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Deliverable Number 1

LEGAL AND REGULATORY FRAMEWORK FOR WIND POWER IN RUSSIA

Global Environment Facility and International Finance Corporation (GEF/IFC)

FINAL REPORT EXECUTIVE SUMMARY

Contractors

ZAO Lidesm

15 A Kondratyevsky prospect, Office 22 195197 Saint-Petersburg, Russia

Tel: 7(812) 540-8598

Fax: 7(812) 540-8498

Princeton Energy Resources International, LLC 1700 Rockville Pike, Number 550

Rockville, Maryland 20852 US Tel: 1(301) 881-0650 Fax: 1(301) 230-1232

CMT Consulting, LLC

(Potomac, Maryland, US)

Morse Associates, Inc. (Washington, DC, US)

11 January 2005

This Report forms part of the Medium Size Project for Developing the Legal and Regulatory Framework for Wind Power in Russia under a Grant from the International Finance Corporation (IFC) in its capacity as Implementing Agent for the Global Environment Facility (GEF). The content reflects the views and judgments of the Contractors and does not necessarily represent those of IFC or GEF.

Developing Legal and Regulatory Framework for Wind Power for Russia Global Environment Facility Project –Grant TF052943

Page i Final Report – Executive Summary 11.01.05

Table Contents Introduction ...................................................................................................................................1 Project Coals and Objectives.........................................................................................................1 General Background in Russia......................................................................................................1 GEF Operational Program Relationships......................................................................................3 Russian Renewable Energy Market Potential ...............................................................................4 Global Context for Wind Development ........................................................................................5 Project Accomplishments..............................................................................................................6 Power Purchase Agreements (PPA’s) ...........................................................................................6 Land Agreements ..........................................................................................................................8 Grid Interconnection and Operations Agreement .......................................................................11 Approvals ....................................................................................................................................14 FOREM .......................................................................................................................................18 Oblast Legislation .......................................................................................................................19 GEF Project Evaluation and Monitoring.....................................................................................23 References ...................................................................................................................................24 Appendix A – Project Work Plan................................................................................................25 Appendix B – IFC Project Review in July 2004.........................................................................26


Page ii Final Report – Executive Summary 11.01.05

List of Figures

Deliverable 1 Figure 1.1 Wind Resource Map of the Russian Federation ..........................................................4 Figure 1.2 Wind turbine components and Wind Power Plant Configuration ...............................5 Figure 1.3 Wind Power Plant in California...................................................................................6 Figure 1.4 LenWind Business Model – Electric Power and Cash Flow.......................................7 Figure 1.5 Model Grid Interconnection Process .........................................................................13 Figure 1.6 Equipment Certification Process ...............................................................................15 Figure 1.7 Industrial wind user tax credit can close the gap between conventional energy and

wind power. Revenue lost initially by the Oblast can be recovered as power prices rise to levels in Europe........................................................................................................................21

Deliverable 2 Figure 2.1 LenWind Business Model - Electric Power and Cash Flow........................................2 Deliverable 3 Figure 3.1 Wind power plant connection to the Lenenergo-UES grid..........................................1 Figure 3.2 Russian hydroplants monthly energy production (1997-2001) showing decreased

generation during winter months ...............................................................................................2 Figure 3.3 Interconnection process steps between the Wind Power Project (the Generator) and

the Transmission System Operator (Lenenergo)........................................................................4 Figure 3.4 Schedule for required studies and agreements leading to grid connection..................5 Deliverable 5 Figure 5.1 Diagram of wholesale electricity market as at January 2004 ......................................1 Figure 5.2 Federal Energy Commission........................................................................................2 Figure 5.3 Competitive Segment of the Wholesale Electricity Market ........................................3 Deliverable 6 Figure 6.1 Energy market development mechanisms used in Europe and the US........................3 Figure 6.2 Introduction of renewable energy incentives by country. Policies that have

accelerated the wind energy market are circled in red ...............................................................4 Figure 6.3 Industrial Wind Energy User Tax Credit and Business Model ...................................9 Figure 6.4 Industrial wind user tax credit can close the gap between conventional energy and

wind power. Revenue lost initially by the Oblast can be recovered as power prices rise to levels in Europe........................................................................................................................10

Deliverable 7 Figure 7.1 Process for conversion of land for wind power projects .............................................5 Deliverable 8 Figure 8.1 Equipment Certification Process .................................................................................1 Figure 8.2 Design Approval Process.............................................................................................4 Figure 8.3 Commissioning Process...............................................................................................5


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Figure 8.4 Licensing Process ........................................................................................................6 Deliverable 9 Figure 9.1 Some of the major flyways of Europe and Asia ..........................................................3


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List of Tables Deliverable 1 Table 1.1 – Comparison of Model Land Agreements.................................................................10 Deliverable 4 Table 4.1 – Relevant Regulations, Approving Agencies and Oversight Authority for the

Establishment of Tariffs ...........................................................................................................7 Table 4.2 – Assumptions for the 75 MW Russian Wind Project ..................................................9 Table 4.3 – Results of Preliminary Financial Analysis for the 75 MW Russian Wind Project ....2 Deliverable 6 Table 6.1 – Chart of the Support Schemes....................................................................................8 Deliverable 7 Table 7.1 – Comparison of Model Land Agreements...................................................................2 Deliverable 8 Table 8.1 – International Standards for wind energy ....................................................................2 Table 8.2 – International Energy Agency (IEA) Recommended Practices for Wind Turbine

Testing and Evaluation .............................................................................................................3 Deliverable 9 Table 9.1 – Category 1 Protected Sites .........................................................................................1


Page v Final Report – Executive Summary 11.01.05

Complete List of Abbreviations

CHP – Combined Heat and Power Plant (Thermal) ECP - Equipment Procurement Contractor FOREM (ZAO) – Federal Wholesale Market of Electricity of the Russian Federation FTS – Federation Tariff Service GEF – Global Environment facility GES – Russian Numbered Hydro Electric power Station HPP – Hydropower Plant IEA – International Energy Agency IEC – International Electrotechnical Commission IFC – International Finance Corporation, part of the World Bank Group LenWind – Leningrad Wind Power Company OOO MEDT – Ministry of Economic Development and Trade NP TSA – Non-commercial Partnership Trading System Administrator PPA – Power purchase agreement (RAO) UES – United Energy Systems RF – Russian Federation RWP – Russian Wind Project WPP – Wind power plant (ZAO) FOREM – Federal Wholesale Market of Electricity of the Russian Federation


