshore), biofuels, biomass-based power, geothermal, small hydro and large hydro. Most interest was for solar (both PV and CSP), biomass-based power and small hydro.

3. The conference was attended by about 70 delegates, with a majority of them from the investing community. That was a bit surprising, as I would have thought that those who needed the money would be present in as high a number (if not higher) than those who had it. But well, there it is! I was able to collect a lot of useful inputs from the conference as the speakers represented both the invested community (mostly private equity companies) and the investee community (developers of renewable energy projects).

4. The overall impression I had of the investing community was that they are keen on investing in renewable energy (in India as well as elsewhere) but would like better clarity on the risks involved and the exit route. As expected, most PE firms would rather not get in very early but wait until a growth stage had been reached. The developer/investee community were as expected bullish about their sectors, but I felt some of them still were not entirely sure about the how to make their projects far more cost competitive – it’s of course well known that government incentives are the key to make these projects economically sustainable, but some insights on how these projects could eventually stand on their own would have been very useful.

Other interesting points:

1. I had the opportunity to have a long chat with the head of IFC (investing arm of the World Bank) for Philippines, and was able to understand to some extent how these top honchos think when it comes to investing in companies. I asked him how IFC could benefit startup companies that are small and hence could require funding that are far lower than what organizations such as IFC could consider as their minimum floor. He said that it would be very difficult for IFC to directly deal with small investments; hence they work with local banks and co-ordinate such funding.

2. The other interesting thing I noted was that many of the PE firms that had come there were hardly interested in India. That was obviously intriguing, given that India is one of the hottest destinations in Asia for renewable energy, given the size of opportunity. I then discovered the reason behind the lack of interest – most of these PE firms were from SE Asian countries and they were looking at most/all countries in south Asia except India, because they had a separate office in India looking after investments in India.

3. An executive I met from Astratel, Indonesia was keen on knowing the key drivers that are driving the investment in renewable energy – was it the prospects of high future returns or an attractive acquisition, or was it the possibilities of synergies for companies (especially for those in the infrastructure sector such as his company).

4. I also happened to have a brief question-answer discussion with a director of First Capital regarding the importance of carbon credits when evaluating the feasibility of a renewable energy project. To my knowledge, most financial evaluations of renewable energy projects today factor in the revenues that could come in from carbon credits, but the executive mentioned that they would rather prefer projects that could be viable without carbon credits, given the fact that the price of CERs post 2012 is uncertain (Kyoto Protocol’s framework for carbon credits comes to a close end of 2012 – see a related post here). Funnily, on the other hand, for you to get carbon credits for a project, you need to prove that the project will be unviable WITHOUT carbon credits (The additionality principle, more here). So, on the one hand you have investors who would like the project to be viable without carbon credits and on the other you have the CDM administrators who would give you carbon credits only if you could prove that the project will be viable without carbon credits. Guess the best way is if you could find some way by which you don’t need the CERs and still could make the project financially attractive – that is easier said that done!

5. One another interesting company I came across was Dragon Power (DP), and I will tell you why it was very interesting to me. DP is putting up biomass based power plants in China. That’s not the interesting part, they are putting up such plants that are about 30-40 MW each in capacity. Now, that’s interesting, because most biomass-based power plants in India are of the small variety (2-3 MW), based on gasification (updraft/downdraft) technologies. DP on the other hand simply uses the biomass for combustion, which generates steam in a boiler to run a turbine – in other words, they have simply replaced coal with biomass, but at much smaller power plants (utility scale coal power plants could run to over 500 MW in size). It was absorbing to listen to the presentation made by the chief executive of DP, and I also had a fairly detailed Q&A session with him. My questions were primarily to find out whether they faced significant price increases in their biomass supply, and how the company went about locating the plant to minimize biomass transport costs. The answers were interesting: DP has entered into some sort of contracts for the supply of over 20 different types of biomass waste, from farmers all over their region. This variety in choice has helped them both in terms of feedstock supply and price security (if one biomass price goes up, something else comes down…). He mentioned to me that they have not faced any serious price increases in the last two years. Compare this with India, in which biomass-based power companies have faced severe increases in price of crop waste/biomass waste, leading many companies to actually close down operations! (In an earlier post, I had mentioned how the price of rice husk had increased by over 400% in India last few years). On location of power plants, he mentioned that DP tries to make sure that the max distance for which the biomass is transported is not more than 50 kms.

