Mrs Sreelata Nilesh, Senior Fellow, CAMPS, NPTI

SUMMER INTERNSHIP REPORT ON

DETAILED STUDY ON WIND POWER PROJECT DEVELOPMENT & FINANCIAL MODELING

UNDER THE GUIDANCE OF Mrs Sreelata Nilesh, Senior Fellow, CAMPS, NPTI &

Mr Ashok Datta , Sr. Vice President (Business Development) Mr Neeraj Singh Gautam , Manager(Regulatory Affairs and PD)

At Regen Powertech Private Limited

Submitted by

Shivam Kumar Harsh MBA (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

2 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. .

3 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.

4 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.

5 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

6 LIST OF FIGURES

7 Table of Contents

8 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.

9 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.

10 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.

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

11 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.

1.6.1 Critical Assessment of the Organization

12 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

13 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 paper reports on the modelling issues performed related to a feasibility study to investigate

14 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 risks, and policy risks in four aspects, then construct a fuzzy comprehensive evaluation

15 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 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

16 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 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

17 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.

18 2.2 Policy Framework

2.2.1 National Electricity Policy, 2005 Clause 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, 2006 Clause 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- conventional technologies can compete with conventional sources in terms of cost of electricity.

19 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, 2006 Clause 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.

20 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.

21 3.2 Project and Financial Planning

3.2.1 Project Planning The 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)

22  Decide when you will need it (cash flow)  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.i.1.a.i.1.a. Rated capacity a.i.1.a.i.1.b. PLF or CUF a.i.1.a.i.1.c. Inflation a.i.1.a.i.1.d. Start year a.i.1.a.i.1.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

23 j. Income tax on revenue

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

24 Figure 1 : Financial Planning Process

25 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 Capacity Wind 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.

26 Figure 2 : Wind Power Potential and Installed Capacity (Source: MNRE & Directory Indian Windpower 2012)

27 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 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.

28 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. 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- Installed Capacity India (as on March 2013) (in MW) Sources 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

29 Small Hydro Power(up to 25 MW) 1,600

Biomass Power, Bagasse 2,100 Cogeneration, Biomass Gasifier

Solar Power 3,800

Total 18,500

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 2,000 Cogeneration, Biomass Gasifier Solar Power 16,000

Total 30,500

State wise potential and installed capacity of wind power Installed Installed capacity as capacity State Estimated on as %age Potential 31.02.2013 of (MW) (MW) 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

30 1.1RENEWABLE AND WIND ENERGY SCENARIO – WORLD Across 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. 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)

31 Total Capacity - 2012 Total Capacity - 2010 Total Capacity - 2011 Country [GW] [GW] [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 39.852 26.441 32.143 World Total 282.482 196.682 237.669

(Source: Renewable 2012: Global status report& C-WET)

Figure 4: Country Wise Wind Power Installed Capacity

Table 3 : State wise Wind Power Till 2020 State Incremental (MW) Re-powering (MW)

32 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  Capital cost study  Profitability analysis  Fatal flaws review  Grant research and application development  Investigation of site access

33 3.3.2 Feed-in-Tariffs A 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

Tariff Period States Tariff rate (Rs/Unit) (Years) Gujarat 4.15 25 Wind zone – I 5.81 Wind zone – II 5.05 Maharashtra 13 Wind zone – III 4.31 Wind zone – IV 3.88 Jaisalmer, Jodhpur and Balmer 5.46 Rajasthan 20 Other districts 5.73 Madhya 5.92 25 Pradesh Karnataka 3.7 10 Tamil Nadu 3.51 20 Andhra Pradesh 4.70 10 Figure 6 : Feed-in-Tariff

3.3.3 Special incentives and facilities by State Governments Some 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.

34  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.  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)

35  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  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 State Proactive 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.

36 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 Infrastructure The 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. 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 availability This 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

37 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 inadequate 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 payment This 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.

