CHAPTER-1 INTRODUCTION 1.1 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. 1.2 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. 1.3 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 by understanding state policies. 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. 1 1.4 Methodology The project has been prepared by gathering the dispersed information about various proceedings of windy states. 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, Tamil Nadu 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 Regen Power Tech 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. 1.5 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 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 2 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. Critical Assessment of the Organization 1.6 REVIEW OF LITERATURE Bakshl R.et al[2002] states in India, grid connected wind power generation has now gained a high level of attention and acceptability as compared to other renewable technologies available in the country. Wind energy installation in the country is around 1340 MW as on March 31, 2001 and around 6.75 billion units of electricity have been fed to the state grids so far. India has undertaken one of the world's largest efforts for wind resource assessment, a program that covers 25 states comprising about 900 stations. The study has indicated a gross wind potential of around 45000 MW and the technical potential is currently estimated at 13000 MW. A notable feature of the Indian wind energy program has been the interest 3 evinced by private investors/developers in setting up of commercial wind power projects. A capacity of 1250 MW of commercial wind power projects has so far been installed, mainly in Tamil Nadu, Maharashtra, Gujarat, Andhra Pradesh and Karnataka. The largest installation of wind turbines in the country so far is in the Muppandal and Perungudi area near Kanyakumari in Tamil Nadu with an aggregate installed capacity of about 500 MW. This represents one of the largest concentrations of wind farm capacity at any particular location. State-of-the-art technology is now available in India for manufacturing wind turbines of capacity up to 750 kW. Presently about 12 manufacturers are engaged in the production of wind electric generators. The annual production capacity of the domestic windturbine industry is around 500 MW at present. The future of wind energy in India is extremely bright and there is no doubt that in the renewable energy sector, wind power would play a predominant role in adding to the national grid clean and nonpolluting energy to a substantial extent. P Kondapaniet al [2007] states in India has embarked upon wind energy programs for areas experiencing high average wind speeds throughout the year. The state of Karnataka is actively pursuing wind power generation programs. The Gulbarga District situated in eastern side of Karnataka, has a hot, dry climate. To ease the power shortage, the renewable source option is considered. This paper presents the feasibility study carried out by assessing the wind energy output in this region. Wind data is collected from a station situated in Gulbarga (geographical co-ordinates N: 17◦20, E: 76◦49 and msl 590 m), for one year and the same data is used for the analysis and prediction of power generation. Statistical analysis is carried out. The annual specific output is used determining the annual energy output of a Wind Energy Conversion System (WECS) and in conducting cost-benefit analysis of windelectricity generation. Results show the possibilities of harnessing wind energy towards electricity generation. Atul Shahet al [2010] states that in India the installed capacity of wind power generation is almost 7% and about 2% of total energy is from wind. The case studies presented here indicate as to how wind energy could on the one hand be termed as a reasonably reliable source and on the other can assist the power system in periods of low frequency. Further, certain recommendations on power system planning criteria along with new initiatives in forecasting of wind energy and energy storage are touched upon. 4 CHAPTER-2 RENEWABLE ENERGY SOURCE 2.1 INTRODUCTION Every day, the world produces carbon dioxide that is released to the earth‘s atmosphere and which will still be there in one hundred year time.This increased content of Carbon Dioxide increases the warmth of our planet and is the main cause of the so called ―Global Warming Effect. One answer to global warming is to replace and retrofit current technologies with alternatives that have comparable or better performance, but do not emit carbon dioxide. We call this Alternate Energy.By 2050, one-third of the world's energy will need to come from solar, wind, and other renewable resources. Who says…? These are British Petroleum and Royal Dutch Shell, two of the world's largest oil companies. Climate change, population growth, and fossil fuel depletion mean that renewables will need to play a bigger role in the future than they do today. Alternative energy refers to energy sources that have no undesired consequences such for example fossil fuels or nuclear energy. Alternative energy sources are renewable and are thought to be "free" energy sources. They all have lower carbon emissions, compared to conventional energy sources. These include Biomass Energy, Wind Energy, Solar Energy, Geothermal Energy, Hydroelectric Energy sources. Combined with the use of recycling, the use of clean alternative energies such as the home use of solar power systems will help ensure man's survival into the 21st century and beyond. About 16% of global final energy consumption comes from renewable resources, with 10% of all energy from traditional biomass, mainly used for heating, and 3.4% from hydroelectricity. New renewables (small hydro, modern biomass, wind, solar, geothermal, and biofuels) accounted for another 3% and are growing very rapidly. The share of renewables in electricity generation is around 19%, with 16% of electricity coming from hydroelectricity and 3% from new renewables. Wind power is growing at the rate of 30% annually, with a worldwide installed capacity of 282,482 megawatts (MW) at the end of 2012, and is widely used in Europe, Asia, and the United States. At the end of 2012 the photovoltaic (PV) capacity worldwide was 100,000 MW, and PV power stations are popular in Germany and Italy. Solar thermal power stations operate in the USA and Spain, and the largest of these is the 354 MW SEGS power plant in the Mojave Desert. The world's largest geothermal power installation is The Geysers in California, with a rated capacity of 750 MW. Brazil has one of the largest renewable energy 5 programs in the world, involving production of ethanol fuel from sugar cane, and ethanol now provides 18% of the country's automotive fuel. Ethanol fuel is also widely available in the USA. While many renewable energy projects are large-scale, renewable technologies are also suited to rural and remote areas, where energy is often crucial in human development. As of 2011, small solar PV systems provide electricity to a few million households, and microhydro configured into mini-grids serves many more. Over 44 million households use biogas made in household-scale digesters for lighting and/or cooking and more than 166 million households rely on a new generation of more-efficient biomass cook stoves.United Nations' Secretary-General Ban Ki-moon has said that renewable energy has the ability to lift the poorest nations to new levels of prosperity. Climate change concerns, coupled with high oil prices, peak oil, and increasing government support, are driving increasing renewable energy legislation, incentives and commercialization. New government spending, regulation and policies helped the industry weather the global financial crisis better than many other sectors. According to a 2011 projection by the International Energy Agency, solar power generators may produce most of the world‘s electricity within 50 years, dramatically reducing the emissions of greenhouse gases that harm the environment. 