Volume : 1 Issue : 3

August - September 2014 ` 25/-

Research & Development Supports multi-institutional research on wind energy Performance testing of Small Wind Turbines / Aerogenerators Empanelment of Small Wind Turbine manufacturers Acoustic Noise measurement Study of wind-solar-diesel hybrid system Wind Resource Assessment Site condition assessments for wind monitoring & wind farm development and field visits Procurement, installation and commissioning of met mast of 50m to 120 m height Providing measurement campaign management, assisting clients in the installation and monitoring of

meteorological masts, LIDAR and SODAR stations Data collection, management, quality control and wind energy resource reporting Analysis of Data with sophisticated software tools and techniques Long-term Trend Data Analysis (NCEP/NCAR/MERRA) Turbine array layout design, optimization, field Micro siting and Produce bankable P50, P75, and P90

yield predictions. Investment Grade wind energy resource assessment reports (gross/net Predictions, uncertainty

Power Performance measurements Load measurements Power Quality measurements Safety and function tests Yaw efficiency test User defined measurements The services are not limited by type or size of the Wind Turbines The services are certified as per the requirements of ISO 9001: 2008 and accredited as per the

requirements of ISO/IEC 17025 : 2005Certification Services Accord type approval / type cer tification to wind turbines in accordance with Indian Type Certification

Scheme [TAPS - 2000 (amended)]. Type Certification Services are certified as per ISO 9001 : 2008 Preparation of Indian standards on wind turbines Issue the Revised List of Models and Manufacturers (RLMM) of wind turbines periodically Issue the recommendation for grid synchronization to facilitate installation of prototype wind turbinesTraining Capable of providing Wind / Solar Resource Measurement & Analysis Wind Resource Modelling Techniques Wind Speed Statistics / Solar irradiation and Energy Calculations Micro-siting and Layout of wind / solar farms Wind Turbine / Solar Technology Design and Safety requirements as per standards O & M practicesSolar Radiation Resource Assessment Direct Normal (DNI), Diffused Horizontal (DHI) & Global Horizontal (GHI) irradiation measurements Data quality checking Solar resource data delivery Calibration Laboratory for solar Solar Map preparation Preparation and vetting of feasibility, DPR of Solar projects

analysis, etc.) Analysis of existing wind farm operations Technical due diligence in complying with international standards Power curve demonstration guarantee test Preparation of Tender document for development of wind farm Helping the evaluation of tender as one of the tender evaluation committee members DPRs (Detailed Project Reports) preparation through State of art software tool for wind farm developers Testing Services As per Internationally accepted procedures and stipulations for :

(An Autonomous R & D Institution under the Ministry of New and Renewable Energy, Government of India)Velachery - Tambaram Main Road, Pallikaranai, Chennai - 600 100Phone : +91-44-2246 3982 / 83 / 84 Fax : +91-44-2246 3980

http://cwet.res.in www.cwet.tn.nic.in E-mail : info@cwet.res.inC-WET

NEE RD GN YI TW ER C

O HF N OE LR OT N GE YC

CENTRE FOR WIND ENERGY TECHNOLOGY

A Bi-monthly Magazine of Indian Wind Turbine Manufacturers Association

Indian Wind Turbine Manufacturers Association4th Floor, Samson Tower, 403 L, Pantheon Road, Egmore

Chennai - 600 008. Tel : 44 43015773 Fax 44 4301 6132 Email : secretarygeneral@indianwindpower.com

associatedirector@indianwindpower.com Website : www.indianwindpower.com

(For Internal Circulation only)

ContentsWind Power Outlook in China 3Steve Sawyer, Secretary General and Lauha Fried, Communications Director

Global Wind Energy Council, Belgium

Facilitating Offshore Wind in India (FOWIND) 6

Financing Wind Power in India: Potential for use of 8 Green Bonds and Infrastructure Investment Trusts

Vinod K Kala, Managing Director, Emergent Ventures India Pvt. Ltd.

Financially Harnessing Wind 12Kailash Vaswani, Deputy Chief Financial Officer ReNew Power Ventures Pvt Ltd., Gurgaon

Bond Markets Warm up to Indian Renewable Energy Sector 14Partha Guha, Director Transaction Advisory Service, EY India

Financing Wind Power Sector, Innovative Methods of Financing/Funding by IREDA 16A.A. Khatana, Executive Director, Indian Renewable Energy Development Agency (IREDA)

Lease Finance Scheme for Wind Power Projects: By Power Finance Corporation Ltd. 18

Wind Industry in India : The Way Forward - Part I 22Indian Wind Energy Alliance (An alliance of IWTMA and WIPPA)

Snippets on Wind Power 36

Abhijit Kulkarni, General Manager, SKF India Ltd., Pune and IWTMA Team

Photo Feature

Knowledge Forum on Energy Storage Systems 39

Know Your Member : SKF Ltd. 40

Page No.

Chairman

Mr. Madhusudan Khemka Managing Director Regen Powertech Pvt. Ltd., Chennai

Vice Chairman

Mr. Chintan Shah President & Head, (SBD) Suzlon Energy Limited, Pune

Honorary Secretary

Mr. Devansh Jain Director, Inox Wind Limited, NOIDA

Executive Members

Mr. Ramesh Kymal Chairman & Managing Director Gamesa Wind Turbines Pvt. Ltd., Chennai

Mr. Sarvesh Kumar Dy. Managing Director, RRB Energy Ltd., New Delhi

Mr. V.K. Krishnan Executive Director Leitner Shriram Mfg. Ltd., Chennai

Mr. Ajay Mehra Director, Wind World India Limited, Mumbai

Secretary General

Mr. D.V. Giri, IWTMA, Chennai

Associate Director and Editor

Dr. Rishi Muni Dwivedi, IWTMA, Chennai

The views expressed in the

magazine are those of the

authors and do not necessarily

reflect those of the association,

editor or publisher.

INDIAN WIND POWER2

Dear Reader,

Season Greetings with the third issue of INDIAN WIND

POWER magazine!

There is good news for the wind industry on the

reintroduction of Accelerated Depreciation. We are

happy that the final gazette notification has been

issued and wind power projects are eligible for 80%

depreciation from 1st April 2014.

This will certainly help in capacity addition. This is an

outcome of combined efforts of all stakeholders.

IWTMA is pleased to inform our readers that it has now expanded its family in the induction of members from

Component Manufacturers fraternity who are a vital link in the supply chain covering the entire wind turbine

ecosystem. We welcome them whole heartedly.

Equally, IWTMA is pleased to announce the formation of INDIAN WIND ENERGY ALLIANCE (IWEA) between IWTMA,

and Wind Independent Power Producers Association (WIPPA) to come together to synergize wind energy as a vital

constituent in our march towards energy security.

The Ministry of New and Renewable Energy (MNRE) headed by Shri Piyush Goyal, Hon'ble Minister with Independent

Charge, Coal and Power is planning a Global Investors’ Meet in Renewable Energy titled – RE-Invest – in February

2015, in New Delhi, an excellent platform to showcase wind power in India and India as the “destination” for

Global Investment.

“Money makes the world go around” and financing plays a major role in wind power projects which are capital

intensive. We are pleased to dedicate this issue to ‘Financing’ with five articles on Financing Wind Power Projects.

We also reproduce the first part of “Way Forward” which details the various elements and factors for a sustainable,

an all inclusive growth of this industry.

Finally, on behalf of IWTMA, I take this opportunity in wishing all our readers and their families, A Happy Dussehra

and colourful Diwali combined with prosperity and a bright future.

Enjoy reading and we value your feedback.

Madhusudan Khemka

Chairman

From the Desk of the Chairman - IWTMA

INDIAN WIND POWER 3

Brief HistoryIn China, wind development started in the late 1990s with small scale demonstration programs with heavy government subsidies. In the early 2000s, the concession tender process kicked off several large projects, but the boom had not yet started.

The real industrialized development started in 2005, when the Renewable Energy Law was ratified by the National Congress. This law gave huge momentum to renewable, especially wind – the industry exploded. From 2007-2010, it doubled its installation for four years in a row. By the end of 2009, China surpassed the US in terms of the annual installed capacity and became the world champion. In 2010, China became the global lead on both annual installed capacity and cumulative installed capacity. China’s leading role in the global market continued in 2011, and was contributing almost 43% of the global annual market, more than 26% of the global cumulative market.

China is a newcomer in this industry, compared with other European countries who have had wind power for 25 years. The government’s strong support is the key reason for the rapid development of the wind development.

Renewable Energy Law and its implementation regulations gave huge momentum, therefore the Feed in tariff finally entered into force in 2008 and was based on the regional tariffs in China prevailing from 2006-2008. Four different tariff levels associated with four categories of wind resources. The four tariff levels are $8 cents / kwh,$8.6 cents / kwh, $9.2 cents / kwh and $9.7cents / kwh.

Since 2011, the Chinese wind market has been in a consolidation phase, and in 2012 installations were down by 26% to ‘only’ 12.96 GW, a similar level to 2009. Although China still maintains its position as a global wind leader in cumulative terms with a total of 75.32 GW, it ceded it’s No. 1 position in the annual market in 2012 to the US (13.1 GW) for the first time since 2008. The Chinese market represented about 27% of the global market in 2012, down from 49.5% in 2010, and 43% in 2011.

Despite the slow-down, wind energy became the third largest source of electricity in China, for the first time surpassing nuclear power. This change is in accordance with the government’s efforts to increase its use of renewable energy as a means to reduce carbon emissions, improve air quality, and cut reliance on fossil fuels. In October 2012, the State Council released its ‘White Paper on China’s Energy Policy 2012’, setting a target of 11.4% of primary energy and 30% of electrical generation capacity from non-fossil fuel sources. By the end of 2012, non-fossil fuel energy sources already accounted for 29.5% of China’s electricity generation capacity.

In 2013, new wind installations were up by 24.1% from 2012, with 16.1 GW of new capacity connected to the grid, bringing total capacity up to 91.4 GW. This makes China once again the global leader, both in terms of annual market and cumulative wind capacity.

In the meantime, turbine prices have also recovered, reaching an average price of RMB 4000-4100/kWh (EUR ~470/USD 650), up by about 10% from the previous year. Margins are still very thin for most manufacturers, who have cut their expenses to a minimum in the past two years.

Electricity generated by wind power accounted for 2.6% of the national total in 2013, an increase of 0.5% from 2012. The average annual full load hours reached 2080 hours, which represents an increase of 151 hours from 2012. This is partly due to improved system management and the fact that 2013 was a good year for wind.

The top ten turbine manufacturers dominated the Chinese wind market in 2013 with 78% of the market share.

Goldwind consolidated its leading position with a market share of 23.31%, accounting for nearly a quarter of the national market, followed by United Power with 9.25% (1,487 MW), Ming Yang 7.9% (1,286 MW), Envision 7.01% (1,128 MW) and XEMC 6.54% (1,052MW).

Wind Power Outlook in China

Global Wind Energy Council, Belgium

Steve Sawyer Secretary General

Lauha Fried Communications Director

INDIAN WIND POWER4

Top ten manufacturers in Chinese wind market in 2013

ManufacturerNew Installations

(MW)Market Share

Cumulative MW

Gold Wind 3,750 23.31% 18,951

Guodian United Power

1,488 9.25% 8,799

MingYang 1,286 7.99% 5,543

Envision 1,128 7.01% 2,421

XEMC 1,052 6.54% 3,747

Shang Hai Electric

1,014 6.30% 3,617.45

Sinovel 896 5.57% 15,076

CSIC 787 4.89% 2,061

Dong Fang 574 3.56% 7,938

Windey 539 3.35% 2,001

2013 also marked a substantial increase in exports: 341 turbines totaling 692 MW were exported to 17 countries, including the US, Italy and Australia.

Support Framework for Wind EnergyFeed-in tariff premiums, which consist of the difference between the wholesale price of electricity and the feed-in tariff, have in the past been paid by the central government to the grid companies at the end of each fiscal year, after which they were then paid out to operators. The government raises the funds through a Renewable Surcharge which is paid by all electricity customers. In 2011, premium payments began to be delayed due to the huge numbers of wind projects, and the backlog built up to a high level during 2012. The premium accounts for more than half of the feed-in tariff, thus having a considerable impact on the cash flow of project owners and consequently on the entire supply chain.

