wind power project development
TRANSCRIPT
SUMMER INTERNSHIP REPORT ON
DETAILED STUDY ON WIND POWER PROJECT DEVELOPMENT &
FINANCIAL MODELING
UNDER THE GUIDANCE OFMrs Sreelata Nilesh, Senior Fellow, CAMPS, NPTI
&
Mr Ashok Datta , Sr. Vice President (Business Development)Mr Neeraj Singh Gautam , Manager(Regulatory Affairs and PD)
AtRegen Powertech Private Limited
Submitted by
Shivam Kumar HarshMBA (POWER MANAGEMENT)
(Under the Ministry of Power, Govt. of India)Affiliated to
MAHARSHI DAYANAND UNIVERSITY, ROTHAK
DECLARATION
I, Shivam Kumar Harsh, Roll no.12/MBA/80, class roll no-80 3rd year student of MBA
(Power Management) at National Power Training Institute, Faridabad, hereby declare that the
summer training report programme of the National Power Training Institute, Faridabad
hereby declare that the Summer Training Report entitled –
“DETAILED STUDY ON WIND POWER PROJECT DEVELOPMENT AND FINANCIAL
MODELING”
Is an original work and the same has not been submitted to any other Institute for the award
of any other degree.
A Seminar presentation of the Training Report was made on ……………….. and the
suggestions as approved by the faculty were duly incorporated.
Presentation In charge Signature of the Candidate (Faculty)
Countersigned
Director/Principal of the Institute
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ACKNOWLEDGEMENT
I express my sincere thanks to Mr Ashok Datta Sr.Vice President (Business Development),
Regan powertech India Private Limited for giving me a great opportunity to work in such
an esteem organization. I am solemnly thankful to Mr Neeraj Singh Gautam Manager
(Regulatory affaires and PD), Mr. Ravi Ghatia Manager(Marketing) ReGen Powertech
Private Limited for his guidance and support. I am also thankful to the entire staff of, Ecoren
Energy India Private Limited for sharing their knowledge and assistance.
I feel deep sense of gratitude towards Mr J.S.S. RAO, Principal Director, CAMPS (NPTI),
Mr S. K. Chaudhary, Principal Director, CAMPS, Mrs Manju Mam, Director, CAMPS
(NPTI)and Mrs Indu Maheshwari Dy. Director, NPTI, Dr Rohit Verma, Dy. Director,
NPTI for arranging my internship at ReGen Powertech Private Limited. I also take this
opportunity to express my sincere thanks to Mrs Rachna Vats (Senior Fellow), NPTI for
being my internal project guide and providing valuable inputs in the completion of this
project.
.
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EXECUTIVE SUMMARY
In 2013 May Indian power sector reached a tremendous milestone of achieving 2,25,000 MW
of total installed power capacity. Commencing with a meagre installed capacity of about
1360 MW in 1947, the year the country attained independence, India’s power sector grew
substantially over the last six and a half decades, and the installed capacity at the end of June
2012 stands at 2,05,340 MW. However contribution of renewable power is 27,541 MW,
which is only 12.2% of the total installed capacity. Further, the Government of India desires
to significantly improve the country's annual per capita consumption. The government has
not been successful in its efforts to achieve per capita consumption of 1000 units and to
ensure a minimum lifeline consumption of 1 unit per household per day as a merit good by
the year 2013. In order to achieve this scale of supply and ensure sufficient electricity to all at
reasonable rates, it is necessary to explore all possible options of generating and supplying
electricity.
Renewable energy sources can make important contributions to sustainable development.
Currently, their exploitation in commercial markets is low, mainly because of high cost and
technological constraints. Most renewable energy technologies are still at an early stage of
development. However wind power, compared to other renewable energy sources, has lower
costs and improved technology. Development of wind power projects, therefore, is a key to
India’s future economic growth looking at the benefits of wind energy and the energy deficit
the country is facing today. Nevertheless, investors’ lack of interest in wind energy sector is
conspicuous because of lack of procedural understanding of development of wind power
projects.
The need for defining an effective and comprehensive wind power project implementation
methodology for India is imperative. Not only there are growing uncertainties about the
critical as well as sub critical activities of wind power projects implementation, but the
information associated with them is meagre and highly dispersed in nature and is not easily
available. Insufficient information may lead to misleading decisions by project developers
and investor’s. Many wind power project investments are not implemented, not because of
financial, technical, commercial, managerial or regulatory aspects, but merely because of
procedural complexities and inadequate guidelines about them.
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Therefore this study is intended to explicate a generalized methodology for wind power
project implementation. This methodology will act as a source of knowledge for wind energy
power project implementation to the stakeholders of the Indian power sector.
This report includes all the major steps that are required to take for putting in place a wind
power project. It starts with project and financial planning procedure followed by factors that
need to be taken into consideration for selecting a state of preference. The project then guides
about feasibility study, wind resource assessment, site survey, micro-siting, land acquisition,
financial planning & strategy, and power sale options. The project also includes financial
modelling that can help the investor in his decision of whether to accept or reject the project.
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LIST OF ABBREVIATIONS
CDM Clean Development Mechanism
CPV Concentrated Photo Voltaic
CEA Central Electricity Authority
CERC Central Electricity Regulatory Commission
CUF Capacity Utilization Factor
IEGC Indian Electricity Grid Code
KWh Kilo Watt Hour
MNRE Ministry of New and Renewable Energy
MoP Ministry of Power
MW Megawatt
NLDC National Load Despatch Centre
NOC No Objection Certificate
O&M Operation & Maintenance
PLF Plant Load Factor
PPA Power Purchase Agreement
RE Renewable Energy
REC Renewable Energy Certificate
RET Renewable Energy Technology
RPO Renewable Purchase Obligation
SERC State Electricity Regulatory Commission
SHP Small Hydro Plant
SLDC State Load Despatch Centre
SNA State Nodal Agency
LIST OF TABLES
Table 1 : State wise Wind Power Till 2020.............................................................................26
Table 2 : State Feed-in-Tariffs.................................................................................................27
Table 3 : Sharing of CDM Benefits in Different States...........................................................32
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Table 4 : Reactive Energy Charges..........................................................................................33
Table 5 : State wise Banking Regulations................................................................................34
Table 6 : State wise Transmission and Wheeling Charges......................................................35
Table 7 : REC Floor and Forbearance Prices of REC..............................................................54
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LIST OF FIGURES
Figure 1 : Financial Planning Process......................................................................................15
Figure 2 : Wind Power Potential and Installed Capacity.........................................................16
Figure 3 : State wise Achievable wind Potential Till 2020......................................................17
Figure 4 : Feed-in-Tariff..........................................................................................................18
Figure 5: Feasibility Study.......................................................................................................27
Figure 6 : CDM Timeframe.....................................................................................................40
Figure 7 : CDM Project Cycle.................................................................................................41
Figure 8 : REC Procedure........................................................................................................44
Figure 9 : REC Mechanism......................................................................................................45
Figure 10 : Hurdles in Financial Closure.................................................................................51
Figure 11 : Power Sale Options...............................................................................................53
Figure 12 : Parameters of Financial Modelling........................................................................59
Figure 13 : Cost Estimate per Project Phase............................................................................60
Figure 14 : Project Cash-flow and Key Indicators...................................................................62
Figure 15 : Types of Risk in Various Phases of Project..........................................................63
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Table of Contents
TRAINING COMPLETION CERTIFICATE...................................................................................................ii
DECLARATION....................................................................................................................................... iii
ACKNOWLEDGEMENT...........................................................................................................................iv
EXECUTIVE SUMMARY...........................................................................................................................v
LIST OF ABBREVIATIONS......................................................................................................................vii
LIST OF TABLES....................................................................................................................................viii
LIST OF FIGURES.................................................................................................................................... ix
Table of Contents...................................................................................................................................x
CHAPTER 1: INTRODUCTION..................................................................................................................1
1.1 About the project........................................................................................................................1
1.2 Problem Statement......................................................................................................................2
1.3 Scope of Project...........................................................................................................................2
1.4 Objective of the project...............................................................................................................2
1.5 Methodology...............................................................................................................................2
1.6 About the organisation................................................................................................................3
1.6.1 Critical Assessment of the Organization...............................................................................4
CHAPTER 2: LITERATURE REVIEW AND POLICY FRAMEWORK...............................................................5
2.1 Literature Review.........................................................................................................................5
2.2 Policy Framework......................................................................................................................10
2.2.1 National Electricity Policy, 2005..........................................................................................10
2.2.2 National Tariff Policy, 2006.................................................................................................10
2.2.3 Rural Electrification Policy, 2006.........................................................................................11
CHAPTER 3: WPP DEVELOPMENT PROCEDURE...................................................................................12
3.1 Introduction - Wind Power Project development procedure....................................................12
3.2 Project and Financial Planning...................................................................................................13
3.2.1 Project Planning..................................................................................................................13
3.2.2 Financial Planning...............................................................................................................13
3.3 Selection of State of preference................................................................................................16
3.3.1 Wind Power Potential and Installed Capacity.....................................................................16
3.3.2 Feed-in-Tariffs.....................................................................................................................17
3.3.3 Special incentives and facilities by State Governments......................................................18
3.3.4 Simplicity of procedures followed in the State...................................................................20
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3.3.5 Evacuation Infrastructure...................................................................................................21
3.3.6 Grid availability...................................................................................................................22
3.3.7 Regularity in the receipt of payment..................................................................................22
3.3.8 Sharing of CDM Benefits.....................................................................................................22
3.3.9 Reactive Energy Charges.....................................................................................................23
3.3.10 Banking.............................................................................................................................24
3.3.11 Transmission and wheeling charges.................................................................................25
3.4 Site Identification.......................................................................................................................25
3.5 Feasibility Study.........................................................................................................................26
3.5.1 Generalized activities for feasibility study of Wind Power Projects:...................................27
3.6 Mast Installation, Data Collection and Data Verification...........................................................31
3.6.1 Permission for Mast Installation and Subsequent Capacity Allocation.............................31
3.6.2 Installation of Wind Mast...................................................................................................33
3.6.3 Data collection....................................................................................................................33
3.6.4 Validation of Data through CWET.......................................................................................34
3.7 Site Survey.................................................................................................................................34
3.7.1 Soil / Ground Conditions.....................................................................................................34
3.7.2 Soil Erosion.........................................................................................................................34
3.7.3 Accessibility........................................................................................................................35
3.7.4 Closeness to Grid................................................................................................................35
3.8 Wind Farm Layout.....................................................................................................................36
3.8.1 Inter-turbine separation.....................................................................................................36
3.8.2 Changes in elevation of area...............................................................................................37
3.8.3 Other factors.......................................................................................................................37
3.8.4 Layout using software.........................................................................................................37
3.9 Land acquisition.........................................................................................................................37
3.10 Clean Development Mechanism..............................................................................................40
3.10.1 CDM project cycle............................................................................................................41
3.11 Renewable Energy Certificates................................................................................................43
3.11.1 Types of REC.....................................................................................................................44
3.11.2 The operational framework for REC mechanism..............................................................44
3.12 Detailed Project Report...........................................................................................................47
3.12.1 Generation based incentive..............................................................................................48
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3.13 Financing Strategy and Financial Closure.................................................................................49
3.13.1 Financing strategy.............................................................................................................49
3.13.2 Financial Closure..............................................................................................................50
3.14 Power Sale options..................................................................................................................53
3.15 Physical implementation of the Project...................................................................................54
3.15.1 Engineering.......................................................................................................................54
3.15.2 Procurement.....................................................................................................................55
3.15.3 Construction.....................................................................................................................55
3.15.4 Testing and Commissioning..............................................................................................57
3.15.5 Operation and Maintenance.............................................................................................58
CHAPTER 4: FINANCIAL MODELLING...................................................................................................59
4.1 Cost estimates...........................................................................................................................59
4.2 Development of a project model..............................................................................................60
4.3 Analysis of financial indicators...................................................................................................61
4.4 Sensitivity Analysis.....................................................................................................................62
4.5 Risk analysis...............................................................................................................................63
4.5.1 Assessing risk......................................................................................................................63
4.5.2 Managing Risk.....................................................................................................................64
CHAPTER 5: SUMMARY........................................................................................................................65
5.1 Conclusion.................................................................................................................................65
5.2 Recommendations.....................................................................................................................65
Bibliography.........................................................................................................................................67
ANNEXURES.........................................................................................................................................69
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CHAPTER 1: INTRODUCTION
1.1 About the project
In May 2013 Indian power sector crossed a remarkable milestone of crossing 225000 MW of
total installed capacity. On 31 May 2013, the country’s total installed power capacity stood at
an enormous figure of 225133.10 MW, out of which total renewable energy was 27541.71
MW. The share of Wind energy in Renewable energy produced in India is very high at 70%.
Still, India’s goal of ‘energy security’ is far from achieved. India has peak demand power
shortage of 12% and the cost of Fossil fuel is increasing day by day. Also, in National Action
Plan for Climate Change (NAPCC), India has committed to increase its renewable energy
share to 15% by 2020. Development of renewable energy, therefore, is necessary if Indian
economy is to achieve sustainable growth at fast pace in the future.
Nevertheless, increasing the share to renewable energy in India’s energy mix is a difficult
task, renewable energy being far more expensive compared to the conventional energy.
Wind power is less expensive compared to all other potential sources of renewable energy
like solar power. Also, India has huge unexplored wind power potential. The estimated Indian
wind energy potential has been assumed by the Ministry of New and Renewable Energy in a
study conducted in the late 90's to be 45000 MW. A more recent study by C-WET, India's
wind energy potential is estimated to be more than 1,00,000 MW at a hub height of 80
metres. Therefore utilising wind potential seems to a one of the most credible way to achieve
India’s energy security.
The development of a wind power project is a complex task because of technical, managerial
and regulatory hurdles. Apart from that, different procedures are followed in different states
for various activities, which play its part in increasing the complexity. Hence this sector is not
attracting large investments. This Report, therefore, is an attempt to guide the investors to
understand the complex procedure of wind power development.
