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Indian Institute of Technology, Kanpur
Wind Energy Supply Curve for Indian StatesFinal ReportSubmitted by
Binod Prasad - 12125017Ravi Kalluri - 12125025
Mangesh Dharwad 12125026
To
Department of Industrial and Management EngineeringIn requirement for the Academic course: MBA 2014
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Table of Contents1. Overview of energy demand in India.................................................................................................... 12. Renewable energy in India....................................................................................................................2
2.1. Renewable energy Potential ......................................................................................................... 23. Renewable Purchase Obligation ...........................................................................................................54. Supply Curve ......................................................................................................................................... 7
4.1. Need for supply curve...................................................................................................................74.2. Limitations of Supply curve...........................................................................................................9
5. Levelized cost of electricity .................................................................................................................105.1. Parameters required for calculating the LCOE ...........................................................................115.1.1. Cash Flows...............................................................................................................................115.1.2. Inflation Rates .........................................................................................................................115.1.3. Discount rates .........................................................................................................................125.1.4. Debt Costs ...............................................................................................................................125.1.5. Operation and Maintenance Costs .........................................................................................125.1.6. Depreciation............................................................................................................................135.1.7. Return on Equity .....................................................................................................................135.1.8. Income Tax ..............................................................................................................................145.1.9. Net Present Value ...................................................................................................................145.1.10. Capacity utilization Factor.......................................................................................................145.1.11. Capital Costs............................................................................................................................155.1.12. Subsidies and CDM benefits: ..................................................................................................155.2. Levellized Cost of Energy Calculation..........................................................................................165.3. Methodology Followed...............................................................................................................165.4. Supply Curve Formulation..........................................................................................................17
6. References ..........................................................................................................................................19
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List of TablesTable 2.1: Source wise and state wise estimated potential of renewable energy in India4
Table 3.1: RPO and its compliance across states (in percentage).6Table 5.1: Relationship between CUF and WPD as per norms15
List of FiguresFig.2.1: Source-wise estimated potential of Renewable power in India 2
Fig.2.2: State-wise estimated potential of Renewable power in India3
Fig.5.1: Parameters for LCOE..11
Fig 5.2: Supply curve for Tamil Nadu..18
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1. Overview of energy demand in IndiaIndian GDP witnessed a growth of 7-8% per annum on an average in last decade, which hastransformed the country into ninth largest economy in the world. Indias energy requirements areenormous and the demand is growing but our resources are limited both in physical and financialterms. However, last couple of years saw slow down in the Indian economy, with growth rateshovering around 5%, especially in FY 2012-13. Industrial production has dipped in last fewyears, and lack of quality service delivery has forced growth rates to dip. The struggling Indianpower sector has a linkage with this situation. The all India deficit for power was 3.5% of totaldemand and peak demand deficit was 3% of peak demand for Oct13. [1] The electricity availablefor industries and businesses has not been sufficient. At the same time in rural India there arearound 300 million people waiting for an electricity connection in their homes.The demand and supply imbalance in energy is omnipresent across all sources. Government ofIndia will have to enhance energy supplies as India faces energy supply constraints. Indiasdomestic power demand in 2012 was 910 billion units. It is expected to reach 1,600 billion unitsby 2020 at 9.7% annual growth. To meet this growing demand, India will have to double itscurrent installed capacity of 210 gigawatts (GW) to 390 GW in the next eight years. There isgrowing energy inequity between the developed and developing states. There is wide gapbetween per capita consumptions of developed and not so developed states. Consider an exampleof Delhi and Punjab which has a per capita electricity consumption which is more than doublethe national average, while in Bihar, the per capita electricity consumption is still stuck at one-
fifth the national average.
Thermal (coal, gas, and diesel) power constitutes more than 68% of installed electricity capacity.[1] Even though domestic estimated reserve of coal of is around 293.5 billion tonnes (as on31.03.2012) [2], it is depleting at a fast rate, with 454.6 million tonnes being used for powergeneration in year 2012 itself. [1]
The carbon footprint of India is set to increase with increased coal based power plants. Variousprotocols like Kyoto protocol wants it to be checked. India needs to have a greater percentage ofrenewable power in the overall power portfolio to meet both the energy and environmentrequirements. Renewable energy sector is witnessing unprecedented growth, both in terms of
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capacity addition and cost reduction, domestically and globally, this could be used to solve theenergy crisis in India.
