India - Windfarm pre-investment study

F ,aiosrv,r,x.p Jr ErE , tIrq iiX vlf~llfff A r) D Energy Sector Management Assistance Progrartoiit India Windfw PreIevestment Study Report No. 150/9  JOINT UNDP / WORLD BANK ENERGY SECTOR MANARGEMENTASSISTANCE PROGRAMME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) was launched in 1983 to complement the EnergyAssessmen. Programme, established three years earlier. ESMAP's original purpose wrs to implement key recommendations of the Energy Assessment reports and ensure that proposed investments in the energy sector represented the most efficient use of scarce domestic and external resources. In 1990, an international Commission addressed ESMAP's role for the 1990s and, noting the vital role of adequate and affordable energy in economic growth, concluded that the Programme should intensify its efforts to assist developing countriLs to manage their energy sectors more effectively. The Commission also recommended that ESMAP concentrate on making long-term efforts in a smaller number of countries. The Commission's report was endorsed at ESMAP's November 1990 Annual Meeting and prompted an extensive reorganination and reorientation of the Programme. Today, ESMAP is conducting Energy Assessments, performing preinvestment and prefeasibility work, and providing institutional and policy advice in selected developing countries. Through these efforts, ESMAP aims to assist governments, donors, and potential investors in identifying, funding, and implementing economically and eavironmentally sound energy strategies. GOVER[VANCE AND OPERATIONS ESMAP is governed by a Consultative Group (ESMAP CG), composed of representatives of the UNDP and World Bank, the governments and institutions providing financial support, and representatives of the recipients of ESMAP's assistance. The ESMAP CG is chaired by the World Banks Vice President, Operations and Sector Policy, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme's strategic agenda, its work program, and other issues. The Manager of ESMAP, who reports to the World Bank's Vice President, Operations and Sector Policy, administers the Programme. The Manager is assisted by a Secretariat, headed by an Executive Secretary, which supports the ESMAP CG and the TAG and is responsible for relations with the donors and for securing funding for the Programme's activities. The Manager directs ESMAP's two Divisions: The Strategy and Programs Division advises on selection of countries for assistance, carries out Energy Assessments, prepares relevant programs of technical assistance, and supports the Secretariat on funding issues. The Operations Division is responsible for formulation of subsectoral strategies, preinvestment work, institutional studies, technical assistance, and training within the framework of ESMAP's country assistance programs. FUNDING ESMAP is a cooperative effort supported by the World Bank, UNDP and other United Nations agencies, the European Community, Organization of American States (OAS), Latin American Energy Organization (OLADE), and countries including Australia, Belgium, Canada, Denmark, Germany, Filand, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Prtugat Sweden, Switzerland, the United Kingdom, and the United States. FURTHER INFORMATION For further information or copies of completed ESMAP reports, contact: lTe Manager or The Executive Secretary ESMAP ESMAP Consultative Group The World Bank The World Bank 1818 H Street N.W. 1818 H Street, N.W. Washington, D.C 20433 Washington, D.C. 20433 USA USA  INDIA WINDFAPM PRE-IVESwMENT STUDY - im  Abbreviations and Acronyms a.8 L above ground level APS Annual Power Survey bbl barrel CCP combined-ycle plant CEA Central Elericity Authority C02 carbon dicodde cr combustion turbine DNES Department of Non-Conventional Energ Sources ESMAP joint UNDP/World Bank Energy Sedor Management Aista Proam FIRR financial internal rate of return FO furnace oil FOR forced outage rate FYP Five Year Plan GEDA Gujarat Energy Development Ageny GEB Gujarat Electricity Board GEF Global Environmental Facility GNP gross national product GOI Govenment of India GWh gigawatt-hour ha hectare HSD high speed diesel HT high tension Hz hertz IDA Indian Renewable Enera Development Agency kCal kilocalorie kg kilogm kV kilovolt kVa kilovolt-amperm kW kilowatt kWh kilowatt-hour Ii liter LT low tension mmtoe million tons of oil equialent MOR maintnanc outae rate