1. Potential and Investment Challenges in Wind Energy in India Narasimhan Santhanam EAI – www.eai.in

2. About EAI Leading Indian renewable energy business intelligence, market strategy consulting firm Work on all primary renewable energy sectors – solar, wind, bio-fuels / biomass, waste-to-energy and small hydro Work on market research, entry and diversification strategy, economic and financial modeling and pre- feasibility analysis Team comprises professionals from IITs and IIMs, with renewable energy, industry research and economics backgrounds Based out of Chennai, India More at www.eai.inwww.eai.in

3. Will be Speaking On…  Wind Energy in India – Intro and Potential  Investment Trends in Wind Energy in India  Costs  Tariffs and RoI  Key Challenges  Looking Ahead  Take-aways for Investors

4. Wind Energy in India – Intro and Potential  Installed capacity = 11,000 MW, approx – TN = 4 2% – Mah = 20% – Guj = 15% – Kar = 13%  While accounting for 6% of the total installed power capacity in the country - only contributes 1.6 % of electricity generated

5. Wind Energy in India – Intro and Potential India has set a target of adding 10,500 MW of wind capacity during the 11th Five-Year Plan period (2007-2012) YearMW Added 2002-03240 2003-04600 2004-051100 2005-061700 2006-071700 2007-081600 2008-091500

6. National Wind Power Programme The Wind Power Programme in India was initiated towards the end of the Sixth Plan, in 1983 – 84. The programme aims at survey and assessment of wind resources, setting up demonstration projects, and provision of incentives to make wind electricity competitive. As a result, wind electricity has emerged as an option for grid-quality power generation. The costs in respect of wind monitoring stations are shared between the Ministry of Non-Conventional Energy Sources (MNES) and the state nodal agencies in the ratio of 80:20 (90:10 for north-eastern states). With 2980 MW of installed wind power capacity, India now ranks fifth in the world after Germany, USA, Spain, and Denmark. Most of the capacity addition has been achieved through commercial projects by private investors.

7. Investment Trends in Wind Energy in India  Investments in wind energy  2007 - $2.2 billion  2008 - $2.7 billion (6 3 % of total RE investments)  2009 – Over $ 3 billion (EAI estimate)  Individual investment sizes – So far, wind farms have been of sizes up to 50 MW, but larger sized wind independent power projects expected.

8. Costs – Capital Costs Capex: Rs 5.25 crores per MW – Turbine – 70% – Civil Works – 11% – Electrical Infra – 9% – Power conditioning & grid integration – 7% – Installation - 2% – Others: 2%

9. Costs – Operating Costs  O & M costs - Approximately Rs. 0.50 per kWh (including insurance, for the first five years)  Increases with time, approx 5% escalation every year after first three years

10. Tariffs Feed-in-Tariff Rates (Rs/kWh) TenureOther ConditionsRPO (%) Maharash tra 3. 513Escalation of 15 paise per year 6% Rajasthan4. 2 8 / 4.520NA7.5% Madhya Pradesh 4.0 320Depreciation of 17 paise for 3 years, 16 paise in the 4 th year. Constant rate of Rs 3.36/unit thereafter 10% Gujarat3. 3 720No escalation2% (10% proposed) Karnataka3. 710No escalationMin 7.5% Andhra Pradesh 3.510No escalation5% Tamilnadu3.3 920No escalation12-13% Kerala3. 1410No escalation2%

11. Other Incentives  GoI has started giving a generation based incentive (GBI) of 50 paise per unit, in lieu of depreciation benefits  CDM revenues possible – 50 paise per unit

12. IRR and Payback  Project IRR: 16.5%  Equity IRR: 25%  Payback period: 6 years Above data calculated for the case where accelerated depreciation benefits are CDM benefits are factored in.