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1.2 Problem Statement
Development of wind power project, which is a necessary task for achieving India’s energy
security, is a complex task. Different tariffs, policies and procedures followed in various
Indian states add to this complexity. Apart from this, benefits like Accelerated Depreciation
(AD) and Generation Based Incentives (GBI) are abandoned. Hence the wind power sector,
compared to conventional energy sources, is less attractive to investors. Therefore there is a
need of a document that can guide the investors to understand the procedure of a WPP
development. This report is an attempt in this direction.
1.3 Scope of Project
This project is an attempt to be guideline to the cumbersome procedure of setting up a wind
power project. It deals with all the technical, economic and regulatory issues related to WPP
development. The differences in policies/procedures followed in different states in the
permission of wind resource assessment, land acquisition, feed-in-tariffs etc. are also covered
in this report so that it can be useful to understand the diversities in various states with regard
to wind power. This report also covers financial modelling of a wind power project which can
be a guideline for checking financial viability of a WPP.
1.4 Objective of the project
Wind power development is a riskier investment compared to the investments in conventional
sources of energy. In India, diversities in policies/procedures in different states make it even
more risky and hence unattractive. The objective of the project is to guide the investors in
understanding the procedure of development of wind power project. The intension is to
persuade investments in the wind power sector by making the understanding of WPP
development procedure simpler. By making the WPP development attractive by developing
more understandable, the project is intended to contribute in India’s pursuit of energy
security.
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1.5 Methodology
The project has been prepared by gathering the dispersed information about various
proceedings of wind power project development. The regulations of State Electricity
Regulatory Commissions (SERCs) of states with major wind energy potential have been
studied. These states include Andhra Pradesh, Karnataka, Gujarat, Rajasthan, Madhya
Pradesh, and Maharashtra. The guidelines published by various State Nodal Agencies (SNAs)
for procedures like land acquisition and capacity allocation have been gathered and
understood deeply for making this project useful. Experience of the Business Development
team of Ecoren Energy India Private Limited has added value to this project. All the
information gathered as mentioned above was then studied and put in proper sequence to
understand the flow of the development procedure. Technical books have been studied to add
major important technical issues and their solutions that need to be included in the project.
1.6 About the organisation
ReGen Powertech is committed to providing an alternate source of energy that is clean, green
and sustainable. ReGen is the third largest Wind Energy Company in India in just 4 years of
commissioning its state of the art manufacturing facility at Tada, Andhra Pradesh.
One of the fastest growing wind energy company, ReGen is making a huge contribution to
meet India’s electricity demand with largest market share in the Independent Power
Producers sector and it is uniquely positioned to capitalize on the growing demand for wind
power energy in India and other geographies.
ReGen is an ISO 9001, ISO 14001 and OHSAS 18001 certified company offering total
"Turnkey Solutions" for wind power projects that includes consultancy, manufacturing,
supply, erection, commissioning, operations and maintenance services of Wind Energy
Converters (WEC).
The Company has entered into a technical license agreement with Vensys Energy AG,
Germany, a globally leading name in WEC design and development. Backed by the expertise
of a global leader, ReGen manufactures technologically advanced Gearless WECs which
reduces transmission loss, offers quick response to wind change and optimizes power
generation.
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ReGen's innovative technology offers maximum energy production through higher efficiency
and greater reliability. ReGen manufacturers 1.5 MW Class III Wind Turbines with variable
speed and permanent magnet generators. Due to its technology advantage, efficiency of these
Wind Turbines is 5% to 7% higher when compared to Wind Turbines with gear box.
ReGen has installed over 462 wind turbines with an installed capacity of 693 MW and it
expects to augment this capacity with the commissioning of the new plant at Udaipur,
Rajasthan.
With nearly 2300 highly committed employees, ReGen has a pan India presence and it
continues to grow and expand by spreading its footprint to SAARC countries like Sri Lanka
and Bangladesh.
ReGen Powertech is ably and strategically supported by Mauritius based Private Equity funds
namely Indivision India Partners, MCap India Fund Limited, Summit FVCI and domestic
based Private Equity funds namely IDFC Investment Advisors Limited, TVS Shriram Growth
Fund who holds shares in the Company.
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1.6.1 Critical Assessment of the Organization
Strengths
Core Team of expert professionals.
Integrity & honesty
Openness
Respectfulness
The strength to take on challenges
Constructive self criticism
Self improvement
Personal excellence
Drive for results
Keen commitment
Passion for quality
Excellent work Culture
Knowledge management
Intellectual capital
Reporting performance
Technical expertise
Opportunities
Global shift towards Renewable energy
Liberalising Government perspective towards RE generators
Young and talented workforce of India
More stress on renewable energy
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CHAPTER 2: LITERATURE REVIEW AND POLICY FRAMEWORK
2.1 Literature Review
Literature has been prepared by authors all around the world explaining whole procedure
wind power project development or a part of the mighty procedure. The papers/journals
reviewed before preparation of this report, and a brief about them is explained here.
“Siting and output prediction for wind energy project planning”, a paper presented by B.H.
Bailey (AWS Sci., Albany, NY) at Power Engineering Society Winter Meeting, focuses on
outlay of wind farms. This paper summarizes and illustrates the steps involved when siting
and planning the design and performance of wind power plants. The topics covered are: site
screening techniques and parameters; wind resource mapping as a siting tool; the role and
design of wind measurement campaigns; optimizing wind plant turbine layout using
advanced modelling tools; predicting a site's long-term wind resource and annual wind plant
production; and due diligence reporting to obtain project financing.
A paper titled “Research of wind power project risk assessment based on Hierarchy-grey
Analytic Method” appeared in an international conference “Mechatronic science, Electric
Engineering and Computer (MEC), 2011”. The paper was presented by Younggui (Sch. of
Bus. Adm., North China Electrical. Power Univ., Baoding, China) et al on August 2011. This
report explains that Global environmental problems have become increasingly prominent.
Wind power as a clean and renewable energy, becomes various countries gradually in the pet
who seeks in the energy alternative process. Wind power in the global range has developed
rapidly, but it should realize that wind power project is also a risk in the process of
development cannot be avoided. This article needle wind power projects characteristic,
Hierarchy-grey Analytic Method is proposed based on the wind project risk assessment
methods. Through carries on the empirical analysis to some wind electricity project to draw
the conclusion. Then carries on the wind electricity project for the enterprise the risk
management to provide the basis.
On April 2008, at Electric Utility Deregulation and Restructuring and Power Technologies,
2008, Author N.R. Ullah (Chalmers University, Goteborg) et al presented a paper titled
“Detailed modelling for large scale wind power installations - a real project case study”. This
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paper reports on the modelling issues performed related to a feasibility study to investigate
the possibilities to connect the 640 MW off-shore wind power farm, planned for Krieger's
Flak 30 km south of Trelleborg (Sweden), to the E.ON 130 kV sub transmission system. The
aim of the entire study is to answer the question if such a connection is possible, and under
what conditions; it is not meant as a design project. Following a general connection design
discussion, the study comprises three major parts, fault current calculations, load flow
calculations, and dynamic simulations. Concerning the modelling aspects, much effort has
been put on details and scalability for the dynamic simulations.
In June 2010, at Energy Market (EEM), 2010, 7th International Conference on the European
a paper titled “Economic evaluation of wind generation projects in electricity markets” was
Mr Pereira A.J.C., Inst. Super. de Eng. de Coimbra, Inst. Politec. De Coimbra, Coimbra,
Portugal. In this paper the author explained the electricity markets. He evaluated economic
evaluation of WPPs in electricity markets. He explains that investments in new generation,
especially in renewables, grew up in several countries contributing to change the generation
mix. Among these new technologies, wind power became an important source in the sense
that the share in installed capacity is large in countries as Germany, Denmark, Spain and
Portugal namely considering the prices paid to the generated power. These subsidizing
schemes are in several cases responsible for a large amount of the final end user costs
meaning that in the future new ways of integrating this power in the grid have to be adopted.
This means that for investors it is important to evaluate from an economic point of view the
interest of new wind power projects admitting changes in current tariff schemes. For
regulatory agencies it is also important to investigate the impact of changes in current
schemes. This paper details an approach to characterize this type of investments in terms of
the Net Present Value, NPV, and the Internal Return Rate, IRR, so that more sounded
investment and policy decisions are adopted.
In August 2010, in the conference of Emergency Management and Management Sciences
(ICEMMS), Author Chongming Liu (North China Electrical Power University, Beijing,
China) et al presented a paper titled “Risk analysis and assessment of wind power project”. In
this report he explains that Wind power is a kind of renewable clean energy source, which
has a very important significance for energy conservation and social efficiency. But now,
wind power development has not yet formed a complete system, and there are different kinds
of risks exist in wind power project development process. This paper conduct a detailed study
for this, analyses the risk factors including natural disaster risks, technology risks, economic
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risks, and policy risks in four aspects, then construct a fuzzy comprehensive evaluation
model, and use the model in a wind power project on risk assessment, which verifies the
feasibility and effectiveness of the evaluation model.
Author J.I. Munoz et al presented a paper at PowerTech in Bucharest, in June 2009 which
was titled “Risk assessment of wind power generation project investments based on real
options”. This paper presents a decision-making tool for investment in a wind energy plant
using a real options approach. In the first part of the work, the volatilities of market prices
and wind regimes are obtained from geometric Brownian motion with mean reversion (GBM-
MR) and Weibull models, respectively. From these and other values, such as investment and
maintenance costs, the net present value (NPV) curve (made up of different values of NPV in
different periods) of the investment is calculated, as well as its average volatility. In the
second part, a real options valuation method is applied to calculate the value of the option to
invest. The volatility of the NPV curve reflecting different periods is inserted into a trinomial
investment option valuation tree. In this way, it's possible to calculate the probabilities of
investing right now, deferring the investment, or not investing at all. This powerful decision
tool allows wind energy investors to decide whether to invest in many different scenarios.
Several realistic case studies are presented to illustrate the decision-making method.
In September 2011, Consolidated Energy Consultants Limited (CECL) prepared a report
titled “Assessment of investment climate for wind power development in India” for Indian
Renewable Energy Development Agency (IREDA). This document explained indicated seven
key states in India where wind power potential is considerable. CECL explained Government
policy/guidelines, regulations by respective SERCs, guidelines from respective SNAs and
wind resource assessment in all key states. The report also included perception of investors
and financing/profitability. Based on these above mentioned factors, the ranking is given to
states. In the end, the report indicates constraints and barriers which are impediments in the
path of investments in wind power projects in India.
Author Salehi-Dobakhshari (Electrical Engineering department, Sharif University of
Technology, Tehran, Iran) et al presented a paper titled “Integration of large-scale wind farm
projects including system reliability analysis” at Renewable power generation, IET on
January 2011. His study intends to develop a comprehensive procedure for evaluating
locational value of a wind farm project incorporating reduction in transmission system losses,
load delivery point interruption cost and operating cost of generating units. The energy
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extracted from the wind farm in normal operation condition is considered to replace the
energy from fossil-fuelled conventional units. In addition, composite system reliability
analysis in the presence of wind power is carried out to evaluate total costs associated with
curtailed energy at different load points as well as generation of generating units in
contingency conditions. System reliability analysis related to large-scale wind farms, along
with operating cost and transmission losses analysis, can assist policy makers to prioritise
wind farm projects based on the total benefits of wind power including reliability benefits and
savings in fossil-fuelled energy sources.
Author Guangjie Wang (Sch. of Manage., Wuhan Univ. of Technol., Wuhan), at Wireless
Communications, Networking and Mobile Computing, 2008, presented a paper titled
“Technical-Economic Analysis of Wind Energy Projects in China” in Oct 2008. In this paper
he explains that the renewable energy consumption has been increased rapidly with high
economic growth in China. As one of the most promising renewable energy resource, wind
energy has become a major part of the plans for sustainable development. The technical-
economic analysis of the project reveals that the revenue from certified emission reductions
(CERs) of clean development mechanism (CDM) project can increase the profitability of the
project but it doesn't play a decisive role. The sensitivity analysis of single parameter shows
that investment, electricity price and production are the key parameters influencing the
effectiveness of projects. The status of wind energy projects in China is elaborated and the
four approaches of developing wind energy projects are proposed.
Author Martinez-Cesena (Electrical Energy & Power Syst. Group, Univ. of Manchester,
Manchester, UK) et al presented a paper titled “Wind Power Projects Planning Considering
Real Options for the Wind Resource Assessment” on January 2012. The paper explains that
Investments in wind power projects (WPPs) have increased in the last few years. This trend is
partially due to the availability of support schemes, which increase the economic
attractiveness of WPPs. Alternatively, the value of WPPs can be enhanced by improving
available techniques used for their planning and design. After reviewing WPP literature, it
was concluded that available tools for the planning and design of WPP could be improved by
addressing the uncertainty of the wind resource assessment (WRA), and this source of
uncertainty could be used to enhance the value of WPPs with real options (ROs) theory. ROs
theory is known for its potential to increase the expected worth of projects by exploiting the
value of flexibility within the projects' investment decisions and designs. Nevertheless, ROs
literature has to be extended to properly address the design of WPPs. Based on the gaps in
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ROs theory and WPPs planning, this paper proposes a methodology that relies on ROs theory
to incorporate WRA uncertainty in the planning and design process of WPPs. The
methodology is illustrated with a small case study and its potential to increase the value of
WPPs under different conditions is analysed for a wide range of case studies. The results
illustrate the circumstances and assumptions that can improve and weaken the effectiveness
of the methodology. It is concluded that the application of the proposed ROs methodology
results in increased value for WPPs in most scenarios.
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2.2 Policy Framework
2.2.1 National Electricity Policy, 2005Clause 5.2.20: Non – Conventional Energy Sources
This clause talks about harnessing fully feasible potential of non – conventional energy resources mainly small hydro, wind and bio-mass to create additional power generation. It also talks that suitable promotional measures will be taken to encourage private sector participation.
Clause 5.12: Cogeneration and Non-Conventional Energy Sources
5.12.1
This clause highlights the fact that there is an urgent need to promote generation of electricity based on Non-conventional sources of energy as they are environment friendly. For this purpose, efforts are to be made to reduce the capital cost of projects. Cost of energy can also be reduced by promoting competition within such projects. At the same time, adequate promotional measures would also have to be taken for development of technologies and a sustained growth of these sources.