At the end of 2012, a new mechanism for payments was put in place by the National Energy Administration (NEA), providing for quarterly instead of annual payments, which is gradually solving the problem. However, the rapid growth of the wind (and now the solar PV) industry has meant

that the availability of support for renewable electricity is still very tight. At the end 2013, the government had to raise the Renewable Surcharge, which is added on top of each kWh of renewable electricity produced, up to RMB 1.5 cent/kWh (EUR 0.17/USD 0.25 cent), almost doubling the previous level of the tariff (RMB 0.8 cent/ kWh (EUR 0.09/USD 0.13 cent).

The rapidly expanding renewable energy industry has put great pressure on the government to finance its development.

This has initiated an on-going debate as to whether wind energy will reach grid parity by 2020, therefore making the case for lowering the FIT in the next few years. The current feed-in tariff, which came into force in 2009, has four categories based on the quality of wind resources in the different provinces. The FIT will be reviewed for the first time in 2014.

Air pollution: New opportunity for the renewables industry

China is suffering from an increasingly severe air pollution problem and the situation has further deteriorated, especially in northern China. Prime Minister Li Keqiang announced a new “Combating Air Pollution Action Plan”, which aims to curb pollution in particular by targeting the reduction of the use of coal.

This was followed by another action plan published by the government in 2014 to combat air pollution, which includes a prohibition of new coal-fired power plants in the region of Beijing, Tianjin, and Hebei and Shandong provinces.

The plan also aims to reduce coal consumption below 65% of the national total energy consumption, compared to 65.7% in 2013. The severe air pollution problem offers the renewables industry an opportunity to further expand and to consolidate its role as a clean energy provider.

Restructuring of the NEA and the project approval process

In 2013, the new Chinese government carried out a reform of the energy administration by giving project approval authority to the provincial governments. In the new system, the NEA is responsible for overall strategic planning of the energy policy, leaving

project permitting to local officials working closer to the ground.

Moreover, in 2013, the NEA was re-structured and merged with the State Electricity Regulatory Commission (SERC). The latter was established in 2002 after the initial round

INDIAN WIND POWER 5

of electricity reform, which separated the transmission companies from the utilities. However, the electricity reform did not advance further at the time, and did not separate distribution and transmission companies, and hence the SERC’s role was to further facilitate the reform and to open the electricity market. The fact that the grid companies are the biggest monopolies in China, however, made advancing the reform difficult. Now the merger of the NEA with the SERC shows signs that the new government is aiming to create an electricity market, including opening the sector for private investment. This discussion, however, is still on-going.

Obstacles to Wind Development

The grid remains the most serious challenge facing the wind industry in China. The real bottleneck is the transmission system and the curtailment of wind production at peak periods due to the grid companies’ inability to manage the transmission system effectively. However, the rate of curtailment has slightly decreased; reaching 11% nationwide, down by about 6% from previous year, yet in some areas the rate goes up to 25-35% at certain periods of time.

A series of measures to tackle the curtailment problem were put in place in 2013 and the government has put an increasing focus on “increasing the flexibility of the grid”. Additionally, a new HVDC line of 800 kV was commissioned to connect Hami, XinJiang and Zhengzhou provinces with the load center in densely populated Henan province. This immediately caused a series of orders for about 8 GW for wind projects in the Hami area, giving a significant boost to the industry at the end of 2013.

Some further innovative solutions were also suggested in order to solve the curtailment issue, including a wind heating system along with a number of pilot projects which started operation at the end of 2013 in the eastern part of Inner Mongolia.

The long awaited Renewable Energy Portfolio Standard (RPS) is expected to be introduced in 2014, which should be by far the strongest policy measure to date to force the grid companies to respect the Renewable Energy Law, which gives wind and other renewable electricity sources priority access to the grid. The responsibility for meeting the RPS would fall on the shoulders of the local grid companies (subsidiaries of the national grid company) and the provincial governments. The tricky part is the level of penetration: if the level is too low, it will be used as a ceiling for further renewable electricity to be fed into the grid. All in all, the RPS is a compromise solution to the curtailment problem. But given the enforcement situation in China, the RPS seems to be the best way forward at this stage.

Chinese Offshore Wind PowerChina’s National Energy Administration (NEA) has been working with the National Development and Reform Commission (NDRC) tariff department for months to determine the FIT for offshore wind, and the discussions between the two agencies have been finalised: the inter-tidal projects will enjoy a tariff of RMB 0.75 (USD 0.12) per kilowatt hour while the near shore tariff will set at RMB 0.85 (USD 0.14)/kWh.

The offshore sector in China has been slow for the past three years, but it is finally entering a ‘mini-boom’, with gigawatts to be installed in the next couple of years. Three years ago, the first round of concession tenders awarded tariffs to four projects totalling 1 GW capacity, and marked a new era for China’s wind industry. However, due to the low tariffs and the complexity of permission by various government departments, the offshore sector never really took off and the first four concession projects were also postponed.

Things are moving now. By the end of 2013, three of the four concession projects had all necessary permits and were set to start construction. In the beginning of May 2014, the Shanghai Municipal Government announced additional RE subsidies on top of the FIT given by the central government: onshore wind is given an additional subsidy of RMB 0.1/kWh, while offshore wind a boost of RMB 0.2/kWh. Following this new measure, the Shanghai Oceanic Administration also permitted a new offshore project, the “Shanghai Lingam Offshore Project, Phase I-100 MW”. The total project will be 200 MW. This is a near shore project and will be another big project for Shanghai after the first two Phases of the Shanghai Donghai Bridge project, totalling 200 MW.

Currently China has seven offshore projects under construction totalling 1,560 MW and another 3.5 GW projects in pipeline that will start construction in 2015. China’s official target for offshore wind is set at 5 GW by the end of 2015.

Projects under construction in 2014Fujian Putian Nanri Island Offshore Project

400 MW Longyuan Near shore

Fuji Putian Haiwan Haishangfengdian

300 MW Fujian Zhongmin Near shore

Jiangsu Rudong Inter-Tidal Project

200 MW Longyuan Inter-tidal

Jiangsu Dafeng Concession Tenter project

200 MW Longyuan Inter-tidal

Jiangsu Rudong Offshore Project

150 MW China Guangdong Nuclear

Inter-tidal

Shanghai Donghai Bridge Phase II

116 MW Shanghai Donghai Wind Energy

Near shore

Guangdong Zhuhai Guishan Project

200 MW China Southern Grid

Near shore

INDIAN WIND POWER6

OUTLOOK FOR 2014 AND BEYOND

Despite the challenges, the Chinese wind market is set to further recover in 2014 – annual installations are expected to continue to grow over the next few years, as the grid connection becomes easier and the government establishes more favourable policies. Furthermore, the offshore sector is expected to take off in the next year or two. The Chinese government has also set a new ambitious target of 200 GW by 2020 and if the past is any indication, the target will certainly be achieved, and likely exceeded.

With input from the Chinese Wind Energy Association, CWEA, and

Chinese Renewable Energy Industry Association, CREIA

FOWIND Stakeholders Sensitisation Workshop at Chennai on 11th September 2014

Global Wind Energy Council (GWEC), World Institute for Sustainable Energy (WISE), the Center for Study of Science, Technology and Policy (CSTEP), DNV-GL, Gujarat Power Corporation (GPCL) and IL&FS Energy Development Co. Ltd. have collaborated on a four-year project to develop a roadmap for offshore wind development in India with a special focus in the states of Gujarat and Tamil Nadu.

The project is likely to build partnerships at all levels within India and between India and the EU to ultimately develop an offshore wind outlook and development pathway for India up to 2032.

The project partners are working alongside the Indian Ministry of New and Renewable Energy, state governments and other relevant federal offices, the project will explore the challenges and opportunities prevailing in the offshore wind power market.

FOWIND is backed by a €4m fund under the European Union’s Indo-European Cooperation on Renewable Energy programme, aiming at facilitating offshore wind through resource mapping, policy guidance and capacity building measures, and assessing the infrastructure base and identifying potential improvements.

To sensitise the stakeholders on this a workshop was organized in Chennai on 11th September 2014. After the welcome remarks by Dr. Anshu Bharadwaj from CSTEP, the workshop was addressed by Dr. Alok Srivastava, Joint Secretary and Sri Sudip Jain, CMD, TEDA. An overview of FOWIND was given by Ms. Shruti Shukla from GWEC.

Speakers from AREVA India, TKI Offshore, DNVGL, IL&FS, NIEW (CWET), IEOT, IT Power Consulting and PTC India Financial Services also presented their views.

Facilitating Offshore Wind in India (FOWIND)

A few photographs of the workshop sessions

INDIAN WIND POWER8

Historical Development of Wind Industry in IndiaWind is the largest renewable energy resource in India, with 65% share of installed renewable capacity. At the end of March 2014, more than 21,000 MW of wind-farm capacity has been installed in the country, of which nearly 18000 MW capacity has been set up in the last 10 years.

India’s experience with wind generation has been good. Data available with us on electricity generated over some of the years (2007-2011) shows average generation to be of the order of 18.33% CUF across the country. This is better than average generation in Spain (17%) and Germany (18%).

Strategic plan of MNRE (2011-2017) targeted a wind capacity of 27300 MW by 2017. This is likely to be achieved. However in Feb 2014, MNRE has revised this target to ‘doubling’ the wind capacity to 40,000 MW of wind by 2017. Underlying this confidence are a number of factors:

² Wind power potential: A reassessment using latest wind resource models and GIS based techniques was carried out in 2011 (Hossain et.al 2011). This report came up with potential estimate of ~3000 GW, compared to 45 GW estimate of 90s. This was validated in an independent study carried out by Lawrence Berkeley National Laboratory (LBNL, 2011). Many state level studies in different states of the country have reaffirmed such assessments.

² Green transmission corridors, for evacuation of power from large wind zones are being planned. Evacuation constraints are gradually getting removed, specially in resource rich southern India, and an integrated National Grid has been in operation since the beginning of 2014.

² Grid parity is not far: Levelized Cost of Energy (LCOE) for wind power has rapidly improved and is currently at levels of Rs 4.5-7.0/kWhr in various resource rich states of India. This doesn’t account for storage or other system costs required in future when grid integration norms are tightened. Still the net system

costs for wind energy are likely to be close or better than the costs of power from large coal based plants which rule at Rs 5.0/kWhr+ today, with likely inflation as global energy shortages become acute.

² Local manufacturing capacity has expanded to > 10000 MW/a. Domestic demand at present varies between 2000-3000 MW/a.

² To encourage faster scale up, a Wind Mission has been announced in Jan 2014. A draft Offshore Wind Policy has also been announced. A National Offshore Wind Agency is likely to facilitate offshore wind projects.

Keeping in view the rapid expansion required in energy generation from ~1000 TWHrs/a (2014) to 3400 TWHrs/a (2032) and a share of at least 20% for renewable energy, India needs a renewable capacity of 300 GW+ by 2032. A large part of this additional capacity (~100 GW+) would need to come from wind.

Financing for Wind - Current SituationSo far wind investments have come from private sector, with banks providing debt finance. Wind risks are now well understood by banks. Since 2010, many private equity investors have been active and have contributed to more than 2000 MW capacity as Independent Power Producers. Many large corporates and public sector units are also investing regularly.

However, the sector faces a number of financing constraints:

² Loan tenures, longer than 10 years are not available and cost of borrowing is >13% per annum for most borrowers. Wind projects generate predictable cash flows and can benefit significantly from longer tenure debt and low interest costs, like other infrastructure projects.

² Equity has not been raised from public markets except for Orient Green Private Ltd. Private equity players have not been able to make exits. This will result in limitation of equity to support future scale up.

² Access to debt is getting constrained. Banks view renewables as part of power sector where sector- lending limits have been reached. Also because wind

Financing Wind Power in India: Potential for use of Green Bonds and Infrastructure Investment Trusts

Vinod K Kala Managing Director, Emergent Ventures India Pvt. Ltd.