2. Renewable energy in IndiaRenewable energy is traditionally defined as energy that comes from resources which arecontinually replenished on a human timescale such as sunlight, wind, rain, waves, tides andgeothermal heat. The share of renewable energy in electricity generation is around 19%worldwide, with 16% coming from hydro-electricity and remaining 3% from other renewable.In India, the installed capacity (grid based) is 26266 MW (Oct 2012), with followingcontribution: Small Hydro-3451 MW, Solar(SPV)-1045 MW, Wind-18274 MW and rest fromothers. [2] The ministry of new and renewable energy is to develop and deploy new andrenewable energy for supplementing the energy requirements of India.
2.1. Renewable energy PotentialThere is high potential for generation of renewable energy from various sources- wind, solar,biomass, small hydro and cogeneration bagasse. The total potential for renewable powergeneration in the country as on 31.03.12 is estimated at 89774 MW. This includes wind powerpotential of 49130 MW (54.73%), SHP (small-hydro power) potential of 15399 MW (17.15%),Biomass power potential of 17,538 MW (19.54%) and 5000 MW (5.57%) from bagasse-basedcogeneration in sugar mills. [2]
Fig.2.1: Source-wise estimated potential of Renewable power in India (excluding solar)
[2] Source: Energy Statistics 2013 (Twentieth issue), Central Statistics Office, Ministry of Statistics and ProgramImplementation, GOI
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The geographic distribution of the estimated potential reveals that Gujarat has the highest shareof about 13.91% (12,489 MW), followed by Karnataka with 12.3% share (11,071 MW) andMaharashtra with 10.69% share (9,596 MW), mainly on account of wind power potential.
Fig.2.2: State-wise estimated potential of Renewable power in India (excluding solar)
[2] Source: Energy Statistics 2013 (Twentieth issue), Central Statistics Office, Ministry of Statistics and ProgramImplementation, GOI
Even though India has potential in producing electricity from renewable energy (Fig. 2.1, Table2.1), it is yet to fully make use of this potential. [7] Major reason behind it being high capital costper MW involved behind the setup of renewable energy plants. This high capital cost in setup ofrenewable energy plants results in high LCOE.Generally LCOE for wind power plants is in the range of Rs.5 to Rs.6 /kWh [7] and for solarplants it is in the range of Rs.8 to Rs.10/kWh. [7] LCOE for conventional energy sources like
thermal power plants is in the range of Rs.3 to Rs.3.5 /kWh which is very low when compared torenewable energy sources. This is the main reason behind not exploring the complete renewablepotential in India and lack of concern for same.
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Table 2.1: Source wise and state wise estimated potential of renewable power in India as on 31.03.2013 [2]
States / UTs Wind Power Small HydroPowerBiomass
PowerCogeneration-
bagasseWaste toEnergy
Total
Estimated DistributionReverses (% )
1 2 3 4 5 6 7 8Andhra Pradesh 5394Arunachal Pradesh 201As sam 53Bihar 0Chhattisgarh 23Goa 0Gujarat 10609Haryana 0Himachal Pradesh 20Jammu & Kashmir 5311Jharkhand 0Karnataka 8591Kerala 790Madhya Pradesh 920Maharashtra 5439Manipur 7Meghalaya 44Mizoram 0Nagaland 3Odis ha 910Punjab 0Rajasthan 5005Sikkim 98Tamil Nadu 5374Tripura 0Uttar Pradesh 137Uttaranchal 161West Bengal 22Andaman & Nicobar 2Chandigarh 0Dadar & NagarHaveli 0Daman & Diu 0Delhi 0Lakshadweep 16Puducherry 0Others* 0
5601334239213993
7197110
2268141820974870480473310923016719729539357
26666047
4611577396
70000000
5788
21261923626
122113331424390
1131104413641887
13111
10246
31721039
21070
31617
24396
00000000
30000
30000
350350
000
45000
125000000
30000
4500
12500000000000
12308
73240
1122420
101513678
2872220
2245620
1512
1765
1480600
13103
1022
6955 7.751543 1.72
512 0.571205 1.341276 1.42
33 0.0412489 13.91
1817 2.022432 2.716772 7.54
309 0.3411071 12.33
2574 2.873166 3.539596 10.69
131 0.15287 0.32170 0.19210 0.23
1473 1.643910 4.366163 6.87
366 0.417705 8.58
52 0.063641 4.061767 1.97
962 1.079 0.016 0.010 0.000 0.00
131 0.1516 0.02
3 0.001022 1.14
