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INTRODUCTION
STAKE HOLDERS RISK MITIGATION DEVELOPMENT CONSIDERATIONS TENDERING CONTRACT OWNERSHIP FINANCE MODELS LEGAL FRAMEWORK


INCENTIVES
WIND POWER IN INDIA

Presented by:

P R AT E E K D A S G U P TA PRANAV MISHRA

WIND ENERGY

India is blessed with 7517 km of coastline and territory up to 12 nm into the sea. This is where lies the potential of sustained energy growth. India is 5th largest producer of wind energy in the world, with 16078 MW of installed capacity ( Dec. 2011)

658 wind monitoring stations are set up by MNRE, of which 75 are in operation.
Tamil Nadu, Maharashtra, Gujarat, Karnataka are leading wind energy producers in India.

Short construction period and low O&M cost makes it an attractive proposition.
Project life is 25 years.

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S TA K E H O L D E R S
PRIMARY SECONDARY

Ministry of New & Renewable Energy

Ministry of power Ministry of environment and forest

IREDA (Finance)

C-WET( R&D)

(State agencies)

Department of science and technology
Central and state regulators Multilateral agencies Education and research institutes

Implementing agencies and NGO’s Manufacturer / vendors

Users or consumers

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R I S K S A N D M I T I G AT I O N
Risk Wind availability Equipments Operations and maintenance Revenue Mitigation Minimum 1-2 year site specific data Performance data, warranties Experienced managers, maintenance contracts Power purchase agreements

Construction Force majeure
Transmission Tax benefit utilizations

Fixed completion dates and penalties, performance bond Insurance
Interconnection agreements

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D E V E L O P M E N T C O N S I D E R AT I O N S

Choice of investment

Contractual obligations

Legal issues
•Land agreements •Option to purchase or lease •Purchase •Lease •Easement •Covenant •License •Siting •Environment •Electricity •Other permissions

Type of development: • Third party wind developer •Small turbine •Commercial scale wind project

Major concerns

Financial issues •Sources of initial project financing. •Steps in acquiring finance. •Seed money to evaluate feasibility. •Equity investment for pre construction development •Debt/equity for construction and operation. •Financial models
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Business structure

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D E V E L O P M E N T C O N S I D E R AT I O N S

ENERGY AND ELECTRICITY SUPPLY POLICIES


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National Development policies and plan.
Implementation mechanisms for National Development plan. National policies for the Energy and Electricity sectors. Perceptions of major constraints, priorities. Electricity tariff policies.

Environmental Protection Policies and their impact on the energy sector.

FINANCIAL MECHANISM • •

Mechanisms for International Financing. Mechanisms for Local Financing.

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TENDERS

Information provided by the owner 1. INVITATION LETTER 2. ADMINISTRATIVE INSTRUCTIONS 3. GENERAL INFORMATION 4. TECHNICAL REQUIREMENTS 5. SCOPE OF SUPPLY AND SERVICES 6. NATIONAL PARTICIPATION 7. BID EVALUATION CRITERIA 8. DRAFT CONTRACT TERMS AND CONDITIONS 9. COMMERCIAL CONDITIONS 10. SAFETY AND SECURITY CONSTRAINTS

Information requested from bidders 1. GENERAL INFORMATION 2. GENERAL TECHNICAL ASPECTS 3. TECHNICAL DESCRIPTIONS 4. SCOPE OF SUPPLY AND SERVICES 5. ALTERNATIVES AND OPTIONS 6. QUALITY ASSURANCE PROGRAMME 7. TRAINING 8. PROJECT SCHEDULE 9. TECHNOLOGY TRANSFER 10. GUARANTEES AND WARRANTIES 11. DEVIATIONS AND EXCEPTIONS 12. COMMERCIAL CONDITIONS

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CONTRACT

Contract Components

•Definitions •General clauses •Object of the contract •Planning and execution of the work •Information, inspection, testing and control •Assignment of the work and subcontracting •National participation and technology transfer •Training of personnel •Changes and additional work •Transport and customs clearance •Risks and transfer of title •Liability •Insurances •Quality assurance

•Licensing •Delivery times •Documentation •Spare and wear parts, consumables and special tools •Guarantees or warranties •Take-over •Prices, price adjustments and terms of payment •Force majeure •Termination and suspension of the contract •Guarantee of title and proprietary information •Execution of the contract •Applicable law •Arbitration

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CHOICE OF INVESTMENT
A landowner has a windy site and he wants to utilize the wind, he can choose to :
Negotiate with the third party to develop project on his site Install small turbine for on site energy use Commercial scale production

Deciding factors for a landowner may be : •Their financial situation •Their comfort level with risk •Time they can commit to develop the project •Degree of interest