(Based on work carried out for Partnership to Advance Clean Energy Deployment - Technical Assistance Program supported by USAID)

INDIAN WIND POWER 9

developers need longer tenure debt, lenders face asset liability mismatch. Guidelines for issue of long term Infrastructure Debt Funds exist but they are not yet implemented for renewable energy.

² Absence of liquid instruments, and risk mitigation products such as insurance, keeps large, risk-averse

investors such as pension funds, from participating in the market.

A new approach of financing is needed, underpinned by ‘liquidity’ and ‘risk mitigation’ to attract new, large and long-term investors.

Challenges of debt financing and the new approach needed

Green Bonds and recently announced Infrastructure Investment Trusts are two such new approaches with significant potential.

Green BondsGreen bonds are fixed-income financial instruments (bonds) issued to raise finance for climate change or environment sustainability related projects or programs They tap investors dedicating a part of their investment portfolio to ‘Green’. Most large investors now subscribe to Principles of Responsible Investing and are looking to increasingly support Green Projects.

Green Bonds raise long-term debt for new projects, re-finance existing operating assets or re-finance construction loans given to a project during project implementation. Thus they allow the full range of financial products to evolve, depending on the maturity of development and risks.

Green Bonds can be listed on Alternate Investment Markets in London or Luxembourg or other similar exchanges. They use risk mitigated, ring fenced structures to minimize and balance investors' and developers' risks.

Green Bonds have become popular in Europe and USA and have been used to raise over USD 200 billion with over 1,000 issuances. Compared to overall debt market, this is still a nascent market, but growing rapidly. The issuers have been Corporates (developers, equipment manufacturers), Development Finance Institutions (such as World Bank, IFC, ADB, EBRD), Government Agencies, Commercial Banks etc., with a full range of credit rating (sub investment to AAA). Tenures normally are 5-7 years, however, some issuers have been able to raise 25-30 year bonds as well. Although not branded as a Green Bond, recently (July 2014), Greenko from India completed a successful raise of $500 million.

Green bonds normally carry a Green Certification, which basically confirms that the proceeds of the bond are used for green projects. Such a certification can be obtained from Climate Bond Standards Board (CBSB) or Climate Bonds Initiative (CBI). Green Bond Principles (2014) announced by a consortium of leading banks, outlines principles of designing, disclosing, managing and reporting for Green Bond issuers.

Listed instruments

New Investors

Scale

Liquidity Cost

TenureRisk

diversification/ mitigation

Risk-return match

INDIAN WIND POWER10

Globally, two main types of structures can be used for re-financing through green bond issuance: (i) corporate bonds; and (ii) portfolio bonds.

Value of Green Bonds to Various Stakeholders

Green Bonds can be valuable to all stakeholders, as given in the diagram below.

Corporate Bonds

Corporate bonds are issued by the issuer, but verifiably linked to assets that qualify as green investments. The key features of corporate bonds include:

² Bonds are issued against issuer’s credit rating.

² Issuer may get a certification (e.g. from Climate Bond Standards Board) that the bond proceeds are used for refinancing green infrastructure.

² At the time of issuance, the asset portfolio has to have a market value greater than bond issuance value, so that there is enough incentive for buyers to purchase the bonds (the same way as IPO issues are usually underpriced).

² As the coupon is paid by underlying projects, the issuers may issue bonds with a payout lower than can generation from underlying projects to improve the credit quality of the bonds.

² The asset related risks are still carried by the issuer and are not passed on to the bond holders.

Portfolio Bonds

Under the portfolio bonds mechanism, a portfolio of assets is put into a special purpose vehicle (SPV) and ring fenced. Bonds are issued on the loan portfolio. The cash flows from projects are used to service the bond.

² The credit quality of the loan portfolio can be enhanced through risk mitigation measures such as:

• Sector/technology diversification.

• Insurance against policy risks, exchange risk covers, country/political risk covers, and operational risk.

• Credit risk enhancements (partial/full risk guarantees) organizations like ADB, World Bank, IFC, and OPIC can provide.

• Cash flows from underlying assets being higher than those required to meet the cash flow requirements of bond holders.

² Portfolio bonds need to be credit rated.

The recourse for bondholders is mostly the underlying assets, however bond-issuing corporates may in some cases provide additional guarantee support (corporate or government or some other financial institution).

Infrastructure Investment TrustsIn the 2014 budget, Indian government has announced introduction of Real Estate Investment Trusts (REIT). Similar trusts can be set up for Infrastructure projects, such as wind farms. Trusts pool money from small investors and invest in the designated priority sector, either directly or through investment in shares, bonds, or mezzanine finance for projects operating in the sector Trusts and Master

Value of Green Bonds

Lenders/Banks Developers

Bond InvestorsState

INDIAN WIND POWER 11

100%

Trustee and Management Servicesdistributions di

strib

utio

nscapital capita

l

Trustee and Management FeeTrustee-Manager Business Trust

Sponsor Public

Asset

100% 100% 100% 100%

Asset Asset Asset

Limited Partnerships (MLPs) have been successfully used across the globe to enhance and attract investments in specific classes of assets. Trusts and MLPs are tax efficient structures that can be traded publicly and thus have access to more capital market liquidity through individual, retail and institutional investors. Such structures have been used in developed financial markets such as USA and Singapore.

A business trust is managed by a trustee-manager, who is the legal owner and manager of the business trust’s assets

and receives remuneration for his/her services (typically a fixed fee and an incentive fee tied to the performance of the business trust). Wind farm developers can act as Trustee Managers, allowing them to benefit from the development work carried out by them, at the same time releasing their investment for further expansion.

A business trust structure offers a number of advantages for attracting investments for wind projects, a few of which are highlighted below:

Typical Structure of a Business Trust

² Tax pass through: The cash-flow received by the trust is taxed in the hands of investors directly. Hence, there is no loss in value due to double taxation issues. It is as if investors are directly investing in the wind farms.

² Efficient extraction of cash flows from assets: A business trust, unlike a company, is permitted to make distributions from its cash flows (instead of profits), which allows investors the option of receiving maximum possible cash from cash flow generating assets like RE projects. At least 90 percent of distributable cash is to be distributed to investors.

² Developers can benefit by being trust managers: Developers typically own the trust managers and retain controlling stakes in business trusts. Even post IPO, developers or sponsors can continue to hold more than 25 percent units in the business trust allowing better control over the trusts and better management

of assets with alignment of interest of investors and developers.

² Liquidity through listing: These trusts can be listed, and hence, provide access to capital markets liquidity.

² Gearing: Flexible gearing norms are normally allowed for trusts.

² Shariah law compliance for Islamic finance: The business trust structure is ideally suited to attract Shariah compliant investors, as it provides stable annual returns without using any debt-like instruments.

With SEBI announcing guidelines for REITs, work needs to be done for Trusts for Renewable Investments and a few large-scale developers need to come forward to test the new structure in India. Developers can also benefit by looking at Singapore Business Trusts to raise money.

INDIAN WIND POWER12

As in any developed country, increasing the share of renewable energy in the overall energy basket promotes sustainable development and leaves us with the satisfaction that our future generations will have access to limited fossil fuel and will breathe in a cleaner and greener tomorrow. However, growth of renewable energy in India is constrained due to low tariff in certain windy states, which doesn’t leave enough for the developer in terms of returns expected from these projects. Given the constraint on account of PLF, tariff and capex being what it is, onus of increasing the profitability and hence development of wind energy projects falls upon innovative financing. Wind energy projects don’t require any raw material/fuel, interest constitutes 35-40% of revenues from power sales and hence any savings in that flows straight to PAT!

Following are some of the innovative methods for financing wind projects and for improving equity IRRs:

1. Financing using LCsHaving LCs as a sub-limit of loans will enable pricing of the debt at 11.5-12% during the initial 6-12 months of the loan period. This will enable developers to save upto 1% of the debt amount relative to the higher interest during the construction period. This will have a positive effect of atleast 0.5% on equity IRRs. Upon one year of operation, the project can be appraised again as a better credit and lenders can agree to charge less spread.

2. Take out FinancingIndian Infrastructure Finance Company Ltd. (IIFCL) has a take-out financing scheme in which projects which have completed 1 year from Commercial Operations Date (COD) are eligible for refinancing upto 40% of the loan at a pricing of around 11-11.5%.

3. Issuance of Infrastructure BondsThe Indian Corporate Bond market for issuances below a rating of A+ is non-existent. However, a project can avail credit enhancement either from IIFCL, IREDA or Bank and the rating of the project SPV can

be upped to AA- or AA and the project SPV can issue corporate bonds at a pricing of around 10.5%. Add to this the guarantee cost from IIFCL, which is around 1% on the overall loan amount, the total cost works to 11.5% fixed and payable on a quarterly or half-yearly basis, compared to monthly servicing required by most banks.

4. Higher Debt-Equity RatiosMost banks are fine with financing projects, which have an average DSCR of 1.3x at p90 PLF levels. Developers should structure the repayments which will give the lenders the above comfort and aim for higher debt-equity ratios. Higher the debt in the project costs, better is the impact on the equity returns. Higher debt also enables borrowers to gain a tax shield on a larger proportion of the earnings before interest and taxes and hence lowers the overall tax liability.

5. Mezzanine CapitalSome portion of equity can be replaced by mezzanine capital which is at a cost of 14%-15%, and hence can boost returns available to equity holders in underlying projects with 16%-18% equity IRRs. Also, the coupon serviced on this mezzanine capital will serve as a tax shield.

6. Longer debt tenorsAs mentioned above, since there is no fuel cost for wind energy projects, the interest works out to be the largest cost component for a project. In case of any business, the cost cannot keep going down and stop one fine day. A developer should structure the principal repayments in such a manner that the loan gets paid over a long period of time. Since the cash flows net of interest and principal servicing flow to the equity providers, lesser repayment has a positive impact on the equity IRRs. On refinancing some lenders, once satisfied with the project credit and track record, can agree to give some moratorium of c.3 years on debt repayment which will allow the cash flows in those years to entirely come to equity holders, surging the equity IRR.

Kailash Vaswani Deputy Chief Financial Officer, ReNew Power Ventures Pvt Ltd., Gurgaon

Financially Harnessing Wind

INDIAN WIND POWER 13

7. Interest only Swaps – INR to USDDevelopers can seek to swap their INR interest payments into USD and reduce interest costs by upto 1%. The developers will be subject to currency risk and will actually start incurring losses only if the INR depreciates by more than 10% against the USD in a particular year. In case the INR appreciates from current levels, the same will be additional upside to the developer.

8. Financing from Infrastructure Debt Funds – Mutual Funds (IDMF)IDMFs have been set up by various infrastructure lenders such as IDFC, ILFS, L&T Infra etc. to tap the funds from Debt Mutual Funds, Banks etc. The idea is to provide yield pick-up opportunities to investors in Debt Funds without taking undue risk. Financing from IDMFs could be available at 11.5-12%.

9. External Commercial BorrowingRenewable energy projects and especially wind, find flavour with a number of international lenders such

as IFC, ADB, Rabo, OPIC, FMO, Proparco & DEG. Developers can expect to borrow from such lenders at Libor+450 bps. In case a developer has a natural hedge, then there is no further cost. However, if lenders prescribe hedging, then using a 80:20 hedging, the all in cost can work out to less than 12%. The exposure will be limited on the remaining unhedged portion and could also lead to potential upside in case the rupee appreciates. One could also do rolling hedges and lock the cost to a minimum when the hedge costs, which are somewhat cyclical, are at their lower ends.

There are multiple other possibilities, which we are discussing with lenders and the Government agencies, for instance, to name a few, Government providing a subsidised hedging mechanism, more agencies providing credit enhancement, reclassifying renewable energy sector separate from the ever stressed conventional power sector, or classify renewable energy as priority sector, to provide more flexibility to the Banks to lend to wind projects.

Type and Component Certification for Wind Turbine

Contact Us

TÜV Rheinland (India) Pvt. Ltd., 82/A West Wing, 3rd Main Road, Electronic City Phase I, Bangalore-560 100, India.

