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        A Detailed Research
                   On
        Wind Power in India
                  With
Financial Analysis and its Valuation



           A Summer Project At




                    By:

              Deepika Mehta
               (09 DM- 037)
   Post-Graduate Diploma in Management

  Birla Institute of Management Technology




             April - June, 2010
                                                                             2




                          A Detailed Research
                                     On
                         Wind Power in India
                                    With
                 Financial Analysis and its Valuation



                                      By:

                                  Deepika Mehta
                                   (09 DM- 037)
                   Birla Institute of Management Technology



                             Under the guidance of




Faculty Guide:                                            Industry Guide:

Manuraj Jain                                              Mr. Rahul Misra
Associate Professor                                       First Vice President
Birla Institute of Management Technology                  SMBC Capital India




                               April - June, 2010
                                                                                              3


                           SUMMER PROJECT CERTIFICATE


This is to certify that Ms. Deepika Mehta, Roll No. 09 DM 037 a student of PGDM has worked
on summer project titled “A Detailed Research On Wind Power in India with Financial
Analysis and its Valuation” after trimester-III in partial fulfilment of the requirement for the
programme. This is her original work to the best of my knowledge.




Date: 28-06-2010                                           Signature ________________




                                                                  (Prof. Manuraj Jain)
BIMTECH
                                  4


CERTIFICATE FROM INDUSTRY GUIDE
                                                                                             5


                                    ACKNOWLEDGEMENTS


I am grateful to SMBC Capital India, New Delhi for having given me the opportunity of carrying
out a “A Detailed Research On Wind Power in India along with Financial Analysis and its
Valuation” as a part of my 8-week Summer Internship with the organisation.
I extend my thanks to the entire team of SMBC Capital India for their valuable time and support
throughout the project.
I particularly thank Mr. Bharat Kaushal – Managing Director, Mr. Rahul Misra - First Vice
President, Ms. Serena Kohli - Associate and Mr. Kapil Jain – Analyst, for their valuable
guidance and unfailing support and for providing me an expedient learning platform where I
have had my first encounter with one of the best corporate practices and analytics.
I would like to thank Mr. Manuraj Jain, Associate Professor of Finance, Birla Institute of
Management Technology (BIMTECH), for his guidance and valuable insights throughout the
project. I am grateful to BIMTECH library for extending the full support of utilizing research
databases and material.
My internship involved a detailed study of Wind Power in India, an insight into the preparation
of an Information Memorandum, and financial modeling for the client. I am extremely grateful to
SMBC Capital India for providing me this immense learning opportunity, and I would be glad if
this project proves useful for them.
                                                                                                 6


                                          ABSTRACT


                                      A Detailed Research
                                               On
                                      Wind Power in India
                                              With
                             Financial Analysis and its Valuation

The project is a comprehensive report on the past, present and future of wind power in India with
a comparative analysis vis-a-vis the world at large. It is an in-depth research into the financial,
physical, technological and environmental parameters for setting up a wind farm and would
resolve multiple queries in the minds of a new player.
The report gives an overview of the power scenario in India with its current as well as projected
demand and supply. The National Electricity Policy envisages “Power for all by 2012” whereas
the deficit is expected to be 9.9%. Of all the renewable energy sources, wind power in India has
a great potential of about 200,000 MW which can be used to bridge this gap. The present
installed capacity of wind generated electricity in India is only 11,786 MW.

The study gives comprehensive details about the financial and fiscal incentives for wind power
generation given by the central government, state governments, and IREDA, along with
Generation Based Incentives (GBI) and Renewable Portfolio Obligation (RPO). Various
financing tools like corporate financing, project financing and lease financing have also been
dealt with in detail.

Three scenarios viz. reference, moderate and advanced have been used to examine the future
potential of wind power up to the year 2030, starting from a range of assumptions which will
influence the wind energy industry’s expected development. A complete insight into the cost
benefit analysis, key growth drivers and risks and challenges involved has been incorporated.

The study assimilates the evolution of wind turbine technology from its birth in 900 AD to its
present form. A brief profile of major manufacturers of turbine such as Suzlon, Vestas, GE, and
Enercon has been given to better understand the latest technology available in the market. The
report explains the conduciveness of wind power projects to the Kyoto Protocol and its help in
earning carbon credits which are a source of revenue to the industrialists.
The study evaluates the costs and benefits and the need and importance of using wind power as a
source of energy in India as well as globally. Various statistical tools have been used to build a
base case financial model for wind power project. For the purpose of building the model it is
assumed that the plant is located in the state of Maharashtra, India, with a 100 MW capacity.
Other assumptions of the model are taken as industry average. It projects cash flows with profit
and loss account and balance sheet on the basis of which new players can acquire debt from
various financial institutions like World Bank, Asian Development Bank, ICICI, IFCI, etc.
Discounted Cash Flow (DCF) method is used for the valuation of the project cash flows and Net
Present Value (NPV) and Internal Rate of Return (IRR) have been used as decision making tools.
                                                                                                  7


                                OBJECTIVE OF THE STUDY

An attempt has been made to understand the wind power scenario in India in a holistic manner.
The in-depth study in the Report has been done in 2 Sections with the following objectives:

      The first section provides a complete industrial overview of wind power in India with an
       aim to be used by the company, SMBC Capital India (herein referred to as “SMBCCI” or
       “Company”), as a reference base for any wind power deal. The objective is to be of use in
       the preparation of an Information Memorandum for a wind power client of the Company.
       Its aim is to enlighten an investor about the incentives offered, policies of the government
       related to Wind Power Generation as well as financing sources provided by other
       financial institutions along with the risks and challenges involved. It intends to bring
       awareness to an entrepreneur about the state wise best locations for harnessing wind
       energy and the projected demand and supply scenario. The study aims to analyse the
       indirect benefits achieved of reduced carbon emissions by the use of wind energy and
       thus exploring the avenues of carbon trading. In addition it provides a complete insight
       into the technologies involved in setting up a wind farm.

      The second section provides a base case model for a 100 MW plant to be setup in
       Maharashtra. The objective is to assess the financial feasibility of the project by analysing
       its projected cash flows, its Net Present Value (NPV) and the ability of the project to
       meet its obligations. The model aims to analyse the various sources of revenue and the
       expenses involved in setting up a wind farm. It intends to give an estimation of the Pay
       Back Period (PBP) and the Internal Rate of Return to an investor. Discounted Cash Flow
       (DCF) Method has been used for the valuation of the project.
Thus, a sincere endeavor has been made to justify all the above mentioned objectives in a
comprehensive manner along with a personal objective of enhancing my own learning of
working on a live project.
                                                                                               8


                               GENERAL METHODOLOGY

I have used secondary data from journals, articles and websites for my project. I have taken data
from the Ministry of Power website for ascertaining the demand and supply gap in the power
sector in India. For projecting the demand and supply in wind power sector in India, data was
taken from a detailed article on Wind Energy Outlook, International Energy Agency.

Other data like Feed-in Tariff, Renewable Portfolio Obligation, Renewable Portfolio Standards
and various other incentives have been taken from Ministry of New and Renewable Energy
(MNRE), Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory
Commission (SERC) guidelines. Various statistical tools and ratios have been used to build the
financial model. Discounted cash flow technique has been used for the purpose of valuation.
                                                                                                                                                                             9


                                                               TABLE OF CONTENTS

ABSTRACT .................................................................................................................................................................6

OBJECTIVE OF THE STUDY ..................................................................................................................................7

GENERAL METHODOLOGY .................................................................................................................................8

1 POWER SECTOR OVERVIEW .......................................................................................................................... 15
    1.1 Introduction ....................................................................................................................................................... 15
    1.2 Five Year Plan Achievements ........................................................................................................................... 15
    1.3 Demand and Supply of Power ........................................................................................................................... 17
    1.4 Projected Demand-Supply Scenario .................................................................................................................. 18
    1.5 Capacity Addition Programme: 11th Plan Capacity Addition........................................................................... 18

2 RENEWABLE ENERGY ...................................................................................................................................... 19
    2.1 Size and Growth of Renewable Energy Sector ................................................................................................. 20
    2.2 Future Growth Drivers ...................................................................................................................................... 21
    2.3 Issues and Challenges ........................................................................................................................................ 21
    2.4 Sources of Renewable Energy ........................................................................................................................... 22

3 WIND ENERGY OVERVIEW ............................................................................................................................. 23
    3.1 Current Industry Structure ................................................................................................................................. 23
    3.2 Growth of Indian Wind Market ......................................................................................................................... 24
    3.3 State-wise Potential ........................................................................................................................................... 25
    3.4 Key growth drivers ............................................................................................................................................ 25
    3.5 Risk and Challenges .......................................................................................................................................... 26

4 WIND ENERGY TECHNOLOGY ....................................................................................................................... 26
    4.1 Evolution of Wind Energy Technology ............................................................................................................ 26
    4.2 Present Functioning Of the Wind Turbine ........................................................................................................ 28
    4.3 Setting up a Wind Farm .................................................................................................................................... 33

5 MAJOR MANUFACTURERS OF WIND TURBINES ...................................................................................... 34

6 LEADING MARKETS OF WIND POWER IN THE WORLD ........................................................................ 40

7 POLICY ENVIRONMENT FOR WIND ENERGY IN INDIA ......................................................................... 47
    7.1 Ministry of New and Renewable Energy (MNRE) ........................................................................................... 47
    7.2 The 2003 Electricity Act ................................................................................................................................... 48
    7.3 Generation Based Incentives for Grid Connected Wind Power Projects .......................................................... 50
    7.4 Renewable Portfolio Obligation ........................................................................................................................ 51
                                                                                                                                                                       10


   7.5 Renewable Portfolio Standard ........................................................................................................................... 52
   7.6 Availability Based Tariff (ABT) ....................................................................................................................... 53

8 WIND ENERGY PROJECTIONS........................................................................................................................ 54
   8.1 Wind Energy Scenarios ..................................................................................................................................... 54
   8.2 Key Trends and Outlook ................................................................................................................................... 54
   8.3 Main Assumptions And Parameters For India .................................................................................................. 55
   8.4 Cost Benefit Analysis ........................................................................................................................................ 56

9 DISTRIBUTION OF ELECTRICITY GENERATED ....................................................................................... 59
   9.1 Captive Consumption ........................................................................................................................................ 59
   9.2 Sale to State Electricity Board........................................................................................................................... 61
   9.3 Power Trading ................................................................................................................................................... 61
      9.3.1 Bilateral contracts ...................................................................................................................................... 62
      9.3.2 Power Exchanges ....................................................................................................................................... 63
      9.3.3 Trading Licensee Companies ..................................................................................................................... 64

10 FINANCING ......................................................................................................................................................... 65
   10.1 Types of Financing .......................................................................................................................................... 66
     10.1.1 Project Financing ..................................................................................................................................... 66
     10.1.2 Corporate Financing ................................................................................................................................. 70
     10.1.3 Lease Financing ....................................................................................................................................... 70
   10.2 Innovative Financing Mechanisms .................................................................................................................. 73
   10.3 Finance from IREDA ...................................................................................................................................... 75

11 CARBON EMISSION REDUCTIONS .............................................................................................................. 78
   11.1 Indian Scenario ................................................................................................................................................ 79
   11.2 Trading Of CERs ............................................................................................................................................. 80
   11.3 Trends in the Global Carbon Market ............................................................................................................... 82

12 FINANCIAL MODEL.......................................................................................................................................... 84

13 SENSITIVITY ANALYSIS ................................................................................................................................. 91

14 ANALYSIS AND RESULTS ............................................................................................................................... 92

15 CONCLUSION AND LIMITATIONS ............................................................................................................... 93

16 REFERENCES ..................................................................................................................................................... 94

17 ANNEXURES ....................................................................................................................................................... 96
   Annexure 1: Wind Map Of India ............................................................................................................................ 96
   Annexure 2: Growth In Size Of Commercial Wind Turbine Designs ..................................................................... 97
                                                                                                                                                                 11


   Annexure 3: Types of Wind Turbine Towers .......................................................................................................... 97
   Annexure 4: Tax Schedule ...................................................................................................................................... 98
   Annexure 5: Working Capital Schedule .................................................................................................................. 99




                                                                LIST OF TABLES
Table 1: Region Wise Installed Capacity .................................................................................................... 15
Table 2: Targets and Achievements for Each of the 10 Plans .................................................................... 16
Table 3: Sector Wise Capacity Addition During X Plan ............................................................................ 16
Table 4: Renewable Energy Targets and Achievements during the X Plan ............................................... 17
Table 5: Region Wise Power Demand and Supply Position ....................................................................... 17
Table 6: Region Wise Peak Power Demand and Supply Position .............................................................. 18
Table 7: Projected Power Requirement ...................................................................................................... 18
Table 8: Capacity Addition Proposed In 11th Plan ...................................................................................... 19
Table 9: Estimated Renewable Energy Potential and Cumulative Achievements as on 31-03-2009 ......... 20
Table 10: Worldwide Installed Capacity as on March 31, 2010 ................................................................. 23
Table 11: Year – Wise Installations of Wind Power In India ..................................................................... 24
Table 12: Forecasts for wind power development in India 2010-13........................................................... 24
Table 13: Wind Power Installation –State Wise ......................................................................................... 25
Table 14: Range of Tip Heights Common In 2009 ..................................................................................... 30
Table 15: Manufacturing Facilities ............................................................................................................. 35
Table 16: Total Installed Capacity of China – Wind Power, 2009 ............................................................. 47
Table 17: MNRE Wind Power Policy......................................................................................................... 48
Table 18: Feed in Tariff .............................................................................................................................. 50
Table 19: Renewable Portfolio Obligation ................................................................................................. 52
Table 20: Level Of Capacity To Be Installed In India till 2020 ................................................................. 54
Table 21: Level Of Capacity To Be Installed In India till 2030 ................................................................. 55
Table 22: Projected Average Capacity Factor ............................................................................................ 56
Table 23: Expected Annual Savings In CO2 .............................................................................................. 57
Table 24: Summary Of Wind Energy Outlook Scenario For 2020 - India ................................................. 58
Table 25: Summary Of Wind Energy Outlook Scenario For 2030 - India ................................................. 58
Table 26: IREDA Norms ............................................................................................................................ 76
Table 27: Hard Costs of the Project ............................................................................................................ 84
Table 28: Soft Costs of the Project ............................................................................................................. 84
Table 29: Means of Financing .................................................................................................................... 85
Table 30: Revenue Assumptions................................................................................................................. 85
Table 31: Operating Assumptions............................................................................................................... 86
Table 32: Accounting Assumptions ............................................................................................................ 86
Table 33: Working Capital Requirement .................................................................................................... 86
Table 34: Funding Of Working Capital ...................................................................................................... 86
Table 35: Taxation Assumptions ................................................................................................................ 87
Table 36: Projected Profit and loss account….. .......................................................................................... 87
                                                                                                                                                        12


Table 37: Projected Balance Sheet…. ........................................................................................................ 88
Table 38: Cash Flow Statement… … ........................................................................................................... 89
Table 39: Sensitivity Analysis .................................................................................................................... 91




                                                               LIST OF FIGURES
Figure 1: Power Generation Mix ................................................................................................................ 19
Figure 2: Growth of Indian Wind Market ................................................................................................... 24
Figure 3: Wind Turbine .............................................................................................................................. 29
Figure 4: Power Curve ................................................................................................................................ 30
Figure 5: Key Physical Features of a Wind Turbine: .................................................................................. 31
Figure 6: World Total Installed Capacity (MW) – Wind Power .............................................................. 40
Figure 7: New Installed Capacity – Wind Power........................................................................................ 41
Figure 8: Country Share of Total Capacity – Wind Power, 2009 ............................................................... 42
Figure 9: Power Mix by Fuel type in USA, 2009 ....................................................................................... 43
Figure 10: New Installed capacity and De-Commissioned capacity in EU in 2009 ................................... 44
Figure 11: Capacity Mix – European Union for 2000 and 2009................................................................. 45
Figure 12: Annual Installation of Wind Power ........................................................................................... 46
Figure 13: Country Share in total capacity of EU in 2009 .......................................................................... 46
Figure 14: Employment In India As A Result Of Wind Energy Projects ................................................... 57
Figure 15: Electricity Generation In India From Wind Power (GWh) ....................................................... 59
Figure 16: CDM .......................................................................................................................................... 73
Figure 17: Carbon Credits ........................................................................................................................... 80
Figure 18: Volume and Price of GHG Traded on CCX during FY 2009-10 .............................................. 81
Figure 19: Global Market Size .................................................................................................................... 83
Figure 20: Potential Growth In Carbon Market ($Trillion) ........................................................................ 83
                                                                  13


                  LIST OF ABBREVIATIONS

ABT       Availability Based Tariff
BG        Bank Guarantee
C – Wet   Centre for Wind Energy Technology
CAGR      Compounded Annual Growth Rate
CASE      Commission for Additional Sources of Energy
CDM       Clean Development Mechanism
CEA       Central Electricity Authority
CER       Certified Emission Reduction
CERC      Central Electricity Regulatory Commission
CII       Confederation of Indian Industries
CPP       Captive Power Plant
CRAR      Capital to Risk Assets Ratio
DNES      Department of Non-Conventional Energy Sources
DOE       Designated Operational Entity
DPM       Differential Pricing Mechanisms
DSCR      Debt Service Coverage Ratio
ECA       Export Credit Agency
EHV       Extra High Voltage
ERU       Emission Reduction Units
Esc       Escalation
EU ETS    European Union Emission Trading Scheme
EXIM      Export Import
FDI       Foreign Direct Investment
FDR       Fixed Deposit Receipt
FY        Financial Year
GBI       Generation Based Incentive
Gg        Giga Grams
GHG       Green House Gas
GW        Giga Watt
GWEC      Global Wind Energy Council
HAWT      Horizontal Axis Wind Turbine
HFY       Half Financial Year
ICICI     Industrial Credit and Investment Corporation of India
IDBI      Industrial Development Bank Of India
IDFC      Infrastructure Development Finance Company
IEA       International Energy Agency
IEX       India Energy Exchange
IFCI      Industrial Finance Corporation Of India
IPP       Independent Power Producers
IREDA     Indian Renewable Energy Development Agency
IRR       Internal Rate of Return
IWTMA      Indian Wind Turbine Manufacturers Association
JSW       Jindal South West
KW/m2     Kilo Watt Per Meter Square
                                                                 14


KWh      Kilo Watt Hour
M/s      Meters Per Second
MCX      Multi Commodity Exchange
MNES     Ministry of Non-Conventional Energy Sources
MNRE     Ministry of New and Renewable Energy
MoP      Ministry Of Power
MoU      Memorandum Of Understanding
Mph      Miles Per Hour
MU       Million Units
MW       Mega Watt
NCDEX    National Commodity and Derivatives Exchange Limited
NPV      Net Present Value
NSE      National Stock Exchange
NSM      National Solar Mission
O&M      Operation and Maintenance
PFS      Power Trading Corporation Financial Services
PNB      Punjab National Bank
PPA      Power Purchase Agreement
PV       Photo Voltaic
PXIL     Power Exchange India Limited
RE       Renewable Energy
REC      Renewable Energy Corporation
RGGI     Regional Greenhouse Gas Initiative
RPO      Renewable Portfolio Obligation
SBI      State Bank Of India
SEB      State Electricity Board
SERC     State Electricity Regulatory Commission
SPV      Special Purpose Vehicle
UI       Unscheduled Interchange
UNFCCC   United Nations Framework Convention On Climate Change
VAWT     Vertical Axis Wind Turbine
VER      Verified Emission Reduction
WWEA     World Wind Energy Association
                                                                                                           15


                                        1 POWER SECTOR OVERVIEW
     1.1 Introduction
     India has the fifth largest electricity generation capacity in the world with an installed capacity of
     159648.49 MW as on April 30, 2010 which is about 4 percent of global power generation. The
     top four countries, viz., US, Japan, China and Russia together consume about 49 percent of the
     total power generated globally. The average per capita consumption of electricity in India was
     704 kWh during 2008-09. However, this is fairly low when compared to that of some of the
     developed and emerging nations such as US (~15,000 kWh) and China (~1,800 kWh). The world
     average stands at 2,300 kWh. The Indian government has set ambitious goals in the 11th plan for
     power sector owing to which the power sector is poised for significant expansion. All-India
     region wise generating installed capacity of power utilities as on April 30, 2010 is shown in the
     table below:

     Table 1: Region Wise Installed Capacity
                                 Thermal                                                    Renewable
                                                                                Hydro         Energy
Region                                                             Nuclear                               TOTAL
             Coal          Gas          Diesel     Total                      (Renewable)     Sources
                                                                                             (MNRE)

Northern       21275.0      3563.26        12.99    24851.25         1620.0     13310.75       2407.33    42189.33
Western        28395.5      8143.81        17.48    36556.79         1840.0       7447.50      4630.74    50475.03
Southern       17822.5      4392.78       939.32    23154.60         1100.0     11107.03       7938.87    43300.50
Eastern       16895.38       190.00        17.20    17102.58            0.0       3882.12       334.76    21319.46
N. Eastern          60.0     766.00       142.74      968.74            0.0       1116.00       204.16     2288.90
Islands              0.0         0.00      70.02           70.02        0.0          0.00         5.25          75.27
All India      84448.38 17055.85       1199.75     102703.98        4560.00     36863.40      15521.11   159648.49
      Source: Ministry of Power, India

     1.2 Five Year Plan Achievements
     Based on the study prepared by the Central Electricity Authority (CEA) and Confederation of
     Indian Industries (CII), the growth of the Power Sector for each of the 10 Five Year plans,
     targeted against the corresponding achievements shows that there have been shortfalls
     continuously over the past 10 plans. Details of the targets and actual achievements, along with
     the percentage achieved during the various plans are furnished below:
                                                                                                   16


              Table 2: Targets and Achievements for Each of the 10 Plans
               Five Year Plan     Target (MW) Achievement (MW) Achievement (%)
               1st Plan (51-56)        1300              1100             84.6
                nd
               2 Plan (56-61)          3500              2250             64.3
                rd
               3 Plan (61-66)          7040              4520             64.2
                th
               4 Plan (69-74)          9264              4579             49.5
                th
               5 Plan (74-79)         12499             10202             81.6
                th
               6 Plan (80-85)         19666             14226             72.3
                th
               7 Plan (85-90)         22245             21401             96.2
               8th Plan (92-97)       30538             16423             53.8
                th
               9 Plan (97-02)         40245             19015             47.5
                  th
               10 Plan (02-07)        41110             21180            51.76
                                                    th
              Source: White paper on Strategy for 11 Plan, CEA and CII

A capacity addition of 21,180 MW has been achieved during 10th Plan against the target of
41,110 MW. Sector wise details of the capacity addition during the 10th plan are given in the
table presented below:
Table 3: Sector Wise Capacity Addition During X Plan

                         Hydro           Thermal          Nuclear          Total
Ownership/Sector                                                                      %Achievement
                         (MW)             (MW)             (MW)            (MW)

Central                   4495             7330             1180           13005          56.90%

State                     2691           3553.60              0           6244.60         55.90%

Private                    700           1230.60              0           1930.60         27.10%

Total                     7886           12114.2            1180          21180.2         51.60%

% Achievement          54.80%             47.60%           90.80%         51.60%
Source: White paper on Strategy for 11th Plan, CEA and CII

From the table above it is evident that though shortfalls in all the 3 segments i.e. Central, State
and Private Sector have been reported, the shortfall in achieving the Private sector targets of
capacity addition are notable. In terms of inter fuel mix comparison:

         Nuclear sector was able to achieve 90.8% of the modest target set for it.
         In Hydro segment; achievement of 54.8% of the target is notable in the context of
          clearing the backlog. There were number of hydro projects which were originally due for
          commissioning in the 8th Plan or even before. But these projects due to associated
          problems were brought into the 10th Plan with a long history of time and cost overrun.
         The dismal performance of Thermal segment at 47.6% of the target is mainly due to most
          of the coal based backup projects which could not fructify due to supply constraint on
          part of equipment manufacturers.
         Renewable Energy: Physical performance of renewable energy was more than what was
          planned for. Wind Power energy over achieved the target set for it by more than doubling
          the target set of it; the rest of the schemes have either just met the targets or fallen far
                                                                                                             17


             behind. This was mainly due to financial and fiscal incentives provided by the
             Government of India and easy availability of finance for renewable energy projects. The
             major physical achievements with respect to renewable energy during the X plan are as
             follows:

            Table 4: Renewable Energy Targets and Achievements during the X Plan
                     Technology                Target 2003-07(MW)       Actual 2003-07(MW)        % Gap

            Wind Power                              2,200.00                  5,426.40              147

            Small Hydro (<25 MW)                     550.00                      536.83              (2)

            Biomass Power/Cogeneration               725.00                      759.33               5

            Biomass Gasifier                         37.00                        25.69             (31)

            Solar PV                                  1.50                         0.61             (59)

            Waste to Energy Programme                70.00                        46.58             (33)

            Total                                   3,583.50                  6,795.44               90
             Source: MNRE

   1.3 Demand and Supply of Power
   The power supply position in the country has deteriorated over the last few years with the growth
   in power demand outstripping new capacity addition. The energy deficit at the national level has
   increased from 7.1% in 2003-04 to 10.1% in 2009-10. The following table details the position of
   region-wise, year-wise energy requirement and corresponding availability position in the country
   over the past five years and it also gives projections for 2011-12.
   Table 5: Region Wise Power Demand and Supply Position
Year         2005-06                      2006-07                                    2007-08
             Require- Avail-              Require- Avail-                            Require-     Avail-
Region       ment       ability Gap % ment            ability           Gap %        ment         ability   Gap %
             (MU)       (MU)              (MU)        (MU)                           (MU)         (MU)
Northern        188794    168611       (11)       202125       179986      (11)       219797      196147     (10.8)

Western         215983    186904       (13)       232391       196117      (16)       247179      208228     (15.8)

Southern        157179    155790        (1)       180091       175197      (3)        187743      181820      (3.2)

Eastern         62347      60706        (3)       68198        66183       (3)            75833    72099      (4.9)
North-
                 7534       6888        (9)        7782         7012       (10)           8799     7713      (12.3)
East
All India       631837    578899       (8.4)      690587       624495      (9.6)      739351      666007      (9.9)
   Source: Power Scenario at a glance: April 2010, CEA
                                                                                                     18


   Table 6: Region Wise Power Demand and Supply Position
Year         2008-09                      2009-10                              2011-12
                                                                               Likely     Likely
            Require-   Avail-                Require-    Avail-
                                                                               Require-   Avail-    Likely
Region      ment       ability   Gap %       ment        ability   Gap %
                                                                               ment       ability   Gap %
            (MU)       (MU)                  (MU)        (MU)
                                                                               (MU)       (MU)
Northern      224218    199928      (10.8)    253,803 224,447         (11)       294841   293501      (0.5)

Western       254486    213724        (16)    258,551 223,153         (16)       294860   294456      (0.1)

Southern      204086    188865       (7.5)    220,557 206,525          (3)       253443   222558     (12.2)

Eastern        82127     78370       (4.6)     88,040     84,054     (4.5)       111802   126510     (13.2)
North-
                9407      8134      (13.5)      9,349      8,315      (10)        13329     11598      (13)
East
All India     774324    689021      (11.0)     830300    746494     (10.1)       739351   666007      (9.9)
   Source: Power Scenario at a glance: April 2010, CEA

   1.4 Projected Demand-Supply Scenario
   With rapid growth of the economy, power requirement is projected to increase significantly over
   the next decade with per capita power consumption expected to increase from ~704 kWh in 2009
   to about 1000 kWh by 2012 (Government of India’s target for 100% electrification). The
   projected power requirement over the next 15 years is detailed in the table below:

                            Table 7: Projected Power Requirement
                                             Energy Requirement (MU)
                            Region           2011-12 2016-17       2021-22
                            Northern         294,841     411,513     556,768
                            Western          294,860     409,805     550,022
                            Southern         253,443     380,068     511,659
                            Eastern          111,802     168,942     258,216
                            NE region          13,329     21,143      36,997
                            Andaman               344        537         779
                            Lakshadweep            40         58          68
                            All India        968,659 1,392,066 1,914,508
                            Source: 17th Electric Power Survey (EPS) of CEA

   1.5 Capacity Addition Programme: 11th Plan Capacity Addition
   The National Electricity Policy envisages “Power for all by 2012” and per capita availability of
   power to be increased to over 1,000 units by 2011-12. To achieve this, a total capacity addition
   of about 100,000 MW is required during 10th and 11th Plan period. Considering 21180 MW
   being actual achievement during X Plan, the 11th Plan target envisages to add 78,700 MW. Out
   of 78,700 MW, projects of 1,935 MW have already been commissioned and projects of 50,910
   MW are already under construction, which are likely to be commissioned by the end of XI plan.
   Following is a summary of the capacity addition proposed during the 11th Plan (based on 21,180
   MW additions in 10th plan):
                                                                                               19


   Table 8: Capacity Addition Proposed In 11th Plan
                                Thermal
   Region                                                Nuclear   Hydro     Wind     Total
                   Coal       Gas     Diesel     Total

   Northern       11280.0    1720.0    0.0     13000.0    440.0    7488.0    0.0     20928.0

   Western        16875.0    3335.0    0.0     20210.0     0.0     1170.0    0.0     21380.0

   Southern       9885.0     1001.2    0.0     10886.2   2940.0    1094.0    0.0     14920.2

   Eastern        14060.0     0.0      0.0     14060.0    0.00     3151.0    0.0     17211.0
   N.
                   750.0     787.2     0.0     1537.2     0.00     2724.0    0.0     4261.2
   Eastern
   Islands         0.00       0.00     0.0         0.0    0.00      0.00     0.0       0.0

   All India      52850.0    6843.4    0.0     59693.4   3380.0    15627.0   0.0     78700.4
   Source: Planningcommission.com


                                      2 RENEWABLE ENERGY

Renewable resources of energy are natural resources that can be replenished by natural processes
at a rate comparable or faster than its rate of consumption by humans. Solar radiation, tides
(hydro) and winds are perpetual resources of energy and are considered as renewable as they are
inexhaustible in nature. They have an implication of sustainability of the natural environment.
About 63% of the electricity consumed in India is generated by thermal power plants, 24%
by hydroelectric power plants and 4% by nuclear power plants showing over dependence on non-
renewable sources. More than 50% of India's commercial energy demand is met through the
country's vast coal reserves. The following figure shows the power generation mix as on
December 2009.

                Figure 1: Power Generation Mix
                       Other
                    Renewable                                      Coal
                   Sources, 10%
               Nuclear, 4%                                         Gas

                                                                   Oil
                              Hydro, 24% Coal , 52%
                                                                   Hydro

                                                                   Nuclear

                   Oil, 1%                                         Other Renewable
                                                                   sources
                           Gas, 11%
                Source: Ministry Of Power, India
                                                                                                20


As shown in the figure we get most of the power from coal (52%) and hydro (24%). This excess
dependence on coal has led to an increase in the greenhouse gas emissions and global climatic
changes. According to an assessment by the Intergovernmental Panel on Climate Change
(IPCC), the rise in the average temperature by the end of the century will be between 1 degree to
3.5 degrees celsius. This has negative implications for the entire ecosystem of the world. This
fact has led to initiatives at international levels to develop eco-friendly alternatives that would
meet the needs of the present generation without compromising the abilities of the future
generations.

Also fuels are limited in reserves and expected to get completely exhausted in the coming 60
years. They have to be procured and made usable through environmentally damaging processes.
Over-reliance on oil as a resource has undermined our energy security. E.g. accidental oil spills
like the one in Gulf of Mexico in 2010, OPEC crisis of 1973, Gulf War of 1991 and Iraq War of
2003.

The developed nations have already contributed a lot in the emissions of carbon dioxide, leading
to global warming. But the current trends in India and other developing nations if unchecked will
contribute half of the total greenhouse gases. So measures need to be taken for minimising the
reliance on fossil fuels to meet the increasing energy requirements. It is for this reason that the
non-conventional renewable sources of energy should be deployed.

2.1 Size and Growth of Renewable Energy Sector
Renewable energy sources (excluding large hydro) currently account for 9% of India’s overall
power generation capacity with an installed capacity of 13.2 GW. By 2012, the Indian
government is planning to add an extra 14 GW of renewable sources, 10.5 GW of which will be
wind power generation capacity. It is expected that renewable energy would contribute 10% of
the total power generation capacity.
The Indian Ministry of New and Renewable Energy (MNRE) estimates that there is a potential
of around 90,000 MW for power generation from different renewable energy sources in the
country, including 48,561 MW of wind power, 14,294 MW of small hydro power and 26,367
MW of biomass. In addition, the potential for solar energy is estimated for most parts of the
country at around 20 MW per square kilometer of open, shadow free area covered with solar
collectors, which would add up to a minimum of 657 GW of installed capacity.
Table 9: Estimated Renewable Energy Potential and Cumulative Achievements as on 31-03-2009
                                                   Cumulative
          Renewable Energy Type                                       Estimated Potential(MW)
                                                Achievement(MW)
 Wind Power                                          45,195                     48,561

 Solar Power                                           2.12                       20

 Bio Power(Agro Residues and Plantations)            703.30                     16,881

 Small Hydro Power(<25MW)                            2429.67                     15000

 Waste To Energy(Urban and Industrial)                58.91                      2,700

 Total                                                48389                      83162
Source: MNRE, India
                                                                                              21


From a long-term perspective and keeping in mind the need to maximally develop
domestic supply options as well as the need to diversify energy sources, renewable energy is
important to India’s energy sector. The Integrated Energy Policy Report of the Planning
Commission of India has observed that the contribution of modern renewable energy to India’s
energy mix by 2031–2032, excluding large hydro, would be around 5%–6%.
2.2 Future Growth Drivers
Following are the future growth drivers for producing electricity from renewable energy sources:

   a) Demand Supply Gap:
      As mentioned previously in the report the power deficit has been increasing over the
      years from 7.1% in 2003-04 to 10.1% in 2009-10. Also, it is expected that in 2012 there
      would be a 9.9% power deficit. Thus supply is being regularly over stripped by demand.
      The renewable energy sector has immense potential which can be tapped.

   b) Natural Resource Scarcity:
      There is limited amount of fossil based fuel sources and they are also exhaustive in
      nature. Therefore renewable sources of energy are reliable and are unlimited in the sense
      they are inexhaustive.

   c) Large Renewable Energy Potential:
      There are abundant sites for tapping natural and renewable sources of energy. The sector
      is still unsaturated.

   d) Availability of New Forms of Capital:
      There is increasing presence of Private Equity funds and more and more people are
      willing to invest in renewable energy projects. India is emerging as a dominant player in
      Clean Development Mechanism (CDM) projects.

   e) Fiscal Incentives Provided by Government:
      Various incentives are provided by the Government of India to make the renewable
      energy projects more attractive. Also states such as Punjab, Haryana, Andhra Pradesh
      taking the lead in development of Renewable Energy projects by providing various state
      level incentives. All these incentives have been discussed in detail in the section 7.2 of
      the report.

2.3 Issues and Challenges
Inspite of so many growth drivers renewable energy development has been constrained by a
combination of technological difficulties, inherent variability in production, a lack of
infrastructure for delivery systems, and cost competitiveness with conventional energy sources.
   a) Availability and Reliability:
      There is no shortage of renewable energy; however, converting that energy to a usable
      form in acceptable ways and transporting it to consumers has so far limited the use of
      renewable sources. Main difficulty is in selecting locations due to the intermittent
      nature of some chief forms of renewable energy.
                                                                                                22


   b) Science and Technology:
      Renewable energy science has seen significant advancement and progress in recent years
      with some technologies emerging as more viable in the short term, such as wind power,
      and others more likely to serve much longer term objectives. Large scale adoption of
      renewable technologies presents a number of scientific and commercial challenges that
      will only be resolved through the work of a broad array of business, government and
      other stakeholders.

   c) Infrastructure:
      Once the science of producing renewable energy is mastered, producers must deliver it to
      consumers safely, reliably, and cost-effectively. This requires a large and potentially
      expensive infrastructure. It is a difficult process to produce enough wind and solar energy
      to make them financially viable. Also storage is a problem in case of renewable energy
      sources. Therefore it is a challenge to store excess energy to use when needed.

   d) Cost Considerations:
      In case of energy from renewable sources, for some technologies, scientific investment
      and infrastructure costs remain substantial, while for others reliability continues to be the
      primary commercial and technical challenge. When comparing different forms of energy,
      it is important to examine the assumptions behind costs. At today’s market prices
      pulverized coal is one of the lowest cost options for producing electricity; however, when
      the cost of adding carbon dioxide capture and storage to the coal plant is factored in,
      electricity from pulverized coal costs roughly the same as other renewable sources of
      energy.

   e) Longevity issues:
      Though source of renewable energy is inexhaustible but renewable energy infrastructure,
      like hydroelectric dams, does not last forever, and must be removed or replaced at some
      point. Events like the shifting of riverbeds, or changing weather patterns could potentially
      alter or even halt the function of hydroelectric dams, reducing the amount of time they
      are available to generate electricity.
2.4 Sources of Renewable Energy
The various sources of renewable of energy in India have been explained below:
   a) Solar Energy:
      Solar energy is one of the prime renewable resources of energy in India. It is the energy
      derived directly from the Sun. It is the most copious source of energy on Earth and is the
      fastest growing type of alternative energy that is increasing at 50 percent a year according
      to MNRE. The Sun yearly delivers more than 10,000 times the energy that humans
      presently use. It is the photovoltaic (PV) cell, which converts sunlight directly into
      electricity. More than 700000 PV systems generating 44 MW have been installed all over
      India yet the market is far from saturated. The much awaited Jawaharlal Nehru National
      Solar Mission (NSM) was formally launched on January 11, 2010 setting a target of 22
      GW of solar power capacity by 2022.

   b) Wind Energy:
      Wind energy is derived from uneven heating of the Earth`s surface from the Sun.
      Electricity is generated from this energy by converting the rotation of turbine blades into
                                                                                                23


       electrical current through an electrical generator. A windmill is an older technology that
       generated wind energy and is used to turn mechanical machinery to do physical work,
       like crushing grain or pumping water. At present India ranks as a "wind superpower"
       with an installed wind power capacity of 11,768 MW and about 5 billion units of
       electricity has been fed to the national grid so far. India has a potential of 200,000 MW of
       wind power as estimated by IWTMA in April 2010.

   c) Hydro Energy:
      Hydropower is another form of renewable source of energy obtained from the movement
      of water in rivers and oceans. Water can be used to generate electricity using turbines, or
      can be used mechanically to do useful work. It is a very common resource of energy in
      India.

   d) Biomass Energy:
      Biomass is a renewable energy source derived from plant matter grown to
      generate electricity or produce heat. For example, forest residues (such as dead trees,
      branches and tree stumps), wood chips and garbage may be used as biomass. It may also
      include biodegradable wastes that can be burnt as fuel.


                               3 WIND ENERGY OVERVIEW
3.1 Current Industry Structure
India now ranks as one of the worlds ‘Wind Superpowers’, with the fifth largest installed wind
capacity of 11,786 MW as on March 31, 2010. The wind sectors contribution to the national
power generation is approximately 7.4%. The Indian Ministry of New and Renewable Energy
(MNRE) estimates that there is potential for around 90,000 MW through renewable energy
sources available in the country. Out of this the estimated potential for wind power was 48,561
MW which has been increased to 200,000 MW in April, 2010. This was because initially wind
measurements were carried out at lower hub heights but now IWTMA has reassessed wind
power potential at higher hub heights. The table given below shows the worldwide installed
capacity as on March 31, 2010.
                            Table 10: Worldwide Installed Capacity as on March 31, 2010
                            Country Installed Wind Capacity (MW)
                            USA                    35,159
                            China                  25,805
                            Germany                25,777
                            Spain                  19,149
                            India                  11,786
                           Source: windpowermonthly.com

The wind energy sector in India has seen a shift in the past couple of years from a
manufacturer focused industry to one led by mainstream power developers; however, the
country’s low Capacity Utilization Factor (CUF) for wind power has been an area of concern.
According to Centre for Wind Energy Technology (CWET), in India CUF averages around 22%,
against the international average of 25%–35% CUF. So, there is a huge potential for the wind
energy in India. The following figure shows the year-wise installed capacity of wind power in
India.
                                                                                                                 24


Table 11: Year–Wise Installations of Wind Power In India
                                                                                                         Total Till
Year                Till 2005           2005 - 06   2006 – 07    2007 - 08    2008 – 09     2009 – 10     March
                                                                                                           2010
Installed
Capacity       1114        1746                       1771         1633          1485         1543        11786
(MW)
 Source: www.windpowerindia.com

The table given below gives the forecasts for the wind power development in the coming years
2010 – 2013. It is estimated that by the end of 2013 the cumulative installed capacity of wind
power would be 24675 MW.

Table 12: Forecasts for Wind Power Development in India 2010-13
  Cumulative Installed         Installed                                                    Cumulative Installed
 Capacity (MW) by Dec       Capacity (MW)      Forecast 2010 – 2013                        Capacity (MW) by end
          2009                   2009                                                             of 2013


                                                          2010   2011     2012   2013

       10925 MW                            1338 MW        2500   3500     3750   4000             24675 MW

Source: BTM Consult April-March, 2009

3.2 Growth of Indian Wind Market
Wind energy is continuing to grow steadily in India. Wind power capacity of 4,889 MW was
added in the last three years, taking the total installed capacity to 10.2 GW on March 31, 2009,
up from 7.8 GW at the end of 2007.
Wind power in India is more concentrated in Tamil Nadu, state with the most wind power, with
4.1 GW installed at the end of 2008, representing 44% of India’s total wind capacity. But now
other states such as Maharashtra, Gujarat, Rajasthan, Karnataka, West Bengal, and Andhra
Pradesh are beginning to catch up. The Indian government envisages the addition of 2
GW/annum in the next five years.
        Figure 2: Growth of Indian Wind Market
                                12000
           Growth (Cumulative




                                                                                                  9645
                                10000
             Capacity MW)




                                                                                           7845
                                8000                                                6270
                                6000                                         4430
                                4000                                 3000
                                                    1702 2125
                                2000 1077 1167 1407
                                   0
                        1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
                                                     Year
        Source: Indian Wind Turbine Manufacturers Association (IWTMA)
                                                                                              25


The graph shows that in 1999 the cumulative wind capacity installed was 1077 MW which
increased to 9645 MW in 2008. There was approximately an increase of 8000 MW in 9 years.

3.3 State-wise Potential
Despite the fact that wind power accounts for 6 percent of India’s total installed power capacity
it only generates 1.6 percent of the country’s power. For this reason, the government is
considering the addition of incentives for ongoing operation of installed wind power plants.
A comprehensive wind mapping exercise was initiated by MNRE, which established a country-
wide network of 1050 wind monitoring and wind mapping stations in 25 Indian States. It
assessed the national wind potential and identified suitable areas for harnessing wind power for
commercial use, and 216 suitable sites have been identified. The following table shows the state
wise installation of the wind power in the year 2009-10 and total installations up to the year
2009-10.
          Table 13: Wind Power Installation –State Wise
                   State           Installation during the   Total Installations up to the
                                     Year 2009-10 (MW)          Year 2009-10 (MW)
          Andhra Pradesh                      13.6                       136.1
          Gujarat                            297.3                      1836.7
          Karnataka                          150.1                      1447.5
          Kerala                              0.0                        27.0
          Madhya Pradesh                      16.6                       229.4
          Maharashtra                        137.0                      2075.4
          Rajasthan                          350.0                      1088.4
          Tamil Nadu                        579.15                     4883.55
          West Bengal                         0.0                         1.1
          Others                              0.0                         3.2
          Total                              1543                       11786
         Source: C-Wet

3.4 Key growth drivers

   a) Cost Competitiveness:
      Cost per KWh of wind generation decreased from Rs.17.1 in early 80’s to present Rs.
      1.03 - 2.70, at excellent wind sites. Rising oil and gas prices makes wind energy cost
      competitive.

   b) Environmental Awareness:
      According to Kyoto Protocol, carbon-dioxide emissions are to be reduced by 5.2% of
      1990s levels, by 2012.

   c) Energy Security:
      Price volatility of oil and gas has increased focus on renewable energy and people have
      all the more reasons to shift towards renewable sources of energy.

   d) Increased Electricity Demand:
      There has been a power deficit of 10.1% last year and it is expected to be 9.9% in 2011-
      12. Therefore demand outstrips supply of electricity and this gap needs to be reduced by
      increasing supply of electricity.
                                                                                                26


3.5 Risk and Challenges

   a) Uncertainty of Wind Availability:
      A lot of times the wind speed is not adequate enough to generate electricity. Also it might
      not be available during peak hours like in a lot of areas there is adequate wind but it
      blows in the night when it is not possible to run the plant to generate electricity.

   b) Environmental Hazards:
      An environmental impact assessment is usually required to mitigate any environmental
      issues such as visual, noise, impact to birds, etc. Besides the noise created there is no
      other major environmental hazard.

   c) Permits:
      Wind farms usually require local permits. If power is to be sold to the grid, a long-term
      power purchase agreement is necessary. Delays in these processes often constitute a risk
      to a wind farm developer.

   d) Supply Chain Issues:
      This risk is mainly associated with the capability of the industry to provide wind turbine
      components (turbine, towers, cables, etc.) within the appropriate time-scales of a wind
      farm project.


                             4 WIND ENERGY TECHNOLOGY
4.1 Evolution of Wind Energy Technology
The first windmills were developed primarily for grain-grinding and water-pumping and the
earliest-known design is the vertical axis system developed in Persia about 500-900 A.D.

The first mills had four paddle-like wooden blades. They were followed by mills with thin
wooden slats nailed to wooden rims. Most of these mills had tails to orient them into the wind,
but some were weather-vaning mills that operated downwind of the tower. Speed control of
some models was provided by hinging sections of blades, so that they would fold back like an
umbrella in high winds, an action which reduced the rotor capture area to reduce thrust. In 1870,
development of steel blades marked a major change in the windmill. Steel blades could be made
lighter and worked into more efficient shapes.

Between 1850 and 1970, over six million mostly small (1 horsepower or less) mechanical output
wind machines were installed in the U.S. alone. The primary use was water-pumping and the
main applications were stock watering and farm home water needs. Very large windmills, with
rotors up to 18 meters in diameter, were used to pump water for the steam railroad trains that
provided the primary source of commercial transportation in areas where there were no
navigable rivers.

In the late 19th century, the successful "American" multi-blade windmill design was used in the
first large windmill to generate electricity.

The first use of a large windmill to generate electricity was a system built in Cleveland, Ohio, in
1888 by Charles F. Brush. The Brush machine was a postmill with a multiple-bladed "picket-
                                                                                                 27


fence" rotor 17 meters in diameter, featuring a large tail hinged to turn the rotor out of the wind.
It was the first windmill to incorporate a step-up gearbox (with a ratio of 50:1) in order to turn a
direct current generator at its required operational speed (in this case, 500 RPM.). Despite its
relative success in operating for 20 years, the Brush windmill demonstrated the limitations of the
low-speed, high-solidity rotor for electricity production applications.

In 1891, the Dane Poul La Cour developed the first electrical output wind machine to incorporate
the aerodynamic design principles (low-solidity, four-bladed rotors incorporating primitive
airfoil shapes) used in the best European tower mills. The higher speed of the La Cour rotor
made these mills quite practical for electricity generation. By the close of World War I, the use
of 25 kilowatt electrical output machines had spread throughout Denmark, but cheaper and larger
fossil-fuel steam plants soon put the operators of these mills out of business.

Wind electricity found use in the rural areas of the mid-western Great Plains. These systems
were installed at first to provide lighting for farms and to charge batteries used to power crystal
radio sets. But their use was extended to an array of direct-current motor-driven appliances,
including refrigerators, freezers, washing machines, and power tools. But the more appliances
were powered by the early wind generators, the more their intermittent operation became a
problem.

The demise of these systems was hastened during the late 1930s and the 1940s by two factors:
the demand of farmsteads for even larger amounts of power on demand, and the Great
Depression, which spurred the U.S. federal government to stimulate the depressed rural
economies by extending the electrical grid throughout those areas.