m/s meters per second MY megavolt MVa megavolt-amperes MW megawatt MWh megawatt-hour NBPC National Hydroeectric Power Corporation NLC Neyveli Lignite Corporation NTPC National Thermal Power Corporation 0CC overnight capital cost PFC Power Finance Corporation PSC Power Survey Committee REB Regional Electricity Board REC Rural Electrtion Corporation  RsW rupees SCM sandard cubic meter SEB State Electicity Board S04 Standard Offer No. 4 S/S substation t metric ton TEDA Tamnl Nadu Energ Development Ageny TNEB Tarl Nadu Eleticity Board TPS thermal power staion TWh terawatt-hour UNDP United Nations Development Program VOC variable operating costs Wp peak watt  TABLE OF CONTENTS EXEC=Rr SUMMARY ............ ........................ , Background and Objectives i ... . ..... *..*....... ... a.****... I Selection of Sites ................. .................. ....... 'ii Economic and Environmental Evaluation of the Propective Investnent .......... ii Ihe Case for Concessional Financing .................................... iv A Framework for Projed Implementation .......... iv The Role of IREDA . iv The Role of lTNEB/TBDA ..................... i The Role of the Private Developer .................. vi Sunmary of Key Reconunendadons .................. . vi L DN1lRODUCIION ............................1 The Power Setor in India .... . ..***. . . .......................... 1 Sectora Overview *...***.........**.*.. *...******..*.*.*****.. 1 EIergy Resources ............................................. 2 Sectoral Organization . . ..... .. ... .. ... ... . ... .. .. ... .. ... ... 2 Pr6ojc Badcound and Ojectives ...................................... 3 The Methodology for P-e-Investment Evaluation ............................ 5 IL SITE SELE)cnON ................... ........ 8 Overview of the Methodoloy .......................................... 8 Pre-Seecton of Sites................ ... ... . .. .. . .. **s .. . * * 9 Economic Screning of Pe-eected Sites ................................. 10 IIm E(CONOMIC EVAILUATION OF SEIECJ.ED SrES .......................... 15 Ovaeview of the Methodology ......................................... 15 Evaluation Results ..........* * *...................... ....... 15 Inights from the Califomia Expere e ................ ............ 17 Sensitivty Anaiysis ................2....... ...*.. ... ..... 2 Constucion Lead rTnes .................................. 23 The Total Value of Unserved EneV ......................... 24 High Envirommental Costs, Better Wind Resources, and Turbine Cost Reductions: An Attractive Wind Scenario........... 24 The Effects of Better Load Matching ......................... 25 Windfrm and Iurbine Size ................................ 26 TheCostofC02 Abatemnent . ................................ 26 iv. -coNCLUSIONS .......... .. ..*. ........29 Resuts of the Eonomic Evalution ..................................... 29 Ihe Cas for C ncesdonal Fnancing ............................ 30 A Framework for Project .neentaon .. 31 Pinciples of sect tDesp ........ 31 Projtsm plemena io n .... .................................. 31 The Role ofIRE A... ............ ............ ...... 31 The Role of TN e 1)ev p .. . ........................... * . 32 lhe Role of the Pfibte DbevekX.............. 32  Ove view, .................................... ....................... 1 Ste Vk and Assessnent of Grid Connection . ....... . . . ... .. .. . .... 1 Sii of W faiirnars ............................... 4...... 2 Ebstination of Windrnm Output ............ ................. 2 Estimation of Enery Value of Output ................ ............. S Estimnation of Capacity Value of Output ..................... .0 . . . ... . 5 Caoldation ofBenefit/CostRatio ... .............................. 5 ANNEX 2: DATA AND RESULIS OF THE SCREENING ANALYSIS .............. 1 Ckmad AbSnptions .................................................. 1 Wind Turbine Cost Esdmates .................. ................. 1 Cost Estimate for Electrical Works . ............................... 2 Cost Esiimate for Civil Works ............................................ 4 Cost Estimate for CRoventional Generation ............. . ........... . 4 Experience with Existing Wind&rm in India . ....................... . S Desaption and Assesment of TannE Nadu Sites ................ O..#**# ... 8 Utilit Chaactristics ........................................... 8 GieneralDscription ......................... .... ............ 