Extended Annual Review Report

Project Number: 41900 Loan Number: 2326 November 2012

Loan India: Tata Power Wind Energy Financing Facility

In accordance with ADB’s Public Communications Policy (2011), this extended annual review report excludes information referred to in paragraph 97 of the PCP 2011.

CURRENCY EQUIVALENTS

Currency Unit – Indian rupee/s (Re/Rs)

At Appraisal At Project Review 9 March 2007 31 May 2012

Re1.00 – $0.023 $0.018 $1.00 – Rs44.365 Rs56.255

ABBREVIATIONS

ADB – Asian Development Bank CER – certified emission reduction DZ Bank – Deutsche Zentral-Genossenschaftbank EMP – environmental management plan Enercon – Enercon India IREDA – Indian Renewable Energy Development Agency O&M – operation and maintenance RPO – renewable purchase obligation SCADA – supervisory control and data acquisition Suzlon – Suzlon Energy Tata Power – The Tata Power Company Limited XARR – extended annual review report WTG – wind turbine generator

WEIGHTS AND MEASURES

GWh (gigawatt-hour) – 1,000,000 kWh kW (kilowatt) – 1,000 watts kWh (kilowatt-hour) – 1,000 watt-hours MW (megawatt) – 1,000,000 watts

NOTES

(i) The fiscal year (FY) of the Government of India and most of India’s public and private institutions and corporations ends on 31 March. The FY of The Tata Power Company Limited ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2012 ends on 31 March 2012.

(ii) In this report, "$" refers to US dollars.

Vice-President L. Venkatachalam, Private Sector and Cofinancing Operations Director General P. Erquiaga, Private Sector Operations Department (PSOD) Director M. Barrow, Infrastructure Finance Division 1, PSOD Team leader T. Koike, Principal Investment Specialist, PSOD Team members R. de Leon, Project Analyst, PSOD

S. Durrani-Jamal, Senior Economist, PSOD M. Manabat, Senior Investment Officer, PSOD V. Medina, Safeguards Officer, PSOD M. Pascua, Senior Safeguards Officer, PSOD R. Tabanao, Project Analyst, PSOD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i EXECUTIVE SUMMARY ii

I. THE PROJECT 1 A. Project Background 1 B. Key Project Features 2 C. Progress Highlights 3

II. EVALUATION 3 A. Project Rationale and Objectives 3 B. Development Impact 4 C. ADB Investment Profitability 6 D. ADB Work Quality 6 E. ADB’s Additionality 7 F. Overall Evaluation 7

III. ISSUES, LESSONS AND RECOMMENDED FOLLOW-UP ACTIONS 8 A. Issues and Lessons 8 B. Recommended Follow-Up Actions 10

APPENDIXES 1. Project-Related Data 11 2. Private Sector Development Indicators and Ratings 12 3. Industry and Operations Review 16 4. Environmental and Social Impact 17

BASIC DATA Tata Power Wind Energy Financing Facility (Investment No. 7253 - India)

Key Dates Expected Actual Concept Clearance Approval Board Approval Loan Agreement Loan Effectiveness First Disbursement Commercial Operations Date Loan Closing

Dec 2006 Mar 2007

2007 2007 2007

31 Mar 2007 (Khandke) 31 Mar 2007 (Bramanvel)

2007

15 Dec 2006 17 Apr 2007 26 Apr 2007 4 May 2007 7 May 2007

14 Dec 2007 (Khandke) 9 May 2007 (Bramanvel)

14 Oct 2009 (Sadawaghapur) 7 May 2007

Project Administration and Monitoring No. of Missions No. of Person-Days Fact-Finding Negotiation Project Administration XARR Mission

1 1 4 1

24 8

12 15

XARR = extended annual review report.

EXECUTIVE SUMMARY

India has a growing gap between power demand and supply, and a huge need for additional installed capacity, making the Indian power sector fundamentally attractive to investors. However, the country’s increasing dependence on fossil fuels and rising concern regarding the resultant negative effects on India’s energy security and the environment support the urgent need for rapid renewable energy development.

In 2007, the Board of Directors of the Asian Development Bank (ADB), approved an

Indian rupee-denominated corporate loan of up to Rs3,520 million to The Tata Power Company Limited (Tata Power), for the implementation of wind energy projects in the state of Maharashtra, with a total capacity of 100.4 megawatts (MW). To reduce its direct exposure, ADB arranged the participation of the Indian Renewable Energy Development Agency (IREDA) as a co-financier, and Deutsche Zentral-Genossenschaftbank (DZ Bank) as an unfunded risk participant to the ADB loan.

A total of 79.15 megawatts (MW) was commissioned, namely: (i) the 50.4 MW Khandke

Wind Power Project (commissioned in 2007), (ii) the 11.25 MW Bramanvel Wind Power Project (commissioned in 2007), and (iii) the 17.5 MW Sadawaghapur Wind Power Project (commissioned in 2009). The reduction in capacity, which resulted mainly from an overestimation of the available wind resources, was covered by a major change in project scope approved in 2009. The electricity generated from these wind farms is evacuated through the Maharashtra state transmission network and is primarily distributed by Tata Power in its license area in Maharashtra.

The overall assessment of the project is highly successful, based on four main criteria:

(i) development impact, (ii) ADB investment profitability, (iii) ADB work quality, and (iv) ADB additionality. The project’s development impact is rated satisfactory, when evaluated against four sub-criteria: (i) private sector development; (ii) business success; (iii) economic sustainability; and (iv) environmental, social, health, and safety performance.

The project’s contribution to private sector development is rated excellent. Increased

domestic capacity demand for wind power resulted in the establishment of several new wind turbine generator (WTG) manufacturers, as well as more banks and lending institutions funding renewable energy projects. Since the commissioning of the last wind farm (Sadawaghapur) in 2009, private investment into India’s clean energy sector has grown remarkably, amounting to US$10.2 billion in 2011 (54% greater than in 2010). The project’s construction and operation also created wind farm employment, and provided new opportunities for service industries and economic activities in the wind farm areas—translating into more local employment. Further linkage effects are also expected from growth in tourism in the areas.

Business success was rated satisfactory. The wind farms have been operating robustly

since their respective commissioning dates.

For economic sustainability, the project is rated satisfactory. It generated almost 130 GWh of electricity per year to meet unmet demand in the state, and is expected to contribute to reducing the total greenhouse gas emission during 2007 to 2027 by 2.1 million tons of carbon dioxide.

The project is rated satisfactory for environmental, social, health, and safety

performance. Environmental management focuses on maintaining site cleanliness and

sanitation, because no harmful atmospheric emissions or contaminants are generated during operation. No major environmental issues are identified or anticipated, and national environmental safeguards requirements have been adequately met. The project did not entail any social impacts that required mitigation.

ADB’s investment profitability is rated satisfactory. The loan was priced at a fixed rate

that was in line with the market, considering the long tenor of the transaction. Tata Power has been current in making principal repayments and interest payments.

