5th Renewable Energy 2012 Conference: Wind Edition May 2012.

5th Renewable Energy 2012 Conference: Wind Edition

May 2012

Page 2

Power scenario in IndiaGrowing importance of renewable energy

Break up of installed power generation capacity (as on 31 March 2012)► Renewable energy accounts for

approximately 12% of a total 200 GW of power generation capacity installed in India.

► Demand for power in India has been increasing due to the rising population, growing economy, and changing lifestyles.

► Despite substantial capacity additions, the power sector is still in shortage of energy.

► Peak demand shortage averages around 12%.

► Renewable energy installed capacity has grown at a healthy CAGR of 19% over FY07-FY12.

56%

9%1%

2%

20%

12%

Coal

Gas

Diesel

Nuclear

Hydro

Renewable

Source: CEA

Growth of renewable energy installed capacity in India (GW)

FY07 FY08 FY09 FY10 FY11 FY12

10.212.3

14.416.8

20.0

24.5

Source: MNRE, CEA

CAGR 19%

+2.1+2.1

+2.4+3.2

+4.5

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Renewable energy: growth storyWind—the mainstay of renewable energy in India

► Wind energy, with over 16 GW installed capacity, accounts for nearly 66% of the renewable energy installed in India.

► Installed wind energy capacity in India has grown at a CAGR of 19% (FY’07-FY’11).

► The states of Tamil Nadu, Maharashtra and Gujarat are the leaders in installed wind energy capacity.

► As per various estimates, the total potential for wind energy is around 46 - 70 GW.

► MNRE envisages wind to constitute ~70% of overall renewable capacity translating to 2-3 GW of new capacity per year till 2020.

Renewable energy installed capacity split in India

Wind66%

Small hydro13%

Biomass

13%

Solar2%

Others6%

Source: MNREBiomass includes bagasse cogeneration; Others includes Waste to power

(As on 31 Jan 2012)

Resource Estimated potential (GW)

Installed capacity (GW)

Wind 48.5 16.2

Small hydro 15.4 3.3

Biomass 23.0 3.0

Solar 20-30 MW/sq. km 2.1

As of 31 Jan 2012Source: MNRE, Ernst & Young analysis

Growth of Wind installed capacity in India (GW)

FY07 FY08 FY09 FY10 FY11 Jan' 12

7.18.8

10.211.8

14.216.2

CAGR 19%

+1.7+1.4

+1.6+2.4

Source: MNRE

+2.0

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Ernst & Young Renewable Energy Attractiveness IndicesIndia is globally one of the most attractive destinations for wind energy

Source: Ernst & Young Renewable Energy Attractiveness Index, February 2012

Poland

Sweden

France

Italy

Canada

India

UK

US

Germany

China

52

54

58

58

61

64

66

67

70

76

Wind All renewables

► The Ernst & Young Renewable Energy Country Attractiveness Indices ranks renewable energy markets, their renewable energy infrastructure and suitability to various technologies.

► The indices are forward looking and take a long-term view of the markets, ranking countries with high unexploited potential higher on the index.

► India ranks fourth on EY’s most recent all renewables attractiveness index and fifth on the wind index owing to its vast unexploited potential and favorable government support.

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2004 2005 2006 2007 2008 2009 2010 2011 1Q'120

50,000

100,000

150,000

200,000

250,000

300,000

350,000

3.8% 3.7% 3.3% 3.7%2.3% 1.9%

2.7%3.9%

5.4%

Europe United States China India India as % of global

Wind energy investment in India:experiencing growth but challenges remain

► India is emerging as one of the fastest growing countries in terms of renewable energy investment.

► India’s investment in renewable energy totaled US$10.4 billion in 2011, growing 54% over 2010 — the second fastest among G-20 countries.

► The wind energy sector attracted US$4.6 billion in 2011, or 44% of the total, adding 2.8 GW of capacity.

► The wind energy sector attracted 67% of all VC/PE capital and 98% of all new-build asset finance, raised YTD in India, across all forms of renewable energy.

► Multilateral agencies such as the World Bank, International Finance Corporation (IFC), and Asian Development Bank (ADB), as well as bi-lateral agencies such as KfW (German Development Bank) have also stepped up their assistance to the sector in the last few years.