All India Total 49130 15399 17538 5000 2707 89774 100.00Distribution (% ) 54.73 17.15 19.54 5.57 3.02 100.00
[2] Source: Energy Statistics 2013 (Twentieth issue), Central Stat istics Office, Ministry ofStatist ics and Program Implementat ion, GOI
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3. Renewable Purchase ObligationThe only issue is how to utilize available potential of renewable energy as shown in Table 2.1.Electricity Act, 2003 provides for regulatory interventions for promotion of renewable energysources by specifying Renewable purchase obligation (RPO) with Feed in tariffs (FiTs) and ahost of other regulations. The National Tariff Policy (NTP) 2006 requires the State ElectricityRegulatory Commissions (SERCs) to fix a minimum percentage of Renewable PurchaseObligation (RPO) from such sources taking into account availability of such resources in theregion and procurement by distribution companies at preferential tariffs determined by theSERCs. Further, an amendment to NTP has divided the RPO into solar specific and non-solarRPO.
In view of the aforesaid provisions, regulatory framework for renewable power is evolving andall major States are declaring, revising, and modifying renewable power regulatory frameworksuch as RE policy, RPOs, Feed in Tariffs (FiTs), Renewable Energy Certificate (REC)mechanism, grid connectivity and forecasting provisions etc.Ministry of New & Renewable Energy has initiated an exercise to track the evolving renewablepower regulatory framework and develop a repository of information in a consolidated manner.This exercise is expected to help understand the dynamic nature of the renewable energyregulations and related issues and also create a platform to share information on pertinent issues.
The National Action plan of Climate change (NAPCC) sets the target of 5% renewable energypurchase for FY 2009-10 to be increased by 1% for the next 10 years (National Action Plan onClimate Change, Government of India, and Prime Ministers Council on Climate Change). Thedifferent SERC fix their own RPO targets which totaled to 5.44% in 2012 which was less thanthe 7% target via NAPCC. However, 22 out of 29 states failed to meet their RPO targets in 2012.Only few states achieved their targets which included Nagaland, Tamil Nadu, Karnataka,Himachal Pradesh, and Meghalaya. The failure could be attributed to the following factors:
There is lack of penalty measures for states that fails to meet the set target
Lack of scope to set appropriate RPO targets
Gap of RPO targets with the resource potential of various states
Inadequate regulatory and policy framework
Mismatch of cost and tariff for the distribution companies
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Moreover, due to the inappropriate targets, some states achieve their targets and they have littleincentive to push for more. This has partly been addressed by Renewable Energy Certificates(REC).Table 3.1: RPO and its compliance across states (in percentage) [4]
States RES RPO Targets RPO Performance
20078 20089 200910 201011 201112 20078 20089 200910Andhra Pradesh#$ 5 5 5 5 5 4.41 3.95 4.06Bihar@ 4 5 6 0.82 0.57 NAChhattisgarh Wind 2 2 2 0 0 0
Biomass 5 5 5 4.02 NA 3.60Small Hydro 3 3 3 0.34 NA 0.26Total 10 10 10 4.36 NA 3.62
Delhi 1 1 1 1 NA NA NAGujarat 1 2 2 2.07 NA 2.55Haryana 3 5 10 10 10 NA 0.01 0.01Himachal Pradesh Small Hydro 20 20 20 NA NA NAKarnataka 710 710 710 9.30 10.80 11.04Kerala 5 5 5 0.01 0.09 0.51Madhya Pradesh Wind 5 6 6 6 0.08 0.07 0.06
Biomass 2 2 2 2 0 0 0Co-generation 3 2 2 2 0 0 0Total 10 10 10 10 0.08 0.07 0.06
Maharashtra$ 4 5 6 3.35 3.36 4.25Orissa 3 3 4 0 0 1.59Punjab 1 1 2 3 4 0.69 0.74 1.49Rajasthan$ Wind 4 5 6 6.75 7.50 2.18 3.42 2.74
Biomass 0.88 1.25 1.45 1.75 2 0.39 1.48 0.49Total 4.88 6.25 7.45 8.50 9.50 2.57 4.90 3.23
Tamil Nadu 10 10 13 11.65 12.08 13.79Uttarakhand 5 5 8 9 10 1.4 1.7 2.18Uttar Pradesh 7.5 7.5 7.5 1.25 2.44 2.97West Bengal 0.953.8 24.8 46.8 78.3 10 NA 00.37 0-0.34
Note: # RPO target of 5 per cent for 201213 and 201314; @ RPO target of 7 per cent for 201213; $ The RPOtarget also applicable to captive and open access consumers; Numbers in italics are projections led withregulators by the distribution utilities.