Tel: +91-(0)80 3989 9888 / 3055 4319 | Fax: +91-(0)80 3055 4342 | Email: info@ind.tuv.com | Web: www.ind.tuv.com

Site conditions - meteorological conditions (i.e. wind conditions) - oceanographic conditions (i.e. waves, ice) - geotechnical conditions (i.e. soil) - Environmental impact assessment Codes standards, further requirements Design methodology Technical confi guration WTG type certifi cate Grid connection Installation & commissioning Operation & maintenance

Load and response for the integrated structure - rotor - nacelle - substructure - foundation Wind turbine Electrical components &

control systems Communication systems Substation, cables Grid connection Installation and commissioning

procedures Health and safety management

Third-party inspections Assessment of manufacturers

and suppliers Assessment of manufacturing

processes Component inspection (rotor

blades, drive train components, tower, lightning protection and control systems, electrical com- ponents, etc.) Non-destructive testing,

material testing Expediting

Assessment of logistics planning Assessment of transport and

installation planning Transport monitoring Construction monitoring Acceptance testing

Review of commissioning procedures and instructions System audits Equipment checks

Annual inspection (onshore part): - Assessment of maintenance programmes and repair procedures - Assessment of inspection routines Annual inspection (offshore part):

- Primary components of the WTG (rotor blades, drive train, nacelle, hydraulic systems, brakes, electro- technical components) - Tower - Safety equipment, measurement equipment, control and regulation systems, switchgear, transformer / substation - Structure/foundation and cable WTG (undersea) - Structure/foundation transformer / substation (undersea) - Primary components of the transformer / substation

1 2 3 4 5 6Verifi cation of Design Basis and Site Assessment

Site Specifi c DesignManufacturing Monitoring

Installation Monitoring

Commissioning Periodic Inspections

*Recognized by C-WET

INDIAN WIND POWER14

Bond Markets Warm up to Indian Renewable Energy Sector

Partha Guha Director, Transaction Advisory Service, EY India

With the fast depleting energy resources, rising fossil fuel prices and concern about climate change, Renewable Energy (RE) sources are likely to play a key role in meeting India’s future energy needs. While the sector has seen significant growth in recent years – an installed capacity of 32.3 GW, this is still limited to 12.95% of total RE potential in the country. The Indian government’s target of adding 30 GW more by 2017, however, needs investment of close to US $39 billion, most of which has to come from the Indian banking sector.

In this context, the positive moves by regulators to facilitate bond market access to strong operational infrastructure projects are likely to be a source of cheer for the renewable energy players.

In the past, the Indian bond markets have been out of the reach of the smaller renewable players due to lack of evidenced performance of projects, lack of long-term clarity on policy incentives such as Feed-in-Tariffs, Accelerated Depreciation (AD), Generation-based Incentive, Renewable Energy Purchase Obligation, Renewable energy Certificate (REC) etc. From a purely credit perspective, often a combination of these issues prevented the players from being eligible to access the market.

Globally, of course, 70-80% of infrastructure projects, including renewable projects, tend to be financed through bond markets, once projects are operational. As per Dealogic, US $11.2 billion was raised through Green bond issuances in 2013 itself. The most recent example perhaps is that of GreenKo, which raised US $550 million from the European bond markets.

In India, renewable players are evaluating credit enhanced bonds to access the Indian bond market. The credit enhancement structure, introduced by IIFCL and ADB, essentially provides an additional credit cushion leading to the specific bond reaching the minimum rating category of AA. At this rating, the issuer can then approach insurance and pension funds. RBI has also given cognizance to the importance of the bond market in raising funds and has permitted banks/FIs to partially guarantee bonds, wherein part of the investment is guaranteed by banks/FIs and thus reduces risk for the investors.

The issuer benefits in multiple ways – the interest rate risk is addressed, the tenor is extended to align to the tenor of the power purchase agreement and of course, there is a saving in the interest cost. It is no surprise that several leading renewable energy groups are looking at replacing their bank debt with bonds, especially given their overall acceptability when it comes to infrastructure and development financial institutions.

The key challenge, of course, lies in structuring the entire issuance, comprehensive credit appraisal at the stage of enhancement, placement of the issue as well as ensuring regulatory compliances such as Companies Act, SEBI, etc. It may be noted that the product is not a solution to a distressed scenario. Especially in the nascent stage of these credit enhanced bonds, the prime objective of all participants is to ensure quality placements which attract a larger subscriber base. Initially, the subscriber base is expected to be limited to the institutional buyers, but the ultimate objective should be to have a volume that would enable retail investors to participate in the market. SEBI, which has achieved significant success in ensuring retail participation and protection in equity markets, need to focus on achieving a similar participation in bond markets. RBI has indeed taken the first step by allowing partial credit guarantees from FIs.

New sources of funds like Development Financial Institutions and Infrastructure Debt Funds are also likely to opt for the bond route to deploy funds. The cost of these bonds may be higher, but the objective of these bonds would be to address the shortage of equity capital being faced by players across the sector. While the usage of funds would be broad-based, the fundamentals are likely to remain the same – credit has to be based on actual cash surpluses from existing projects rather than being dependent solely on upsides from future projects.

Renewable players are likely to gain from the above developments. The projects are smaller in terms of absolute size of debt; hence guarantor exposure is lower. Also more issuances would add to market depth. Operational parameters are known and tested - there is no raw material cost variation; the revenue is fixed and the payment track record established. These are Green projects with strong Environment / Health / Safety standards, favoured by DFIs for investment.

In short, the bond markets offer a viable alternative to renewable energy players. The GOI, RBI and other regulators as well as international/domestic FIs have recognised the need for funding in the Infrastructure sector, REs in particular, and the importance of the bond market. They have stepped forward to facilitate access / deploy funds through the bond route for such RE projects. If implemented in the right manner, the benefits of these slightly complex bond issuance structures (for fresh fund raising/refinancing of existing debt) would provide a new, sustainable and cost effective source of funding for renewable projects in India.

INDIAN WIND POWER16

Financing Wind Power Sector, Innovative Methods of Financing/Funding by IREDA

A.A. Khatana Executive Director, Indian Renewable Energy Development Agency (IREDA)

Today, India is at the forefront in harnessing renewable energy resources and has one of the largest/ broad-based programme in New and Renewable Energy. The Ministry of New and Renewable Energy (MNRE) has been entrusted to provide a thrust and importance to the renewable energy sector. Renewable Energy is emerging as an effective option for ensuring Green House Gas abatement and to provide a degree of National Energy Security.

Indian Renewable Energy Development Agency (IREDA) was established by Government of India as an independent specialized Public Sector undertaking under the MNRE for continuous and constant interaction to translate the policies of Government of India into realities. The Company was incorporated as a Public Limited Government Company w.e.f. 11.3.1987 under the Companies Act, 1956 primarily as one of the instruments for promoting, developing and financing New and Renewable Sources of Energy (NRSE) technologies and thereby accelerating the momentum of development and help in large scale utilization of renewable energy sources. IREDA has also been notified as a “Public Financial Institution” under Section 4 ‘A’ of the Companies Act, 1956 and registered as Non-Banking Financial Company (NBFC) with Reserve Bank of India.

The all India installed capacity (MW) of power stations as on 31st March 2014 is 245273.6 MW (243028.95 MW - 29462.55 MW RE on 30th September 2013 +31707.2 MW RE on 31st March 2014) (Source: CEA & MNRE), consisting of Thermal 168254.99 MW (68.6%), Nuclear 4780.00 MW (1.9%), Big Hydro 40531.41 MW (16.5%) and Renewables 31707.2 MW (12.9%).

The renewables energy (31707.2 MW) as on 31st March 2014 consists of 12.9% of the total grid capacity of Indian Power Sector (245273.6 MW) is contributed by Wind - 21136.3 MW ( 66.7%), Small Hydro - 3803.7 MW (12%), Cogeneration (bagasse) - 2648.4 MW (8.4%), Bio power (agro residues and plantations) -1365.2 MW (4.3%), Waste to Energy - 106.6 MW (0.3%) and Solar 2647 MW (8.3%) (Source: MNRE).

IREDA’s share accounts for 13.4% of the total power generating capacity of this comprising of Wind - 1688.3 MW (8%), Small Hydro – 1462.3 MW (38.4%), Cogeneration (bagasse) – 773.5 MW (29.2%), Bio power (agro residues

and plantations) - 225.3 MW (16.5%), Waste to Energy - 17.6 MW (16.5%) and Solar 42.6 MW (1.6%).

On year on year bases IREDA share in wind sector Financing was 90% has been reducing with successively being taken over by banks and other financial institutions.

Development of Wind farms in IndiaMar 92

Mar 97

Mar 2002

Mar 2007

Mar 2012

Mar 2014

Demonstration (MW)

37 52 63 73 73 73

Commercial 16 917 1805 7041 17204 21063

IREDA's share 16 208 453 608 1564 1688

% age Share 100% 23% 25% 9% 9% 8%

The first three projects financed by IREDA in 1990 each of 2 x 250 KW machine in Tamil Nadu followed by many more in subsequent years mainly in Tamil Nadu but some also in the sates of Madhya Pradesh, Gujarat and Andhra Pradesh with 100% market share of commercial financing along with demonstration projects of MNRE. The Cumulative Installed Capacity of IREDA financed projects at the end of different five years plan is envisage above.

The fiscal incentive stated in early 90’s with accelerated depreciation of 100%, subsequently reduced to 80% which was retained at this level till March 2012, the end of 11th 5 Year Plan has played an important role. MNRE 10 year policy guideline with base tariff of Rs. 2.25/kwh for base year of 1993-94 with annual escalation of 5% was the reasoning of commercialization of such a complicated technology dealing an unpredictable renewable energy source compared to 100 year matured technology of hydro and comparatively better predictable solar.

During late 90’s many commercial banks also stated financing wind as they were having existing relation with their clients by virtue of main business but IREDA still maintained 1/4th of share in commercial financing of wind projects. Thus, this most complicated technology got commercialized without capital or interest subsidy with only fiscal benefits thus making India a manufacturing hub of wind turbines with the presence of 3 of the word top

INDIAN WIND POWER 17

10 renowned wind manufacturers. Reduction of corporate tax rate to 33% and introduction of minimum alternate tax of 10% subsequently increased to 20% has reduced the incentive of accelerated depreciation initially available.

Subsequent to Electricity Act of 2003, Tariff policy 2006, Independent Power Producers started investing in wind sector and IREDA took a lead in financing such projects as project financing. Many such projects came either through Foreign Direct Investment (FDI) or through various Private Equity (PE) Funds. IREDA finance such projects working on cash flows of the revenue by structured repayment schedule and extending repayment period from stereotyped 7-10 years normally adopted by the banks. Grace period of one year after Commercial Operating Date (COD) was also introduced for stabilization of teething problems and have 1-2 quarter reserve for payment.

With all such lead role taken by IREDA wind sector is the only sector in India which was neither having capital subsidy nor interest subsidy and still have share of 67% of RE share as on date. In the year 2011-12 wind installed capacity first time crossed 3000 MW. In the subsequent year this capacity addition reduced to 1700 MW because of withdrawal of AD.

As the government increased GBI benefits from Rs 62 Lakh/ MW celling to Rs 100 Lakh/MW and of late also

restored AD, we can expected wind sector again revival and lead role in Indian Renewable Energy Sector. With synchronization of Southern Grid last Year India has now one National Grid though there are some week linkages from state to state or region to region. RE sources such as wind required must absorb by the grid without any scheduling requirement. Over the years preferential tariff may also not be required if year on year increase in tariff is guaranteed or it may be linked with Average Power Procurement Cost (APPC) but such APPC should be on the basis of commercial fossil fuel based project and must not include those financed through budgetary resources over the initial years of our planning process.

The life cycle cost benefit have already placed wind sector projects in particular and entire portfolio of RE on much advantages position when compared to fossil fuel resources which has only short span of history and already struggling with so many uncertainties on cost escalation and resource depletion. The issues of power evacuation of RE is being addressed by Green Corridor. As wind sector financing requires longer tenure of loan period it cannot bear higher interest rate as such some part of say 30% of loan component can reduce the aggregate cost of financing if given from National Clean Energy Fund (NCEF) sources at concessional rate of interest.

