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    Quantum Leap in Wind Power in Asia: Structured Consultation

    Asia Clean Energy Forum Pre-event Workshop

    Asian Development Bank, 6 ADB Avenue, Metro Manila, Philippines, 21 June 2010

    Prepared by Mr. Soren Krohn

    Overview of Key Issues

    for Group Discussions

    Financing&

    Costs

    Turbine&G

    rid

    Technology

    Policy&

    Regulation

    Project

    Development

    Off-GridSm

    all

    Wind-Diese

    l

    Risk Identification and Risk Allocation***

    Knowledge of Wind Energy in Local Financial Sector,

    Depth of Local Long-Term Capital Market ***

    Current Wind Turbine Market*** * ***

    Project & Turbine Size Constraints *** * **Modern Turbine Capabilities - Wind Farms as Power

    Plants ***

    Technical Grid Challenges*** * ***

    Institutional / Administrative / Economic Obstacles to Grid

    Integration * *** * ** ***

    Institution Building & Capacity Building, First Project*** ** **

    Economic Barriers at Power Generation Planning Stage

    ** ***Energy Tariff & PPA Issues

    ** *** * ***

    Permitting & Licensing* *** * *

    Public Land Use policy*** **

    Wind Resource Assessment & Site Data* * *** *

    Environmental & Social Impacts* ** ***

    Public Spatial Planning (Zoning)* ** ***

    Experience/capacity for IPP/BOO WInd Projects* ** *** ***

    Critical Mass Issues, Local Participation, Local Content** ***

    Wind-Diesel System Integration Challenges***

    *** = Primary theme with subject note; ** = Secondary theme; * = Tertiary theme;

    The views expressed in this presentation are those of the author and do not necessarily represent those of the Asian Development Bank.

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    Financing and CostsThis session addresses financing and cost issues related to large-scale wind projects. There is

    considerable overlap with the other sessions, in particular policy & regulation and project

    development. The table attached below lists typical barriers to financing projects. Each subjectis

    treated in more depth in the notes for the other sessions. The Session Chair may wish to discuss

    typical project finance structure, depending on the interest of the audience.

    Key Issues:

    Financing and Costs

    Why does financing for wind projects fail or succeed?

    Risk identification and allocation:

    - Developer qualifications- Electricity offtaker qualifications- wind resource risk- construction risk- land risk- environmental & social surveys risk- grid risk- revenue risk (PPA)

    - power curtailment risk

    - regulatory risk- availability and operations risk- health & safety risk

    Inadequate legal and regulatory framework

    Little knowledge of wind in local financial sector

    Depth of local long-term capital market

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    Examples of Major Risks for Wind Farm FinancingBarrier Possible Solutions

    Note: Most mitigation measures mentioned below are

    treated in more depth in the policy & regulation section

    and turbine & grid section.1 Risk allocation between

    contracting parties

    Risk should be carried by the party able to control the risk

    or to most cheaply mitigate the risk. (e.g developer takeswind risk, government guarantees against regulatory

    changes with major economic impact). Risks beyond the

    control ofeither party (e.g. exchange rate risk, price

    index risk) are generally most cheaply carried by the

    electricity purchaser.2 Developer qualifications:

    Insufficient experience,

    inadequate capital base

    Form consortia with experienced companies

    3 Electricity offtaker with littleIPP experience & poorcredit

    rating

    Contractual framework needs to be established in

    accordance with best international practice. Lack of

    regulatory framework can partially be remedied by

    "regulation through contract".

    PPA may need to be backstopped by government

    guarantee and partial risk guarantee from credit insurance

    company / MIGA (political risk, payment risk)4 Wind resource uncertainty, lack

    of long-term reference data,

    poor site measurements

    Governments and development agencies can finance

    modern mesoscale wind atlas work based on satellite

    data, meteorological modeling and meteorological

    reanalysis data. Guidelines for ToRs available from

    World Bank (ESMAP).