The early success of the Midwest wind turbines actually set the stage for the possibility of more
extensive wind energy development in the future. The development of bulk-power, utility-scale
wind energy conversion systems was first undertaken in Russia in 1931 with the 100kW
Balaclava wind generator. This machine operated for about two years on the shore of the Caspian
Sea, generating 200,000 kWh of electricity.

In Germany, Professor Ulrich Hutter developed a series of advanced, horizontal-axis designs of
intermediate size that utilized modern, airfoil-type fibre glass and plastic blades with variable
pitch to provide light weight and high efficiencies. This design approach sought to reduce
bearing and structural failures by "shedding" aerodynamic loads, rather than "withstanding" them
as did the Danish approach.

One of the most innovative load-shedding design features was the use of a bearing at the rotor
hub that allowed the rotor to "teeter" in response to wind gusts and vertical wind shear. Hutter's
advanced designs achieved over 4000 hours of operation before the experiments were ended in
1968.

Manufacturing of commercial wind turbines started in the 1980s, with Danish technology
leading the way. From units of 20-60 kilowatts (KW) with rotor diameters of around 20 metres,
wind turbine generators have increased in capacity to 2 megawatts (MW) and above, with rotor
diameters of 60-90 m. The largest machine being manufactured now has a capacity of 4,500 kW
and a rotor diameter of 112 m. Some prototype designs for offshore turbines have even larger
generators and rotors.
                                                                                                28


Continual improvements are being made in the ability of wind turbines to capture as much
energy as possible from the wind. These include more powerful rotors, larger blades, improved
power electronics, better use of composite materials and taller towers. One result is that many
fewer turbines are required to achieve the same power output, saving land use. Depending on its
siting, a 1 MW turbine can produce enough electricity for up to 650 households. Since the
beginning of the 1980s, the power of a wind turbine has increased by a factor of more than 200.

4.2 Present Functioning Of the Wind Turbine
The main working of a wind turbine is based on the fact that wind has considerable amount of
kinetic energy when blowing at high speeds. This kinetic energy of the wind passing through the
blades of the wind turbine is converted into mechanical energy which rotates the wind blades and
the connected generator, thereby producing electricity. A wind turbine primarily consists of a
main tower, blades, nacelle, hub, main shaft, gearbox, bearing and housing, brake, and generator.

The main tower is 50–100 m high. Generally, three blades made up of fibre reinforced polyester
are mounted on the hub, while in the nacelle the major parts are housed. Under normal operating
conditions, the nacelle would be facing the upstream wind direction. The hub connects the
gearbox and the blades. Solid high carbon steel bars or cylinders are used as main shaft. The
gearbox is used to increase the speed ratio so that the rotor speed is increased to the rated
generator speed; it is the most critical component and needs regular maintenance. Oil cooling is
employed to control the heating of the gearbox.

Gearboxes are mounted over dampers to minimize vibration. Failure of gearbox may put the
plant out of operation for an entire season as spares are often not available. Thus, new gearless
configurations have become attractive for wind plant operators. Generators are
typically asynchronous, induction, and operate at 550-690V (AC).

Some turbines are equipped with an additional small generator to improve production in low
wind speeds. The second generator can be separate or integrated into the main generator. Each
turbine for utility scale applications is equipped with a transformer to step up the voltage to the
on site collection system voltage. The on - site collection system typically is operated at medium
voltage of 25 to 35 kV. The figure of a wind turbine which makes its working more clear is
shown below.
                                                                                                  29


       Figure 3: Wind Turbine




               Source: Journal of Renewable and Sustainable Energy 1, 042701 (2009)

Power Curve
As shown in the figure below, power production from a wind turbine is a function of wind
speed. The relationship between wind speed and power is defined by a power curve, which
is unique to each turbine model and site-specific settings. Power generated is directly
proportional to the wind speed. A minimum cut-in-speed is required to start generating power. It
has an upper limit also after which no matter how much wind speed you increase there is no
further increase in power generation. It is called the cut-out-wind-speed.

Most wind turbines begin to produce power at wind speeds of about 7 m/s, achieve rated power
at approximately 13 m/s, and stop power production at 25 m/s. Variability in the wind resource
results in the turbine operating at continually changing power levels. At good wind energy sites,
this variability results in the turbine operating at approximately 35% of its total possible capacity
when averaged over a year.
                                                                                               30


         Figure 4: Power Curve




         Source: www.powernaturally.org

Ratings and Rotor Size
The rotor diameter of wind turbines has increased in the past few decades, driven by technology
improvements, refined design tools, and the need to improve energy capture and reduce the cost
of energy. According to American Wind Energy Association the average size of rotor diameter is
77 metres.

Hub and Maximum Tip Heights
As the rotor diameters and rated capacities have increased, so has the hub height of the wind
turbines. There is no standard hub height or ratio of hub height to rotor diameter. Wind resource
characteristics, terrain, turbine size, availability of cranes, and visual impacts are but a few
critical items that are used to determine the most optimum hub height for a given project. Current
utility-scale wind turbines can employ hub heights that range from 50 m (164 ft) to 80 m (262
ft). Common hub heights used during 2004-2005, fall in the range of 65 m (213 ft) to 80 m (236
ft). Maximum tip heights (the highest point of the rotor) depend on the hub height and rotor
diameter. Following table provides an example of the range of tip heights common in 2003.

                        Table 14: Range of Tip Heights Common In 2009
                              Parameter                 Dimension
                         Hub Height                    80 m (230 ft)
                         Maximum Tip Height           118.5 m (389 ft)
                        Source: www.powernaturally.org
                                                                                                31


                        Figure 5: Key Physical Features of a Wind Turbine:




                        Source: www.powernaturally.org

Optimum turbine size is dependent on site-specific conditions. Hub heights are approximately 1
to 1.4 times the rotor diameter. Project analysis conducted to identify the optimum turbine
equipment involves assessing the rotor size, hub height, energy production, component handling
logistics, and cost.

Specific Rating
The ratio of a turbine’s rotor swept area to the rating of the turbine is known as the specific
rating. No ‘best’ relationship between rotor diameter and generator rating exists. There is a range
of specific ratings from 0.32 to 0.47 KW/m2, as this range presents the best compromise between
energy capture, component loading, and costs. Turbines at sites with lower wind speeds (7.0 to
7.5 m/s) have larger rotors and lower specific ratings to improve energy capture. Turbines at
high-wind-speed sites (exceeding 9 m/s) have smaller rotors and higher specific ratings. The
smaller rotor helps to reduce loads on components and thus improves reliability in these
aggressive wind sites.

Turbine Sizes:
Wind generation equipment is categorized into three general classifications:

   a) Utility-Scale
      It corresponds to large turbines (900 kW to 2 MW per turbine) intended to generate bulk
      energy for sale in power markets. They are typically installed in large arrays or ‘wind
      energy projects,’ but can also be installed in small quantities on distribution lines,
      otherwise known as distributed generation. Utility scale development is the most
      common form of wind energy development in the U.S.
                                                                                              32


   b) Industrial-Scale
      It corresponds to medium sized turbines (50 kW to 250 kW) intended for remote grid
      production, often in conjunction with diesel generation to reduce consumption of higher
      cost grid power and possibly to even reduce peak loads. Direct sale of energy to the local
      utility may or may not be allowed under state law or utility regulations.

   c) Residential-Scale
      It corresponds to micro and small-scale turbines (400 watts to 50 kW) intended for
      remote power or battery charging. The small turbines can be used in conjunction with
      solar photo-voltaics, batteries, and inverters to provide constant power at remote
      locations where installation of a distribution line is not possible or is more expensive.

Types of Turbines
Wind turbines can rotate about either a horizontal or vertical axis, the former being more
common.

   a) Horizontal Axis
      Horizontal-axis wind turbines (HAWT) have the main rotor shaft and electrical
      generator at the top of a tower, and must be pointed into the wind. Small turbines are
      pointed by a simple wind vane, while large turbines use a wind sensor coupled with
      a servo motor. Since a tower produces turbulence behind it, the turbine is usually pointed
      upwind of the tower. Turbine blades are made stiff to prevent the blades from being
      pushed into the tower by high winds. Additionally, the blades are placed in front of the
      tower and are sometimes tilted forward into the wind a small amount.

   b) Vertical Axis
      Vertical-axis wind turbines (or VAWTs) have the main rotor shaft arranged vertically.
      Key advantages of this arrangement are that the turbine does not need to be pointed into
      the wind to be effective. This is an advantage on sites where the wind direction is highly
      variable. With a vertical axis, the generator and gearbox can be placed near the ground,
      so the tower doesn't need to support it, and it is more accessible for maintenance.

      Drawbacks are that some designs produce pulsating torque. It is difficult to mount
      vertical-axis turbines on towers, they are installed nearer to the base on which they rest,
      such as the ground or a building rooftop. The wind speed is slower at a lower altitude, so
      less wind energy is available for a given size turbine. Air flow near the ground and other
      objects can create turbulent flow, which can introduce issues of vibration, including noise
      and bearing wear which may increase the maintenance or shorten the service life.
      However, when a turbine is mounted on a rooftop, the building redirects wind over the
      roof and this can double the wind speed at the turbine. If the height of the rooftop
      mounted turbine tower is approximately 50% of the building height, this is the optimum
      for maximum wind energy and minimum wind turbulence.
                                                                                                33


4.3 Setting up a Wind Farm
There are many things that should be kept in mind and considered while setting up a wind
turbine. This is done mainly for maximizing wind turbine efficiency and getting the best result
out of it.

   a) Wind Speed:
      When setting up a wind turbine, the location where it is to be setup should have high and
      stable wind speeds. When wind speeds are unstable it can cause unnecessary stress on the
      turbine and its tower.

   b) Tower Height:
      The height of a small turbine tower should take into account the height of the surrounding
      obstacles: to attain maximum efficiency, the height of the tower should allow the bottom
      of the turbine blades to be 10 meters (30 feet) or more above the top of any obstacle
      within 100 meters/300 feet of the tower. It is best to set up a wind turbine at least thirty
      feet above any ground obstacles and approximately 300 feet of area around the wind
      turbine should be free from obstacles. However, the tower height also depends on the
      turbine model and characteristics. Towers and wind turbines are often supplied together,
      and manufacturers demand their turbines to be mounted on their towers.

   c) Type of Tower:
      There are 3 basic types of tower that can be used: free-standing lattice, free-standing pole,
      and a guyed mast.

       Lattice towers used for wind resource monitoring are made of galvanized steel pipe
       and/or solid rod or rod welded together in a lattice arrangement and with a face width of
       18 inches. Lattice tower has low wind resistance and are economical in the use of
       materials. Such structures are usually triangular or square in cross-section. The structure
       may be parallel-sided or taper over part or all of its height.

       Pole tower is made up of mild steel and can be with stand, in large force of wind.

       Guyed mast is made of a galvanized steel tube, 6-inches in diameter, in a silver/gray non-
       reflective colour. The masts are supported with wire rope guy wires in four directions.
       They come in a variety of heights up to 197 ft (60 m). Typically, 164-ft (50-m) and 197-ft
       (60-m) masts are used during the predevelopment and development phases. However, the
       industry is deploying taller met structures of 262 ft (80 m) to keep pace with taller wind
       turbine towers, which are often 262 ft (80 m) or taller. The area defined by the extent of
       the guy-wire anchors for a 164-ft (50-m) tower is 155 ft x 155 ft, or 24,000 ft2. The 60-m
       masts are similarly constructed; however, an additional anchor radius is required.

       The choice of tower is dependent on how high we need our turbine to be placed, what
       ordinances we need to comply with, and ease of getting to the unit for any repairs or
       maintenance. The three types of towers explained above are shown in Annexure 3.
                                                                                                 34


   d) No. of Blades:
      A wind turbine can have either 2 or 3 blades. But it has been found and proven that a 3
      bladed unit has a better balance and therefore can last longer than a 2 blade. This is
      because a 3 blade turbine has less wear and tear from imbalance over the long term.

   e) Noise:
      Wind turbines can create unnecessary noise pollution which should be avoided by setting
      it up in the suburbs.

   f) Safety:
      Wind turbines generate electricity when they are spinning and safety measures should be
      used around them and the battery systems that are in place. Warning signs should be put
      up and even a fence to make sure that the wind turbine set up is safe to those who could
      come in contact with it.

   g) Environment:
      We should take note of any animals that live in the area where the wind turbine machine
      is to be setup. If we are not careful about setting up a wind turbine it can lead to the death
      of small birds.


                  5 MAJOR MANUFACTURERS OF WIND TURBINES

At present, the wind industry is market driven and competitive. Most of the wind turbine
manufacturers in India provide operation and maintenance support and also monitor the field
performances of the wind turbines installed by them.

At present, wind electric generators are being manufactured in India by several manufacturers,
through
 Joint ventures under licensed production,
 Subsidiaries of foreign companies, under licensed production,
 Indian companies with their own technology

India has a solid domestic manufacturing base, including global leader Suzlon, accounting for
over half of the market, Vestas Wind Tech and RRB. In addition, international companies have
set up production facilities in India, including Enercon, Repower, Siemens, and LM Glasfiber
and the new entrants such as ReGen Power Tech, WinWinD, Kenersys, and Global Wind Power.
Suzlon, the world’s fifth largest turbine manufacturer, is now also well established in the
international wind market beyond India, operating in 20 countries around the world and
supplying turbines to projects in Asia, North and South America, and Europe.


5.1 Suzlon Energy Ltd.:
Suzlon Energy Ltd., which commenced operations in India in 1995 with just 20 people, has now
grown into one of the major global leaders in the wind power industry.
 Current cumulative installed base (YTD March.2009) is more than 4400 MW across 8 states
    in India
                                                                                                35


    Suzlon enjoys market leadership edge in India with a consistent market share of over 50%
     consecutively in the last 10 years
    In 2008-09: the total projects commissioned by Suzlon Clocked 782 MW giving the
     company a market share of 52%
    Patronized by hundreds of customers across India from varied business segments - clientele
     includes small / medium / big sized companies; Indian / Multinational corporate houses,
     private / public sector enterprises, community ownership and even High Networth
     individuals (HNI)
Currently Suzlon has 11 manufacturing facilities in India employing over 3,000 people with an
output of close to 12,000 MW per year.

Table 15: Manufacturing Facilities
                Name                   Location              Manufactured Components
                                      Chakan,
Production Facility                                                   Generators
                                     Maharashtra
Control Panel Unit                      Daman                       Control Panels
                                                     Rotor Blade, Nacelle, Nacelle Cover , Control
Integrated Manufacturing Facility       Daman
                                                            Panel and Hub WTG Assembly
Rotor Blade Manufacturing              Dhule,
                                                                     Rotor Blades
Facility                             Maharashtra
Tubular Tower Manufacturing            Dhule,
                                                                    Tubular Tower
Facility                             Maharashtra
                                     Gandhidham,
Tubular Tower                                                       Tubular Tower
                                       Gujarat
                                                     Rotor Blade, Nacelle, Nacelle Cover , Control
Integrated Manufacturing Facility     Pondicherry
                                                            Panel and Hub WTG Assembly
                                      Vadodara,
Composite Engineering Cell                                          Synthetic Fiber
                                       Gujarat
    Source: www.suzlon.com

Suzlon provides ‘End-to-End Solutions’ for the Indian markets in the wind power domain. From
initiating a project, till completion and beyond, Suzlon offers solutions at every stage of wind-
powered energy. Suzlon’s ‘End-to-End Solutions’ include the following stages:

    Land and Site Identification
    Supply of WTG and Accessories
    Site Infrastructure Development
    Installation and Commissioning
    Power Evacuation
    Life Cycle Operations and Maintenance
    Assistance for Approvals and Loan Processing
    Wind Resource Mapping
                                                                                                36


Clients and Projects
The following table shows the various sites where Suzlon has its projects and the installed
capacities over there.

                      State         Total MW            Key Project Sites

                Tamil Nadu           1275 MW Sankeneri, Devarkulam, Palladam

                Karnataka             490 MW Kapathgudda, Hassan, Jajikalgudda

                Kerala                 14 MW Agali

                Andhra Pradesh       8.50 MW Tirupati

                Maharashtra          1350 MW Dhule, Sangli, Satara

                Gujarat               876 MW Bhogat, Kutch, Kuchhadi, Sanodar

                Madhya Pradesh      53.05 MW Ratlam, Dewas

                Rajasthan             423 MW Soda-Mada, Sadiya, Pohra
                  Source: www.suzlon.com


5.2 Enercon India Ltd.
Enercon India, since its inception in 1994, has been making gaint strides. It has already installed
more than 1800 wind energy converters in India with total installed capacity exceeding 1000
MW. An ISO 9001-2000 certified company for manufacturing, installation and services. It has
presence in seven high wind potential states viz, Karnataka, Maharashtra, Tamil Nadu,
Rajasthan, Gujarat, Madhya Pradesh and Andra Pradesh. The two manufacturing plants located
at Daman are of state-of-the-art technology. These plants have reaxhed such a high level of
sophistication that many turbine components like blades are exported to Europe. Customised
training is imparted to Enercon technicians, engineers and managers. The quality standard of
Enercon products and services in India meet the same benchmarks set globally.
                                                                                                   37


   Enercon’s four Lines of Business:
   The following diagram shows the four lines of business activities carried out by Enercon i.e.

      Total Solution Provider
      Independent Power Producer
      Project Financing Consultancy
      Exporter

                                   Total Solution Provider
                                       The mother company Enercon India
Independent Power                         Ltd. serves as a Total Solution
Producer (IPP)                            Provider in the wind energy sector
    8.44MW Enercon
                                                                                Project Financing
       Windfarms India
                                                                                Consultancy
       Limited
                                                                                    Enercon
    21MW Enercon
                                                                                        Financial
       Windfarms
                                                                                        Consultancy
       Karnataka Limited
                                                                                        Private
    Enercon Windfarms
                                                                                        Limited(EFCPL
       Rajasthan Limited,                                                               ) has been
       Tamil Nadu                             Four Lines Of                             brought into
       Windfarms Limited                     Business Activities                        existence in the
       are on the anvil in
                                                                                        year 2002 with
       2003-04
                                                                                        an objective to
Enercon’s own investments                                                               facilitate project
into IPPs are testimonies to                                                            financing at the
its enormous confidence both                                                            optimal cost by
in its own technology and the                                                           creating
wind energy sector                                                                      structured
                                                                                        financial
                                                                                        products through
                                                                                        domestic and
                           Exporter                                                     international
                               Enercorn has a govt recognized Export                   lending agencies
                                  House in India – Enercorn Exports India
                                  Ltd. (EEIL)
                               EEIL exports blades and electric
                                  components
                                                                                                   38


5.3 GE Wind Energy India
GE is one of the world's leading wind turbine suppliers. With over 13,500 wind turbine
installations worldwide comprising more than 218 million operating hours and 127,000 GWh of
energy produced, our knowledge and expertise spans more than two decades. Today, all of GE's
global businesses have a presence in India. The company participates in a wide range of
manufacturing, services and technology businesses in the country. GE's revenues in India are
approximately USD 2.8 billion. It exports over USD 1 billion in products and services.
Employment across India exceeds 14,500.

A 100 MW wind farm will, over the course of 20 years, displace the need for nearly one million
tons of coal, or nearly 600 million cubic meters of natural gas. Generating electricity by use of
GE’s current installed base of wind turbines versus traditional fuel generation provides the
benefit of keeping as much as 11.4 million tons of greenhouse gases from being emitted each
year.

GE’s installed wind turbines can generate an amount of electricity comparable to the energy
produced by 9.5 million barrels of oil. In fact, GE’s most popular wind turbine, the 1.5MW
turbine can produce enough electricity for about 400 homes each year. With blade rotors that
sweep an area almost as large as a football field, and an overall reach that is as tall as a 30-storey
building, these wind turbines can be developed in large-scale "farms" to provide power. GE’s 1.5
MW turbines are well-proven technology with over 5,000 turbines installed worldwide.

1.5 MW Series Wind Turbine
When it comes to "megawatt-plus" technology, their proven 1.5MW Series wind turbine
continues to raise the bar. The 1.5 MW machine is pitch regulated with power/torque control
capability and an asynchronous generator. It uses a bedplate drive train design where all nacelle
components are joined on a common structure, providing exceptional durability. The generator
and gearbox are supported by elastomeric elements to minimize noise emissions. About 13,000
units have been installed world-wide and it continues to be one of the world's most widely used
wind turbines in its class.

 2.5 MW Series Wind Turbine
Designed for IEC class II and class III, the 2.5 MW wind turbine can be deployed on over 85%
of the sites being developed today. Rated at 2.5 MW, it generates a leading amount of annual
energy production and its 100m rotor also makes it an excellent solution for low wind sites.

GE’s innovative and patented rotor blade technology provides the 2.5 MW wind turbine with
very competitive acoustic performance. In fact, with the optional noise-reduced operation modes,
the 2.5 MW wind turbine can be deployed even at sites with the most stringent noise restraints,
while simultaneously maintaining a high energy yield. The 2.5 MW wind turbine can be
equipped with various towers resulting in hub heights of 100m, 85m and 75m, meeting potential
tip height constraints and maximizing energy yield.

Higher efficiency, increased reliability, maintainability and seamless grid integration make it a
powerhouse of precision. In fact, GE's 2.5 MW wind turbine leads the industry by producing the
highest annual energy yield in its class, creating more value for our customers. Drawing on GE's
experience of more than 13,000 1.5 MW wind turbines in operation worldwide, the 2.5 MW
wind turbine is designed to meet the growing demands of the wind industry.
                                                                                               39


3.5 MW Series Wind Turbine
GE recently acquired ScanWind which was a Norwegian manufacturing company that
produces wind turbines. The two models produced by ScanWind are ScanWind 3000 DL with an
output of 3.0 MW and ScanWind 3500 DL at 3.5 MW. This new technology will give GE the
ability to provide a direct drive, offshore wind turbine offering as an option to their customers.


5.4 Vestas
Vestas was founded by H.S. Hansen, in 1898, in a small town of Denmark, Lem. He and his son,
Peder Hansen, manufactured steel windows for industrial buildings. In 1979, Vestas delivered
the first wind turbines. In 2007, Vestas had installed more than 38,000 wind turbines in 63
countries and on 5 continents. Currently, Vestas employs more than 20,000 people worldwide.

Products and Services:

      Wind Project Planning
       While developing a wind power project the developer needs to consider a broad range of
       factors over the entire lifecycle of the project. These range from financing and siting, to
       grid requirements and the regulatory framework. Vestas has a huge amount of expertise
       in these areas. They work closely with their customers during the planning phase to
       capitalise on this knowledge and build a successful project.

      Procurement
       Vestas has a broad product portfolio of wind turbines. They have ideal turbines for all
       sites and conditions. They check and test all our turbines at their own test centres, and
       ensure that the results are independently verified.

      Construction:
       During the construction phase, the wind power plant is built and connected to the grid.
       There are a huge number of tasks involved to ensure this happens efficiently and
       effectively, carried out by both the Vestas and developer. Vestas works closely with their
       clients to supply, install and balance the plant according to the specific profile of the
       project.

      Operation and Service:
       Vestas helps the developer in operating and managing the wind turbine. A wind turbine
       has to be serviced, it has to be managed effectively to get the most out of the turbines,
       train people to operate it, and it has to be insured.

      Power Plant Optimisation:
       By using predictive and preventive maintenance techniques, Vestas can identify potential
       problems before they arise and take action to address them, helping to reduce down time
       and optimise the yield for Vestas turbines worldwide.
                                                                                                                   40


Business and Financial Performance
In 2008, total accumulated wind energy market amounts to 168,646 MW out of which Vestas has
delivered 39,705 MW equivalents to an accumulated market share of 24.8 per cent.
In 2009, 38,103 MW of wind energy was delivered worldwide, out of which 4,764 MW was
delivered by Vestas equivalent to a market share of 12.5 per cent. The revenue of the company
for the year 2009 was USD 9,665 million approximately with profit margin of 12.9%.

The 4,764 MW delivered by Vestas in 2009, was distributed on Europe (2,777 MW), Americas
(1,304 MW), Asia Pacific (683 MW) and Africa (5 MW). In 2009, Vestas shipped 3,320 wind
turbines with an aggregate capacity of 6,131 MW, against 6,160 MW and 3,250 wind turbines in
2008.