Page 1 of 26 Final Report – Executive Summary 11.01.05

Executive Summary Introduction Project Goals and Objectives The Global Environment Facility Medium Size Project (GEF MSP) for Developing the Legal and Regulatory Framework for Wind Power in Russia had three goals with ground breaking Project Development Activities (PDA) and far reaching dimensions. Goal 1 was to bring to construction in the Leningrad Oblast the first utility-scale wind power plant in Russia-- a commercially viable 75 MW plant at a cost of $100 million. In pursuit of Goal 1, at the completion of the Feasibility Study stage of the project, the Leningrad Wind Power Company (LenWind) was formed and registered in the Leningrad Oblast. LenWind acts as the developer of the pilot project. Goal 2 was to identify the processes, players, and procedures to establish a framework necessary for wide spread development of wind power in the oblast and throughout the Russia Federation. The third goal was to increase awareness of wind energy and its potential for grid connected electric power production through an educational and outreach process involving potential industrial partners, electric power companies and all levels of government involved in institutional, regulatory and legislative steps and changes. General Background in Russia

Current Awareness and Situation of Wind Power Accomplishing the project goals necessitated the raising of awareness of decision makers in both federal and oblast government levels and in industry about the benefits and tremendous potential of wind power. In particular, while there was some support for and understanding of wind power in the federal government and in the nationwide electric power monopoly, United Energy Systems (UES), there was very little comprehension of the power generating potential and commercial viability of wind power in large-scale projects. The only grid connected wind power projects that had been undertaken by the federal government, jointly with UES or regional utilities, were two small scale ones, one in the feasibility study stage in Kaliningrad in Northwest Russia and one completed in Chukotka in the Far East. The Far East project was by the simple expediency of requiring the local utility to purchase the wind power generated and by providing the needed government subsidy to allow for such purchase. In Ukraine a project involving small 100 kW turbines was built in the early 1990’s using a subsidy added to all electric power bills in the region. That plant is no longer operating. Russian had the distinction of having built the first wind turbine to be interconnected to an AC power system. This 110-kW Balaclava turbine, with a 31-meter rotor diameter, was installed near the Black Sea in 1931 [See Reference 1].



Less than 20 MW of wind power plants have been installed in Russia compared to 15,000 MW in Germany, 6,400 in the US, 6,200 in Spain and a total of over 40,000 MW worldwide by the end of 2003. Global wind power plant installed and operating capacity has been increasing by more than 8,000 MW annually and has been the fastest growing energy technology for the past 5 years [2]. Russia has greater wind energy resources and development potential than any other country. Russian Power Sector

The power sector structure, policies and organization changed dramatically during the GEF project. The changes occurring throughout the system are described in Deliverable 5 on FOREM, the Russian Wholesale Power Market. Need for a Commercially Viable Project vs. Subsidies

One of the key tasks of the GEF Team became to educate decision makers why it had selected financially credible industrial producers or the Russian wholesale power market as the target off-take customers for the wind power, and how the project could thus be financed by international investors and lenders. This commercially viable approach was based, as well, on the GEF Team’s understanding that any substantial subsidy from the federal government was not likely to occur since the budget allocated to the Russian Federation Ministry of Industry and Energy (reorganized along with 17 other federal agencies during the project period) for renewable projects was rather miniscule and allowed only for development of small scale pilot projects. Both the Federal ministry and UES endorsed our approach of establishing such commercially viable projects. In addition, this approach was reviewed and endorsed by the Federal Energy Commissioner and the Leningrad Oblast Regional Energy Commissioner. Russian Federal Government Activity

The Deputy Minister of the Federal Power Ministry had expressed hopes, in meetings in early 2003, of introducing legislation that could provide meaningful subsidies for large-scale wind power projects. Initial indications were that this legislation would take only a few months to introduce and pass. However, no such attempt has been as yet made, in part, because, in early 2004, President Putin, in anticipation of his re-election in March of 2004, substantially reorganized the federal government. He eliminated many federal agencies and re-structured, the Power Ministry into the Ministry of Industry and Energy. In addition, any nationwide support of budget allocations from the federal ministries still in transition or from the UES were also undercut by a newly established policy, announced by President Putin in mid-2004, that the federal government intended to maintain tight control over the nation’s oil, gas and electric power. As a result of this new policy, the implementation of previously passed federal legislation in 2003 calling for the breakup of the UES monopoly system into independent regional power generators with only the national grid still to be controlled by UES was halted. The final outcome still not determined. Two potentially useful federal Decrees were issued in 2003 and 2004 allowing for the establishment of independent power providers and allowing them to charge full-cost recovery tariffs during the anticipated debt period. These Decrees are discussed in Deliverable 4 on tariffs and Deliverable 6 on legislation. Although the new laws had not been



tested before the GEF activity began, they are likely to be of significant use to developers of renewable energy projects. Activities by the GEF Team and use of this authority relating to developing tariffs sufficient for international project financing are discussed in Deliverable 4 on tariffs. Strategic Focus on the Oblast Level of Government

The GEF Team in its Work Plan, recognized that the federal level of the Russian government was likely to move slowly in developing even non-subsidy incentives for renewable energy. Experience in the United States in regard to legislation for renewable energy incentives also pointed to the state or regional levels of government as being the most responsive and most likely to put in place incentives for green power. Therefore, for the GEF project, from the start, the target for achieving any substantial legislative initiatives providing incentives for commercially viable renewable energy projects was the oblast level, in particular in the Leningrad Oblast. This focus on the oblast activity also meshed with the goals of bringing to construction the first pilot project. Among the accomplishments detailed below is an account of the progress made relying on this assumption. Cooperation

The GEF Team also recognized that institutional change in any system, as has been long documented, is generally a slow evolutionary process, usually proceeding from the policy of the political leadership and then implemented in legislation and regulations. It was not anticipated that within the nine-month period of the GEF MSP activity that such changes or major initiatives could indeed be instituted. Instead, it was anticipated that working together with decision makers, the GEF American and Russian Teams could develop, in the political and industrial leadership in Russia, an understanding of the advantages of using wind power and work together with the leadership to develop models for adoption. It was assumed that Russian decision makers would cooperate with the GEF Team since they shared the GEF goal of getting the first project to construction. In doing so, they would both attract substantial foreign investment and lay the groundwork for additional future investment and development of a supporting wind power production industry. Behind this assumption lay the successful two years of cooperation beginning in November 2002, that had been demonstrated very extensively by the Leningrad Oblast leadership, industry in the oblast, and, as well, though not as concretely, by the federal ministerial level, during the US Trade and Development Agency - supported Feasibility Study led by ABB, with the participation of GE and other members of the GEF Team, on the first utility scale wind power plant in Russia. These basic assumptions proved to be sound, and all the activity described in the next section under the GEF Project Development Activities and the project goals benefited from this kind of support. GEF Operational Program Relationships