ADB’s work quality is rated excellent. The project was processed internally within a very

short period. ADB played a key role in conducting technical, financial and legal due diligence. ADB also took the lead in arranging the project’s financial package, resulting in the participation of IREDA and DZ Bank. ADB also responded flexibly to the necessary change of scope, conducting additional due diligence and coordinating with IREDA and DZ Bank to obtain their consent. ADB continues to maintain close contact with Tata Power and monitors the project through the generation reports, financial statements, compliance certificates and annual reports submitted by Tata Power. Internal monitoring reports are prepared by ADB on a semi-annual basis, highlighting Tata Power’s performance and key risk issues.

ADB’s additionality is rated excellent. The project would not have materialized without

ADB, and ADB provided the best possible financing solution under the market circumstances that prevailed at the time. IREDA was invited to participate by ADB and benefited from ADB’s assessment and negotiations with Tata Power. ADB also mobilized DZ Bank’s risk-taking capacity for a rupee facility. ADB will remain the lead institution among the lenders throughout the loan tenor, and will coordinate with IREDA and DZ Bank on project developments.

The project’s main issues were (i) the reduction in scope and cost due to insufficient

wind resources and land availability; and (ii) the lengthy process to amend the facility agreement to reflect the change in project scope and cost. Issues and lessons for India’s wind power industry are: (i) the need to better forecast wind resources to select the correct sites; (ii) the need to strengthen grid capacity and grid management; and (iii) the impacts of regulatory changes on the development of the renewable energy sector.

I. THE PROJECT A. Project Background 1. In 2007, the Government of India envisaged under its new National Electric Policy that it would provide power to all its citizens by 2012. The “Power for All by 2012” initiative aimed to address an acute shortage of power in India resulting from a rapidly expanding economy. As of 31 March 2007, India’s total installed capacity was around 132,000 megawatts (MW).1 The government’s Eleventh Five-Year Plan (covering 1 April 2007 to 31 March 2012) targeted an expansion of capacity to 212,000 MW, meaning much needed to be done to meet the target and achieve “Power for All by 2012.” 2. India suffered from power shortages, with peak demand exceeding supply by 13.8% in FY2007, and by 15.2% during FY2008.2 The Indian power sector has a growing demand–supply gap and a huge requirement for additional installed capacity, making it fundamentally attractive to investors, but for various reasons the pace of private sector investment has been well below expectations. India’s increasing dependence on fossil fuels, an increasing part of which is imported, and rising concerns about the associated negative effects on the environment and energy security have prompted an urgent push to develop the country’s renewable energy sources. 3. Among the renewable energy sources available in India, wind energy has the strongest potential. In 2007, the Ministry of New and Renewable Energy estimated the overall potential for wind power at 45,000 megawatts (MW), with only about 6,270 MW developed. At that time, India was ranked fourth in the world in terms of installed wind power capacity. 4. The government has been promoting the use of renewable energy sources through measures that include a wide range of fiscal and tax incentives,3 resulting in an increased focus on renewable energy among many utilities and private companies, such as The Tata Power Company Limited (Tata Power)—one of the largest private sector power utilities in India. In 2007, Tata Power had an installed generation capacity of 2,323 MW, of which only 17 MW was generated from wind power. 5. The Indian rupee-denominated loan to Tata Power of up to Rs3,520 million, approved by the Asian Development Bank (ADB) Board in April 2007, was for the implementation of two wind energy projects in the state of Maharashtra: the Khandke Wind Power Project (50.4 MW) and the Bramanvel Wind Power Project (50.0 MW). The ADB loan was structured as a corporate loan in which the debt service relies on Tata Power’s entire corporate cash flows and balance sheet rather than project-specific ring-fenced cash flows. 6. In 2007, the Maharashtra Electricity Regulation Commission introduced the renewable purchase obligation (RPO), which required licensed power distributors operating in the state to procure 3% of total energy input from renewable energy sources.4 This requirement increases

1 The Tata Power Company Limited. 2007. 88th Annual Report. Mumbai. 2 Ministry of Power. 2007. Annual Report. Delhi. 3 The incentives include: (i) 80% accelerated depreciation of project costs, (ii) s generation-based incentive scheme,

(iii) concession on import duty on specific wind turbine components, (iv) 10-year income tax holiday for wind power generation projects, and (v) 100% foreign direct investment allowed in renewable energy generation projects.

4 Maharashtra Electricity Regulation Commission. 2006. Maharashtra Electricity Regulation Commission Order for Long Term Development of Renewable Energy Sources and Associated Regulatory Framework; Case No. 6 of 2006 dated 16 August 2006. Mumbai.

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by 1% each year until 2010, to reach 6% of total energy input. While the RPO requirement was introduced after Tata Power had decided to implement the ADB-financed wind farm projects, Tata Power, as a licensed distributor, benefited from the projects in meeting the requirement. B. Key Project Features 7. The loan for the project was ADB’s first assistance to a private sector wind energy project, and a private sector renewable energy project other than hydro, and was in line with ADB’s strategy to increase assistance promoting the use of clean energy, in particular to address climate change concerns. In 2005, the Energy Efficiency Initiative was launched within ADB to: (i) expand ADB’s clean energy program, (ii) build greater capacity in ADB’s operations departments to develop clean energy projects, and (iii) establish new and innovative financing instruments for clean energy financing. An annual target for clean energy investment was set at $1 billion. Since then, ADB has assisted a number of private sector renewable energy projects including wind, solar, biomass, and hydro. 8. The project demonstrated successful implementation of a large-scale wind power project in India, and ADB’s assistance supported the government’s policy to promote renewable energy. The project sought to add 10% to wind power generation capacity in the state of Maharashtra, and approximately 2.5% to the country’s capacity. 9. The long-term, fixed-interest rupee financing provided by ADB offered the best solution for the project under the market circumstances then in place. The feed-in tariff for wind energy projects does not allow financing costs to be passed through. As such, the long-term, fixed-interest rate offered by ADB helped increase the stability of the project’s financing plan. Tata Power valued the long-term, fixed-interest rupee financing from ADB because such financing was not readily available from the Indian financial markets. ADB provided the long-term, fixed-interest rupee financing based on a combination of: (i) an interest rate swap for the proceeds of ADB rupee bonds, which were issued in the Indian capital markets; and (ii) a cross-currency swap for US dollar funds. 10. ADB has played a significant role in catalyzing other sources of financing for the project, as ADB took the lead in arranging the entire debt financing package. ADB arranged separate joint cofinancing with the Indian Renewable Energy Development Agency (IREDA). ADB also arranged an unfunded risk participation from the Deutsche Zentral-Genossenschaftbank (DZ Bank) of Germany covering part of the ADB loan. Through these arrangements, ADB reduced its direct project exposure, and brought in commercial financing that might otherwise not have invested in the project. 11. ADB assisted the project through multiple products and also demonstrated a strong institutional synergy in promoting the development of renewable energy. As a source of clean energy, the project was considered eligible for certified emission reductions (CER). In addition to providing financing to the project, ADB’s Carbon Market Initiative provided technical support to Tata Power in applying for the Clean Development Mechanism benefits from the United Nations Framework Convention on Climate Change.5 In August 2008, the Asia Pacific Carbon Fund contracted all pre-2012 CERs (up to December 2012) from the Khandke Wind Power Project. In July 2010, the Khandke Wind Power Project became the first ADB private sector project to be registered as a Clean Development Mechanism project. In January 2012, the project received 86,957 CERs, becoming the first PSOD project to do so. In April 2012, the

