Financing Wind Capacity Repowering in

India

Concept Brief for ADB

October 2012

Sagar Gubbi,
Managing Partner,
Ecoforge Advisors Pvt Ltd, Bangalore, India
sagar@ecoforge.in
 Wind Power in India – Background
• Indian power sector
– high power deficit
– severe shortage of coal and gas
– massive power outage in July 2012 affected 700 million people

• Rapid wind power deployment from 2001-2011 due to

– demand for power
– favorable policies

• Installed wind capacity in March 2012 was 17.3 GW (9% of total capacity)

• Large local wind turbine manufacturing capacity – Suzlon, Gamesa, GE etc

assemble and manufacture locally

• Tamil Nadu has the largest installed capacity followed by Gujarat, Maharashtra
and Karnataka
Source: MNRE, News Articles, Suzlon 2
 Wind Power in India – Evolving Policy and Industry
2003: Accelerated 2011: REC
Depreciation regime
introduced introduced

2009: GBI 2012: AD discontinued;

introduced GBI suspended due to
fiscal issues

Pre-2009 2009 Onwards

Policy: Accelerated Policy: Generation Based
Depreciation (AD) and Incentives (GBI), RE
special wind power tariffs Certificates (RECs)

Investors: Mainly non-power Investors: Independent

producers driven by tax Power Producers (IPPs)
savings driven by returns

Characteristics: Power sale Characteristics: Power sale

to Discoms, balance sheet to Discoms and industries,
financing project financing

Source: Industry Reports, E&Y, Ecoforge Research

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 Wind Power in India – Why Repowering?
• Low Plant Load Factors (PLFs): Due to old, inefficient wind energy generators
(WEGs) occupying high wind sites
WEGs Installed 1995-2000 New WEGs
Typical capacity of each WEG: 250 - 500 Typical capacity of each WEG: 1.5 - 2.1 MW;
kW; installed at hub heights of 20-50 m installed at hub heights of 90-100 m
Older PPAs at lower tariffs; no RECs Newer PPAs at higher tariffs; can add RECs
Installed for tax saving purposes and hence Installed to generate long-term returns and
no incentive to invest in O&M hence strong incentive to invest in O&M

• Repowering will replace older, smaller WEGs with modern, powerful ones
Parameter Benefits of Repowered Wind Farms
Installed Power Generation Capacity Estimated to increase by 30%
PLFs Estimated to increase from 15% to 30%
Total Generated Electricity Output Estimated to at least double

Sources: Industry Report by Infraline Energy , Suzlon and Gamesa estimates, News Articles
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GWEC, “Indian Wind Energy Outlook 2011’, April 2011
 Wind Power India – Repowering Potential and Barriers
• Wind repowering potential (of replacing old WEGs of capacity less than 500 kW) in
India is estimated to be between 2500 to 3000 MW.

• State-wise breakup of estimated wind repowering potential:

State Estimated Repowering

Potential
Tamil Nadu 800 MW
Gujarat 200 MW
Maharashtra 200 MW

• Barriers to repowering include

– need for upgrading grid evacuation capacity
– asset recovery costs
– ownership issues
– lack of policy incentives
Sources: GWEC, Infraline Energy, Recent Media Articles
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 Wind Power India – Barriers to Repowering
• Grid Evacuation: Existing grid capacities will have to be upgraded to evacuate the
increased power generation
– Difficult to convince power transmission companies (transcos) to upgrade grid due to
financial crunch in the power sector

• Asset Recovery Costs: Costs of existing asset purchase, decommissioning,

transport, refurbishment and export or disposal

• Ownership Issues: Several old wind farms are owned by groups of owners with
each owning small portions of capacity – hence buyers need to aggregate
– Owners of existing wind power assets expect high valuations for selling them
– Very few owners have the capital or expertise to repower their existing assets

• Discoms, PPA, Tariffs: Existing PPAs with lower tariffs and tough exit clauses
– Most Discoms are under financial stress. However, Tamil Nadu, Delhi and Punjab have
recently hiked power tariffs to consumers
– A performance-based bail-out package for Discoms announced in Sept 2012
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Sources: GWEC, Infraline Energy, Recent Media Articles
 Wind Repowering India – Potential ADB Intervention
• Option 1: Finance setup of Wind Parks for repowering in Tamil Nadu, Gujarat and
Maharashtra (similar to Charanka Solar Park in Gujarat)

ADB Loan ADB Loan

State energy Local Discoms to

State power transco development authority cancel existing
to upgrade cluster or genco (ex: PPAs and sign new
grid to evacuate GEDA/GPCL in ones with IPPs at
higher (repowered) Gujarat) to perform current tariffs; IPPs
generation capacity asset recovery can also sign
private PPAs

Wind Park – state

authority/genco, will
purchase existing
assets, decommission,
refurbish and export (to
lower-income ADB
DMCs) or dispose
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 Wind Repowering India – Potential ADB Intervention
• Option 2: Finance Discoms to provide special ‘repowering’ top-up tariffs

ADB Loan ADB Loan

State Discoms top-up

State power transco to existing feed-in tariffs
upgrade cluster grid to with ‘repowering tariffs’
evacuate repowered to make it viable (taking
generation capacity into account asset
recovery costs)
Repowered Assets
Owned by IPPs
(will perform asset
recovery together
with WEG
manufacturers)