2.2 HISTORICAL DEVELOPMENT The initialization of the steps towards promotion of renewable energy was largely due to the rising concerns towards Environmental Protection. The Kyoto Protocol, adopted in Kyoto City, Japan on 11th December 1997, was a step towards benchmarking the environmental considerations above all else in the power generation. It was basically an agreement linked to the United Nations Framework Convention (UNFC), which set about binding targets for 37 countries and EU nations for Greenhouse Gas (GHG) emissions. The shrinking and jittery investment scenario is one of the other reasons behind the need for enactment of various institutions and policies to support & promote renewable energy projects. The general interest in non-conventional energy sources in India received an impetus following the oil shock of the 1970s, backed by political commitment on the government’s part. Energy self-sufficiency was identified as the major driver for new and renewable energy in the country in the wake of the two oil shocks of the 1970s. The role of new and renewable energy has been assuming increasing significance in recent times with the growing concern for the country's energy security. Recognizing the importance 6 of renewable energy sources as the best alternative to conventional fuels, the Government of India, created the following institutions in the phased manner: Commission for Additional Sources of Energy (CASE) in 1981. Department of Non-Conventional Energy Sources (DNES) in 1982. Ministry of Non-Conventional Energy Sources (MNES) in 1992. Ministry of Non-Conventional Energy Sources (MNES) renamed as Ministry of New and Renewable Energy (MNRE) in 2006. Figure 1:Formation Of Institutions 2.3 MAINSTREAM RENEWABLE TECHNOLOGIES 2.3.1 Wind Power Airflows can be used to run wind turbines. Modern utility-scale wind turbines range from around 600 kW to 5 MW of rated power, although turbines with rated output of 1.5–3 MW have become the most common for commercial use; the power available from the wind is a function of the cube of the wind speed, so as wind speed increases, power output increases dramatically up to the maximum output for the particular turbine. Typical capacity factors are 20-40%, with values at the upper end of the range in particularly favourable sites. Globally, the long-term technical potential of wind energy is believed to be five times total current global energy production, or 40 times current electricity demand. This could require wind turbines to be installed over large areas, particularly in areas of higher wind resources. Offshore resources experience average wind speeds of ~90% greater than that of land, so offshore resources could contribute substantially more energy 2.3.2 Hydro Power Energy in water can be harnessed and used. Since water is about 800 times denser than air, even a slow flowing stream of water, or moderate sea swell, can yield considerable amounts 7 of energy. Micro hydro systems are hydroelectric power installations that typically produce up to 100 kW of power. They are often used in water rich areas as a remote-area power supply (RAPS). Run-of-the-river hydroelectricity systems derive kinetic energy from rivers and oceans without the creation of a large reservoir. 2.3.3 Solar Power Solar energy applies energy from the sun in the form of solar radiation for heat or to generate electricity. Solar powered electricity generation uses either photovoltaic or heat engines (concentrated solar power). A partial list of other solar applications includes space heating and cooling through solar architecture, daylighting, and solar hot water, solar cooking, and high temperature process heat for industrial purposes. Solar technologies are broadly characterized as either passive solar or active solar depending on the way they capture, convert and distribute solar energy. Active solar techniques include the use of photovoltaic panels and solar thermal collectors to harness the energy. Passive solar techniques include orienting a building to the Sun, selecting materials with favourable thermal mass or light dispersing properties, and designing spaces that naturally circulate air. 2.3.4 Biomass Biomass (plant material) is a renewable energy source because the energy it contains comes from the sun. Through the process of photosynthesis, plants capture the sun's energy. When the plants are burnt, they release the sun's energy they contain. In this way, biomass functions as a sort of natural battery for storing solar energy. As long as biomass is produced sustainably, with only as much used as is grown, the battery will last indefinitely. In general there are two main approaches to using plants for energy production: growing plants specifically for energy use (known as first and third-generation biomass), and using the residues (known as second-generation biomass) from plants that are used for other things. See bio-based economy. The best approaches vary from region to region according to climate, soils and geography. 2.3.5 Biofuels Biofuels include a wide range of fuels which are derived from biomass. The term covers solid biomass, liquid fuels and various biogases. Liquid biofuels include bioalcohols, such as 8 bioethanol, and oils, such as biodiesel. Gaseous biofuels include biogas, landfill gas and synthetic gas. Bioethanol is an alcohol made by fermenting the sugar components of plant materials and it is made mostly from sugar and starch crops. With advanced technology being developed, cellulosic biomass, such as trees and grasses, are also used as feedstocks for ethanol production. Ethanol can be used as a fuel for vehicles in its pure form, but it is usually used as a gasoline additive to increase octane and improve vehicle emissions. Bioethanol is widely used in the USA and in Brazil. However, according to the European Environment Agency, biofuels do not address global warming concerns. 2.3.6 Geothermal Energy Geothermal energy is from thermal energy generated and stored in the Earth. Thermal energy is the energy that determines the temperature of matter. Earth's geothermal energy originates from the original formation of the planet (20%) and from radioactive decay of minerals (80%). The geothermal gradient, which is the difference in temperature between the core of the planet and its surface, drives a continuous conduction of thermal energy in the form of heat from the core to the surface. The adjective geothermal originates from the Greek roots geo, meaning earth, and thermos, meaning heat. The heat that is used for geothermal energy can be from deep within the Earth, all the way down to Earth‘s core – 4,000 miles (6,400 km) down. At the core, temperatures may reach over 9,000 °F (5,000 °C). Heat conducts from the core to surrounding rock. Extremely high temperature and pressure cause some rock to melt, which is commonly known as magma. Magma convects upward since it is lighter than the solid rock. This magma then heats rock and water in the crust, sometimes up to 700 °F (371 °C). 2.3.7 Waste to energy Every year, about 55 million tonnes of municipal solid waste (MSW) and 38 billion litres of sewage are generated in the urban areas of India. In addition, large quantities of solid and liquid wastes are generated by industries. Waste generation in India is expected to increase rapidly in the future. As more people migrate to urban areas and as incomes increase, consumption levels are likely to rise, as are rates of waste generation. It is estimated that the amount of waste generated in India will increase at a per capita rate of approximately 11.33% annually. This has significant impacts on the amount of land that is and will be needed 9 for disposal, economic costs of collecting and transporting waste, and the environmental consequences of increased MSW generation levels. Table 1: Achievements in Renewable of various Renewable Energy Systems/ Devices in the country as on 31/05/2013 Renewable Energy Target for Deployment Total Cumulative Programme/ Systems 2013-14 during Deployment achievement up May, 2013 in 2013-14 to 31.05.2013 I. POWER FROM RENEWABLES: A. GRID-INTERACTIVE POWER (CAPACITIES IN MW) Wind Power 2500 114.30 264.10 19317.05 Small Hydro Power 300 24 39 3671.25 Biomass Power 105 - - 1264.80 Bagasse Cogeneration 300 - - 2337.43 - - 96.08 - - - Waste to Power -Urban 20 -Industrial Solar Power (SPV) 1100 73 73 1759.44 Total 4325.00 211.30 303.10 28446.05 Source: MNRE 10 CHAPTER-3 POLICY & REGULATORY FRAMEWORK 