8 Power Demand and Generation Needs ....... ........... 8 Calculation of Levelized Costs of Coal TPS .................... 9 lTpe and Value of Load Substituted ... ...................... . 10 Iayad Site laracteristics ..................................... 11 Wnd Resources ....................*...... . ........... 11 Land Avalaity, Soil Conditions, and Site Accessibiity .......... 13 Grid System................................ ............ 13 Windfi m Size Linitations ..............*.44444444 ......... 1S Enery Output .......*..................... 15 Production Costs and Production Value ......... ...................... 19 Akaapandiyapuram Site Caracterstics ........ .......................... 21 MMn Rcssource .. ......................................... 21 Land Avabbift, Soe Condition, Site Accessiblity .............. 21 Grid ystem ............. .............................. 21 W ndfam Size Limitations ...................*..... *........... 21 Energy Outut, Producion Cost and Generation Value ........... 21 Tha1ay thu Site Characterstics .... * . .... ........................... 27 "nd Resoures ................................ 27 Land Avalablity, Soil Conditions, Site Aocessblity .............. 27 Gtid Ssen . .................. ....... #............ 27 nldfrm Size limitations .................444444.4.4 27 Enersy Output Production Cot and Generation Value ........... 27 AyakdiSie Charactristbs ....................................... 27 escrpton and Assesment of Sites in Gujarat ............................ * * . 32 UtllyCharactertics. . . ..... ...............*.. ........ 32 GeneralDescription ..................... ............ ... 32 Pbwer IDmand and Generation Needs ............................... . 32 Calulation of Levelized Production Costs for a Coal TPS ......... 36 lTpe and Vaue of Load Substituted .....4.4 ..............* 36 lbe GridSystemin the SaushraAreaof Gujarat ......*4.4..4444 O' 37  laznba/Navdua Site .... ..... .*.*..... ... . .... .. . .. 41 lind laEouit .................. . 41 Lan d A v a 9 ; ibtS'o'fl'4non ....................... 41 WbKlnda Sime lirlatls ....... 41 EnrV Output .......................................... 43 Production Cost and Pxoducio Value ....................... . 43 Mocha Site s ................................... .. 44 ANNEX 3: THE ECONOMIC EVALUATION MODELS .......................... 1 Ihe WindfiunProducton Model .................*I....... *.......... 1 ihe Eonomic Anaysib Moded ................ ......................... 2 Appendix 1: Formuladon of the Wbdfamn Caat auipounitbIty Model ...... . 7 Appendix 2: oknputatlnof Houly HydroCheneaton .. ... ................ 8 ANNEX 4: INPISMTO THE ECONOMIC EVALUATION ... ........ ........... 1 Jntrhducion ...................................................... o . 1 Load Foreca and ystem Expansion .......... a . d- . . .. . . ... . . . . . .1 Systm Load Cuves .......................... ...... o ... . .... ... 4 ShortageCost Fstlnates ............................................. 4 Conventional Powet Geneadon Tdchoies ............ o.. ... . ........ .. . 6 MarWgi Cost of Geneadon lontna irStaios km Th.mal.P.wSto ............ ... . .. 8 SANditbi5y:ALClysA ...... OF.C ..A.....Ao... ...C .. . . . .. .............. oo. 8 AdNNEX 5: CALUDtLATION OF C02Q AVlBA UEM iTCOSI'S ........................ o. .......... I  EXECUTIVE SUMMARY BWA-Unmd Bud Objeties 1. Because of continuing high growth In power denmai Pd the inabBity of genmr! apacity additions to keep pace, load shedding has becoma widespreA- in India. Coeturns aLoiu the local and global enmental imacts of conventional generation tct-ol,ae -nave compounded the predica;ent of India's dronic generation defiit As pail od th, effort to rd'rcss this situation, the Government of India (001) is exploring the prospeas for non<omsntionl.i energ technologies to help close the chronic power defcit without the ervmonmental corwequW.Pnes of cnentional technologies. 2. Wind power is a commerialy mature renewable enera technology which could possibl help alleviate in numc -us locations throughout the world; total isaled windfm capacity exceeds 1,800 MW, with over 1,400 MW in California alone. As a result of this exwIence, 001's Department of Nonconventional Energy Sources (DNES) initiated the Wid Energy Program in the 1980's to collect wind resource data, conduct research and development, and test and demonstrate wind energ technology. DNES has subsequently supenised the installation of over 32 MW of windfam capacity in India, 3. 