    Due to poor long-term meteorology data in many

    developing countries, a ground-based long-termprovincial measurement program is often needed to

    obtain reference data, which is used to calibrate

    measurements in orderto find long-term mean wind

    speeds. Good examples of such programs in Egypt and

    Syria.

    Bankable site measurements need to be done by certified

    consultants. At least 12 months of measurement if good,

    long-term reference data is available from nearby

    locations, otherwise preferably longer time period for

    measurements.

    5 Construction risk Form consortia with experienced companies with localknowledge and experience

    6 Land risk, property rightspoorly defined, lack of

    government land use policy

    Property rights programs for land registration may be

    needed, government land use policy needed

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    Turbine and Grid TechnologyThis session addresses wind turbines and the realities of grids in developing countries in Asia,

    where spinning reserve often may be a luxury, and rolling blackouts the rule, and where

    frequency and voltage stability may be questionable. Many participants come from countrieswith

    little or no wind power thus it may be useful to discuss that the challenges can be handled and are

    handled even with high wind penetration above 20% by energy. The notes in the annex focus on

    (1) main trends in the wind turbine market and (2) how the grid challenges are actually met in

    countries with a large wind power penetration. This session will not discuss small turbines or

    mini-grids, which are treated in another working group. The main topics that may likely be raised

    on grid issues are listed in the table below.

    Key Subjects:

    Turbine and Grid Technology

    Wind Turbines

    Current Wind Turbine Market

    Project & Turbine Size Constraints

    Modern Turbine Capabilities - Wind Farms as Power Plants

    Grid Integration Issues

    Technical Grid Challenges

    Institutional / Administrative / Economic Obstacles

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    TypicalTransmission Grid Issues in Developing CountriesBarrier Possible solutions

    1 Little or no knowledge of wind powercharacteristics, (e.g. assumption that

    wind power is intermittent100%-0% in

    seconds rather than several hours)

    Capacity building for TSO staff required,

    including basic wind power technology, power

    quality and grid support properties of modern

    wind turbines, meteorology, use of short-term

    wind forecasting in dispatch. Simulation of power

    generation based on historical local meteorology

    data and historical hourly load curve.2 No existing standard grid code adapted

    for wind turbines or wind farmsEstablish grid code for wind turbines and wind

    farms based on mainstream large international

    markets, but adapted to local grid conditions. If

    first project is an IPP/BOO project, define and

    subsequently recycle interconnection

    requirements as a general grid code3 Grid studies, including dynamic grid

    stability studies for project unavailableFor larger wind farms it is necessary to include

    such studies in the transmission project related to

    the wind farm.4 Weak grids and long radials to reach

    (often remote) windy areas require grid

    reinforcement / grid extension. Wind

    developer demands for grid connection

    in remote areas may be costly to meet.

    It is extremely useful to prepare a generic grid

    reinforcement cost study for each (wind-relevant)

    section of the transmission grid (to be updated,

    say after 3-5 years). This study will complement a

    national mesoscale wind resource map in orderto

    search for economically suitable sites and begin

    local wind measurements.

    Separate transmission queue is needed for IPP

    project pipeline, with clearly defined

    responsibilities for transmission system operator.

    5 No clear responsibility fortransmissionsystems operator to provide

    interconnection for IPP wind farms6 Transmission master planning not

    adapted to IPPs: Long transmission

    project queue, often 3 years of wait or

    more. Master plan revision slow.7 Wind projects are often required to bear

    the cost of grid reinforcement / grid

    extension, even if a stronger local grid

    ora grid extension to remote areas also

    benefits local consumers and electrical

    utility.

    The transmission grid should be considered a

    public good, to be financed through a postage

    stamp transmission tariff.

    Central planning can be useful to make wind en-

    ergy development take off: Governments and

    development banks can help finance grid

    extension to windy areas, where pre-assigned

    sites can be tendered as a pipeline of IPP projects.

    Example: Egyptian Red Sea Coast, where 3,500

    MW of IPP & government-owned projects will be

    built 300 km away from the main transmission

    grid. Government, World Bank, African

    Development Bank, EIB and KfW are financing

    grid and EIA for the whole area.