5 The Carbon Market Initiative became the Carbon Market Program in 2010.

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Future Carbon Fund also executed an emissions reduction purchase agreement with Tata Power for the purchase of 1.1 million post-2012 CERs from Tata Power’s wind power projects in India, including the Khandke Wind Power Project, for 6 years (2013–2018). C. Progress Highlights 12. The Khandke Wind Power Project was implemented by Enercon India (Enercon) and the Bramanvel Wind Power Project by Suzlon Energy (Suzlon). Construction of the Khandke Wind Power Project started in October 2006, and the project was fully commissioned in December 2007. The Khandke Wind Power Project is operated by Enercon. Construction of the Bramanvel Wind Power Project began in November 2006, however, only 11.25 MW was commissioned in May 2007 due to lower-than-expected wind resources and continuing local forest land use discussions. Tata Power and Suzlon agreed to reduce the Bramanvel Wind Power Project’s capacity from 50 MW to 35 MW, and to relocate the balance capacity of 23.75 MW to the Sadawaghapur Wind Power Project, also in the state of Maharashtra. Both projects in Bramanvel and Sadawaghapur are operated by Suzlon. 13. Subsequently, the capacity of the Sadawaghapur Wind Power Project was further reduced from 23.75 MW to 17.5 MW due to a lack of sites with sufficient wind resources. Commercial operation of the Sadawaghapur Wind Power Project started in October 2009. Suzlon’s total scope (including the Bramanvel Wind Power Project) was further reduced to 28.75 MW from 35 MW. 14. In October 2009, ADB approved a change in project scope, consisting of the (i) inclusion of the Sadawaghapur Wind Power Project, (ii) reduction of installed capacity for the Bramanvel Wind Power Project, and (iii) reduction of the approved total project cost.

II. EVALUATION A. Project Rationale and Objectives 15. The project aimed to reduce the power supply deficit in India (particularly in the state of Maharashtra) through additional generating capacity from renewable energy sources, while promoting private sector participation in power sector infrastructure. The use of renewable energy sources helps mitigate the country’s dependence on fossil fuels, and in turn, helps India achieve its energy diversification targets.6 16. The project’s objectives have been fulfilled, as seen in the country’s sharp growth in generation capacity from renewable energy sources. Renewable energy sources accounted for 10.26 gigawatts (GW) in generation capacity in 2007 (comprising 6% of the country’s fuel mix); this increased to 23.12 GW in January 2012, or 11% of the fuel mix. Wind power accounts for 16.18 GW, or 70% of renewable energy capacity.7 During the Eleventh Five-Year Plan period ending 31 March 2012, a total of 14,660.65 MW of power generation capacity from renewable sources of energy was added.8 Generation of renewable energy increased from 9.86 GWh

6 The Indian government’s renewable energy target is 200 GW by 2030. The Eleventh Five-Year Plan envisages a

total installed wind energy capacity of 40,000 MW by 2022, equal to about 88% of India’s wind energy potential. 7 Consists of wind power, small hydro power, biomass power, bagasse cogeneration, waste to power (urban and

industrial), and solar power. Large hydropower is excluded. 8 According to the Ministry of New and Renewable Energy, the total of renewable power capacity addition comprises

10,259.60 MW of wind power, 1,418.85 MW of small hydro power, 1,996 MW of biomass power, 46.20 MW of waste to energy, and 940 MW of solar power.

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(1.47% of the total generation) in FY2007 to 51.23 GWh (5.52% of the total generation) in FY2012. 17. Together with a growing awareness of the benefits of wind power in India,9 the project served as a positive example that helped encourage other private sector companies to focus on renewable energy and develop wind farms, biofuel-based projects and solar projects. The market in India for renewable energy capacity expansion is growing at an annual rate of 15%. The scope for private investment in renewable energy is now estimated at about $3 billion per annum.10 B. Development Impact 18. The development impact of ADB’s loan to Tata Power is rated excellent. It was evaluated on four criteria: (i) private sector development; (ii) business success; (iii) economic sustainability; and (iv) environment, social, health, and safety performance. The overall rating for development impact is driven in particular by the greater weight given to private sector development.

1. Private Sector Development 19. The impact of the project on private sector development is rated excellent (private sector development indicators and ratings are in Appendix 2). 20. Private sector expansion. Despite being highly regulated, the Indian power sector has seen wider private sector participation when suitable reforms have been instituted by the government.11 In 2009, at about the time when the project’s last wind farm (Sadawaghapur) was commissioned, the private sector’s share of India’s generation mix was only 15%, or roughly 22,000 MW. But, as of April 2012, the private sector accounted for 28% of India’s total installed capacity,12 or 55,536 MW. Existing private power generating companies such as Tata Power, Adani Power and Reliance Energy have also set up new power plants. Tata Power even set up a subsidiary, Tata Power Renewable Energy, to further develop clean energy generation. In the wind industry, more than 17 new manufacturers of wind turbine generators (WTG) have appeared as a result of increased domestic capacity demand, while more banks and lending institutions are showing interest in funding renewable energy projects.13 India's clean energy sector flourished in 2011 with private investment of $10.2 billion (54% greater than in 2010, and 600% greater than in 2004). 21. Innovation. The 800 kilowatt gearless WTGs in the Khandke Wind Power Project were considered one of the biggest technological innovations in the wind energy industry in India. Enercon, the wind farm operator, is among the first entities in India to have introduced and used the gearless WTG. With no gears and only a few rotating components, the WTG reduces friction

9 Wind energy does not emit greenhouse gases or other pollutants. A wind turbine generator can offset its

construction emissions in less than 1 year of operation, and run carbon free for the remainder of its 20-year life. The short gestation period for installing wind turbines has made wind power a preferred choice for capacity addition in India. Operations and maintenance costs for wind projects are low.

10 Global Wind Energy Council. 2011. Indian Wind Energy Outlook 2011. Brussels. 11 For example, the Electricity Act of 2003 removed the need for a license for generation projects, encouraged

competition through international competitive bidding, and identified transmission as a separate activity. 12 Central Electricity Authority. http://www.cea.nic.in/ 13 Prominent domestic banks that fund renewable energy projects include IDBI Bank, ICICI Bank, Industrial Finance

Corporation of India, State Bank of India and Punjab National Bank. Foreign banks such as Standard Chartered, RBS India (formerly known as ABN Amro) and Rabobank also provide renewable energy project financing.