International Bank for Reconstruction and Development (IBRD), pursuant to Resolution No 91-15 of 14 March 1991 of its Executive Directors as amended by Resolution No. 94-2 on 24 May 1994, established GEF is an independent entity. GEF was initiated as a partnership with U.N. Environment Program (UNEP), U.N. Development Program (UNDP), and the World Bank, consisting of the Ozone Projects Trust Fund, Global Environment Facility Trust Fund (the GEF Trust Fund) and Co-financing Arrangements between GEF and other Agencies, to assist in the protection of the global environment and promote thereby environmentally sound and sustainable economic development. The Council of the Global Environmental Facility (GEF Council) and the IBRD agreed to provide funds through Implementing Agencies including United Nations Environmental and Development Programs, World Bank and the International Finance Corporation (IFC). On 24 September 2003 the Chief Executive Officer of the GEF approved the Medium-Sized Project (MSP) proposal entitled, Russian Federation: Developing the Legal and Regulatory Framework for Wind Power in Russia. IFC agreed to administer and manage funds approved by the GEF Council, in its capacity as an Implementing Agency of the GE,F and on 3 November 2003, awarded ZAO Lidesm an MSP grant in the amount of $725,000, with an additional $155,000 in project co-financing to be provided by the industrial participants. The grant Work Plan was approved by IFC in March 2004. See Appendix A. Russian Renewable Energy Market Potential The potential for wind power in Russia is described in a book by Dr. Bezrukikh [Reference 2] and is shown in Figure 1.1. Dr. Bezrukikh was the Director of Renewable Energy in the former RF Ministry of Energy, and the GEF Team had worked with him during the Feasibility Study phase of the project. The European Development Bank estimates Russia to have the technical potential for 60,000 MW by year 2020 [Reference 3]. Russia is likely to have more wind resources than any other country worldwide.

Source: http://www.winddata.com/, supported by EU Joule project JOR3-CT95-0061, 1996- 1998 and the International Energy Agency Wind Energy Agreement, Annex XVII with 6 participating countries: Sweden,

Figure 1.1 Wind Resource Map of the Russian Federation



Global Context for Wind Power Development Wind Power Systems

Wind power is the fastest growing of the utility-scale renewable electric power technologies now in use. Installed capacity of wind plants worldwide is now over 40,000 MW distributed in over 50 countries. Over 8,000 MW were installed in 2003 and 25-30% new capacity has been added annually on average for the past five years. The largest wind power plant installations are in Europe and North America and new plants are being built in India, China, Turkey, Iran and many other countries [Reference 4]. The rotating blades on wind turbines extract energy from the passing stream of air, much like the blades of a steam or combustion turbine in a conventional power plant. Wind turbines are normally installed in groups forming a wind power plant. See Figure 1.2.

Grid Connected Wind Power Plant

Turbine Rotor, Gearbox and Generator

Despite the variability of wind resources, wind power plants routinely operate today connected to the power system grid. When the wind blows, electricity is delivered to the grid much like any other power plant. During low wind periods, hydropower or other sources are used. Wind turbine availability is typically over 98% and plant capacity factors range between 30% and 35% at good wind sites with average wind speed of 7.0 to 8.0 m/s, measured at 50 m above the ground. At the best wind sites, capacity factors can exceed 50%.

Since 1990, the cost of energy from wind has continued to decline, due to economies associated with larger production volume and competition, continued deployment of improved technology that includes advanced high efficiency airfoils, solid state power electronic and controls, flexible

Figure 1.2 Wind turbine components and wind power plant configuration



and lighter structures, and higher capacity turbines, 1,500 kW and larger. Today, large wind plants, up to 400 MW in capacity, are producing bulk electric power at costs ranging typically from $0.04 to $0.09/kWh depending on the wind resource, site location, local manufacturing of components, construction costs and financial incentives. In Russia the cost of wind energy for initial utility scale 75 MW projects will likely be in the range of $0.08 to $0.09/kWh because there is virtually no wind power plant construction experience and currently nearly all of the equipment must be imported.

PROJECT ACCOMPLISHMENTS

A detailed account of project accomplishments is described in this Section. They are not provided in the order of activity undertaken as described in the MSP proposal. They are described rather in terms of priority actions or events as determined by the Critical Path document prepared for the GEF MSP Work Plan (See Appendix A) by the GEF Team with agreement from IFC. This document focused on fulfilling Goal 1, achieving the pilot project. In some activities, the accomplishment of Goal 2 is simultaneous with or on a parallel track with the achievement of Goal 1; in other cases, it precedes or follows after focus on the first Goal. Significantly, Activity 3 in the MSP proposal and Work Plan, for example, is to develop oblast-level incentive legislation. In the following description, it is listed and described at the end of the accomplishment of other activities. The operative logic here is to show how encompassing and far-reaching this legislation actually is in dealing with all various activities and the problems to be overcome and achieved in these undertakings. The proposed legislation by the oblast is truly a landmark achievement. Power Purchase Agreements (PPA’s) Regarding the first goal of bringing the first project to development, much has been achieved and the successful accomplishment of this goal seems likely. Protocols with commitments to develop PPAs have been signed with the Russian Wholesale Power Market (FOREM) and with a commercial off-taker. The Critical Path developed in the GEF Work Plan for bringing the project to construction identified the necessary steps, all of which interlocked but focused primarily on getting a signed long-term Power Purchase Agreement or a first stage Protocol document which could be regarded as binding. Such a binding document is necessary for financing the project. Moreover the identified equity investors and the international financing institutions, such as IFC and EBRD, which are interested in both equity and debt, required that potential customers that would sign such a document needed to have internationally recognized financial credibility.

Figure 1.3 Wind power plant in California



Target CustomersThe target customers were identified as major producers for the world market, operating and expanding in the region near where the wind plant is to be located. These companies included major Russian manufacturing and oil industry companies, large US producers or US Joint-venture producers, which had expressed interest in green energy in the Market Study and Survey undertaken during the TDA Feasibility Study phase of the project. Concerns expressed by these

companies centered on the gap between wind power and conventional tariffs for electricity. Proposals to close this gap are dealt with in the section on legislation. The business model for direct power sale to commercial customers is shown in Figure 1.4.