    8 First projects in a remote, high-windarea cannot bear the cost of grid

    extension, but additional projects could.

    This chicken and egg problem

    prevents wind development to take off

    in potentially promising high-wind

    zones.

    9 Autogeneration wind projects faceproblems of negotiating interconnection

    fees, wheeling and banking rights, and

    agreements on cost of balancing power.

    Replicable models have been developed in e.g.

    India and Morocco.

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    10 Grid maintenance planning not adaptedto wind IPPs: TSO may demand right to

    interrupt grid, say 1% of the hours of

    the year.

    IPP contracts need to be take-or-pay contracts,

    with damages to IPP equal to actual lost

    production in case of any grid interruption, since

    the maintenance event is controlled by the TSO

    and can be planned for the low-wind season.

    Otherwise developer may require some (1% /

    capacity factor) in risk premium!11 Connection requirements for small

    wind farms (connected at distributionvoltage level) are sometimes as

    demanding as for large wind farms

    connected to the transmission grid.

    No technical need to apply transmission codes at

    distribution voltage (MV) level.

    12 Long gate closure times in electricitymarket / least cost dispatch planning

    makes it difficult for wind supplies to

    be scheduled efficiently

    Gate closure times can be shorter, i.e. limited only

    by technical requirements for dispatch.

    Dispatch center needs to run a short-term wind

    generation forecast model, if there is a high level

    of wind penetration in the grid control area.

    Larger IPP wind farms should be required to

    supply real-time wind data from on-site

    meteorology masts and generation and

    availability data from SCADA systems for thewind forecasting model.

    13 Large concentrations of wind farms inremote areas put additional demand on

    grid management functions to ensure

    grid stability.

    Grid codes should provide for remote control of

    wind farms or clusters of wind farms by dispatch

    center, e.g. for variable reactive power

    compensation, and in emergency situations

    possibility of energy curtailment from 0-100%.14 Capacity credit - if part of tariff sys tem

    - may discriminate against wind by

    assigning it zero capacity value

    Wind does have a capacity value in the grid,

    which can be determined by simulation models

    including historical data for wind and electricity

    demand, and observing a given loss-of-load

    probability. These analyses indicate that for

    moderate amounts of wind in the grid, say, up to20% by energy, the capacity value is about equal

    to the average capacity factor for wind power.

    June 18, 2010 Soren Krohn [email protected]

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    Annex 1, Turbine and Grid Technology

    Main Trends in Wind Turbine Market

    and Impact on Developing Countries

    General tendency towards large turbines of 1.5-3.6 MW (70-120 m rotor diameter) in

    large mainstream markets, though the onshore market seems to have reached a plateau in

    terms of turbine size since from about 2006.

    Later generations of large turbines have advanced generator designs and modern power

    electronics able to cope with demanding grid codes (voltage support, frequency support,

    fault ride through, etc.)

    Large turbines may be less suited to new markets in developing countries because of

    infrastructure limitations, in particular non-availability and cost of large cranes, port

    facilities, road curvature, road instability for heavy loads and weak grids. Craning issue

    resolution requires large projects, preferably at least 100-150 MW.

    Smaller market volume for medium-sized 750 kW - 1 MW turbines means large

    manufacturers have less focus on product upgrades and product development in this

    market segment.

    Fewer reliable manufacturers with a good track record are focusing on the medium-sized

    turbine market, hence less competition.

    The wind turbine market was a seller's market in the three year preceding the global

    financial crisis with high profit margins - and more expensive inputs upstream (steel,

    generators, gearboxes, transformers etc.) There was a shortage of manufacturing capacity.

    Severe shortages of supply of specialized components (bearings, flanges, castings) made

    turbine manufacturers focus on existing costumers in well-established mainstream

    markets in Europe and North America. Most projects below 50 MW did not attract

    interest from large established manufacturers and developers. Lead times for orders was

    up to 3 years from the large manufacturers, and a 25-30% down payment was necessary

    to reserve a space in the production plan. There was only a scant interest from wind

    consultants in working with developing country markets.