5.12.2
This clause restates what is mentioned In Electricity Act 2003 under section 86(1) (e) and basically talks about to promote co-generation and generation of electricity from renewable sources the state commissions are required to fix a percentage of renewable energy out of total consumption of electricity in the area of distribution licensee.
Clause 5.6: Technology Development and R&D
This clause highlights the fact that special efforts are needed for research, development, demonstration and commercialization of non-conventional energy systems. Such systems would need to meet international standards, specifications and performance parameters.
2.2.2 National Tariff Policy, 2006Clause 6.4: Non-conventional sources of energy generation including Co-generation:
a) In continuation to provisions of section 86(1) (e) of Electricity Act 2003, The clause states that the procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission as it will take some time before non-
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conventional technologies can compete with conventional sources in terms of cost of electricity.
b) Procurement by Distribution Licensees for future requirements shall be done, as far as possible, through competitive bidding process under Section 63 of the Electricity Act within suppliers offering energy from same type of non-conventional sources.
c) The Central Commission should lay down guidelines for pricing non-firm power, especially from non–conventional sources, to be followed in cases where such procurement is not through competitive bidding.
d) In the Amendment in Tariff Policy the Ministry of Power has directed the State Electricity Regulators to fix a percentage of energy purchase from solar power under the RPOs. The solar power purchase obligation for States may start with 0.25% in Phase I (by 2013) and go up to 3% by 2022 This will be complemented by solar specific Renewable Energy Certificate (REC) mechanism to allow solar power generation companies to sell certificates to the utilities to meet their solar power purchase obligations.
2.2.3 Rural Electrification Policy, 2006Clause 1.3:
This clause states that non-conventional energy sources such as solar, wind, biomass, small hydro, geo-thermal; tidal etc. along with conventional sources can be appropriately and optimally utilized to make available reliable supply of electricity to each and every household.
Clause 3: Approach to Rural electrification:
3.3 Decentralized distributed generation facilities together with local distribution network may be based either on conventional or non-conventional methods of electricity generation whichever is more suitable and economical. Non-conventional sources of energy could be utilized even where grid connectivity exists provided it is found to be cost effective.
Clause 8: Policy Provisions for Permitting Stand Alone Systems for Rural Areas
8.9 This clause highlights the fact that State Governments will have to create Institutions for back-up services and technical support to systems based on non-conventional sources of energy. Such services would be provided on cost basis so as to make the arrangements sustainable.
12
CHAPTER 3: WPP DEVELOPMENT PROCEDURE
3.1 Introduction - Wind Power Project development procedure
The detailed procedure for setting up a wind power project is explained here. It consists of
following steps.
1. Project and Financial planning
2. Selection of state of preference
3. Site identification
4. Feasibility study
5. Wind mast installation, data collection and data verification
6. site survey
7. wind farm layout
8. Land acquisition
9. CDM related procedures
10. REC related procedures
11. DPR preparation
12. Financial strategy and financial closure
13. Decision regarding power sale options
14. Physical implementation of the project
The above mentioned tasks are the sub procedures of the wind power project development.
They are explained here in this chapter.
13
3.2 Project and Financial Planning
3.2.1 Project PlanningThe key to a successful project is in the planning. Project planning is done to increase the
likelihood that a project will be implemented efficiently, effectively and successfully. It
involves working out what one wants to do and how is one going to do it. Creating a project
plan is the first thing one should do when undertaking any kind of project.
In case of wind power projects, the overall project plan may be comprised of several points:
Business goal
Project scopes
Financial structure
Policy guidelines
Central govt. policy: MNRE
State govt. policy: SNA
List of constraints & assumption
Professional assistance
Technical planning
Permitting planning
Energy market analysis (who will buy the power)
Regulatory compliance
Legal aspects
Ease & cost of maintenance
Meeting the expectation & goals of stakeholders
Long term outlook & expansion opportunities
Gantt chart preparation
Schedule flexibility
3.2.2 Financial Planning It includes three major decisions:
Decide how much you need (budgeting decisions)
Decide when you will need it (cash flow)
14
Decide where it will come from (financial planning)
Wind power projects, like all renewable energy projects, have a strong financial component
which determines profitability or other goals, which incentives are used and how, who takes
risks and earns rewards, how the development budget is controlled, and what has to be done
to qualify for the intended financing.
Financial planning for WPP, like other RE power projects, comprises of following
parameters:
1) General project information
a. Rated capacity
b. PLF or CUF
c. Inflation
d. Start year
e. Project lifetime
2) Revenues - cash inflows
a. Ancillary products or benefits (like CDM, RECs etc.)
b. Cost recovery- Depreciation
c. Cost recovery- tax credits
d. Grants & incentives
e. Power purchase agreement or other sales agreement
3) Costs - cash outflow
a. Equipment cost including installation & site preparation
b. Balance of system(BOS) costs including all non-equipment Capital costs- such as
interconnection & civil works
c. Developer soft costs, such as developer planning, environmental studies licensing
& permitting & negotiation of PPA
d. loan interest
e. Recurrent costs, such as equipment replacement
f. Operation & maintenance
g. Site owner rent or royalties
h. Property tax
i. Project insurance
j. Income tax on revenue
15
4) Financing costs – debt & equity
a. Loan debt
b. Debt percentage (the percentage of capital costs being covered by a loan)
c. Loan interest rate & term
d. Equity
e. Equity financing fees
f. Initial working capital
g. Debt financing fees
h. Discount rate
i. Scenario analysis
Figure 1 : Financial Planning Process
16
3.3 Selection of State of preference
The selection of the state of preference is the next task after the planning procedure has been
completed. Following major factors are taken into consideration for selection of a state.
Developers give different weightages to these factors depending upon their own strengths and
weaknesses.
3.3.1 Wind Power Potential and Installed CapacityWind availability is the first major factor taken into consideration by the developer to select
the state for developing a wind power project. Out of the total wind power potential, the
unutilised part is what attracts the developer for setting up the WPP. The total wind energy
potential in India has been estimated at 49130 MW out of which more than 14000 MW has
been utilised by various developers.
17
Figure 2 : Wind Power Potential and Installed Capacity
(Source: MNRE & Directory Indian Windpower 2012)
18
Andhra Pradesh, Gujarat and Karnataka seem to be the most lucrative states as far as the
potential and installed capacity of the wind power is concerned, since these states have large
portion of their wind resource unutilised. Maharashtra and Rajasthan too have huge untapped
potential. In Tamil Nadu, On the other hand, almost all the windy sites have been already
occupied. Still, with advancement in the technology it is becoming viable to set up WPPs in
the less windy sites. State wise achievable wind potential till 2020 is given below.
Table 1 : State wise estimation of Installable Wind Power Potential
State Potential (MW) @ 50 m Potential (MW) @ 80 m
Andaman & Nicobar 2 365
Andhra Pradesh 5394 14497
Arunachal Pradesh 201 236
Assam 53 112
Bihar - 144
Chhattisgarh 23 314
Diu Damn - 4
Gujarat 10609 35071
Haryana - 93
Himachal Pradesh 20 64
Jammu & Kashmir 5311 5685
Jharkhand - 91
Karnataka 8591 13593
Kerala 790 837
Lakshadweep 16 16
Maharashtra 5439 5961
Manipur 7 56
Meghalaya 44 82
MP 920 2931
19
Nagaland 3 16
Orissa 910 1384
Pondicherry - 120
Rajasthan 5005 5050
Sikkim 98 98
Tamil Nadu 5374 14152
Uttar Pradesh 137 1260
Uttarakhand 161 534
West Bengal 22 22
Total 49,130 MW 102,788 MW
(Source: MNRE & C-Wet)
The Centre for Wind Energy Technology (C-WET) published the Indian Wind Atlas in 2010,
showing large areas with annual average wind power densities of more than 200 Watts/m2 at
50 meter above ground level (MAGL). This is considered to be a benchmark criterion for
establishing wind farms in India as per CWET and the MNRE.
The potential sites have been classified according to annual mean wind power density
ranging from 200 W/m2 to 500 W/m2. Most of the potential assessed sites have an annual
mean wind power density between 200-250 W/m2 at 50 MAGL. The Wind Atlas has
projected Indian wind power installable potential (name plate rating) as 49,130 MW at 2%
land availability and 50 MAGL.
The estimated installable potential at 80 m level is found to be 102788 MW.
With the improvement in technology and increase in the hub height of the wind turbine it has
become possible to generate more electricity than assumed in earlier estimates. Based on the
resource assessment carried out by C-WET, wind speeds in India are in the low to moderate
range except in some pockets like coastal southern Tamil Nadu and the Rann of Katch
(Gujarat).
As understood from the below shown map Karnataka, Andhra Pradesh, Maharashtra and
Gujarat have highest wind energy potential. However most of it is still untapped.
20
Maharashtra has a potential to grow at least 2 times of the current installed capacity, while
same figure for Rajasthan is around 1.5 times.
On the other hand Tamil Nadu is the only state which has tapped its full potential at 50 m due to advancement in technology; however the installed capacity can be raised further to a level of 14 GW.
RE Installed Capacity- India (as on March 2013)
Sources
Installed Capacity (in MW)
Wind Power 19051.45
Small Hydro Power 3632.25
Biomass Power 1264.80
Bagasse Cogeneration 2337.43
WTE- Urban 96.08
Solar Power (SPV) 1686.44
Total 28068.45
12th PLAN PROGRAMME 12TH PLAN TENTATIVE PROGRAMME FOR GRID INTERACTIVE RENEWABLE POWER (in MW) Wind Power 11,000
Small Hydro Power(up to 25 MW) 1,600
Biomass Power, Bagasse Cogeneration, Biomass Gasifier
2,100
Solar Power 3,800
Total 18,500
21
13th PLAN PROGRAMME 13TH PLAN TENTATIVE PROGRAMME FOR GRID INTERACTIVE RENEWABLE POWER (in MW) Wind Power 11,000
Small Hydro Power 1,500
Biomass Power, Bagasse Cogeneration, Biomass Gasifier
2,000
Solar Power 16,000
Total 30,500
State wise potential and installed capacity of wind power
State Estimated
Potential
(MW)
Installed
capacity as
on
31.02.2013
(MW)
Installed
capacity
as %age
of
potential
Andhra Pradesh 5394 435 3.95%
Gujarat 10609 3093 24.89%
Karnataka 8591 2113 21.56%
Kerala 790 35 4.43%
Madhya Pradesh 920 386 35.87%
Maharashtra 5439 2976 47.07%
Rajasthan 5005 2355 36.56%
Tamil Nadu 5374 7154 123.06%
Others 7008 4 0.06%
Total 49130 18551 37.75%
Source - CWET
22
1.1RENEWABLE AND WIND ENERGY SCENARIO –
WORLDAcross world, the renewable energy is continuously growing strongly in all end-use sectors –
power, heat and transport all across the world and is supplying approximately 16% of global
final energy consumption. The renewable energy sector is counting on traditional biomass,
hydropower, wind, solar, geothermal, modern biomass, and bio fuels.
Figure 3: Wind Power Installed Capacity - World
This growth was driven primarily by China, which accounted for approximately 40 % of
global capacity additions in 2011, up from 4.4% in 2005. China added around 18 GW of new
wind capacity, and cemented its place as the leading wind market with a total of 62 GW
installed as of the end of the year 2011.
China installed another 107.9 MW of offshore wind in 2011, bringing its total to 258.4 MW,
third in the world after the UK and Denmark.
The United States added just over 7 GW in 2011 bringing total wind power capacity to 47
GW, a mere 1.2 % increase over 2010.
Germany maintained the lead in Europe with a total of 29.06 GW operating at the end of
2011; nevertheless, the annual addition of 1.8 GW represented a 19% reduction in new
capacity relative to 2009.
Spain again led Europe in new installations, adding nearly 1 GW for a total of more than 21
GW, making it the world’s third largest market for new wind. Despite having less capacity in
operation than Germany did, Spain produced more electricity with wind in 2010, due largely
to high winds in Spain and to more-advanced turbines.
23
India was also one of the top markets in 2011, adding more than 3 GW to reach nearly 16
GW of capacity and maintaining its fifth-place ranking for total capacity
Table 2 : Installation Details World - Country Wise (As on December 2012)
Country Total Capacity - 2012 [GW] Total Capacity - 2010 [GW] Total Capacity - 2011 [GW]
China 75.564 44.733 62.364
USA 60.007 40.18 46.919
Germany 31.332 27.215 29.06
Spain 22.796 20.676 21.674
India 18.421 13.065 16.084
Italy 8.114 5.797 6.8
France 7.196 5.66 6.737
UK 8.445 5.203 6.54
Canada 6.200 4.008 5.265
Portugal 4.525 3.702 4.083
Rest of the World
39.852 26.441 32.143
Total 282.482 196.682 237.669
24
2012 2011 2010 20090
50
100
150
200
250
300
282.482 237.669 196.682 159.776
World Wind Power Installed Capacity (GW)
GW
(Source: Renewable 2012: Global status report& C-WET)
Figure 4: Country Wise Wind Power Installed Capacity
25
Feasibility Study Commercial ViabilityTechnical Viability
Table 3 : State wise Wind Power Till 2020
State Incremental (MW) Re-powering (MW)
Andhra Pradesh 7000-8000
Gujarat 6000-7000
Karnataka 5000 1000
Madhya Pradesh 3000-3500
Maharashtra 6000-7000
Rajasthan 4000-5000
Tamil Nadu 7000-8000 1500
Orissa 500
Chhattisgarh 500
Jharkhand 500
Total 39000-43000 2500
Figure 5 : State wise Achievable wind Potential Till 2020
[Source: CRIS analysis based on registered projects and pipeline of developers in various
states.
Feasibility Study
Feasibility study is a preliminary study that is done to determine a project‘s viability through
identifying potential return on investment as well as any fatal flow in the project if any. The
results of the study are used to determine whether to proceed with the project or not. It
provides a structured method that focuses on problems, identifies objectives, evaluates
alternatives, and aids in the selection of the best solution.