An alternative target customer, from the beginning, was the federal wholesale power market, known by its acronym, FOREM. It was clear that the wind plant would produce far more electricity than would be needed by most commercial customers, and therefore FOREM represented a suitable customer for a utility-scale wind power plant. It was also expected that the price gap would not be a decisive factor in negotiating an agreement with FOREM since the volume of its purchases and sales nationwide were so large as to absorb price differentials with no adverse impact on its tariffs. Model Documents

In furtherance of the second goal of GEF activity of providing model agreements, the Team developed a model PPA Term Sheet, a model PPA and a Model Protocol as the first stage of such an agreement. An internationally recognized law firm operating in Russia completed a legal review of the Protocol. Specifically an opinion was requested about the ability of the Protocol to bind the customer to negotiate, in good faith, a Power Purchase Agreement. A positive opinion was provided as long as the Protocol contained the key elements of the PPA, with the caveat that the international lenders were, of course, the final arbiters. Key elements are: 1) the term, 10

PowerCustomer

PowerCustomer

--energo--energo

WindPowerPlant Leningrad

Wind Power Co

Power PurchaseAgreement

Clean EnergyEnergy fromOther Sources

Payments

Other End Users

PowerCustomer

PowerCustomer

--energo--energo


Wind Power Co



Payments


Wind Power Co




Wind Power Co




Payments

Other End Users

Figure 1.4 LenWind Business Model - Electric Power and Cash Flow



years, 2) quantity of power and 3) price. The Protocol was thus regarded by the GEF Team as a legal instrument suitable for starting the financing process, with the assumption that prior to starting construction that the customer would be ready to enter into a full PPA, as a necessary prerequisite for the actual release of debt and equity by lenders and investors. A detailed account of the documents and outcomes of the PPA activity, its development, and its various aspects is provided in Deliverable 2. The Power Purchase Agreement was developed by analyzing, collating and incorporating aspects from wind power agreements in use in the United States and Europe and adapting these Power Purchase Agreements in use in Russia. One cardinal difference between international usage and Russian accustomed agreements was the long-term nature of the European and American PPA’s providing for the purchase of power over the assumed 10-year debt period. The model protocol included this provision of a ten-year contract, and it proved to be one of the more difficult concepts for the potential Russian customers to accept initially. Status of Activity of Pilot Project PPA

In regard to Goal 1, PPA negotiations have been opened with three major Russian companies and two major American-owned producers in the Leningrad Oblast. These individual negotiations are in various stages of moving toward agreement. A Protocol to sign a PPA has been executed with a major Russian company. In addition, a PPA Protocol has been signed with FOREM. Land Agreements Three potential sites for the project had been evaluated during the Feasibility Study Phase and the preferred site chosen. In regard to the interlocking nature of the various activities for accomplishing Goal 1, it was assumed that even in discussions with potential customers on PPAs, the issue of the site would be raised, and, of course, the goal of accomplishing the first project required that the developing team obtain the legal right to the identified site. This proved to be a complex process. Procedures for Obtaining Land in Russia

Russia has developed, with the advent of the right of ownership of private property passed as legislation fairly soon after the establishment of the Russian Federation, a clear methodology for purchasing and leasing land. The process was developed in cooperation with the World Bank and the US Agency for International Development and incorporates standard procedures used in international practice, including the establishment of a nation wide system of cadastres. Procedures exist for obtaining cadastres, for identifying existing legal owners, for determining the fair market value of price per hectare (and these prices vary from region to region), for purchasing or for obtaining long-term (typically 30 year leases), and for the official transfer and registration of new ownership. Leasing is more common in Russia than purchasing of land, but the process, by now, is fairly routine. The practice of taking an exclusive option on a piece of land for a certain period of time in order to execute a future long-term lease, generally determined by its footprint in the cadastre, is also well established. All the procedures operate on the oblast and local levels.



What does not exist in Russia, in regard to wind power development, is a recognized methodology for obtaining an exclusive option for air rights and for exercising this option by leasing the land, not as predetermined by a footprint but for partial use with allowances for compatible use of surrounding land area. Such leases would include certain parts of the land for erection of wind turbines, power lines and infrastructure rights of way, roads, and fencing where needed, but not require full use of the land and thus allowing such activities as farming or forestry to continue. Land owners would not be allowed to build other wind plants or tall structures that would obstruct access to the full wind resource. Such land usage would not generally come under the price per hectare as marked out by regional authorities. It was assumed as part of the Project Business Plan that the owners from whom the land was to be leased would come in for royalties from the project as a way of reducing the original cost associated with leasing the land, which, again, should not be determined by the going standard of the price of land to be leased. A detailed account of the issues, documents and outcomes of the acquisition activity, its development and its various aspects is provided in Deliverable 4. Decree Issued on Model land Agreement

An outcome from this effort was a Decree issued by the Federal Agency for Federal Property Management, “On Approval of the Model Form Land Lease Agreement, for Land Owned by the State.” The approved Decree was dated 06.07.2004 104-r (Registered with the RF Ministry of Justice 23.07.2004, 5943). This Decree and the model land use agreement are an important step in addressing issues of allowing federal lands to be used for renewable energy projects. Issues Related to Obtaining the Designated Site for the Pilot Project

In regard to Goal 1, the first step was to successfully lease a portion of the land required to erect a measurement tower. This was accomplished during the Feasibility Study stage of the project on three sites, including the site now designated for development. In, however, the major step, that is obtaining the legal right to the identified site, this proved a complicated process simply by the nature of the identified legal owners, one of which proved to be the Forest Ministry, a federal agency with clearly determined methodology and pricing for leasing land for logging rights. The pricing established by the federal government and the many steps required for approval, seemed to militate against the use of such lands. However such lands were indeed part of the identified site, and could be assumed to be involved in future wind power development projects, and therefore the Team went forward with both identifying and undertaking the steps and processes for obtaining approval for the specific identified site in the Leningrad Oblast and for the general use of forest land for wind power development. To begin this process, the GEF Team first had several meetings with the Ministry of Natural Resources, which gave its general approval for the use of such land for a wind power plant but pointed out that three further steps in the approval process were required. The first was to obtain the approval of the government designee within the Leningrad Oblast who oversaw land use. The GEF Team met with this designee, and approval was obtained.



The second step was to gain the approval and actual allocation of the site by the Regional Administrator of the area in the oblast in which the site was located. The third and final step, the most crucial and significant, was to obtain support of the Governor of the Leningrad Oblast to facilitate land allocation and transfer. This support was achieved in a meeting with the governor and is documented in Deliverable 6 on Oblast Legislation. The development of a model methodology for adaptation by the Russian government for allocating forest land for wind power development proved to be difficult. To obtain such overall approval, the Russian government needs to issue a Decree allowing for such use of forestry land. More significantly, beyond the question of dealing with Forestry Ministry lands, is the issue of getting a Model Land Agreement adopted for usage for wind development in Russia. The path for this is also through the Russian Federation government. The form and contents of such agreements are regulated by the RF Civil Code. Such a formalized model agreement requires an Executive Decree. In this case, the Decree would probably have to be drafted by both the Ministry of Natural Resources and the Ministry of Energy and Industry. It would then require approval by the president and be issued in his name. This process is likely to be a protracted one. Model Land Use Agreement

To facilitate both Goals 1 and 2, the GEF Team developed a Term Sheet and a Model Land Use Agreement, in line with international usage, establishing the concepts of options on air rights, exclusivity, lease of partial use of the land for development of the wind power plant, and royalty payments and concessionary pricing based both on such payments and only partial use of the land. Key and unique elements of land use agreements for wind projects are shown in Table 1.1 Table 1.1 – Comparison of Model Land Agreements (Bold topics are unique to Wind Power Plant Lease Agreements)

Lease Issue and Section Number

Traditional Russian Federal Lease

Model GEF Land Use Agreement

Comments

Site Evaluation PeriodDuration None – possibly the lease

could be renegotiated 2-3 years Before committing to

long-term lease Rental & Price Nothing about small

payment for site evaluation; After evaluation period, price could be renegotiated

Nominal payment to land owner for evaluation period.