'he initial eperpence with windfarms in India has been favorable; the technology has performed up to epations, and the lar-scale wind monitoring program established under the wind energy program continuer. to reveal prmising new sites. Despite the progress of the Wind ergy Progra, site specific pre-investment shtdies are now required if wind power in India is to move beyond technology demontration to the widespread deployment of commercial-scale windfarms. DNES requesed this tudy as the first of these pre-investment studies. The objectives Of the study are: (a) to identify promising sites for commercialscale, Le. 25 MW or grat, windfirm development; (b) to conduct pre-investment evaluations of those sites which could lead to wndfrm investment in India by the World Bank or other bilateral or multilateral institutions if it is shown to be justifed, Le, to identify a ankable project padkage; (c) to identify tp that would help impre indigenous Indian vapabllity for the development and deployment of wind electric technology as appropriate. 4. The stu begins with the selection of suitable windfam sites for detailed pre-ivestment ealuation Two ies are selected in the state of Tmil Nadu. The study quentl evaluates die economic competitdveness and environmental Inpacts of these potential windfarms rdative to conventional generation options I identifies the cnditions under whih the windfarm investment appes attractive and proposes a framework for project implementaton. The methodology used througbout is intended to be as general as possible to allow simlr evaluation of other sites in India and elsewhere. Moreover, these findhin can help guide the selection of other potential sites in India and elucidate the factors which can make rindfirms a competitiv generation option. Fimally, the propoed project framework is put forwrd as a simple model for project development In India which can be replicated with other winfam or technoloies India.  5. As a precursor to this iudty, DNES com sioned studies in Andhra Pradesh, Oujarat, Karnatuks, and Tamil Nadu whkJah yie!dod a ist o. 28 potentia wiidfarm shit" Seven of these sites were prlected on the basis of qualiiative critsa regarding the availability of wind rtource data, lane availability, site accessfbility. atd grid iiality. Based on field visits, preiminazy windfarm r4sbPs, and economic screening of thbee sewen sites, the Kayatlar and Tlayuthu bites ;n Tamil Nadu were idewified as the most proning of the group. Sites which were not selected ace not necessarily u.swAt-tIe for windfarrn development. In many cases, sites wern dropped from ,3mi&ratio bwcatuse their wind resacu' data, althoughb promsint& were of ufdtduration to dI4w a th,rfj4Fgh wsessmeat4/ s;S > Ev&IaI: L.t1S3 Pro pective Invest 6. 'The Kayathar site, whih ibuts an exitinm winifrms totalling 735 MW, appears to have a potential of 50 MW, while the nearby Thalayutht site offers a potential of 25 MW. The economic evaluation compares this potential 75 MW windfam investment to three other conventional generation options: a coal-fired thermal power station, combustion turbines, and a combined-ycle plant. The evaluation takes into account differences in construction lead times, enironmental iwpacts, capacity responsibfilty and capacit value, the value and amount of unserved enery displaced by these various gneration options, and differences in windfarm size, turbine sze, and the wind resoure itsef. The following conclusions emerged from the economic evaluation2/ (a) on the basis of standard economic criteria, these windfhrms are not economialy least.ost when cumpared to conventional generation options, priargy due to the / EInformation on which to select sites for the udy was current through October 1991. The use of additional data and other stitutional and financial changes since that time (approximately one year) should be considered to verify and/or change specific sites before tual windrm installation. For example, the economics of a site could be affected by an additional one year of wind resource data or changes that may have occured in tariffs for conventional power. Other changes in the physical operating environment could affect the suitablilty of a site, such as a reported power reduction of up to 40% in pat of Gujarat which is causing industries to use costly back-up