6. One another presentation I found interesting was the presentation from SN Power on its projects in small and large hydro (you can see the hydro projects they are working on here). While SN Power and their work were not entirely new to me, I was keen on knowing more about the run-of-the-river hydro projects they were working on, because I felt these could help India ramp up their hydro power installations. Small hydro requires hundreds of projects to be implemented before it could come anywhere close to meet the power shortages we face (which is about 25,000 MW), while dam-based large hydro poses too many environmental and societal challenges for India to rely only on such large hydro projects. R-o-R schemes, in my opinion, provide a more optimal solution for India. My questions to the SN Power executive were more on the total potential run of river hydro schemes have for countries such as India and the capital costs for the same. On potential he mentioned that run-of-river hydro projects could reach individual capacities of over 200 MW (which was satisfying to me) and that the capex could be in the range of $1.1-1.2 million/ MW, which makes it quite comparable to that for small hydro (the capex for dam-based large hydro projects is a mystery to me though – I had estimates of $1.25 million/MW, but I have had estimates that were much higher as well – ranging from $1.5- 2 million/MW. Part of the problem in estimating capex for dam-based large hydro emanates from the serious cost overruns that could happen owing to the economic, social and geological uncertainties surrounding such projects).

7. On a slightly different context, I had a amusing discussion (I say amusing because the gentleman in question had a very charming way of talking, interspersed with a lot of humour) from an executive from Recharge, a magazine on renewable energy. He wanted to know about the offshore wind scenario in India, and I told him I didn’t see it happening in the foreseeable future. He cautioned me not to be so sure about it, citing the example of China which also said it was not keen on offshore wind until recently but has started firing up its offshore wind farm ambitions – see here.

8. I also had a brief discussion with Goh Chye Boon, the CEO of the Tianjin Ecocity, a green concept city being developed in China, with assistance from experts from Singapore. He was quite keen on doing something similar in India, and asked me if I could recommend some business contacts in India so he could start off the dialogue. An eco-city in India? Sounds cool.

9. Another interesting discussion I had on bio-based energy is with the CEO of Bronzeoak, Graham Stowell. He was of the opinion that rather than using feedstock like algae which are still not commercially proven, it might be a far better idea to use sugarcane for producing ethanol biofuel, as sugarcane is a proven crop and it can produce yields of over 100 T per hectare per year, which is similar to what algae are expected to produce in future.

So! Those were some details of the various discussions and exchanges I had the opportunity to have with a diverse set of people.

The complete list of companies and individuals I met:

(Company name, contact name, role of contact in company)

First Climate – Sudhir Bhat – Director Project Finance (also Marie-Clothilde Beasse, Manager Project Finance, South East Asia)

Khazanah Nasional – Joshua Goh Choo Kiat – Associate, Investments

Sumitomo Mitsui Banking Corp – Gregory Liu – First Vice President, Structured Finance, Asia Pacific

IFC – Jesse Ang – Resident Representative, Philippines

Sarawak State Gov – Hasmawati Sapawi

CIMB Standard Strategic Asset Advisors – Burcu Seslioglu – Senior Associate (also: Johan Bastin, CEO).

Sino-Singapore Tianjin EcoCity Investment and Development Corp Ltd – Goh Chye Boon – CEO

Panama Phadnis Power Projects – Ravindra Vipra – Director & CEO

Energy Intelligence – Song Yen Ling – Senior Reporter (also: Henner Tan, Regional Sales Dir & Clara Tan, Bureau Chief, Singapore)

Bronzeoak – Graham Stowell – Managing Director

Oxley Capital Group – Marc-Antoine Thiriez – Executive Partner

HSBC – Robert Todd – Director, Renewable Energy Resources & Energy Group

Dragon Capital – Gavin Smith – Director, Clean Development

RECHARGE – Rex Reksnis – Sales Director, Asia Pacific

Vina Capital – Due Quach – Investment Director

Caterpillar Financial Services – Pasqual Slaughter – International Sales & Marketing Manager

Beepo Electric Vehicles – Stephen Browne – CEO

Hayley’s – Wikum Kaluarachchi – Head, Wind Energy

SN Power – Erik Knive – Executive Vice President, SE Asia

Maybank Group – Yin Shao Siang – Manager, Investments

DP Cleantech – Jermoe Le Borgne – SEA Sales Manager

Focus Ventures Asia – Mae Wang – Asia Pacific Advisor

Suntech Power Holdings – Daniel Teo – VP, Corporate Project Financing

Siemens Project & Export Finance – Anton Conradie – Head, Project & Export Finance, SE Asia

Actis Capital – Vivek Dixit – Director

It was thus a very useful three days I spent in Singapore (not to forget the fourth day when I took time off and went round the city in a hop-on-hop-off bus trip – some pictures from my shoots on sustainability in Singapore).

If you are interested in obtaining the presentation I made at the conference, please send a note to me ( Narasimhan Santhanam) – narsi@clixoo.com .