Price depends on wind resource, terrain and soil characteristics and proximity to power lines and to customers

Obligations No obligations following evaluation period

Proceeding can depend on the land, bank financing and many other factors

Termination If owners terminate, lessee should be paid damages equal to the value of the project

After expiration – lessee must pay to restore the land

Lease can be sold to other developers



Long-Term LeaseAgreement Period Typically 1 year (up to 3

years) At least 30 years and renewable

Key importance

Wind Rights (or Air Rights)

None Allow unobstructed access to the wind

Very important

Exclusive Access Possibly covered by current leases, but language is weak

Secures the site for wind project. Keeps other wind companies from outbidding or undercutting the project which could jeopardize substantial investment

Very important

Compatible use Only need to use 2-4% of the land area for turbines, support buildings, roads and power lines

Allows unused land to be used for farming, forestry or other compatible uses

Keeps the cost down.

Royalty payment None International practice is to pay the land owner a royalty based on the net revenue from the wind plant

Typically royalties range from 0.25 to 1.0% of net revenues, depending on the land use category, valuation and location

The Model Land Use Agreement now needs to be codified. An approach towards achieving this outcome is described below in a proposal for further educational efforts. Status of Obtaining the Designated Site for the Pilot Project

For the specific site designated for the pilot project, all owners have been identified and the cadastre obtained. Negotiations are underway to lease the land under the terms defined above in the Model Land Agreement. Leasing of this site is currently regulated by the existing Land Code, by the existing Forest Code and the city and building regulations determined by the local administration and legislative assembly. Under discussion is a Lease Agreement currently familiar to the owners of the site and in use in the region but which also includes some of the elements of the Model Land Use Agreement. As discussed above, the GEF Team met with the Governor to seek support in establishing usage of the Model Land Use Agreement. Grid Interconnection and Operations Agreement In pursuit of Goal 1, it was necessary to work cooperatively with the major utility company operating in the Leningrad Oblast to assure that the utility would allow necessary hook-ups of the wind power plant to its grid and deliver the electricity generated by the wind plant to various customers. There are two utility companies, a small one organized by the St. Petersburg



municipality and serving a limited city network and the oblast-wide utility, Lenenergo, which is part of the UES system. Grid Interconnection Approval Process

The established procedure for interconnection to the existing grid had to be adjusted to accommodate the unique aspects of wind energy. This process has been structured by incorporating lessons from the large number of interconnected plants in Europe and the US. Generally the GEF Team began with the standard power supply interconnection agreement used by Lenenergo. LenWind prepared a project interconnection study as part of the Project Feasibility Study and included an evaluation of technical and cost considerations for alternative sites. LenWind then signed an Interconnection Protocol with Lenenergo in order to receive technical specifications for connection and to exchange proprietary information from the earlier Feasibility Study. Next, according to received technical specifications, the project transmission lines and transformer substation design is completed and submitted for approval by the Power Systems Institute in Moscow. The Project Team decided it should include in the project the cost of constructing needed transmission line reinforcement, transformer and substations upgrades. This insures that all interconnection systems are available when the plant is ready for operation. Once these are built and put into operation, the transmission lines and transformer substations must be accepted by representatives of safety standards group, Gosenergonadzor, and Lenenergo. Agreements between LenWind and Lenenergo are to be signed for the services of power transit, determination of limits of responsibilities and maintenance of transmission lines and transformer substations. This adds reliability and value for the power system and should avoid connection fee and wheeling charges for power transit. This interconnection process is shown in Figure 1.5.



Figure 1.5 Model Grid Interconnection Process



Model Grid Interconnection AgreementTo achieve this outcome for the pilot project, the GEF Team worked in parallel on Goal 2 and developed a Model Grid Interconnection and Operations Agreement and identified the process for obtaining such approval for such an agreement. To begin the process a Protocol was signed with Lenenergo, the designated utility, to agree to cooperate in work leading to an Interconnection Agreement. This Protocol allows Lenenergo to review proprietary information in the Project Feasibility Study and for them to release the specifications needed for such interconnections. The actual implementation of the interconnection process involves a series of technical studies and working agreements that are increasingly more detailed. Pilot ProjectThe GEF Team met with the Chief Engineer at Lenenergo, presenting the Model Interconnection and Operations Agreement for review. After reviewing the document, the Chief Engineer signed a Protocol signifying that Lenenergo intends to go forward with the Interconnection Agreement. Lenenergo subsequently provided the technical specifications to the GEF Team. When the site conceptual design is complete, these will go to the Institute in Moscow for review and approval. Approvals The GEF Team identified and documented the many levels of necessary approvals (and the approving bodies and contacts) that are required throughout the entire process of bringing the first project to construction and operation. These approvals will be required as the development of the project proceeds. Some approvals will be needed early on in the process, some as development advances, some before construction, and some after construction to allow operation. Details of the project approval process are described in Deliverable 8. The approvals required for a wind power plant can be classified as: Certification of Equipment Design Approvals Commissioning Licensing Certification of Equipment

Figure 1.6 shows the certification process to be used for wind equipment. The Russian Federation requires that all equipment brought into the country for installation and operation be certified by the Russian center, institute or agency responsible for such equipment in a formal process of application of approval. The Certification Centers are not government agencies but are accredited by Gosstandard, the Russian Federation agency responsible for standards. The formal process ends with the registration of the approved submission documents by Gosstandard. The approving Russian center charges a fee of several thousand dollars for each piece of equipment it certifies, depending on how it classifies the equipment and how complex the review process is.