Feasibility Tasks:
Site inspection
Wind resource review
Investigation of interconnection opportunities
Selection of suitable process and technology
Capacity fixation on the basis of project
26
Figure 6: Feasibility Study
Capital cost study
Profitability analysis
Fatal flaws review
Grant research and application development
Investigation of site access
3.3.2 Feed-in-TariffsA feed-in tariff (FiT), also known as feed-in law, advanced renewable tariff or preferential
tariff is another important factor that affects the developers’ decision of selecting a state for
setting up of WPPs. FiT is a policy mechanism designed to encourage the adoption of
renewable energy sources and to help accelerate the transition toward grid parity for such
projects. The Feed-in-Tariffs declared by the SERCs of the key states are shown below.
Table 4 : State Feed-in-Tariffs
States Tariff rate (Rs/Unit)Tariff Period
(Years)
Gujarat 4.15 25
Maharashtra
Wind zone – I 5.81
13Wind zone – II 5.05
Wind zone – III 4.31
Wind zone – IV 3.88
RajasthanJaisalmer, Jodhpur and Balmer 5.46
20Other districts 5.73
Madhya
Pradesh 5.92 25
Karnataka 3.7 10
Tamil Nadu 3.51 20
Andhra Pradesh 4.70 10
Figure 7 : Feed-in-Tariff
27
3.3.3 Special incentives and facilities by State GovernmentsSome state governments have declared special incentive or facilities to attract the wind / RE
developers which are explained here. The developers should study these incentives before
arriving to a decision of finalising the state of preference.
Government of Karnataka:
(From Karnataka Renewable Energy Policy 2009-14)
Green Energy Fund: Green Energy Fund shall be established to facilitate financing for
RE projects.
Consent from Departments & Statutory Clearances: KREDL shall obtain consent &
statutory clearances from concerned state departments for sites developed by them. In
case of private land KREDL shall assist the developers in this regard.
Allotment Committee: A committee under Chairmanship of Additional Chief
Secretary/Principle Secretary, Energy Department will consider allotment of capacity to
entrepreneurs.
Settlements: Transactions shall be settled on monthly basis. Interest at the rate of State
Bank of India short term prime lending rate shall be payable for delayed payment beyond
a month.
Exemption from Demand Cut: Exemption of demand cut to the extent of 50% of
installed capacity assigned for captive use purpose, will be allowed.
Financial Incentives: Entry tax & other incentives shall be available to RE generation in
accordance with Industrial Policy 2009-10.
Letter of Credit: Facility of LOC shall be provided by the ESCOMS to developer and its
cost will be reimbursed to ESCOMs from Green Energy Fund.
Award Scheme: RE projects successfully commissioned during the original agreement
period will be awarded with a certificate with appreciation by the Govt. and a cash
incentive from Green Energy Fund.
Government of Madhya Pradesh:
(Notification No.6591-F18-10-XIII-93 dated 17.10.2006 as amended vide order No. F18-10-
XIII-93 dated 12.05.2008)
Green Energy Fund: will be created for facilitation of power generation through non-
conventional energy sources.
28
Exemption from Open Access Charges: Nonconventional Energy based power
generation shall be exempted from Open Access charges.
Projects will be eligible for all benefits available to new industries under the Industrial
Promotion Policy 2004.
However one discouraging factor for WPP owners included in the state wind policy is that
the 3rd party purchaser of wind energy will be allowed the facility of reduction in contract
demand.
Government of Maharashtra:
(From NCE Policy 2008)
Evacuation Arrangement: To be constructed with the approval of Transco/Discom by
the developer at his cost. 50% of the approved expenditure to be reimbursed out of Green
Energy Fund.
Approach Road: To be constructed by MEDA out of Green Energy Fund. Repairs or
strengthening of existing roads to be done by developer at his cost.
Encouragement to Co-operative Sector: 11% of total share capital of the project shall
be paid from Green Energy Fund for projects set up by co-operative institutions.
Letter of Credit: The DISCOM shall provide the facility of LOC to the developer & the
cost involved to be reimbursed to the DISCOM out of Green Energy Fund.
Octroi / Entry Tax: Taxes actually paid shall be reimbursed by MEDA out of Green
Energy Fund.
Eligibility for Sanction
It is obligatory to sell 50% of electricity to the Distribution Company under a long
term agreement at the rate determined by MERC. Remaining 50% shall be sold within
the State.
Benefits under the policy shall be available to only such projects for which
infrastructure approval is accorded by the Govt.
Government of Rajasthan:
(From NCE Policy dated 25.10.2004 as amended vide letters dated 10.03.05, 16.07.05,
24.02.06, 30.11.06, 19.01.07 & 27.03.2008)
Merit Order Despatch Not applicable to Wind Power Project
29
Exemption from Electricity Duty: Energy sold to a 3rd party will be exempted from
payment of ED @50% for a period of 7 years from COD.
Relocation of project: Re-location of project, if justified shall be permitted without any
additional charge.
3.3.4 Simplicity of procedures followed in the StateProactive and simplified procedure ensures smooth and timely completion of the project. The
index for attitude of the State agency gets reflected in quantum of capacity addition. Higher
capacity additions obviously indicate that investor faces least problems. Though this factor is
of primary consideration to the developer yet it is also relevant to IPP owners particularly
after completion of the project and routine O&M.
The procedures required to be followed in different states at various stages (mast installation,
land acquisition, issue and redemption of REC etc.) of development of a WPP is explained in
the relevant topics of this report.
3.3.5 Evacuation InfrastructureThe evacuation infrastructure development for wind power project is very costly and time
consuming since the WPPs are generally in the remote sites where the grid connectivity is
usually not readily available. Whether this infrastructure has to be developed by the grid
utility or by the developer is a major factor for developer in his decision of selecting a state
for WPP development. Various states have different policies for the evacuation infrastructure
development which are explained here.
Andhra Pradesh: Cost to be borne by the developer.
Gujarat: Voltage level for evacuation shall be 66 kV and above. Govt. Policy (Amendment-
1) 2007 dated 07.01.2009 provides that owner will bear the entire cost up to 100 km; beyond
this limit GETCO will construct at its cost. Approved capital cost includes 38 lakhs per MW
towards cost of transmission line from project site to grid sub-station.
Karnataka and Madhya Pradesh: Cost to be borne by the developer. The capital costs
specified by the respective SERCs are inclusive of the power evacuation infrastructure.
30
Maharashtra: Cost to be borne by the developer. Capital Cost of Project/MW is inclusive of
cost of power evacuation infrastructure up to interconnection point. Capital cost is linked to
price indexation formula.
Rajasthan: A sum of Rs.2.00 Lakhs per MW is payable to RVPN as connectivity charges.
RVPN to develop evacuation system from Pooling Sub-station to Grid Substation. If
evacuation system is constructed by developer beyond pooling substation, Commission may
determine transmission tariff on case to case basis.
Tamil Nadu: To be borne by the Licensee if entire energy is sold to the Distribution
Licensee. For captive consumption and third party sale, cost will have to be borne by the
Developer but the work will be executed by the Licensee.
3.3.6 Grid availabilityThis is a major problem primarily faced by WPP developers. Obtaining sanction and/or
commissioning of the project gets adversely affected due to non-availability of evacuation
facility. None of the states have so far made medium and long term plan to meet the demand
of Wind Power Sector. The short term solution as offered by them is proving to be in-
adequate because of higher growth rate now being observed. Even after commissioning of the
project, particularly in Tamil Nadu, the wind farm feeders are occasionally switched off
during high generation period which badly affects the investors. Therefore the WPPs must
consider the Grid availability conditions in the state in their decision of selecting a state for
WPP. Grid availability conditions are comparatively better in Andhra Pradesh, Gujarat and
Rajasthan.
3.3.7 Regularity in the receipt of paymentThis is an important factor that IPP owners and Bankers would consider to ensure financial
viability of the project. The financial health of almost all State utilities is in bad shape.
Comparative ranking of the states carried out by Consolidated Energy Consultants Limited
(CECL) based on the general experience of IPP owners regarding timely receipt of payment
shows that Rajasthan, Gujarat and Karnataka are better compared to other states as far as
regularity in payment from the DISCOMs is concerned.
31
3.3.8 Sharing of CDM BenefitsThe Clean Development Mechanism (CDM) is a project-based mechanism that allows public
or private entities to invest in greenhouse gas (GHG) mitigating activities in developing
countries and earn abatement credits, which can then be applied against their own GHG
emissions or sold in the open market. For wind power producers, CDM benefits may become
a source of revenue which can improve their project IRR by 1-1.5% and can make the project
financially viable. CERC and different SERCs have declared sharing of the CDM benefits
differently between the DISCOMs and the Developers. The WPP developers should examine
the sharing of CDM benefits and its impact on the revenue in various states before arriving to
a conclusion of finalising the state of preference.
The regulations regarding sharing of CDM benefits between the developers and the
distribution licensees in different states are explained in the following table.
Table 5 : Sharing of CDM Benefits in Different States
State Sharing of CDM benefits
CERC
regulation, 2009
100% to developers in the 1st year, reducing 10% every year till the
sharing becomes 50:50 between developer and beneficiary.
Gujarat As per CERC regulation
Maharashtra As per CERC regulation
Rajasthan75% to developer, 25% to Distribution licensee. Share of the licensee
shall be fully passed on to consumers.
M.P. As per CERC regulation
Karnataka As per CERC regulation
Tamil Nadu 100% 1st year, reducing 10% yearly up to 50:50
A.P. 90% to developer and 10% to beneficiaries.
3.3.9 Reactive Energy Charges
Table 6 : Reactive Energy Charges
State Reactive Energy Charges
GujaratUpto 10% reactive power consumption - 10 paisa/Kvarh
Above 10% reactive power consumption - 25paisa/kvarh above 10%
Maharashtr 25 paisa/Kvarh with 5% escalation per year
32
a
Rajasthan 5.75 paisa/Kvarh escalating 25 paise per year
M.P. 27 paisa /Kvarh
Tamil Nadu 25 paise/Kvarh upto 10% and double beyond
A.P. 10 paise/Kvarh upto10% and 25 paise above10
Reactive power consumption of wind turbine generators is high, especially during Start-up.
Sometimes the reactive power consumption during start up is equivalent to the kW power
rating of the turbine. This reactive power has traditionally always been imported from the
grid. Although Wind turbine generators now-a-days are commonly fitted with reactive
compensation systems of various ratings, there is requirement of reactive power consumption
from the grid during start-ups and for voltage control. Hence, the reactive power charges
applicable in the various states should be considered by the developer. The Reactive Energy
charges in in various states are indicated in the following table.
3.3.10 BankingPower banking is like cash banking whereby wind power producers feed in the electricity
generated by their wind mills to the state grid and then draw that power for captive use within
the period specified by the Appropriate Commission. Despite the development of latest
technology in the wind energy sector it is still not possible to declare the exact wind power
generation. Hence, to help the wind power generators and attract investment, some states
have come up with the provision of banking of wind power. The banking charges are
applicable as decided by the Appropriate Commission. In Banking, only the transactions of
energy take place; there is no transaction of currency. Banking regulations in key states are
explained in the following table.
Table 7 : State wise Banking Regulations
State Banking Regulations
Gujarat Only for captive use. Allowed for one month.
Maharashtra
Allowed for a year (only for captive). Surplus energy is limited to 10% of
injected to grid up to 31st march and purchased by state at lowest Tod slab
rate of HT.
Rajasthan Allowed only for 6 months from April to September and October to March.
33
Banking is not permitted from December to February. Surplus energy is
paid at 60% of large industrial tariff.
M.P.
Permitted for a period of a financial year at 2% charge. Consumption of
banked energy is subject to approval of Discom. Surplus energy at the end
of banking period to be procured by the Discom as per the decision of the
MPERC.
Karnataka
Permitted for 12 months at 2@ charge. Energy banked beyond the
prescribed time will be utilised and paid for by the Karnataka Power
Transmission Co. Ltd/Distribution Licensee concerned at tariff applicable as
per KERC norms.
Tamil Nadu Allowed for 1 year at 5% banking charge.
A.P. Not allowed. Surplus power is paid at 75% of lowest bid tariff.
3.3.11 Transmission and wheeling chargesTransmission and Wheeling charges, specified by SERCs of the key states, as a percentage of
the total energy transmitted are given in the following table. The losses assumed for
computation of the transmission and wheeling charges should also be taken into
consideration.
Table 8 : State wise Transmission and Wheeling Charges
State Transmission and wheeling charges
34
Gujarat
1) For 66KV and above - charges and losses are those applicable to open
access consumers
2) For below 66KV - charges are those applicable to open access consumers;
considering
i) For more than one WEGs - Losses at 10% and shared in the ratio of
4:6 between transmission and distribution
ii) For one WEG - losses at 7% and shared in the ratio of 4:3 between
transmission and distribution.
Maharashtra
Transmission losses 4.85% and wheeling losses 0 to 9% according to the
voltage level.
Transmission charges - Rs 126.86/KW/month (long term), Rs 31.72/KW/month
(short term).
Wheeling charges - Rs 0 to 245/kw/month according to voltage level.
Rajasthan
Transmission loss - from 4.4 to 8% at different voltage levels
Transmission charges - Rs 76/kw/month
Wheeling charges 5.5 paise/kwh
M.P. 2% of the energy injected
Karnataka 5% and Rs. 1.15/kwh for third party sale
Tamil Nadu 5% of energy injected
A.P. 5% of energy injected
3.4 Site Identification
After finalising the state to develop a WPP the next task is to select the best possible sites for
installation of WPP. Following factors should be taken into consideration for selection of site.
There must be evidence of significant wind speed. Wind power density should be
greater than or equal to 200 watt/m2.
Locations like hills, ridges, plateaus, mountains etc. are preferred as these sites have
more wind speeds compared to their surrounding locations.
The available area should be taken into consideration. Generally 15-25 acre/MW of
land is required, but this may vary depending upon the micro-siting.
35
Feasibility Study Commercial ViabilityTechnical Viability
Wind direction and wind shear – The sites with constant speeds and directions are
more effective for wind power production and hence has plants at such sites have
higher PLFs.
Land cover pattern should be studies as it affects wind speeds at various heights.
Accessibility – The heavy transportation vehicles should be able to reach to the
location of the proposed WPP at reasonable cost of road construction and
transportation.