                                   6 LEADING MARKETS OF WIND POWER IN THE WORLD

The expectations for 2009 were dire for all industry sectors, and wind power was no exception.
Both the economic and the financial crisis hit the sector and Global Wind Energy Council’s
(GWEC) forecast of a 12.5% annual market growth seemed optimistic initially but the annual
market grew at 41.5% compared to 2008. More than 38 GW of new wind power capacity was
installed around the world in 2009, bringing the total installed capacity up to 158.5 GW. This
represents a year-on-year growth of 31.7%.

Worldwide capacity of wind power reaches 159,213 MW, out of which 38,312 MW were added
in 2009. Wind energy showed a growth rate of 31.5% in 2009 as compared to previous year. The
trend shows that wind capacity doubles every three years.

  Figure 6: World Total Installed Capacity (MW) – Wind Power
        250,000
                                                                                                         203,500
                              200,000
    Installed Capacity (MW)




                                                                                                   159,213
                              150,000                                                        120,903
                                                                                       93,930
                              100,000                                         74,122
                                                                     59,024
                               50,00024,322 31,181   39,295 47,693

                                    0
                                        2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
                                                               Year
  Source: World Wind Energy Association (WWEA)

The wind capacity worldwide reached 159,213 MW in 2009, after 120,903 MW in 2008, 93,930
MW in 2007, 74,123 MW in 2006, and 59,012 MW in 2005. It is expected that in 2010 the world
wind capacity would increase to 203,500 MW. The annual growth rate continued to increase
since the year 2004, reaching 31.7% in 2009 – the highest rate since 2001 – after 29.0% in 2008,
26.6% in 2007, 25.6% in the year 2006 and 23.8% in 2005.
                                                                                                                          41


In the year 2009, in spite of the global economic crisis, investment in new wind turbines
exceeded by far all previous years. All wind turbines installed by the end of 2009 worldwide are
generating 340 TWH per annum, equivalent to the total electricity demand of Italy, the seventh
largest economy of the world, and equalling 2% of global electricity consumption. The wind
sector in 2009 had a turnover of 50 billion Euro. It can be seen from the graph given below that
the installed wind capacity is more than doubling every third year.

   Figure 7: New Installed Capacity – Wind Power
          50000                                                                                                  44000
       Installed Capacity (MW)




                                                                                                         38312
                                 40000

                                 30000                                                           26972
                                                                                         19808
                                 20000                                           15111
                                                                         11331
                                                6859     8114     8386
                                 10000 6282

                                     0
                                         2001     2002
                                               2005 2006   2003     2004                   2007    2008    2009    2010
                                                  Year
   Source: World Wind Energy Association (WWEA)

The market for new wind turbines showed a 42.1% increase and reached an overall size of
38,312 MW, after 26,969 MW in 2008, 19,808 MW in 2007 and 15,111 MW in the year 2006. In
2001, the market for new wind turbines had only a size of 4 GW, only one tenth of the size of
2009.

China played a key role in the growth of the international wind industry and added 13,800 MW
within one year – as the biggest market for new turbines – more than doubling the installations
for the fourth year in a row.

The USA maintained its number one position in terms of total installed capacity and China
became number two in total capacity, only slightly ahead of Germany, both of them with around
26,000 Megawatt of wind capacity installed.

Asia accounted for the largest share of new installations (40.4%), followed by North America
(28.4%) and Europe fell back to the third place (27.3%).

Based on accelerated development and further improved policies, World Wind Energy
Association (WWEA) increases its predictions and sees a global capacity of 1,900,000 Megawatt
as possible by the year 2020.

In the year 2009, altogether 82 countries used wind energy on a commercial basis, out of which
49 countries increased their installed capacity. China and the USA established themselves as the
largest markets for new wind capacity, together accounting for 61.9% of the additional capacity,
a share which was substantially bigger than in the previous year (53.7%).
                                                                                           42


 Figure 8: Country Share of Total Capacity – Wind Power, 2009
        Denmark, 2.20%                  Country Share
       Portugal, 2.20%
                                                                             USA
        U.K., 2.60%           Rest Of World,
                                 14.20%      USA, 22.10%                     China
     France, 2.80%
                                                                             Germany
     Italy, 3.00%                                 China, 16.30%              Spain

                              Spain,                                         India
                             11.60%      Germany, 16.20%                     Italy
       India, 6.60%
                                                                             France
                                                                             U.K.
                                                                             Portugal

Source: World Wind Energy Association (WWEA)

The USA and China together represented 38.4% of the global wind capacity. The top five
countries (USA, China, Germany, Spain and India) represented 72.9% of the worldwide wind
capacity, slightly more than 72.4% in the year 2008.

By end of 2009, 17 countries had installations of more than 1,000 Megawatt, compared with 16
countries end of 2008, 13 countries end of the year 2007, 11 countries end of 2005.

Worldwide, 35 countries had wind farms with a capacity of 100 Megawatt or more installed,
compared with 32 countries in the previous year and 24 countries four years ago.

6.1 Wind Power in USA
Over 10,000 MW of wind was installed in 2009, keeping the U.S. as the global leader in wind
power. Total wind power installed reached 35,086 MW, including small wind turbines, at the end
of 2009. For the past five years, wind power has been one of the largest new sources for
electricity generating capacity, second only to new natural gas units. In 2009, wind power
provided 39% of all new generating capacity installed.

Since 2005, wind power and other renewable energy technologies, combined with natural gas,
have provided over 90% of all new generating capacity in the U.S. Wind generation is
approaching the two percent mark of the U.S. power mix, reaching 1.8% of U.S. generation in
2009. This is an increase from 1.3% of generation at the end of 2008.
                                                                                               43


    Figure 9: Power Mix by Fuel type in USA, 2009
            Petroleum Wind Other
           & Petroleum 1.80% 0.60%                                Coal
             Coke1%
       Hydro
        7%                                                        Natural gas
               Nuclear                       Coal
                20%                                               Nuclear
                                             45%

                                                                  Hydro
                   Natural Gas
                      23%                                         Petroleum and Petroleum
                                                                  Coke
                                                                  Wind


   Source: American Wind Energy Association (AWEA)

All renewable energy sources provided 10.5% of the U.S. power mix in 2009. With the
significant increase in renewable energy capacity over the past several years, the power mix is
reflecting a slow but steady shift toward renewable energy.

6.2 Wind Power in European Union
During 2009, 10,526 MW of wind power was installed across Europe, 10,163 MW of that being
in the European Union countries. This represents a market growth in the EU of 23% compared to
2008 installations. Of the 10,163 MW installed in the European Union, 9581 MW was installed
onshore, and 582 MW offshore. In 2009 the onshore wind power market grew 21% compared to
the previous year, and the offshore wind power market grew 56% compared to the previous year.

Investment in EU wind farms in 2009 was 13 billion Euro. The onshore wind power sector
attracted 11.5 billion Euro during 2009, the offshore wind power sector accounted for
approximately 1.5 billion Euro. In terms of annual installations Spain was the largest market in
2009, installing 2,459 MW, compared to Germany’s 1,917 MW. Italy, France and the United
Kingdom battled for third, fourth and fifth place respectively, with Italy installing 1114 MW, and
France 1088 MW and the UK 1077 MW.
                                                                                         44


Power Capacity Installations in EU in 2009:
In 2009, for the second year running, in the EU more wind power was installed than any other
electricity generating technology. This is shown in the graph given below.

Figure 10: New Installed capacity and De-Commissioned capacity in EU in 2009




Source: EWEA

In 2009, 26,363 MW of new capacity was installed in total, of which 10,163 MW (39%) was
wind and 6,630 MW was gas (25%). Solar PV - came in third at 4,200 MW (17%). In addition
2,406 MW (9%) of new coal was installed, 581 MW (2.2%) of biomass, 573 MW (2.2%) of fuel
oil, 442 MW (1.7%) of waste, 439 MW (1.7%) of nuclear, 338 MW (1.3%) of large hydro, 120
MW2 (0.46%) of concentrated solar power, 55 MW (0.2%) of small hydro, 12 MW (0.04%) of
other gas, 3.9 MW (0.01%) of geothermal, and 405 kW of ocean power.
                                                                                        45


Total Installed Capacity Mix – European Union:
Wind power’s share of total installed capacity in the EU has increased from 2.2% in 2000 to
9.1% in 2009.

    Figure 11: Capacity Mix – European Union for 2000 and 2009
                             PEAT       Year 2000
                   PV 0%     0.30%                                        Nuclear
     Small Hydro                                                          Coal
       0.80%
                      Large Hydro                                         Fuel Oil
                                        Nuclear
    Wind                18.30%          22.30%                            Natural Gas
    2.20%                                                                 Other Gas
     Biomass                                                              Geothermal
      0.50%                                                               Biomass
                    Natural Gas
    Geothermal        14.50%                                              Wind
      0.20%                               Coal                            Small Hydro
                                         27.70%                           PV
                           Fuel Oil
     Other Gas                                                            Large Hydro
                           11.60%
      1.20%
                                                                          PEAT

   Source: EWEA



                              Other     Year 2009
               Small Hydro 0.20%
                 0.60%                                                   Nuclear
        Geothermal                                                       Coal
           0.20%         Large Hydro    Nuclear                          Fuel
                            14.70%      15.60%                           Natural Gas
         Waste
         0.40%                                                           Other gas
                       Wind                                              Wind
                      9.10%                  Coal                        PV
            PV
                                            27.80%                       Waste
          1.60%
                         Natural Gas                                     Geothermal
         Other Gas         21.60%
           0.80%                                                         Small Hydro
                                                                         Large Hydro
                                                   Fuel                  PEAT
                                                  6.70%
   Source: EWEA
                                                                                                                                46


Annual installations of wind power in the EU have increased steadily over the last 15 years from
472 MW in 1994 to 10,163 MW in 2009, an annual average market growth of 23%.

   Figure 12: Annual Installation of Wind Power
                                  12000
                                                                                                                   10163
        Installed capacity (MW)



                                  10000
                                                                                                   8535     8268
                                                                                          7592
                                   8000
                                                          5913              5838   6204
                                   6000                            5462
                                                 4428
                                   4000 3209

                                   2000

                                      0
                                          2000     2001     2002     2003     2004 2005     2006     2007     2008     2009
                                                                                 Year

   Source: EWEA

In 2009 Spain was the European Union country with the largest annual market in terms of MW
installations, followed by Germany, Italy, France, and the UK.

   Figure 13: Country Share in total capacity of EU in 2009
                                    Poland 2% Other 6%             Country Share
                                     (181MW) (575 MW)
       Ireland 2%
                                                                                                                     Spain
        (233 MW)
                                                                                                                     Germany
        Denmark 3%
         (334 MW)                                                         Spain 24%                                  Italy
                                                                          (2459 MW)
       Sweden 5%                                                                                                     France
        (512 MW)                                                                                                     U.K.
                                                U.K. 10%                                                             Portugal
     Portugal 7%                                                           Germany 19%
                                               (1077 MW)                                                             Sweden
      (673 MW)                                                              (1917 MW)
                                                                                                                     Denmark
                                                 France 11%
                                                 (1088 MW) Italy 11%                                                 Ireland
                                                           (1114 MW)
                                                                                                                     Poland

    Source: EWEA

Germany remains the EU country with the largest installed capacity, followed by Spain, Italy,
France, and the UK.
                                                                                                     47


   6.3 Wind Power China
   China (excluding Taiwan) was the world’s largest market in 2009, more than doubling its
   capacity from 12.2 GW in 2008 to 25.8 GW, adding 13.8 GW of capacity, and just slipping past
   Germany to become the world’s number 2 in total installed capacity.

   Table 16: Total Installed Capacity of China – Wind Power, 2009
Year      2000      2001      2002       2003      2004      2005      2006      2007      2008      2009
MW        346      402       469         567       764       1260      2599      5910      12020     25805
  Source: Global Wind Energy Council

   The growth of the Chinese wind energy industry has been driven primarily by national renewable
   energy policies. The start of the government’s active engagement in renewable energy
   development dates back to 2004, when the nation was drafting its first “Renewable Energy
   Law”. The law was adopted in 2005 and entered into force in 2006. It gave a huge momentum to
   the development of renewable energy and the wind industry has grown at a fast pace since then.

   The Renewable Energy law marks a shift in energy policy towards market supportive policies for
   renewable. It stipulates, for the first time, that grid companies have the obligation to purchase the
   full amount of the electricity produced from renewable sources. Already in 2005, when the law
   was passed, the annual growth of the Chinese wind market reached 60%, followed by four
   consecutive years of over 100% growth.


                  7 POLICY ENVIRONMENT FOR WIND ENERGY IN INDIA
   7.1 Ministry of New and Renewable Energy (MNRE)
   The original impetus to develop wind energy in India came in the early 1980s from
   the government, when the Commission for Additional Sources of Energy (CASE) had been set
   up in 1981 and upgraded to the Department of Non-Conventional Energy Sources (DNES) in
   1982 which was entrusted with the charge of promoting non-conventional energy sources.

   The Indian Renewable Energy Development Agency (IREDA) was established in 1987 as
   a financial arm of the Ministry to promote renewable energy technologies in the country. In 1992
   the Indian Government established a full-fledged Ministry of Non-Conventional Energy Sources
   (MNES), renamed as Ministry of New and Renewable Energy (MNRE) in 2006.

   MNRE Vision
   MNRE’s vision is to develop new and renewable energy technologies, processes, materials,
   components, sub-systems, products and services at par with international specifications,
   standards and performance parameters in order to make the country a net foreign exchange
   earner in the sector and deploy such indigenously developed and/or manufactured products and
   services in furtherance of the national goal of energy security.

   MNRE Mission
   The Mission of the Ministry is to ensure
       a) Energy Security: Lesser dependence on oil imports through development and deployment
          of alternate fuels (hydrogen, bio-fuels and synthetic fuels) and their applications to
          contribute towards bridging the gap between domestic oil supply and demand;
                                                                                                48


   b) Increase in the share of clean power: Renewable (bio, wind, hydro, solar, geothermal and
      tidal) electricity to supplement fossil fuel based electricity generation;
   c) Energy Availability and Access: Supplement energy needs of cooking, heating, motive
      power and captive generation in rural, urban, industrial and commercial sectors;
   d) Energy Affordability: Cost-competitive, convenient, safe, and reliable new and renewable
      energy supply options; and
   e) Energy Equity: Per-capita energy consumption at par with the global average level by
      2050, through a sustainable and diverse fuel- mix.

MNRE Wind Power Policy
The Ministry specifies the following buy back rates in the various states for wind power as in
April, 2010:
                        Table 17: MNRE Wind Power Policy
                             State / UT     Buyback Rate Rs. Per unit
                         Andhra Pradesh    3.37 fixed for 5 yrs
                         Gujarat           3.37 fixed for 20 yrs
                         Karnataka         3.4 fixed for 10 yrs
                         Kerala            3.14 fixed for 20 yrs
                         Madhya Pradesh    3.97
                         Maharashtra       3.5 Esc @ .15 per yr
                         Rajasthan         2.91 Esc @ 0.05 for 10 yrs
                         Tamil Nadu        2.70 (fixed)
                        Source: MNRE

7.2 The 2003 Electricity Act
The Electricity Act 2003, enacted by the Parliament of India, on June 10, 2003 serves to
consolidate the laws relating to Generation, Transmission and Distribution of electricity. In spite
of a stated target for renewable energy to contribute 4-5% of India’s electricity mix by 2012, the
country does not have a national renewable energy policy. Currently, the promotion of renewable
energy only figures in one section of the 2003 Electricity Act (86(1)e). This act restructured the
Indian electricity industry by unbundling the vertically integrated electricity supply utilities in
the Indian states and establishing State Electricity Regulatory Commissions (SERCs) in charge
of setting electricity tariffs.
The Electricity Act also required the SERCs to set Renewable Portfolio Standards for electricity
production in their state. Following this, the MNRE issued guidelines to all state governments to
create an attractive environment for the export, purchase, wheeling and banking of electricity
generated by wind power projects. The measures taken for the support of Wind Power Projects is
mentioned below:

Fiscal and financial incentives
 Concession on import duty on specified wind turbine parts
 80% accelerated depreciation over one or two years
 10 year income tax holiday for wind power generation projects
 Excise duty relief on certain components
                                                                                            49


   Some states like Andhra Pradesh, Gujarat, Kerala, Karnataka, Rajasthan have also announced
    special tariffs, ranging from Rs 3-4 per kWh, with a national average of around Rs 3.50 per
    kWh
   Wheeling, banking and third party sales, buy-back facility by states
   Guarantee market through a specified renewable portfolio standard in states like Andhra
    Pradesh, Gujarat, Kerala, Karnataka, Rajasthan, etc are decided by the state electricity
    regulator by way of power purchase agreements
   Reduced wheeling charges as compared to conventional energy

Land policies
 The Ministry of Environment and Forests has issued guidelines for diversion of forest lands
   for non-forest purposes, particularly to enable wind generation
 Clearance of leasing and forest land for up to a period of 30 years for wind developers

Financial assistance
 Setting up of the Indian Renewable Energy Development Agency (IREDA), the premier
   finance agency of the Government of India to provide soft loans for renewable energy
   projects, particularly for demonstration and private sector projects

Wind resource assessment
 The government has set up the Centre for Wind Energy Technology (C-WET) to map wind
   energy potentials
 The C-WET has set up more than 1,000 wind monitoring and wind mapping centers across
   25 states
 Wind mapping at 50 meters (C-WET) and 60-80 meters height (private companies)
                                                                                                        50


  Feed in Tariff
  In June 2008, the MNRE announced a national generation-based incentive scheme for grid
  connected wind power projects under 49 MW, providing an incentive of 0.5 rupees per KWh in
  addition to the existing state incentives.
  Table 18: Feed in Tariff
                                                                                                  Specified
                 Tariff
                                                      Wheeling/                                  Renewable
                  Rates        Annual Tariff                                 Capital
   States                                            Transmission                                 Portfolio
                Per KWh         Escalation                                  Incentives
                                                       Charges                                 Standards For
                  (Rs.)
                                                                                                   Wind
                                                                                              10% (2008-2009)
                              NIL (Fixed For 5
Tamil Nadu         3.39                             5% of tariff paid    National Policies    13% (2009-2010)
                                   Years)
                                                                                              14% (2010-2011)
                                                                         Has an exclusive
                                                                         policy in addition
Gujarat            3.37             NIL             4% of tariff paid                         2% (2008-2009)
                                                                          to the national
                                                                              policies
                             Rs. 0.02 every year
Rajasthan          4.28                             10% of tariff paid   National Policies    5% (2008-2009)
                                 for 10 years
Karnataka          3.40             NIL             2% of tariff paid    National Policies    2% (2008-2009)
                             Variable increase up                                             5% (2008-2009)
Madhya
                   4.03      to 20 years and then   2% of tariff paid    National Policies     and 6% from
Pradesh
                                   reduces                                                      2009-2011
West Bengal        4.00             NIL             Rs. 0.30 per KWh     National Policies    8% (2008-2009)

Kerala             3.14       Fixed for 20 years          NIL            National Policies    5% (2008-2009)
                             Rs. 0.15 per annum                                                6% for all RES
Maharashtra        3.50                             7% of tariff paid    National Policies
                                 for 15 years                                                   (2008-2009)
Andhra
                   3.50             NIL             5% of tariff paid    National Policies    5% (2008-2009)
Pradesh
Haryana            NIL              N/A                   NIL            National Policies    3% (2008-2009)
  Source: MNRE, India

  7.3 Generation Based Incentives for Grid Connected Wind Power Projects
  The Ministry of New and Renewable Energy (MNRE) has announced the Generation Based
  Incentive (GBI) for Grid Interactive Wind Power Projects commissioned after December 17,
  2009. The main objectives of the GBI scheme are:

        To broaden investor base by:
             o Facilitating the entry of large Independent Power Producers (IPPs)
             o Attracting FDI in the Wind Power Sector
        To provide level playing field between various classes of investors.
        To incentivize higher efficiencies.
        To provide a framework for transition from an investment based incentive to outcome based
         incentive.
                                                                                                51


The main features of the scheme are:

   Companies shall be allowed to avail either Accelerated Depreciation (AD) or GBI but not
    both.
   The GBI is at Re. 0.50 per unit of electricity fed into the grid with a cap of Rs.62 Lakh/MW.
    The GBI is over and above the tariff approved by State Electricity Regulatory Commission.
   The incentive will be for a minimum period of 4 years and a maximum of 10 years. The total
    disbursement in a year will not exceed one fourth of the maximum limit of the incentive, i.e.
    Rs.15.50 lakh per MW during first four years.
   There is no floor or ceiling for a developer in terms of the MW capacity that can be
    considered for availing the incentive.
   All wind power projects whose machines are commissioned in India after December 17,
    2009 and on or before March 31, 2012 and wishing to avail either Accelerated Depreciation
    (AD) benefit or Generation Based Incentive (GBI) are required to be registered with IREDA.
   Post registration; a Registration Number and a Unique Identification Number shall be allotted
    to each project and each machine commissioned respectively.

Eligibility for Availing GBI
 The claim for GBI would be applicable for those power producers who have Wind turbines
    commissioned after December 12, 2009. The scheme is however limited to a capacity of first
    4000 MW commissioned through GBI on or before March 31, 2012.
 The incentive would be available for grid connected wind power projects set up for sale of
    electricity to grid, at a tariff notified by SERC and /or State Government and also for Captive
    Wind Power Projects including Group Captive to the extent of sale of electricity to the grid.
Exclusion: GBI would not be available to any wind power project selling power to third party.
7.4 Renewable Portfolio Obligation
A number of SERCs have issued regulations specifying Renewable Portfolio Obligation (RPO)
i.e. the percentage of electricity purchased by distribution licensees to be procured from
renewable energy sources. There is a wide divergence in terms of the RPO applicable in different
states. It is set as low as 0.5 % for Madhya Pradesh to as high as 10 % for Tamil Nadu. This is
primarily guided by the potential for renewable energy within the state, their existing utilization
and proposed investment in the sector. States characterized by low wind speed (for e.g. Madhya
Pradesh as compared with Tamil Nadu) encourage inefficient investment by offering higher
tariff. The following table provides a summary of the comprehensive regulatory framework for
renewable energy sources in various Indian states.
                                                                                                   52


Table 19: Renewable Portfolio Obligation
                Renewable Portfolio Obligation       Sharing of CDM     Penalty for
                                                         Benefits       noncompliance
                 (As a %age of total procurement                        (Rs./kWh)
                   of the Distribution Licensee
                             in a year)
                                                     Among
                3 (06-07)                                               0 (06-07)
                                                     developer,
                4 (07-08)                                               5 (07-08)
Maharashtra                                          utility and
                5 (08-09)                                               6 (08-09)
                                                     consumer
                6 (09-10)                                               7 (09-10)
                3 (07-08)
                3.5 (08-09)
Orissa          4 (09-10)                            -                  -
                4.5 (10-11)
                5 (11-12)
Madhya
                0.5                                  -                  -
Pradesh
                1 (06-07)                            To the developer
                                                                        Shortfall to be added to
Gujarat         1 (07-08)                            - 25% of Gross
                                                                        next years target
                2 (08-09)                            CDM benefits
                Min. 5
Karnataka                                            -
                Max. 10
                Wind $                               All CDM
                                                                        Nil for shortfall due to
Rajasthan       2 (06-07)                            benefit to
                                                                        natural vagaries
                3 (07-08) + 0.3 % pa till max. 4 %   the developer
TN              10                                   -                  -

UP              7.5                                  -                  -
                                                                        Yes; Waiver in case of non
Andhra
                0.5                                  -                  availability within the rate
Pradesh
                                                                        specified
Source: Windpowermonthly.com

7.5 Renewable Portfolio Standard
In 2008, the National Action Plan on Climate Change released by the Indian government
included a proposal for a national renewable energy trading scheme, which would be based on a
National Renewable Portfolio Standard.
In this scheme, states would be encouraged to promote the production of renewable power to
exceed the national standard. They would then receive certificates for this surplus power, which
would be tradable with other states which fail to meet their renewable standard obligations.
Since only grid-connected electricity would be eligible for this scheme, this would particularly
benefit the wind industry. It is expected that this proposal will come into force in 2010.
                                                                                                  53


7.6 Availability Based Tariff (ABT)
The term Availability Tariff, stands for a rational tariff structure for power supply from
generating stations, on a contracted basis. The power plants have fixed and variable costs. The
fixed cost elements are interest on loan, return on equity, depreciation, O&M expenses,
insurance, taxes and interest on working capital. The variable cost comprises of the fuel cost, i.e.,
coal and oil in case of thermal plants and nuclear fuel in case of nuclear plants.
In the Availability Tariff mechanism, the fixed and variable cost components are treated
separately. The payment of fixed cost to the generating company is linked to availability of the
plant, that is, its capability to deliver MWs on a day-by-day basis. The total amount payable to
the generating company over a year towards the fixed cost depends on the average availability
(MW delivering capability) of the plant over the year. Hence the name ‘Availability Tariff’. This
is the first component of Availability Tariff, and is termed ‘capacity charge’.
The second component of Availability Tariff is the ‘energy charge’, which comprises of the
variable cost of the power plant for generating energy as per the given schedule for the day. It
may specifically be noted that energy charge (at the specified plant-specific rate) is not based on
actual generation and plant output, but on scheduled generation. In case there are deviations from
the schedule (e.g., if a power plant delivers 600 MW while it was scheduled to supply only 500
MW), the energy charge payment would still be for the scheduled generation (500 MW), and the
excess generation (100 MW) would get paid for at a rate dependent on the system conditions
prevailing at the time.
Thus Availability Tariff comprises of three components:
   a) Capacity charge, towards reimbursement of the fixed cost of the plant, linked to the
      plant's declared capacity to supply MWs,
   b) Energy charge, to reimburse the fuel cost for scheduled generation, and
   c) A payment for deviations from schedule, at a rate dependent on system conditions.