3.1 INSTITUTIONAL STRUCTURE The inter-institutional arrangement & their relationship for the promotion of renewable energy in India at central level and state level is presented in the diagrams below: Figure 2: Institutional Structure – State Level 3.2 LEGISLATIVE FRAMEWORK Indian Electricity Act, 1910 Legalised sale of electricity in parts of urban areas/cities/cantonment, distributed generation, etc. Electricity (Supply) Act, 1948 Creation of electricity boards (merging of generation, transmission, distribution & trading), nationalisation Created a centralised nature of the electricity business, with a fair amount of control given to state governments Electricity Regulatory Commissions Act, 1998 Creation of independent electricity regulatory commissions 11 Modeled around the US / UK system Re-regulated set-up (movement of control from state government to ERCs) Pushed for unbundling of electricity markets into generation, transmission, distribution to push efficiency in operations and onward private sector participation 1994 : Announcement of tariff guidelines by MNES (now MNRE) Sell to SEB Rs 2.25 per kWh (5% escalation) : feed-in tariff Captive & Third party Sales Wheeling & Banking provision at 2% Various states adopted the guidelines (not uniform) through an executive order (by energy department) Viz. Gujarat gave Rs 1.75 per kWh (fixed) along with sales tax benefits TN adopted MNES guidelines 3.3 THE ELECTRICITY ACT 2003 The Electricity Act 2003 has several provisions to accelerate the development of renewable energy based generation, such as: Section 3: This section mandates central government to prepare National Electric Policy, National Electric Plan and National Tariff Policy for development of power system based on optimal utilization of resources including renewable sources of energy. Section 4: This section mandates central government to prepare National Policy on standalone systems including those based on renewable sources of energy for rural area. Section 61 (h): Under Section 61, the appropriate commission shall, specify the terms and conditions for the determination of tariff. As per Section 61 (h) the terms and conditions for the determination of tariff is to be guided by promotion of generation of electricity from renewable energy sources. 12 Section 86(1)(e): Section 86(1) deal with the functions of the state commission. As per section 86(1) (e) 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. 3.4 POLICY FRAMEWORK 3.4.1 NATIONAL ELECTRIC 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 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. 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. 13 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. 3.4.2 NATIONAL TARIFF POLICY, 2006 Clause 6.4: Non-conventional sources of energy generation including Co-generation: 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. 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. 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. 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. 3.4.3 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. 14 Clause 3: Approach to Rural electrification: 3.3Decentralized 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. 3.4.4 NATIONAL ACTION PLAN FOR CLIMATE CHANGE, 2008 Clause 4.1: National Solar Mission: A National Solar Mission will be launched to significantly increase the share of solar energy in the total energy mix while recognizing the need to expand the scope of other renewable and non-fossil options such as nuclear energy, wind energy and biomass. Clause 4.2.2: Grid Connected Systems: NAPCC has suggested the following enhancements in the regulatory/tariffs regime to help mainstream renewable based sources in the national power system: A dynamic minimum renewable purchase standard (DMRPS) may be set; with escalation each year till a pre-defined level is reached. NAPCC has set the target of 5% renewable energy purchase for FY 2009-10, with the target increasing by 1% for next 10 years. SERCs may set higher percentages than this minimum at each point in time. Appropriate authorities may also issue certificates that procure renewable based power in excess of the national standard. Such certificates may be trade able, to enable utilities falling short to meet their renewable standard obligations. 15 3.5 REGULATORY FRAME WORK 3.5.1 CERC REGULATIONS (Terms and Conditions for Tariff determination from Renewable Energy Sources) The Central Electricity Regulatory Commission (CERC) had notified the CERC (Terms and Conditions for Tariff determination from Renewable Energy Sources), Regulations, 2009 under which tariff determination aspects for various renewable energy technologies, has been discussed. These Regulations are applicable for central sector and inter-State generation projects, under Section 61 of EA 2003; these would provide guiding principle for SERCs while dealing with matters related to energy generation from RE sources. The above said CERC Regulations had the control period of three years ending on 31.03.2012. CERC has notified Terms and Conditions for Tariff determination from Renewable Energy Sources, Regulations, 2012, which has a control period of 5 years (FY 2012-13 to 2016-17) 3.5.2 IEGC - 2010 (Indian Electricity Grid Code) The IEGC lays down the rules, guidelines and standards to be followed by various persons and participants in the system to plan, develop, maintain and operate the power system, in the most secure, reliable, economic and efficient manner, while facilitating healthy competition in the generation and supply of electricity. The IEGC brings together a set of technical and commercial rules, encompassing all the Utilities connected to/or using the inter- State transmission system (ISTS). One of the primary objectives of IEGC is to facilitate the development of renewable energy sources by specifying the technical and commercial aspects for integration of these resources into the grid. In view of the Government’s thrust on renewable sources of energy and the effect of their variable nature of generation on the interstate grid, scheduling of wind and solar energy sources has been incorporated in this Code. This has been done to promote large-scale integration of such sources into the grid. In order to boost renewable energy sources while formulating perspective transmission plan the transmission requirement for evacuating power from renewable energy sources shall also be taken care of. The outage planning of run-of-the-river hydro plant, wind and solar power plant and its associated evacuation network shall be planned to extract maximum power from these renewable sources of energy. This code provides the methodology for rescheduling of 16 wind and solar energy on three (3) hourly basis (There may be maximum of 8 revisions for each 3 hour time slot) and the methodology of compensating the wind and solar energy rich State for dealing with the variable generation through a Renewable Regulatory charge. The wind generators shall be responsible for forecasting their generation up to accuracy of 70%. Therefore, if the actual generation is beyond +/- 30% of the schedule, wind generator would have to bear the UI charges. For actual generation within +/- 30% of the schedule, no UI would be payable/receivable by Generator, The host state, shall bear the UI charges for this variation, i.e. within +/- 30%. However, the UI charges borne by the host State due to the wind generation, shall be shared among all the States of the country in the ratio of their peak demands in the previous month based on the data published by CEA, in the form of a regulatory charge known as the Renewable Regulatory Charge operated through the Renewable Regulatory Fund (RRF). A maximum generation of 150% of the schedule would be allowed in a time block, for injection by wind, from the grid security point of view. For any generation above 150% of schedule, if grid security is not affected by the generation above 150%,, the only charge payable to the wind energy generator would be the UI charge applicable corresponding to 5050.02 HZ . 17 CHAPTER-4 WPP DEVELOPMENT PROCEDURE 4.1 Introduction 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. 