INFRASTRUCTURE   REGULATORY   ISSUES                          INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR                    ...
WIND ENERGYIndia is blessed with 7517 km of coastline andterritory up to 12 nm into the sea. This iswhere lies the potenti...
S TA K E H O L D E R S          PRIMARY                                                 SECONDARY                  Ministr...
R I S K S A N D M I T I G AT I O N  Risk                                  Mitigation  Wind availability                   ...
D E V E L O P M E N T C O N S I D E R AT I O N S                                                                          ...
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   •   National Development polic...
TENDERS   Information provided by the owner        Information requested from bidders   1. INVITATION LETTER              ...
CONTRACT   Contract Components   •Definitions                                      •Licensing   •General clauses          ...
CHOICE OF INVESTMENTA landowner has a windy site and he wants to utilize the wind, he can choose to : Negotiate with the t...
OWNERSHIP  Negotiate with the third party                    Install small turbine for on site energy use •Selling or leas...
FINANCING         Sole ownership                          Models                  Local investor ownership  If the land ow...
FINANCING          Project ‘lease’                        Models                            Sweat equity•It involves, leas...
FINANCING                                              Sources             EQUITY                                         ...
FINANCING                       For getting a project financed… Following information are required : •A comprehensive wind...
FINANCING                  Schematic summary of wind financing structuresINFRASTRUCTURE   REGULATORY   ISSUES             ...
LEGAL FRAMEWORK                    Siting                        Other issues to regulate are :  •Measuring the wind resou...
LEGAL FRAMEWORK                 Electricity regulatory commissions act, 1988  •The state commissions are key players for r...
LEGAL FRAMEWORK                        Integrated Energy Policy, 2006  •It emphasizes the use of renewable energy to reduc...
LEGAL FRAMEWORK                           Renewable Energy Policy  •The broad objective of the draft policy are to meet a ...
LEGAL FRAMEWORK                            Power Purchase Policy  •Policies introduced/incentives declared by the State Go...
INCENTIVES            Incentives for Investing in Renewable Energy Technology   •MNES provides financial incentives, such ...
INCENTIVES                       Concession under Income Tax Rules   •Section 32 - Accelerated 80% depreciation on specifi...
WIND POWER IN INDIA  The Ministry of New and Renewable Energy (MNRE) is the nodal Ministry of the Government of India  for...
WIND POWER IN INDIA       Other financial institutions                          Consultants •PTC India                    ...
WIND POWER PROJECTSINFRASTRUCTURE   REGULATORY   ISSUES   INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
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Regulatory Issues for setting up Wind power plant

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Regulatory Issues for setting up Wind power plant

  1. 1. INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR • 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
  2. 2. WIND ENERGYIndia is blessed with 7517 km of coastline andterritory up to 12 nm into the sea. This iswhere lies the potential of sustained energygrowth.India is 5th largest producer of wind energy inthe world, with 16078 MW of installedcapacity ( Dec. 2011)658 wind monitoring stations are set up byMNRE, of which 75 are in operation.Tamil Nadu, Maharashtra, Gujarat, Karnatakaare leading wind energy producers in India.Short construction period and low O&M costmakes it an attractive proposition.Project life is 25 years. INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  3. 3. 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 forestIREDA (Finance) C-WET( R&D) (State agencies) Department of science and technology Implementing agencies and NGO’s Central and state regulators Manufacturer / vendors Multilateral agencies Users or consumers Education and research institutes INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  4. 4. R I S K S A N D M I T I G AT I O N Risk Mitigation Wind availability Minimum 1-2 year site specific data Equipments Performance data, warranties Operations and maintenance Experienced managers, maintenance contracts Revenue Power purchase agreements Construction Fixed completion dates and penalties, performance bond Force majeure Insurance Transmission Interconnection agreements Tax benefit utilizationsINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  5. 5. D E V E L O P M E N T C O N S I D E R AT I O N S Legal issues Choice of investment Contractual obligations Type of development: •Land agreements • Third party wind developer •Option to purchase •Small turbine or lease •Commercial scale wind •Purchase project Major concerns •Lease •Easement •Covenant •License •Siting Financial issues •Environment •Sources of initial project financing. •Electricity •Steps in acquiring finance. •Other permissions •Seed money to evaluate feasibility. •Equity investment for pre construction development •Debt/equity for construction and operation. Business structure •Financial modelsINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  6. 6. 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 • 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.INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  7. 7. TENDERS Information provided by the owner Information requested from bidders 1. INVITATION LETTER 1. GENERAL INFORMATION 2. ADMINISTRATIVE INSTRUCTIONS 2. GENERAL TECHNICAL ASPECTS 3. GENERAL INFORMATION 3. TECHNICAL DESCRIPTIONS 4. TECHNICAL REQUIREMENTS 4. SCOPE OF SUPPLY AND SERVICES 5. SCOPE OF SUPPLY AND SERVICES 5. ALTERNATIVES AND OPTIONS 6. NATIONAL PARTICIPATION 6. QUALITY ASSURANCE PROGRAMME 7. BID EVALUATION CRITERIA 7. TRAINING 8. DRAFT CONTRACT TERMS AND CONDITIONS 8. PROJECT SCHEDULE 9. COMMERCIAL CONDITIONS 9. TECHNOLOGY TRANSFER 10. SAFETY AND SECURITY CONSTRAINTS 10. GUARANTEES AND WARRANTIES 11. DEVIATIONS AND EXCEPTIONS 12. COMMERCIAL CONDITIONSINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  8. 8. CONTRACT Contract Components •Definitions •Licensing •General clauses •Delivery times •Object of the contract •Documentation •Planning and execution of the work •Spare and wear parts, consumables and special •Information, inspection, testing and control tools •Assignment of the work and subcontracting •Guarantees or warranties •National participation and technology transfer •Take-over •Training of personnel •Prices, price adjustments and terms of payment •Changes and additional work •Force majeure •Transport and customs clearance •Termination and suspension of the contract •Risks and transfer of title •Guarantee of title and proprietary information •Liability •Execution of the contract •Insurances •Applicable law •Quality assurance •ArbitrationINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  9. 