Russia does not automatically accept approvals provided to equipment manufacturers by the United States or Europe. The fact that such approvals exist does help to shorten the certification process. Nevertheless, the certification process can take some time, partly in identifying the right agency which can issue certification for a particular kind of equipment. Because large capacity wind turbines have not as yet been certified in Russia, for the fulfillment of Goal 1, i.e. getting the equipment certified for the pilot wind plant, it was a matter for the GEF Team of tracking down the right agency which was recognized within the Russian Federation as the authoritative organization in this field. The Certification activity includes the following: adaptation of international regulatory documents ISO-65 to the Russian requirements and defining the certification sphere; standards; terminology; functioning of equipment; issues of quality assurance, including conditions and methods for quality assurance; and requirements for training of staff. In addition general requirements must be submitted on the competence of testing laboratories. The process can take several months, first in preparing and gathering the necessary support documents, then in preparing the submission document to the approving agency. After submission, analysis and approval can take several months. The approval consists, as noted above, of registration by the approving agency of the document with Gosstandard. Each separate piece of equipment, for example 1.5 MW wind turbines or 3 MW wind turbines, has to be reviewed and registered separately. In fulfillment of Goal 1, determining process for getting the GE 1.5 MW turbines certified for installation and use in the pilot project, involved an extensive gathering by the GEF Team of documentary material in Europe and the US. The authoritative agency that would provide turbine certification was identified as VNIINMASH. Specific contact people were identified.

Figure 1.6 Equipment Certification Process

RFGosstandard

AccreditedCertification

CenterVINIINMASH

RF Gosstandard

IEC and ISO International Standards

Adapted to Russian Requirements

Approved Certification Documents

Registered Approved Certification Document

Certification Application

Fee

Testing Lab Competence

Supporting Certificates



Design Approvals

The Russian Federation has clearly defined processes and authorities for obtaining approvals necessary for construction of any project and all the various levels and aspects within such projects. Approving agencies exist on the federal, oblast and local levels of government. Preparation of documents for obtaining such approvals is a clearly defined process as well. The process, as in many countries, takes some time and must be pursued diligently, with constant follow-up to the various bureaucracies involved to see that approvals are obtained in a timely manner. What do not exist in Russia are the norms and standards relating to wind power plants. There are no standards for design of foundations for the towers for the wind turbines, no regulations for layout of the towers, no norms for restoring the land, no norms for possible electromagnetic impact, and no environmental regulations on sound in relation to wind turbines while environmental regulations exist in regard to birds or animals, no such regulations exist for wind turbines. Therefore the task became twofold -- accomplishing approvals for the pilot project and for the overall creation of a regulatory system for future wind development. The most pertinent and related existing codes and standards had to be identified and adapted or shown to have relevance to the project and wind development. In pursuit of this goal the various portions of the existing building codes, called SNiP in Russia, were identified. These included, for example, pertinent codes in relation to design and construction (SNiP 2.02.01-83); Footings and Foundations (SNiP 1-02.01.85); Special Site Investigations for Foundations (Addition to SNiP 2.02.01-83); Structural Units (SNiP 3.02.01-83); Organization, Performance and Acceptance of Work on Structural Units, and so on. While the overall approval body is Gosstroy, the Russian Federation Committee of Construction, approvals for a project in the Leningrad Oblast requires the approval only of the oblast division of Gosstroy, called State Evaluation [Agency] of RF - Gosstroy. To begin the process of getting design approvals for the pilot project, the suitable officials within the Expert Department Center, the counterpart in the oblast entity of RF Gosstroy, have been contacted. They have been given the overall design of the project, and the necessary first stage documents for overall approval. They have approved the general design and expressed commitment to providing subsequent reviews/approvals in a timely manner. In regard to establishing such overall norms in Russia, the pilot project will serve as a design standard for widespread usage throughout the country, and it may not prove necessary to initiate for now the rather lengthy procedure of getting new norms and standards directly relating to wind power plants inserted into the SNiP codes. At some point, RF Gosstroy will need to be contacted to undertake the needed modifications or writing of the code. Commissioning

In the Russian Federation, a formal process of commissioning is required before approval is given for operation of newly installed equipment and operations. Each area of equipment for production or other purposes has its own designated approval organs. Operation can be



undertaken once installation is complete, but only for the purposes of calibration, testing of equipment and the parallel training of operations personnel. For the pilot wind power plant, the bodies designated to provide commissioning are the same as those organizations that give commissioning status to all power projects. The key organization is the one which rules on safety and protection of operations and is called EnergoNadzor. Once the first pilot project is commissioned, it will serve as the model for commissioning of future wind power plants. For the pilot wind power plant, commissioning is anticipated in the fourth quarter of 2006. Licensing

Once the plant is commissioned (has the approval of EnergoNadzor), it can be registered. A requirement for licensing is that the plant must demonstrate it is to be operated by personnel trained in the energy sector, with the necessary educational background and degrees. Registration as a power supplier can be done on the oblast level only if the plant anticipates selling only to industrial consumers within the oblast. If registration on the federal level is required for customers beyond those operating in the oblast, as, for example, the nationwide wholesale power market, then application is made to the Federal Energy Commission. The documents conferring the license by the oblast are submitted to the federal level with the application of licensing as a power producer. For the pilot project, this process of licensing is anticipated to be required and accomplished toward the end of 2005. Tariff Approval

One of the essential elements in the legal and regulatory framework for wind power is a suitable tariff. If the wind plant is to be financed using project finance where the debt and equity is serviced from the sale of electricity under power purchase agreements over a term that covers the debt period, this must be reflected in the methodology to be used to determine the tariff. Within the Russian Federation, there are clear cut methodologies for calculating tariffs at the oblast level and at the Russian Federation level. The GEF activity on tariffs proceeded on several parallel levels to achieve three goals: 1) Determining the process for receiving approval for a power tariff on both the Russian Federation and oblast levels. This activity required identifying the approval bodies at both levels of government, identifying the decision makers, the methodology to be applied, the steps to be undertaken, and the timetable for obtaining such approvals. (2) Dealing with the relevant approval bodies to make the case for a unique and distinct methodology for setting a tariff for wind power; and obtaining approval for establishing a methodology for setting tariffs for wind power applicable to such projects and incorporating international experience and knowledge of wind power projects and development worldwide.