[4] Source: India Infrastructure Report 2010, Infrastructure Development Finance Company, Economics,Regulation, and Implementation Strategy for Renewable Energy Certicates in India 42 -57, by Anoop Singh.
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4. Supply CurveThe supply curve shows the relationship between the prices of good vs. the total output of theindustry as a whole. It shows amount of good, manufacturers would be willing and able toproduce at a particular time at a particular price. The supply curve has a positive slope because;all else being equal, as the price of good rises, more people are willing to sale greater quantity ofgood.The concept of supply curve can be applied to renewable energy production to bridge the gapbetween the targets and actual installations. To develop supply curves of renewable energy, oneneeds to understand, the capital cost involved, efficiency of the renewable energy equipment(Technical) available and the resource potential available. Using the above parameters one cancalculate the Levelized Cost of Energy (LCOE).Supply curves for renewable energy typically reflect the cumulative quantity of variousrenewable resources/projects, ranked from lowest to highest LCOE of all the projects. In broadterms, the supply curve for renewable energy suggests the amount of renewable energy thatwould be available for purchase at a particular price. It gives the cumulative quantity of supplywhich is viable for production.In this project, we estimate the supply curve for the wind energy for various states in India.The concept of supply curve for renewable energy can be applied to find out how muchgeneration of energy would be viable at a given Feed in Tariff (FiT). At any point of FiT for aplant to be a viable to generate the FiT should be more than Levellised cost of Energy (LCOE)for that plant.
The FiT is a price that investor would expect to receive over the life of the project. It is aregulated price for purchaser of renewable energy by the utility. The LCOE is calculated to meetthe required returns of the projects debt and equity investors, and represents the lowest contract
price at which projects are economically feasible.
4.1. Need for supply curveConsidering the current scenario of the costs of production of electricity from the renewablesources vs. the costs of production from the conventional sources (such as coal and gas basedplants), the costs of renewable sources is comparatively higher but since the renewable energytechnologies can help countries meet their policy goals for secure, reliable and affordable energy,
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it becomes important for governments around the globe to support and encourage morerenewable energy production. This calls for certain policies favoring the renewable sources, thebasic one of course is providing the FiT which is a little higher than the price paid for theconventional source of energy.
Most of the States in India have set the RPO targets which they wish to achieve and one of themeasures they have taken to achieve these targets are; to set a FiT, but as explained in the earliersection most of the states have failed to achieve these targets, primary reason being thedifference between the target and the amount of energy viable at the given FiT prescribed by theregulation. If we wish minimize difference between the RPO targets and amount of energy viableat given FiT, we need to formulate the supply curve. Supply curve would clearly show theamount of energy which is available for production at a particular FiT (where FiT >= LOCE) forthe plants. Without reliable information on the relative costs and benefits of the availablerenewable energy technologies it is difficult, if not impossible, for governments to accuratelyassess which technologies are the most appropriate for their particular circumstances and whichto support.
The rapid cost reductions in some renewable power generation technologies means that up-to-date data is required to support policies for renewable, and a dynamic analysis of the costs ofrenewable is needed to decide on the level of support. Support policies designed to overcome thebarriers and market distortions faced by renewable are driving these cost reductions andhighlight the fact that the cost of supporting the deployment of renewable is much lower than astatic analysis of costs would imply. The rapid growth in installed capacity of renewable energytechnologies, technology improvements and the associated cost reductions mean that even datafrom one or two years ago can significantly overestimate the cost of electricity from these
technologies. Policy makers should take note of these rapid developments and recognize that adynamic analysis of the cost of well-designed support measures is essential in order to decideappropriate levels of support.
