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Reliance Power may earn Rs 4,000 cr from carbon credit sale

The Economic Times:  May 27, 2009

Mumbai: The Anil Ambani-controlled Reliance Power is expected to earn more than Rs 4,000 crore over the next 10 years by selling carbon credits from its upcoming Sasan power project in Madhya Pradesh, according to people familiar with the development. The company is expected to get the UN-managed Clean Development Mechanism executive board’s nod for 37.5 million of carbon credits by June, said an official who wished not to be named.

When contacted, a spokesman for R-Power said the validation process for carbon credits is going on. The project has received the host country approval from the Indian government and German agency TUV Nord has been appointed as the designated operation entity for evaluating the eligibility for the credits, he added.

According to R-Power’s project design documentation with the UN body, the Sasan project qualifies the eligibility for generating 3.75 million units of carbon credits per annum — which would gross 37.5 million units in 10 years — at 80% plant load factor by saving green house gas emissions. Analysts with several research agencies such as the New Carbon Finance and Barclays have rated carbon credit prices in the range between 17 euros and 26 euros per unit and estimate the prices to move even higher due to limited supply of carbon credits.

Even at a conservative estimate of e17 per unit made by analysts of New Carbon Finance, R-Power could earn about Rs 4,000 crore at current exchange rates, that is close to its equity contribution of Rs 4,850 crore for the Sasan project.

Under the Kyoto Protocol of United Nations’ Framework on Climate Changes, industrialised nations can invest in clean energy projects in developing countries and in return receive carbon credits which can be used for credit compliance, or sold to buyers. Potential buyers of credits are often individual companies who expect their emissions to exceed the standard levels.

As per as the requirements under the CDM, R-Power’s project design document was web hosted for global stakeholder consultation, on the website of United Nations’ Framework on Climate Changes and has so far not received any objection, said an official familiar with the issue. He said the project is in the final stages of validation and would be submitted to the CDM executive board for registration in this quarter.

R-Power recently completed its financial closure for the 4,000 megawatt Sasan ultra mega power project.

The power project with an estimated investment of about Rs 19,500 crore has a debt equity ratio of 75:25. The debt would come from a consortium of 12 state-owned banks and lenders led by SBI and other financial institutions.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.