The theme of the next issue of "Indian Wind Power" is “ENERGY STORAGE SYSTEMS”.

We invite relevant articles to the theme. We solicit your cooperation.

Editor

INDIAN WIND POWER18

1. Purpose: To finance major capital equipment / machinery essential for power and associated infrastructure projects subject to eligibility.

2. Scope: All major capital equipment / complete package of a project (not for the entire project), new & unused, meant for use in the Wind Power Projects (except the items mentioned in specific exclusion list). No financial assistance should have been secured or proposed to be secured for equipment / machinery from any other sources.

Specific exclusion list:

a. Small equipment & accessories like cable, distribution boards, local control centers, air conditioners etc.

b. Communication equipment

c. Piping work

d. Cables & conductors

e. Consumables

f. Site fabricated equipment

g. Store items

h. Meters

i. Office equipment & furniture

j. Vehicles

k. RCC chimney, Buildings, Roads, Civil works including foundation, erection work

l. PCs, telephones and items of personal use

m. Large steel fabrication work and transmission towers

n. Transmission line material like clamps, connectors and insulators, etc.

o. Equipment built with new and unproven technology

The above items independently shall not be eligible for lease financing. However, items not limited

to but including transformers, metering, cables & conductors, communication equipments, fabricated equipments, etc. as a part of the integrated machine, shall qualify for the scheme. Nevertheless, Land, Civil works, Erection, Testing & Commissioning, soft costs in a project shall not be eligible.

3. Eligible entities: All entities operating in power and associated infrastructure sector, including those having captive and cogeneration plants.

4. Eligibility criteria:

• State/Central Sector: The lessee should not be a declared defaulter in PFC.

• Others: The lessee should not be in default to any FI / Bank or any other lender including PFC.

5. Appraisal: Lease finance shall be subject to entity appraisal as per prevailing practice. Further, the lease finance by PFC shall be subject to appraisal of the project in which the equipment is proposed to be installed, as per applicable guidelines and procedures.

6. Lease value: Value for each transaction shall not be less than Rs. 10 crs.

7. Extent of Lease Finance: The extent of lease finance will be decided on the basis of projections of taxable income and minimum applicable tax of PFC on a year to year basis.

Subject to the above, the lease finance from PFC shall be up to 85% of the cost of the project in which the equipment is intended to be used.

8. Lease period: Primary lease period shall be fixed and non-cancelable and shall be up to 12 years from rental commencement date keeping in view the economic life of equipment/machinery as 20 years. However, if some of the equipments/machinery is having life less than 20 years, Primary lease period shall be adjusted accordingly.

The Secondary lease period shall be mutually agreed and normally shall not exceed 8 years. Put together, the total Primary and Secondary lease period shall not exceed 20 years.

Lease Finance Scheme for Wind Power Projects: By Power Finance Corporation Ltd.

INDIAN WIND POWER 19

9. Fixation of Lease Rentals:

For Primary Period – The lease rentals shall be fixed in such a way that post tax IRR of lease rental income shall be 25 bps higher than the post tax IRR of term loan. The various parameters required for calculation of the rentals shall be 10 years reset interest rate, cost of borrowing of 10 year AAA bond yield, depreciation, etc. In case of any change in the tax laws, lease rentals shall be revised accordingly during the tenure of primary lease. Any financing in excess of 70% of the project cost shall carry an additional interest of 2% p.a. over and above the lending rate. Further, fixation of lease rentals will vary depending upon the category of borrower.

For Secondary Period –For the period of 5 years - 0.50% of the original cost of equipments annually. Period exceeding 5 years up to 8 years – annual lease rental will be reduced / adjusted proportionately.

10. Financial Charges: Financial charges such as management fee, processing fee, penal interest etc. shall be levied as per PFC policy.

11. Carbon Credits: It shall be shared equally between Lesser and the Lessee, if any, available to the project during the Primary lease period.

12. O&M Contract: Lessee shall bear all O&M cost to keep equipment(s) in good running condition during the tenure of lease period.

13. Insurance: Lessee shall take insurance policy as a package to the satisfaction of lessor to cover all related risks including Property insurance / Loss of Revenue Insurance due to Fire & allied Peril risks and loss of revenue due to Machinery Break-Down as well as Generation Guarantee Insurance.

14. Defect liability / Warranty Period: Lessee shall have Defect liability / Warranty Period from the manufacturer/supplier at least for first 7 years of operation and shall necessarily have manufacturer as O&M contractor during the Primary lease period.

15. Security: As per standard policy of PFC applicable to State/Private sector.

Courtesy: Power Finance Corporation Ltd. Website: www.pfcindia.com

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Dear Reader,

It is our endeavour to make IWTMA magazine Indian Wind Power, “THE MAGAZINE” for the Indian wind Industry. Your feedback on the general impression of the magazine, quality of articles, topics to be covered in future, etc. will be of immense value to us. We are thankful to your response. Kindly address your mail to "associatedirector@indianwindpower.com".

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The Editor - “Indian Wind Power”

Indian Wind Turbine Manufacturers Association 4th Floor, Samson Tower, 403 L, Pantheon Road, Egmore, Chennai - 600 008. Tel : 44 43015773 Fax : 44 4301 6132 Email : associatedirector@indianwindpower.com

INDIAN WIND POWER22

BackgroundIndian wind industry has grown to over 21GW with the policy and regulatory support provided at central and state level over last two decades.

A snapshot of current status is given below:

² Installed base of little over 21,000 MW spread across 8 states

– Resource potential : >1,00,000 MW (on-shore); >1,00,000 (off-shore)

² Technology evolution over past few years

– SIZE: 250 kW size going to multi-mega watt (viz. up to 2.1 MW) in turbine size

– CLASS: From class II to Class III and IV wind turbines (which produce at lower wind speeds)

– HEIGHT: Hub height from 50 meters to now 120 meters

² Employment generation : Mostly rural or semi-urban areas

– Direct : 1,00,000

– Indirect : 10,00,000

² Export

– Averaging of USD 500 million on an annual basis

² Investor mix till this date : Broad classification

– 30% IPPs (latest entrant): More than 80% (>5000 MW) of capacity addition in last three years have come from this segment.

– 40% captive power producers (MSME sector) –Accelerated Depreciation (AD) investors. Almost NIL capacity addition in last two years from this segment.

– 30% mix (PSUs, retail investors)

Country has also been able to attract significant foreign investment in the wind sector. Leading private equity firms and international financial institutions have invested significantly in last three years. Few of them are listed below:

Wind Industry in India The Way Forward - Part IA brief note on the wind industry highlighting the issues and key support required to go to the next level.

Indian Wind Energy Alliance (An alliance of IWTMA and WIPPA)

Sl. No.

Investment firm

Target Companies

Approximate Investment in US$

Mn

1. Goldman Sachs

ReNew Power 385

2. Asian Development Bank

NSL Renewable Power Private Limited

30

3. China Ming Yang Wind Power Group Limited

Global wind 25

4. New Silk Route

VRL Logistics Ltd

33

5. GE Energy Financial Services

Greenko Wind, Welspun

74

6. Infrastructure India Plc

Indian Energy 45

7. Morgan Stanley

Continuum Energy

200

International PerspectiveThe total wind power capacity installed worldwide is 3,21,559 MW by end of 2013. India has about 6.5% share of total wind capacity. India with 20,589 MW installed capacity by Dec 2013 ranks fifth in the world. Table below shows the world’s top countries with more than 3% share of the total wind capacity installed.

Country

Wind Capacity Installed

(MW)

Total Power Generation

Capacity (MW)

Wind capacity as percentage of total power generation

capacity

China 91,460 1,146,000 7.98%

United states

61,292 1,025,000 5.98%

Germany 34,468 153,200 22.50%

contd...

INDIAN WIND POWER 23

Country

Wind Capacity Installed

(MW)

Total Power Generation

Capacity (MW)

Wind capacity as percentage of total power generation

capacity

Spain 22,637 102,500 22.08%

India 20,589 189,300 10.88%

United Kingdom

10,946 88,020 12.44%

Denmark 4,747 13,420 35.37%

World 321,559 5,144,000 6.25%

Source: World Market Update 2013, A BTM Wind Report, Navigant Research, March 2014

In spite of the achievements so far there is a serious need for introspection and evaluating the performance in comparison of what has been achieved by others globally. In terms of wind power capacity as a percentage of total power generation India is well behind the European countries. However in terms of share of wind power in the total power generation, India is well below other countries like Denmark or United Kingdom.

CountryWind

Generation 2012 (TWh)

Total Generation 2012 (TWh)

% Share 2012

% Share 2011

US 141.50 4256.12 3.32% 2.78%

Germany 46.00 617.60 7.45% 8.03%

Denmark 10.4 30.40 34.12% 27.79%

Spain 49.15 297.12 16.54% 14.56%

United Kingdom

20.71 363.19 5.70% 4.21%

China 100.40 4937.77 2.03% 1.49%

India 31.20 1053.87 2.96% 2.27%

Total World

521.3 22504.3 2.32%

Source: BP Statistical Review of World Energy, June 2013

Internationally, many countries like Denmark, Spain, Germany, etc. are having a higher penetration of wind power in terms of installed capacity as well as in terms of actual power generation. India with its till identified potential of 100 GW can thus increase its wind power generation capacity without any significant problem in terms of grid management.

Wind TechnologyIn terms of technology, over the years the wind turbine technology has improved and has been developed to suit the low wind regime which is typical in India. The turbine

sizes also have been increasing over the last five years with introduction of MW scale turbines. The average turbine size installed in China in 2013 is 1.6 MW, in the USA it is 1.9 MW and 1.3 MW in India.

In a continuous effort to develop the turbines to give optimum output at the lower wind speeds the turbine manufacturers has introduced higher hub height turbines with higher swept area. The hub heights of the turbine offered in India has already touched 100m. Further, as per the plans of several wind turbine manufacturers in India, year 2014-15 would see introduction of 110-130 m hub height turbines being introduced in India. In terms of the swept area also the turbines in India are comparable with the turbines offered internationally. Most of the wind turbines internationally have the rotor diameter in the range of 120-130m while as in India the largest rotor diameter is 100m and with new turbines expected to be introduced in 2014-15 the rotor diameter would further increase. The analysis of international wind turbine market shows that 79% of the turbines installed internationally are in the range of 1.5-2.5 MWii which is the range of turbines available in India.

Wind Project CostThe Indian wind project cost compare very favorably with the international cost. The analysis of project cost, undertaken by the World Energy Council and prepared by Bloomberg New Energy Finance, shows that the wind project cost in India is one of the lowest costs in the World. The project cost for all the top seven wind energy producing countries are given in table below. Brazil had also included in analysis which has similar economic conditions that of India for comparison purpose.

Country Position in World Capital Cost (Rs. Cr/MW)1

China 1 8.37- 8.43

USA 2 11.26

Germany 3 8.37-8.98

Spain 4 8.55 - 10.03

India 5 6.64-7.69

UK 6 8.79-9.35

Brazil 12 10.27

Note 1: Conversion rate 1 US$ = 61.5 INR

Source: World Energy Council and prepared by Bloomberg New Energy Finance

A simple comparison on global level and also with our neighboring country (given below) explains that there is much more to achieve. The need of hour is to aim big and address the bottlenecks and provide suitable enablers to the industry to reach the higher orbit of growth for wind power sector.

INDIAN WIND POWER24

Renewables: India Vs. China

China has continuously increased its investment in renewable energy while India's investment has remained static

China's aggressive renewable push is clearly visible from its Installed capacity in wind power

INDIAN WIND POWER 25

Dependency on Policies and Regulations

The wind power capacity addition in the country has been closely related to the certainty and suitability of policies and regulations. The following graph captures the total capacity addition in the country along with the important policy milestones.

Going further at state level further explains the dependency of wind power installation on state policy and regulations. The graph below shows the huge variations in capacity additions across states over last three financial years owing to changing policy and regulatory paradigm.

