Draft Guidelines for Development of Onshore Wind Power Projects: A Preliminary Analysis

[The following guest post is contributed by Alimpan Banerjee, who is an Associate at Luthra and Luthra Law Offices, New Delhi. Views expressed are personal.]The Ministry of New and Renewable Energy (“MNRE”) has recently released the Draft Guidelines for Development of Onshore Wind Power Projects (“Guidelines”) dated May 12, 2016 (available here). In this post, the author attempts to analyze some of the key provisions of the aforesaid Guidelines and their effects on the development and deployment of wind energy in India.At the very onset it must be mentioned that these Guidelines come as a welcome change as the incumbent guidelines were issued way back in 1996 and had become obsolete given the rapid changes in technology and the large scale deployment of renewable energy witnessed in India lately. However, the Guidelines have evoked a mixed response from the industry and experts alike; in the light of the same, it becomes necessary to look closely at the fine print of the Guidelines and critically analyze the same. The salient provisions are discussed below.1.         Site Selection and FeasibilitySite selection and the procurement of land is arguably one of the most crucial stages in the setting up of a wind power project and is usually passed on the EPC Contractor under the project contracts. Therefore, these Guidelines are relevant not only from the perspective of the project developers but also the various EPC contractors executing such projects.Land procurement faces various regulatory and legal hurdles under the incumbent policy framework. These Guidelines seek to streamline and formalize the same through a set of uniform policy measures.a)   Land Use Permission: Under the Guidelines, the obligation has been transferred to the project developers to ensure that the land can be legally used for the desired purposes. One would presume that this obligation extends only to project developers setting up projects on privately owned land.  Under the various state policies, developers intending to set up projects on Govt. or revenue land need to apply to the designated nodal agency, and on being accorded permission can proceed with the same. In such a situation, the act of receiving an approval from the designated nodal agency would substantiate the inference that the land can be used for the designated purpose, thereby discharging the developers of any further obligations.        It is worthwhile to mention here that some states like Andhra Pradesh have done away with the mutation of land use requirement and such project land is accorded deemed to have Non-Agricultural status on the payment of applicable statutory fees.[i]         Therefore, it will be fair to presume that the extant requirement to ensure that the land can be legally used for setting up wind power projects by obtaining the necessary permissions and approvals is only for developers setting up projects on privately owned land. However, a clarification in the Guidelines with respect to the same would be highly desirable.b)       Availability of wind resource: The project developer is required to ensure the availability of wind resource at the site based on the various parameters measured for the purpose. This is in continuation of the existing policies where for self-identified locations by developers they have to carry out a wind resource assessment study as per prescribed norms and then obtain a wind data validation report by the National Institute of Wind Energy (“NIWE”) for the project to progress. This again seems to be only applicable for private land identified by the developers, as the Govt. conducts a bidding process for allocation of land for wind power projects identified by it.c)       Technically and commercially feasible grid connectivity: The developer is mandated to ensure that the grid connectivity is technically and commercially feasible at the selected site. Further, for establishment of the evacuation arrangement and grid connectivity the respective Electricity Regulatory Commission Order/Regulation will be applicable.      Experts feel this provision is overly prescriptive and may dampen investor sentiment towards the sector as Developers usually have minimal to no control over grid availability. It unduly passes on the responsibilities of the Govt. with respect to grid connectivity on to the developers.[ii]         It may be interesting to note here that as per the “Draft National Renewable Energy Act, 2015”, developers are eligible for deemed generation benefits and payments as per the power purchase agreement (“PPA”) even on the grid not being available.[iii]This creates an ambiguous situation where the developer is responsible for grid connectivity and yet is eligible for deemed generation benefits on the same not being available.d)     Transport logistics: The developer is mandated to ensure that the components of the wind power project can be transported to the selected site with existing infrastructure and in case any addition is required the same would be created without any legal issues.       This is one of the most crucial provisions of the Guidelines as several key players in the industry have been facing issues regarding the same lately. Wind projects and manufacturing facilities are usually located in a portion of a large parcel of land with other developers and allied corporations occupying the rest of the land. In such a situation, the transportation of blades, turbines, nacelle, hub, controller etc. without interfering with the enjoyment of the property by other occupants can be a huge logistical challenge given the size and weight of wind turbine components.      To overcome this, the ideal approach would be to enter into appropriate covenants through the sale/lease deed and the easement deed while procuring land from the original owner so as to ensure that the other occupants of the parcel of land cannot interfere/impair or raise objections to the business activity of the developer by virtue of their occupation of the adjoining lands.  The Govt. seems to have left this entire aspect in the realm of private contract between parties whereas ideally the Govt. should have taken the onus upon itself to make land with suitable transportation facilities available to the developers.e)      Environmental acceptability:  The developer has to obtain all the necessary permits and clearances from the concerned authorities if the land falls in the area of forest land, civil aviation, defense, heritage establishments etc.        Even here, the role assumed by the Govt. is negligible transferring complete responsibility on to the developer. The Govt. should in the least have assumed the role of a facilitator in ensuring coordination with the various authorities and ensuring time bound disposal of applications, as is the case under the various state policies.2.         Type Certification and Quality AssuranceThe manufacturers of wind turbines and components are mandated to obtain type and quality certification from an internationally recognized certification body and such type and quality certification should also include the manufacturing facility in India.This is a highly desirable provision as it does away with the monopoly enjoyed by the NIWE with respect to type and quality certification. It is a well-known fact that obtaining a certification from the NIWE was a tedious process and the impugned provision will go a long way in boosting investor sentiment and infusing dynamism in the sector.The NIWE also proposes to bring out a list of type and quality certified wind turbine models eligible for installation in the country. Though, this provision will help the ease of doing business in the sector, it might impair the rapid deployment of breakthrough technology in the sector.3.         