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significantly, thereby (i) reducing mechanical stress, as well as operation and maintenance (O&M) costs; (ii) increasing WTG service life; and (iii) enabling power generation even at low wind speeds, resulting in greater resource efficiency. The technology is very relevant in India, which has extensive generation potential at relatively low wind speeds. 22. Skills contribution. Enercon and Suzlon, the wind farm operators, provide ongoing training to employees posted at the wind farms, which has allowed wind farm technicians to acquire skills and experience that can be used for wind farm expansion, and for other wind projects in the country. The wind farm operators also ensure their employees have opportunities for career advancement, through various training programs, including: (i) mentor–apprentice programs, (ii) technical training on the mechanical and electrical aspects of turbines, (iii) troubleshooting, and (iv) occupational safety and health administration training. Most of Suzlon’s programs are conducted in their global training center in India.

2. Business Success 23. The loan by ADB to Tata Power was a corporate loan for implementation of three wind farms which have been operating robustly since their respective commissioning dates. In terms of business success, the project is rated satisfactory.

3. Economic Sustainability 24. The key economic benefits from the project are (i) the value of the electricity generated as an input to economic activities, and (ii) the value of reduced greenhouse gas emissions. The project provided additional electricity to meet unmet demand in the state. It generated almost 130 GWh of electricity per year. The total emission reduction during 2007 to 2027 is estimated at 2.1 million tons of carbon dioxide. In terms of economic sustainability, the project is rated satisfactory.

4. Environmental, Social, Health, and Safety Performance 25. The project’s environmental classification was category B. Tata Power prepared environmental examinations for the Khandke Wind Power Project, Bramanvel Wind Power Project and later, for the shift of part of the Bramanvel capacity to a different site in Sadawaghapur in Satara District, also in the state of Maharashtra. The environmental management plans (EMPs) prepared for each wind power project outlined the key issues and concerns and mitigating measures for the impacts during construction and operation. The wind power projects were not covered in the government’s Environmental Impact Assessment Notification of 1994 and the amended Notification of 2006. Hence, there was no national requirement for an environmental impact assessment or environmental clearance prior to implementation, nor were related permits or clearances or environmental monitoring required for operation, in respect of ADB environmental requirements. 26. Except for domestic waste generated by onsite staff, wind power projects generate no harmful atmospheric emissions, effluent or solid contaminants during operation. Environmental management at the wind power project sites focus on keeping sites clean and sanitary through provision of garbage cans and proper disposal of garbage and solid and toilet waste. Waste oils (which are expected to accumulate over a long period) and used containers are returned to suppliers for recycling and reuse. The wind power facilities emit mechanical noise at a level of approximately 70–80 decibels during operation. However, there are no residential areas or villages within 2–3 kilometers (km) of the wind power project sites, and there is no noise impact

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beyond 3 km. There is no surface water nearby and no groundwater is used to operate the wind power turbines. As there are limited or no environmental (i.e., air, water, noise, ecological and visual) impacts, only regular visual monitoring is undertaken as part of O&M work for the turbines and surrounding areas. The extended annual review report (XARR) mission reviewed and discussed the EMP based on the initial environmental examinations, and has concluded that some aspects of the monitoring plans are not applicable and relevant, and need to be updated to reflect actual environmental and operational conditions. With respect to occupational health and safety monitoring, a Tata Power staff member with engineering qualifications is based at the wind power project sites, and supervises O&M, including the relevant environmental aspects. Workers at sites undergo annual medical checkups. At each wind power project site, a safety system is implemented by the operator with regular supervision by Tata Power. There have been no grid network accidents, large-scale equipment accidents, operating error accidents, fatal accidents or fires during project construction or subsequent O&M. 27. The project was classified as Category C for both involuntary resettlement and indigenous people safeguards. During construction and operation, the project did not entail any social impacts that required mitigation. With the current operational status, it is unlikely that there will be major social issues. 28. Based on the review and evaluation of safeguards documents and the site visit, Tata Power’s performance is found to be satisfactory, with all project environmental impacts and relevant mitigating measures implemented. Annual environmental and social performance reports have been submitted to ADB by Tata Power. Due to limited environmental impacts during operation, impacts focus mainly on occupational health and safety, and the EMPs will be updated for more realistic implementation and efficient reporting. The updated EMPs will no longer require quantitative monitoring for air quality, water quality and noise but will include more detailed occupational health and safety monitoring during operation. 29. Overall, the project’s environmental, social, health and safety performance is rated satisfactory. C. ADB Investment Profitability 30. ADB’s investment profitability is rated satisfactory. The all-in pricing of the loan was benchmarked with market comparables. 31. ADB’s direct exposure to the transaction was decreased when DZ Bank entered into a risk participation agreement covering a part of the ADB loan to Tata Power. At Board approval, Moodys’ long term rating of DZ Bank was Aa3, and currently, it is A1.

32. Tata Power has been current in making principal repayments and interest payments. D. ADB Work Quality 33. ADB’s work quality is rated excellent based on ADB’s (i) screening, appraisal and structuring of the project; (ii) monitoring and supervision; and (iii) role and contribution. 34. The project was processed within a very short period. Following concept clearance on 15 December 2006, ADB conducted technical, financial and legal due diligence. ADB also arranged the project’s financial package, catalyzing cofinancing from IREDA and DZ Bank with terms and conditions identical to those of the ADB loan. Board approval was obtained on 17

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April 2007. Through concerted efforts between the Private Sector Operations Department and Treasury Department, ADB delivered long-term, fixed-interest rupee financing at a competitive price. Delivery of a quality product within the required tight timeline fully met the client’s expectations. In terms of project screening, appraisal and structuring, an excellent rating is assigned. 35. ADB maintains close contact with Tata Power and tracks the project through generation reports submitted by Tata Power, site visits, and direct interaction with Tata Power’s management. Tata Power’s financial statements, compliance certificates and annual reports are also made available to ADB. Internal monitoring reports are prepared by ADB on a semi-annual basis, highlighting Tata Power’s operating and financial performance, key risk issues, and development impact assessments. ADB also demonstrated flexibility to accommodate the necessary change of scope, conducting additional due diligence and coordinating with IREDA and DZ Bank to obtain their consent. ADB’s project monitoring and supervision is rated excellent. 36. ADB’s role and contribution to the project was crucial. ADB has provided and continues to provide support to the project, to ensure client satisfaction and the realization of project objectives. For this, ADB’s positive role and contribution is rated excellent. In addition, the project is in line with ADB’s Strategy 2020,14 which emphasizes assisting developing member countries in core areas of infrastructure and environment. The project is also consistent with ADB’s country partnership strategy for India,15 which highlights the importance of infrastructure development, private sector participation and renewable energy development in the country. E. ADB’s Additionality 37. ADB’s additionality is rated excellent. The project would not have taken place without ADB, and not have been provided the best possible financing solution under the circumstances that prevailed at the time, i.e., a combination of long-term, fixed-interest rupee financing by ADB and a cofinancing facility from IREDA in a single package. Tata Power specifically requested ADB to take the lead in arranging the project’s financing package, relying on ADB’s catalytic role, capability and network with various financing institutions. 38. IREDA and DZ Bank were invited to participate by ADB, and benefited from ADB’s assessment and negotiations with Tata Power. IREDA also coordinated their documentation requirements with ADB. At the time when the project was being considered by ADB, international banks (e.g. DZ Bank) did not have the funding capacity to provide direct long-term rupee financing. However, they had a sufficient risk appetite to take part in the risk-sharing arrangement. Thus, ADB mobilized DZ Bank’s risk-taking capacity in DZ Bank’s first unfunded risk participation for a rupee facility, and one of the first by any international commercial bank. 39. ADB will remain the lead institution among the lenders throughout the loan tenor, and will advise IREDA and DZ Bank of project developments and of any project-related matters. F. Overall Evaluation 40. The overall evaluation of the project is highly successful, as summarized in individual category ratings below.