Land ownership (Private/revenue/forest) also is an important factor to be considered.
Additional forest/environment clearances are required for occupying a forest land. On
the other hand, the developer may face problems like non-convicibility of owners in
occupation of private land.
Prior commitments of the land – The developer needs ensure that the proposed land is
not already committed to any other WPP developer.
Sites approved by C-WET must be given preference as the technical and regulatory
work to occupy such sites reduces compared to other sites.
There must be reasonable access to electrical transmission.
The terrain must be favourable to construction.
Apart from these several other factors need to be taken into consideration like - Cost
of land, rehabilitation issues, scope for future expansion, labour and skills availability,
minimum impact on labours etc.
3.5 Feasibility Study
Feasibility study is a preliminary study that is done to determine a project‘s viability through
identifying potential return on investment as well as any fatal flow in the project if any. The
results of the study are used to determine whether to proceed with the project or not. It
provides a structured method that focuses on problems, identifies objectives, evaluates
alternatives, and aids in the selection of the best solution. It also describes current market
situations, explores outcomes, and assesses the range of costs and benefits associated with the
recommended action. In short, the technical and commercial viability of the project is
checked in the feasibility study. After studying the outcomes of the feasibility study the
owner choses whether to proceed further with the project or not.
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Figure 8: Feasibility Study
Feasibility Tasks:
Site inspection
Wind resource review
Investigation of interconnection opportunities
Selection of suitable process and technology
Capacity fixation on the basis of project
Capital cost study
Profitability analysis
Fatal flaws review
Grant research and application development
Investigation of site access
3.5.1 Generalized activities for feasibility study of Wind Power Projects: A. Wind Resource Assessment
The first consideration in choosing a site is the wind availability. It is the most important
factor affecting the viability of the project. To determine whether to have a project or not, it is
necessary to conduct a resource assessment. Professional resource assessment is necessary to
raise debt financing, necessary approvals/ clearances before proceeding further. In some
cases, technology providers may be able to help in identifying options, the best location or
technology to be used.
B. Technology selection
Various wind energy technologies are available for generating power. However each
technology has its own merits & demerits. Therefore the project viability depends on the
selection of appropriate technology.
Various technological choices have to be made for the following:
Size and capacity of the turbines
Hub height
Rated and cut-in wind speeds
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Vertical or Horizontal axes
Active and passive yaw
Type of rotor controls
Airfoil nomenclature
Tip-speed ratio
Pitch control and stall control
Rotor diameter
Rotor solidity
Betz limit
Number of blades
Blade composition
Type of generator
Type of hub
Type of towers
Type of drive trains
C. Preliminary design
Preliminary design includes engineering the project‘s details, including equipments locations,
wiring, control systems, roads and foundations. The design of the scheme should be
completed at a level adequate for costing and a bill of quantities to be determined. Hence, the
design should be adequate for tendering purposes, and would include general arrangement
and layout drawings. Prominent aspects of the works can be categorized into:
Civil works
Generating equipment
Grid inter-connection design
Optimum system capacity
Size & layout of structures & equipment
If possible, the designers will therefore need to work closely with the machinery suppliers, so
that specific equipment parameters can be considered as the basis of the design.
D. Grid connectivity
Check for an appropriate connection point near site
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Conversations with those who have an understanding of the system in the area where you
propose to connect your project and contact local utility or Discom. It provides following
information:
i. Understanding the transmission & distribution system
ii. Power line capacity
iii. Substation capacity
iv. Existing protection scheme of power system
v. Conductor size
vi. Cost estimates for transmission upgrades
Next step is to approach transmission utility , with an application, which includes the
following:
i. Feasibility study
ii. System impact study
iii. Facility study
iv. Interconnection agreement
The final step is executing the agreements and constructing the additional infrastructure
needed to get your energy on the grid.
E. Environmental impact Assessment
An environmental impact assessment (EIA) is an assessment of the possible impact—positive
or negative—that a proposed project may have on the environment, together consisting of the
natural, social and economic aspects. The purpose of the assessment is to ensure that decision
makers consider the ensuing environmental impacts when deciding whether to proceed with a
project. The Ministry of Environment and Forests of India have been in a great effort in
Environmental Impact Assessment in India. The main laws in nation are Water Act (1974),
The Indian Wildlife (Protection) Act (1972), The Air (Prevention and Control of Pollution)
Act (1981) and The Environment (Protection) Act (1986). The responsible body for this is
Central Pollution Control Board (CPCB). Wind-power generation has very low emissions on
a life cycle basis, but has a number of environmental effects that may limit its potential. The
following is required before the project implementation.
Land use analysis- Helps in assessing the changes in land use pattern for setting up wind
energy stations
Air pollution
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Impact on flora & fauna
Visual impact assessment
Noise impact assessment
Hydrological assessment
Impact on communication signal
On-site contamination & hazardous material issue
Waste water management practices
Depletion of water resources
Economic effects on local economy (e.g. creation of jobs)
Mitigating measures- ways in which any adverse environmental impact may be
minimized
F. Social impact assessment
Social impact assessment includes the processes of analysing, monitoring and managing the
intended and unintended social consequences, both positive and negative, of planned
interventions (policies, programs, plans, projects) and any social change processes invoked
by those interventions. Its primary purpose is to bring about a more sustainable and equitable
biophysical and human environment. SIA is often carried out as part of, or in addition to,
Environmental Impact Assessment, but it has not yet been as widely adopted as EIA in
formal planning systems, often playing a minor role in combined environmental and social
assessments. The Social Impact Assessment is analysed taking into account the effects of the
RE power project implementation on the population around the site region under various
aspects such as:
Displacement of Habitat due to project implementation
Proximity to populated area
Worker health & safety issues
Local population deprived of use of their domestic fuel (Biomass)
Improved Power Availability situation for the local population
Adequate Direct & Indirect employment opportunities to Rural Local population
G. Economic viability
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The purpose of an economic analysis is to demonstrate that the proposed project achieves
optimum utilization of resources and is of sufficient economic merit to justify an investment
in it. The analysis is therefore first made in the planning stage of the project, before any
financial arrangements are discussed or entered into. The financing agencies will generally
wish to see and approve the results of the analysis prior to making a commitment on
financing the whole or part of the project. Economic analysis is always comparative. Sound
economic evaluation of the proposed project during pre-feasibility and feasibility analysis is a
fundamental requirement, particularly when the project requires a bank‘s assistance and
financial commitment. The economic viability of the project is tested by financial modelling,
which is explained in Chapter 4 of this report.
3.6 Mast Installation, Data Collection and Data Verification
3.6.1 Permission for Mast Installation and Subsequent Capacity Allocation
After finalising the site for the mast installation, the developer of a Wind Power Project has
to take permission for installation of mast. A Land Option Agreement gives the developer the
first right to develop the land for a wind farm. It should precedent the erection of masts to
ensure that the data remains with the owner of the mast. It generally includes the following
The right of first refusal to develop the land for renewable
Details of the wind resource measurement agreement
Detail of data use if no turbine is installed.
Different procedures are followed in different states for obtaining the permission for mast
installation. First of all, the developer has to contact the State Nodal Agency for the
permission for installation of a mast. The SNA issues the permit if the land is either private
or revenue land. If the site for mast installation falls into forest land, the permission from
forest department is also required. The procedure that needs to be followed in different states
is explained below.
Andhra Pradesh, Rajasthan and Orissa
If the site is within the radius specified by the corresponding SNA (25 Km in Orissa)
from the CWET mast, land is directly allotted on the Capacity Allotment basis, i.e.in
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terms of MW as per asked by the developer.
Otherwise, application for land allotment for Wind Resource Assessment has to be
submitted by the developer to the SNA. The area within the radius specified by the SNA
(AP and Orissa - 5 km, Rajasthan – 10 Km) from the proposed mast location will be
blocked for 2 years for wind resource assessment.
An application in the forest department is required for land allocation if mast location is
in forest land. A fee of 1 lac per mast has to be paid to the forest department. This is
applicable in all the states.
Only the owner’s consent is required if the proposed mast location is in the private land.
Approval for capacity allocation is sought from the SNA after the wind resource
assessment is done.
Karnataka and Madhya Pradesh
In Karnataka and Madhya Pradesh, site for the mast installation is indicated and applied
for permission to SNA. The SNA gives permission directly on capacity allotment basis.
Maharashtra:
No permission is required from MEDA for mast installation. Permission from forest
department is needed if the proposed mast location is in the forest land (fees of Rs 1
lakh/mast).
The data collected is then registered with CWET. CWET examines and approves the
data.
MEDA, based on approval from CWET, certifies that the area within 10 Km radius from
the mast is windy.
An application, along with the MEDA certificate has to be submitted in forest
department for land diversion.
MEDA allots the land on Capacity Allocation basis.
Gujarat:
Mast installation is to be done directly after the purchase of the land and no permission is
required from GEDA. CWET and GEDA are only need to be informed about installation
of mast.
Approval from forest department is required if the proposed location for mast installation
is in the forest land for which the fees are Rs 1 Lakh/mast.
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3.6.2 Installation of Wind MastWind Mast installation is started after the permission has been received from the SNA/forest
department.
Experienced teams, skilled at installing wind monitoring met masts and equipment to the
highest standards are required for the Wind Mast Installation. Generally, consultants who
have core competency in the mast installation are hired. The consultants also provide wind
monitoring product for the specific application and install instrumentation.
3.6.3 Data collection MNRE published guidelines for wind data measurement on 20.06.2008. The
following basic parameters are needed to be collected with the installed masts, for
minimum 12 months.
Wind speed (measure by anemometer)
Wind direction (measure by wind vane)
Wind shear - Increase in wind speed at greater height above ground
Wind speed distribution
Temperature (measure by temperature sensor)
Vertical wind speed (optional)
Change in temperature with height (optional)
Barometric pressure (optional)
Roughness of terrain (obstacles presence like nearby trees, buildings etc.)
Wind power can be measure by:
WPD (W/m2) = ½*air density*rotor swept area*(wind speed) 3
3.6.4 Validation of Data through CWETThe data collected though the mast has to be verified through CWET. The CWET Verifies
the method and procedure of wind monitoring including installation details, sensors
calibrations and data collection by the company at the station and prepares report
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accordingly. The cost is to be paid by the developer. The Developer also has to arrange site
visits for the CWET scientists for verification of ground realities if the CWET asks for the
same.
3.7 Site Survey
After the data has been approved by the CWET, team of the developer makes a visit to the
site to conduct a site survey. Primary feasibility of the site for a wind farm development is
checked at this stage.
3.7.1 Soil / Ground Conditions
Wind turbine generators require very solid foundations to secure that large structure in high
wind conditions. Therefore soil conditions must be assessed to determine the stability of the
ground. The location, type and cost of the foundation are largely determined by ground
conditions.
3.7.2 Soil Erosion
With proper construction techniques, and good maintenance, a well-designed wind farm
should have no impact on soil erosion. Control of these issues is relatively well understood
and a part of good practice in the civil construction industry. On-site inspection of the soil
and ground conditions is used not just for the design of roads and foundations but also in the
development of the environmental management plan for the project which will implement the
techniques appropriate to the site for the control of soil erosion and maintenance of surface
and ground water quality.
Where possible all removed soil is used on site. Run off is diverted away from disturbed soil
and controlled using artificial barrier or existing vegetation.
Physical characteristics of the land are checked to ensure suitability for the wind farm
development. For example, the located site should not be morass, a water body or a rocky
surface.
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The wind farm cannot be located in a tribal land, a wildlife sanctuary or a national park
according to the land acquisition laws and hence the ownership of the land also has to be
known. However this may have been checked by the developer while applying for the mast
installation.
3.7.3 Accessibility
Accessibility to wind farm site is important for construction and for the on-going operation
and maintenance of the wind farm. Construction access is usually more problematic because
of the large vehicles and loads that need to be brought onto site. The turbines are brought
onto site in large sections and erected using very large cranes. Local roads need to be
sufficient to allow the delivery of the turbine components and construction equipment.
During the life of the wind farm the access tracks to each wind turbine, established during the
initial construction, would be maintained and are sufficient for the service vehicles.
Steep gradients and unstable surfaces are generally avoided because of the added cost of
cutting suitable gradients and stabilising loose surfaces.
3.7.4 Closeness to Grid
Suitable grid connection is vital for a wind farm. Because the large amount of electricity has
to be transmitted from the wind farm’s switchyard to the existing electricity grid, the cost of
overhead transmission line increases with increase in the distance. This increases the capital
cost, which ultimately affects the economic feasibility of the project. Unfortunately, the
windy sites are many times distant from the existing grid, and hence despite increase in the
cost, sometimes it is better to move further away from the power line, despite the increased
cost simply because the more distant site is so much more productive.
3.8 Wind Farm Layout
Wind farm layout preparation is the next step in the project development. It means finalising
the exact locations of wind turbines in the site. The objective of the layout is to maximise the
Capacity Utilisation Factor (CUF) for the given site conditions.
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3.8.1 Inter-turbine separationIt is determined by several factors and we need to compromise between these factors
optimally. At the extremes they need far enough apart to allow the turbines to follow the
wind without colliding with each other. Likewise we do not want them so far apart that the
cost of the interconnecting cables is prohibitively expensive.
The main determinant of separation distance is wind speed and turbulence. A wind turbine
generator necessarily removes some of the energy from the wind and causes turbulence. So
downwind there is an area where it is not economic to place another wind turbine generator.
The surrounding unaffected wind will impart some of its wind energy to this slow and
turbulent wind and the turbulence will be dampened and the wind speed will come back that
of the surrounding wind. We normally will wait until it comes back to about 98 to 99% of the
original power level before placing another machine downwind. The volume of air that is
affected is determined by the diameter of rotor. So separation distances can be expressed in
multiples of the rotor diameter.
The rule of thumb used for a downwind separation of wind turbine generators of between 5D
and 7D (Where D stands for the rotor diameter). The influence of a wind turbine generator
across the wind is nowhere near as great and could place a wind turbine as close as 1D apart
across the wind. However the wind does not come from only one direction, so we cannot do
this in reality.
In general wind turbine generators will be separated by 3D to 5D distances across the
prevailing wind energy direction and by 5D to 7D distances with the prevailing wind energy
directions.