(3) Obtaining such approvals for a wind power tariff for the first pilot project so as to set a precedent for future wind power projects, codify the methodology, and allow for the negotiation of Power Purchase Agreements for the first project. Pursuit of the multiple goals sometimes necessitated targeted activities on separate tracks with separate Russian organizations. Nevertheless, in general, the multiple goals did not always necessitate discreet activities and in fact the various activities often intertwined and supported each other. Tariff development is well along for the pilot project. Meetings have been held with the Tariff Commission and they support the project. Methodology using project proformas as the basis for the tariff are being developed in close cooperation with the commission. The Deliverable 4 report summarizes the work done towards these three objectives. Environmental Approvals

Environmental Assessment for the planned 75 MW project is underway, and laws, processes and procedures have been defined. The wind power plant will displace atmospheric pollution that would otherwise be produced by burning coal and natural gas in conventional plants. Consequently a Carbon Offset Application has been prepared and accepted by the Nordic Environment Finance Corporation (NEFCO.) It is estimated that the wind power plant will displace 28 to 40 thousand metric tonnes of carbon each year. Environmental effects from wind plants are primarily related to aesthetics, effects on birds, and noise. Avian studies have been initiated and continue. Terms of Reference were prepared for an Environmental Assessment that will be completed about five months after then routing of the power lines and after the exact location for the proposed wind power plant is selected. This information is described in Deliverable 9 on environmental assessments. FOREM One of the promising activities that surfaced during the Feasibility Study and was proposed as one of the activities to be pursued by the GEF Team under this project was to determine if a long-term Power Purchase Agreement could be signed with the wholesale power market which exists in Russia. This market was formed by United Energy Systems in late 2000 and is known as FOREM. FOREM, the Federal Wholesale Market of Electricity, is basically a market place for buying and selling electricity by the market players within the UES system of Russia. It is a system of contractual relationships. As of January 2004, there were 163 participants in FOREM; generators include 11 nuclear power plants, 22 thermal power plants, 12 hydroelectric power plants and 5 regional supplier. The nationwide utilities, the regional energos, make up 86 customers with 40 other participants consisting of the major producers in Russia [Reference 5]. During the Feasibility Study phase of assessing and developing the pilot project (in 2002/3), meetings were held with the Federal Energy Commissioner. At that time, he had the



responsibility of overseeing FOREM. He was very supportive of the wind power project and said, both in meetings and by letters, that FOREM was a good potential customer for the wind power, and that given the huge overall size of the wholesale market, this market could easily absorb, with no discernable impact on tariffs, the proposed 75 MW at the higher tariff which he understood would be necessary for the wind power. The letter from the Federal Energy Commissioner is included in Appendix B in Deliverable 5 on the wholesale power market and FOREM. The designated task for the GEF Team was to determine how a long-term Power Purchase Agreement could be reached with FOREM. The key issue was to identify what entity in the power structure or in the Russian Federation government was the authoritative one for providing a 10 year guaranteed purchase sufficient to satisfy international lenders. Since the Federal Energy Commissioner was an appointee and had less than two years remaining in his term of office, he did not himself seem to have the authority to guarantee that such an agreement could be signed and be operative for a ten year period. The GEF Team identified, with the help and support of the Head of Administration of the Russian Federation, a former Vice-Governor of the Leningrad Oblast, the key leadership within FOREM that could execute such a long-term PPA. The GEF Team then worked with the General Director of FOREM and achieved a major success first in obtaining a PPA Letter of Intent and then, after further, negotiations an executed PPA Protocol. The Protocol provides for essential terms to be included in the PPA, most significantly, that the PPA be for a ten-year term and indexed to US dollars. FOREM has, as a result of the GEF Team activity, proven itself to be the most potentially viable near-term customer for wind power in Russia. In the current Russian power market, only FOREM, because of its scale and diverse energy sources can blend the initially higher cost of wind energy without significantly impacting its overall tariffs. Equally important is that FOREM has demonstrated its readiness to purchase wind power to help meet its growing national power needs. As industrial tariffs rise to European levels, direct PPA’s with industrial consumers will become increasingly attractive. Oblast Legislation A significant accomplishment by the GEF Team is the legislation to be sponsored by the Governor of the Leningrad Oblast providing incentives for wind development in the Oblast. The legislation addresses the various problems or issues needing to be resolved to bring the pilot project to fruition in the Leningrad Oblast, and it would put in place in the oblast the institutional foundation for developing wind power. It is a model which the GEF Team hopes can be instituted in other regions throughout Russia. The GEF Team had aimed in its Work Plan at developing jointly with the oblast government model legislation to provide such incentives. With the guidance of one of the key Vice-Governors and with his promised support, the Team worked with a private sector consulting firm, which acts as a budgetary and analysis arm of the oblast government and which had,



indeed, been selected to do so through an open tender several years ago. The GEF Team had worked with this firm, a Russian-German joint venture company, ST Inter, during the Feasibility Study phase of the pilot project on tax and investment issues and had found their work to be of very high quality. In the process of working together on this initiative, several scenarios for model legislation were drafted, providing different approaches for government support, ranging from subventions and subsidies to various kinds of tax incentives. An economic model was then developed for each different approach. What all of these models had in common has been their reliance on existing federal tax legislation which allowed the oblast to provide such incentives. This was of major importance, both to the oblast and to the GEF Team, since such existing authority allowed the oblast to institute such legislation quickly without seeking further federal approval and actions. The main goal of the legislation was to provide incentives that would deal with the gap between conventional power tariffs and the higher tariffs for wind power. The legislation was thus a key element for the successful pursuit of Power Purchase Agreements within the oblast. In addition, various models were designed to overcome any problems or issues that could exist, both for the pilot project, and for all future projects having to do with land acquisition, interconnection to the oblast utility, and approvals. Given that for financing purposes the pilot project aimed at industrial users with international financial credibility and assumed, as well, that future projects would also target such customers, the goal of the model legislation was to provide incentives to attract such major customers. Also, since the financing for wind development is long-term, assumed to be 10 years, the Power Purchase Agreements needed to be of equally long-term duration, and therefore the incentives provided by the oblast had also had to cover the same term. Of the several models developed, the most suitable was the one which provided a long-term Industrial Users Profit Tax Credit to industrial customers in the oblast, which equaled the amount of the gap between wind and conventional tariffs, making tariffs for electricity generated by wind competitive in the oblast. Accordingly, this model was selected and sent to the Governor of the Leningrad Oblast for his support and sponsorship. Major Provisions of the Proposed Legislation

The major elements of the legislation are the following:

• Provides land be used for renewable energy development in the oblast in recreation (resort) land areas, territories bordering of reservations and regions where energy systems are not able to supply a guaranteed minimum of power, thus preventing breakdown (Blackouts) and restrictive disconnects of production facilities and consumers.

• Defines the oblast support for company-producers of renewable energy and promotes

measures encouraging use of renewable energy by company consumers in the oblast.

• Provides property and profit tax incentives for renewable energy producer companies, which amounts to tax holidays for the debt period and two years beyond that period.



• Provides loan guarantees, if needed, for development of renewable power projects.

• Provides that the utilities in the oblast must accept power from renewable energy producers on their electric grids at tariffs, established by the Executive body of Leningrad, providing for recouping of investments and servicing of debt.

• For industrial consumers signing a long-term Power Purchase Agreement provides an

income tax credit for the period of the contract equal to the difference between renewable and conventional tariffs. The effect of the tax credit is shown in Figure 1.7.