Necessity of Availability Based Tariff
Prior to the introduction of Availability Tariff, the regional grids had been operating in a very
undisciplined and haphazard manner. There were large deviations in frequency from the rated
frequency of 50.0 cycles per second (Hz). Low frequency situations result when the total
generation available in the grid is less than the total consumer load. These can be curtailed by
enhancing generation or curtailing consumer load. High frequency is a result of insufficient
backing down of generation when the total consumer load has fallen during off-peak hours. The
earlier tariff mechanisms did not provide any incentive for either backing down generation
during off-peak hours or for reducing consumer load/enhancing generation during peak-load
hours. In other words, the earlier tariff mechanisms encouraged grid indiscipline.
                                                                                                     54


                              8 WIND ENERGY PROJECTIONS
8.1 Wind Energy Scenarios
There are three different scenarios for the development of wind energy, both globally, and for
India. The scenarios examine the future potential of wind power up to the year 2030, starting
from a range of assumptions which will influence the wind energy industry’s expected
development.
These scenarios are based on a report entitled ‘Global Wind Energy Outlook 2008’, which was
published as a collaboration between the Global Wind Energy Council (GWEC), Greenpeace
International and the German Aerospace Centre.
   a) Reference Scenario
      The most conservative “Reference” scenario takes into account only existing policies and
      measures, but includes assumptions such as continuing electricity and gas market reform,
      the liberalisation of cross-border energy trade and recent policies aimed at combating
      pollution.

   b) Moderate Scenario
      The “Moderate” scenario takes into account all policy measures to support renewable
      energy either already enacted or in the planning stages around the world. It also assumes
      that the targets set by many countries for wind energy are successfully implemented.

   c) Advanced scenario
      The most ambitious scenario, the “Advanced” version examines the extent to which this
      industry could grow in the best case ‘wind energy vision’. The assumption here is that all
      policy options in favour of renewable energy, along the lines of the industry’s
      recommendations, have been selected, and the political will is there to carry them out.
      This scenario is designed to show what the wind energy sector could achieve if it were
      given the political commitment and encouragement it requires in light of the twin crises
      of energy security and global climate change.
8.2 Key Trends and Outlook
Based on above mentioned three scenarios future growth of electricity demand for the wind
energy market are projected for the various regions of the world but we shall concentrate on the
projected demand in India. In all three scenarios it is assumed that an increasing share of new
capacity is accounted for by the replacement of old plant. This is based on a 20 year average
lifetime for a wind turbine. Turbines replaced within the timescale of the scenarios are assumed
to be of the same cumulative installed capacity as the original smaller models. The result is that
an increasing proportion of the annual level of installed capacity will come from repowered
turbines. The following table shows the level of wind power capacity expected to be installed in
India by 2020 and 2030 as projected by International Energy Agency under the three scenarios
discussed above.
Table 20: Level of Capacity to be Installed in India till 2020
   Scenarios         Level of Capacity to be Installed         Share of India in the Global Market
 Reference                         20 GW                                        6%
 Moderate                          63 GW                                       10%
 Advanced                         134 GW                                       13%
Source: 2007 World Energy Outlook From The International Energy Agency(IEA)
                                                                                                   55


Table 21: Level of Capacity to be Installed in India till 2030
Scenarios      Level Of Capacity To Be Installed             Share Of India In The Global Market
Reference                       27 GW                                            5%
Moderate                        142 GW                                          10%
Advanced                        241 GW                                          10%
Source: 2007 World Energy Outlook From The International Energy Agency(IEA)

Under the reference scenario which is the most conservative approach, it is expected that 20 GW
of wind capacity would be installed till 2020 and 27 GW till 2030. Under the moderate scenario
63 GW would be installed by 2020 and 142 GW by 2030. In the advanced scenario which is the
most optimistic approach it is expected that 134 GW of wind capacity would be installed by
2020 and 241 GW by 2030.
8.3 Main Assumptions And Parameters For India
Following assumptions about growth rate and capacity have been taken when projecting demand
for India:

8.3.1 Growth Rate
The wind industry has experienced much higher growth rates in past ten years. In the last five
years, the average annual increase in cumulative installed wind power capacity in India was
more than 35%; for the nine year period from 2000-2008, it was over 28%.
Growth rates eventually decline to single figures across the range of scenarios, but the level of
wind power capacity envisaged in 20 years’ time means that even small percentage growth rates
will by then translate into large figures in terms of annually installed megawatts.
These scenarios assume that significant repowering (replacing of smaller old turbines by modern
and more powerful machines) will take place in the period up to 2030. In addition, with a
coastline of 7,000 km, it is assumed that offshore installations will play an important role in
increasing the overall wind energy potential.

8.3.2 Turbine capacity
Individual wind turbines have been steadily growing in terms of nameplate capacity - the
maximum electricity output they achieve when operating at full power. The average capacity of
wind turbines installed in India in 2008 was 1MW, up from just 400 kW in 2000. Globally, the
largest turbines now available for commercial use are up to 6 MW in capacity. We make the
conservative assumption that in India, the average size will gradually increase from today’s
figure to 1.5 MW in 2013, increasing to 2 MW by 2030.

8.3.3 Capacity Utilization Factor
‘Capacity Utilization Factor’ (CUF) refers to the percentage of its nameplate capacity that a
turbine installed in a particular location will deliver over the course of a year. This is primarily
an assessment of the wind resource at a given site, but capacity factors are also affected by the
efficiency of the turbine and its suitability for the particular location. For example, a 1 MW
turbine operating at a 25% capacity factor will deliver 2,190 MWh of electricity in one year.
CUF is the ratio of the actual electricity generated over a year to the rated capacity of the turbine.
CUF is usually dictated by turbine size, site selection and wind characteristics. Higher CUF
(resulting from high speed and uniform wind) improve the economics of the wind turbine
                                                                                                   56


because it indicates that the turbine is generating close to the rated capacity. At present the
average capacity factor in India is estimated to be 20.5%.

                           Table 22: Projected Average Capacity Factor
                                         Projected Average Capacity
                             Year
                                                    Factor
                            2011                     23%
                            2021                     25%
                            2026                    27.5%
                           Source:IEA

It is projected that by 2026 the average capacity factor in India would be 27.5%.

8.3.4 Capital Costs
The capital cost of producing wind turbines has fallen over the past 20 years as turbine design
has been largely concentrated on the three-bladed upwind model with variable speed and pitch
blade regulation, manufacturing techniques have been optimized, and mass production and
automation have resulted in economies of scale. Since late 2008, global turbine prices have
dropped by 18%.
In India, turbine prices have always been lower than the global average, due to cheaper labour
and lower production costs. In 2008 the cost was around Rs. 53.5 mil /MW and these are
projected to decrease to Rs. 50.0 mil /MW by end of 2010 and then stabilize at that level. The
reason for this gradual decline is that the manufacturing industry has not so far gained the full
benefits from series production, especially due to the rapid upscaling of products. Neither has the
full potential of the latest design optimisations been realized. Increasing levels of local manufac-
ture of all turbine components in India will help bring costs down, as imports of more expensive
parts from international markets can be minimised.
8.4 Cost Benefit Analysis
Generating increased volumes of wind powered electricity will require a good amount of
investment over the next 20 years. At the same time raising the contribution from the wind will
have substantial benefits for the global climate, reduction of air pollution, economic development
and increased job creation in India, and thus provide a boost to the Indian economy.
8.4.1 Investment
The relative attraction to investors of the wind energy market is dependent on a number of
factors. The most important of these are the capital cost of wind turbines, the cost of capital
(interest rates), availability of finance, the wind conditions at the site, and the price received for
the electricity generated. Other important factors include operation and maintenance (O&M)
costs, the lifetime of the turbine and the discount rates which are applied.

The total cost per generated kWh of electricity is traditionally calculated by discounting
investment and O&M costs over the lifetime of a wind turbine, then dividing this by the annual
electricity production. The unit cost of generation is thus calculated as an average cost over the
lifetime of a turbine, which is normally estimated at 20 years. In reality capital costs will be
higher in the early years of a turbine’s operations while the loan is being paid off, where as
O&M costs will probably be lower at the beginning of a turbine’s operation and increase over the
lifespan of the machine.
                                                                                                   57


Also wind power projects avoid installation of conventional power production plant and fossil
fuel costs. Taking into consideration these factors further improve the cost analysis for wind
energy.
The cost of generating electricity from wind energy currently ranges from approximately Rs. 2.4-
4.5 per KWh at high wind speed sites and up to approximately Rs. 4.5-6 per KWh at sites with
low average wind speeds. On an average it takes Rs. 3-6 crore to setup 1MW of wind power
capacity compared to about Rs. 4 crore for a thermal plant.

8.4.2 Employment Generation
Wind power generates employment opportunities for masses. High unemployment rates create
social problems and constitute a major problem for the Indian Economy. Any technology which
requires both skilled and unskilled labour is of considerable importance for any economy.
The assumption made in this scenario is that for every megawatt of new capacity, the annual
market for wind energy will generate employment through manufacture, component supply,
wind farm development, installation and indirect employment. IEA estimates more than 400,000
workers are employed in the global wind energy sector in 2008, with 28,400 in India alone.
 Figure 14: Employment in India as a Result of Wind Energy Projects
       160000
       140000                                                 143854
       120000                                                            125145
    Employment




                                                  109643
       100000
        80000                        77583
        60000                                                                         Employment
        40000          35744
        20000
             0
                   2010         2015          2020        2025       2030
                                              Year
Source: Wind Energy Outlook, IEA

In 2010 itself IEA predicts that 35,744 new jobs would be generated by wind power projects and
the number is likely to increase to 143,854 jobs in 2025.
8.4.3 Carbon Dioxide Savings
A reduction in the levels of carbon dioxide being emitted into the global atmosphere is one of the
primary environmental benefit from wind power generation. Carbon dioxide is the gas largely
responsible for the human-induced greenhouse effect, leading to global warming.
Modern wind technology has an extremely good energy balance. The CO2 emissions related to
the manufacture, installation and servicing over the average 20 year lifecycle of a wind turbine
are “paid back” after the first three to six months of operation.
Assuming 1,076 g CO2 per KWh as an average value for the carbon dioxide reduction to be
obtained from wind generation, we arrive at the following table which shows the expected
annual savings in CO2 with time under the various scenarios.
                  Table 23: Expected Annual Savings in CO2 (All figures in thousand tons)
                  Scenario/Year 2010         2015     2020       2025        2030
                  Reference        24200 36841 40025            49064       62050
                                                                                               58


                  Moderate        26,614 67,651 124,470 231,956 322,953
                  Advanced        29,188 98,973 265,415 393,635 548,061
                 Source: Wind Energy Outlook, IEA

The table given below summarises the predicted cumulative wind capacity installed, electricity
generated, investment, jobs generated and annual CO2 saving in 2020 under all the three
scenarios possible.
Table 24: Summary of Wind Energy Outlook Scenario for 2020 - India
            Cumulative
                                                       Annual                             Annual
              Wind        Electricity  Share Of
                                                      Installed Investment                 CO2
 Scenario     Power        Output      Electricity                              Jobs
                                                      Capacity     (Rs. Mil)              Saving
             Capacity      (GWh)        Demand
                                                       (MW)                              (kt CO2)
              (MW)
Reference     20,332        40,665      2.6-2.8%        610         30,498     15,317     40,025

Moderate      63,230       126,459      8.1-8.7%       8,247       412,367     136,539   124,470

Advanced      134,828      269,656     17.3-18.6%      9,438       471,899     177,074   265,415
Source: Wind Energy Outlook, IEA

The table given below summarises the predicted cumulative wind capacity installed, electricity
generated, investment, jobs generated and annual CO2 saving in 20300 under all the three
scenarios possible.

Table 25: Summary of Wind Energy Outlook Scenario for 2030 - India
            Cumulative
                                                       Annual                             Annual
              Wind        Electricity  Share Of
                                                      Installed Investment                 CO2
 Scenario     Power        Output      Electricity                              Jobs
                                                      Capacity     (Rs. Mil)              Saving
             Capacity      (GWh)        Demand
                                                       (MW)                              (kt CO2)
              (MW)
Reference     27,325        65,580      2.4-2.7%        820         40,987     19,765     62,050

Moderate      142,219      341,325     12.6-14.2%      6,772       338,616     142,219   322,953

Advanced      241,349      579,238     21.4-24.2%      9,500       475,000     213,450   548,061
Source: Wind Energy Outlook, IEA

Under the reference scenario the cumulative wind capacity will be 12,495 MW in 2010, 17,119
MW in 2015, 20,332 MW in 2020, 23,571 MW in 2025 and 27,325 MW in 2030. Similarly IEA
has predicted for the other two scenarios also i.e. moderate and advanced. This is depicted in the
figure shown below.

In 2010, electricity generation in the reference scenario is predicted to be 22,491 MW, 24,734
MW in moderate scenario and 27,127 MW in advanced scenario. In 2030 IEA predicts it to be
65,580 MW in reference scenario, 341,325 MW in moderate scenario and 579,238 MW in
advanced scenario.
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        Figure 15: Electricity Generation In India From Wind Power (GWh)
                                    700,000
           Electricity Generation   600,000
                   (GWh)            500,000
                                    400,000                                         Reference
                                    300,000                                         Moderate
                                    200,000                                         Advanced
                                    100,000
                                         0
                                              2010   2015   2020   2025   2030
                                                            Year
    Source: Wind Energy Outlook, IEA


                                         9 DISTRIBUTION OF ELECTRICITY GENERATED

Below is a list of areas applicable to any power plant including a wind power plant:

         Captive consumption of power generated
         Sell to State Electricity Board
         Power Trading
              o Bilateral Trade
              o Unscheduled Interchange
              o OTC
              o Power Exchanges
              o Trading Licencee Companies
These various possible options have been explained further in detail.
9.1 Captive Consumption
Captive Consumption of Power refers to consumption of power generated from a unit set up by
industry itself. Large Industries are now prefers to set up their own generation plant rather than
rely on grid supply, primarily for the following reasons:

   Non-availability of adequate grid supply
   Poor quality and reliability of grid supply
   High tariff as a result of heavy cross subsidization
The concern for captive plants is rising due to:

   Non-remunerative tariff structure for surplus power produced by them
   No risk sharing in case of non-availability of fuel, change in variable cost due to switching of
    fuel after entering into power purchase agreement (PPA), etc
   Inadequacies in wheeling and banking facilities
   High contract demand charges
   High level of duties and taxes on sale of power
   High wheeling losses assumed for power to be sold to grid by captive plant
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          Need to devote time and energy to an activity, which is not their core business
          Restrictions on the minimum amount of power to be wheeled
          If the captive power plant (CPP) fails, charges for back-up or standby power from the grid
           are twice the normal rate for captive plants

   Conditions for Claiming the Status of a Captive Plant
   Rule 3 of Electricity Rules, 2005 lays down the following conditions required to be fulfilled for
   claiming the status of a captive plant.
   Requirement of Captive Generating Plant - No power plant shall qualify as a ‘captive generating
   plant’ unless
         i.    In case of a power plant set up by registered co-operative society:

              Not less than twenty-six per cent of the ownership is held by the captive user(s); and
              Not less than fifty-one per cent of the aggregate electricity generated in such plant,
               determined on an annual basis, is consumed for the captive use

       ii.     In case of association of persons

              The captive user(s) shall hold not less than twenty-six per cent of the ownership of the
               plant in aggregate and
              Such captive user(s) shall consume not less than fifty-one per cent of the electricity
               generated, determined on an annual basis, in proportion to their shares in ownership of
               the power plant within a variation not exceeding ten per cent.

       iii.    In case of a generating station owned by a company formed as a Special Purpose Vehicle,
               for such generating station, units identified for captive use satisfy the following
               conditions:

              Not less than twenty-six per cent of the ownership is held by the captive user(s); and
              Not less than fifty-one per cent of the aggregate electricity generated in such plant,
               determined on an annual basis, is consumed for the captive use
              The electricity required to be consumed by captive users shall be determined with
               reference to such generating unit or units in aggregate identified for captive use and not
               with reference to generating station as a whole; and
              The equity shares to be held by the captive user(s) in the generating station shall not be
               less than twenty-six per cent of the proportionate of the equity of the company related to
               the generating unit or units identified as the captive generating plant.
   Following things need to be noted:
 i.        ‘Annual basis’ shall be determined based on a financial year;
ii.        ‘Captive user’ shall mean the end user of the electricity generated in a Captive Generating
           Plant and the term ‘Captive Use’ shall be construed accordingly;
iii.       ‘Ownership’ in relation to a generating station or power plant set up by a company or any
           other body corporate shall mean the equity share capital with voting rights. In other cases
           ownership shall mean proprietary interest and control over the generating station or power
           plant;
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iv.       ‘Special purpose vehicle’ shall mean a legal entity owning, operating and maintaining a
          generating station and with no other business or activity to be engaged in by the legal entity.
      9.2 Sale to State Electricity Board
      Power generating companies have an option to sell the electricity being generated to the State
      Electricity Board (SEB). In this case generating company enters into a long term Power Purchase
      Agreement (PPA) with the SEB. The basic terms a PPA contains are contracted capacity, tariff,
      period, delivery point, start date along with other project specific terms.

      9.3 Power Trading
      India is the third largest producer of electricity in Asia with an installed capacity that has
      increased from 1362 MW in 1947 to about 1,59,648 MW as of April 30, 2010. In spite of that
      there exist shortages in meeting peak as well as overall demand.
      There is a coexistence of overall shortages with temporary surplus/deficits in the power industry.
      There exist substantial opportunities to improve the economic efficiency and security of supply
      through trading of power both within as well as across regions. However to achieve the full
      benefits of trading requires the availability of adequate transmission capacity and inter - regional
      links for transfer of power from a surplus to a deficit entity.
       A few years back Power Trading was a totally new concept for the Indian power sector. The
      sector was used for sale and purchase of electricity on the basis of long term contracts with
      outside agencies or within. The State Electricity Boards had simple systems of power generating
      stations supplying power to the grid and distribution wings taking care of supply of electricity to
      consumers. But now there are exchanges also on which trading of power is carried out.
      A recent study of the power sector has opined that the power trading in India is still at nascent
      stage. According to a study conducted by Ambit Research, the power traded, in volume terms, is
      just 8.1 percent of total power generation in the country (4.9 percent excluding UI i.e.
      unscheduled interchange).
      Of this, 52 percent is through bilateral trades, 39.2 percent through the UI mechanism and 8.8
      percent is traded through the power exchanges.
      It is expected that bilateral trades would continue to dominate the power trading market mainly
      on account of the ability to structure volume, pricing and duration separately for both the buyer
      and the seller.

      Advantages of Power Trading
      Power Trading is a distinct licensed activity under Electricity Act, 2003. Some of the advantages
      that this approach has brought are enumerated below:

         It has served as an instrument between the generating facilities who could enhance electricity
          generation at different points of time during different seasons and those electricity
          distribution companies or large consumers who need such power in varying magnitudes. This
          platform, therefore, has served the needs of both - those who can produce and supply and
          those who need.
         Trading has enabled additional efficiency in the system by way of improved utilization of
          generation capacities on the one hand and has provided to consumers electricity with its
          multiplying effect on overall economy.
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   Power could cost, and could cost much more, thereby leading to a beginning of a process of
    price discovery that can be brought about only by trading. In the last few years it has been
    observed that cost of power, in times of need, could be significantly different and higher than
    the usual price of power contracted through long term PPA with power generating
    companies. Power through PPA could be priced between Rs. 1.50 to Rs. 2.50 per KWH,
    whereas in trading particularly during peak hours power could be priced at Rs. 6 to Rs. 8 per
    KWH.

Era of Deregulation
    Unbundling of SEB’s:
       Unbundling of SEBs and introduction of many players offer a lot of scope for power
       trading. Under the new regime the consumer has a number of choices to get his power.
       The generators can also compete among themselves for selling to distribution
       companies/individual consumers.

       De-licencing Generation:
        Generation capacity has been boosted as no licence is required to set up a power
        generation plant (except in case of hydro). Many captive players who produce electricity
        primarily to meet their own demand are in a position of trading their surplus generation
        and thus emerging in the market, bringing more players and power into the system. As
        per the Act, the captive players are allowed to sell excess power to any eligible customer.

       Open Access Regulations:
        As per the new Electricity Act, 2003, open access refers to ‘non-discriminatory provision
        for use of transmission lines or distribution system or associated facilities with such lines
        or system by any licensee or consumer, in accordance with rules and regulations.’ The
        implications of open access are that players would have non-discriminatory access to
        transmission lines that would give them the freedom to buy and sell electricity by paying
        transmission charges and cross-subsidy surcharge. This would facilitate competition for
        bulk supply. It would induce third-party demand for wheeling electricity through the
        transmission networks at inter-state and inter-regional levels. The transmission charges /
        wheeling charges would be shared as per the regulations. The third-party access would
        facilitate more competition among power traders.
Hence, unbundling, open access regulation, and de-licensing generation and recognition of
power trading as a distinct licensed activity provide an adequate platform for power trading in
India.
9.3.1 Bilateral contracts
Bilateral contract refers to mutual contracts where buyers and sellers search and negotiate. These
contracts could be long-term or short-term. The long-term power purchase agreements (PPA) in
India between the Central Generating Stations and their beneficiaries are a classic example of a
bilateral contract. Such transactions are characterized by search costs, asymmetric information,
and lack of transparency.
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Characteristics of Bilateral Trading
 Contracts are often highly customized, and of longer duration
 Trading counterparts are known to each other
 Pricing is opaque
 Execution is lengthy and expensive

Advantages of Bilateral Trading
 Freedom to participants to set their own prices and dispatch their stations according to their
   own requirements
 Tailor-made contracts
 Better budgeting due to advance knowledge of prices and quantities

Shortcomings of Bilateral Trading
 Expensive deal making including assessment of counter-party risk
 No ‘public’ market price
 Each trade has to be coordinated for open access

9.3.2 Power Exchanges

9.3.2.1 Indian Energy Exchange (IEX)
Electricity trading through Power Exchange had an excellent start when the Indian Energy
Exchange (IEX) began their operations on 27th June, 2008. On the very first day, as much as
over 13,000 MWHR were offered for sale.
IEX is India’s first-ever, nationwide, automated, and online electricity trading platform and is
promoted by Financial Technology India Limited and Power Trading Corporation (PTC)
Financial Services, a wholly owned subsidiary of PTC India Ltd. Leaders from power sector like
REC, IDFC, Lanco and Adani are also among the list of equity stakeholder.
Being a demutualised, nationwide, electronic exchange it offers an instrument to hedge price risk
more efficiently at a reasonably priced cost. The main aim is to ensure fair trade practices to
increase market reliability. It aims to help the distribution licensees in precisely adjusting
portfolio as a function of consumption or generation profile and unlock untapped power. Its
endeavor is to provide a market for captive, co-generation and renewable power to sell power.
IEX has benefited the power sector by:

   Attracting capacity addition by providing readymade market to interested parties
   Ensuring payment security
   Promoting competition among stakeholders leading to better capacity utilization
   Smoothening of prices for consumers
   Reducing transaction costs, by providing a common platform to buyers and sellers
   Empowering demand-side responses to price-signals
   Leading to more economic grid operation
   Providing long-term and short-term price signals in the market which cannot be seen in the
    current bilateral markets
                                                                                               64


9.3.2.2 Power Exchange of India
Power Exchange India Limited (PXIL) is India's first institutionally promoted Power exchange
whose mission is to provide innovative and credible solutions to transform the Indian Power
Markets. It started on October 22, 2008.
PXIL is promoted by the National Stock Exchange of India Limited (NSE), and the National
Commodity and Derivatives Exchange Limited (NCDEX). The other stakeholders are Power
Finance Corporation Limited, Gujarat Urja Vikas Nigam Limited, West Bengal State Electricity
Distribution Company Limited, Madhya Pradesh Power Trading Company Limited, JSW Energy
limited, GMR Energy Limited and Tata Power Trading Company Limited

The initial products offered for trading were electricity contracts offered on a day-ahead
basis with voluntary participation. PXIL received further approval from CERC on 31st August
2009 to introduce longer tenure physical delivery products in the form of Weekly and Day-
Ahead Contingency products. PXIL launched the trading of both these products on 15 September
2009.