diesel generators, recent improvements in grid vstem condition, etc. 2/ A 10% discount rate was used to calculate the levelized benefit/cost ratio. Base case fixed enviromental costs for conventional thermal power generation sstems were 8.6% ox overnignt capital costs; variable eironmental c ranged from 4% to 7% of variabe operatg costs. All oostswere economic rather than fin and the economic costswere stated as border prices, using the official echang rate at the time. Most local costs were conveed to border prices by using a standard conversion factor of 0.8, but the economic cost of coal, which plays an important role in calulating the energ value of output, was determined using a recent World Bank estimate. [Detai are presented in Ainexes 1 through 5.]  medioL're wind resources at the sites considered and the poor match between windfarm output and system load. (b) 'Under baseline conditins, these sites were characterized by a capacity factor of approimately 18%.;/ Windfarms located elwhere have achieved capacity factors of around 24%. Comparsible sites likely est in southern India. Not taidng into account the benefits of better load matching, a windfarm at the Tamil Na'iii rites vwhich could deliver an araount of power commensurate with a capacity factor of 24% would be essentially economically viable (i.e., the benefits in terms of the energy produced is greater than the cos0t incurred) tholzgh stffil not least cost. (c) Load matching is a critical factor lor the economic viabiity of windfarms, particularly in systems with a high incidence of unserved demand such as in Tamil Nadu. Load matching can be measured by capacity responsi'bility.4/ The conventional generation technologies considered here and some windfarms located elsewhere in the world offer capacity responsibility on the order of 60% to 80%. In comparison, the windfurms installed at the Kayathar and Ibalayuthu sites in Tamil Nadu show a capacity responsibility of only 16%. (d) Even with a capacity factor of around 18%, unserved energy costs of slightly more than US$ 021/kWh result in clear economic viability for these windfarms. However, since such unserved eutergy Costs increase the value of conventional generation as well, higher unserved energy costs do not make these widfams least-cost. (e) In the sensitivity analyses made, only the case for a low capital cost for windfms and the case for a high cost of unserved energy (Rs 3.23/kWhl,ie, about US$ 0213/kWh) resulted in a benefit/ccst ratio greater than 1. 7. In general, better sites and naw e - 3chnology will make windfarms more attractive, even if better load matching does not occur. However, it is clear that the sites proposed in this study Z/ Capaci%y factor is the ratio of the power actually produced by a power plant during a specif ic time period to the amount of power that could have been produced in that same time period had the power plant been operating at its u rated power. 4/ Cqpacy remsponbli is a measure of a technologs ability to reduce unserved energy, or conversely, to contribute to system capacity and thereby increase reliability. Computationally, it is the ratio of the reduedon in expected unserved energy given actnal operation of the power unit to the reduction in expected unserved energ that would occur if the generation addition could operate throughout the period in question with a 100% capay factor. For dispatchable technologies, the capacity responsibility would be equal to the availability of the power unit, asuming that forced and planned outages oewr independently of the incidence of unserved energy in that period. For non-dispatchable technologies such as wind power, capacity responsibility depends upon the match between windfarm output and the temporal distribution of expected unserved energy.  