Parth Belani
Parth Belani
Parth Belani
DETAILED PROCEDURE
AND
FINANCIAL MODELING
FOR DEVELOPMENT OF A GREEN FIELD WIND POWER
PROJECT
UNDER THE GUIDANCE OF
Mrs Sreelata Nilesh, Senior Fellow, CAMPS, NPTI
&
Mr Rajat Roy, Dy. Manager, Ecoren Energy India Pvt Ltd
At
Ecoren Energy India Pvt Ltd
Submitted by
PARTH BELANI
ROLL NO: 1120812204
MBA (POWER MANAGEMENT)
ii
DECLARATION
I, Parth Belani, Roll no. 1120812204, 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 PROCEDURE AND FINANCIAL MODELING FOR DEVELOPMENT OF A
GREEN FIELD WIND POWER PROJECT
Is an original work and the same has not been submitted to any other Institute for the award
of any other degree.
Presentation In charge
Candidate (Faculty)
Signature of the
Countersigned
Director/Principal of the Institute
iii
ACKNOWLEDGEMENT
iv
EXECUTIVE SUMMARY
In April 2012 Indian power sector reached a tremendous milestone of achieving 2,00,000
MW of total installed power capacity. Commencing with a meagre installed capacity of about
1360 MW in 1947, the year the country attained independence, Indias 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 24,833 MW,
which is only 12.1% 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 2012. 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
Indias 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 investors. 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.
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.
vi
LIST OF ABBREVIATIONS
CDM
CPV
CEA
CERC
CUF
IEGC
KWh
MNRE
MoP
Ministry of Power
MW
Megawatt
NLDC
NOC
No Objection Certificate
O&M
PLF
PPA
RE
Renewable Energy
REC
RET
RPO
SERC
SHP
SLDC
SNA
vii
LIST OF TABLES
Table 1 : State wise Wind Power Till 2020 .......................................................................... 17
Table 2 : State Feed-in-Tariffs ............................................................................................. 18
Table 3 : Sharing of CDM Benefits in Different States ........................................................ 23
Table 4 : Reactive Energy Charges ...................................................................................... 23
Table 5 : State wise Banking Regulations ............................................................................ 24
Table 6 : State wise Transmission and Wheeling Charges ................................................... 25
Table 7 : REC Floor and Forbearance Prices of REC ........................................................... 44
viii
LIST OF FIGURES
Figure 1 : Financial Planning Process .................................................................................. 15
Figure 2 : Wind Power Potential and Installed Capacity ...................................................... 16
Figure 3 : State wise Achievable wind Potential Till 2020 ................................................... 17
Figure 4 : Feed-in-Tariff...................................................................................................... 18
Figure 5: Feasibility Study .................................................................................................. 27
Figure 6 : CDM Timeframe ................................................................................................. 40
Figure 7 : CDM Project Cycle ............................................................................................. 41
Figure 8 : REC Procedure.................................................................................................... 44
Figure 9 : REC Mechanism ................................................................................................. 45
Figure 10 : Hurdles in Financial Closure ............................................................................. 51
Figure 11 : Power Sale Options ........................................................................................... 53
Figure 12 : Parameters of Financial Modelling .................................................................... 59
Figure 13 : Cost Estimate per Project Phase ........................................................................ 60
Figure 14 : Project Cash-flow and Key Indicators................................................................ 62
Figure 15 : Types of Risk in Various Phases of Project........................................................ 63
ix
Table of Contents
TRAINING COMPLETION CERTIFICATE ................................................................................................ ii
DECLARATION .................................................................................................................................. iii
ACKNOWLEDGEMENT ...................................................................................................................... iv
EXECUTIVE SUMMARY ....................................................................................................................... v
LIST OF ABBREVIATIONS ...................................................................................................................vii
LIST OF TABLES ................................................................................................................................ viii
LIST OF FIGURES ................................................................................................................................ix
Table of Contents .............................................................................................................................. x
CHAPTER 1: INTRODUCTION .............................................................................................................. 1
1.1 About the project..................................................................................................................... 1
1.2 Problem Statement .................................................................................................................. 2