Characteristics of Power Exchanges
 Common electronic platform for centralized trading
 Highly standardized contracts
 Simultaneous confidential bids by sellers and buyers (double-sided closed auction)
 Uniform market clearing price
 No one-to-one contract
 Simultaneous clearance for trade and open access
 Point of connection tariff – equal price for connection from anywhere in India
 Power Exchange is common financial counterparty to all the trades on it.
 Fast, neutral and transparent – public price
 Trading is anonymous
 Execution is quick and cheap
 Processes often exist to safeguard market integrity
The power exchange would go a long way in maturing of the Indian power trading market and
would assist in bringing in the required depth, transparency and structure to the market. The
emerging scenario is more competitive where we are moving from the present electricity market
of long-term power purchase agreements (PPAs), short-term agreements, bilateral markets to one
which encompasses all these along with a common electricity marketplace for standard contracts
with a nationwide reach, assuring a better price and payment security.
9.3.3 Trading Licensee Companies
PTC India Ltd
PTC India Ltd. (formerly known as Power Trading Corporation of India Limited), was
incorporated in 1999 to act as an entity which could undertake trading of power to achieve
economic efficiency and security of supply and to develop a vibrant power market in the country.
Therefore, PTC has a tri-fold mandate; to optimally utilize the existing resources to develop a
fully fledged, efficient and competitive power market, to attract private investment in the Indian
power sector and to encourage trade of power with neighbouring countries. It has cross border
operations in Nepal, Bhutan and Bangladesh.
                                                                                                    65


According to a study by Ambit Research, Power Trading Corporation (PTC) is one of the leading
power traders in India with over 50 percent market share. PTC is the pioneer in developing and
implementing the concept of power trading in India. Since its inception in 1999, PTC has sought
to provide holistic services that address the sustainability of a power market model, including
intermediation for long-term supply of power from identified domestic and cross-border power
projects, financial services like providing equity support to projects in the energy value chain,
advisory services to power plants of various participants in the power market.
Recent Developments in PTC
The PTC has strategic tie-ups with power generating companies for long-term power purchases
which is being executed through itself as well as through its subsidiaries PTC Financial Services
(PFS) and PTC Energy. Recently, the PTC has entered into new long-term agreements to
purchase over 5,088 MW of power in first half of FY 2010 which will partially ensure that the
company’s traded volumes grow at 27 percent Compounded Annual Growth Rate (CAGR) over
the next three years.

9.4 New Regulations and Tariffs
Total power trading volume in the past five years has increased at a compounded annual growth
rate (CAGR) of 17%. As of March 2009, there were 13 trading licensees (increased from nine in
FY07). The Central Electricity Regulatory Commission (CERC) has issued new regulations
fixing trading margins for inter-state trading in electricity. Since PTC India Ltd is a market
leader in this business, it will be a major beneficiary of the new regulations.

Trading margins would not exceed 4 paise a unit if the selling price of electricity is less than or
equal to Rs 3 a unit. The ceiling of the trading margin shall be 7 paise a unit if the selling price of
electricity exceeds Rs 3 a unit. The 4 paise a unit cap regime was not adequate to cover the
operational and market risks borne by trading companies due to competitive pressures, especially
in the short-term buy and sell agreements. This regulation will help the growth of the power
trading industry.
Long-term agreements have been exempted from trading margins to facilitate structured products
and contracts for new capacity addition, involving higher transaction risk. Also, the trading
margin on long-term contracts was not consistent with the tariff-based competitive bidding
guidelines.


                                          10 FINANCING

Concerns about energy security and climate change notwithstanding, investments in renewable
energy projects are rising globally. Investors are funding both the installed renewable capacities
as well as manufacturing capacities for renewable equipments.

So far much of India’s renewable growth has been financed domestically and conservatively.
Majority of financing has been asset financing in the area of wind where captive power
generators have been investing to expand wind-manufacturing capacity.
Earlier domestic banks did not lend to renewable sector due to perceived technological risks as
well as risks associated with lack of fuel supply arrangement in the case of biomass and
municipal waste. But growing awareness, government’s changing priorities and the inevitability
of renewables to supplement India’s energy mix, the banks have started funding these projects.
                                                                                                    66


In the wind sector, the shift in the attitude of financiers is reflected in long maturities and tenures
of loans and lower borrowing costs. Venture capital and private equity firms are also viewing
renewable sources as an exciting opportunity. Besides, the renewable energy companies are
testing the Initial Public Offer route and Merger and Acquisition (M&A) activity is on an
upsurge.
On top of the financing spectrum is IREDA, the Indian Renewable Energy Development
Agency, an apex nodal agency for renewable energy development in India and a funding arm of
the Ministry of New and Renewable Energy. The other government agencies that actively fund
renewable energy projects are Power Finance Corporation and Rural Electrification Corporation.
The multilateral agencies such as the World Bank, World bank’s private sector arm International
Finance Corporation, and the Asian Development Bank have also stepped up their assistance to
this sector in the last few years.
Prominent domestic banks that fund renewable projects are IDBI, ICICI, IFCI, SBI,
and PNB among others. Foreign banks such as Standard Chartered, and ABN Amro are also
focused on renewable financing. There are also regional localized banks that provide micro
credit facilities for stand-alone units.
10.1 Types of Financing
The most common structures used to finance projects are Project Financing, Corporate
Financing, and Lease Financing. These various types of financial models have been explained
below:
10.1.1 Project Financing
Project Financing is limited recourse financing in which the debt is backed only by the project
assets and the revenues they are able to generate. If the project fails to produce the revenues
needed to pay expenses and service the debt, the lender cannot pursue the non project assets or
revenues of those who own the equity interests in the project owner. Usually an SPV owns the
project. SPV is a legal form of entity (e.g., corporations, limited liability companies, and limited
partnerships that have as their ultimate general partners corporations or limited liability
companies) that prevents the creditors from going after the non project assets of SPV owner to
satisfy payment of the debt.

Risks Involved
A limited recourse project financing is focused on those features that serve to mitigate the risk to
the lender. If the lender is to be limited to project assets and revenues to secure repayment of the
debt, it is essential that all aspects of the project be thoroughly vetted to ensure that it will
operate successfully (i.e., generate revenue) even in a worst case scenario. Therefore there is an
exhaustive examination of all aspects of the project.

   The wind conditions at the site, the nature and adequacy of the land rights and permitting for
    the site, the reliability of the equipment used, the legal obligations and creditworthiness of
    the key project participants, the availability of transmission, how the transmission system
    handles imbalance penalties for variable resources such as wind, etc.
   Unlike gas or coal-based electric generation facilities, at this stage of development the
    technology employed in wind farms is subject to relatively little risk. With no combustible
    fuel to control and contain, a windmill avoids many of the stresses and strains that cause gas
    and coal plants to be comparatively risky.
                                                                                               67


   At the same time on the other hand it is the fuel source itself that presents one of the most
    fundamental risks associated with wind farms: that is, the risk as to how often and how fast
    the wind will blow. No wind means no electricity, and no electricity means no revenues to
    pay project operating expenses and debt and to provide a return to the owner. Excessive wind
    speeds can be equally problematic, as wind turbines cannot generally be operated when wind
    speeds exceed a certain level (generally around 60 to 65 miles per hour).
Performance Guarantees
There are risks associated with the equipment employed. Because wind farms are variable
resources that produce revenue only when the wind is blowing, it is essential that the project
produce the maximum amount of electricity from the available wind resource in order to produce
the maximum amount of revenue. These performance risks are addressed in the various
guarantees provided by the turbine manufacturer as explained further.

    a) Mechanical Availability
       The mechanical-availability guarantee is aimed at ensuring the reliability of the turbines
       that from a mechanical standpoint, they will be ready to produce electricity whenever the
       wind blows. In recent years as the technology has improved, typical mechanical-
       availability guarantees provide for a guarantee of a mechanical-availability percentage in
       each contract year of 95 percent.

       Mechanical Availability= actual number of hours in the contract year during which the
       turbines were mechanically available for operation / Theoretical number of hours during
       the contract year in which the turbines could have been mechanically available to
       produce electricity.

       To the extent the project falls below the guaranteed mechanical-availability percentage in
       a given contract year, the turbine manufacturer is liable for liquidated damages, which are
       calculated by reference to the cost of replacement power (or cost to cover) in an amount
       equal to the forgone production due to failure to meet the guarantee.

    b) Guaranteed Output
       Although the mechanical-availability guarantee is aimed at providing assurance that the
       turbines will be mechanically available to produce electricity, the output guarantee is
       aimed at ensuring that a certain level of total output (electricity production) will be
       achieved over time. The output guarantee starts by reference to the project’s mean annual
       output which is expressed in terms of a certain number of megawatt hours (“MWh”) in
       each contract year. The output guarantee is typically 75 percent of the mean annual
       output.
       It should be noted that the period over which the output guarantee is tested is usually a
       rolling two-year period, rather than an annual period. By taking the average of two years,
       one avoids a situation in which a bad wind year results in a breach of the guarantee.

    c) Power Curve Warranty
       The power curve warranty is aimed at ensuring the efficiency of the turbines. A turbine
       may meet the mechanical-availability and output guarantees and yet not be producing as
       much electricity as it could under the same wind conditions due to inefficiencies resulting
       from poor design, manufacture, or installation. To determine compliance with the power
       curve warranty, one or two turbines in the wind farm are selected for testing upon
                                                                                                  68


       completion of construction of the wind farm. These turbines are then tested to determine
       their actual power curve (how much power the turbine produces at various wind speeds
       and temperature conditions). With the power curve warranty, if the actual power curve of
       the tested turbines is less than the guaranteed curve, the turbine manufacturer usually has
       the right to attempt to fix the turbines and retest.

   d) Parent Guarantee
      It is one thing to secure performance guarantees from the turbine manufacturer and
      another to collect on them should the guarantee be breached. Because many turbine
      manufacturers are subsidiaries of larger enterprises, the financial strength of the
      consolidated group often resides not in the manufacturing subsidiary, but in the parent
      company. Therefore the performance guarantees often require backing in the form of a
      guarantee of payment from the manufacturer’s parent company.
Security Arrangements for Project Debt
In the context of a limited recourse financing, the security arrangements are part of the core
foundation on which the financing rests, as the lender has recourse only to the project assets and
revenues to enforce payment. The lender therefore seeks control (by means of security interests,
mortgages, and contract assignments) of all project assets (including all key project agreements)
and all project revenues (also by means of security interests, but coupled with lockbox
arrangements).
Key aspects of the security arrangements that create the requisite sealed system are:

   a) Power Purchase Agreement
      The power purchase agreement (PPA) is an agreement under which the project owner’s
      rights are assigned to the lender. It forms the centrepiece of the security arrangements and
      in a way is the source of all revenues that will be needed to make the project successful.
      In addition to a price for power that will support the project operating expenses and debt
      service based on the expected production, PPA has the following features:
       Term: The term of the PPA should generally be several years longer than the term of the
       financing. Thus, for example, if the term of the financing is 20 years, the lender is likely
       to require a PPA term of 22 to 25 years. The additional years of the PPA term provide the
       lender with the required in the event the project encounters difficulties during the term of
       the financing.
       Purchaser’s Creditworthiness and Credit Maintenance Provisions: The output purchaser
       under the PPA must be a creditworthy entity or have its obligations guaranteed by a
       creditworthy entity. Lenders look at least investment grade rating on the long-term, senior
       unsecured debt of the purchaser or its guarantor.
       Because of their dependence on PPA revenues for repayment of the project debt, lenders
       seek credit maintenance provisions whereby if the power purchaser’s credit rating falls
       below a certain level, the power purchaser is required to post collateral to better secure its
       obligation to pay for the power delivered.
       Provisions Recognizing Lender’s Rights: The PPA must contain provisions pursuant to
       which the output purchaser authorizes the project owner to assign the owner’s rights
                                                                                               69


   under the PPA to the lender as security for the project debt and recognizes the right of the
   lender to cure defaults and perform the owner’s obligations under the PPA.

b) Assignments of Key Contracts and Permits:
   To ensure that the lender has control (via the security arrangements) over the entire
   project as a going concern, the lender will also require first-priority assignments of all
   key project contracts and permits. This includes the turbine supply agreement, the
   construction contracts, the interconnection agreement, the parts supply agreement, the
   equity contribution agreement among the owners of the project owner, the operation and
   maintenance agreement (if the wind farm is to be operated by a third-party operator), the
   leases for the project site, and the PPA.

c) Flow of Funds and Lockbox Arrangements:
   The final step involved in creating a sealed system to protect the lender is the creation
   under the credit agreement of a flow of funds (often called a “waterfall”) and an
   accompanying lockbox arrangement.

   The lockbox arrangement requires all persons making payments to the project owner
   under the project agreements to pay those amounts into an account controlled by the
   lender. Thus all PPA payments flow directly into this account, as do warranty or
   liquidated damage payments under the turbine supply agreement and balance-of-plant
   contract. It is the flow-of-funds provisions in the credit agreement that govern the
   lender’s rights with respect to the project revenues captured by the lockbox arrangement

   A typical flow of funds will provide that project revenues will be applied for the
   following purposes in the order of priority set forth below:

   O&M Expenses: First, project revenues are applied to the payment of the ongoing O&M
   expenses of the project. O&M expenses include the cash outlays the project will need to
   make to stay operational, and exclude noncash items such as depreciation expense.

   Debt Service: Second, project revenues are applied to the payment of debt service on the
   project debt. A typical flow-of-funds provisions captures project revenues at this level of
   the waterfall until the debt service subaccount has on hand an adequate debt service
   reserve amount (typically six months’ debt service on the project debt, but sometimes as
   long as one year).

   Major Maintenance Reserve: Third, project revenues are deposited into a major
   maintenance reserve account. This reserve is required to be funded over time in an
   amount such that sufficient funds will be on hand to pay for anticipated items of major
   maintenance on the project assets and to provide a source of funding to cover the cost of
   major unanticipated equipment failures.

   Distributions to the Project Owner: Finally, any remaining project revenues are deposited
   in a subaccount called a “sweep account,” a “distribution account,” or a “surplus cash
   account.” Subject to restrictions imposed under the credit agreement, the project revenues
   that end up at this level of the waterfall are available for distribution to the project owner.
                                                                                                  70


       The credit agreement uses a debt service coverage ratio (“DSCR”) for determining how
       cash in the distribution account is to be applied. The DSCR is the ratio of net project
       revenues to annual debt service, expressed as a number, e.g., “1.20” (which means net
       revenues for the fiscal year must be equal to at least 120 percent of annual debt service).
10.1.2 Corporate Financing
It involves the use of internal company capital to finance a project directly, or the use of internal
company assets as collateral to obtain a loan from a bank or other lender. The payment of the
debt is backed by the legal obligation of an entity with sufficient financial resources (i.e., its
balance sheet) to underwrite the risk that the project will be successful and the debt will be
repaid. It is “full” recourse in that the lender can enforce payment of the debt out of any and all
assets of the entity providing the balance sheet support, rather than being limited to the project
assets. It is also called balance sheet financing.

Limiting Factors
With balance sheet financing, the focus is on the financial position and prospects of the entity
providing the balance sheet, rather than on the legal, economic, and technical viability of the
wind farm. This is because the lender relies on the overall credit strength of the balance sheet
provider and has recourse to all of its unencumbered assets and revenues to enforce payment of
the debt. The success of the particular project is less of a concern in this case than in project
financing.
Many developers of wind farms are smaller, independent companies that do not have the type of
balance sheet lenders require so it is usually not adopted. An opportunity cost is involved. The
more the balance sheet is used to support project debt, the less it will be available for other
corporate purposes (such as the acquisition of other companies). Thus, even for the more
financially well-heeled players in the wind industry, balance sheet financing may not be an
attractive course to pursue.
 10.1.3 Lease Financing
Lease is a contract between the owner of an asset (the lessor) and its user (the lessee) for the
right to use the asset during a specified period in return for a mutually agreed periodic payment
(the lease rentals). The important feature of a lease contract is separation of the ownership of the
asset from its usage.

All major capital equipment, new and unused, meant for use in the wind power projects (except
the items mentioned in specific exclusion list) can be taken on lease. No financial assistance
should be secured for the equipment from any other sources.

Specific exclusion list:
 Small equipment and accessories like cable, distribution boards, local control centres, air
   conditioners etc.
 Communication equipment.
 Piping work.
 Cables and conductors.
 Consumables.
 Site fabricated equipment.
 Store items.
 Meters.
                                                                                                   71


 Office equipment and furniture.
 Vehicles.
 RCC chimney, Buildings, Roads, Civil works including foundation, erection work.
 PCs, telephones and items of personal use.
 Large steel fabrication work and transmission towers.
 Transmission line material like clamps, connectors and insulators, etc.
 Equipment built with new and unproven technology.
The above items independently are not eligible for lease financing. However, items not limited to
but including transformers, metering, cables and conductors, communication equipments,
fabricated equipments, etc. as a part of the integrated machine, shall qualify for the scheme.
Nevertheless, Land, Civil works, Erection, Testing and Commissioning, soft costs in a project
shall not be eligible.

Types of Lease Financing

   a) Financial Lease
      Long-term, non-cancellable lease contracts are known as financial leases. They contain a
      condition whereby the lessor agrees to transfer the title for the asset at the end of the lease
      period at a nominal cost. Under this lease the lessor recovers 90% of the face value of the
      asset as lease rentals and the lease period is 75% of the economic life of the asset. The
      lease agreement is irrevocable. All the risks incidental to the asset ownership and all the
      benefits arising there from are transferred to the lessee who bears the cost of
      maintenance, insurance and repairs. Only title deeds remain with the lessor. Financial
      lease is also known as ‘capital lease’. It is generally used for high-cost and high
      technology equipment.

   b) Operating Lease
      An operating lease agreement gives to the lessee only a limited right to use the asset. The
      lessor is responsible for the upkeep and maintenance of the asset. The lessee is not
      entitled to purchase the asset at the end of the lease period. Normally the lease is for a
      short period and is revocable at a short notice. Mines, computers hardware, trucks and
      automobiles are suitable for operating lease because the rate of obsolescence is very high
      in these kind of assets.

   c) Sale and Lease Back
      It is a sub-part of finance lease. Under this, the owner of an asset sells the asset to a party,
      who in turn leases back the same asset to the owner in consideration of lease rentals.
      However, under this arrangement, the assets are not physically exchanged but it all
      happens in records only. This is nothing but a paper transaction. Sale and lease back
      transaction is suitable for those assets, which are not subject to depreciation but
      appreciation, say land. The advantage of this method is that the lessee can satisfy himself
      completely regarding the quality of the asset and after possession of the asset convert the
      sale into a lease arrangement. The sale and lease back transaction can be expressed with
      the help of the following figure.
                                                                                              72

                                      SALE TRANSACTION
                SELLER                                                           BUYER
                                          SALE VALUE




                                       LEASE TRANSACTION
                LESSEE                                                           LESSOR
                                        LEASE RENTALS


      Under this transaction, the seller assumes the role of a lessee and the buyer assumes the
      role of a lessor. The seller gets the agreed selling price and the buyer gets the lease
      rentals.

   d) Leveraged Leasing
      Under leveraged leasing arrangement, a third party is involved besides lessor and lessee.
      The lessor borrows a part of the purchase cost (say 80%) of the asset from the third party
      i.e., lender and the asset so purchased is held as security against the loan. The lender is
      paid off from the lease rentals directly by the lessee and the surplus after meeting the
      claims of the lender goes to the lessor. The lessor, the owner of the asset is entitled to
      depreciation allowance associated with the asset.

                         SELLS                                   LEASES
   MANUFACTURER          ASSET                 LESSOR            ASSET                  LESSEE




                                               LENDER




   e) Direct Leasing
      Under direct leasing, a firm acquires the right to use an asset from the manufacturer
      directly. The ownership of the asset leased out remains with the manufacturer itself. The
      major types of direct lessor include manufacturers, finance companies, independent lease
      companies, special purpose leasing companies, etc..

Advantages of Leasing

   a) Saving Of Capital
      Leasing covers the full cost of the equipment used in the business by providing 100%
      finance. The lessee is not to pay any margin money as there is no down payment. In this
      way the saving in capital can be used for other productive purposes e.g. purchase of
      inventories.
                                                                                             73


   b) Flexibility and Convenience
      The lease agreement can be tailor- made in respect of lease period and lease rentals
      according to the convenience and requirements of all lessees.

   c) Planning Cash Flows
      Leasing enables the lessee to plan its cash flows properly. The rentals can be paid out of
      the cash coming into the business from the use of the same assets.

   d) Improvement In Liquidity
      Leasing enables the lessee to improve their liquidity position by adopting the sale and
      lease back technique.

10.2 Innovative Financing Mechanisms
   a) Clean Development Mechanism (CDM)
      Clean Development Mechanism (CDM) is one of the Kyoto mechanisms to achieve the
      objective of reducing GHG emissions. CDM allows emission reduction projects that
      assist in creating sustainable development in developing countries to generate “certified
      emission reductions (CER)” for use by the investor.

       It enables Annex-I countries (developed countries) to meet their emission reduction
       commitments in a flexible and cost-effective manner. It assists developing countries
       (non-Annex-I or also called the “host countries”) in meeting their sustainable
       development objectives. Investors benefit from the CDM by obtaining Certificates of
       Emissions Reductions. Host countries benefit in the form of investment, access to better
       technology, and local sustainable development. A CDM has dual objectives. One is to
       lower the overall GHG emissions. The other is supporting sustainable development
       initiatives within developing countries.

                                      Figure 16: CDM




Source: School of Environment, Resources and Development Asian Institute of Technology
                                                                                             74


b) Special Characteristics of a CDM Project In Relation To Financial Analysis

   Two distinct sources of CDM project revenue:
     i. From sale of normal product (e.g., electricity, price and quantity of electricity)
     ii. From sale of CERs (price and quantity of CER)

   Distinct costs of CDM projects (besides the standard project costs):
      i. Transaction costs (including costs of project design document preparation,
          monitoring, verification, validation, trading of CERs).
      ii. Costs related to project approval and registration.