13. Total wind energy potential (best case) = 90 GW Installed capacity = 11 GW Installed capacity to total = 12.2% Potential vs. Actual Installed capacity - % to total electricity capacity – 6% Electricity generation - % to total – 1.5%

14. Key Challenges  Incentive Challenges  Transmission Challenges  Regulatory Challenges  Structural Challenges  Efficiency Challenges

15. Key Challenges Incentive Challenges  Profitability still dependent on government incentives / tariffs  Accelerated depreciation benefit is not conducive for long-term growth (already has been given an option for a generation based incentive (GBI) scheme)

16. Key Challenges Transmission Challenges Poor Grid Infrastructure  Lack of transmission infrastructure - transmission infrastructure that is required to effectively absorb an RE with intermittency doesn't exist.  In 2005-06, around 15% of wind generated in Tamil Nadu was lost because of congestion and a shortage of evacuation facilities.

17. Key Challenges Transmission Challenges Poor Grid Infrastructure  Transmission infrastructure is the responsibility of state transmission utilities (STU). But many STU s are not financially healthy enough to invest in required transmission upgrades.  Payment for transmission augmentation upstream of an interconnection point is a contentious issue.  Resolving this requires state and central government entities, STU s, power plant developers and power purchasers.

18. Key Challenges Transmission Challenges Grid Integration  Grid codes that include standards for wind integration are required to ensure that variable electricity production from wind farms do not adversely affect the power system operation.  There is a lack of grid codes that incorporate the behavior of renewable generation., not just for wind alone.  The existing grid codes need to be modified to provide standards for system stability and reliability.

19. Key Challenges Transmission Challenges Obstacles to an Efficient Grid  Who – who should pay for the evacuation facility (transmission capacity) up to the interconnection point: developer, power purchaser, transmission utility or distribution company?  What - what is the role of State Transmission Utility (STU) in developing transmission infrastructure for renewable energy projects?  How -So far, no renewable related standards are available in Central Electricity Authority (CEA) Regulations. How should the connection standards and Grid Code be modified to accommodate wind energy sources?

20. Key Challenges Regulatory Challenges Restrictive Regulations  Regulations across SERCs regarding renewable generation grid connections and transmission charges are not yet uniform and are sometimes vague.  Costs for wheeling electricity are higher than those assumed by MNRE. Lowering and standardisation required.  Hurdles to open access hinders inter-state power sale.

21. Key Challenges Structural Challenges  Task of promoting renewable energy is in the hands of states. Only 10 states have implemented quotas for a renewable energy share of up to 10 per cent.  Wind energy does not enjoy infrastructure sector status such as roads, power or ports projects do. Therefore, banks have been reluctant to go in for non-recourse funding for wind power projects.  Till recently, investments in the wind power sector in the country have been mostly for captive purposes. (Shift towards IPPs because of higher tariffs, RPOs and long-term PPAs)

22. Key Challenges Efficiency Challenges  Estimation of effective turbine capacity not deterministic. (The turbine manufacturers are not willing to give a guarantee)  Forecasting of wind for short and medium term

23. Key Challenges Others  Site allocation process sometimes arbitrary.  Without storage, scalability might be hindered. And use of batteries for storage could increase costs by over100 %

24. Looking Ahead  Transmission infrastructure enhancements greatly needed  More proactive cooperation between STUs, Developers and Regulators, and more flexible distribution rules  Shift incentive focus to encourage long term investments (from AD to GBI)  Short term forecasting for the day ahead and hour ahead power system operation and dispatch is critical for any market for reliable power supply and to minimise the cost of power supply.  Encouraging RPS and effective implementation of RPO

25. Take- aways for Investors  Wind is a mature industry  A number of incentives have been provided, and more in pipeline; recent budget has been generous  Technology improvements and innovations could further increase efficiency and profitability  Key challenges present in dependence on incentives, transmission, regulatory, structural, and efficiency.  These challenges cannot be solved by private entities alone; Private-public initiatives are required to overcome challenges

26. Thanks ! Narasimhan Santhanam Energy Alternatives India - EAI – www.eai.inwww.eai.in narsi@clixoo.com Mob: 98413-48117