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OWNERSHIP
Negotiate with the third party •Selling or leasing their rights to someone else who will construct and operate wind energy power plant. •The developer will do all the work to develop, build and operate the plant. •The owner will receive some rental or part of revenue, as decided between them. •Less risk to land owner. •No initial capital investment required. •Land owner’s risk lies in carefully negotiating legal agreements to ensure fair compensation, allocation of rights, responsibilities and risk. •Usually, a developer approaches a land owner. Install small turbine for on site energy use •Energy is used for own purpose •May cell excess electricity to grid. •Net metering •Will have to comply vast array of regulations like land use restrictions, environmental regulations. Commercial scale production •Owner may invest directly on his own or with collaboration with others. •Power generated is sold for profit. •Expensive, time consuming and risky endeavor. •Legal issues related to land, government laws and liability concerns. •Financing to be secured. •Contract to sell in advance or PPA •Business structure •Access to the grid for transfer of electricity.
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FINANCING
Sole ownership If the land owner has resources to put the project and can provide required equity.

Models

Local investor ownership

Loan to own •Local investor group makes a loan to corporate investor. •Local investors would earn interest only over term of the loan. •Initially, corporate body is 100% owner and receives all the project’s income, losses and tax benefits. •At the end of the specified period, corporate investors sell the project to local investors at a pre negotiated price.
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•Groups of individuals who have purchased shares in the project. • formed as LLC (Limited Liability Corporations) •Investors are insulated from liability and profit losses flows through to individual members.

Joint ventures •An outside corporate investor joins hand with local investors. •Entails complex legal and tax challenges.

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FINANCING
Project ‘lease’ •It involves, leasing the development rights to outside investors. •Land owners will do the predevelopment work. ( wind monitoring, zoning, permissions, PPA ) and contracting with project operator. • they lease the wind rights and assign a portion of PPA to investors. •The investor would own the project for pre negotiated period and landowner would receive a negotiated royalty. •At the end of the period, landowners have option to purchase the project at fair market price.
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Models

Sweat equity

•It is similar to the project lease model. •But in this model, local investors are not retaining any ownership stake, either upfront or later. •Rather, they receive a more generous royalty stream. •It avoids legal tax and management issues associated with splitting ownership interests between corporate and local investors.

Joint ventures
•An outside corporate investor joins hand with local investors. •Entails complex legal and tax challenges.
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FINANCING
Sources
EQUITY •One of the greatest hurdles for wind projects •Potential sources for equity financing are : •Strategic investors, such as utility companies or their subsidiaries. •Institutional investors, usually for large commercial scale projects. •Corporate investors, who wants to reduce their tax liabilities by investing in green energy projects DEBT •Can be a challenging and time consuming process. •Requires developers to complete all the pre development work. •Potential sources of debt financing are : •Local lenders •Regional agricultural lenders •Commercial banks •Commercial finance •Vendor financing •Most projects are structured with 40-70 % debt.

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FINANCING
For getting a project financed…
Following information are required :
•A comprehensive wind monitoring study (minimum 1 year of data) conducted at the site •A project feasibility study by a credible consultant •Proven expertise in managing a wind project or an agreement with a qualified 3rd party project manager •Zoning and site permitting approval •Turbine performance data •Turbine warranties and operations and maintenance agreement •A completed interconnection study •A long-term power purchase agreement (at least 10 years and preferably 15 years) with a creditworthy utility that will purchase the electricity generated at specified prices •Commitments for all required equity •A business, financial and risk management plan for the project including complete proforma •financial statements

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FINANCING
Schematic summary of wind financing structures

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LEGAL FRAMEWORK
Siting •Measuring the wind resource. •Access to electric grid. •Impact on neighbors. •Environmental impacts Other issues to regulate are : •Duration of agreement. •Compensation. •Uses of land •Taxes •Liabilities •Assignment of contract by developer. •Termination of agreement. •End of project life. •Dispute resolution. •Eminent domain

Wind and land agreement
•Property requirements. •Property rights. •Land •Wind ( easements ) •Type of agreement •Option to lease or purchase •Right to first refusal •Sale •Lease •Easement •Permit or license
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Permissions •Land use •Environment ( air, water, land, wetland) •Local building and electrical codes •Permission from aviation ministry. •Historic preservation. •Statement of need
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LEGAL FRAMEWORK
Electricity regulatory commissions act, 1988 •The state commissions are key players for regulating the electricity sector and including determining electricity tariffs

Electricity Act. 2003 •Promotes generation of electricity from renewable energy. •Section 3 - National Electricity policy and plan including optimal utilization of renewable energy. •Section 4 – national policy permitting stand alone system for those based on renewable source of energy. •Section 61- appropriate commission while determination of tariff shall be guided by promotion of generation and co generation of electricity from renewable energy. National Electricity Policy, 2005 •Aims at accelerated development of power sector, providing supply of electricity to all areas and protecting interests of consumers and other stakeholders
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LEGAL FRAMEWORK
Integrated Energy Policy, 2006 •It emphasizes the use of renewable energy to reduce dependency on energy imports

Rural Electrification Policy, 2006 •The policy recognized that non-conventional energy sources can be appropriately and optimally utilized to make available reliable supply of electricity to each and every household.