INDIAN WIND POWER26

Energy Security & RE

² The answer lies in RE based power plants

• Zero fuel cost over the life of the system

• Represent the flexibility to suitable scale the plant size

• Can be exploited locally and used both for centralised as well as distributed generation

• Adding RETs to the portfolio can reduce the risks of generation failure

Need for Renewables

Our groundwork enables our

clean energy contribution

to touch the sky

Our groundwork is what earns us the wings:

§ Robust operations -

from concept to commissioning and lifetime care thereafter

§ Comprehensive in-house manufacturing facilities –

including complete turbines and towers

§ Turbine technology -

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INDIAN WIND POWER28

The Need

India'starget

• India is 3rd largest emitter of CO2

• GHG accumulation would lead to global warming; leading to changes in rainfall patterns, disruption in hydrological cycles, melting of ice caps and glaciers, rise in sea levels, etc.

• India is highly vulnerable to climate change. Change in mean temperature and precipitation will require change in cropping patterns. It has been estimated that a 2.0-3.5ºC increase in temperature can lower agricultural GDP by 9% - 28%.

• To reduce the emissions intensity of its GDP by 20-25% over the 2005 levels by 2020

RE has potential

tocontribute highest in meeting

target

RenewableEnergy

EnergyE� iciency

TransportSector

Misc. - Green Bldg.,

Forestry

Key areas that will help inreduction in GHG emission

² Power from existing RE installed capacity of ~30GW is equivalent to saving of forex ~4 billion USD/year, if the same quantum of power was to be generated using imported coal

Climate Change & RE

² Meeting the target would require India to save ~500m tonnes of CO2 emissions / annum by 2020

² Existing RE installed capacity of ~30GW is already contributing by saving ~55m tonnes of CO2 emissions per annum

The Commercial Aspect

Compared to recent

bids of coal power

(Rs. 6 to 7 per unit)

Wind

Has achieved

grid parity

Cheaper at Rs. 4.5 to

5.92 per unit

Solar

In range of Rs. 6 - 7.5 per unit

Based on declining trend for solar panel prices, it can achieve grid

parity by FY16

Given the deficit situation, wind and solar is already cheaper than expensive diesel based power

² Tariff for RE based power remains constant for the entire life of the project; on the other hand, cost of conventional power increased every year due to escalating variable (fuel) cost component

² It is known fact that cost of variable (fuel) component has been increasing significantly in recent years due to reduced availability of fossil fuel & increasing (costly) imports

² Levelised over 25 years, cost of RE power is much lower than cost of conventional power

² The cost of conventional power does not take into account the cost impact of air pollution caused by such power

² Similarly, Cost of water should also be factored in with 88% of total industrial water usage is for thermal plants

• India, once a water abundant country has now turned 'water stressed'

• 80% of new thermal plants are located in water scarce areas in India

Current IssuesWe have tried to categories the major issues faced by the wind industry in the following four broad categories, which are elaborated in detail.

1. Policy & Regulatory issues

2. Fiscal & Financing issues

3. Infrastructural issues

4. State level issues

INDIAN WIND POWER 29

Policy & Regulatory Issues1. Regulatory non-uniformity across states

As per the Electricity Act, state commissions shall follow the guidelines of central commission while determining the Feed in Tariff (FIT), however, in practice it is being followed by only few states and that too partially. The policies, tariffs, terms and other conditions for wind projects vary hugely from state to state.

Assumed Capital cost of wind turbines by regulators across states ranges from INR 4.50 Crores to INR 6.04 Crores. RPO targets vary from a paltry 2% to as high as 11% across states. Wheeling and transmission charges vary from NIL to normative (equivalent to conventional). Banking provisions also vary widely and ranging from no banking to yearly banking.

Further, the states are also putting yearly caps (viz. 400 MW in state of Rajasthan) thereby limiting the development.

2. Absence of long-term feed in tariff policy

There is no certainty in the FIT policy due to lack of Multi-Year Tariff (MYT) framework in most of the states. Due to lack of visibility, investors are not being able to plan for long-term resulting in loss of long-term investments in development of the sector.

3. RPO Non-Enforcement

All the states have notified some RPO targets for distribution licensees and some have made captive and open access consumers also an obligated entity. The RPO targets notified are arbit and not in line with the NAPCC targets for most of the states.

Further, the enforcement is completely missing. Most of the state utilities have not been able to meet RPO targets over last few years. However, most of the state regulators have levied any penal provision on the non-complying entities. States like Gujarat has even waived off the obligations for distribution licensees.

The non-compliance has resulted in a non-functional and illiquid REC market. As on date almost 7.45 million REC (equivalent to a minimum of 1,125 crores) are unsold and 4,850 MW of projects have become unviable on account of illiquid REC market.

4. Weak financial health of distribution licensees

Distribution licensees are the major procurer of wind energy. Weak financial health of distribution licensees is resulting in huge payment delays to wind generators. Payments to wind generators are delayed by 2-6 months in major wind resource rich states like Tamilnadu, Rajasthan, MP etc. This is resulting in

significant financial hardship to wind generators and many are finding hard to service debt obligations.

5. Delay in GBI payments

GBI payments are also invariably delayed adding to the woes of wind generators. More than INR 200 Crores are pending as on date. Further, the delay in announcement of GBI policy also has taken its toll on the wind sector.

6. Non-implementation of Open Access in states

Open access implementation has been practically limited to few states and thereby limiting the sale options for wind generators. There is reluctance from the distribution licenses towards providing open access for electricity based on renewable sources and accordingly such open access transactions, both intra-state as well as inter-state, is minimal. In such situation, majority of electricity based on renewable sources is being supplied to the host distribution licensee. This is acting as barrier to the growth of renewable sector as well as burdening the distribution licenses.

The wheeling & banking provisions and higher charges in most of the states are making open access transaction unviable. Further, even in the states where currently open access transactions are feasible (like Karnataka, TN), the provisions lack long-term visibility and are perceived as high risk transaction.

7. Very high transaction charges for inter-state wind power sale

In present scenario, there is reluctance from the utilities towards providing open access to wind power and inter-state transfer of wind power is only in theory. In such situation, the entire wind power is being consumed in the host state; this has led to inequitable contribution by all states towards growth of wind/RE sector with most of the contribution coming from select 5-6 states. In this light, it becomes necessary to facilitate open-access and inter-state transfer of wind power in true sense so that the states deficient in wind potential can also consume the wind power and thus contribute in the development of the sector. One of the key supports required in this direction is to reduce the significantly high open access costs (including transmission charges & losses and open access charges). It is to be highlighted that overall transmission costs (inter-state) for conventional power is in the range of 30-40 paise per unit; however, for wind based power, these costs are 3-4 times higher i.e. in the range of 120-150 paise per unit. This is primarily attributable to lower PLF in case of wind power compared to that for conventional power.

This significantly high transmission cost is major impediment in facilitating inter-state sale of wind

INDIAN WIND POWER30

power. In this regard, support can be provided by putting in place a scheme wherein these charges are waived off for next five years and thereafter RE generator has to pay overall transmission cost on per unit basis in the same range as that in case of conventional power; the balance should be funded by a central scheme. This would provide a level playing field to RE generators in availing open access.

8. No policy on hybrid (solar & wind) and off shore power projects

There is significant potential of wind and solar being developed at same site and thereby saving the cost of evacuation and land. Currently, we do not have any policy on hybrid (wind & solar) project developments limiting the development. Offshore wind sector is completely unexplored and in the absence of any clear policy the development is constrained.

9. Competitive bidding

1. Timing of competitive bidding is not appropriate as the wind industry is already strained

i. In India majority of the investment in wind sector has come from private sector and to harness all the potential we strongly need the policy and regulatory supports in terms of feed in tariff, GBI, REC, etc.

ii. Bringing competitive bidding at this stage will hamper the pace of development significantly and capacity addition will slow down in the country. We have already witnessed this in FY13 (around 47% drop in annual wind capacity installation) & FY14 (actual capacity addition still much lower than targeted capacity addition)

2. International experience: NREL, US Dept. of Energy, conclusion1 based on competitive biddings of Brazil, New Jersey, California and China, is:

i. “Speculative underbidding during the auction process can lead to high attrition rates, which may jeopardize this certainty and lead to fewer projects being built than were initially contracted”

3. Not comparable to solar bidding

i. While solar radiation assessment can be done with fair accuracy based on satellite data; the same is not possible in wind

ii. Setting up wind project needs mast installation and monitoring of wind for at least two years before proceeding with implementation of a project.

iii. Similarly, while specific location is not an issue for solar project, each wind turbine generator requires a very specific micro-siting.

iv. There are significant technological changes happening in the solar sector besides the unprecedented drop in silicon raw material pricing unlike wind where the technology is much more matured and no such raw material price reductions have happened.

4. Wind monitoring requirement

i. In order to introduce competitive bidding in wind, all developers should have same set of wind data i.e. minimum 2 years of data at a location, only then all the parties will be at same level.

ii. This in turn means that State/discom should first prepare a site for competitive bidding in wind and make the wind data and the evacuation available for a specific site before starting the bidding.

5. Availability of suitable wind sites

i. Majority of good wind sites are locked-in by select parties by way of approvals/data/land etc. and thereby giving unfair advantage to few players.

ii. Besides, multiple issues arise during project execution (e.g. land & ROW issues) that cannot be foreseen at the time of bidding

6. Other key aspects

i. Wind feed in tariff is increasing at much slower pace vis-à-vis conventional power

• The rate of increase of wind tariff has been 4.1% per year compared to case-1 tariff increase rate of 15.7%

• Even the rate of increase in retail tariff has been to the tune of 10-15% in most of the states

INDIAN WIND POWER 31

ii. Reducing capital cost through opening the market (view of wind IPPs)

• Presently, only those WTGs are allowed to be installed that are certified by CWET; such requirement is not there in case of any other sub-segment within power sector such as solar, conventional power, etc.

• The requirement of certification is acting as a barrier towards usage of wider category of more price-competitive WTGs from other manufacturers

• An effective way to reduce the capital cost could be through facilitating increased competition by removing the requirement of certification and thus allowing installation of cheaper WTGs and in turn result in more capacity additions.

In view of the above, the competitive bidding should be targeted only after 2020 when a significant addition is achieved. The effort should be made to make bring the cost down and increase the scale.

Financing Issues1. High cost of funding

The cost of funding is generally high for renewable projects due to various reasons. Some of them we have listed below:

a. High general Indian interest rate environment raises renewable project debt cost significantly. Fixed interest rate debt is rare; market relies entirely on variable rate debt. There is no low cost funding source for wind projects. Since 2007, benchmark interest rates have fallen significantly in the developed world to stimulate the economy, but have stayed relatively flat in the rapidly developing economies. India is the only country whose benchmark interest rates are higher than they were in 2007. Indian interest rates are now higher than each of the countries in the figure below save Brazil and the gap with Brazil has fallen from 12% in 2005 to 0.5% today.

b. High cost of hedging : Borrowing in the U.S. and European markets to exploit the lower interest rates is not a feasible option, as the cost of currency swaps over the life of the loan needed to reduce the exposure to potential rupee devaluation consumes nearly the entire interest rate differential.

c. Shorter tenor of debt : Most of the loans are of 11-13 years tenor whereas the project life is

25 years. Indian debt tenors are typically much shorter than in the U.S. or Europe. Overall, the shorter debt tenors add between 3% and 10% to the cost of the project, by forcing more rapid amortization of the loan, and therefore reducing the effective leverage over the life of the project. But long-term debt is not easily available in India for several reasons:

i. Asset-liability mismatch: Banks dominate infrastructure financing in India as the corporate bond market is under-developed, but face severe constraints in lending long-term debt due to the short-term nature of the funds they raise. According to the Reserve Bank of India (RBI) estimates, nearly 79% of 2009-10 bank deposits have an average maturity of below three years. For this reason, banks in India are not comfortable lending for tenors longer than 5-7 years, while the infrastructure sector requires long-term debt of more than 10 years.

ii. Weak bond markets: In 2010, India’s total outstanding bonds amounted to 53% as a percentage of GDP compared to other countries, such as Japan (247%), U.S. (176%), Malaysia (76%), and China (60%).India is lagging far behind other countries in the corporate debt market, which accounted for around only 4% of the total debt market in 2011, a tiny amount when compared to other countries. The growth of the corporate bond market in India has been limited largely due to stringent regulations and under-developed financial markets.

iii. Diminished role of Development Financial Institutions (DFI): Several key DFIs were established in the 1950s, such as Industrial Development Bank of India and Industrial Finance Corporation of India, which had access to cheap funds from the government and the central bank, and from multilateral and bilateral international agencies. They were able to extend low-cost, long-term debt to infrastructure development companies during 1950-1990, and they were a major source of long-term funding. However, financial liberalization in 1991, aimed at deregulation of financial markets that resulted from the balance of payments crisis, reduced the role of DFIs as the government stopped supporting their fundraising activities. One exception to this is the Indian Renewable Development Agency (IREDA). However,

INDIAN WIND POWER32

the scale of IREDA is small compared to the challenge of financing Indian renewable energy ambitions.

d. Debt is not strictly non-recourse as it is usually offered on a relationship basis and on the back of corporate and personal guarantees.