1.3 Scope of Project ....................................................................................................................... 2
1.4 Objective of the project ........................................................................................................... 2
1.5 Methodology ........................................................................................................................... 2
1.6 About the organisation ............................................................................................................ 3
1.6.1 Critical Assessment of the Organization............................................................................. 4
CHAPTER 2: LITERATURE REVIEW AND POLICY FRAMEWORK ............................................................. 5
2.1 Literature Review..................................................................................................................... 5
2.2 Policy Framework .................................................................................................................. 10
2.2.1 National Electricity Policy, 2005 ...................................................................................... 10
2.2.2 National Tariff Policy, 2006.............................................................................................. 10
2.2.3 Rural Electrification Policy, 2006 ..................................................................................... 11
CHAPTER 3: WPP DEVELOPMENT PROCEDURE ................................................................................ 12
3.1 Introduction - Wind Power Project development procedure .................................................. 12
3.2 Project and Financial Planning................................................................................................ 13
3.2.1 Project Planning .............................................................................................................. 13
3.2.2 Financial Planning ........................................................................................................... 13
3.3 Selection of State of preference ............................................................................................. 16
3.3.1 Wind Power Potential and Installed Capacity .................................................................. 16
3.3.2 Feed-in-Tariffs ................................................................................................................. 17
3.3.3 Special incentives and facilities by State Governments .................................................... 18
3.3.4 Simplicity of procedures followed in the State ................................................................. 20
3.3.5 Evacuation Infrastructure ................................................................................................ 21
x
xii
CHAPTER 1: INTRODUCTION
1.1 About the project
In April 2012 Indian power sector crossed a remarkable milestone of crossing 200000 MW of
total installed capacity. On 30th June 2012, the countrys total installed power capacity stood
at an enormous figure of 205340.26 MW, out of which total renewable energy was 24832.68
MW. The share of Wind energy in Renewable energy produced in India is very high at 70%.
Still, Indias 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 Indias 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
Indias 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.
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
2
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.
Knowledge management
Intellectual capital
Reporting performance
Technical expertise
Weaknesses
Small Workforce
Opportunities
Threats
Capture of efficient windy sites by older and bigger players in the wind power sector
paper reports on the modelling issues performed related to a feasibility study to investigate
the possibilities to connect the 640 MW off-shore wind power farm, planned for Krieger's
Flak 30 km south of Trelleborg (Sweden), to the E.ON 130 kV sub transmission system. The
aim of the entire study is to answer the question if such a connection is possible, and under
what conditions; it is not meant as a design project. Following a general connection design
discussion, the study comprises three major parts, fault current calculations, load flow
calculations, and dynamic simulations. Concerning the modelling aspects, much effort has
been put on details and scalability for the dynamic simulations.
In June 2010, at Energy Market (EEM), 2010, 7th International Conference on the European
a paper titled Economic evaluation of wind generation projects in electricity markets was
Mr Pereira A.J.C., Inst. Super. de Eng. de Coimbra, Inst. Politec. De Coimbra, Coimbra,
Portugal. In this paper the author explained the electricity markets. He evaluated economic
evaluation of WPPs in electricity markets. He explains that investments in new generation,
especially in renewables, grew up in several countries contributing to change the generation
mix. Among these new technologies, wind power became an important source in the sense
that the share in installed capacity is large in countries as Germany, Denmark, Spain and
Portugal namely considering the prices paid to the generated power. These subsidizing
schemes are in several cases responsible for a large amount of the final end user costs
meaning that in the future new ways of integrating this power in the grid have to be adopted.
This means that for investors it is important to evaluate from an economic point of view the
interest of new wind power projects admitting changes in current tariff schemes. For
regulatory agencies it is also important to investigate the impact of changes in current
schemes. This paper details an approach to characterize this type of investments in terms of
the Net Present Value, NPV, and the Internal Return Rate, IRR, so that more sounded
investment and policy decisions are adopted.