National Tariff Policy, 2006 •SERCs to fox minimum percentage of purchase of energy from renwable energy sources, taking into account availability of such resources into the region and its impact on retail tariff.

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LEGAL FRAMEWORK
Renewable Energy Policy •The broad objective of the draft policy are to meet a minimum energy needs through renewable energy. Foreign Investment Policy •Foreign investors can enter into a joint venture with an Indian partner for financial and/or technical collaboration and for setting up of RE-based power generation projects •Hundred per cent foreign investment as equity is permissible with the approval of the Foreign Investment Promotion Board (FIPB). •The Government of India encourages foreign investors to set up power projects on BOO basis. Investors are required to enter into a power purchase agreement with the concerned state government •No prior approval of the government is required to set up an industrial undertaking with Foreign Direct Investment (FDI) by Non-Resident Indians (NRIs) or Overseas Corporate Bodies (OCBS) •The Reserve Bank of India (RBI) has permitted Indian companies to accept investment without obtaining prior approval from RBI. Investors are required to notify the regional office of RBI, of receipt of inward remittances within 30 days of such receipt.
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LEGAL FRAMEWORK
Power Purchase Policy •Policies introduced/incentives declared by the State Governments for private sector Wind Energy projects Industrial Policy •MNES is promoting medium, small, mini and micro enterprises for manufacturing and servicing of various types of RE systems and devices. •Industrial clearances are not required for setting-up of an RE industry •No clearance is required from Central Electricity Authority (CEA) for power generation projects up to Rs 1,000 million •A five-year tax holiday is allowed for RE power generation projects •Soft loans are available through IREDA for RE equipment manufacturing •Financial support is available to RE industries for R&D projects in association with technical institutions •Import of power projects are allowed •Private sector companies can set up enterprises to operate as licensee or generating companies •Excise duty on a number of capital goods and instruments in the RE sector has been reduced or exempted

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INCENTIVES
Incentives for Investing in Renewable Energy Technology
•MNES provides financial incentives, such as interest and capital subsidy •Soft loans are provided through: •IREDA, a public sector company of the Ministry •Nationalised banks and other financial institutions for identified technologies/systems •The government also provides various types of fiscal incentives for the RE sector, which include: •Direct taxes - 100 per cent depreciation in the first year of the installation of the project •Exemption/reduction in excise duty •Exemption from Central Sales Tax, and customs duty concessions on the import of material, components and equipment used in RE projects

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INCENTIVES

Concession under Income Tax Rules •Section 32 - Accelerated 80% depreciation on specified RE- based devices/projects. •Section 80 IA - Industrial undertakings set up in any part of India for the generation or generation and distribution of power, a 100% deduction is allowable from profits and gains for first five years and thereafter 30% of the profits and gains. Further, the Budget has also proposed a 10-year tax holiday for the generation and distribution of power, to be availed during the initial 15 years.

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WIND POWER IN INDIA
The Ministry of New and Renewable Energy (MNRE) is the nodal Ministry of the Government of India for all matters relating to new and renewable energy. The broad aim of the Ministry is to develop and deploy new and renewable energy for supplementing the energy requirements of the country. Creation CASE and Ministry: •Commission for Additional Sources of Energy (CASE) in 1981. •Department of Non-Conventional Energy Sources (DNES) in 1982. •Ministry of Non-Conventional Energy Sources (MNES) in 1992. •Ministry of Non-Conventional Energy Sources (MNES) renamed as Ministry of New and Renewable Energy (MNRE) in 2006. Ministry of New & Renewable Energy

Indian Renewable Energy Development Agency

Centre for Wind Energy Technology

State Renewable Energy Development Agency

(Finance)

(Research)

(State agencies)

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WIND POWER IN INDIA
Other financial institutions
•PTC India •Gujarat Industrial Investment •ICICI •Industrial Finance Corporations •NABARD •SIDBI Associations/societies •Indian Wind Energy Association, •Indian Wind Power Association, •Indian Wind Turbine Manufacturers Association, •Winrock International India, •World Institute of Sustainable Energy Testing and certification •Bajaj Allianz, •ICICI Lomabard, •IFFCO Tokio, •National insurance Company, • Oriental Insurance, •New India Assurance, •Reliance general Insurance, •Royal Sundaram, • Tata AIG, •United India Insurance
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Consultants •TCS, •TERI, •Hitech Wind Solutions, •Sri Ganesh Wind Power, •Power & Energy Consulatants, • Resurge Energy

Testing and certification
•C-WET, •Det Norske Veritas AS, •Germanischer Lloyed
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WIND POWER PROJECTS

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