New investment in clean energy, 2004 – 2011 (US$ b)

2004 2005 2006 2007 2008 2009 2010 2011 1Q'120

1,000

2,000

3,000

4,000

5,000

6,000Asset finance Public markets VC/PE

New investment in wind energy in India, 2004 – 1Q’12 (US$ m)

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Changing paradigm of wind power:GBI and REC are likely to transform the wind power space

2003-09: Investment Option

Depreciation driven

Balance sheet financed

Packaged solution

Sale to utility only

Annuity business

REC

GBI

RPO

FIT

2003 20122010- onwards: Business Option

NPV/ IRR driven

Project finance

EPC/ EPCM etc

Multi-sale options

Risk-return framework

Together, the Generation Based Incentive scheme and Renewable Energy Certificates are likely to transform the structure of the wind energy industry in India. However, the repeal of the Accelerated Depreciation tax break will have an adverse impact on investment in the sector

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RPO regulations:a key step towards the promotion of renewable energy

► To enhance compliance to the RE purchase obligations, a tradable market based instruments, Renewable Energy Certificates (RECs), have been launched.

► The REC mechanism will enable even states with lower RE potential to target higher RPOs and at the same time encourage developers to set-up RE facilities at most optimal locations.

► Renewable Purchase Obligations (RPOs) require the following obligated entities► distribution licencees► captive power consumers► open access consumers

to purchase/generate a certain percentage of their total electricity requirement from eligible renewable sources.

State Segment FY10-11 FY11-12 FY12-13

Gujarat

Wind 4.5% 5.0% 5.5%

Solar 0.25% 0.5% 1.0%

Others 0.25% 0.5% 0.5%

Total 5.0% 6.0% 7.0%

Rajasthan

Biomass 1.75% 2.00%

Wind 6.75% 7.50%

Total 8.5% 9.5% 8.0%

Progressive targets

Source: Respective State Electricity Regulatory Commission orders

Electricity

Sold at preferential tariff

RECsTrade/

TransactSold at non-preferential tariff

Renewable energy sources

Option 1

Option 2

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Critical success factors (1 of 2)

Financial factors

► Power evacuation infrastructure has not kept pace with the development of wind power plants. Tamil Nadu provides an example of a state where many commissioned wind plants are unable to evacuate the energy generated because of lack of infrastructure.

► Wind power generated fluctuates depending on wind speeds and availability. The bulk generation of such intermittent/variable renewable energy creates significant disturbances to the grid.

► The repowering of wind turbines, or the replacement of old and small turbines with larger and more powerful turbines, would lead to enhanced generation from the same site. However, this process has its own limitations such as ownership, cost, incentive and policy issues.

► Continuous losses are being incurred by many state discoms, which is leading to significant delays in payments to wind generators.

► This also has a ripple effect on the lenders, who complain of non-regular repayment of loan installments.

► Mechanism like REC financing and green bonds need to be strengthened and promoted as an alternative way to close the funding gap.

► The implementation of the Direct Tax Code (DTC) and the Goods and Services Tax (GST) will result in an increase in the cost structure for wind energy projects.

Technological factors

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Critical success factors (2 of 2)

Institutional factors

► Strict implementation of RPO is a challenge and sector growth trajectory depends on the achievement of RPO targets set by state governments.

► The removal of the accelerated depreciation (AD) benefit will weigh down on the investments in the wind energy sector.

► The generation based incentive (GBI) scheme was launched in 2009 to provide a level playing field to players across various classes and to encourage energy generation as opposed to only capacity additions.

► A favorable law and order system with single window clearance system is required .

► Diversion of land and obtaining environmental and forest clearance is a long drawn procedure which leads to delay or suspension of projects.

► India needs trained and skilled manpower to work in the sector to meet growth targets.

► Structured training programs at institutions and development of industrial training institutes (ITIs) for imparting technical skills to locals will create employment and increase the availability of trained manpower.

► The wind turbine and component supply chain needs to be strengthened to reliably and efficiently meet the growing demand.

Regulatory factors

Thank you