Layout issues involve more than inter turbine separation. In most cases, the development of a
wind farm layout will be much more complex. Again several factors will come into play to
varying degrees according to site conditions.
3.8.2 Changes in elevation of area
For example, a ridgeline that spans across the prevailing wind direction may result in a line
(or lines) of wind turbine generators following the contours of the ridge. In undulating areas,
there is no point placing a turbine behind a small hill (where wind speeds will be significantly
46
lower) simply because you have reached an appropriate inter turbine separation distance if
moving another few meters can significantly increase the wind energy.
3.8.3 Other factorsThe noise level to which nearby residents will be exposed to, avoiding areas of important
native vegetation, or avoiding sites of cultural or archaeological significance etc. also affect
the layout of the wind farm.
3.8.4 Layout using softwareComplicated three dimensional computer models help us to prepare the layout to maximise
the wind turbine locations considering all the above mentioned factors. A team of developer
visits the site and checks whether this optimum layout indicated by the software is feasible in
reality or not. The Changes suggested by the team is done and optimum layout is re-prepared
considering the constraints mentioned by the layout team.
3.9 Land acquisition
After the site for the project has been finalised and the siting is done, the developer must
gain legal control over the proposed project site. This usually means acquiring interests in
land, whether by purchasing the land, leasing it (which could include an option to purchase),
or obtaining easements. Outright purchase normally provides the maximum amount of
security and rights over the project land, but is also usually the most expensive option.
Leases should be carefully developed so that they clearly address issues important to the
project developer and landowner at the time the lease starts as well as years later during
project operations. In many cases, the people who originally negotiate a lease will not be
involved later in the operating period of the project, so it is important that any understanding
between the parties be properly addressed in the written lease to prevent future
misunderstandings.
A well-executed lease is an important part of the project development process. Before the
purchase and installation of wind turbines it should be ensured that the lease provides clear,
unimpeded rights for use of the land over the long term.
The most important portions of the land lease are:
The length of the agreement
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What other uses are acceptable on the land surrounding the wind turbines
The payment structure.
These and other major land lease provisions are described below.
A real property agreement will address major issues such as:
(a) Type of land available
1. Revenue land
2. Private land
3. Forest land
4. Others
(b) Nature of land
1. Urban
2. Rural
3. Agricultural
4. Industrial
(c) Duration of the agreement
(d) Compensation
(e) The scope of the land subject to the agreement
(f) Permitted uses of the land,
(g) Property-related taxes
(h) Assumption of liabilities
(i) Assignment of contract rights by the developer
(j) Termination of the agreement
(k) Remediation of the land and dispute resolution
Other land issues that may be applicable:
a) Securing a right to purchase or lease land within a prescribed future timeframe through
an Option to Purchase or Lease.
b) Obtaining a right to match the terms of purchase or lease to a third party through Right
of First Refusal.
c) Ascertaining the restrictions on an owner's right to use property by means of covenants
on land
d) Possessing a secure legal right to develop the land by ensuring title to the land.
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e) Conducting land surveys if title is uncertain, to preclude title-related questions, or if the
value of the project is sufficient to justify undertaking a peremptory survey.
f) Understanding the various land-related permits and approvals that will be required
(including land use permitting, conditional use permitting, environmental permitting,
building and electrical codes), paying particular attention to the length of time needed to
obtain the necessary permits.
g) Determining whether or not present zoning and land use permits the intended use,
taking into account the difficulty of obtaining zoning exceptions.
h) Addressing subsurface mineral rights.
i) Addressing water rights (including surface mineral)
As explained earlier, a Land Option Agreement, which precedes the erection of the mast,
gives the developer the first right to develop the land for a wind farm.
The Land Lease Agreement is the next step. It is much more detailed and should be
carefully reviewed by a qualified lawyer or expert. The land lease includes:
a) Length of lease
b) Royalty percentage with minimum or floor payment (preferred over flat fee or rent)
c) Extension options
d) Purchase agreement or Standard Offer Contract
e) Agreement not to conflict with normal activity on land without compensation
f) Arrangement for the installation to be part of land deed in case of transferal
g) Agreement by the developer to
minimize impact
compensate damages
assume liability
h) Access to land provisions
i) Decommissioning
j) Interconnection sites, depth of electrical wires
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3.10 Clean Development Mechanism
The Clean Development Mechanism (CDM) is a project-based mechanism that allows
public or private entities to invest in greenhouse gas (GHG) mitigating activities in
developing countries and earn abatement credits, which can then be applied against their
own GHG emissions or sold in the open market. The CDM has the dual objective of reducing
greenhouse gas emissions and contributing to sustainable development in the host country.
The Clean Development Mechanism exploits the efficiency gap between industrialized
countries and developing countries. In order to understand the potential of the CDM, one
needs to consider that emission reductions through a CDM project are not assessed in
absolute terms since developing countries have no reduction commitments, but in relative
terms: every new energy project is compared to a forecast of future emissions, the baseline.
CDM benefit under Kyoto Protocol has been availed by many WPPs in India. Ministry of
Environment and Forest (MoEF) is the Nodal Agency and a National CDM Authority
(NCDMA) has been established. There are quite a few agencies with foreign tie-up available
to assist in –
Registration and Certification by MoEF and UNFCCC
Trading of CER’s in market
Under the present conditions the net benefit available under long term contract is
about Rs. 0.50 per kWh after meeting all expenses at several stages. IPP Owners with foreign
tie-up are likely to do trading at higher rate.
There is however some reservation regarding availability of this benefit beyond 2012.
Figure 9 : CDM Timeframe
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3.10.1 CDM project cycleCarrying out a CDM project and receiving final registration by the CDM Executive Board
requires multiple steps. These steps are regarded as the CDM project cycle, and are put in
place in order to safeguard the actual climate benefits of CDM project activities.
The project cycle can be seen in the figure below:
Figure 10 : CDM Project Cycle
Source: Adapted from "Using the CDM into energy planning – A case study from South Africa",
James-Smith, E
I. Project Design
This step involves developing a Project Design Document (PDD), which is a standard format
describing how the activity intends to fulfil the pre-requisites for registration as a CDM
project. The PDD consists of a general description of the project, its proposed baseline
methodology, a timeline and crediting period, a monitoring methodology, calculation of GHG
emissions by source and stakeholder comments. The host country Designated National
Authority (DNA) must issue statements on the PDD indicating that the government of the
host country participates voluntarily in the proposed activity and that the project assists the
host country in achieving sustainable development.
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II. Validation and Registration
Validation is a process involving an independent evaluation of the project activity by an
external auditor known as a Designated Operational Entity (DOE), which is hired by the
project participants (a list of DOEs can be downloaded from the UNFCCC website). The
DOE reviews the PDD in order to determine whether the project meets CDM requirements.
Once a project activity has been validated by a DOE a validation report is forwarded to the
Executive Board (EB) for registration as a CDM project. The registration of a project will be
final within eight weeks after the date of receipt by the EB unless at least three members of
the EB request a review of the project activity.
III. Monitoring
Once the project is operational the emissions that occur from the activity must be monitored.
This is done according to the monitoring plan submitted and approved in the PDD, which
indicates the method used for measuring emissions from the project and how data relevant for
these calculations will be collected and archived. The information on emission reductions
must be included in a monitoring report estimating the amount of CERs generated and
submitted to a DOE for verification.
IV. Verification and Certification
Verification is the independent review of the monitoring report submitted by the project
participants. A DOE different to that involved in the validation process carries out
verification (a list of DOEs can be downloaded from the UNFCCC website). The DOE must
ensure that the CERs have been generated according to the guidelines and conditions agreed
upon during the validation of the project. A verification report is then produced. The same
DOE that verified the project also certifies the CERs generated by the activity.
Certification is the written assurance from the DOE that the project achieved the stated level
of emission reductions and that these reductions were real, measurable and additional. The
certification report constitutes a request to the EB for issuance of CERs. Unless a project
participant or at least three members of the EB request a review within fifteen days the EB
will instruct the CDM registry to issue the CERs.
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3.11 Renewable Energy Certificates
Renewable Energy Certificate (REC) mechanism is a market based instrument to promote
renewable energy and facilitate compliance for Renewable Purchase Obligations (RPO) under
inter-state transaction of RE generation. REC mechanism is aimed at addressing mismatch
between availability of RE Sources in state and the requirement of the obligated entities to
meet the RPO.
Under this mechanism, the cost of electricity generation from renewable energy sources is
classified as cost of electricity generation equivalent to convention energy sources and the cost
of environmental attributes. These environmental attributes can be exchanged in the form of
RECs. Hence, the RE generator can either sell the energy at preferential tariff specified by
the ERC; or it can sell the power at normal tariff and sell the RECs on power exchanges.
In January 2010, honourable Central Electricity Regulatory Commission (CERC) announced
Regulation on Terms and Conditions for recognition and issuance of Renewable Energy
Certificate for Renewable Energy Generation. According to this regulation, a generating
company involved in electricity generation from renewable sources of energy will be eligible
to get Renewable Energy Certificate (REC) for their each 1 MWh (1000 unit) of generation
subject to: It has got accreditation from State Nodal Agency It does not have any PPA for the capacity related to such generation with distribution
licensee at preferential tariff (state regulated tariff), or It sells electricity generated to either of the following
The distribution licensee at price not exceeding average pooled cost of power
purchase (APCPP) of the distribution licensee for last year Any other licensee or to an open access consumer at mutually agreed price, or
through Power Exchange.
Captive RE Generators are also eligible for REC if such generators are: Not availing promotional Wheeling Not availing promotional Banking Not getting any electricity tax/duty exemption from the state.
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3.11.1 Types of RECAccording to the regulation, RECs will be issued in two categories: Solar RECs for
generation through Solar PV & Solar Thermal technology, and Non-Solar RECs for
generation through renewable sources other than solar. These RECs will be sold in a price
band of Floor Price (minimum price) and Forbearance Price (maximum price). Floor and
Forbearance price for Solar and Non-Solar RECs are given in table below:
Table 9 : REC Floor and Forbearance Prices of REC
Type of RECFloor Price in
(Rs./REC)
Forbearance
Price
(Rs./REC)
Solar REC 9300 13400
Non-Solar REC 1500 3300
3.11.2 The operational framework for REC mechanismThe operational framework for REC mechanism consists of four main steps as shown in the
figure below:
Figure 11 : REC Procedure
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Figure 12 : REC Mechanism
Renewable Purchase Obligation (RPO) for the year 2012-13
State Non-Solar RPO Solar RPOAndhra Pradesh 4.75 0.25Assam 4.05 0.15Bihar 3.25 0.75Chhattisgarh 5.25 0.5Delhi 3.4 0.15Gujarat 6 1Haryana 1.5 0.5Himachal Pradesh 10 0.25Jammu & Kashmir 4.75 0.25JERC (Goa & UT) 2.6 0.4Jharkhand 3 1Karnataka 7 0.25Kerala 3.35 0.25Madhya Pradesh 3.4 0.6Maharashtra 7.75 0.25Manipur (JERC) 4.75 0.25Mizoram (JERC) 6.75 0.25
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Meghalaya 0.6 0.4Nagaland 7.75 0.25Orissa 5.35 0.15Punjab 2.83 0.07Rajasthan 7.1Tamil Nadu 8.95 0.05Tripura 0.9 0.1Uttar Pradesh 5 1Uttarakhand 4.5 0.025West Bengal 3.75 0.25
Step 1 - Accreditation:
The proposed REC mechanism requires a procedure for accrediting generation plants which
are eligible to receive RECs. Accreditation is done to assess and establish eligibility of
renewable energy plants to receive RECs. The process of accreditation is largely one time
activity where in plants are validated on its renewable nature and other pre-requisites to be
eligible for issuance of REC. The State Nodal Agency appointed by the State Electricity
Regulatory Commission (SERC) shall be responsible for Accreditation. Accreditation process
involves processing of application, verification of projects, transfer of information, creation
and operation of accounts etc. The process of accreditation of eligible renewable energy
projects would also involve verification of Applications (projects) and sites and hence the
accreditation agencies at state level would need to have adequate monitoring capability.
Step 2 - Registration
Every eligible entity shall apply for registration at central level. Only one central agency at
national level will be authorized to recognize attributes from renewable generation to avoid
double counting. Registration will result in creation of an account for all the entities
participating in the mechanism.
Step 3 - Information of RE generation
Central agency would receive information about injection of RE power by the accredited RE
generators through State Load Dispatch Centre (SLDC) via Regional Load Dispatch Centre
(RLDC) and local distribution licensee.
Step-4 Issuance of REC by REC registry
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The eligible entity shall receive a certificate for a specified quantity of electricity generated
and injected into the grid. One REC will be issued for each 1 MWh of electricity generated
from renewable energy plants. RECs will be created as electronic records in a register
(because electronic documents are easier to track than paper documents). The issued
certificates will be credited to the registered account of the plant operator/owner.
Step 5 - Exchange of REC
RE generators with REC certificates can exchange their certificate at a common platform
viz. the power exchange approved by CERC. Obligated entities (as defined by the SERCs in
their regulations fo r RP O ob l iga t ions ) sha l l buy REC through power exchange .
The p r ice discovery of REC will be based on the demand and supply of the REC in the
market, subject to a forbearance price (ceiling price) determined by CERC. REC exchange
will be connected to the central agency to keep record of all the transaction in the REC
exchange.
Step-6 Monitoring Mechanism
It is proposed that a panel of auditors shall be empanelled by CERC at the central level. The
remuneration charges for such panel of auditors will be met out of the funds which Central
Agency may collect from eligible entities.
Step 7 - Compliance by Obligated Entities
Central registry will furnish details of REC purchase and redemption to respective SERCs
to enable them to assess compliance by obligated entities and impose penalties on them, if
applicable. As evolved by the Forum of Regulators, there is a provision for enforcement
mechanism in the draft model regulation for SERCs under section 86 (1) (e) of the Act.