    Financing was relatively easy during the boom, with financiers, developers and equity

    investors ready to take relatively high risks.

    The financial crisis has changed all this: Canceled orders due to lack of finance (muchstricter demands from lenders), overcapacity in most parts of the supply chain has made

    for substantial price drops for wind turbines in the order of magnitude of 20-30%, meaning

    that prices are somewhat close to the long-term tendency up to 2005. Lead times for

    turbine orders are down to typically some 9 months between order and delivery on

    site.

    Cancellation of projects in mainstream markets have made experienced international

    developers more interested in markets in developing countries. New wind power

    developers have come on the scene, particularly in Asia - mostly from China and Korea.

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    The emergence of new manufacturers, particularly from China, may give some

    downward pressure on wind turbine prices in the future, notably if these manufacturers

    overtime establish a good track record for availability. Wind farms with turbines from

    the big established western manufacturers typically have availability rates around 97%,

    so the performance bar is quite high.

    Financiers have become much more wary of projects in relation to risk taking. More

    thorough project preparation is required, more focus on well-established low-risk turbines

    from mainstream manufacturers. Equity more difficult to obtain for high-riskcountries.

    The vast majority of projects in both developed and developing countries are IPP /BOO

    wind projects, but the first pilot/demonstration project in developing countries are

    sometimes EPC projects built by the national electrical utility.

    Type certification of wind turbines in accordance with the most recent IEC standards is a

    must for all manufacturers in order that the client can obtain financing for his projects.

    IEC norms, however, are mostly developed for typical European and North American

    climates, whereas operation in major parts of Asia requires additional certification for

    cold or hot climates, high humidity, dust and sand. Current norms and design basis were

    not made for tropical cyclones / typhoons. Although turbines may possibly be designed to

    safely survive tropical cyclones, there could be a cost advantage if an initiative weretaken to develop a better design basis under IEC for wind turbines for tropical cyclone

    conditions [proposed by several international wind research institutes, which lack funding

    for this work.]

    There is an increasing cost consciousness amongst major wind turbine manufacturers in

    relation to building additional national or regional service organizations. Unless there is a

    critical mass of projects in a country or region, manufacturers may not be willing to

    supply turbines for the projects. This means that it may be necessary to do fairly large

    projects 50-100 MW and up, and the former may only be workable if there are other

    projects in neighboring countries. Another possibility is to bundle (consolidate) projects

    on neighboring sites to a single project, so as to make the order attractive for a turbine

    manufacturer.

    June 18, 2010 Soren Krohn [email protected]

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    Annex 2, Turbine and Grid Technology

    Dealing With Grid Challenges in Countries with High

    Wind PenetrationHistoricalDevelopment

    1. Until early 1990s: Wind turbines seen as marginal grid component. Apart from design of

    protection of grid interface preferred action during grid disturbance was to disconnect

    wind turbines.

    2. Mid 1990s: Increasing plant size required interconnection studies and grid stability

    studies.

    3. 2000 onwards: Requirements to treat large wind farms more as power plants: Voltage

    and frequency support, fault ride through, dynamic var support

    Mainstream View of Challenges1. Small penetration levels (say, 5% by energy): No major impacts, no need for heavy grid

    code requirements. Load following & regulation impacts are small.

    2. Issues of power systems control have to be seen at system level, e.g. balancing poweris

    required to deal with (load minus variable generation) - NOT to balance wind power

    variability.

    Variabilityand Uncertainty is Nothing New for Grid OperatorsVariability and uncertainty prevail in all types of power generation: Power system control is all

    about dealing with variability and uncertainty.