18 4.2 Project and Financial Planning 4.2.1 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 Schedule flexibility 4.2.2 Financial Planning It includes three major decisions: Decide how much you need (budgeting decisions) Decide when you will need it (cash flow) 19 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: Rated capacity PLF or CUF Inflation Start year Project lifetime 2- Revenues-cash inflows: Ancillary products or benefits (like CDM, RECs etc.) Cost recovery- Depreciation Cost recovery- tax credits Grants & incentives 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-equipments c. Capital costs- such as interconnection & civil works d. Developer soft costs, such as developer planning, environmental studies licensing & permitting & negotiation of PPA e. loan interest f. Recurrent costs, such as equipment replacement g. Operation & maintenance 20 h. Site owner rent or royalties i. Property tax j. Project insurance k. 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 Figure 3:Financial Planning Process 21 4.3 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. 4.3.1 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. Table 2: Indian State Wise Wind Potential & Installed Capacity upto 31.02.2013 Installed State Andhra Pradesh capacity as Installed Estimated on capacity as Potential 31.02.2013 %age of (MW) (MW) potential 5394 435 3.95% 10609 3093 24.89% 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% Gujarat Karnataka Source-cwet 22 4.3.2 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 3: Wind Power Tariff As per orders of Central / State Electricity Regulatory Commissions States Gujarat Maharashtra (Years) 4.15 Wind zone – I 5.81 Wind zone – II 5.05 Wind zone – III 4.31 Wind zone – IV 3.88 Jaisalmer, Jodhpur and Rajasthan Tariff Period Tariff rate (Rs/Unit) Balmer Other districts 5.46 25 13 20 5.73 Madhya Pradesh 5.92 25 3.7 10 Tamil Nadu 3.51 20 Andhra Pradesh 4.70 10 Karnataka http://www.windpowerindia.com/index.php?option=com_content&view=article&id=14&Ite mid=19 4.4 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. 23 Government of Karnataka: (From Karnataka Renewable Energy Policy 2009-14) Green Energy Fund: Green Energy Fund shall be established to facilitate financing for RE projects. Consent from Departments & Statutory Clearances: KREDL shall obtain consent & statutory clearances from concerned state departments for sites developed by them. In case of private land KREDL shall assist the developers in this regard. Allotment Committee: A committee under Chairmanship of Additional Chief Secretary/Principle Secretary, Energy Department will consider allotment of capacity to entrepreneurs. Settlements: Transactions shall be settled on monthly basis. Interest at the rate of State Bank of India short term prime lending rate shall be payable for delayed payment beyond a month. Exemption from Demand Cut: Exemption of demand cut to the extent of 50% of installed capacity assigned for captive use purpose, will be allowed. Financial Incentives: Entry tax & other incentives shall be available to RE generation in accordance with Industrial Policy 2009-10. Letter of Credit: Facility of LOC shall be provided by the ESCOMS to developer and its cost will be reimbursed to ESCOMs from Green Energy Fund. Award Scheme: RE projects successfully commissioned during the original agreement period will be awarded with a certificate with appreciation by the Govt. and a cash incentive from Green Energy Fund Government of Madhya Pradesh: (Notification No.6591-F18-10-XIII-93 dated 17.10.2006 as amended vide order No. F18-10XIII-93 dated 12.05.2008) Green Energy Fund: will be created for facilitation of power generation through nonconventional energy sources. Exemption from Open Access Charges: Nonconventional Energy based power generation shall be exempted from Open Access charges. 24 Projects will be eligible for all benefits available to new industries under the Industrial Promotion Policy 2004. However one discouraging factor for WPP owners included in the state wind policy is that the 3rd party purchaser of wind energy will be allowed the facility of reduction in contract demand. Government of Maharashtra: (From NCE Policy 2008) Evacuation Arrangement: To be constructed with the approval of Transco/Discom by the developer at his cost. 50% of the approved expenditure to be reimbursed out of Green Energy Fund. Approach Road: To be constructed by MEDA out of Green Energy Fund. Repairs or strengthening of existing roads to be done by developer at his cost. Encouragement to Co-operative Sector: 11% of total share capital of the project shall be paid from Green Energy Fund for projects set up by co-operative institutions. Letter of Credit: The DISCOM shall provide the facility of LOC to the developer & the cost involved to be reimbursed to the DISCOM out of Green Energy Fund. Octroi / Entry Tax: Taxes actually paid shall be reimbursed by MEDA out of Green Energy Fund. Eligibility for Sanction It is obligatory to sell 50% of electricity to the Distribution Company under a long term agreement at the rate determined by MERC. Remaining 50% shall be sold within the State. Benefits under the policy shall be available to only such projects for which infrastructure approval is accorded by the Govt. Government of Rajasthan: (From NCE Policy dated 25.10.2004 as amended vide letters dated 10.03.05, 16.07.05, 24.02.06, 30.11.06, 19.01.07 & 27.03.2008) 25 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. 4.5 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. 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. 4.5.1Evacuation 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 (Amendment1) 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. 26 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. 4.6 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 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. 4.7 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 27 shows that Rajasthan, Gujarat and Karnataka are better compared to other states as far as regularity in payment from the DISCOMs is concerned. 4.8 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 4: 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 Maharashtra As per CERC regulation Rajasthan 75% to developer, 25% to Distribution licensee. Share of the licensee shall be fully passed on to consumers. M.P. As per CERC regulation Karnataka As per CERC regulation Tamil Nadu 100% 1st year, reducing 10% yearly up to 50:50 A.P. 90% to developer and 10% to beneficiaries. 28 4.9 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 Banking Regulations Gujarat Only for captive use. Allowed for one month. A recent circular released by MSEDCL has proposed new rules for banking of power generated by renewable sources and sold under open access. If energy is supplied in excess of consumption for every 15 minute time-block, such energy will lapse (will not be allowed to be Maharashtra banked) If energy is consumed in excess of supply for every 15 minute timeblock, the applicable tariff will be that of a Temporary Power connection The State Electricity Board will permit energy generated in a financial year Rajasthan by eligible producer to be banked for the period upto 31st March of said financial year. The banked energy if not consumed within this period would be treated to have been sold to RSEB at 60% of the prevailing HT rate Permitted for a period of a financial year at 2% charge. Consumption of M.P. banked energy is subject to approval of Discom. Surplus energy at the end of banking period to be procured by the Discom as per the decision of the MPERC. 29 Permitted for 12 months at 2@ charge. Energy banked beyond the 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 Taxed added, wind power firms now need to pay Rs 1.45 paise per unit to TANGEDCO as banking charges A.P. Not allowed. Surplus power is paid at 75% of lowest bid tariff. 4.10 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. Table 6: 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 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 4.2% 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. 