   Some times both (i) and (ii) could be together called as transaction costs.
c) Dealer-Credit Model
   In the Dealer Credit model, the manufacturers borrow money from financial institution or
   fund company and lend it to the developer at a slightly higher rate. Here the dealer is
   provided support through access to business financing and sells the renewable energy
   system to the end user, which can be some times on credit. The model can be shown as
   below:

              Clean Energy                                            Dealer/
                Fund/FI                                             Manufacturer




                                                                     Developer


d) Consumer Credit Model
   In this model, commercial financial institutions provide loan to the local financial
   institution which in turn provide loans to users to buy the RE system. The RE enterprise
   in this case transacts on commercial basis with the users.


           Commercial                      Local Financial                       End User/
            Financers                        Institution                         Developer



e) Supplier Credit Model
   In the supplier credit model, an Export Credit Agency (ECA) finance the goods and
   manufacturer delivers the goods to the developer. A financial institution will in turn pay
   the amount financed to the ECA and the developer will pay back to the financial
   institution. For example, developer is an Indian company and the manufacturer/supplier
   is a Chinese company. In this case Chinese EXIM bank will pay the money to the
                                                                                                   75


          supplier and the supplier will deliver the goods to the Indian developer. An Indian bank
          will pay to the Chinese EXIM bank and the developer will pay back to the Indian bank.


                      Export Credit                                        Exporter/
                      Agency (ECA)                                        Manufacturer




                      Indian Bank/                                         Developer
                      Domestic Bank



       f) Energy Service Company Model (or Fee-for-Service model)
          In this model the customers pay for the energy service that is provided to them by an
          Energy Service Company (ESCO). It makes the energy affordable and minimizes the
          long-term risks for the customers as the ownership and maintenance of the equipment lies
          with the energy service company.
       g) Revolving Fund
          It is reserve money or fund used to lend to one or more borrowers. The idea for the
          revolving fund can be used both for an organization or an individual. The borrower on the
          other hand is expected to repay the original sum that restocks the fund over the given
          period of time. Usually, an additional sum is charged (interest) to the borrower that acts
          as a fee for providing the service (administrative costs) and helps to protect the fund from
          being depleted.
10.3 Finance from IREDA
General Eligibility Conditions
All types of applicants, who have borrowing powers and powers to take up renewable energy
projects as per IREDA Charter, are eligible to avail financial assistance from IREDA except the
following:
  i.      Government Departments
 ii.      State Electricity Boards (SEBs) / utilities unless they are restructured or in the process
          of restructuring and are also eligible to borrow from Power Finance Corporation.
 iii.     Trusts/Societies with accumulated revenue deficit or revenue deficit immediately during
          the past year unless Bank Guarantee from Scheduled Banks/Pledge of Fixed Deposit
          Receipt (FDR) issued by Scheduled Banks as described in RBI Act, is provided.
 iv.      Individuals, Proprietary concerns and Partnership firms unless security of Bank
          Guarantee from Scheduled Banks/Pledge of FDR issued by Scheduled Banks as
          described in RBI Act, is provided
  v.      Applicants with accumulated losses (without taking into account effect of revaluation
          of assets , if any ) as per audited Annual Accounts of the immediate preceding financial
          year unless security of Bank Guarantee from Scheduled Commercial Bank/Pledge of
          FDR issued by Scheduled Commercial Bank as described in RBI Act is provided.
                                                                                                   76


      vi.      Loss making applicants as per Audited Annual Accounts of the immediate last year
               of operation unless security of Bank Guarantee from Scheduled Bank/Pledge of FDR
               issued by Scheduled Banks
            The provisions under (v) and (vi) above shall not apply to the loss incurred due to
            preliminary and preoperative expenses in the case of projects promoted by Special Purpose
            Vehicle (SPV)

     vii.      There is erosion of paid up equity share capital of the Applicant as per the latest
               Annual Report.
    viii.      Applicants whose existing Debt Equity Ratio* exceeds 3:1
            *{Debt Equity Ratio is the ratio of total borrowings (other than unsecured loans and
            working capital loan) to net worth.}
      ix.      Applicants who are in default in payment of dues to Financial Institutions, Banks,
               NBFCs and IREDA at the time of submission of application.
       x.      Applicants/Group Companies and main promoters of the applicant company which
               are in default in payment of IREDA dues at the time of submission of application.
      xi.      Applicants/Group Companies and main promoters of the applicant company classified as
               willful defaulters as defined by RBI
     xii.      Cost over-run financing except for additional cost arising out of changes in
               project parameters
    xiii.      Applicants/Group Companies and main promoters of the applicant company who
               had availed one time settlement from IREDA
     xiv.      Applicants requesting financial assistance of less than Rs.10 lakhs (other than
               Market Development, Establishment of Energy Centres, Infrastructure Loans to
               Business Development Associates and user category in Solar Energy programmes)
     xv.       Applicants/Group Companies and main promoters of the applicant Company
               convicted by court for criminal/ economic offences or under national security laws
     xvi.      Applicants registered outside India


     Financing Norms - IREDA
     Table 26: IREDA Norms
              Sector                  Interest Rate (%)     Maximum         Minimum        Term Loan/
                                      p.a. (depending on    Repayment       Promoters’    Lending Norms
                                          the grade )      Period(Years)   Contribution     of IREDA
Development and setting up of          Grade I - 11.25%         10             30%        Upto 70% of total
wind farms on ownership / lease       Grade II - 11.40 %                                    Project Cost
basis including offshore wind farm    Grade III - 11.60%
projects                              Grade IV - 11.90%
     Source: IREDA

     Projects set up by manufacturers or their subsidiaries with minimum capacity of 5 MW , can
     avail additional loan up to 15% secured by BG/FDR and generation guarantee is provided for
     entire loan period to the borrowing company and the same is assigned to IREDA.
                                                                                                  77


Rate of Interest
The rate of interest prevailing at the time of first disbursement shall be applicable. However,
   i.   For existing partly disbursed projects as on March 31, 2008 interest rate for
        remaining disbursements will be as was applicable at the time of first disbursement in
        line with loan agreement.
 ii.    For projects where first disbursement is made on or before March 31, 2008 the current
        interest rate will be applicable subject to interest rate reset clause.
 iii.   For projects sanctioned on or before March 31, 2008 but disbursement made after March
        31, 2008 the interest rate applicable to Grade IV subject to interest rate reset clause will
        be applicable.
 iv.    Projects sanctioned after March 31, 2008 will be rated as per credit risk rating system
        rating and will attract prevailing interest rate as applicable to the rated category on the
        date of each disbursement.
  v.    The rates once made effective as above will remain unchanged unless otherwise amended
        by reset clause.

Certain Other Norms
  i. Front end fee of 0.5% to 1.25% of the loans amount
 ii. Registration fee between Rs 10,000 to Rs 60,000 depending on the loan amount
Policy in Respect of Projects Set up on Lands Allotted by the Government
IREDA insists for obtaining of mortgage of land (even allotted by the Government), as per the
Norms of Securities approved by the Board of Directors. In the event of delays in creation
of security of mortgage or inability of the borrowers to create security of mortgage, these are
dealt with as under:

In cases where the lands are allotted by the State Government and the mortgage of land
is permissible but creation of mortgage takes time due to procedural delays at the Government
level, the borrowers will be disbursed 100% of loan amount subject to compliance of following
conditions:

   i.   A maximum period of upto 24 months is granted from the date of first disbursement of
        loan to enable the borrowers to comply with formalities for transfer of land in their
        favour and, thereafter, create security of mortgage of land in favour of IREDA.

 ii.    The borrower producing a letter issued by the State Government allotting land or lease
        deed executed between the State Government as lessor and the developer as lessee or
        between the developers as lessee and borrower as sub-lessee conveying the meaning that
        the proposed land is mortgagable and the mortgage can be created on completion of
        certain formalities pertaining to creation of mortgage at Government level.
                                                                                                     78


 iii.     The borrower is charged additional interest at following rates depending on security
          of mortgage:

                      Period                                 Rate Of Additional Interest
If security of mortgage is created after 12 To be charged @ 1.50% from the date of first
months but within 24 months from the date   disbursement and up to completion of security of
of first disbursement of loan               mortgage.

                                                  Refund of interest charged will be as below :

                                                  i) If the security of mortgage is completed within
                                                  12 months of first disbursement, the amount of
                                                  additional interest charged shall be refunded in full.

                                                 ii) If the security of mortgage is completed within
                                                 12 to 24 months of first disbursement, 0.75 %
                                                 additional interest charged shall be refunded.
If security of mortgage is not created within 24 Matter to be reviewed by IREDA for decision on
months from the date of first disbursement of case to case basis.
loan
Source: IREDA


                            11 CARBON EMISSION REDUCTIONS

Certified Emission Reductions (CERs) are climate credits (or carbon credits) issued by the Clean
Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM
projects and verified by a Designated Operational Entity (DOE) under the rules of the Kyoto
Protocol. It is defined as the unit related to reduction of 1 tonne of CO2 emission from the project
activity.
CDM is defined in Article 12 of the Protocol, and is intended to meet two objectives:
    i.       To assist parties not included in Annex-I in achieving sustainable development and in
             contributing to the ultimate objective of the United Nations Framework Convention
             on Climate Change (UNFCCC), which is to prevent dangerous climate change; and
    ii.      To assist parties included in Annex-I in achieving compliance with their quantified
             emission limitation and reduction commitments (greenhouse gas (GHG) emission
             caps).
"Annex-I" parties are those countries that are listed in Annex-I of the treaty, and are the
industrialized countries. Non-Annex I parties are developing countries.
CERs can be used by Annex 1 countries in order to comply with their emission limitation targets
and fulfill the obligations of Kyoto Protocol. CERs can be held by governmental and private
entities on electronic accounts.
CERs are either long-term (l CER) or temporary (t CER), depending on the duration of their
benefit. Both types of CER can be purchased from the primary market (original party that makes
the reduction) or secondary market (resold from a marketplace).
                                                                                                    79


CER’s have a potential of enhancing project level cash flow.CER cash flow can be used as
additional security to support debt, but not likely as the basis for borrowing. It is difficult to fund
a project on the basis of CER cash flow especially for wind project loans due to uncertainty of
wind flow.

Emission Reduction
Baseline emissions (BEy in tons CO2) due to displacement of grid-electricity are the product of
the Baseline Emissions Factor (EF, y in tons CO2/MWh), times the electricity supplied by the
project activity to the grid (EGy in MWh), over the crediting period as given below.

                                          BEy = EGy. EFy

The emission reductions ERy by the project activity during a given year y is the difference
between baseline emissions (BEy), project emissions (PEy), and emissions due to leakage (Ly),
as follows:

                                       ERy = BEy – PEy – Ly

Where,

ERy: Emission reductions of the project activity during the year y in tons of CO2,

BEy: Baseline emissions due to displacement of electricity during the year y in tons of CO2,

PEy: Project emissions during the year y in tons of CO2.

Ly: Leakage emission during the year y in tons of CO2.


Like a Certified Emission Reduction (CER), a VER or a Voluntary Emission Reduction is also a
tradable commodity and refers to reduction of one ton of greenhouse gas. The only difference
between a CER and a VER is that while CERs are generated according to standards and
requirements of the Kyoto Protocol and UNFCCC, VERs are independently verified by a third
party according to criteria that confirm that the emission reductions are real, measurable and
credible. These independent auditors (third party) provide written assurance of the integrity of
the emission reductions.
11.1 Indian Scenario
India comes under the third category of signatories to United Nations Framework Convention On
Climate Change (UNFCCC). India signed and ratified the Protocol in August, 2002 and has
emerged as a world leader in reduction of greenhouse gases by adopting Clean Development
Mechanisms (CDMs) in the past few years. According to Report on National Action Plan for
operationalising Clean Development Mechanism(CDM) by Planning Commission, Government
of India, the total CO2-equivalent emissions in 1990 were 10,01,352 Gg (Gigagrams), which was
approximately 3% of global emissions.
If India captures a 10% share of the global CDM market, annual CER revenues to the country
could range from USD 10 million to USD 300 million (assuming that CDM is used to meet 10%
                                                                                                80


- 50% of the global demand for GHG emission reduction of roughly 1 billion tonnes CO2, and
prices range from USD 3.5-5.5 per tonne of CO2.
11.2 Trading Of CERs
Suppose India decides to invest in a new power station, and has decided on a particular
technology at the cost of X crore. An entity from an industrialised country offers to provide India
with slightly better technology, which costs more (say Y crore), but will result in lower
emissions. The industrialised country will only pay the incremental cost of the project – viz. Y
minus X. In return, the investing country will get Certified Emission Reductions (CERs), or
credits, which it can use to meet its Kyoto Protocol commitments. Not only do they sell
developing countries their technology, but they also meet their Kyoto commitments.
        Figure 17: Carbon Credits




India has two commodity exchanges trading in Carbon Credits. This means that Indian
Companies can now get a better trading platform and price for CERs generated.
Multi Commodity Exchange (MCX), India’s largest commodity exchange, provides futures
trading in carbon credits. The initiative makes it Asia's first-ever commodity exchange along
with the Chicago Climate Exchange (CCX) and the European Climate Exchange to offer trades
in carbon credits. It is expected that the Indian exchange will tie-up with CCX which will enable
Indian firms to get better prices for their carbon credits and better integrate the Indian market
with the global markets to foster best practices in emissions trading.
MCX gives price signals for the carbon delivery in next five years. The exchange is only for
Indians and Indian companies. Every year, in the month of December, the contract expires and at
that time people who have bought or sold carbon will have to give or take delivery. The deal can
be fulfilled prior to December too, but most people wait until December because that is the time
to meet the norms in Europe. If the Indian buyer thinks that the current price is low for him he
will wait before selling his credits. Only those Indian companies that meet the UNFCCC norms
and take up new technologies will be entitled to sell carbon credits. There are parameters set and
detailed audit is done before you get the entitlement to sell the credit.
The Indian market has cornered more than half of the global total in tradable certified emission
reduction (CERs).
India Inc. pocketed Rs 1,500 crores in the year 2005 just by selling carbon credits to developed
country clients. Various projects would create up to 306 million tradable CERs. Analysts claim if
                                                                                             81


more companies absorb clean technologies, total CERs with India could touch 500 million. Of
the 391 projects sanctioned, the UNFCCC has registered 114 from India, the highest for any
country. India’s average annual CERs stand at 12.6% or 11.5 million.
On 11th April 2008, National Commodity and Derivatives Exchange (NCDEX) started futures
contract in Carbon Trading for delivery in December 2008.
There is a great opportunity awaiting India in carbon trading which is estimated to go up to USD
100 billion by end of 2010. In the new regime, the country could emerge as one of the largest
beneficiaries accounting for 25 per cent of the total world carbon trade, says a recent World
Bank report. The countries like US, Germany, Japan and China are likely to be the biggest
buyers of carbon credits which are beneficial for India to a great extent.

Chicago Climate Exchange (CCX) operates North America’s only cap and trade system for all
six greenhouse gases, with global affiliates and projects worldwide.

CCX emitting Members make a voluntary but legally binding commitment to meet annual GHG
emission reduction targets. Those who reduce below the targets have surplus allowances to sell
or bank; those who emit above the targets comply by purchasing CCX Carbon Financial
Instrument (CFI) contracts. CFI Contracts, the CCX Tradable Commodity

The commodity traded on CCX is the CFI contract, each of which represents 100 metric tons of
CO2 equivalents. CFI contracts are comprised of Exchange Allowances and Exchange Offsets.
Exchange Allowances are issued to emitting Members in accordance with their emission baseline
and the CCX Emission Reduction Schedule. Exchange Offsets are generated by qualifying
offset projects.

Volume and Price of GHG Traded on CCX during FY 2009-10
The graph given below depicts the price and volume of CFI contracts for the period April, 2009
– March, 2010. The volume is given in metric tonne and price is given in USD per tonne.
           Figure 18: Volume and Price of GHG Traded on CCX during FY 2009-10




           Source: Chicago Climate Exchange
                                                                                             82


The volume and price have decreased in last one year. Price has decreased from USD 2 to less
than USD 0.5. During the last year, volume of GHG trading varied between 75,000 – 10,000
metric tonnes.

CCX facilitate the transaction of GHG allowance trading with price transparency, design
excellence and environmental integrity. It strengthens the intellectual framework required for
cost effective and valid GHG reduction.
11.3 Trends in the Global Carbon Market
 Market growth slowed in 2009. Despite an increase in traded volume of 96% from 2008, the
market gained just 5% in value from USD 119 billion to USD 125 billion. Bloomberg New
Energy Finance’s 2009 analysis of the carbon market has predicted the following things about
the global carbon market:

Growth was maintained in 2009
The carbon market maintained growth through a year of severe economic downturn. Indeed,
traded volumes increased by 96% from 2008. However, this growth was supported by VAT-
related trading activity which, Bloomberg New Energy Finance estimates, could have accounted
for some 13% of all carbon trades in 2009.
Despite the significant increase in annual traded volumes, the market grew just 5% in terms of
value, compared with 83% in 2008. The recession and associated decline in buyer appetite for
carbon products placed downward pressure on carbon prices across all major markets, including
the European Union Emission Trading Scheme (EU ETS) and the secondary CER market.
Compared with a weighted average EUA price of 24 Euros per tonne for 2008, 2009 saw prices
drop as low as 8.2 Euros per tonne on 13 February with an average traded price of 14 Euros per
tonne across the whole year.
Projected Growth
It is expected that trading volume in 2010 would be lower than in 2009 due to decrease in VAT
related trading in 2010. Assuming stable prices across all carbon products in 2010 the market as
a whole could see a contraction in 2010. Looking forward to 2011, activity is likely to pick up
again, driven by the need for power companies to further cover themselves in the post-2012
auctions, and increased activity in anticipation of new trading schemes in Australia and the US.
According to Bloomberg New Energy Finance’s longer-term projections, the global carbon
market could be turning over up to USD 1.4 trillion per year by 2020.
                                                                                                83


Global Carbon Market Size
The graph given below shows the value of Regional Greenhouse Gas Initiative (RGGI), Primary
CERs, Secondary CERs and EU ETS trading from 2004 to 2009. In 2005, total trading value was
less than USD 20 billion whereas it crossed USD 120 billion in the year 2009.

    Figure 19: Global Market Size
                          140
                          120
                          100
            USD Billion




                                                                               RGGI
                           80
                           60                                                  Primary CERs
                           40                                                  Secondary CERs
                           20                                                  EU ETS
                           0
                                2004  2006
                                       2005    2007     2008       2009
                                          Year
   Source: Trading figures taken from ECX, Bluenext, EEX, Reuters, CCX, LEBA

The graph given below depicts the growth potential in terms of value of trading of the carbon
credits worldwide. It is expected that value of carbon trading will be approximately USD 1.4
trillion in the year 2020 which is less than USD 0.2 trillion in the year 2010.

      Figure 20: Potential Growth In Carbon Market ($Trillion)
           1.6                                                            1.38
      Carbon Market (USD




           1.4                                                       1.21
           1.2                                                   1.1
                                                               1
                                                        0.9
           Trillion)




             1                                 0.78
           0.8                            0.63
                                   0.55
           0.6
           0.4
               0.15 0.17 0.2
           0.2
             0
                 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
                                                 Year
   Source: Bloomberg New Energy Finance
                                                                                                  84


                                        12 FINANCIAL MODEL
  12.1 Project Cost Details
  It is assumed that the wind power plant would be setup in Maharashtra. A special purpose entity
  is created for developing this wind power plant. The aggregate cost of the project is estimated to
  be Rs. 594.67 crore for the installed generation capacity of 100 MW. This includes hard cost of
  Rs. 537 crore and soft cost of Rs. 57.67 crore. The project cost estimates are done on the basis of
  the industry average. A breakup of the project cost including the hard and soft cost estimates is
  provided in the table below:

              Table 27: Hard Costs of the Project
                             Cost Head                       Cost to Be Incurred
                                                         Rupees Requirement (Crores)
               Land                                                   20

               EHV and Substation                                     47
                 -100 MVA S/S                                         10
                 -220 KV Line                                         12
                 -33 KV internal line                                 11
                 -Internal Transformers                               13
                 -Metering Equipment                                   1

               Turbine and Generator                                  455

               Building                                               15


               Total Hard Costs                                       537

  Table 28: Soft Costs of the Project
              Cost Head                                                        Cost To Be Incurred
                                                                               Rupees Requirement
                                                                                     (Crores)
Pre-Operative Expenses                                                                 8.29
    -Upfront Financial Charges            0.5% of Debt                                 2.10
    -Upfront Debt Arrangement Fee         1% of Debt                                   4.19
    -Company Incorporation                                                              0
    -Legal Charges                                                                     0.5
    -Travel and Hotel Stay                                                             0.5
   -Training and Technology                                                             1
Interest during Construction (IDC)                                                     42.98
Working Capital Margin Money                                                            0.51
                                          1% of Land, EHV & Substation,
                                          T&G, Building, Preoperative
Contingency (Buffer To Be Kept)           Expenses, IDC, WCM                            5.89
Total Soft Costs                                                                       57.67
                                                                                                  85


12.2 Means of Financing
The capital expenditure for the Project is proposed to be funded through a mix of Debt and
Shareholders’ Equity in the ratio 70:30. Details of the means of financing of the Project are as
follows:

Table 29: Means of Financing
 Source of Funds                          Amount (Rs Crore)         Percentage (%)
 Term Debt                                       416.27                      70%
 Shareholders’ Equity                            178.40                      30%
 Total                                           594.67                     100%

The term debt for the Project will be sourced from various domestic banks and Financial
Institutions (FIs) based on the credibility of the firm and its projected cash flows and balance
sheet. Following things are assumed with respect to the term loan
     Repayment: The repayment period for the term loan is taken to be 10 years
     Moratorium Period: The moratorium period is 1 year after the COD.
     Construction Period: The construction period for the project is assumed to be 1 year.
     Interest Rate: Interest rate charged on the loan is taken as per the IREDA norms viz.
         11.40%

The shareholders equity will come from the contribution by the promoter and if it’s a joint
venture company then there can be different or equal shareholding in equity by the various
promoters as may be decided beforehand. In all the equity contribution to the project would be
70% of the project cost. The following table shows a summary of the parameters related to the
debt taken.

                                       Particulars                  Details
                        Debt:Equity Ratio                         70:30
                        Moratorium Period (post COD)              12 months
                        Repayment Period(post moratorium)         10 years
                        Debt Interest Rate                        11.40%

12.3 Revenue Assumptions
The revenue is generated from the project by selling electricity generated to the State Electricity
Board and from the Generation Based Incentive under the MNRE guidelines. Revenue from
selling carbon credits is also a source of income. These have been explained in detail as follows:

Table 30: Revenue Assumptions
 Source of Revenue                                           Tariff
Sale to State        As per the MNRE and SERC Guidelines
Electricity Board    (Rs. 3.5 per KWh with an escalation of Rs. 0.15 per annum for 15 years)
Generation Based     As per the MNRE Guidelines
Incentive            (It is at Re. 0.50 per unit of electricity fed into the grid with a cap of Rs.62
                     Lakh/MW)
Carbon Credits       As per the Central Electricity Authority (CEA) guidelines.
                     Baseline emission factor has been taken for western region which is then
                     multiplied by the net electricity supplied to the grid by the project company.
                                                                                                  86


12.4 Operating Assumptions
The operating assumptions for the model have been assumed as mentioned in the table below. It
may be noted that the operating norms assumed are in line with the norms prescribed under
CERC, SERC and MNRE guidelines:

       Table 31: Operating Assumptions
                   Particulars                                            Norms
      Capacity Utilisation Factor (CUF)             25%
      Transmission Loss                             5%
      O&M Expenses                                  1.5% of sales
      Annual escalation in O&M Expenses             6% per annum
      Insurance Expenses                            0.12% of asset block
      Wheeling Charges                              2% of revenue from sale to third party
      Selling and Administrative Expenses           3% of sales
      Salaries                                      5 lakhs with an escalation of 10% per annum

12.5 Accounting Assumptions
According to Companies Act, 1956 following are the depreciation rates that have been applied to
the various cost heads like EHV and substation, Turbine and Generator and Furniture and
Fixture. For depreciating Preoperative expenses, IDC and contingency there cost has been
factored into the costs of EHV, Turbine and Furniture and Fixtures. The rates are mentioned in
the table below.
                           Table 32: Accounting Assumptions
                                 Depreciation          SLM               WDV
                           EHV and Substation             1.63%          5.00%
                           Turbine and Generator          5.28%          15.33%
                           Furniture and Fixtures         6.33%          18.10%

12.6 Working Capital Assumptions
The following two tables show the working capital requirements and the details of the funding of
working capital.

