regulatory issues for setting up a wind power plant

7/30/2019 REGULATORY ISSUES for setting up a Wind Power Plant

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INTRODUCTION

STAKE HOLDERS

RISK MITIGATION

DEVELOPMENT CONSIDERATIONS

TENDERING

CONTRACT

OWNERSHIP

FINANCE MODELS

LEGAL FRAMEWORK

INCENTIVES

WIND POWER IN INDIA

INDIAN INSTITUTE OF TECHNOLOGY KHARAGPURI N F R A S T R U C T U R E R E G U L A T O R Y I S S U E S

Presented by: P R AT E E K D A S G U P TA

P R A N A V M I S H R A


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W I N D E N E R G Y


India is blessed with 7517 km of coastline and

territory up to 12 nm into the sea. This iswhere 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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STAKE H O LD ER S


Ministry of New &

Renewable Energy

IREDA (Finance) C-WET( R&D) (State agencies)

Implementing agencies and NGOs

Manufacturer / vendors

Users or consumers

PRIMARY SECONDARY

Ministry of power

Ministry of environment and forest

Department of science and technology

Central and state regulators

Multilateral agencies

Education and research institutes


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R I S K S A N D M I T I G A T 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 utilizations


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


Choice of investment Contractual obligations

Major concerns

Type of development:

Third party wind developer

Small turbine

Commercial scale wind

project

Legal issues

Land agreements

Option to purchase

or lease

Purchase

LeaseEasement

Covenant

License

Siting

Environment

Electricity

Other permissions

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

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 A T 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.


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T E N D E R S


Information provided by the owner

1. INVITATION LETTER

2. ADMINISTRATIVE INSTRUCTIONS

3. GENERAL INFORMATION

4. TECHNICAL REQUIREMENTS

5. SCOPE OF SUPPLY AND SERVICES6. 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 OPTIONS6. 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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C O N T R A C T


Definitions

General clauses

Object of the contract

Planning and execution of the work

Information, inspection, testing and controlAssignment 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 titleLiability

Insurances

Quality assurance

Licensing

Delivery times

Documentation

Spare and wear parts, consumables and special

toolsGuarantees or warranties

Take-over

Prices, price adjustments and terms of payment

Force majeure

Termination and suspension of the contract

Guarantee of title and proprietary informationExecution of the contract

Applicable law

Arbitration

Contract Components


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C H O I C E O F I N V E S T M E N T


A landowner has a windy site and he wants to utilize the wind, he can choose to :

Deciding factors for a landowner may be :

Their financial situation

Their comfort level with riskTime they can commit to develop the project

Degree of interest

Commercial scale production

Install small turbine for on site energy use

Negotiate with the third party to develop project on his site


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O W N E R S H I P


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 lawsand liability concerns.

Financing to be secured.

Contract to sell in advance or PPA

Business structure

Access to the grid for transfer of electricity.

Install small turbine for on site energy use

Energy is used for own purposeMay cell excess electricity to grid.

Net metering

Will have to comply vast array of regulations like

land use restrictions, environmental regulations.

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 owners risk lies in carefully negotiating

legal agreements to ensure fair compensation,

allocation of rights, responsibilities and risk.

Usually, a developer approaches a land owner.


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F I N A N C I N G


ModelsSole ownership

If the land owner has resourcesto put the project and can

provide required equity.

Local investor ownership

Groups of individuals who

have purchased shares in the

project.

formed as LLC (Limited

Liability Corporations)

Investors are insulated from

liability and profit lossesflows through to individual

members.

Joint ventures

An outside corporate investor joins hand withlocal investors.

Entails complex legal and tax challenges.

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 projects 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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F I N A N C I N G


ModelsProject lease

It involves, leasing thedevelopment rights to outside

investors.

Land owners will do the pre-

development 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 anegotiated royalty.

At the end of the period,

landowners have option to

purchase the project at fair market

price.

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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F I N A N C I N G


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, whowants 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 banksCommercial finance

Vendor financing

Most projects are structured

with 40-70 % debt.


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F I N A N C I N G


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 equityA business, financial and risk management plan for the project including complete proforma

financial statements

For getting a project financed


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F I N A N C I N G


Schematic summary of wind financing structures


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L E G A L F R A M E W O R K


Siting

Measuring the wind resource.Access to electric grid.

Impact on neighbors.

Environmental impacts

Wind and land agreement

Property requirements.

Property rights.

Land

Wind ( easements )

Type of agreement

Option to lease or purchaseRight to first refusal

Sale

Lease

Easement

Permit or license

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

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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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 optimalutilization 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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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 beappropriately 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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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 projectsHundred 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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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 industryNo 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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I N C E N T I V E S


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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I N C E N T I V E S


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 duringthe initial 15 years.


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W I N D P O W E R I N I N D I A


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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W I N D P O W E R I N I N D I A


Other financial institutions

PTC India

Gujarat Industrial InvestmentICICI

Industrial Finance Corporations

NABARD

SIDBI

Associations/societiesIndian Wind Energy Association,

Indian Wind Power Association,

Indian Wind Turbine Manufacturers

Association,

Winrock International India,

World Institute of Sustainable Energy

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

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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W I N D P O W E R P R O J E C T S


regulatory issues for setting up a wind power plant

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