30 Transmission loss - from 4.4 to 8% at different voltage levels Transmission charges - Rs 161.03/kw/month Rajasthan Wheeling charges-132 kv 33 kv 11p/kwhr 11 kv 32p/kwhr 1p/kwhr 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 4.11 Site Identification After finalising the state to develop a WPP the next task is to select the best possible sites for installation of WPP. Folloiwng 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 200watt/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. 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 31 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. 32 CHAPTER-5 FEASIBILITY STUDY Introduction 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 chooses whether to proceed further with the project or not. Feasibility Study Technical Viability Figure4: Feasibility Study Feasibility task 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 Commercial Viability 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 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 34 C. Grid connectivity Check for an appropriate connection point near site Conversations with those who have an understanding of the system in the area where you propose to connect your project and contact local utility or Discom. It provides following information: i. Understanding the transmission & distribution system ii. Power line capacity iii. Substation capacity iv. Existing protection scheme of power system v. Conductor size vi. Cost estimates for transmission upgrades 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 Impact on flora & fauna Visual impact assessment Noise impact assessment 35 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 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. 5.2 Mast Installation, Data Collection and Data Verification 5.2.1 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 36 permission for installation of a mast. The SNA issues the permit if the land is either private or revenue land. If the site for mast installation falls into forest land, the permission from forest department is also required. The procedure that needs to be followed in different states is explained below. Andhra Pradesh, Rajasthan and Orissa If the site is within the radius specified by the corresponding SNA (25 Km in Orissa) from the CWET mast, land is directly allotted on the Capacity Allotment basis, i.e.in 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 37 department for land diversion. MEDA allots the land on Capacity Allocation basis. Gujarat: Mast installation is to be done directly after the purchase of the land and no permission is required from GEDA. CWET and GEDA are only need to be informed about installation of mast. Approval from forest department is required if the proposed location for mast installation is in the forest land for which the fees are Rs 1 Lakh/mast. 5.2.2 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. 5.2.3 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.) 38 Wind power can be measure by: WPD (W/m2) = ½*air density*rotor swept area*(wind speed) 3 5.2.4 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. 5.3 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. 5.3.1 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. 5.3.2 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. 39 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. 5.3.3 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. 5.3.4 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. 40 5.4 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. 5.4.1 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 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. 41 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. 5.4.2 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. 5.4.3 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. 5.4.4 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. 5.5 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 42 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. 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 43 (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 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) 5.6 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 44 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. 45 Figure 5: CDM Timeframe Figure 6: CDM Project Cycle Source: Adapted from "Using the CDM into energy planning – A case study from South Africa", James-Smith, 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 46 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. 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 47 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. 5.7 Renewable Energy Certificates Renewable Energy Certificate (REC) mechanism is a market based instrument to promote renewable energy and facilitate compliance for Renewable Purchase Obligations (RPO) under inter-state transaction of RE generation. REC mechanism is aimed at addressing mismatch between availability of RE Sources in state and the requirement of the obligated entities to meet the RPO. Under this mechanism, the cost of electricity generation from renewable energy sources is classified as cost of electricity generation equivalent to convention energy sources and the cost of environmental attributes. These environmental attributes can be exchanged in the form of RECs. Hence, the RE generator can either sell the energy at preferential tariff specified by the ERC; or it can sell the power at normal tariff and sell the RECs on power exchanges. In January 2010, honourable Central Electricity Regulatory Commission (CERC) announced Regulation on Terms and Conditions for recognition and issuance of Renewable Energy Certificate for Renewable Energy Generation. According to this regulation, a generating company involved in electricity generation from renewable sources of energy will be eligible to get Renewable Energy Certificate (REC) for their each 1 MWh (1000 unit) of generation subject to: It has got accreditation from State Nodal Agency It does not have any PPA for the capacity related to such generation with distribution licensee at preferential tariff (state regulated tariff), or It sells electricity generated to either of the following The distribution licensee at price not exceeding average pooled cost of power purchase (APCPP) of the distribution licensee for last year Any other licensee or to an open access consumer at mutually agreed price, or through Power Exchange. 48 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. 5.7.1 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: Table7: REC Floor and Forbearance Prices Floor Price in Type of REC (Rs./REC) Forbearance Price (Rs./REC) Solar REC 9300 13400 Non-Solar REC 1500 3300 5.10.2 The operational framework for REC mechanism The operational framework for REC mechanism consists of four main steps as shown in the figure below: Figure 7: REC Procedure 49 Table 8: Renewable Purchase Obligation (RPO) for the year 2012-13 State Non-Solar RPO Solar 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 50 Step 1 - Accreditation: The proposed REC mechanism requires a procedure for accrediting generation plants which are eligible to receive RECs. Accreditation is done to assess and establish eligibility of renewable energy plants to receive RECs. The process of accreditation is largely one time activity where in plants are validated on its renewable nature and other pre-requisites to be eligible for issuance of REC. The State Nodal Agency appointed by the State Electricity Regulatory Commission (SERC) shall be responsible for Accreditation. Accreditation process involves processing of application, verification of projects, transfer of information, creation and operation of accounts etc. The process of accreditation of eligible renewable energy projects would also involve verification of Applications (projects) and sites and hence the accreditation agencies at state level would need to have adequate monitoring capability. Step 2 – Registration Every eligible entity shall apply for registration at central level. Only one central agency at national level will be authorized to recognize attributes from renewable generation to avoid double counting. Registration will result in creation of an account for all the entities participating in the mechanism. Step 3 - Information of RE generation Central agency would receive information about injection of RE power by the accredited RE generators through State Load Dispatch Centre (SLDC) via Regional Load Dispatch Centre (RLDC) and local distribution licensee. Step-4 Issuance of REC by REC registry 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. 