    1. Variability:

    1.1 Load varies by seconds, minutes, hours, day type and weather1.2 Any supply resource may be unavailable or limited due to outages

    1.3 Prices for power purchases and sales fluctuate

    2. Uncertainty:

    2.1 Operational plans are based on forecasts, some error is unavoidable

    2.2 Supply resources available with some probability (usually high)

    Wind Power Impact on Existing Variability and Uncertainty1. Variability and predictability of wind is well characterized in different time domains:

    Seconds, minutes to hourly (dispatch, ramping), diurnal (day/night) to seasonal (hydro

    complementarity) scale.2. Wind pattern variability (day/night, seasonal variation) and its correlation with load

    varies with geography and can be analyzed in advance. Variability is reduced by

    geographical spread / interconnection, since weather patterns move.

    3. Generation from the individual wind turbine varies almost instantaneously with the

    energy in the wind, but these second to second variations cancel out at wind farm level.

    4. Regulation (fastest variations that are corrected by automatic action) are not the major

    issue

    5. Load following (10-minute domain) and wind forecast error reserves (hourly domain):

    Best handled by deep, liquid real-time energy markets

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    6. Ramping requirements may be reduced if wind is uncorrelated or negatively correlated

    with load.

    7. At increasing (10-20%) penetration levels, small but measurable increase in ramping

    requirement can generally be met by existing generation with modest cost increase.

    8. At higher (>30% levels) minimum load problems may appear:

    - Large markets (energy, ancillary services, price responsive load)

    - More flexible generation options

    - Larger balancing areas and stronger interconnections

    - Curtailment- Energy storage (large hydro & pumped storage)

    ReducingCost: Wind Plant ModelingHistorical modeling useful for (1) assessing generation sources affected by altered dispatch (2)

    nodal forecast for managing congestion points in grid (3) interaction with hydro reservoir

    management

    1. Use historical measured wind speed data and/or meteorological modeling used for

    weather forecasting to re-create the weather

    2. Convert time series of wind speed data to generation using turbine powercurves

    3. Simulate smoothing effect of wind farm size and geographical spread (Nrgaard &

    Holtinnen method)

    Short-Term Wind Generation Forecasting1. Short-term forecasting models are commercially available and reasonably accurate.

    Regulation Conclusions: Cost Increases SmallFor small penetration of wind power in the grid, 10-20% by energy, wind is manageable without

    a major cost penalty. For larger penetration a moderate cost increase, but in cases where

    electricity markets handle the balancing (Scandinavia or Pennsylvania-Maryland-New Jersey)

    incremental costs are quite small, typically at or below 4-5 USD/MWh).

    June 18, 2010 Soren Krohn [email protected]

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    Policy and Regulation

    This session addresses the legal and regulatory framework necessary to start large-scale grid-

    connected wind energy development. Small-scale wind projects and technical grid andturbine

    issues are covered in other sessions. Project development and financial issues related to the

    transmission grid may have some overlap with this session, however.

    Key Subjects:

    Policy and Regulation

    Role of Government: Institution & Capacity Building

    Economic Barriers at Power Generation Planning Stage

    Energy Tariff & PPA Issues

    Permitting & Licensing Issues

    Public Land Use Policy (& Spatial Planning Issues)

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    The economic feasibility of developing large-scale wind energy depends primarily on having high

    wind speeds on sites accessible by transmission and road, and on the economic cost of alternative

    forms of power generation. Thepracticalfeasibility including the financing of projects depends

    heavily on having an adequate legal and regulatory framework.

    The tables below list typical barriers cited by developers and possible solutions. Some solut ions

    apply only to projects tendered on the basis of a tendered IPP/BOO project (on the basis ofa

    fixed kWh-price), whereas others apply to fixed-price feed-in tariffs (FIT); this is noted in the textbelow.