In August 2010, in the conference of Emergency Management and Management Sciences
(ICEMMS), Author Chongming Liu (North China Electrical Power University, Beijing,
China) et al presented a paper titled Risk analysis and assessment of wind power project. In
this report he explains that Wind power is a kind of renewable clean energy source, which
has a very important significance for energy conservation and social efficiency. But now,
wind power development has not yet formed a complete system, and there are different kinds
of risks exist in wind power project development process. This paper conduct a detailed study
for this, analyses the risk factors including natural disaster risks, technology risks, economic
6
risks, and policy risks in four aspects, then construct a fuzzy comprehensive evaluation
model, and use the model in a wind power project on risk assessment, which verifies the
feasibility and effectiveness of the evaluation model.
Author J.I. Munoz et al presented a paper at PowerTech in Bucharest, in June 2009 which
was titled Risk assessment of wind power generation project investments based on real
options. This paper presents a decision-making tool for investment in a wind energy plant
using a real options approach. In the first part of the work, the volatilities of market prices
and wind regimes are obtained from geometric Brownian motion with mean reversion (GBMMR) 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
7
extracted from the wind farm in normal operation condition is considered to replace the
energy from fossil-fuelled conventional units. In addition, composite system reliability
analysis in the presence of wind power is carried out to evaluate total costs associated with
curtailed energy at different load points as well as generation of generating units in
contingency conditions. System reliability analysis related to large-scale wind farms, along
with operating cost and transmission losses analysis, can assist policy makers to prioritise
wind farm projects based on the total benefits of wind power including reliability benefits and
savings in fossil-fuelled energy sources.
Author Guangjie Wang (Sch. of Manage., Wuhan Univ. of Technol., Wuhan), at Wireless
Communications, Networking and Mobile Computing, 2008, presented a paper titled
Technical-Economic Analysis of Wind Energy Projects in China in Oct 2008. In this paper
he explains that the renewable energy consumption has been increased rapidly with high
economic growth in China. As one of the most promising renewable energy resource, wind
energy has become a major part of the plans for sustainable development. The technicaleconomic 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
8
ROs theory and WPPs planning, this paper proposes a methodology that relies on ROs theory
to incorporate WRA uncertainty in the planning and design process of WPPs. The
methodology is illustrated with a small case study and its potential to increase the value of
WPPs under different conditions is analysed for a wide range of case studies. The results
illustrate the circumstances and assumptions that can improve and weaken the effectiveness
of the methodology. It is concluded that the application of the proposed ROs methodology
results in increased value for WPPs in most scenarios.
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 nonconventional technologies can compete with conventional sources in terms of cost of
electricity.
10
b)
c)
The Central Commission should lay down guidelines for pricing non-firm power,
especially from nonconventional 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.
11
12
Business goal
Project scopes
Financial structure
Policy guidelines
Central govt. policy: MNRE
State govt. policy: SNA
Professional assistance
Technical planning
Permitting planning
Regulatory compliance
Legal aspects
Schedule flexibility
Wind power projects, like all renewable energy projects, have a strong financial component
which determines profitability or other goals, which incentives are used and how, who takes
risks and earns rewards, how the development budget is controlled, and what has to be done
to qualify for the intended financing.
Financial planning for WPP, like other RE power projects, comprises of following
parameters:
1) General project information
a. Rated capacity
b. PLF or CUF
c. Inflation
d. Start year
e. Project lifetime
2) Revenues - cash inflows
a. Ancillary products or benefits (like CDM, RECs etc.)
b. Cost recovery- Depreciation
c. Cost recovery- tax credits
d. Grants & incentives
e. Power purchase agreement or other sales agreement
3) Costs - cash outflow
a. Equipment cost including installation & site preparation
b. Balance of system(BOS) costs including all non-equipment Capital costs- such as
interconnection & civil works
c. Developer soft costs, such as developer planning, environmental studies licensing
& permitting & negotiation of PPA
d. loan interest
e. Recurrent costs, such as equipment replacement
f. Operation & maintenance
g. Site owner rent or royalties
h. Property tax
i.
Project insurance
j.