14 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020.

Manila. 15 ADB. 2009. Country Partnership Strategy: India, 2009–2012. Manila.

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Table 1: Evaluation of the Tata Power Wind Energy Financing Facility

Indicator/Rating Unsatisfactory Partly Satisfactory Satisfactory Excellent

Development Impact

Private sector development

Business Success

Economic Sustainability

Environment, Social, Health, and Safety Performance

ADB Investment Profitability

ADB Work Quality

Screening, Appraisal, and Structuring

Monitoring and Supervision

ADB’s Role and Contribution

ADB Additionality

Unsuccessful Partly successful Successful Highly successful

Overall Rating

ADB = Asian Development Bank.

III. ISSUES, LESSONS AND RECOMMENDED FOLLOW-UP ACTIONS A. Issues and Lessons 41. The project risks identified in the report and recommendation of the President were addressed during due diligence and are considered low to moderate, considering (i) Tata Power’s strong financial position and stable operating performance, and (ii) the increasing demand for energy in the state and country.16 However, the following issues and lessons were noted: 42. Site selection and the need for better wind resource forecasting. Precise forecasting of wind resources and selecting the right wind site is critical. The wind farm capacity in Bramanvel and Sadawaghapur fell short of what was expected to be commissioned, mainly as a result of insufficient wind resources. For example, the plant load factor17 for Bramanvel turned out to be lower than expected. This entailed a major change in the project’s scope and a decrease in total project cost. Although the sites were identified by the Ministry of New and Renewable Energy as suitable for wind power generation, Tata Power’s in-house wind team would have been in a position to conduct more studies, following more stringent norms, to better forecast potential wind generation in these areas, and develop a more accurate estimate of how much power could be commissioned. However, it should be noted that Tata Power was implementing the project under a time constraint that resulted from the need to compete for good wind sites. From a credit perspective, the risk was mitigated by a corporate loan transaction structure.

16 ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Loan for the Tata

Power Wind Energy Financing Facility in India. Manila. 17 The plant load factor measures the actual output of a plant over a period of time against the output of the same

plant if it had operated at full capacity for the same period.

9

43. Unavailability of land. Development of wind power farms can be hampered by the unavailability of suitable land. Bramanvel’s shortfall was also due to a lengthy local forest land use discussion. The site is classified as forest land, and it required clearance from forest authorities for the land to be used for wind power generation. Consultation with the local community was not straightforward and proved very time consuming. Tata Power and Suzlon could have been better prepared, thereby ensuring greater clarity on this issue. However, as noted above (para. 42), Tata Power faced a time constraint, and the risk was mitigated by the loan structure. 44. Need for more power evacuation facilities. India’s significant wind potential requires more transmission infrastructure capacity to evacuate the increasing volume of wind power. However, there is currently a mismatch between the time it takes to install WTGs, and the time it takes to establish a suitable transmission system for the WTGs.18 Since most wind farms are located in remote areas, the lack of power evacuation capacity makes it difficult to transmit power from wind farms to load dispatch centers.19 The situation is worst in the state of Tamil Nadu, where it is reported that a number of generation units are not used due to the lack of evacuation lines. Clearer policy coordination and well planned investment plants in the sector at government level are important to mitigate the risk. 45. Grid management issues. Wind power variability results in fluctuations in power output, which can create problems in maintaining a supply and demand balance on the power grid, and results in grid operators viewing wind power as unreliable and unpredictable. However, in the grid code, wind power is classified as "must run" and all power offered by the WTGs is to be first dispatched by a grid operator. The operator, however, has no advance information of the availability of the wind power, and cannot plan for its dispatch. Managing this situation requires accurate forecasting of wind power between the wind farm operator and grid operator. Numerical weather forecasts, wind power plant generation models and statistical methods that consider when maximum wind generation is available (off peak, during the monsoon season), and peak demand for power occurs (during summer months, when wind power is not abundant) must be employed. Accurate wind power generation predictions will enable grid operators to effectively plan for the power available and improve the economic efficiency of grid operation. Scheduling wind power also makes wind farms appear more like conventional power stations, bridging the gap between demand and supply. Introduction of more advanced technology and capacity building of grid operators would address the issues and contribute to more efficient use of wind power. Recently, the grid code has been amended, and wind power generators are expected to provide a prediction of generation to the load dispatch center to help in better grid planning. 46. Change in regulation. The policy framework for renewable energy in India is evolving and changes in relevant regulations impact sector development. For example, in April 2012, the government lowered the accelerated depreciation (or tax break) benefit for wind farm operators from 80% to 15%. The government considered that the 80% accelerated depreciation would provide less incentive to efficiently operate and maintain wind power projects, although it was a good incentive for upfront investment. Thus, the change was introduced to discourage development of inefficient wind power projects. This change could set back the capacity expansion of India’s wind sector, but could also result in an increase in sector efficiency. The central and state governments have also introduced new measures including introduction and/or

18 A wind turbine can be installed relatively quickly, but establishing a transmission system can take at least 3 years. 19 A load dispatch center ensures the integrated operation of a power system. It is responsible for the scheduling and

dispatch of electricity within an area, as well as for monitoring grid operations.