Currently in this project we concentrate on accurately capturing the parameters which should betaken into consideration in calculating the LCOE and formulation of supply curve. One canextend the model to assess the costs dynamically after an accurate static model is developed.
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4.2. Limitations of Supply curveThis supply curve analysis could be used to find high-level indicative cost information aboutvarious renewable energy resources. As such, this supply curve analysis will not provide costdata specific to particular project, for several reasons. First, the analyses are based on resourcedata, not on specific cost information about identified projects. Second, the analyses are based ongeneration and transmission costs developed pursuant to high-level assumptions. Also the modelwhich is developed is a Static model and in future due to the technological advancements theLCOE for the sites could be much lower such parameters also need to be considered beforetaking any policy decision.
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5. Levelized cost of electricityThe LCOE is the price of electricity required for a project where revenues would equal costs,including making a return on the capital invested equal to the discount rate. An electricity priceabove this would yield a greater return on capital, while a price below it would yielder a lowerreturn on capital, or even a loss.
When evaluating the viability of any new technology or any new proposed project it becomesvery important to analyze the costs of each year of the life of the investment, taking relevant
costs into account such as the direct costs, the indirect costs, the overhead costs, the taxes andalso the opportunity costs. Any externalities such as the environmental costs etc are also to beevaluated. The level of use of the analysis would also be influenced by the level of detailundertaken.There are certain limitations in this analysis due unavailability of data. For evaluating aparticular project a detailed analysis is warranted, but due to constrain of limitation of dataavailable has forced us to make calculations based on the FiT available. The model can be usedto calculate more realistic values of the levelized cost for a particular location if accurate data forthat particular location are made available. But the model does not exhaustively address all thefactors which might be specific to a particular site.The analysis in this project focuses on estimating the cost of wind energy from the perspective ofa private investor, whether they are a state-owned electricity Generation utility, an independentpower producer, or an individual or community looking to invest in small-scale renewable. Theanalysis is a pure cost analysis, not a financial one, and excludes the impact of governmentincentives or subsidies, taxation, system balancing costs associated with variable renewable, andany system-wide cost savings from the merit order. Similarly, the analysis doesnt take intoaccount the benefits that would be available for reducing the CO2, nor the benefits of renewablein reducing other externalities (e.g. reduced local air pollution, contamination of naturalenvironments, etc.). Similarly, the benefits of renewable being insulated from volatile fossil fuelprices have not been accounted for. These issues and others are important, but are not currentlyconsidered in this analysis.The principal determinants of the LCOE of wind power systems include capital costs, operationand maintenance costs, and the expected annual energy production. Assessing the cost of a windpower system requires careful evaluation of all of these components over the life of the project.
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Resource quality
Capital costs and Cost of Capital
Efficiency and Life of Equipment and Capacity Utilisation FactorFig.5.1.Parameters for LCOE
5.1. Parameters required for calculating the LCOE5.1.1. Cash FlowsCash flows from operating activities include all revenues captured, minus operating andmaintenance expenses, principal and interest paid on the debt, and income taxes paid and therequired return on equity. Cash flows are typically on a different time basis throughout the life ofa project. In the analysis of a developing technology which has a life of around 25 years using asimple Conforming pattern (i.e. annually) sacrifices little accuracy. But a more detailed analysisrequires much complex models if we have to also factor the uncertainties which might come upduring operation.
5.1.2. Inflation RatesCash revenues can either be represented in terms of Current Rupees or Constant Rupees. Theactual cash flow into the project is called the current rupees cash flows. Current cash flowchanges every year because of inflation (or deflation). Constant rupee cash flow is the number ofequivalent rupees in the base year.
CF = CFn/ (1 + I)^n
Where I = Rate of inflation
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CFn = the current cash flow in the year nCF = the constant cash flow in base year
One can use different inflation rates for the analysis of the constant rupees. One must alsoundertake sensitivity analysis based on different projected inflation rates for the future as it isdifficult to estimate the inflation rates for the future.