14
Scenario analysis
15
10609
10000
8591
8000
6000
5394
4000
2000
5439
2641
213
1852
2560
790
920
35
5005
6613 7008
5374
1830
330
Incremental (MW)
Andhra Pradesh
7000-8000
Gujarat
6000-7000
Karnataka
5000
Madhya Pradesh
3000-3500
Maharashtra
6000-7000
Rajasthan
4000-5000
Tamil Nadu
7000-8000
Orissa
500
Chhattisgarh
500
Jharkhand
500
Total
Re-powering (MW)
1000
1500
2500
39000-43000
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.
17
Maharashtra
Rajasthan
Tariff Period
(Years)
3.56
Wind zone I
5.67
Wind zone II
4.93
4.2
Wind zone IV
3.78
4.46
Other districts
4.69
25
13
Madhya
Pradesh
4.35
25
3.7
10
3.39
20
3.5
10
Karnataka
Tamil Nadu
20
Andhra Pradesh
Figure 4 : Feed-in-Tariff
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.
18
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.
Green Energy Fund: will be created for facilitation of power generation through nonconventional energy sources.
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)
19
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.
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)
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.
20
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.
21
22
The regulations regarding sharing of CDM benefits between the developers and the
distribution licensees in different states are explained in the following table.
Table 3 : Sharing of CDM Benefits in Different States
State
CERC
100% to developers in the 1st year, reducing 10% every year till the
regulation, 2009
Gujarat
Maharashtra
Rajasthan
M.P.
Karnataka
Tamil Nadu
A.P.
M.P.
27 paisa /Kvarh
Tamil Nadu
A.P.
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
23
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
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 5 : State wise Banking Regulations
State
Gujarat
Banking Regulations
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
M.P.
Karnataka
prescribed time will be utilised and paid for by the Karnataka Power
Transmission Co. Ltd/Distribution Licensee concerned at tariff applicable as
per KERC norms.
Tamil Nadu
A.P.
24
Gujarat
considering
i) For more than one WEGs - Losses at 10% and shared in the ratio of
4:6 between transmission and distribution
ii) For one WEG - losses at 7% and shared in the ratio of 4:3 between
transmission and distribution.
Transmission losses 4.85% and wheeling losses 0 to 9% according to the
voltage level.
M.P.
Karnataka
Tamil Nadu
5% of energy injected
A.P.
5% of energy injected
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.
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.
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.
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.
26
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.
Feasibility
Study
Technical
Viability
Commercial
Viability
Site inspection
Profitability analysis
27
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:
Hub height
Airfoil nomenclature
Tip-speed ratio
Rotor diameter
Rotor solidity
Betz limit
Number of blades
Blade composition
Type of generator
Type of hub
Type of towers
C. Preliminary design
Preliminary design includes engineering the projects 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
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
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.
ii.
iii.
Substation capacity
iv.
v.
Conductor size
vi.
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.
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
Hydrological assessment
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 banks assistance and
financial commitment. The economic viability of the project is tested by financial modelling,
which is explained in Chapter 4 of this report.
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
31
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.
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.
32
Gujarat:
Mast installation is to be done directly after the purchase of the land and no permission is
required from GEDA. CWET and GEDA are only need to be informed about installation
of mast.
Approval from forest department is required if the proposed location for mast installation
is in the forest land for which the fees are Rs 1 Lakh/mast.
33
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.
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.
35
36
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:
What other uses are acceptable on the land surrounding the wind turbines
These and other major land lease provisions are described below.
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 survey.
f) Understanding the various land-related permits and approvals that will be required
(including land use permitting, conditional use permitting, environmental permitting,
building and electrical codes), paying particular attention to the length of time needed to
obtain the necessary permits.
g) Determining whether or not present zoning and land use permits the intended use, taking
into account the difficulty of obtaining zoning exceptions.
h) Addressing subsurface mineral rights.
i) Addressing water rights (including surface mineral)
As explained earlier, a Land Option Agreement, which precedes the erection of the mast,
gives the developer the first right to develop the land for a wind farm.
The Land Lease Agreement is the next step. It is much more detailed and should be
carefully reviewed by a qualified lawyer or expert. The land lease includes:
a) Length of lease
b) Royalty percentage with minimum or floor payment (preferred over flat fee or rent)
c) Extension options
d) Purchase agreement or Standard Offer Contract
e) Agreement not to conflict with normal activity on land without compensation
f) Arrangement for the installation to be part of land deed in case of transferal
g) Agreement by the developer to
minimize impact
compensate damages
assume liability
39
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.