51 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 f o r R P O o b l i g a t i o n s ) s h a l l buy R EC through pow e r ex ch an ge . The p r i c e discovery of REC will be based on the demand and supply of the REC in the market, subject to a forbearance price (ceiling price) determined by CERC. REC exchange will be connected to the central agency to keep record of all the transaction in the REC exchange. Step-6 Monitoring Mechanism It is proposed that a panel of auditors shall be empanelled by CERC at the central level. The remuneration charges for such panel of auditors will be met out of the funds which Central Agency may collect from eligible entities. Step 7 - Compliance by Obligated Entities Central registry will furnish details of REC purchase and redemption to respective SERCs to enable them to assess compliance by obligated entities and impose penalties on them, if applicable. As evolved by the Forum of Regulators, there is a provision for enforcement mechanism in the draft model regulation for SERCs under section 86 (1) (e) of the Act. As per this provision, in the event of default, obligated entities would be directed to deposit the amount required for purchase shortfall of REC at forbearance price (i.e. maximum price) of REC in a separate fund, which cannot be utilized without approval of the concerned State Commission. In addition to this enforcement mechanism the penalty under Section 142 of the Electricity Act 2003 would also be applicable to the obligated entity. The concerned state commission can empower an officer of the SNA to procure required shortfall of REC at the cost and expense of distribution licensee. 52 CHAPTER-6 DETAILED PROJECT REPORT Introduction Detailed Project Report involves producing a comprehensive document that can be used as a basis for investment decision making, approval of plans and designs, project planning, and implementation scheduling for all types of infrastructure projects. Preparation of detailed project report is further step in firming up the proposal. When an investment proposal is to be approved on the basis of functional report and the proposal is a major proposal, it would be necessary to prepare a detailed project report to firm up the proposal for the capital cost as well as for the various facilities. It includes... Project description Examination of technological parameters Description of the technology to be used Broad technical specification Evaluation of the existing resources Schedule plan Layouts and flow diagrams Hence these reports are to be made before investment is made into project. Thus formulation of investment is based on the studies made. These can be considered as pre-investment decision. Detailed project report is not prepared only for the investment decision-making approval, but also for execution of the project and for preparation of further plan. General format for preparation of detailed project report (DPR) as prescribed by Indian renewable energy development authority (IREDA): 6.1 Contents to be covered in a DPR Technical and Commercial: Introduction Site details Resources at Site location Selection of Technology 53 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 Single line diagram Switchyard layout Plant control system configuration 6.2 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: 54 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. The scheme will not be applicable to those who set up capacities for captive consumption, third party sale, merchant plants etc. 6.3 Financing Strategy and Financial Closure 6.3.1 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 55 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? a) Public, Private Ltd companies, NBFCs and registered Societies 56 b) Individuals, Proprietary and Partnership firms (with applicable conditions) c) State Electricity Boards which are restructured or in the process of restructuring and eligible to borrow loan from REC/PFC Eligibility d) Project demonstrating techno commercial viability e) Profit making companies with no accumulated losses. f) Debt Equity Ratio not more than 3:1 (typically 5:1 in case of NBFCs) g) No default to any government agency (IREDA/PFC/REC) and other FIs / Banks h) No erosion of paid-up capital 6.3.2 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 57 Figure 8: 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 58 6.4 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 9: 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. 59 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 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. 60 CHAPTER 7: FINANCIAL MODELLING Figure 10: Parameters of Financial Modeling 7.1 Cost estimates Detailed cost estimates are needed for determining the economic merit of a project, appraising its financial implications and arranging finance for it. The estimates are made to a reasonable approximation in the pre-feasibility phase and they are then refined, on the basis of more extensive investigations, in the feasibility phase. Various costs are explained here. a. Initial costs i. Feasibility study ii. Development b. Construction costs i. Engineering cost ii. Equipment cost iii. Balance of plant system cost iv. Grid connectivity cost 61 v. Owner’s vi. Contingency costs c. Annual costs i. Loan cost – (interest and principal repayment) ii. O&M cost iii. Land lease & resource rental (if applicable) iv. Property taxes v. Insurance premium vi. General & administrative costs Contingencies- A contingency allowance should be included to account for unforeseen annual expenses. Generally, the contingency allowance is calculated based on an estimate percentage of all other annual costs. Figure: Expense estimate per project phase Figure 11: Cost Estimate per Project Phase Source:http://nwcommunityenergy.org/project-design-management/cost-management 7.2 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 62 assumption needs to be clearly identified so that investors can assess whether the assumption is reasonable. Calculations – the input variables are combined in a number of calculations, including 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. 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 7.3 Analysis of financial indicators Financial indicators are the mathematical tools which help the finance manager to take a decision about whether to accept the project or reject the project. One or more of the following financial indicators are used to check the viability of the project. Cash flow – To determine if the project is economically viable a cash-flow evaluation of the project should be done. The cash-flow analysis looks at overall project revenues and expenses on a year by year basis over the life of the project. Benefit-cost ratio (BCR) - It is the ratio between discounted total benefits and costs. Net present value (NPV) - The NPV of an investment proposal may be defined as the sum of the present values of all the cash inflows less the sum of present values of all the cash outflows associated with a proposal. Internal rate of return (IRR) - The IRR of a proposal is defined as the discount rate which produces a zero NPV i.e., the IRR is the discount rate which will equate the present value of cash inflows with the present value of cash outflows. The IRR is also known as Marginal Rate of Return or Time Adjusted Rate of Return. Like the NPV, the IRR is also based on the discounting techniques. Payback period- The payback period is defined as the number of years required for the proposals cumulating cash inflows to be equal to its cash outflows. 