5.1.3. Discount ratesTime value is the price put on the time that an investor waits for a return on an investment or the
opportunity cost. The discount rate acts as a measure of this time value and is central to thecalculation of present value. Discount rates are often used to account for the risk inherent in aninvestment.
5.1.4. Debt CostsAs the financing for the project is typically a combination of debt and equity in the ratio of 7:3.The debt part requires to be paid back and has predefined structure for the repayment of theprinciple. The repayment profiles of the debt are generally a tailor made repayment profile whichis specific to a particular project. New projects being or to be tendered which are to be designed,built, financed and operated by a dedicated majority privately-owned special purpose vehicle(SPV). Lenders finance the investment phase; hence support the construction risks but also theoperating/maintenance risks as they are repaid over a long period of time (15-25 years) once theproject comes into operation. The debt component is structured in such way that lenders arerepaid under very conservative/adverse situations but there is a limited recourse to theshareholders of the SPV.
5.1.5. Operation and Maintenance CostsThese are costs that have been incurred for the administration, supervision, operation,maintenance, preservation, and protection of the plant. Normative O&M expenses for the firstyear of the Control Period (i.e. FY 2012-13) shall be Rs 9 Lakh per MW. Normative O&Mexpenses allowed under these Regulations shall be escalated at the rate of 5.72% per annum overthe tariff period to compute the levelized tariff. [11]
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5.1.6. DepreciationThis is a method of allocating the cost of a tangible asset over its useful life. Businessesdepreciate long-term assets for both tax and accounting purposes. In case of the Wind energyprojects in India, to accelerate the growth the government allowed for accelerated depreciation(AD). AD in the wind energy projects was a huge boost to the investors as it has hugeadvantages of tax savings for profit making organisations. This is a fiscal sop that allows profit-making companies to put up windmills and write down 80 per cent of the cost of the windmill asdepreciation expenditure and, hence, reduce income-tax. But currently this has not beenapproved by the government, it was allowed in the earlier years to spur the growth. Thegovernment is currently working on whether or not to allow for accelerated depreciation.Currently for our analysis Depreciation per annum shall be based on Differential Depreciation
Approach' over loan period beyond loan tenure over useful life computed on Straight Line
Method. The depreciation rate for the first 12 years of the Tariff Period shall be 5.83% perannum and the remaining depreciation shall be spread over the remaining useful life of theproject from 13th year onwards. [5]
5.1.7. Return on EquityThe amount of net income returned as a percentage of shareholders equity. Return on equitymeasures a corporation's profitability by revealing how much profit a company generates withthe money shareholders have invested.
ROE is expressed as a percentage and calculated as:Return on Equity = Net Income/Shareholder's EquityThe value base for the equity shall be 30% of the capital cost or actual equity (in case of projectspecific tariff determination) as determined under Regulation 13.The normative Return on Equityshall be:
a) 20% per annum for the first 10 years.b) 24% per annum 11th years onwards. [11]
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5.1.8. Income TaxTax-free income from sale of power for 10 years under section 80IA of the Income Tax Act, ifthe renewable energy power plants start generation before31st March 2013. [11] The Governmentof India is likely to introduce a new direct tax code (DTC), which will be effective from 1 April2013. The alternative incentive mechanism suggested under DTC provided for expenditure-based incentives to the business of generation, transmission and distribution of power. Allrevenue and capital expenditures (with a few exceptions) will be allowed as tax deductionupfront instead of claiming amortization/depreciation on capital expenditure and no tax holidaywould be available.
5.1.9. Net Present ValueNPV compares the value of a dollar today to the value of that same dollar in the future, takinginflation and returns into account. If the NPV of a prospective project is positive, it should beaccepted. However, if NPV is negative, the project should probably be rejected because cashflows will also be negative.
NPV = Summation {(Ct/ (1+r) ^t) - C0} over t= 1 to TCt = Cash Inflow in the year t.R = Discounting rate
T= life time period of the projectC0 = Cash out Flow in the first year or Capital Investment.
5.1.10. Capacity utilization FactorCapacity utilization factor is the ratio of the actual energy produced in a given period, to thehypothetical maximum possible, i.e. running full time at rated power. Capacity Factor is not anindicator of efficiency. Wind power is by nature intermittent. The wind does not always blow;sometimes a wind power plant stands idle. Furthermore, wind power is really not dispatchable,one cant necessarily start it up when one most needs it. As wind power is first added to aregions grid, it does not replace an equivalent amount of existing generating capacity. Capacity
Factor is an indicator of how much energy a particular wind turbine makes in a particular place.It depends primarily on the Wind power density (WPD) in that particular region.