2. Availability of funds

a. Banks limit lending to any one sector for risk purposes and Renewable energy debt is often classified within power or energy sectors, which are already nearing sector limits for most of the banks. Most banks in India include renewable energy in their power, utility, or energy sector limits. These sectors have heavy borrowing demand, to the point that many banks may have been near their limits even before lending to renewable energy could begin.

Commercial banks in India cap investments in infrastructure at 10-15% of their total domestic advances based on the Reserve Bank of India (RBI) prudential lending norms. At present, the renewable energy sector is coupled with the power sector, which is governed by (implicit and self-enforced) sub-sector limits in the range of 4.5-5.0%. During the last few years, due to large capacity additions — primarily of coal based power projects — commercial banks in India almost reached their lending limits for the power sector.

b. Some banks are not lending to renewable projects due to unfamiliarity with renewable energy policy and markets.

c. State-level policy, the poor financial condition of the State Electricity Boards, and unfavorable local business environments restrict lending to some states.

Infrastructural IssuesProvided the right alignment is possible on the policy & implementation front, it may be possible to add 25,000 MW of new wind capacities in the next five years, as under

State Plausible Installations (MW)

Rajasthan 3,000

Gujarat 2,500

Madhya Pradesh 2,000

Maharashtra 4,500

Karnataka 2,000

Andhra Pradesh 3,500

Tamil Nadu 2,500

Repowering 3,000

New states 2,000

Total 25,000

A capacity addition of 25,000 MW would mean an investment volume of Rs 1,75,000 Cr+, and can likely come through variety of investor segments like private Independent Power Producers (IPPs), Utilities, Public Sector Undertakings, Large Corporate and Small and Medium Industry. A fair amount of issues with respect to implementation is at state level, these can be categorized under the following headings:

1. Land related2. Power evacuation related3. Safety of wind projects4. Environment clearances (pollution control boards)

These issues are important as even after announcing conducive policy & regulatory frameworks by the central & state government, it may not be possible to implement projects in time. In order to realize the same, the following concerns needs to be address as under:

1. Land

Wind can be put up only in places where wind resource is available, apart from that host of other procedures needs to be followed. These all things put together acts as a dampener for the growth of the sector. Some of the critical issues are as under:

² Non-allowance of leasing of revenue land for wind farming (viz. Rajasthan)

² Complex procedure needs to be followed for conversion of N.A. in case of private land (viz. almost all states, except that of TN)

² DIC permission (viz. Maharashtra)

² Land ceiling cap, which hampers development of large scale projects

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² Lengthy and tedious process for leasing of forest land (it takes, as per the timeline given in the procedure, 18 months to get forest land)

² Serious problems in Right of Way (RoW) for evacuation lines

In the context of land the provisions of newly enacted “Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013” would also create hindrance for development of wind power projects.

2. Power evacuation related

In case of wind power, the wind project developers have acquired competency to draw Extra High Voltage (EHV) lines of up to 220 kV rating. However, unless the upstream strengthening is not taken up by STU and to that matter even CTU, generation back down is inevitable. In case of conventional power projects the evacuation lines are developed by the state transmission utility a similar treatment needs to be given to wind projects. In fact, the Electricity Act, 2003, specifies that suitable measures for connectivity with the gird to be provided for renewable energy projects. A welcome initiative was undertaken in the form of development of green corridor. However, at present, the bottlenecks are at the intra state transmission level and the projects for strengthening/development of intra state transmission systems in the wind rich states like Tamil Nadu, Rajasthan, Karnataka, Madhya Pradesh and Gujarat needs to be strengthened under the green corridor.

It is also essential that a uniform practice for connectivity of wind projects to the grid is to be developed across all the states. At present different state follow different practices/ standards for connectivity and metering. The Central Electricity Authority (CEA) as well as CERC has issued regulations related to technical standards for connectivity and metering, however these are not followed in uniformity across the states.

3. Safety at Wind Projects

In the recent years, there is substantial rise in incidents of armed & organized robberies and theft of cables and other material from wind power projects especially in the state of Rajasthan and to some extent in Maharashtra. Investors that have invested in wind projects have incurred severe losses, including attacks on their employees. As per the information collated by industry association the value of the theft is in excess of Rs 200 Cr in past one year in terms of cables & tower members which have been stolen from wind turbines. In addition to the cost of replacement a substantial amount of energy generation loss has been sustained by the wind energy generators. Further, it is

only matter of time that this would spread to other renewable energy projects, primarily solar power.

4. Environment clearances (pollution control boards)

At present, the wind power projects are exempted from the environmental impact assessment. However, recently the Central Pollution Control Board had categorized wind power projects under the Green Category. The industries which has very less potential for air and /or water pollution are categorized under Green Category and thus are required to take consent to operate from the respective state pollution control boards. Wind power, which is included in the green category, on the other hand, does not result in any air or water pollution. The process of getting the consent to establish, which is required for green category industries, is primarily designed by the State Pollution Control Boards (SPCBs) while keeping the normal industrial units in mind. Some of these requirements, primarily land related, are difficult to meet given the implementation practice of wind power projects. Such requirement would substantially add to project implementation time and resultant cost over runs for the projects.

State Level IssuesAs the actual project implementation happens at the state level the state level policy and regulatory framework is most critical for wind power projects. The important policies or regulations which affected growth of wind power projects in recent past in different states are listed below. Power being a concurrent subject the important policy and regulatory issues can be taken up with state governments / regulatory commissions.

1. Rajasthan

a. Thefts of cables in wind farms running in to hundreds of crores

The thefts had resulted in huge replacement costs as well as substantial loss in generation in Rajasthan, highest in any state.

b. Removal of banking and hike in open access charges for 14-15

The Rajasthan Electricity Commission has recently removed the banking facility for wind projects and also increased the open access charges.

c. Reduction in RPO target

In a very retroactive development the RERC, in 2011, had substantially reduced the RPO from 9.5% to 6%. This has given a very negative signal amongst the prospective investors.

INDIAN WIND POWER 35

2. Gujarat

a. RPO non-compliance since 2010The Utilities in Gujarat has not fulfilled its PRO obligation in last four years starting from 2010-11. The Gujarat Commission had initially carried forward the unmet RPO to the next year and finally waived of, contrary to its own regulation, in the year 2013.

b. Reluctance for signing PPA for REC projects

The utilities have been resisting signing PPA for projects opting for REC mechanism. Faced with this problem, the wind power project developers has to make an arrangement to sign feed in tariff PPAs and REC project PPA in equal proportion, taking away the choice of selecting the method for sale of power from the generators.

3. Maharashtra

a. Non signing of Power Purchase Agreements

The utility in Maharashtra, for a period of almost 9 months, in 2013-14 has not signed the PPA with wind generators resulting in stranded generating capacity and loss of revenue for wind generators.

b. No open access for wind power projectsContrary to the provisions of the Electricity Act, 2003 and the state Regulation, the utilities in Maharashtra has not provided open access for wind power projects in the state.

c. Proposed reduction in wind power tariff against the MYT regulationThe Maharashtra Electricity Regulatory Commission MERC, deviating from its own MYT regulation, has proposed to estimate tariff for wind power projects which works out to be substantially lower that the tariff for 2013-14.

4. Madhya Pradesh

a. Restriction on evacuation

The utilities in Madhya Pradesh as well as the Madhya Pradesh Electricity Regulatory Commission have put restriction, against the norms specified by the CEA, on the evacuation of wind power.

b. Land allocation based on RFQ only twice a year

The Madhya Pradesh has evolved a policy for allocation of land based on the REQ. The bids for land allocation are invited only twice a year. As the wind power project involves long-term data collection before planning the wind projects, the present scheme do not provide any protection for wind developers who make investment in

wind measurements as the adjoining land can be allocated to any person in the RFFQ.

5. Karnataka

a. Long forest land allocation process

Wind power potential in the state is mainly in the forest area. The clearances for use of forest land, at the state level, take long time (much more than the time taken by forest departments in other states) resulting in project delays and slower growth.

b. Proposed hike in open access charges and removal of banking facility

The Karnataka Electricity Regulatory Commission has proposed to withdraw the banking facility for wind power and also proposed to, step by step, increase in open access charges.

6. Tamil Nadu

a. Backing down of wind power

In case of Tamil Nadu the most critical issue is backing down of wind generation. In 2013-14 the revenue loss due to backing down was about 60%. Unlike conventional power, which gets fixed costs even in case of backing down, the wind generators lose entire revenue.

b. Chronic payment delays

The payment delay form the utilities in Tamil Nadu had reached to a level of 18 months, which have been now reduced, however the delays are still there making the loan servicing difficult for wind power projects

7. Andhra Pradesh

a. The common commission to Andhra Pradesh and Telangana issued a advisory prescribing competitive bidding for wind power projects

With one of the lowest wind power capacity installed the Andhra Pradesh Electricity Regulatory Commission has issued an advisory to the newly formed state of Andhra Pradesh to undertake procurement of wind power through competitive bidding. This would jeopardize the wind power projects planned after recent tariff announcement.

b. Static RPO target since 2004 till 2017

The APERC, in 2012, notified a RPO regulation through which it has maintained the RPO at 5% level, which has been in place since 2004, till 2017. This is against the provisions of the National Electricity Policy of 2006.

Wind Industry in India-Way Forward Part-IISuggested Approach for Future continued in the next issue.

INDIAN WIND POWER36

Snippets on Wind Power

PFS, Power Finance Corp. to Finance Renewable Energy Projects

Non-banking finance company PTC India Financial Services (PFS) has signed an initial agreement with PFC Green Energy for facilitating joint financing of renewable energy projects.

"As per the MoU, both the companies have agreed to provide a single window to borrowers developing renewable energy projects under consortium financing to achieve speedy financial closure and avoid duplication of work," PFS said in a statement.

Renewable Energy may get $100 BN in 4 yrs

Power Minister Piyush Goyal has said that the government was firming up its policy framework for the renewable energy and the transmission and distribution sector and hoped that both these sectors together would fetch an estimated $150 billion to $160 billion for the same in the next four years.

In his keynote address at the Economist India Summit here, Goyal said that the government was expecting an investment of $100 billion in the renewable energy space and another $60 billion in the transmission and distribution sector.

IFC, Yes Bank to Lend $ 150 Million to Continuum Wind Energy

Continuum Wind Energy, in which Morgan Stanley Infrastructure Partners owns a majority stake, would receive a $ 150 million loan from two lenders for a 170 MW project in Madhya Pradesh.

World Bank Group member International Finance Corporation (IFC) said it would lend $ 50 million and has helped arrange an additional $ 100 million loan from private sector lender Yes Bank for the wind power plant in Madhya Pradesh.

The World Bank Group's impact investment and lending body would lend to two wholly-owned subsidiaries of the company to reduce greenhouse gas emissions, IFC said in a statement.