63 Debt service coverage ratio (DSCR) - The DSCR is the total net operating income divided by the debt service. Figure 12: Project Cash-flow and Key Indicators 7.4 Sensitivity Analysis If a project appears to be financially viable, based on analysis of the relevant financial indicators using conservative or at least central case assumptions, then a more detailed sensitivity analysis will be undertaken. The objective of the sensitivity analysis is to establish which of the input assumptions to the financial model has the greatest impact on the financial outcome. It is important to understand both which variable can have the greatest impact, and which is most likely to have the greatest impact, either singly or in combination with other variables. The sensitivity analysis is related to the next stage, risk assessment and management, since many of the key sensitivities can be contractually hedged to reduce the 64 risk to the lender. For example, key supply and purchase contracts may be fixed by volume and price. 7.5 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. table 9: Types of Risk in Various Phases of Project 65 7.5.1 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 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 7.5.2 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 7.6 PROCESS OF CALCULATION OF TARIFF The calculation of tariff are as follows: STEP 1- Calculation of Project cost. STEP 2- Calculation of Loan Repayment Schedule. STEP 3- Calculation of depreciation payments. STEP 4- Calculations regarding energy produced. STEP 5- Calculation of fixed costs and variable costs. STEP 6- Calculation of Tariff. All the calculations regarding tariff was done in Microsoft Excel. All the steps are explained in detail that clears the concept of tariff calculation. 66 CALCULATION OF PROJECT COST For calculation of project cost, mainly four things were considered : 1. Site development & civil works. 2. Land cost 3. Equipment and Machinery 4. Furniture and Fixtures. These points are explained as under: Site development & Civil works: The site development & civil works require the capital cost to be allotted carefully as it determines the life of power plant. The construction should be concrete & solid so that excess speed of wind may not affect WTG. (It is taken to be 12-15% of total cost.) Land Cost: Land cost is another important factor that helps in determining the project cost. Land should be chosen for wind site as per the following rules: 1. Grid availability 2. Accessibility for commissioning 3. Strong terrain / soil for proper foundation / civil work 4. Favorable environmental condition to prevent corrosion & not prone to cyclone Equipment and Machinery:- Equipment and Machinery forms the most important part of a wind power plant. The energy generated through wind turbine largely depends upon the equipment and machinery. So, 80- 85% of the amount of capital consists of equipment and machinery. 67 Furniture and Fixtures:Furniture and Fixtures are those factors that are used in all kinds of power plant whether its thermal based, hydro based, solar or wind based. But, it accounts for only for 1-2% of capital cost. LOAN REPAYMENT SCHEDULE Debt-Equity Ratio as defined by Regulatory Commission is 70:30. So, out of the total project cost only 70% can be taken as Debt and the remaining as Equity.For loan repayment, interest on the loan capital has also to be considered. There are two methods of calculation of loan repayment. 1. Constant Annual Payment. 2. Diminishing Balance Method. The two methods have been discussed earlier.In this project, The Second Method i.e. Diminishing Balance Method has been used.So, as per the method for the selected debt repayment time the loan amount is divided into equal installments i.e. Principal. The Interest is calculated on the Balance loan. As, at regular interval of time the installments are paid the balance loan keeps on decreasing and hence as the balance loan decreases, the interest to be paid also decreases.So, the total repayment in each installment is equal to the sum of interest on balance loan and the principal to be paid in the same installment.In this manner, at the end of the debt repayment time the whole debt along with the interest is repaid. CALCULATION OF DEPRECIATION PAYMENTS For calculation of depreciation, different depreciation charges are applicable on different assets. For land no depreciation rate is charged as there is no depletion in land even after usage. So, even after 20 years of time the value of land doesn’t depreciate. 68 For Other assets, different depreciation charges can be levied as they are used. The other assets may include factory buildings, Plant and Machinery, Furniture and Fixtures etc. Now, the depreciation is calculated in such a manner that the assets get depleted up to 90% of their value.It means that 10% is taken to be the scrap value of the assets.Besides depreciation, accumulated depreciation is also calculated that includes the depreciation of all the years prior to the current year.The sheet of depreciation also contains the net block that is the amount remaining each year after deducting depreciation each year.Gross Block each year refers to the assets remaining at the start of year.The total of all assets is also summarized so as to have an account of total depreciation. Accelerated depreciation is a technique proposed and in use for renewable energy projects which enables the developer to depreciate the 90 percent of the cost in the initial years of the project life so as to reduce the burden of the huge capital cost involved. So that the project turns out to be beneficial and financially viable as it will turn out to be saving the taxes in the initial years. CALCULATIONS REGARDING ENERGY PRODUCED In the step 4, the calculations regarding energy produced are done.CUF remains changing all the time but it is not possible to calculate energy produced with a variable CUF. So, instead of a variable CUF average CUF is taken and thus energy produced is calculated.Out of Energy produced, some of the energy is used for auxiliary consumption and after deducting the energy used for auxiliary consumption from the energy actually produced we get the energy for sale. Appropriate conversion factor is used for obtaining the energy produced in terms of units or Kilowatt hours. CALCULATION OF FIXED COST AND VARIABLE COST In this step, fixed cost and variable cost is calculated. Fixed cost comprises of the following: 1. Total Depreciation 2. Interest On loan 69 3. O& M expenses 4. Interest on working capital 5. Insurance 6. Return on Equity All these things are taken into account to calculate the fixed cost. All these things are added up in order to get the cost that is fixed.In the calculation of variable cost, only fuel cost is considered and in a wind power plant there is no cost of fuel as wind is available free of cost.So, variable cost comes out to be zero.So, by calculating the fixed cost and variable cost, the total cost can be calculated. TARIFF RELATED CALCULATIONS Tariff calculation is the last step of the whole process. It is the ultimate goal of the process. Tariff calculation is done by adding up the fixed cost and variable cost in the whole project.After calculation of total charges a discounting factor is taken to calculate the levelized tariff. The levelized tariff is calculated by adding up the product of tariff and discounted tariff for all 20 years and then dividing it by sum of discounted tariffs of all 20 years.The tariff, thus calculated is used for further calculations in assessing the feasibility of Open access provided that the source of energy produced is a WTG. FORMULAE USED IN CALCULATION OF TARIFF Project cost= Land charges+ civil work+ Plant & Machinery+ Furniture and Fixtures. Debt = Debt% * Project Cost. Principal Installment = Debt/ Number of Years Interest = Rate of Interest* Balance Loan Total Repayment In a year= Principal + Interest in that year Depreciation = Rate of Depreciation* amount of a block 70 Energy Produced = Installed capacity* CUF Net Energy Produced = Energy produced – Auxiliary consumption Fixed cost = Depreciation+ Interest on loan + O& M Expenses+ Interest On working capital + Insurance+ Return On Equity. Variable Cost= 0 Total cost= Fixed Cost + Variable Cost Levelized Tariff = Sum of product of tariff for 20 years and their discounted Tariffs Respectively /Sum of discounted Tariffs Individually. CALCULATION OF OPEN ACCESS CHARGES: Open access charges are the charges that are applicable to open access customers. Now, there can be three options for the generators: 1. Captive Usage. 2. Third Party Sales. 