As per this provision, in the event of default, obligated entities would be directed to deposit
the amount required for purchase shortfall of REC at forbearance price (i.e. maximum
price) of REC in a separate fund, which cannot be utilized without approval of the
concerned State Commission. In addition to this enforcement mechanism the penalty under
Section 142 of the Electricity Act 2003 would also be applicable to the obligated entity. The
concerned state commission can empower an officer of the SNA to procure required shortfall
of REC at the cost and expense of distribution licensee.
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3.12 Detailed Project Report
Detailed Project Report involves producing a comprehensive document that can be used as a
basis for investment decision making, approval of plans and designs, project planning, and
implementation scheduling for all types of infrastructure projects. Preparation of detailed
project report is further step in firming up the proposal. When an investment proposal is to be
approved on the basis of functional report and the proposal is a major proposal, it would be
necessary to prepare a detailed project report to firm up the proposal for the capital cost as
well as for the various facilities. It includes...
Project description
Examination of technological parameters
Description of the technology to be used
Broad technical specification
Evaluation of the existing resources
Schedule plan
Layouts and flow diagrams
Hence these reports are to be made before investment is made into project. Thus formulation
of investment is based on the studies made. These can be considered as pre-investment
decision. Detailed project report is not prepared only for the investment decision-making
approval, but also for execution of the project and for preparation of further plan. General
format for preparation of detailed project report (DPR) as prescribed by Indian renewable
energy development authority (IREDA):
3.12.1 Contents to be covered in a DPR Technical and Commercial:
Introduction
Site details
Resources at Site location
Selection of Technology
Technology Provider
Power evacuation/interconnection with grid
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Technical specifications of various components involved
Estimation of annual energy output
Environment impact/protection activities
Socio-economic impact in the region due to project implementation
Project cost estimates and tariff
Estimated electrical works
Estimated Civil works, Foundations
Project implementation Schedule
Drawing and designs, Site map and project layout
CDM benefits
Financial analysis
Conclusions
Annexure
Overall Plant layout
Land clearances
Grid connectivity approval
MOU/letter of willingness for PPA
In-principal approval, if applicable
Single line diagram
Switchyard layout
Plant control system configuration
3.12.2 Generation Based Incentive (GBI)
The Ministry of New & Renewable Energy has announced a scheme on Generation Based
Incentive (GBI) for grid connected wind power projects. The broad aspects of the scheme are
given below:
Objectives:The following are the main objectives of the scheme:
(i) Generation of electricity from grid connected wind power projects through Generation
Based Incentives.
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(ii) To encourage IPPs, registered companies, NGOs, Trusts, academic and research
institutions, SNAs etc. who will not avail of accelerated depreciation under the IT Act for
making investments in wind power projects.
(iii) To encourage actual energy generation rather than capacity addition only, resulting in
optimum utilization of wind resource.
(iv) To augment flow of power to the grid that would add to grid stabilization.
Eligibility:The GBI scheme would be applicable only for those power producers who do not avail of the
accelerated/enhanced depreciation benefits under the Income Tax Act.
The power producers who avail of the benefits of the scheme will be required to furnish
documentary proof to this effect.
The scheme will be applicable only for those independent power producers having minimum
installed capacity of 5 MW and whose capacities are commissioned for sale of power to the
grid after the announcement of the scheme.
The scheme will not be applicable to those who set up capacities for captive consumption,
third party sale, merchant plants etc.
Generation based Incentives:The Ministry will provide through IREDA, a generation-based incentive of Rs.0.50 per unit
(kwh) for a period of ten years to the eligible project promoters with a cap of 62 lakh per
MW. This incentive is over and above the tariff that may be approved by the State Electricity
Regulatory Commissions in various States. In other words, this incentive that is sanctioned
by the Union Government to enhance the availability of power to the grid will not be taken
into account while fixing tariff.
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The generation based incentive approved for a grid interactive wind power generation project
may be available for a maximum period of ten years from the date of approval and regular
power generation from that project, provided the utility continues to purchase power from
that grid interactive wind power project.
The incentive will be released by IREDA to the eligible wind power project developers on
half yearly basis, on receipt of grid synchronization letter and certified information about the
net electricity fed to the grid from the wind power project during the period of claim. The
concerned utility will provide such information to the project developer periodically.
The IREDA shall provide GBI for wind power projects after its commissioning
subject to meeting the guidelines and eligibility conditions. However, the response of the
incentives to this paradigm and based on the response , the component of scheme will be
reviewed when projects aggregating to 49 MW which are estimated to generate about 0.9
billions units of electricity are registered by IREDA.
1. Eligibility1.1 All existing registered companies, IPPS, NGOs, Trusts, Financial institutions, academic
and research institutions, SNAs, central and state power generation companies and
public/private sector wind power project developers who have set up or propose to set up a
registered company in India will be eligible for consideration of generation based incentive
provided they sell the power to the grid.
1.2 The GBI scheme would be applicable only for those power producers who do not avail of
the accelerated/enhanced depreciation benefits under the Income Tax Act. The power
producers who avail of the benefits of the scheme will be required to furnish documentary
proof to this effect.
1.3 The scheme will be applicable only for those independent power producers having
minimum installed capacity of 5 MW and whose capacities are commissioned for sale of
power to the grid after the announcement of the scheme.
1.4 The scheme will not be applicable to those who set up capacities for captive consumption,
third party sale, merchant plants etc.
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2. Eligible Projects2.1 Grid interactive wind Power Generation projects of a minimum installed capacity of five
MW will be eligible for generation based incentive.
2.2 Any project developer, who ful fills the procedural requirements and the guidelines
specified by the Ministry, will be eligible for consideration of generation based incentive.
2.3 The GBI would be available only for projects commissioned i.e. synchronized to the grid
and certified by the concerned Utility after announcement of the scheme.
2.4 The GBI would not be available for wind power projects set up for captive use and third
party sale.
2.5 This incentive is over and above the rates approved by the State Regulatory Commissions
or the rates at which the power purchase agreement are signed with utilities.
3.13 Financing Strategy and Financial Closure
3.13.1 Financing strategyWind power projects are more complex and risky because they rely on the flow of wind;
therefore risk management and risk allocation are extremely important. Like all other RE
projects Wind power projects are very capital intensive, hence they are extremely sensitive to
the structure and the conditions of capital cost financing. Due to their long time horizon, RE
projects have a very long exposure period to risk. They also need long maturities and lower
interest rates. There is no golden rule or a standard set for funds for financing of WPPs, but
adequate mix of funds and conditions are required for the WPP to be financially viable. The
most common structures used to finance projects are Project Financing, Corporate Financing,
and Lease Financing.
i) Project financing
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It refers to financing structures wherein the lender has recourse only or primarily to the
assets of the project and depends on the cash flows of the project for repayment.
ii) Corporate financing
It involves the use of internal company capital to finance a project directly, or the use of
internal company assets as collateral to obtain a loan from a bank or other lender. The
main implication is that the financing of the project is based on the risk profile of the
company as a whole, and not of the particular project.
iii) Lease financing
It involves the supplier of an asset financing the use and possibly also the eventual
purchase of the asset, on behalf of the project sponsor. Assets which are typically leased
include land, buildings, and specialized equipment. A lease may be combined with a
contract for operation and maintenance of the asset.
Sources of finance
The Project can be financed by one or combination of more than one of the following:
i. Equity financing
ii. Debt financing
iii. CDM project financing
General eligibility criteria for RE loans
Who can apply?
a) Public, Private Ltd companies, NBFCs and registered Societies
b) Individuals, Proprietary and Partnership firms (with applicable conditions)
c) State Electricity Boards which are restructured or in the process of restructuring and
eligible to borrow loan from REC/PFC Eligibility
d) Project demonstrating techno commercial viability
e) Profit making companies with no accumulated losses.
f) Debt Equity Ratio not more than 3:1 (typically 5:1 in case of NBFCs)
g) No default to any government agency (IREDA/PFC/REC) and other FIs / Banks
h) No erosion of paid-up capital
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3.13.2 Financial ClosureIt is a legally binding commitment of equity holders & debt financiers to provide or mobilize
funding for the full cost of the project. It is a pre-requisite to project closure & post
implementation review. It ensures proper disposition of all project assets and helps in
comparison against budgeted cost. Project development covers a range of activities that are
required to realize a financial closure of the project. It encompasses the assessment of the
technical feasibility and economic viability, preparation of contracts with suppliers of
equipment and services and with purchasers of the produced energy, acquisition of land,
acquisition of various permits and detailed engineering of the project. All of these elements
have to be completed successfully in order to come to an investment decision. This phase
already may require significant investments, typically in the order of several percentage of
the total project cost. A project developer will hence assess the investment climate and weigh
each of the risk factors in order to have a maximum chance of reaching financial closure.
Typically the following risk factors will be assessed:
i. What is the average lead time for this type of project
ii. Will it be possible to get a permit and a good power purchase agreement (PPA)
iii. Will there be a financial support scheme when the project is ready for financial closure
iv. Will the project be bankable after all, and under what conditions and what can be done
to improve these conditions from the equity perspective
Figure 13 : Hurdles in Financial Closure
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[Source: KfW Development Bank. (2005). Financing Renewable Energy. Frankfurt: KfW
Bankengruppe]
An investor may be willing to take some risk as he will benefit from any upswings in project
returns, but lenders are much more risk averse and will demand for several securities that
ensure the payment of debt and interest. This is being translated in the financial parameters
that lenders apply, such as debt term, interest rate, and debt service coverage ratio. At the
stage of financial closure, the risk assessment will concern the remaining phases of the
project cycle only.
Financial closure includes:
Arrangement of equity for the project
Arrangement of security for bank/financial institution
Quotations for civil and structural work
Quotation for main plant and machinery and off site equipment
Preparation of DPR
Negotiation of terms and sanction of term and working capital loan
Insurance during transit and project construction
Subsidies/incentives, if any
Finally, making a legally binding commitment with equity holders & debt
financiers to provide or mobilize funding for the full cost of the project.
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3.14 Power Sale options
There are two way of electricity sale for an RE generator in India, either through REC route
or at preferential tariff.
Figure 14 : Power Sale Options
1) Through non-REC route:
The RE generator can sale electricity generated to obligated entities at preferential tariff
determined by CERC/SERC from time to time. ‘Obligated entity’ means the entity
mandated under clause (e) of subsection (1) of section 86 of the Act to fulfil the renewable
purchase obligation.
Hence there are following options under this route of sale of power
Sale to any DISCOM at preferential tariff
Sale at Open Access consumer at mutually agreed price (above APPC)
State wise preferential tariffs are indicated in the topic 3.3.2 of this report.
2) Through REC route
The other method of revenue earning is sale of electricity to obligated entities at or below
APPC and receiving REC for each 1MWh of electricity. These RECs can be sold at Power
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Exchange between Floor Price and Forbearance price determine by Central agency. Hence
there are following options to sale electricity under this route:
Sale in open access at mutually agreed price not above APPC
Sale through power exchange at market determined price.
3.15 Physical implementation of the Project
3.15.1 EngineeringIt involves decisions regarding the following after detailed technical studies
1) Detailed plant design
2) Equipment specifications of the following major equipments
a. Rotor
i. Diameter
ii. Area swept
iii. Nominal revolutions
iv. No. of blades
v. Air brake
b. Tower (Hub height)
c. Operational data
i. Cut in wind speed
ii. Cut off wind speed
iii. Nominal wind speed
d. Generator type
e. Gearbox type
f. Control type
3) System engineering- During system analysis, systems engineering analyses and reviews
the impact of operational characteristics, environmental factors, and minimum acceptable
functional requirements, and develops measures suitable for ranking alternative designs in
a consistent and objective manner. These measures should also consider cost and
schedule. This analysis either verifies that the existing requirements are appropriate or
develops new requirements which are more appropriate for the operation.
4) Civil engineering
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3.15.2 ProcurementProcurement is the acquisition of goods or commodities by a company, organization,
institution, or a person. This simply means the purchase of goods from suppliers at the lowest
possible cost. The best way to do this is to let the suppliers compete with each other so that
the expenses of the buyer are kept at a minimum.
Procurement cycle for renewable energy power project consists of following steps:
Information gathering: If the potential developer does not already have an established
relationship with suppliers of needed products and services (P/S), it is necessary to
search for suppliers who can satisfy the requirements.
Supplier contact: When one or more suitable suppliers have been identified, requests for
quotation, requests for proposals, requests for information or requests for tender may be
advertised, or direct contact may be made with the suppliers.
Background review: References for product/service quality are consulted, and any
requirements for follow-up services including installation, maintenance, and warranty are
investigated. Samples of the P/S being considered may be examined or trials undertaken.
Negotiation: Negotiations are undertaken, and price, availability, and customization
possibilities are established. Delivery schedules are negotiated, and a contract to acquire
the P/S is completed.
Fulfilment: Supplier preparation, expediting, shipment, delivery, and payment for the P/S
are completed, based on contract terms. Installation and training may also be included.
Consumption, maintenance, and disposal: During this phase, the company evaluates the
performance of the P/S and any accompanying service support, as they are consumed.
Renewal: When the P/S has been consumed and/or disposed of, the contract expires, or
the product or service is to be re-ordered, company experience with the P/S is reviewed.
If the P/S is to be re-ordered, the company determines whether to consider other
suppliers or to continue with the same supplier.
3.15.3 Construction The construction phase of a project is typically the most expensive. Therefore, it makes sense
to ensure that a number of details have been finalized prior to embarking on this project
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component. The following is a list of issues that should have been completed prior to
construction phase:
1) Finalize Costs (with fixed price agreements where possible
2) Obtaining all the necessary clearances and approvals
3) Financing
Construction Considerations
Depending on the size of the project, owner may choose to do much of the work himself or
have the project done under contract. In either case, be well prepared both technically and
legally to undertake the work. There are a number of factors to consider when beginning
construction of a RE power project:
1) Construction Timing- The time of year for project construction can influence the pace
and quality of work.