10

revision of the renewable purchase obligation, revision of feed-in-tariffs (including introduction of a generation-based incentive), and introduction of the renewable energy certificate mechanism.20 Changes in the policy framework need to be introduced without hampering the investment appetite of the private sector. It is particularly crucial that government honor its commitments under the old frameworks, continue dialogue with private sector investors and commercial banks regarding future changes, and balance the public interest and commercial viability and bankability of project. 47. Long period to amend facility agreement. It took much longer than expected to amend the facility agreement to incorporate the change of scope. The project’s major change in scope was approved in October 2009, leading to a need for consequential amendments to the facility agreement and the security documents. The amendment of the facility agreement was executed on 30 March 2012, subsequent to (i) negotiation of the amendments to the facility agreement and the new deed of mortgage; (ii) Tata Power’s internal process for securing a board approval for the amendments; (iii) a process of obtaining consents from Tata Power’s relevant existing creditors to the amendments; and (iv) administrative procedures to comply with the regulatory requirements relating to the amendments. The amendment process would have been faster if Tata Power could have retained its own external counsel and allocated more internal resources within the limited time period to finalizing discussions with ADB and IREDA, and to completing its internal approval process. B. Recommended Follow-Up Actions 48. ADB is satisfied with the O&M performance of the three wind farms. Each site has a supervisory control and data acquisition (SCADA) system, which is at the heart of the wind farm’s operations. It gathers and provides real time information on WTG and substation operation, including the nature and degree of any problem. It is capable of displaying the data graphically, which may point to a developing problem, or an area for process improvement. In order for these wind farms to surpass current generation levels, the SCADA system should be kept in very good condition at all times, and activities within the site should be continually monitored and analyzed using the information gathered from the SCADA system. 49. ADB will continue monitoring the quality of reporting and will ensure that adequate coordination remains in place between Tata Power and the operators. The Annual Environmental and Social Performance Reports submitted by Tata Power to ADB have not been promptly disclosed in ADB’s Disclosure Management System, due to material lack of information despite the form being provided as part of the loan agreement. ADB has had to request from Tata Power more formal and comprehensive reporting that includes the Sadawaghapur Wind Power Project, and addresses relevant key questions on: (i) compliance with country requirements, listing relevant Indian environmental regulations with permitting requirements for wind farm operations; (ii) compliance with ADB safeguards requirements; (iii) a summary of safety performance; and (iv) sustainable development, including a description of Tata Power’s overall corporate social responsibility program. The low quality of reporting was partly attributed to poor coordination on this matter between Tata Power and the wind farm operators. During the XARR mission, the reporting requirement was discussed in detail. Improved reports have been received by ADB, and are now disclosed on the ADB web site. 20 The renewable energy certificate mechanism was put in place in 2010 to enable distribution utilities or licensees to

meet their RPO targets for the uptake of renewable energy. The renewable energy certificate is a tradable certificate of proof that one megawatt-hour of electricity has been generated. It is traded through a power exchange platform within a price range determined by the Central Electricity Regulatory Commission. For wind power generation, the price range is Rs1,500 to Rs3,900 per renewable energy certificate.

Appendix 1 11

PROJECT-RELATED DATA

A. Investment Identification

1. Country India

2. Project Number/ Investment Number/ Loan Number

41900/ 7253/ 2326

3. Project Title Tata Power Wind Energy Financing Facility

4. Borrower The Tata Power Company Limited (Tata Power)

5. Co-lender Indian Renewable Energy Development Agency Limited (IREDA)

6. Risk Participant DZ Bank

7. Amount of Approved ADB Assistance Rs3.52 billion

8. Environment Category B

B. Investment Data

1. Concept Clearance Approval 15 December 2005

2. Board Approval 17 April 2007

3. Signing Date of Loan Agreement 26 April 2007

4. Date of Loan Effectiveness 4 May 2007

5. Date of Loan Closing 7 May 2007

6. Disbursement Date 7 May 2007

C. Data on ADB Missions

Name of mission Date No. of person-

days No. of

personsSpecialization of

members Fact Finding

January 2007

24

3

Investment Specialist Safeguards Specialists

Negotiation

March 2007

8

2

Investment Specialist Counsel

Project Administration

December 2008 March – April 2009

January 2010 August 2010

2 6 1 3

2 2 1 3

Investment Specialist Counsel

Sr. Investment Officer Project Analyst

XARR mission

May 2012

15

3

Investment Specialist Sr. Safeguards Officer

Project Analyst ADB = Asian Development Bank, DZ Bank = Deutsche Zentral-Genossenschaftbank.

12

Appe

ndix 2

PRIVATE SECTOR DEVELOPMENT INDICATORS AND RATINGS: INFRASTRUCTURE

Impact of the Project Ratings Impact to

Date Potential Impact

(sustainability) and Risk to its Realization

Combined Ratea

Justification/Annotations

1. Beyond Company Impact Ratingb Rating Riskc 1.1. Private sector expansion. Contributes as a pioneering or high-profile project to facilitating or preparing for more private participation in the sector and economy at large

Excellent Excellent Low Excellent The Tata Power Company Limited (Tata Power) is one of the largest private sector power utilities in India. The project has a high profile, and ADB’s assistance has raised the public’s awareness of wind energy. As of April 2012, the private sector accounted for 28% of India’s total installed capacity (compared to 8.9% in 2007). Increased domestic demand for WTGs led to the establishment of 17 new WTG manufacturers. Existing private power generating companies have built new plants, and increased their wind capacity.

1.2. Competition. Contributes new competition pressure on public and/ or other sector players to increase efficiency and improve access and service in the industry

Satisfactory Satisfactory Medium Satisfactory The wind energy sector has expanded and become more competitive. Tata Power set up a subsidiary, Tata Power Renewable Energy, dedicated to renewable power projects based on hydropower (< 25 megawatts [MW]), wind, solar and biomass, to expand and increase the competiveness of its renewable energy sector business.

1.3. Innovation. Demonstrates efficient new products and services, including areas such as marketing, distribution, tariffs, production, and technology; and ways to cover or contain cost, manage demand, etc.

Excellent Satisfactory Low Satisfactory The Khandke wind farm was one of the first users of gearless wind turbine generator (WTG) technology. Modified rotor blade design increases power output. Modified blade tips reduce noise emission. A storm control feature prevents abrupt shutdowns that cause yield losses.

1.4. Linkages. Relative to investments, contributes notable upstream or downstream linkage effects to business clients, consumers, suppliers, key industries, etc. in support of growth

Excellent Excellent Modest Excellent The electricity generated by the project was distributed in Tata Power’s license area and to its customers. Tata Power was able to register the Khandke Wind Power Project as a Clean Development Mechanism project and entered into a new business to trade certified emission reductions (CERs). The wind farms also provided new opportunities for service industries, and increased economic activities

A

ppendix 2

13

in the project areas. Hotels, small stores and banking facilities were developed in the areas. The quality of life of people around the wind farms has also improved.

1.5. Catalytic element. Contributes by including pioneering and/or catalytic finance, mobilizing or inducing more local or foreign market financing and/or foreign direct investment in the sector

Excellent Excellent Low Excellent Commercial co-financing for the project was catalyzed and coordinated by ADB. The Indian Renewable Energy Development Agency (IREDA) took on a loan as a co-lender. To catalyze the risk-taking capacity of the market for financing renewable energy projects, ADB introduced unfunded risk participation by Deutsche Zentral-Genosssenschaftbank (DZ Bank). More foreign and domestic banks are now funding renewable energy projects. India's clean energy sector flourished in 2011 with private investment of $10.2 billion (600% greater than in 2004). ADB has delivered a long-term, fixed-interest rate rupee-denominated loan facility that best suits the needs of the project.