IV would not become competitive with conventional eneration without considering global environmental costs. The study stmtes tbat these windfams could displace C02 for no more than US$45/ton, considered subsantialy less than Incremental investnents for deaning up C02 emissions in equivalent fo2sil fuel power plants E/. -Cfonr P'g 8. It iR on the basis of environmental benefits that concessional financing may be arged for windfus in the immediate term In this context and party based on the findins of the present study, the Government of India (GOI) approached the Global Environmental Facility (GEF) to fund windfam development in the country. Under the nonconventional energy component of the proposed India Renewable Resourcs Development Project, the GEF is providing a grant of US$ 13 milion towards a US$ 105 milion program to develop 70 MW of windfarm capacity in the four states of Andhra Pradesh, Gujarat, Karnataka, and Tamnl Nadu. Other international donors are expected to contribute US$ 50 million and private investors an additional US$ 26 million. The Indian Renewable EnerVg Development Agency (RDA) wil contribute US$ 16 milion from inital repayment of loans for windfarm development. Ag Prsh dwlm nlkg 9. Investiations carried out in the present study provided some insights into optimal approaches for implementing projects in this somewhat novel area The outlined windfarms project should be designed to (i) inirimize the financial burden on the Tamil Nadu Electricity Board (TNEB); (ii) create a framework for project development which can be replicated; (iii) provide returns on a windfarm investment that are constent with the economic value of the energ produced; and (iv) provide inoentives for private sector participation. 10. One possible arrangement for project implementation involves the partciation of three entities: IREDA, as project financier, ThEB/Tamil Nadu Energ Development Agen (MEDA) as purchaser of power that complies wah esablshed operational and quality requements; and a private firm as project developer and operator. 11. De Role of DA The overnight capital cost of this 75 MW project would be around US$ 90 million. IREDA would serve as the principal project financier by providing a loan to the private developer for 50% of the requred financing In addition, IREDA would administer concessonal funds from the GEF to cover an additional 30% of project capital costs. In acordance with the Indian Altemative Energy Project financin DA would use about US$ 16 mlion in proceeds from iitial repayment of loatB to replenish the credit line. 12. D TJ7B would puruhase power produced by the windfirms, and together with TEDA, would help identify pdrvate developers and ensre that their facilities and E/ In the proposed India Renewable Resources Development Project, the windfirm component was estimated to yield a C02 abatement cost of US$30 per ton displaced.  -V. operation comply with TNEB's requirements. TNEB has issued a brochure entitled: CGuide for the Establishment of Windfarms in Private Sector.' Among the provisions stipulated arn: * TNEB will permit private parties to set up wind turbines in windy areas; these wind turbines can be connected to the grid, ie., installed as windfbrms. * TNEB is whAing to "wheel" the power to the location where the power is needed by the industry. TNEB wil deduct 2% of the energ generated by the windfarm as a "wheeling charge." * TNEB wil purchase the surplus power produced by the private windfarms at Rs 1.0 per kWh. c Interfacing of the windfam with the grid, indluding the cost of tran4ormers, protection, metering, HT lines from the point of generation to the grid's nearest line, etc. will be completed at the windfarm developeres expense. * Depending on the cartff-ity of the windfarm, necessary sub-station facilities wil be installed at the developees expense. * Two separate meters, one for export of wind power to the grid and another for importation from the TNEB grid must be inutalled on the HT side at the developers expense. * Technical requirements on the starting current of the wind turbines, provision of capacitors, automatic cut off from the grid, etc. are also defined. TNEB would seek exressions of interest from private partes, and after identifying qualfied parties, would provide them with financial details and tedhnicl speations. Appimcation for IREDA financing would remain the responsibility of the private developer. TNEB/TIEDA would be rsponsible for coordinating and reviewing all aspects of project implementation. 13. TNEB should pay no more than the economic value of wind power, which under baseline conditions is only Rs 1.07/kWh in constant 1990 terms. Currently, TNEB pays Rs 125/kWh for wind power, although this rate was established as a promotional measure. However, in keepingwith the principle that the project should not financially burden TNEB, TNEBs' relatively low tarmffs limit the power purchase price to below economic value. The study tentatively recommends a power purchase price on the order of Rs 0.90/kWh in constant 1990 termsfi/