40
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.
41
II.
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 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.
42
It does not have any PPA for the capacity related to such generation with distribution
licensee at preferential tariff (state regulated tariff), or
Captive RE Generators are also eligible for REC if such generators are:
43
Type of REC
Floor Price in
(Rs./REC)
Forbearance
Price
(Rs./REC)
Solar REC
9300
13400
Non-Solar REC
1500
3300
44
Step 2 - Registration
Every eligible entity shall apply for registration at central level. Only one central agency at
national level will be authorized to recognize attributes from renewable generation to avoid
45
double counting. Registration will result in creation of an account for all the entities
participating in the mechanism.
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.
Project description
Schedule plan
Hence these reports are to be made before investment is made into project. Thus formulation
of investment is based on the studies made. These can be considered as pre-investment
decision. Detailed project report is not prepared only for the investment decision-making
approval, but also for execution of the project and for preparation of further plan. General
format for preparation of detailed project report (DPR) as prescribed by Indian renewable
energy development authority (IREDA):
47
Annexure
Overall Plant layout
Land clearances
Grid connectivity approval
MOU/letter of willingness for PPA
In-principal approval, if applicable
Single line diagram
Switchyard layout
Plant control system configuration
48
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.
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.
b)
c)
State Electricity Boards which are restructured or in the process of restructuring and
eligible to borrow loan from REC/PFC Eligibility
d)
e)
f)
Debt Equity Ratio not more than 3:1 (typically 5:1 in case of NBFCs)
g)
h)
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
50
Quotation for main plant and machinery and off site equipment
Preparation of DPR
Subsidies/incentives, if any
51
Finally, making a legally binding commitment with equity holders & debt
financiers to provide or mobilize funding for the full cost of the project.
52
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
53
Exchange between Floor Price and Forbearance price determine by Central agency. Hence
there are following options to sale electricity under this route:
Engineering
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.
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
55
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
i.
Civil work
a) Road and drainage
b) Wind turbine foundation
c) Met mast foundation
d) Building housing electrical switchgear, SCADA central equipment and possible
spares and maintenance facilities
ii.
Electrical works
a) Equipment at the point of connection, whether owned by the wind farm owner or by
electricity network operator
b) Underground cable network and/or overhead lines, forming radial feeder circuits to
string of wind turbine
c) Electrical switchgear for protection and disconnection of feeder circuits
d) Transformer and switchgear associated with individual turbine (although this is now
commonly located within the turbine and is supplied by the turbine supplier)
56
57
of particular equipment.
58
c. Annual costs
i. Loan cost (interest and principal repayment)
ii. O&M cost
iii. Land lease & resource rental (if applicable)
iv. Property taxes
v. Insurance premium
vi. General & administrative costs
Contingencies- A contingency allowance should be included to account for
unforeseen annual expenses. Generally, the contingency allowance is calculated
based on an estimate percentage of all other annual costs.
Figure: Expense estimate per project phase
Assumptions all of the input variables to the model are usually kept together in one
worksheet. Assumptions may be based on expert knowledge, forecasts, technical
performance specifications, contract prices or other sources. The source of each
assumption needs to be clearly identified so that investors can assess whether the
assumption is reasonable.
60
II.
tax, depreciation/amortisation, loan balance and interest payments, and revenue and
operating costs.
Outputs in general, the outputs of a financial model will include:
III.
Key financial indicators such as debt and interest ratios, debt service coverage
ratio, NPV and IRR
Benefit-cost ratio (BCR) - It is the ratio between discounted total benefits and costs.
Net present value (NPV) - The NPV of an investment proposal may be defined as the
sum of the present values of all the cash inflows less the sum of present values of all the
cash outflows associated with a proposal.
Internal rate of return (IRR) - The IRR of a proposal is defined as the discount rate
which produces a zero NPV i.e., the IRR is the discount rate which will equate the
present value of cash inflows with the present value of cash outflows. The IRR is also
known as Marginal Rate of Return or Time Adjusted Rate of Return. Like the NPV,
the IRR is also based on the discounting techniques.