1.6. Affected laws, frameworks, regulation. Contributes to improved laws and sector regulation for public-private partnership, concessions, joint ventures, and build, operate, and transfer projects; and to liberalizing markets as applicable for improved sector efficiency

Partly satisfactory

Partly satisfactory

Low Partly satisfactory

After implementation of the project, a number of new measures have been introduced by the Government of India to facilitate further development of the country’s renewable energy sector. While the rate of accelerated depreciation has been revised from 80% to 15% to provide more incentives to efficient operation, renewable purchase obligations (RPO) have been improved, feed-in tariffs have been revised, and a generation-based incentive of Rs. 0.50 per kWh has been introduced for wind projects not using accelerated depreciation benefits. In addition, renewable energy certificates (RECs) have been introduced and a market created for trading RECs to meet the RPO. The project had an impact on the development of India’s renewable energy sector, and these new measures, which have been introduced to further develop the sector, reflect lessons from past development. Some (indirect) contribution to the improved framework and regulation can be attributed to the project.

14

Appe

ndix 2

2. Company Impact with Wider Potential

2.1. Skills contribution. Contributes to new strategic, managerial, and operating skills with actual or potential wider replication in the sector and industry

Excellent Satisfactory Low Satisfactory The wind farm operators—Enercon India (Enercon) and Suzlon Energy (Suzlon)—provide ongoing training to wind farm staff members, including: (i) mentor–apprentice programs, (ii) training regarding the mechanical and electrical aspects of turbines, (iii) troubleshooting, and (iv) occupational safety and health administration training. This has allowed wind farm technicians to acquire skills and experience that can be used for wind farm expansion, or for other wind projects in the country. The programs also ensure that employees have opportunities to advance their careers. Most of Suzlon’s programs are conducted in their global training center in India. Project construction and operation and maintenance (O&M) activities led to the direct (temporary or permanent) employment of local people (skilled and semi-skilled) in the area. Approximately 145 workers spread across the three wind farms were required during their construction. Currently, about 120 people handle the O&M of the three wind farms. Leadership training is also provided to the women in local villages to empower them and increase their self sufficiency.

2.2. Demonstration of new standards. Demonstrates new ways to operate the business and compete, and investee performance against relevant best industry benchmarks and standards

Excellent Excellent Low Excellent The project demonstrated that large-scale wind power projects can be constructed, operated and managed professionally by the private sector.

2.3. Improved governance. As evident in set standards in corporate governance; stakeholder relations; environmental, social, health, and safety fields; and/or in good energy conservation standards

Excellent Satisfactory Low Satisfactory The project puts a premium on the safety of its workers, employing a “lockout–tagout” system which ensures that WTGs are properly shut off and not started up again prior to the completion of maintenance or servicing work. The power source is locked, and a tag is affixed indicating it should not be turned on.

A

ppendix 2

15

ADB = Asian Development Bank, CER = certified emission reduction, DMC = developing member countries, GBI = generation-based incentive, IPP = independent power producer, IREDA = Indian Renewable Energy Development Agency, O&M = operation and maintenance, REC = renewable energy certificate, RPO = renewable purchase obligation, WTG = wind turbine generator, Tata Power = The Tata Power Company Limited. a The combined rating should weigh future impact and risk to its sustainable realization. b Rating scale: unsatisfactory, partly satisfactory, satisfactory, and excellent. c Rating scale (risk): high, medium, modest, and low.

Another in-house regulation is the issuance of a “permit to work” for all activities. If a worker needs to climb up the WTG, he first obtains a permit. Using a safety harness that locks into the ladder he ascends the WTG, with another worker watching him from below, in case something goes wrong. There have been no grid network and/or large-scale equipment accidents, operating error accidents, fatal accidents or fires during project construction or O&M.

3. Overall Private Sector Development Rating. The rating (unsatisfactory, partly satisfactory, satisfactory, and excellent) is not an arithmetic mean of the individual indicator ratings, and does not have fixed weights. Actual positive or negative impacts, future impacts, and risks to its realization are considered.

Excellent Satisfactory Low Excellent Overall, the project’s impact on private sector development is considered excellent. It is being implemented by India’s largest private sector power utility. The project demonstrated that a large-scale wind power project can be implemented successfully by the private sector. Private sector investments in the clean energy sector have subsequently grown exponentially. The need for more energy in India and the opening of the electricity sector to renewable energy supports increased private sector development and participation. The transaction was ADB’s first assistance to a private sector wind power project. ADB has subsequently entered into many wind power transactions in India and other DMCs, and further contributed to private sector development in the region.

Appendix 3

16

INDUSTRY AND OPERATIONS REVIEW 1. India had 199,600 megawatts (MW) in installed generation capacity as of 31 March 2012,1 giving it the fifth-largest generation capacity in the world. Of this total, 56% was sourced from coal, 20% from hydro sources, 12% from renewable sources, 9% from gas, 2% from nuclear, and 1% from diesel. India’s dependence on fossil fuels has increased as the power sector has grown, and the security of India’s energy supply is a matter of increasing concern, in light of rising oil and gas prices, and expected fossil fuel shortages. Environmental concern over excess use of fossil fuels is also increasing. Consequently, it is imperative that India move to sustainable, low-carbon technologies. Wind power is one such technology with a potential for rapid expansion in India. 2. India is one of the fastest growing markets for wind energy. In fiscal year (FY) 2006, the country’s wind sector had an installed capacity of a little over 5,300 MW. By the end of FY2010, total installed capacity had more than doubled, to about 11,800 MW. As of 31 March 2012, the figure reached 17,352 MW. During FY2012, additional wind power capacity of 3,197 MW was registered, which is the highest capacity addition for a fiscal year. 3. India is ranked fifth in the world in terms of total installed wind energy capacity, behind the People’s Republic of China, Germany, Spain and the United States. The estimated potential for wind energy generation in India is around 49,000 MW. The installed wind power capacity and installable potential in India by state is in Table A3.1.

Table A3.1: Installed Wind Power Capacity and Potential in India by State (MW)

State As of 31 March 2010

As of 31 March 2011

As of 31 March 2012

Installable Potential a

Andhra Pradesh 136.1 192.5 245.5 5,394.0 Gujarat 1,863.7 2,176.7 2,966.3 10,609.0 Karnataka 1,472.8 1,726.9 1,933.5 8,591.0 Kerala 27.8 35.1 35.1 790.0 Madhya Pradesh 229.4 275.9 376.4 920.0 Maharashtra 2,077.8 2,316.8 2,733.3 5,439.0 Rajasthan 1,088.5 1,525.1 2,070.7 5,005.0 Tamil Nadu 4,906.8 5,904.1 6,987.6 5,374.0 Others 4.3 4.3 4.3 7,008.0 Total 11,807.2 14,157.2 17,352.7 49,130.0

MW = megawatt. a Centre for Wind Energy Technology. 2010. Indian Wind Atlas. Chennai.

