The projects belong to Moser Baer, which is engaged in the manufacture of solar panels and has also set up and got registered one project with UNFCCC in Tamil Nadu. The PDD shows that out 15 MW installed capacity of each project, 5 MW is being supplied by Moser Baer and the balance is sourced from outside. Nowhere the PDD states the reason for combining the solar panels of different companies.
In the CAPM, the list of companies included for beta calculation is not exhaustive. While it includes GVK infrastructure, which does not seem to be engaged only in power generation, companies like NTPC, CESC and JP Hydro Ventures are not included. No reasons have been given for such exclusion.
PP has not given what index has been used for market return and why
For risk free rate, PP/consultant has taken weighted average interest rate. This means that government securities can be purchased at par. Without knowing G-sec market and its operations, PP/consultant is applying CAPM!!
GERC has recommended a return of only 14% on equity, while the PP / consultant is expecting 18.64%. If this is the minimum return the PP expects to set up this project, it represents the subjective return and as per Guidance, this project should be rejected as non-additional
Of late a new trend is being followed by PP/consultants to make the project somehow additional, i.e., using equity IRR as the benchmark can be set higher, thanks to flexible CAPM, which every consultant uses as per his need and EB also does not question these. On what basis the PP/consultant use equity IRR for a project financed 70% by debt? Has the PP/Consultant read step 2 (b) of Additionality Tool properly? How is equity return considered appropriate for the project type and decision making context, when the project is 70% financed by debt? DOE should not accept equity IRR and use only project IRR as financial indicator
Conveniently, the PP uses GERC recommended PLF, but to make the project additional, uses degradation from technology supplier. First place using GERC recommended PLF is not in line with Annex 11, EB 48. Second, when GERC has not recommended degradation, how can the PP/consultant combine these two? DOE should not accept this. Moreover, what is the PLF recommended by the technology supplier. Did Moser Baer consider degradation for its other registered project?
What is the capital used for generating power and why PP requires one month receivable? This is absolutely incomprehensible.
With the GERC announced tariff, this project cannot be additional if project IRR is taken with WACC or lending rate as the benchmark, unless the PP/consultant changes the input parameters or include some additional expenses during validation. DOE should ensure that no change is made in input parameters, no additions are made to expenses other than what is stated in the PDD and accept only project IRR. This project involves related party transaction, as parent company is supplier to the extent of 5 MWp for each project. Therefore, the DOE should carefully look at the capital and recurring costs as the company gains anyway.
Submitted by: Karthikeyan