India to Introduce Offshore Wind Policy Targeting 1 Gigawatt

India is set to introduce an offshore wind policy targeting 1 gigawatt by 2020, seeking to mimic Europe’s success in generating power at sea. The ministry of new and renewable energy will seek cabinet approval for the policy shortly, according to joint secretary Alok Srivastava.

India, which has installed 21 gigawatts of wind power, is looking to expand at sea as the best sites on land fill up, while poor roads limit the introduction of larger, more productive turbines. It’s seeking advice from the European Union because the bulk of the world’s offshore farms have been built in the North, Irish and Baltic Seas.

“The government plans to set up a new company by January to develop offshore projects,” Srivastava said. State-owned generator NTPC Ltd, Power Grid Corp. of India Ltd, and a few others will form the business, which may start with 100 megawatts of demonstration projects.

APERC Notifies Draft Amendment for RPO Regulation 2012

APERC has notified the Draft Amendment for Renewable Power Purchase Obligation–(Compliance by Purchase of Renewable Energy/Renewable Energy Certificates) Regulations, 2012[Regulation No.1 of 2012]: Regulation No.XX of 2014. By this draft amendment the Commission has proposed changes in several clauses of the previous Regulation. Public hearing in this matter will be held at APERC, Hyderabad on 16th September 2014.

Eight steps for Ensuring 24×7 Power Supply by the Government

Power, Coal and MNRE Minister Sri Piyush Goyal has laid out eight steps plan on 8th September 2014 to ensure 24x7 supply of electricity for all homes, industrial and commercial establishments and adequate power for farms within five years. These steps are: i. rationalising coal supplies; ii. bringing in a statutory and robust coal regulator; iii. Civil nuclear cooperation agreement with Australia; iv. tightening surveillance at major coal mines; v. exploiting the Hydel potential; vi. speeding up environment and forest clearances; vii. resolve stranded gas based capacity; and viii. setting up of solar ultra mega power plant at Sambhar.

INDIAN WIND POWER 37

JICA extends loan of Rs 3,500 cr for energy sector

Japan International Cooperation Agency (JICA) signed agreements with the Small Industries Development Bank of India (SIDBI) and the Indian Renewable Energy Development Agency Limited (IREDA) to provide official development assistance (ODA) of 30 billion Japanese Yen (Rs 1,750 crore) each of the two institutions to enhance energy availability in India. In a press statement, JICA said it has been supporting India’s efforts towards mitigating energy shortage by focusing on developing infrastructure such as more efficient technology for power plants, transmission systems and distribution networks, and increasing efficient use of energy, especially in micro, small and medium enterprises (MSMEs). JICA’s assistance will enable medium-to-long term funding to private and public companies engaged in energy saving and renewable energy development.

The project, New and Renewable Energy Development Project (Phase 2), aims at supporting power producers to invest in new renewable energy projects such as wind and solar power through IREDA. “These new loan agreements are aiming to provide comprehensive support to ensure stable energy supply and diversify energy resources. Since Japan is one of the most energy-efficient countries, Japan’s knowledge will contribute to achieving the goal,” said Ejima.

Courtesy: Business Standard, 2.9.2014

KERC Pooled Cost of Power Purchase for FY 2013-14

KERC determines the pooled cost of power purchase for FY 2013-14 to be considered for FY 2014-15 as Rs. 3.38/kWh. For the FY 2013-14 the APPC determined was Rs. 3.17/kWh.

Maharashtra Issues Tariff Order for Wind Power

MERC has issued tariff order for wind power on 7th July 2014. Detail is available on the web.

TNERC Extends current Tariff till next order

TNERC has extended the Order No.6 of 2012 till the issue of next tariff order. As per the order matters for reconsideration are under process and the Commission would now initiate the process for next tariff order on Wind Energy.

GE invests in three wind projects of Atria Power in India

US multinational General Electric’s (GE) financial arm announced that it has invested an unspecified amount in three wind projects of Atria Power from the $1 billion fund it budgets annually for renewable energy projects worldwide three wind farms, including one in Andhra Pradesh and two in Madhya Pradesh having a combined capacity of 126 megawatts (MW). Atria Power Corporation Ltd (APCL) is building a 25.6 MW project in Ananthapur district, about 190 km from Bangalore across the state border for commissioning in September, while the other two projects of 50 MW each are coming up in Betul district, about 180 km from Bhopal, and will be operated from December and June 2015

GreenKo Group raises $ 550 million in overseas bond sale

Hyderabad-based GreenKo Group plc, a leading independent clean energy power producer, has raised $ 550 million in a five-year overseas bond sale at a coupon rate of eight per cent at maturity. The money was raised by its international arm Greenko Dutch BV and is guaranteed by the parent. GreenKo Group Plc has a diversified portfolio of hydel and wind power plants with 700 mw operational capacity and has 300 mw under-construction projects.

Gujarat’s share in power sector investment highest: Study

In the period between 2004-05 and 2012-13, Gujarat attracted over 17% — the highest among states — of all new investments made in the power sector, says a study released by the Assocham. Out of the total Rs 31.3 lakh crore investments made in the power across India, Gujarat attracted over Rs 5.3 lakh crore from public and private sources leading to a significant growth in power availability in the state.

Government aims to add 10,000 MW per year to lift wind energy sector

The government plans to rapidly accelerate wind energy generation, adding an ambitious 10,000 MW every year, or five times the total new capacity that came up in the last fiscal, as the Modi government takes steps to reduce India’s dependence on costly energy imports.

At a recent meeting with turbine makers and other stakeholders New and Renewable Energy Minister Piyush Goyal suggested to add 10,000 MW of wind power installations annually, said a government official

INDIAN WIND POWER38

requesting anonymity. He added ministry and wind turbine makers will jointly study the status of grid availability in six states with maximum wind velocity.

“Wind turbine makers are capable to meet proposed higher targets of the government. Higher volumes will bring down average cost of installations and even tariff to make wind power more attractive. By resolving issues related to wind power evacuation and renewable power purchase obligations of the state utilities, India can attract domestic investments in the sector that is getting increasing attention of global investments,” said IWTMA chairman Madhusudan Khemka, who is MD of Chennai-based Regen Power Tech. MNRE and IREDA are jointly planning to host an international meet in February next year to give impetus to the wind power sector. The ministry is also considering organising similar events to boost solar power.

Courtesy: Economic Times, 12th August 2014

Government Trying to Address Issues in Renewable Energy Sector

The government is trying to address issues in the renewable energy sector by balancing all interests and ensuring that consumers get power at an affordable price, Union Minister Piyush Goyal said. The renewable energy sector is grappling with various issues. These include non-compliance by entities in following the renewable purchase obligations in the power sector. Various efforts are underway to boost the domestic renewable energy sector.

APERC Discussion Paper on Balancing and Settlement Mechanism

APERC has come up with a draft discussion paper to relook their current balancing and settlement mechanism. It proposes to implement frequency linked deviation settlement mechanism be adopted for intra-state ABT settlements in the state. The current process of Balancing & Settlement in Andhra Pradesh is based on the Discom to Discom energy exchange and cost adjustment settlement model (SMP Mechanism). The paper acknowledges the fact that AP has huge untapped wind energy potential and large scale integration of renewable energy sources will take place in the future. It also proposes to setup Renewable Energy Management Centre in the state for better scheduling and despatch of the RE sources.

APERC Issues Model PPA for Wind Power Projects

APERC has Issued Model PPA for Wind Power Project under Cluster Scheme and PPA for Single Developer

connected to Designated Substation for the State of Andhra Pradesh.

Report on ‘Renewable energy Jobs and Finance’ published by the NRDC (Natural Resources Defense Council) and CEEW (Council on Energy, Environment and Water)

According to the report the government should consider developing a green bank and green bonds (capitalised through the National Clean Energy Fund, issued by the central or state governments) to leverage more private investment in renewable energy. According to NRDC-CEEW  analysis, India’s solar and wind programs have catalysed rapid growth providing much needed energy access, creating employment opportunities for India’s workforce. The analysis also finds that deployment of innovative financing solutions is needed in order to scale India’s renewable energy markets and widespread job creation.

According to NRDC-CEEW report, Indian government should boost financing for renewable energy projects by improving access to low cost finance, using diverse financial mechanisms such as infrastructure debt funds, priority sector lending and tax incentives (such as accelerated depreciation and tradable tax certificates). It recommends implementation of generation based incentives and penalties in combination with any form of viability gap or tax related capital subsidies.

India Renewables More Attractive Than Coal or Gas: GE Says

“Wind and solar will continue to offer significant value over other fuels for several decades,” Mahesh Palashikar, GE’s India head of renewables, told a conference in Noida, near New Delhi. GE invested $24 million in India’s largest solar-power project in April, a 151-megawatt plant under development by Welspun Group. It also invested in three Indian wind farms in July. Conventional power projects are facing fuel-supply constraints and rising costs that won’t be resolved quickly, Palashikar said. In contrast, GE expects the cost of wind energy to continue to fall as the technology improves, allowing turbines to generate more electricity at lower wind speeds, he said.

Courtesy: Bloomberg, 4.9.2014

Snippets compiled By:

Sri Abhijit Kulkarni, General Manager, Sales-Renewable Energy Segment,

SKF India Ltd., Pune and IWTMA Team

INDIAN WIND POWER 39

Delegates at the Knowledge Forum

Sri D. V. Giri, Secretary General, IWTMA delivering Welcome Address

Mr. Stephen Fernands, President, Customised Energy Solutions replying to

audience question

Sri Rajesh Katyal, DDG, NIWE inaugurating Knowledge Forum

Dr. Rahul Walawalkar, ED, IESA delivering presentation

a. Overview of advances in energy storage technologies

b. Business models for integrating energy storage with existing or new wind farms

c. Wind forecasting, scheduling and addressing forecasting errors

d. Update on MNRE’s EOI for storage projects for renewable integration

Mr. Stephen Fernands, Founder and President of Customized Energy Solutions shared his US experience of Wind forecasting & scheduling and about storage projects in USA.

Mr. KyungSoo Kim Consul General, Korea giving welcome speech

Sri D.V. Giri Secretary General, IWTMA,

speaking at the Forum

Indian Wind Turbine Manufacturers Association is regularly conducting Knowledge Forums for the benefit of the wind power industry on various topics. In this series IWTMA conducted Wind Knowledge Forum on “Energy Storage Systems” in association with National Institute of Wind Energy (NIWE) and India Energy Storage Alliance (IESA) on 17th September 2014 at NIWE Conference Hall, Chennai.

The Forum started with the Welcome Address by Sri D. V. Giri, Secretary General of IWTMA and Inaugural Address by Sri Rajesh Katyal, Deputy Director General and Head of Research and Development, NIWE. Dr. Rahul Walawalkar, Founder and Executive Director for India Energy Storage Alliance (IESA) presented his views on the following points:

Chennai Renewable Energy Forum by Korea Trade Investment Promotion Agency (Kotra)

Photo Feature

Korea Trade Investment Promotion Agency (Kotra) working

within the aegis of Embassy of the Republic of Korea conducted

Chennai Renewable Energy Forum on 18th September 2014 at

Hotel Westin, Chennai. The event focussed on three core areas

of Renewable Energy segments viz. solar, wind and Bio-mass and

witnessed the attendance of leading captains from respective

sectors both from India and the Republic of Korea.

The event was inaugurated by Mr. KyungSoo Kim, Consul

General, Republic of Korea. Sri D. V. Giri, Secretary General,

IWTMA presented his views on Wind Energy: Avenues for

Partnership and Collaboration at the event.

Knowledge Forum on Energy Storage Systems

INDIAN WIND POWER40

Published and Edited by Dr. Rishi Muni Dwivedi on behalf of Indian Wind Turbine Manufacturers Association, 4th Floor, Samson Tower, No 403 L, Pantheon Road, Chennai 600108. Printed by R.R. Bharath on behalf of Ace Data Prinexcel Private Limited, 3/304F, (SF No. 676/4B), Kulathur Road, odd NH 47 By Pass Road, Neelambur, Coimbatore 641062.

Editor: Dr. Rishi Muni Dwivedi

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