MicrositingMicrositing refers to the practice to arranging the wind turbine generators (“WTGs”) in such a manner so as to ensure optimal output from their operation. These Guidelines have taken rapid strides in recognizing and formalizing the process of micrositing, which is a comparatively new practice in the wind industry. Until these Guidelines were promulgated, the process of micrositing was largely governed as a matter of private contract between parties. Now these Guidelines seek to formalize and regularize the same by prescribing that the distance between a WTG with an adjacent WTG should be three times the diameter of the rotor (3D). The rows should also be formed in a manner such that it’s perpendicular to the predominant wind direction and the ideal distance between rows should five times the diameter of the rotor (5D).4.         Capacity Utilization Factor (“CUF”)In order to optimally utilize the wind energy resources available the project proponent should judiciously select the size of the wind turbines for a particular site. The annual average CUF should not be less than 20% in any case.There are a few problems with this provision as discussed below.Firstly, it might affect the Internal Rate of Return (IRR) of some of the older projects which will then be forced to modernize. This modernization comes with its own additional cost and will be a huge burden on the developers in an already saturated financing market, with a low appetite for risk.Secondly, the inclusion of the provision itself is quite redundant as most projects deploy modern turbines that provide 20% CUF and no developer will risk capital, nor banks will finance projects, that suffer low CUF.Finally, a developer may initiate a project with an acceptable CUF but would have no control if the wind regime alters from climate change events. Thus, a carve out for Force Majeure events in the Guidelines itself is highly desirable[iv].5.         Repowering and HybridizationThese Guidelines provide the option to the developers to go for repowering based on improved wind turbine technology being available. However, such repowering has to be in line with the “Draft Policy for Repowering of Wind Power Projects” (available here) released by the MNRE on March 14, 2016. It is interesting to note that the aforementioned draft policy is applicable only to wind turbine generators of 1 MW and below, thereby making the provision for repowering in the present Guidelines only applicable to a limited number of projects. A large number of projects which could have benefitted by installing higher capacity generators will be consequently excluded from availing any benefits/incentives from the Govt. under the repowering mechanism.The Guidelines also give an impetus to hybridization of wind energy with other sources of renewable energy so as to minimize disruptions in the supply of power from wind energy and ensure optimal utilization of the transmission infrastructure. However, the appetite for such hybrid projects in India has usually been low and the Govt. will have to introduce further radical policy measures to give a thrust to such projects. However, this a small step in the right direction.6.         Other provisionsa)     Grid regulations: The Guidelines state that wind turbine control equipment should be certified for the compliance of the grid regulations including Active/Reactive power control, Low Voltage Ride Through (LVRT), power quality and other applicable requirements.  However, unlike the previous provisions, this provision is silent as to whether such certification has to be done through a designated Indian agency or certification by any internationally acceptable agency would suffice towards compliance with this provision.b)      Metering and Monitoring: It has been made necessary for the developers to install Availability Based Tariff (ABT) compliant meters with telecommunication facility at the pooling substation to enable implementation of forecasting and scheduling regulations. However, it is not clear whether these Guidelines will apply to future projects only or are applicable to existing ones as well. In case of the latter, the developers would have to incur significant costs in replacing the existing meters.  It is further mandatory to communicate vital grid parameters on real time basis to the Regional/State Load Dispatch Centres.c)       Health & Safety: In order to enhance the safety of the people working/residing near the wind power installations the NIWE will prescribe criteria for noise and shadow flicker. This shall be an additional cost to the developers of projects already commissioned (if applicable) to comply with these new safety stipulations.d)  Decommissioning Plan: The developers are required to submit a decommissioning plan along with the proposal to establish a wind power project. The confusion is created with the usage of the term ‘after completion of its useful life’ in the Guidelines. We have seen that the useful life of most projects are 20-25 years; a situation where the developer chooses to repower or the project remains functional post its estimated useful life has not been covered under this provision of the Guidelines and might create ambiguity regarding as to when exactly the decommissioning plan should be implemented. Hopefully, the same will be clarified under the guidelines for decommissioning which the NIWE proposes to formulate.ConclusionHaving an overall look at the details of the Guidelines it can be safely concluded that it oscillates between being over-prescriptive in parts and path breaking in others. However, three major questions need to be answered in principle for these Guidelines to achieve their intended purpose:(i)     Do the provisions with respect to procurement of land apply only to privately procured land?          If they apply to lands allotted by the Govt. then the Guidelines will have to be suitably clarified or tweaked to remove the existing ambiguities.(ii)     Do these Guidelines apply only to future projects or projects that have been already installed as well?         If they apply to already installed projects as well, then clear timelines as to compliance with the provisions of the extant Guidelines will have to be incorporated into the document.(iii)       What are the consequences of non-compliance?        The text of the Guidelines while containing words such as ‘shall’ and ‘mandatory’ do not mention any consequence for breach or non-compliance with the same. This paradox renders the enforcement of these Guidelines suspect and the MNRE would be well served by reflecting on the same.Thus, hopefully the contentious points will be clarified and modified in due course of time and the industry/stakeholders will have something to cheer about.- Alimpan Banerjee [i]  Clause 8 (g), Andhra Pradesh Wind Power Policy, 2015- (available here) [ii]  Kaavya Chandrasekharan, Ministry of New and Renewable Energy issues fresh draft norms for onshore wind power projects , (Economic Times, May 16 2016) (available here) [iii]  Clause 42 (2) (iii), Draft Renewable Energy Act, 2015 (available here) [iv] Special Correspondent, Wind energy developers must secure power grid connectivity, (The Hindu, May 13 2016) (available here)

Source: Corporate

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