3.3.8 Sharing of CDM Benefits 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. 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 100% to developers in the 1st year, reducing 10% every year till the regulation, 2009 sharing becomes 50:50 between developer and beneficiary. Gujarat As per CERC regulation

38 Maharashtra As per CERC regulation 75% to developer, 25% to Distribution licensee. Share of the licensee Rajasthan 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 Upto 10% reactive power consumption - 10 paisa/Kvarh Gujarat Above 10% reactive power consumption - 25paisa/kvarh above 10% Maharashtr a 25 paisa/Kvarh with 5% escalation per year 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 Banking Power 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

39 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. Allowed for a year (only for captive). Surplus energy is limited to 10% of Maharashtra injected to grid up to 31st march and purchased by state at lowest Tod slab rate of HT. Allowed only for 6 months from April to September and October to March. Rajasthan Banking is not permitted from December to February. Surplus energy is paid at 60% of large industrial tariff. 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 M.P. of banking period to be procured by the Discom as per the decision of the MPERC. Permitted for 12 months at 2@ charge. Energy banked beyond the prescribed time will be utilised and paid for by the Karnataka Power Karnataka 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 charges Transmission 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.

40 Table 8 : State wise Transmission and Wheeling Charges State Transmission and wheeling charges 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 Gujarat a.i) For more than one WEGs - Losses at 10% and shared in the ratio of 4:6 between transmission and distribution a.ii) For one WEG - losses at 7% and shared in the ratio of 4:3 between transmission and distribution. Transmission losses 4.85% and wheeling losses 0 to 9% according to the voltage level. Maharashtra 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. Transmission loss - from 4.4 to 8% at different voltage levels Rajasthan 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.

41  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.

42 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  Vertical or Horizontal axes

43  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

44  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.i. Understanding the transmission & distribution system i.ii. Power line capacity i.iii. Substation capacity i.iv. Existing protection scheme of power system i.v. Conductor size i.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

45  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

46 G. Economic viability 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)

47 from the CWET mast, land is directly allotted on the Capacity Allotment basis, i.e.in 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.

48  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.

3.6.2 Installation of Wind Mast Wind 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: 2 3 WPD (W/m ) = ½*air density*rotor swept area*(wind speed)

49 3.6.4 Validation of Data through CWET The 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 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.

50 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.

3.8.1 Inter-turbine separation It 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

51 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 lower) simply because you have reached an appropriate inter turbine separation distance if moving another few meters can significantly increase the wind energy.

52 3.8.3 Other factors The 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 software Complicated 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  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.

53 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. 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

54 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

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

55 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 7 : CDM Timeframe

3.10.1 CDM project cycle Carrying 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.

56 The project cycle can be seen in the figure below:

Figure 8 : 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. 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.

57 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.

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

58 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.

3.11.1 Types of REC According 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 REC Floor Price in Forbearance (Rs./REC) Price

59 (Rs./REC)

Solar REC 9300 13400 Non-Solar REC 1500 3300

3.11.2 The operational framework for REC mechanism The operational framework for REC mechanism consists of four main steps as shown in the figure below:

Figure 9 : REC Procedure

Figure 10 : REC Mechanism Renewable Purchase Obligation (RPO) for the year 2012-13

60 State Non-Solar RPOSolar RPO Andhra Pradesh 4.75 0.25 Assam 4.05 0.15 Bihar 3.25 0.75 Chhattisgarh 5.25 0.5 Delhi 3.4 0.15 Gujarat 6 1 Haryana 1.5 0.5 Himachal Pradesh 10 0.25 Jammu & Kashmir 4.75 0.25 JERC (Goa & UT) 2.6 0.4 Jharkhand 3 1 Karnataka 7 0.25 Kerala 3.35 0.25 Madhya Pradesh 3.4 0.6 Maharashtra 7.75 0.25 Manipur (JERC) 4.75 0.25 Mizoram (JERC) 6.75 0.25 Meghalaya 0.6 0.4 Nagaland 7.75 0.25 Orissa 5.35 0.15 Punjab 2.83 0.07 Rajasthan 7.1 Tamil Nadu 8.95 0.05 Tripura 0.9 0.1 Uttar Pradesh 5 1 Uttarakhand 4.5 0.025 West 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

61 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 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 RPO obligations ) shall buy REC through power exchange. The price 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

62 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.

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

63 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  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

64  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.

(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.

65 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.

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. Eligibility 1.1 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.

66 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.

2. Eligible Projects 2.1 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.

67 3.13 Financing Strategy and Financial Closure

3.13.1 Financing strategy Wind 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 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?