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Wind Power available = CUF * capacity installed.
Table 5.1: Relationship between the WPD and the CUF according to the norms [11]
Annual Mean Wind Power Density (W/m2) CUFUp to 200 - 20%
201-250 - 22%
251-300 - 25%
301-400 - 30%
> 400 - 32%
5.1.11. Capital CostsThe installed cost of a wind power project is dominated by the upfront capital cost (often referredto as CAPEX) for the wind turbines (including towers and installation. Similarly to otherrenewable technologies, the high upfront costs of wind power can be a barrier to their uptake,despite the fact there is no fuel price risk once the wind farm is built. The capital costs of a windpower project can be broken down into the following major categories:
Wind turbine generator including its auxiliaries
Land cost & site development charges and other civil works
Transportation charges, evacuation cost up to inter-connection point
Financing charges and IDCThe capital cost for wind energy projects shall be ` 575 Lakh/MW (FY 2012-13 during first yearof Control Period) and shall be linked to indexation formula as outlined under Regulation 25. [11]
The indexation formula is also given in the regulation. The primary factors being the indices ofthe major components of the capital costs listed above.
5.1.12. Subsidies and CDM benefits:There are many other subsidy benefits provided by both the state and central government for thepromotion of renewable energy and there are also Clean Development Mechanism Benefits
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which are provided to this sector but in this project we havent considered these benefits for
calculating the LCOE for the projects.
5.2. Levelized Cost of Energy CalculationThe LCOE is that cost that, if assigned to every unit of energy produced by the system over theanalysis period for which the NPV of the project would be zero after considering all the cashinflows and outflows which have been listed above.In the project we set forth to calculate the LCOE, which incorporates the assumptions regardinginflation, and have used nominal discount rates, the cost determined is constant each year or flatacross the economic life of the project. Thus giving a perspective from the investors point of
view as mentioned earlier.
5.3. Methodology FollowedThe Capacity of the Plant is assumed based on the available land to set up the wind mills. Basedon the capacity the required initial capital is calculated considering the average value ofinvestment prescribed by the CERC. The value is Rs. 575 Lakh/ MW of capacity installed. Theinitial capital which is required is raised using both Debt and Equity raised by the SPV in theratio of 7:3. The required pre tax Return on Equity (ROE) is assumed to be 16% and the Debtcost is 10%. These values are pug in cells which can be changed based on the tailored financingwhich has been approved for the project. Inflation is assumed to be 3%. The depreciation isassumed to be straight line method @5.38% each year. [11] The O&M expenses are assumed tobe Rs. 9 Lakh/MW of installed capacity, which would increase each year by 5%. [11]
The model attached with the Excel calculates the LCOE based on the above assumptions. TheLCOE which is calculated for a particular site would give the minimum price which is requiredat a particular location for generation to be viable in that location. The LCOE is calculated for allthe potential sites in a particular state. The data of the potential sites available for wind energy
generation in a state were obtained from CWET web link.[12] With this data one can formulate thesupply curve for the Wind Energy in the state. Same exercise can be done for all the states andwe can have a supply curve based on which the government can decide on the required level ofsupport and also the FiT which is required for a set target of RPO.
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5.4. Supply Curve FormulationOnce we have calculated the LCOE for the generation of electricity for each of the locations, wehave formulated the graph between the prices vs. quantity of generation viable at that price. Thequantity of generation viable at a particular price is the summation of the capacities of all thelocations with LCOE less than that price. This supply curve thus formed would have a positiveslope. All the other factors being equal more locations would become viable for generation if theprice offered for electricity is higher.For our calculations since we did not have any site specific information about the cost of landetc. and the amount of land available at a particular location, some of the following assumptionswere made:1) Distributed the available capacity equally in all the locations identified in a state as the data
for the capacity that can be installed at individual locations was not available.2) Assumed the capital cost of setting up a wind farm to be Rs.575 Lakh/MW of installation.