                          Table 33: Working Capital Requirement
                                  Particulars                Norms
                           Receivables                    1.5 month of sales
                           Inventory                      1 month of sales
                           Other Current Assets           5 lakhs
                           Creditors                      1 lakh

                               Table 34: Funding Of Working Capital
                                    Sources Of Funds       Rate(%)
                               Interest on Working Capital 8.75%
                                Margin Money                       30%
                                                                                                             87


      12.7 Taxation Assumptions
      The following table tells the income tax rate, the surcharge and the education cess to be applied. Using
      these rates the actual income tax rate to be applied is calculated. Minimum Alternate Tax (MAT)to be
      applied is also mentioned.

                        Table 35: Taxation Assumptions
                                                Tax                                   Rate
                         Income tax Rate                                         30.00%
                         Surcharge on Income Tax                                 7.50%
                         Education Cess on Income tax and Surcharge              3.00%
                         Applicable Income Tax including S.C. & Ed Cess          33.22%
                         Minimum Alternate Tax                                   18.00%

      12.8 Projected Financials
      Detailed financial statements of the project are mentioned in the tables below. They include the
      projected profit and loss account, projected balance sheet and the projected cash flow statement.

       Table 36: Projected Profit and loss account                              (All figures in Rupees Crores)
                              Mar- Mar- Mar-          Mar-    Mar-    Mar-   Mar- Mar- Mar- Mar- Mar-
Particulars/Year              12       13      14     15      16      17     18        19       20     21      22
No. Of Operating days In
a Year (Days)                      0     360    360    360     360   360      360       360   360   360    360
Sale to Third Party             0.00 73.40 76.55      79.69   82.84 85.98    89.13     92.27 95.42 98.57 101.71
Generation Based
Incentive(GBI)                  0.00 10.49 10.49      10.49   10.49 10.49     9.57      0.00 0.00 0.00     0.00
Net Sales                       0.00 83.89 87.03      90.18   93.32 96.47    98.70     92.27 95.42 98.57 101.71
O&M Expenses                    0.00 1.26 1.31         1.35    1.40 1.45      1.48      1.38 1.43 1.48     1.53
Insurance Expenses              0.00 0.68 0.67         0.66    0.64 0.63      0.62      0.61 0.60 0.59     0.58
Salaries                        0.00 0.05 0.06         0.06    0.07 0.07      0.08      0.09 0.10 0.11     0.12
Wheeling Charge                 0.00 1.47 1.53         1.59    1.66 1.72      1.78      1.85 1.91 1.97     2.03
Selling & Administrative
Expenses                        0.00 2.52 2.61         2.71    2.80 2.89      2.96      2.77 2.86 2.96             3.05
Cost of Sales                   0.00 5.97 6.17         6.37    6.57 6.77      6.93      6.70 6.90 7.10             7.31
PBDIT                           0.00 77.92 80.86      83.81   86.76 89.70    91.77     85.58 88.52 91.46          94.41
SLM Depreciation                0.00 9.36 9.36         9.36    9.36 9.36      9.36      9.36 9.36 9.36             9.36
Interest                        0.00 48.91 46.05      40.29   34.53 28.78    23.01     17.13 11.37 5.61            2.03
   -Interest on Debt Taken      0.00 47.84 44.94      39.14   33.34 27.54    21.74     15.95 10.15 4.35            0.72
   -Interest on Working
Capital Loan                    0.00 1.07 1.11         1.15    1.19   1.23     1.26     1.18   1.22   1.26         1.30
Other Income                    0.00 13.19 11.87      10.56    9.24   7.92     6.60     6.60   6.60   6.60         6.60
   -Revenue From Carbon
Credits                         0.00 13.19 11.87      10.56    9.24 7.92      6.60      6.60 6.60 6.60             6.60
PBT                             0.00 32.84 37.33      44.71   52.10 59.48    66.01     65.69 74.39 83.09          89.62
Total Tax Payable               0.00 6.55 7.44         8.91   10.38 11.86    13.16     13.09 14.83 16.56          26.41
PAT                             0.00 26.29 29.89      35.80   41.71 47.63    52.85     52.60 59.56 66.53          63.21
                                                                                                         88


       A detailed tax schedule prepared for calculating the total tax payable while calculating PAT has
       been put in the Annexure- 4

        Table 37: Projected Balance Sheet                                 (All figures in Rupees Crores)
                      Mar-     Mar-    Mar-    Mar-    Mar-    Mar-    Mar-       Mar-     Mar-    Mar-       Mar-
Year                  12       13      14      15      16      17      18         19       20      21         22
Source Of Funds
SHAREHOLDERS
FUND
Equity                179.84 179.84 179.84     179.84 179.84 179.84 179.84 179.84 179.84 179.84 179.84
Profit                0.00     26.29 56.18     91.98 133.70 181.32 234.17 286.77 346.34 412.87 476.08
LOAN FUNDS
Secured Loans         419.62 419.62 368.76     317.90 267.03 216.17 165.31 114.44 63.58           12.72       0.00
Bank Borrowing for
                      0.00     12.26 12.72     13.18   13.64   14.10   14.42    13.48    13.94    14.40       14.86
WC
Bank O/D              0.00     0.00    0.00    0.00   0.00   0.00   0.00   0.00   0.00   0.00   0.00
Total Liabilities     599.46 638.02 617.50     602.90 594.21 591.43 593.74 594.54 603.70 619.82 670.77
Application Of
Funds
Gross Fixed Assets    0.00     594.21 594.21   594.21 594.21 594.21 594.21 594.21 594.21 594.21 594.21
Less: Accumulated
                      0.00     9.36    18.72   28.08   37.44   46.80   56.16    65.52    74.88    84.24       93.60
Depreciation
Net Fixed Assets      0.00     584.85 575.49   566.13 556.77 547.41 538.05 528.69 519.33 509.97 500.61
CWIP                  594.21 0.00      0.00    0.00   0.00   0.00   0.00   0.00   0.00   0.00   0.00
Current Assets
  -Inventory          0.00     6.99    7.25    7.51    7.78    8.04    8.23     7.69     7.95     8.21        8.48
  -Sundry Debtors     0.00     10.49 10.88     11.27   11.67   12.06   12.34    11.53    11.93    12.32       12.71
  -Other Current
                      0.00     0.05    0.05    0.05    0.05    0.05    0.05     0.05     0.05     0.05        0.05
Assets
Subtotal              0.00     17.53 18.18     18.84   19.49   20.15   20.61    19.27    19.93    20.58       21.24
Current Liabilities
& Provisions
  -Creditors          0.00     0.01    0.01    0.01    0.01    0.01    0.01     0.01     0.01     0.01        0.01
Subtotal              0.00     0.01    0.01    0.01    0.01    0.01    0.01     0.01     0.01     0.01        0.01
Net Current Assets 0.00        17.52 18.17     18.83   19.48   20.14   20.60    19.26    19.92    20.57       21.23
Cash & bank
                      5.25     35.65 23.84     17.94   17.96   23.88   35.09    46.58    64.45    89.28       148.93
Balances
Loss                  0.00     0.00    0.00    0.00   0.00   0.00   0.00   0.00   0.00   0.00   0.00
Total Assets          599.46 638.02 617.50     602.90 594.21 591.43 593.74 594.54 603.70 619.82 670.77
                                                                                                               89


        Table 38: Cash Flow Statement                                      (All figures are in Rupees Crores)
                               Mar-   Mar-         Mar-    Mar-    Mar-     Mar- Mar- Mar- Mar- Mar-                Mar-
Year                           12     13           14      15      16       17       18      19      20     21      22
Inflow
Gross Cash Accruals               0.00   35.65     39.25   45.16   51.07    56.99   62.21   61.96   68.92   75.89 72.57
Increase in Equity                179.84 0.00      0.00    0.00    0.00     0.00    0.00    0.00    0.00    0.00 0.00
Increase in Secured Loan          419.62 0.00      0.00    0.00    0.00     0.00    0.00    0.00    0.00    0.00 0.00
Increase in Working Capital
Borrowings                        0.00     12.26   0.46    0.46    0.46     0.46    0.33    -0.94   0.46    0.46    0.46
Increase in Current Liabilities   0.00     0.01    0.00    0.00    0.00     0.00    0.00    0.00    0.00    0.00    0.00
Decrease In Current Assets        0.00     0.00    0.00    0.00    0.00     0.00    0.00    1.34    0.00    0.00    0.00
Total                             599.46   47.93   39.71   45.62   51.53    57.45   62.53   62.36   69.38   76.35   73.03
Outflow
Capital Expenditure               594.21 0.00      0.00    0.00    0.00     0.00    0.00    0.00    0.00    0.00 0.00
Repayment of Loan                 0.00   0.00      50.86   50.86   50.86    50.86   50.86   50.86   50.86   50.86 12.72
Increase in Current Assets        0.00   17.53     0.66    0.66    0.66     0.66    0.46    0.00    0.66    0.66 0.66
Decrease In Current
Liabilities                       0.00   0.00      0.00    0.00    0.00     0.00    0.00    0.00    0.00    0.00 0.00
Total                             594.21 17.53     51.52   51.52   51.52    51.52   51.33   50.86   51.52   51.52 13.37
Opening Balance                   0.00   5.25      35.65   23.84   17.94    17.96   23.88   35.09   46.58   64.45 89.28
Surplus / (deficit) during the                     -
year                              5.25     30.40   11.81   -5.90   0.01     5.93    11.21   11.49   17.86   24.83 59.65
Closing Balance                   5.25     35.65   23.84   17.94   17.96    23.88   35.09   46.58   64.45   89.28 148.93

        Working capital schedule prepared before taking out the projected cash flows has been put in the
        Annexure – 5.

        12.9 Valuation

        Discounted Cash Flow (DCF) model has been applied for the valuation or the net present value
        (NPV) of the project. Here NPV of the project is also the value of the enterprise as this enterprise
        is a special purpose entity created for this wind power plant of 100 MW. The cash flows for this
        enterprise would be the same as the cash flows generated by this project. The results of the
        valuation done are shown in the table below. NPV, Internal Rate of Return (IRR) and Debt
        Service Coverage Ratio (DSCR) for the project has been calculated. NPV signifies the net
        present value of the project and tells us the feasibility of the project. IRR is the rate (cost of
        capital) at which the NPV of the project is zero i.e. it is a no gain no loss position. DSCR is the
        ratio of free cash flows available to the firm to service its long term debt obligations i.e. principal
        repayment plus interest.
                                                 Particulars         Value
                                             NPV of the Project       126.77
                                             Project IRR             14.33%
                                             NPV of Equity            101.53
                                             Equity IRR               16.07%
                                             Min DSCR                      0.88
                                             Average DSCR                  1.23
                                                                                             90


To do this valuation of the project various other parameters like beta, market return, Cost of
Equity, and Weighted Average Cost of Capital (WACC) has been calculated.

                                       Particulars                       Value
                     Average Unlevered Beta For Power Industry            0.73
                     Beta For Our Project                                 1.87
                     Risk Free Rate Of Return                            7.85%
                     Market Return                                      14.00%
                     Cost Of Debt                                        7.61%
                     Cost Of Equity(CAPM)                               19.36%
                     Weighted Average Cost of Capital (WACC)            11.14%
                     Long Term Constant Growth Rate                      3.19%

   Average unlevered beta for power industry has been calculated by first taking betas of five
    companies in the power sector from Bloomberg then they are unlevered taking the respective
    Debt:Equity ratio of each company and then the average of the unlevered betas is taken.
    Following formula is used to convert beta levered (βL) to unlevered beta (βU):




    Where,
    βL is the levered beta
    βU is the unlevered beta
    D/E is the debt equity ratio
    T is the tax rate

   Beta (β) for the project is calculated by levering the above calculated unlevered beta using
    the debt equity ratio of the project. The above mentioned same formula is used.

   Risk free rate (RF) is taken to be the yield on Indian Government 10 year bond

   Market return (RM) has been calculated from S&P CNX NIFTY returns by downloading data
    of past 10 years

   Cost of equity has been calculated using the CAPM model which uses the risk free rate of
    return, beta and market return



   Cost of debt is calculated by taking the interest rate on the loan taken
                                                                                                  91


   Weighted average cost of capital (WACC) is calculated as follows:



    Where,
    KE is cost of equity
    WE is weightage of equity
    KD is cost of debt
    WD is weightage of debt
    T is applicable tax rate

   Long term constant growth rate has been assumed to be the growth rate in sales of last year
    i.e. of March 31, 2022. It is used to calculate the terminal value of free cash flows to the firm
    assuming going concern.



    Where,
    C.F.n is the terminal value of the cash flows to infinity
    C.F.n-1 is the previous years cash flow
    r is the weighted avearge cost of capital
    g is the long term constant growth rate

   Finally Discounted Cash Flow method is applied to calculate the NPV of the project as
    follows. The net cash flows to the firm are discounted by the weighted average cost of
    capital.




                                13 SENSITIVITY ANALYSIS
The impact of variations in key project inputs on the debt serviceability and project profitability
has been analysed in terms of DSCR and project IRR in order to establish the robustness of
project financials and its bankability. The results of the sensitivity analysis are summarized
below:
               Table 39: Sensitivity Analysis
                                                                Minimum    Average
                        Particulars             Project IRR
                                                                 DSCR       DSCR
                Base Case                           14.33%          0.88        1.23
                CUF= 30%                            17.15%          1.03        1.43
                CUF=20%                             11.06%          0.73        1.00
                Hard Cost increase by 5%            14.24%          0.86        1.21
                Hard Cost decrease by 5%            14.43%          0.90        1.24
                                                                                                    92


      Project financials are most sensitive to a scenario wherein the capacity utilization factor
       is decreased to 20% from 25%
      An increase in project cost has little impact on DSCR and on Project IRR due to
       financing assumption that the increased cost would be funded entirely through equity
      The project IRR is maximum when the capacity utilization factor is increased to 30%


                                14 ANALYSIS AND RESULTS

The base case model prepared for a 100 MW wind power plant to be setup in the state of
Maharashtra explains the feasibility of wind power projects. The model projects the cash flow
statement, profit and loss account and balance sheet. The various assumptions taken for
preparing the model have been explained in the “Financial Model” section of the report in detail.
The profit and loss account made shows that there will be a profit of Rs. 26.29 crores in the first
year of operation. Subsequently profit increases each year mainly due to escalation in Generation
Based Incentive and State Electricity Board tariff to be received each year. Also the escalation in
cost is lesser than the escalation in revenue generated.

The cash flow statement shows that in the first year during which the construction of the project
is going on there is less cash available, Rs. 5.25 crores, as it has been assumed that there is 100%
phasing of capital expenditure for all the cost entities in the construction year itself. Thereafter in
the first year of operation of the plant, cash available increases to Rs. 35.65 crores.

Since this is a power project, the net fixed assets are much more than the current assets. Also it
being a wind power plant, there is no need of any kind of fuel so there is hardly any fuel
inventory unlike in thermal power projects. A 70:30 debt equity ratio has been assumed which is
the industry norm for wind power projects.

Discounted Cash Flow (DCF) method has been used for the valuation of the project. The Net
Present Value (NPV) of the project is also the value of the Special Purpose Vehicle (SPV)
created for this wind power plant. Since the NPV, Rs. 126.77 crores, is positive it shows that it is
financially feasible to take up this project. The NPV of equity is calculated by calculating present
value of free cash flows to equity which is also positive.

The project Internal Rate of Return (IRR) is 14.33% and the Weighted Average Cost of Capital
(WACC) is 11.44%. Thus project IRR is more than WACC which again shows that it is
profitable to undertake the project.

Thus it is analysed from the model that it is financially viable to set up a wind power plant.
                                                                                                 93


                         15 CONCLUSION AND LIMITATIONS

The comprehensive study of wind power in India has resulted in the following findings:

      There is great untapped potential for wind power in India in terms of installed capacity.
       As of April, 2010, India has installed capacity of 11,786 MW against the potential
       capacity of 2,00,000 MW from wind power. The Government of India and state
       governments encourage private sector investment into renewable energy and have
       introduced incentives and policies that make this sector even more lucrative. In addition,
       the investors have the prospects of reaping returns from sale of carbon credits. Due to
       limited and exhausting nature of fossil fuels, wind power is a good alternative as a
       renewable source of energy. The benefits of using wind as fuel to produce electricity are
       more than the costs attached to it and thus make wind power the best recourse to bridge
       the deficit between the demand and supply of power in India.
      The base case model prepared for a 100 MW plant to be setup in Maharashtra gives a
       complete picture to an entrepreneur about the cost - benefit trade-off. It clearly shows that
       the NPV for setting up a wind farm is positive. It is beneficial in the short run in terms of
       the carbon credits gained and in the long run in terms of revenue earned versus the debt
       obligations.

Secondary data has been used in place of primary due to limitations of confidentiality of
company business. The name of the client for whom this model has been prepared has not been
exposed in keeping with the policies of the company. However, every minute detail has been
dealt with so as to not leave any deficiency in the report. Also the model that has been prepared
is flexible in the sense that if the capacity of the plant and the applicable tariffs are changed
according to the location of the plant then it will automatically generate new projected cash
flows, profit and loss account and balance sheet.
                                                                                         94


                                    16 REFERENCES

Internet Sources

www.mnre.gov.in
www.cwet.tn.nic.in
www.iea.org
www.newenergyindia.org
www.china-windturbine.com
www.mydigitalfc.com
www.gwec.net
www.indianwindpower.com
www.bloomberg.com
www.ireda.gov.in
www.ptcindia.com
www.enerconindia.net
www.ge.com/in/
www.vestas.com
www.indianetzone.com/41/renewable_energy_resources_india.htm
www.rediff.com/money/2008/feb/05inter1.htm
www.usea.org/programs/APP/Gujarat_Workshop/GERC_power_project_financing.pdf
www.eai.in/ref/ae/win/win.html
www.cogeneration.net/vertified_emission_reductions.htm
www.cercind.gov.in/regulations.html
www.electricityindia.com/powertrading.html
www.indiaenergyexchange.com
www.wwindea.org/technology/intro/en/secciones-en.htm
www.planningcommission.nic.in/plans/planrel/11thf.htm
www.mapsofindia.com

Articles

      Global Wind Energy Council (GWEC), 2009, Indian Wind Energy Outlook 2009

      The Energy and Resources Institute (TERI), 2009, Wind Energy In India: Status And
       Future Prospects

      Bloomberg New Energy Finance, 2010, Global Carbon Market

      Mahesh Vipradas, Senergy Global Ltd., 2009, Wind Power India

      AEQUERO Energy and Infrastructure Finance Advisors, 2007, Wind Energy Finance:
       Mobilising European Investment In The Indian Wind Sector

      Kuljit Singh, Ernst & Young, 2008, Renewable Energy in India: Opportunities and
       Challenges
                                                                                             95


       Government of India Ministry of Power, 2007, Report Of The Working Group on Power
        for Eleventh Plan (2007-12)

       Central Electricity Authority Planning Wing, 2010, Power Scenario at a Glance

       The European Wind Energy Association (EWEA), 2008, Wind Power Technology

       A.S. Bakshi, Central Electricity Authority, 2009, Overview Of Power Sector – 12th Plan
        and Beyond

       Jitendra Kumar Singh, 2007, Clean Develpoment Mechanism (Cdm) And Carbon
        Trading In India

       Global Energy Concepts, 2007, Wind Turbine Technology


Books

           Damodaran, A.,2006, Investment Valuation, Wiley, USA
           Reilly and Brown, 2006, Investment Analysis & Portfolio Management, Cengage
           Brealey, R A and Myers, S C, Alan, F and Mohanty, P, 2008, Principles of Corporate
            Finance
                                               96


                                17 ANNEXURES
Annexure 1: Wind Map Of India




Source: C-Wet
                                                                97


Annexure 2: Growth In Size Of Commercial Wind Turbine Designs




         Source: EWEA

Annexure 3: Types of Wind Turbine Towers
                                                                                                 98


   Annexure 4: Tax Schedule

                                                     (All figures are in Rupees Crores)
Year              Mar- Mar- Mar-     Mar-   Mar- Mar- Mar-          Mar- Mar- Mar- Mar-
                  12    13    14     15     16    17      18        19      20     21   22
PBT                0.00 32.84  37.33  44.71 52.10 59.48     66.01 65.69 74.39 83.09 89.62
Add: SLM
                   0.00    9.36     9.36     9.36    9.36     9.36   9.36   9.36   9.36   9.36    9.36
Depreciation
Sub: WDV
                   0.00   83.10    70.54    59.92 50.92      43.30   36.84 31.37 26.74 22.80     19.47
Depreciation
Taxable Income     0.00   -40.90   -23.86    -5.84 10.54     25.54   38.52 43.68 57.01 69.65     79.51
Carried Over
                   0.00    0.00    -40.90   -23.86   -5.84    0.00   0.00   0.00   0.00   0.00    0.00
Losses
Taxable Income
after adjusting    0.00   -40.90   -64.75   -29.70   4.69    25.54   38.52 43.68 57.01 69.65     79.51
C/o Loss
Tax Holiday
Amount (Only       0.00    0.00     0.00     0.00    4.69    25.54   38.52 43.68 57.01 69.65      0.00
For 10 Years)
Taxable Income
After Adjusting    0.00   -40.90   -64.75   -29.70   0.00     0.00   0.00   0.00   0.00   0.00   79.51
Tax Holiday
Income Tax         0.00    0.00     0.00     0.00    0.00     0.00   0.00   0.00   0.00   0.00   23.85
Minimum
Alternate          0.00    5.91     6.72     8.05    9.38    10.71   11.88 11.82 13.39 14.96     16.13
Tax(MAT)
Tax Payable        0.00    5.91     6.72     8.05    9.38    10.71   11.88 11.82 13.39 14.96     23.85
Surcharge on
                   0.00    0.44     0.50     0.60    0.70     0.80   0.89   0.89   1.00   1.12    1.79
Income Tax
Education Cess
on Income tax      0.00    0.19     0.22     0.26    0.30     0.35   0.38   0.38   0.43   0.48    0.77
and Surcharge
Total Tax
                   0.00    6.55     7.44     8.91 10.38      11.86   13.16 13.09 14.83 16.56     26.41
Payable
                                                                                                        99


       Annexure 5: Working Capital Schedule

                                                                   (All figures are in Rupees Crores)
                            Mar-   Mar-    Mar-    Mar-    Mar-     Mar- Mar- Mar- Mar-               Mar-   Mar-
Year                        12     13      14      15      16       17       18      19      20       21     22
Current Assets
Inventory                   0.00   6.99    7.25    7.51    7.78    8.04    8.23    7.69    7.95     8.21     8.48
Receivable                  0.00   10.49   10.88   11.27   11.67   12.06   12.34   11.53   11.93    12.32    12.71
Other Current Assets        0.00   0.05    0.05    0.05    0.05    0.05    0.05    0.05    0.05     0.05     0.05
Total Current Assets        0.00   17.53   18.18   18.84   19.49   20.15   20.61   19.27   19.93    20.58    21.24
Current Liabilities
Creditors                   0.00   0.01    0.01    0.01    0.01    0.01    0.01    0.01    0.01     0.01     0.01
Total Current Liabilities   0.00   0.01    0.01    0.01    0.01    0.01    0.01    0.01    0.01     0.01     0.01
Net Working Capital       0.00     17.52   18.17   18.83   19.48   20.14   20.60   19.26   19.92    20.57    21.23
Change In Working capital
requirement               0.00     17.52   0.66    0.66    0.66    0.66    0.46    -1.34   0.66     0.66     0.66
Less: Margin Money          0.00   5.25    5.45    5.65    5.84    6.04    6.18    5.78    5.98     6.17     6.37
Working Capital Loan        0.00   12.26   12.72   13.18   13.64   14.10   14.42   13.48   13.94    14.40    14.86
Interest on WC Loan         0.00   1.07    1.11    1.15    1.19    1.23    1.26    1.18    1.22     1.26     1.30
Change in WC Loan           0.00   12.26   0.46    0.46    0.46    0.46    0.33    -0.94   0.46     0.46     0.46

								
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