2) Materials Supply
3) Construction Permits & Inspections
4) Work Scheduling
5) Project Management
Following construction activities are involved in construction of a WPP
i. Civil work
a) Road and drainage
b) Wind turbine foundation
c) Met mast foundation
d) Building housing electrical switchgear, SCADA central equipment and possible
spares and maintenance facilities
ii. Electrical works
a) Equipment at the point of connection, whether owned by the wind farm owner or by
electricity network operator
b) Underground cable network and/or overhead lines, forming radial feeder circuits to
string of wind turbine
c) Electrical switchgear for protection and disconnection of feeder circuits
d) Transformer and switchgear associated with individual turbine (although this is now
commonly located within the turbine and is supplied by the turbine supplier)
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e) Reactive compensation equipments, if necessary
f) Earth(grounding) electrodes and systems
g) SCADA system
Central computer
Signal cables to each turbine and met mast
Wind speed and other meteorological transducer on met masts
3.15.4 Testing and CommissioningCommissioning is the process of ensuring that systems are designed, installed, functionally
tested, and capable of being operated and maintained to perform in conformity with the
design intent. Power plant commissioning is a critical part of the overall process of taking a
power plant from construction and installation through to full operation. Testing &
commissioning requirements should be clearly stated in the contracts specification. These
should include parameters to be tested, test conditions, test points, values expected and
acceptable tolerances.
Objectives of testing & commissioning works:
1) To verify proper functioning of the equipment/system after installation
2) To verify that the performance of the installed equipment/systems meet with the
specified design intent through a series of tests and adjustments
3) To capture and record performance data of the whole installation as the baseline for
future operation and maintenance
Scope of testing & commissioning works:
1) Inspection of all parts, systems and station auxiliaries
2) Functional checks on simpler devices and systems
3) Error checks on measuring instruments
4) Secondary injection tests on protective relays
5) Operational checks on control systems
6) Measurement of the operating parameters of generating units
7) Measurement of maximum power output of generating units
8) Measurement of the efficiency of generating units at different, loads
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Steps for testing & commissioning:
1) Obtain design drawings and specifications and to be thoroughly acquainted with the
design intent
2) Check manufacturer‘s operating instructions and statutory requirements
3) Physically inspect the installation and equipment to determine variations from designs
and/or specifications.
4) Check individual components, e.g. key switches, control equipment, circuit breaker
status, and etc. for proper position and settings for completeness of installation.
5) Check inclusion of manufacturer‘s typical equipment testing data or factors before T&C
of particular equipment.
3.15.5 Operation and MaintenanceWith proper operation and maintenance functions the production can be maximised as well as
the life span of the wind turbines can be elongated. Maximizing availability and yield of each
turbine is the goal of the O&M personnel. They minimize operations and maintenance costs
for the remaining life of project by managing day-to-day tasks like providing day-ahead
forecasts, operating the wind farm in a safe manner, protecting assets etc. There are three
organizational models for O&M: Project owner manages O&M, third-party manages O&M,
and turbine manufacturer manages O&M for an extended period.
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CHAPTER 4: FINANCIAL MODELLING
Figure 15 : Parameters of Financial Modelling
4.1 Cost estimates
Detailed cost estimates are needed for determining the economic merit of a project,
appraising its financial implications and arranging finance for it. The estimates are made to a
reasonable approximation in the pre-feasibility phase and they are then refined, on the basis
of more extensive investigations, in the feasibility phase. Various costs are explained here.
a. Initial costs
i. Feasibility study
ii. Development
b. Construction costs
i. Engineering cost
ii. Equipment cost
iii. Balance of plant system cost
iv. Grid connectivity cost
v. Owner’s
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vi. Contingency costs
c. Annual costs
i. Loan cost – (interest and principal repayment)
ii. O&M cost
iii. Land lease & resource rental (if applicable)
iv. Property taxes
v. Insurance premium
vi. General & administrative costs
Contingencies- A contingency allowance should be included to account for
unforeseen annual expenses. Generally, the contingency allowance is calculated
based on an estimate percentage of all other annual costs.
Figure: Expense estimate per project phase
Figure 16 : Cost Estimate per Project Phase
Source:http://nwcommunityenergy.org/project-design-management/cost-management
4.2 Development of a project model
A financial model is the most critical element of the financial assessment process. Most
financial models are structured in a similar way and have the following features (whether
created as a project specific spread-sheet model or using an off-the-shelf project finance
package):
I. Assumptions – all of the input variables to the model are usually kept together in one
worksheet. Assumptions may be based on expert knowledge, forecasts, technical
performance specifications, contract prices or other sources. The source of each
assumption needs to be clearly identified so that investors can assess whether the
assumption is reasonable.
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II. Calculations – the input variables are combined in a number of calculations, including
tax, depreciation/amortisation, loan balance and interest payments, and revenue and
operating costs.
III. Outputs – in general, the outputs of a financial model will include:
Cash flow statement
Profit and loss
Balance sheet; and
Key financial indicators such as debt and interest ratios, debt service coverage
ratio, NPV and IRR
4.3 Analysis of financial indicators
Financial indicators are the mathematical tools which help the finance manager to take a
decision about whether to accept the project or reject the project. One or more of the
following financial indicators are used to check the viability of the project.
Cash flow – To determine if the project is economically viable a cash-flow evaluation of
the project should be done. The cash-flow analysis looks at overall project revenues and
expenses on a year by year basis over the life of the project.
Benefit-cost ratio (BCR) - It is the ratio between discounted total benefits and costs.
Net present value (NPV) - The NPV of an investment proposal may be defined as the
sum of the present values of all the cash inflows less the sum of present values of all the
cash outflows associated with a proposal.
Internal rate of return (IRR) - The IRR of a proposal is defined as the discount rate
which produces a zero NPV i.e., the IRR is the discount rate which will equate the
present value of cash inflows with the present value of cash outflows. The IRR is also
known as Marginal Rate of Return or Time Adjusted Rate of Return. Like the NPV,
the IRR is also based on the discounting techniques.
Payback period- The payback period is defined as the number of years required for
the proposals cumulating cash inflows to be equal to its cash outflows.
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Debt service coverage ratio (DSCR) - The DSCR is the total net operating income
divided by the debt service.
Figure 17 : Project Cash-flow and Key Indicators
4.4 Sensitivity Analysis
If a project appears to be financially viable, based on analysis of the relevant financial
indicators using conservative or at least central case assumptions, then a more detailed
sensitivity analysis will be undertaken. The objective of the sensitivity analysis is to establish
which of the input assumptions to the financial model has the greatest impact on the financial
outcome. It is important to understand both which variable can have the greatest impact, and
which is most likely to have the greatest impact, either singly or in combination with other
variables. The sensitivity analysis is related to the next stage, risk assessment and
management, since many of the key sensitivities can be contractually hedged to reduce the
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risk to the lender. For example, key supply and purchase contracts may be fixed by volume
and price.
4.5 Risk analysis
It is a technique to identify and assess factors that may jeopardize the success of a project or
achieving business goal. This technique also helps to define preventive measures to reduce
the probability of these factors from occurring and identify counter measures to successfully
deal with these constraints when they develop to avert possible negative effects on the
viability of the project.
Being prepared to face and manage risks is essential to any type of project development, and
renewable energy projects are certainly no exception. Renewable energy projects often have a
protracted period of at-risk investment. Lenders and investors will be particularly concerned
to assess all of the risks associated with a project and to agree, with the project sponsors, on
appropriate means to manage or mitigate those risks.
Types of risks associated with the project are indicated in the following figure.
Figure 18 : Types of Risk in Various Phases of Project
4.5.1 Assessing risk The sponsors of the project will typically undertake their own risk assessment early in the
project planning process, as they will be exposed to the risks during the planning phase,
whereas the lenders will undertake their risk assessment at a later stage, focusing on
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construction and operation phase risks. At either stage, risk assessment is generally
undertaken through the steps described below.
Risk Identification
Risk Matrix
Quantitative Risk Assessment
4.5.2 Managing Risk There are essentially three options for managing risks.
Change the project
Allocate the risk to the most appropriate party
Transfer the risk to a third party
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CHAPTER 5: SUMMARY
5.1 Conclusion
Wind energy is becoming very important in the energy mix of the country. This trend will
accelerate in the coming years due to reasons of India’s pursuit of energy security, issues
related to climate change, new technologies like bigger capacity turbines, and gradual
depletion of fossil fuels and their price volatility. Globally, wind energy, along with other
renewable energy technologies, is the new investment destination. This sector has continued
to show robust growth world over, which is evident in the acceleration in investment flows
into the sector.
One of the biggest barriers in the accelerated development of the wind energy is the lack of
basic understanding and knowledge about the complex procedure of project development.
The discrepancies in the procedures followed in different states of India add to these
difficulties. This study has tried to give an overview of project development cycle for wind
power project implementation.
Initially, the report guides the investors and developers in project and financial planning. The
aspects that the managers should take into consideration while project planning are indicated
which can help the managers to comprehensively plan the project so as to minimise the
difficulties in the later parts of the project. The report then guides the managers to three major
decisions regarding financial planning.
A major task for the investor / developer is the decision regarding finalising the state in which
he wants to set up WPP in. The project thoroughly covers all the major factors that the
developer must not miss while taking this important decision. These major factors – wind
power potential & installed capacity, Feed-in-Tariffs, incentives offered to WPPs, evacuation
infrastructure, grid connectivity, regularity in receipt of payment, sharing of CDM benefits,
reactive energy charges, banking, and transmission and wheeling charges – are explained in
brief in the report to guide the WPP developers to select the state which would be best for the
company to increase profitability and reduce complexities.
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The report than elaborates the issues related to site identification. It guides the developer to
select the site which can maximise the future profits by maximizing the Capacity Utilisation
Factor and restricting the capital costs.
The report also guides the developers in their approach to check the feasibility study of the
project. The developers are directed towards both, technical and commercial viability and as
well as other factors like environmental and social impact assessment.
Wind resource assessment on the site is a time consuming and expensive activity in WPP
development. There is no standardised procedure followed in all the states. The procedures
followed in all key states for mast installation, data collection and data verification has been
explained briefly in the report.
Wind power projects fail if the site isn’t suitable for development of the project. Soil
conditions, soil erosion, accessibility and closeness to grid must be checked before finalising
the site for WPP development. The report guides the developer about all these aspects of a
good site.
To maximise the output, a wind farm be designed in such a way so as to optimise the
available wind resource. This is ensured by preparing a most suitable layout for a wind farm.
The layout of the turbines should be prepared in such a way that the wind is not obstructed
into its way towards the turbines. The project guides the developers in preparation of best
possible wind farm layout and maximization of CUF.
Land acquisition is a major and one of the most crucial activities in the development of any
power project. If issues related to land acquisition are not dealt with properly, they can cause
serious damage to the profitability of the project. Hence, in this report, due importance is
given to the land acquisition related issues that the developers may face. Also the land
acquisition policies of the key states have been explain in brief.
The developer must not miss any opportunity to reap the benefits attached with renewable
energy generation. Clean Development Mechanism and Renewable Energy Certificates have
become important tools to make the renewable power projects financially viable. The project,
therefore elaborates these two new concepts. The procedures to get the project approved for
these mechanisms and cultivate the benefits have been explained in this project.
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Wind power projects and highly capital intensive projects that require substantial debt portion
in their financial structure. Detailed project report is asked for by the Banks and financial
institutions before approving loans. This report provides guidelines to the investors for
preparation of the DPR.
WPP, like all other capital intensive projects, should have the financial strategy so as to
maximise the profits and minimise the risk. This project gives guidelines to the managers to
optimise benefits by working out best possible financial strategy. He project also guides the
investors to get the financial closure done.
The revenues comes from sell of power, and hence the investor should choose the best
possible option for sale of power. The power can be sold through REC or non-REC route.
The benefits and constraints attached to both of these routes have been elaborated in the
report.
Taking into consideration the great range and variety of activities, it is quite clear that a
project steered in the right direction can be implemented with ease. It is hoped that this study
will help shorten the lead-time for wind power projects and will help Indian wind power
sector to accelerate from its current pace and help the country to achieve energy security.
5.2 Recommendations
From the detailed study of the project it can be understood that there is too much diversity in
various states with regard to feed in tariff, land acquisition, wind resource assessment etc.
Hence, the panning and feasibility study becomes cumbersome for the developer. For
example, financial feasibly has to be conducted using different FiTs for different states.
Because of completely different procedures/policies for land acquisition and WRA in
different states, prior experience of doing these activities in one state may not be helpful in
doing same activity in another state. Hence, these procedures should be standardised.
The transfer of forest land is more time consuming. There should be better coordination
between MNRE and MOEF.
As per CERC guidelines, the metering point for WPPs should be at wind-farm location and
hence the cost of grid connectivity should be borne by State utility, because this cost is not
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included in project cost for determination of tariff. Even though, the cost of grid
interconnection has to be borne by the developers in many states. Sometimes, this makes the
project financially unviable for the developer. Therefore, either the cost of grid
interconnection should be invariably borne by the state utility or such costs should be taken
into consideration while computing the tariff.
Because of low returns investors don’t find it attractive to invest in the wind energy sector.
The Generation Based Incentives which are discontinued since 1 April 2012 should be
restarted. The GBI should also be increased from above set 0.5 Rs/unit.
The investment in WPP development is also found riskier because of irregularity in payment
by the discoms to the generators. SERCs play a stricter role to make sure that all payments
are regularly made.
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4. Report Indian wind energy outlook 2012
5. CERC (Terms and Conditions for Tariff determination from Renewable Energy)
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6. Forum of regulators - Assessment of achievable potential of new and renewable energy
resources in different states during 12 plan period and determination of RPO trajectory
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7. GEDA – instructions / guidelines / terms & conditions for setting up of wind farm
under developer approach
8. MNRE guidelines for wind measurement by private sector, 2008
9. MNRE guidelines for installation of wind turbine models in India
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ANNEXURES
ANNEXURE 1: Table: State wise potential and installed capacity of wind power
State Estimated
Potential
(MW)
Installed
capacity as
on
31.02.2013
(MW)
Installed
capacity
as %age
of
potential
Andhra Pradesh 5394 435 3.95%
Gujarat 10609 3093 24.89%
Karnataka 8591 2113 21.56%
Kerala 790 35 4.43%
Madhya Pradesh 920 386 35.87%
Maharashtra 5439 2976 47.07%
Rajasthan 5005 2355 36.56%
Tamil Nadu 5374 7154 123.06%
Others 7008 4 0.06%
Total 49130 18551 37.75%
Source - CWET
84