68 iii.a) Public, Private Ltd companies, NBFCs and registered Societies iii.b) Individuals, Proprietary and Partnership firms (with applicable conditions) iii.c) State Electricity Boards which are restructured or in the process of restructuring and eligible to borrow loan from REC/PFC Eligibility iii.d) Project demonstrating techno commercial viability iii.e) Profit making companies with no accumulated losses. iii.f) Debt Equity Ratio not more than 3:1 (typically 5:1 in case of NBFCs) iii.g) No default to any government agency (IREDA/PFC/REC) and other FIs / Banks iii.h) No erosion of paid-up capital

3.13.2 Financial Closure It 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

69 Figure 11 : Hurdles in Financial Closure [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.

70 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 12 : 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

71 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 Engineering It involves decisions regarding the following after detailed technical studies 1) Detailed plant design 2) Equipment specifications of the following major equipments a. Rotor a.i. Diameter a.ii. Area swept a.iii. Nominal revolutions a.iv. No. of blades a.v. Air brake b. Tower (Hub height) c. Operational data c.i. Cut in wind speed c.ii. Cut off wind speed c.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

72 3.15.2 Procurement Procurement 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

73 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

74 d) Transformer and switchgear associated with individual turbine (although this is now commonly located within the turbine and is supplied by the turbine supplier) 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 Commissioning Commissioning 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

75 7) Measurement of maximum power output of generating units 8) Measurement of the efficiency of generating units at different, loads

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 Maintenance With 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.

76 CHAPTER 4: FINANCIAL MODELLING

Figure 13 : 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 a.i. Feasibility study a.ii. Development b. Construction costs b.i. Engineering cost b.ii. Equipment cost b.iii. Balance of plant system cost b.iv. Grid connectivity cost b.v. Owner’s

77 b.vi. Contingency costs c. Annual costs c.i. Loan cost – (interest and principal repayment) c.ii. O&M cost c.iii. Land lease & resource rental (if applicable) c.iv. Property taxes c.v. Insurance premium c.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 14 : 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

78 assumption needs to be clearly identified so that investors can assess whether the assumption is reasonable. 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.

79  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.

 Debt service coverage ratio (DSCR) - The DSCR is the total net operating income divided by the debt service.

Figure 15 : 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

80 management, since many of the key sensitivities can be contractually hedged to reduce the 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 16 : 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

81 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

82 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. 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.

83 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. 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.

84 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 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.

85 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.

86 Bibliography

1. MNRE annual report 2012-13

2. Assessment of Investment Climate for Wind Power Development in India for IREDA by Consolidated Energy Consultants Ltd (CECL)

3. Wind Energy Engineering By Pramod Jain, MC GRAW HIL Publication

4. Report Indian wind energy outlook 2012 5. CERC (Terms and Conditions for Tariff determination from Renewable Energy) resources, 2012

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 and its impact on tariff 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 10. Wind Farm Siting Issues in Australia – Australian Government 11. CERC. (2010). Terms and conditions for recognition and issuance of Renewable Energy.

12. ICRA – wind energy sector: key trends and outlook

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87 17. Goldsmith, K. (1993). Economic & Financial Analysis of Hydropower Projects. Trondheim: Norwegian Institute of Technology. 18. Eco Securities. Guidebook to financing CDM Projects. Kettingsraat. 19. Windustry. 8 Jun. 2010 [http://www.windustry.org/wind-basics/learn-about-wind- energy/wind-basics-know-your-land/know-your-land] 20. Kishore, V.; Renewable Energy Engineering and Technology. New Delhi: TERI. 21. Tetra Tech EC & Nixon Peabody LLP. (2008). Wind Energy Siting Handbook. Washington. 22. Paul Gardner, A. G. Wind Energy- The facts. 23. UNEP. Environmental Due Diligence of Renewable Energy Projects. 24. Project legal documentation. (n.d.). Retrieved July 12, 2010, from RETScreen: http://www.retscreen.net/ang/project_legal_documentation.php

25. Meike Soker, E. V. (2007). Renewable Energy and the Clean Development Mechanism: Potential, Barriers and Ways forward. Wuppertal: Federal Ministry for the Environment, Nature Conservation and Nuclear Safety.

26. AHEC, IIT Roorkee. (2008). Standards/Manuals/guidelines for Small Hydro Development.

88 ANNEXURES

ANNEXURE 1: Table: State wise potential and installed capacity of wind power Installed Installed capacity as capacity State Estimated on as %age Potential 31.02.2013 of (MW) (MW) 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