    InstitutionBuilding & CapacityBuilding,

    First Pilot / DemonstrationProjectBarrier Possible Solutions

    1 Many Government agencies involvedin regulation of wind area, little

    effective coordination

    In order to succeed building projects, wind power

    needs to be high on the political agenda, and an

    effective inter-agency task force needs to plug the

    holes in the legal and regulatory framework. The task

    force should consult with the wind industry for

    clarification of technical issues.2 Difficult to create comprehensive

    legal and regulatory environment for

    wind sector development

    Difficulty may to a certain extent be overcome by

    tendering an IPP/BOO project internationally, and in

    areas where regulation is missing, do regulation by

    contract. If properly prepared, e.g. grid

    interconnection requirements can be recycled as a

    general grid code for wind turbines and wind farms.3 Government/utility pre-development

    of tendered IPP/BOO projects is

    necessary if they are tendered on

    predetermined sites

    Government/utility should ensure that a grid study

    and a complete preliminary environmental and social

    impact assessment have been completed before bids

    are due. Final site measurements are most efficiently

    done by pre-qualified developers (see Egyptian

    tender model under wind resources)4 It is critical that meteorology masts

    be correctly installed in accordance

    with the IEC standard and equipped

    with MEASNET or equivalent

    calibrated quality instruments

    First masts should be installed by certified

    international wind measurement consultants, and

    local staff be trained to erect and maintain masts (guy

    wire tensioning, visual inspection, safe data

    collection). Cellular phone mast erection contractors

    often have staff that can be trained for this purpose.5 Technicians for turbine O&M are not

    availableFirst-rate turbine suppliers will train local staff to do

    routine O&M work. Experienced operators of diesel

    gensets or engineers managing ship's engines are

    excellent candidates for this type of work.6 Procurement expertise in relation to

    wind IPP/BOO projects is missingTraining program is required. Thermal projects are

    technically and economically different from wind

    projects (wind projects resemble small hydro, to a

    certain extent), hence specific wind expertise is

    required to assist writing RFPs and assess bids.

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    EconomicBarriers for Wind at Power Generation Planning StageBarrier Possible Solutions

    1 Market failure to includeexternalities in the financial

    analysis

    Government should have utilities include externalities in

    power generation planning

    2 Competition from subsidizedfuel for conventional thermal

    power

    Economic analysis / compensation mechanism to utility

    should include true opportunity cost of fuel savings (fuel

    can be exported or import reduced, savings on fuelsubsidies)

    3 Improper or no accounting forfuel price risk in power systems

    planning makes countries

    choose short-term low cost

    solutions without regard for

    long-term risk

    Power system planning models such as WASP (not to be

    confused with the wind resource analysis model, WAsP)

    systematically choose minimum cost solutions with high

    risk, even if alternative lower risk solutions are available

    with a minimal cost increase. Sensitivity analyses do not

    reveal the true risk.

    Models for calculating the historical tradeoff between cost

    and risk for power generation portfolios and for doing

    portfolio optimization do exist. (World Bank, ESMAP

    model for assessing Fuel Price Risk in Power SystemsPlanning is in the public domain. More recent versions are

    available at a cost, but such modeling requires additional

    training.)4 Dominance ofconventional

    thermal power allows fuel price

    risk to be placed on clients - or

    de facto absorbed by public

    budgets.

    One key advantage of wind, hydro and geothermal projects

    is that the fuel is free, and that electricity offtaker can do

    20-year fixed price contract for electricity supplies.

    5 Electricity markets not geared towind

    Gate closure times in electricity markets (planning horizon

    for power generation in number of hours) may be too long

    to benefit from short-term wind energy forecasting. Should

    be shortened to what is technically necessary for actualdispatch. (See turbine & grid session).

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    Energy Tariff & PPA IssuesBarrier Possible Solutions

    1 20-year take-or-pay PPAsunavailable

    Wind energy is extremely capital intensive, so long-term

    (basically) fixed-price PPAs are a necessity to obtain a

    reasonable price per kWh, regardless of whether the tariffis

    determined by a tender or by a feed-in scheme.

    Changes to tariffs in feed-in based tariff systems should onlyapply to new projects, where investments have not started.