Generally this varies from site to site as the various components that go into the capital cost
are different for different locations.3) The Capacity Utilization Factor(CUF) was assumed based on the CERC regulation which
gave a relationship between the wind power density of a particular location and the CUF ofthe wind farm which can be setup in that location.
Based on the above assumptions we have formulated the supply curves for 5 states Tamil Nadu,Gujarat, Maharashtra, Andhra Pradesh and Karnataka. The supply curves for the five statesmentioned above are available in the excel file attached.Example of supply curve for Tamil Nadu is as follows. We can see that supply curve has apositive slop as LCOE increases more number of wind energy sites become viable for producingelectricity. Thus we can find out exactly how much renewable energy potential is viable at anygiven LCOE. This could be used to set achievable RPO targets for states. As shown in graph andtable below as per our calculation 14 sites with potential of 1413 MW would be viable at LCOEof Rs. 4.26 /kWh for production of electricity.
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Fig. 5.2: Supply curve for Tamil Nadu
Potential 14152 MW
Installed capacity 6,987.60 MW
Available Capacity 7,164.40 MW
CUF No. of SitesTotalPower(MW)
LCOE(Rs./kWh)
32 14 1412.69859 4.2630 19 3329.93239 4.5425 6 3935.37465 5.4522 8 4742.63099 6.1920 24 7164.4 6.81
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6. References1. Executive summary for the month of October 2013, Central Electricity Authority. Accessed
in Nov. 2013 from http://www.cea.nic.in/reports/monthly/executive_rep/oct13/contents.pdf2. Energy Statistics 2013 (Twentieth issue), Central Statistics Office, Ministry of Statistics and
Program Implementation, GOI, Accessed in Oct. 2013 fromhttp://mospi.nic.in/mospi_new/upload/Energy_Statistics_2013.pdf
3. ENVIS Centre on Renewable Energy and Environmenthttp://www.terienvis.nic.in/index2.aspx?slid=226&mid=1&langid=1&sublinkid=111
4. India Infrastructure Report 2010, Infrastructure Development Finance Company, Economics,Regulation, and Implementation Strategy for Renewable Energy Certicates in India 42-57,Author - Anoop Singh. Accessed in Oct. 2013 fromhttp://www.idfc.com/pdf/report/IIR_2010_Report_Full.pdf
5. M. Ramesh, August 2013. Cabinet clears generation-based incentive for wind powerprojects, Business line.http://www.thehindubusinessline.com/industry-and-economy/cabinet-clears-generationbased-incentive-for-wind-power-projects/article5019072.ece
6. Powering Ahead with Renewables Leaders & Laggards, Greenpeace India in associationwith Infraline, Abhishek Pratap et al. April 2013. Accessed in Oct. 2013 fromhttp://www.greenpeace.org/india/Global/india/report/2013/powering-ahead-with-renewables.pdf
7. Renewable energy technologies: Cost analysis series, International Renewable EnergyAgency IRENA. Accessed in Oct. 2013 fromhttp://www.irena.org/DocumentDownloads/Publications/RE_Technologies_Cost_AnalysisBIOMASS.pdf
8. Renewable Energy regulatory framework, Ministry of New and Renewable energy, GOI.Accessed in Oct. 2013 from http://www.mnre.gov.in/information/renewable-energy-regulatory-framework/
9. Summary for Policy Makers: Renewable Power Generation Costs, Report by IRENA,November 2012. Accessed in Oct. 2013 fromhttp://www.irena.org/DocumentDownloads/Publications/Renewable_Power_Generation_Costs.pdf
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10. Sanjay Jog, October 2013, Business Standard. Accessed in Oct. 2013 fromhttp://www.business-standard.com/article/economy-policy/cerc-unveils-green-energy-tariff- guidelines-112022100007_1.html
11. Terms and conditions for tariff determination from renewable energy sources, CentralElectricity Regulatory Commission Regulation 2012, Dated 06.02.2012. Accessed in Oct.2013 from http://cercind.gov.in/2012/regulation/CERC_RE-TariffRegualtions_6_2_2012.pdf
12. Wind monitoring stations with MAWS & MAWPD, MNRE Oct. 2013. Accessed inOct.2013 http://www.cwet.tn.nic.in/Docu/List_of_WMS_on_31.10.2013.pdf