Legislation as Focus of Future Seminars or Conferences

The legislation drafted should become the focus of further outreach in Russia to other regions, industrial consumers and federal officials. Its far-ranging provisions deal effectively with all aspects of the issues defined in the previous sections: land allocation, grid interconnection agreements, and tax incentives for wind developers and industrial customers. Legislation as Impetus for National Program of Incentives

Although not defined as an activity in the GEF Work Plan, the Leningrad Oblast legislation for an Industrial Users Tax Credit and the discussions with Oblast leadership in developing this

Figure 1.7 Industrial wind user tax credit can close the gap between conventional energy and wind power. Revenue lost initially by the Oblast can be recovered as power prices rise to levels in Europe.

Wind Power Price

10 20 30

Debt Period Plant Design Life

Years

Rubles /kWh

1.3

1.8

3.2

Conventional Power Price

US cents/kWh

4

6

10

2

Tax Credit8 2.6

Wind Power Price

Benefit To User



legislation, led the GEF Team to consider and analyze the possible impact of the successful implementation of the legislation on the oblast’s budget. The Leningrad Oblast is the fastest growing region in the Russian Federation and attracts the highest foreign investment. Therefore, the oblast can perhaps stand to forgo some income from industries in the region which take advantage of the tax credit to use wind power. Nevertheless, there may be some years of budget constraints in the Leningrad Oblast, where even relatively small amounts of forgone tax receipts could have some significance and visibility. Such budgetary constraints in other oblasts in Russia could also limit adoption of similar legislation to encourage renewable energy. The GEF Team therefore developed a proposal for a federal loan guarantee program to commercial banks, which incorporates the industrial users tax credit, and sets up as and where needed revolving loan funds to allow oblasts to provide financially credible industries in their regions with tax incentives for use of renewable energy. In effect the RF would back loans to the oblasts to cover lost revenues from deferred from industrial wind users taxes. These deferred taxes will eventually be repaid when the price of power rise. Such loan guarantee programs could be instituted on a nation wide basis or could be done in individual oblasts. It may be less complex to institute such a program within the oblasts and rely on the oblast government authority to provide such a guarantee within the framework of the already existing IFC program providing for acceptance of municipal guarantees for financing in Russia. The GEF Team presented this proposal to the Deputy Head of Administration of the Russian Federation. His response was that it would be considered once the pilot project was underway. Material describing this proposal is provided in Deliverable 6 on Legislation. Groundwork Laid for Further Outreach and Educational Activities: Seminar Proposed in Cooperation with World Bank

Much of the activity pursued under the GEF project in regard to achieving the pilot project has, in fact, laid down the groundwork for such adoption but has also indicated the need for further educational and outreach efforts. It is particularly clear from the situation regarding land for wind power development, as it is also true for most issues discussed in this Section on Accomplishments, that agreements and modes of operation pertaining to wind power development are new to Russia. Additional outreach and education activities are needed that are beyond the scope of Goal 3 under this project. As an example, the above described Model Land Use Agreement will require follow-up and widespread outreach to achieve endorsement needed to institute such measures in any pervasive way. To help accelerate the pace of institutionalization and approval of, for example, this new approach to use of the land, it is considered important to run a seminar targeted to officials of oblasts throughout Russia and federal officials from various ministries. During the Feasibility Study phase of the project an all day Seminar was held in 2003 for Leningrad Oblast, federal and UES officials. The Seminar was chaired by a Vice Governor of the Leningrad Oblast. That Seminar, however, was a general introduction to wind power and provided an overall description of the planned project. It was deemed by participants at the time to be a very useful educational effort, which raised the consciousness of participants on the advantages of wind power and allowed them to pursue questions and discussions with all



presenters and other participants. A much more comprehensive and detailed Seminar would now be timely incorporating the lessons learned under the GEF project. This seminar could possibly be supported as part of a new World Bank program for encouraging the development and use of renewable energy in Russia. As part of the GEF activities, a mini-seminar had been planned for the region within the Leningrad Oblast where the first pilot plant is to be sited. This was to be targeted for potential customers, regional administrators, land officials and land owners and deal with issues of wind power reliability and international usage on wind development in regard to land and approvals. This approach was in fact replaced during the processes of identifying key officials, land owners and potential customers by one-on-one meetings where these issues were fully addressed. Particularly, in the meetings involving Power Purchase Agreements, it was found necessary and useful to respond to questions on such issues in very direct and concrete meetings. GEF Project Evaluation and Monitoring One of the requirements of the GEF grant, Activity 8, was to conduct monitoring and evaluation of overall project performance indicators, quality of results, cost and schedule. IFC appointed Sandeep Kohli as the Project Evaluator. He monitored progress against the Project Work Plan (Appendix A) through meetings, numerous phone calls and update memos on significant meetings and accomplishments. A review meeting was held at IFC in conjunction with submission of the Work Plan in March 2004, which resulted in some revisions to the Work Plan. A formal review was held at IFC in July 2004. Presentation materials for this review are included in Appendix C. As a result of that meeting, emphasis was placed on pursuing Power Purchase Agreements and other activity to help bring the first pilot project to fruition. The project was also presented at an open panel discussion at the Global Wind Power Conference held in Chicago, Illinois in March 2004. Most significantly, independent review and evaluations were conducted by three major European organizations interested in investing in the project and the GEF project activities. These three entities are the Nordic Environment Finance Corporation (NEFCO), Fortum, the largest utility in Finland and second largest in the Nordic Region, and Vardar, a Norwegian municipal utility. The GEF Team held several meetings with each of these entities, provided them with wind power plant Business Plan information and proformas, and status reports on GEF project activity regarding Power Purchase Agreements, land acquisition, wind resources, Interconnection and Operations Agreement, approvals, and financial incentive legislation. These three evaluations, with potential investments at stake, were conducted with thorough and detailed analysis and ongoing review. Negotiations are going forward with the three organizations for equity investment.



Potential investor evaluations are considered to be the best possible independent evaluators for this GEF project. References

1. Sektorov, V.R., 1934, “The First Aerodynamic Three-Phase Electric power Plant in Balaclava, L’Elettrotenica, 21(23-25), pp. 538-542.

2. Bezrukikh, P.P., Resources and Efficiency of the Use of Renewable Sources of Energy in Russia, ISBN 5-02-024971-8, Moscow, May 2002; pages 83-122.

3. European Bank for Reconstruction and Development, “Renewable Energy Resource Assessment: Stage 1”, Black & Veatch Project Report Number 68508, October 2002.

4. International Energy Agency, Wind Energy Agreement Annual Report 2003, http://www.ieawind.org/.

5. RAO UES Annual Report for 2003.



APPENDIX A

Project Work Plan



APPENDIX B

IFC Project Review in July 2004