Source: Ministry of New and Renewable Energy. 4. An increased focus on climate change will necessitate that India make increasing use of alternative power generation sources, such as hydro, wind, solar and nuclear. Even without the challenge of climate change, the need for more energy and self-reliance supports energy efficiency, conservation and the use of cleaner power. Wind power accounts for more than 70% of installed capacity from renewable sources, and will be important in reaching India’s target of 10% renewable energy from electricity by 2020.

1 The Tata Power Company Limited. 2012. 93rd Annual Report. Mumbai.

Appendix 4 17

ENVIRONMENTAL AND SOCIAL IMPACTS I. Introduction 1. The Tata Power Wind Energy Financing Facility involves the development and operation of wind energy projects in the state of Maharashtra, namely: Khandke Wind Power Project, 50.4 megawatts (MW), awarded on a turn-key basis to Enercon India (Enercon), and Bramanvel Wind Power Project (35.0 MW) and Sadawaghapur Wind Power Project (17.5 MW), both awarded to Suzlon Energy (Suzlon). The project aimed to meet the state’s requirement for more licensed power distributors and an increase in total energy input from renewable energy sources. An evaluation of the implementation of the wind power projects and the degree of compliance with environmental safeguards requirements was conducted for the project.1 II. Review Findings 2. Compliance with Asian Development Bank safeguards requirements and national environmental regulations. The project was classified as Environmental Category B and required an initial environmental examination (IEE). The Tata Power Company Limited (Tata Power) prepared individual IEEs for Khandke Wind Power Project, Bramanvel Wind Power Project and later, for the shift of part of capacity at Bramanvel to a different site in Sadawaghapur in Satara District, also in the state of Maharashtra. The environmental management plans (EMP) prepared for each wind power project outlined the key issues and concerns and mitigating measures for the impacts during construction and operation. The wind power projects were not covered in the Government of India’s Environmental Impact Assessment Notification of 1994 and the amended Notification of 2006. As a consequence, the project was not required to prepare an environmental impact assessment or obtain environmental clearance from the government. There are also no relevant environment-related permits or clearances, or environmental monitoring required for project operation. 3. Environmental impacts. Based on the IEEs, environmental impacts were assessed to be minor and temporary during construction, and few and limited during operation. The Khandke and Sadawaghapur wind power projects are located in an area used primarily for grazing and dryland cropping. In contrast the Bramanvel project site is forestland, which is highly degraded due to low water availability. The land use changes were restricted to the small area under the turbines, access roads, and substations. Water use and requirement were low and required civil works, mainly for tower foundation during construction, and for domestic use by staff during operation. Impacts on air quality and noise from exhaust of construction equipment and vehicles were localized and temporary, due to the relatively short construction period. During operation, emission and dust generation are minimal and are mainly generated from vehicle movement for maintenance and repair purposes. Small quantities of solid waste generated during construction were handled and disposed of in an approved manner. Ecological impacts, particularly in the Bramanvel site due to conversion from forestland to the wind farm, were mitigated by compensatory afforestation. Other wind farms are located near the project sites. However, the cumulative visual impacts on the landscape and noise are negligible as the turbines are well spaced, with setbacks away from the nearest residential areas or villages. Moreover, Tata Power has established in-house regulations relating to safety, environmental, and health 1 The mission comprised: T. Koike, Principal Investment Specialist, Infrastructure Finance Division 1 (PSIF1); R. de

Leon, Project Analyst, PSIF1; and M. Pascua, Senior Safeguards Officer, Operations Coordination Division of Private Sector Operations Department. The mission reviewed the environmental documents submitted, visited the wind project sites and met Tata Power, Enercon and Suzlon staff to discuss the status and environmental and social aspects of the project. Site visits were conducted during 7–11 May 2012.

Appendix 4

18

management that have been adopted by Enercon and Suzlon, in addition to their own environmental health and safety policies, practices and procedures. 4. Environmental management and monitoring. Except for domestic waste from onsite staff, wind power projects generate no harmful atmospheric emissions, effluent or solid contaminants during operation, and produce no air or water pollution, or other environmental impacts. Environmental management at the wind power project sites focuses on maintenance of site cleanliness and sanitation through provision of garbage cans and toilets, and the proper disposal of garbage and wastes. Waste oils (which are expected to accumulate over a long period) and used containers are returned to suppliers for recycling and reuse. Wind power facilities emit mechanical noise at a level of approximately 70-80 decibels during operation. However, there is no human habitation within 2–3 kilometers (km) of the wind power project sites, and no noise impact beyond 3 km. There is no surface water nearby and no groundwater is used to operate the wind power turbines. Because there are limited or no environmental (i.e., air, water, noise, ecological and visual) impacts, only regular visual monitoring is undertaken as part of operation and maintenance (O&M) work for the turbines and surrounding areas. The extended annual review mission reviewed and discussed the environmental monitoring plan based on the IEEs and has concluded that some aspects of the monitoring plans are not applicable and relevant, and need to be updated to reflect actual environmental and operational conditions. With respect to occupational health and safety monitoring, a Tata Power staff member with engineering qualifications is based at the wind power project site and supervises O&M, including the relevant environmental aspects. 5. Occupational health and safety. At each wind power project site, a safety system is implemented by the operator, under regular supervision by Tata Power, which includes: (i) a permit to work for all activities; (ii) daily “tool box talks” at the beginning of an activity; (iii) job safety analysis for all routine and non-routine activities; (iv) inspection of safety tools and power-operated tools; (v) ensuring a minimum of 0.5% of training person-days for the work force; (vi) demonstration and refresher training, on working at heights and electrical work; (vii) mock drills; (viii) behavior-based safety observation and counseling; (ix) incident management system; (x) safety committees; (xi) safety newsletters and safety communications; (xii) safety inspections and audits; (xiii) need-based safety training; (xiv) road safety management and vehicle standards training and inspection; and (xv) lock out–tag out. Moreover, workers on sites are required to undergo annual medical checkups. 6. Social impact. The project was classified as Category C for both involuntary resettlement and indigenous people safeguards. During construction and operation, the project did not entail any social impacts that required mitigation. With the current operation status, it is unlikely that there would be major social issues. III. Conclusion and Recommendation

7. Based on a review and evaluation of the safeguards documents and the site visit, it is concluded that Tata Power’s performance has been satisfactory, with all environmental and social impacts of the project and relevant mitigating measures implemented. No government environmental monitoring or reporting is required. The agreed environmental and social performance reports have been submitted to ADB by Tata Power. Environmental impacts during operation are limited, and impact monitoring will focus mainly on occupational health and safety, with the EMP updated for more realistic implementation and efficient reporting. The updated EMP will no longer require quantitative monitoring for air quality, water quality and noise but will include more detailed occupational health and safety monitoring during operation.