9. CHOICE OF INVESTMENTA 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 INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  10. 10. OWNERSHIP Negotiate with the third party Install small turbine for on site energy use •Selling or leasing their rights to someone else •Energy is used for own purpose who will construct and operate wind energy •May cell excess electricity to grid. power plant. •Net metering •The developer will do all the work to develop, •Will have to comply vast array of regulations like build and operate the plant. land use restrictions, environmental regulations. •The owner will receive some rental or part of revenue, as decided between them. Commercial scale production •Less risk to land owner. •No initial capital investment required. •Owner may invest directly on his own or with •Land owner’s risk lies in carefully negotiating collaboration with others. legal agreements to ensure fair compensation, •Power generated is sold for profit. allocation of rights, responsibilities and risk. •Expensive, time consuming and risky •Usually, a developer approaches a land owner. 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.INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  11. 11. FINANCING Sole ownership Models Local investor ownership If the land owner has resources •Groups of individuals who to put the project and can have purchased shares in the provide required equity. project. • formed as LLC (Limited Liability Corporations) •Investors are insulated from liability and profit losses Loan to own flows through to individual members.•Local investor group makes a loan to corporateinvestor.•Local investors would earn interest only over Joint venturesterm of the loan.•Initially, corporate body is 100% owner and •An outside corporate investor joins hand withreceives all the project’s income, losses and tax local investors.benefits. •Entails complex legal and tax challenges.•At the end of the specified period, corporateinvestors sell the project to local investors at apre negotiated price.INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  12. 12. FINANCING Project ‘lease’ Models Sweat equity•It involves, leasing the •It is similar to the project leasedevelopment rights to outside model.investors. •But in this model, local investors•Land owners will do the pre- are not retaining any ownershipdevelopment work. ( wind stake, either upfront or later.monitoring, zoning, permissions, P •Rather, they receive a morePA ) and contracting with project generous royalty stream.operator. •It avoids legal tax and• they lease the wind rights and management issues associatedassign a portion of PPA to with splitting ownership interestsinvestors. between corporate and local•The investor would own the investors.project for pre negotiated periodand landowner would receive anegotiated royalty. Joint ventures•At the end of theperiod, landowners have option to •An outside corporate investor joins hand with localpurchase the project at fair market investors.price. •Entails complex legal and tax challenges.INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  13. 13. FINANCING Sources EQUITY DEBT•One of the greatest hurdles for •Can be a challenging and timewind projects consuming process.•Potential sources for equity •Requires developers tofinancing are : complete all the pre •Strategic investors, such as development work. utility companies or their •Potential sources of debt subsidiaries. financing are : •Institutional •Local lenders investors, usually for large •Regional agricultural commercial scale projects. lenders •Corporate investors, who •Commercial banks wants to reduce their tax •Commercial finance liabilities by investing in •Vendor financing green energy projects •Most projects are structured with 40-70 % debt.INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  14. 14. 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 statementsINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  15. 15. FINANCING Schematic summary of wind financing structuresINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  16. 16. LEGAL FRAMEWORK Siting Other issues to regulate are : •Measuring the wind resource. •Duration of agreement. •Access to electric grid. •Compensation. •Impact on neighbors. •Uses of land •Environmental impacts •Taxes •Liabilities •Assignment of contract by developer. •Termination of agreement. Wind and land agreement •End of project life. •Dispute resolution. •Property requirements. •Eminent domain •Property rights. •Land •Wind ( easements ) •Type of agreement Permissions •Option to lease or purchase •Right to first refusal •Land use •Sale •Environment ( air, water, land, wetland) •Lease •Local building and electrical codes •Easement •Permission from aviation ministry. •Permit or license •Historic preservation. •Statement of needINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  17. 17. 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 stakeholdersINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  18. 18. 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.INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  19. 19. 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.INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  20. 20. 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 exemptedINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  21. 21. 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 projectsINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  22. 22. 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.INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  23. 23. 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 Centre for Wind Energy State Renewable Energy Development Agency Technology Development Agency (Finance) (Research) (State agencies)INFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  24. 24. WIND POWER IN INDIA Other financial institutions Consultants •PTC India •TCS, •Gujarat Industrial Investment •TERI, •ICICI •Hitech Wind Solutions, •Industrial Finance Corporations •Sri Ganesh Wind Power, •NABARD •Power & Energy Consulatants, •SIDBI • Resurge Energy Associations/societies •Indian Wind Energy Association, Testing and certification •Indian Wind Power Association, •Bajaj Allianz, •Indian Wind Turbine Manufacturers •ICICI Lomabard, Association, •IFFCO Tokio, •Winrock International India, •National insurance Company, •World Institute of Sustainable Energy • Oriental Insurance, •New India Assurance, Testing and certification •Reliance general Insurance, •C-WET, •Royal Sundaram, •Det Norske Veritas AS, • Tata AIG, •Germanischer Lloyed •United India InsuranceINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
  25. 25. WIND POWER PROJECTSINFRASTRUCTURE REGULATORY ISSUES INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR
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