    2 Feed-in tariff may bemodified politically at any

    time

    3 No sustainability oftariffscheme

    Spread cost of wind energy on electricity tariff base, a levy on

    transmission, RE fund, initiate compensation for true

    opportunity cost of fuel saved from power generation4 Creditworthiness of

    electricity offtaker

    inadequate

    Projects may need to be backstopped by partial risk guarantees

    (political risk and general payment risk) from MIGA or export

    credit insurance organizations.5 Fixed feed-in tariff (FIT) or

    RE bonus per kWh

    inadequate to ensure

    profitability of projects

    It is difficult to determine the appropriate level of a feed-in tariff

    in a new market, i.e. a tariff, which is adequate, yet does not

    give excessive profits on the best sites. Some mitigation can be

    obtained by tariffs, which are differentiated by wind

    resource or profitability (Danish, German or French models).The best way to determine a commercially viable tariff is to

    start with an IPP/BOO demonstration scheme and tender a few

    wind farms on the basis of kWh price under such a scheme.6 Wind energy cannot

    compete financially due to

    subsidies to fuels for power

    generation

    If fuel subsidies cannot be reduced, compensation mechanisms

    to electricity offtaker for e.g. domestically produced fuel freed

    for export or saved (rather than being given as subsidized fuel

    for power generation)7 Economic incentives are

    inadequate, (taxation etc.)Basically this is a question of determining an appropriate tariff

    - by tendering or a fixed-price feed-in tariff (FIT). Special

    incentive schemes may (politically usefully or not) serve to

    make the pricing/tariff issue less transparent.

    8 ....

    Permittingand Licensing IssuesBarrier Possible Solutions

    1 Unexpected permittingand licensing

    requirements may wreck

    an otherwise fully

    developed wind project

    Permitting/licensing requirements should be built into

    requirements for RFP/BOO projects, so that the winning bidder

    will have demonstrated compliance with the requirements for

    obtaining permits/licenses

    For price-based tariff schemes (FIT) a single window approach,

    i.e. a single government agency that coordinates all permittingrequirements is extremely useful. Has been done for offshore

    wind with success in e.g. Denmark, and the model is be ing

    implemented elsewhere, sometimes though national energy

    agencies, sometimes national investment authorities.

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    Public Land UsePolicyBarrier Possible Solutions

    1 Exclusivity arrangements withdevelopers (often = land

    speculators) locks up valuable

    high-wind resource land,

    which remains undeveloped

    In fixed-price feed-in tariff (FIT) systems,it is best to have

    competition for land use (auction based on rent per MWh),

    with annual land rent to be paid in any case, until project is

    commissioned. Definitely a requirement to have a time limit

    for land lease before commissioning must occur. Possiblemodel inspiration in Ireland's offshore wind territory lease

    system.

    For tendered BOO/IPP projects on sites to be found by

    developers, non-exclusive letters of intent of Government to

    do land leases can avoid the lock-up problem during the

    bidding phase. (Good example by the Government of

    Qubec).

    For tendered BOO/IPP projects on predetermined sites the

    issue does not arise, (only one bidder will win the right to

    use the site).

    Land speculators may be unhelpful to the process. In that

    case, limit access to public lands to pre-qualified, bona fide

    developers, with sufficient technical and economic

    qualifications. (Usually done in all tendered IPP/BOO

    projects).2 Land rent If any land rent must be collected, it is best (least risk for

    developer) if based on actual energy production, i.e. an

    amount per MWh.

    In quantity-based systems (tendered IPP/BOO projects) land

    rent will be reflected in the bid price, hence zero land rentfor public land may be optimal in price-tendered projects. It

    is usually necessary to specify a minimum number of MW

    forthe particular land area to ensure the efficient use of

    valuable high-wind resources. (The number of MW varies

    with the terrain surface roughness, topography and wind

    climate and requires expert advice).

    June 18, 2010 Soren Krohn [email protected]

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    Project Development

    This session addresses project development issues for start large-scale grid-connected wind

    energy development. Small-scale wind projects and technical grid and turbine issues are covered

    in other sessions. There is some overlap with the sessions on policy & regulation, financial issues

    andturbine & grid technology, however.