3. Distribution Utility. The charges applicable as per Regulatory Commission for the three options are: Captive Usage: The charges for captive usage were calculated. For, captive usage the cross-subsidy surcharge is not applicable as per EA 2003. SO, for captive usage the open access charges are cheaper as compared to third party sales. Third Party Sales: For, third party sales all charges Are applicable as per the regulations. 71 Distribution Utility: The charges used for Distribution Utility are the same as the captive usage. With the emergence of new inter-state regulations the rules for short term customer have completely changed.Hence, the calculation part of the charges for short term customer has been changed. 72 CHAPTER – 8: CONCLUSION AND WAY FORWARD 8.1 CONCLUSION India has great potential to accelerate the use of its renewable resources especially wind energy to power its growing economy with a secure and affordable energy supply. The present scenario where the demand for the power in increasing day by day and the supply is less than the demand we have to meet the demand. Therefore we have to harness our resources extensively. Therefore we have a best option available to harness wind energy. This is renewable source of energy and has minimal effect on the environment. Therefore we can develop our self with sustainable energy. We have in India only the wind potential limited to very specific part of country like in states of Maharashtra, Gujrat, Andhra Pradesh, TamilNadu. So we should develop our self to the extent that we can utilize maximum of the available resources. 8.1.1 WHY WIND ENERGY? Proven technology: The technology used by wind turbine manufacturers is as old as 30 years, however with due course of time necessary and required changes have been done to improve efficiency and to suit the Indian conditions. The technology now available in market is well tested, established, proven and has a long track record. Growth in manufacturing sector: Indian wind turbine manufacturing sector has grown with time initially the turbines available with the manufactures were of small capacity and have lower efficiency, generally wind turbines available initially were less than 100 kW with rotor diameters of about 20 meters. With International collaboration, the Indian manufacturers are now manufacturing the turbines with a capacity of around 2 MW. With specialized International technologies the cost of equipment has come down drastically. 73 Dedicated Ministry (MNRE) for at central level: India is among the few countries which have dedicated ministry (Ministry for new and renewable energy) looking after the development of renewable energy sector.Separate state nodal agencies at state level to support at state level.Nodal agencies have been formed at the state level for speeding up the approval process, so that the wind energy projects can be commissioned within the given time frame. Financial assistance by separate agency IREDA. IREDA is the agency which is providing non-recourse finance for wind energy projects. Specialized institutes & organizations: Institutes and organizations like C-WET, Sardar Swaran Singh National Institute of Renewable Energy have been established for R&D, training, testing and advisory functions. Comprehensive Resource Assessment for wind energy potential has been done by government agency (C-wet) and wind atlas has been developed, this is helpful for developers and manufacturers in accurate measurement of wind parameters & site potential. Environment friendly & Zero emission source of electricity. Clean technology, which is helpful in reduction of greenhouse gases emission. This is therefore helpful in environmental protection and also helpful in meeting targets set under Kyoto protocol. Fuel for wind power projects is wind, which is freely available and hence no cost uncertainties from fuel supply price fluctuations. Fast track power project, with the low gestation period; and a modular concept. The manpower requirement for O&M of wind power project is also low and hence the Operation and Maintenance (O&M) costs are low. Guaranteed off take-long term PPA with DISCOMs. State regulators have mandated DISCOMs to purchase power from the wind energy developers at preferential tariff determined by them. As per electricity grid code 2010, the wind energy projects are not applicable for merit order dispatch. 74 Achieving grid parity, tariff for certain states like Tamil Nadu has gone as low as Rs.3.49 / kWh. 8.1.2 BOTTLENECKS The wind power industry in India has reached, to an extent, a stage of maturity, but still faces certain issues, which need to be addressed: Uncertainty and divergence in feed-in tariffs approved by SERCs. Inadequacy of generation based incentive (GBI) and uncertainty with regard to its continuity as well as continuity of Accelerated Depreciation (AD). Lack of long-term RPO trajectory and its compliance. Small wind farms are not techno – economically viable. Potential sites are inaccessible. Inadequate evacuation and transmission infrastructure. Lack of forecasting tools and grid management. Financial losses of distribution utilities. Incoherent resource assessment. All the issues highlighted above have a state-specific significance. Among all, the issue of transmission and evacuation infrastructure is the most important and predominant in the states of Tamil Nadu, Gujarat, and Rajasthan. Similarly, states like Maharashtra, Andhra Pradesh, and Karnataka will also require support towards transmission evacuation and grid management. Besides, the revision of tariff in the state of Andhra Pradesh is detrimental for the development of wind power projects in the state and requires immediate attention. 8.2 THE WAY FORWARD 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 energy security, climate change, new technologies like off-shore wind power, 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. 75 Competitive manufacturing base Increased domestic demand and expansion of the in–house manufacturing capacity of the wind industry has resulted in attracting many new manufacturers into the fray. Four major manufacturers (Suzlon, Enercon India, Vestas India and RRB Energy) have about 82.5% of annual Indian market share. Some other manufacturers are also present in the market, including ReGen Powertech, Gamesa, Leitner– Shriram, Global Wind Power, Kenersys, and WinWinD. With such wide manufacturing base there is an opportunity for wind power developers to procure cheap equipments which will reduce the overall capital cost.According to C-Wet, at 50 meters above ground level the installed capacity potential is around 49,130 MW, while above 80 meters above ground level the installed capacity potential is around 102,788 MW. As per the data available in MNRE and C - WET website most of the potential in states like Karnataka, Andhra Pradesh, Maharashtra and Gujarat is untapped. Hence there is opportunity for developers to tap this untapped potential. Interest and capital subsidy is provided by Government to attract the developers and promote wind energy power generation. For example Government of Chhattisgarh is providing interest subsidy of 50% of the total interest, paid up to 6 years by the industries with a maximum limit of Rs. 15 lacs p.a., and also providing a capital subsidy of 30% of the fixed capital investment with a maximum limit of Rs. 60 lacs. CERC in the current tariff regulation 2012 has offered weighted average pretax RoE of 22.40%, most of the state regulators have offered the same RoE or a rate higher than this rate. Renewable Energy Certificates (RECs) represent the attributes of electricity generated from renewable energy sources. One REC represents that 1MWh of energy is generated from renewable sources. RECs can be used by the obligated entities to demonstrate compliance with regulatory requirements, such as Renewable Purchase Obligations. REC has come as an extra source of income for eligible renewable energy generators.Obligated entities may either purchase renewable energy or can purchase RECs to meet their Renewable purchase Obligation (RPO) set under Renewable Purchase Obligation of their respective States. Following entities are generally obligated in the State: Distribution Licensees Captive Consumers Open Access user 76 BIBLIOGRAPHY [i] A. Gamboa, G., Munda, G., 2007. 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