Payback period- The payback period is defined as the number of years required for
the proposals cumulating cash inflows to be equal to its cash outflows.
61
Debt service coverage ratio (DSCR) - The DSCR is the total net operating income
divided by the debt service.
62
risk to the lender. For example, key supply and purchase contracts may be fixed by volume
and price.
63
construction and operation phase risks. At either stage, risk assessment is generally
undertaken through the steps described below.
Risk Identification
Risk Matrix
64
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 Indias 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.
65
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 isnt 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.
66
WPP, like all other capital intensive projects, should have the financial strategy so as to
maximise the profits and minimise the risk. This project gives guidelines to the managers to
optimise benefits by working out best possible financial strategy. He project also guides the
investors to get the financial closure done.
The revenues comes from sell of power, and hence the investor should choose the best
possible option for sale of power. The power can be sold through REC or non-REC route.
The benefits and constraints attached to both of these routes have been elaborated in the
report.
Taking into consideration the great range and variety of activities, it is quite clear that a
project steered in the right direction can be implemented with ease. It is hoped that this study
will help shorten the lead-time for wind power projects and will help Indian wind power
sector to accelerate from its current pace and help the country to achieve energy security.
5.2 Recommendations
From the detailed study of the project it can be understood that there is too much diversity in
various states with regard to feed in tariff, land acquisition, wind resource assessment etc.
Hence, the panning and feasibility study becomes cumbersome for the developer. For
example, financial feasibly has to be conducted using different FiTs for different states.
Because of completely different procedures/policies for land acquisition and WRA in
different states, prior experience of doing these activities in one state may not be helpful in
doing same activity in another state. Hence, these procedures should be standardised.
The transfer of forest land is more time consuming. There should be better coordination
between MNRE and MOEF.
As per CERC guidelines, the metering point for WPPs should be at wind-farm location and
hence the cost of grid connectivity should be borne by State utility, because this cost is not
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
67
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 dont find it attractive to invest in the wind energy sector.
The Generation Based Incentives which are discontinued since 1 April 2012 should be
restarted. The GBI should also be increased from above set 0.5 Rs/unit.
The investment in WPP development is also found riskier because of irregularity in payment
by the discoms to the generators. SERCs play a stricter role to make sure that all payments
are regularly made.
68
Bibliography
1.
2.
Assessment of Investment Climate for Wind Power Development in India for IREDA
by Consolidated Energy Consultants Ltd (CECL)
3.
4.
5.
CERC (Terms and Conditions for Tariff determination from Renewable Energy)
resources, 2012
6.
7.
GEDA instructions / guidelines / terms & conditions for setting up of wind farm
under developer approach
8.
9.
10.
11.
CERC. (2010). Terms and conditions for recognition and issuance of Renewable
Energy.
12.
13.
14.
Energy
Alternatives
India.
Jun.
2010
[http://www.eai.in/ref/services/project_report.html]
15.
16.
17.
18.
19.
20.
Kishore, V.; Renewable Energy Engineering and Technology. New Delhi: TERI.
21.
Tetra Tech EC & Nixon Peabody LLP. (2008). Wind Energy Siting Handbook.
Washington.
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24.
Project legal documentation. (n.d.). Retrieved July 12, 2010, from RETScreen:
http://www.retscreen.net/ang/project_legal_documentation.php
25.
26.
70
ANNEXURES
ANNEXURE 1: Table: State wise potential and installed capacity of wind power
State
Andhra Pradesh
Installed
Installed
capacity as
capacity
Estimated
on
as %age
Potential
31.12.2011
of
(MW)
(MW)
potential
5394
213
3.95%
10609
2641
24.89%
8591
1852
21.56%
Kerala
790
35
4.43%
Madhya Pradesh
920
330
35.87%
Maharashtra
5439
2560
47.07%
Rajasthan
5005
1830
36.56%
Tamil Nadu
5374
6613
123.06%
Others
7008
0.06%
Total
49130
16078
32.73%
Gujarat
Karnataka
71