    Key Subjects:

    Project Development

    Wind Resources & Site Data - Wind Atlas & Long-Term Data

    Environmental& Social Impacts

    Public Spatial Planning (Zoning)

    Experience/Capacity for IPP/BOO Projects

    Critical Mass, Local Participation, Local Content

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    The economic feasibility of developing large-scale wind energy depends primarily on having high

    wind speeds on sites accessible by transmission and road, and on the economic cost of alternative

    forms of power generation. Thepracticalfeasibility including the financing of projects depends

    heavily on having an adequate legal and regulatory framework.

    The tables below list typical barriers cited by developers and possible solutions. Some solutions

    apply only to projects tendered on the basis of a tendered IPP/BOO project (on the basis of kWh-

    price), whereas others apply to fixed tariff systems (FIT), this is noted in the text below.

    Wind Resource & On-Site MeasurementsBarrier Possible Solutions

    1 Lack of knowledge of national windresource and probable generation costs

    Mesoscale wind atlas based on satellite data,

    weather model reanalysis data & meteorology

    models. Preferably also national ground-based

    meteorology mast measurement program to

    verify this modeling. This can be used as a basis

    for further exploration and measurements on

    potential sites. World Bank (ESMAP) guidelines

    for ToRs are available for mesoscale wind atlas

    mapping.

    Developers or land speculators, who have

    measured before others (and frequently taken

    out options for land lease) often consider this a

    low priority, since they prefer to remain in a

    situation where they have an effective

    knowledge monopoly and can lock up the best

    land with good wind resources.2 Lack of reliable long-term wind data

    makes wind energy resource estimates

    uncertain

    Government-run long-term wind measurement

    program for each relevant region may be

    needed. Good examples: DANIDA & GtZ-

    financed program in Egypt, subsequently inoperation for >15 years. GtZ financed program

    in 12 regions of Syria > 5 years. (Poorly planned

    & poorly managed wind measurement programs

    abound in many countries on several continents.)

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    3 Government does little or no pre-development work for potential sites,

    government does little or no regulatory

    work related to wind energy

    Pre-development work on promising sites with

    good wind resources, grid access and good

    accessibility makes sense only if sites are

    tendered competitively (by bidding for a MWh

    price). If the site is thus pre-selected it is

    important that the government take all the risks

    under its control out of the project in orderto

    minimize the risk for bidders and their MWh

    price. Prior EIA screening is also necessary.Regulatory framework needs not be complete

    for the first projects, the problems may be

    solvable by regulation by contract. (See First

    Project section)

    If developers are to find sites on their own, then

    logically pre-development work is the

    developer's responsibility - e.g. in a classical

    feed-in tariff (FIT) system. In this case,

    however, it is necessary that the legal and

    regulatory framework has been properly

    established, dealing with all the issues listed inthese tables (and more).

    4 Moral hazard problem, if electricityofftaker (government or utility) has

    measured wind on a predetermined site to

    be tendered as an IPP/BOO project:

    Incentive to exaggerate resource, and

    quality of measurements may be

    insufficient, i.e. too risky for financiers.

    (China and Morocco problem)

    Bidding developers, not the electricity offtaker

    should measure wind on sites tendered for

    IPP/BOO projects, since the developer takes the

    wind resource risk. An operational model fora

    voluntary joint site measurement program for

    pre-qualified bidders has been developed in

    Egypt for its 2,500 MW IPP/BOO wind

    program. This model is now also being copied in

    Syria.5 Low quality of wind measurement and

    resource modeling requirements intendered IPP/BOO contracts increase risks

    in projects

    It is the quality requirements of the developers

    and their financiers, which are the determiningfactorin whether a project succeeds, hence it is

    preferable if minimum quality standards

    correspond to the requirements of the bankers.

    This is the basis forthe mandatory measurement

    requirements in the Egyptian IPP/BOO tender

    model mentioned above.6 Poor or no digital topographical high-

    resolution maps are available for sites

    being tendered as IPP/BOO projects. This

    increases risk in resource modeling and

    consequently bid prices.

    The Egyptian tender model includes advanced

    aerial laser scanning of sites. There are

    economies of scale in site mapping, however,

    and governments could digitally map multiple

    sites as part of their pre-development work for

    tendered IPP/BOO projects. There is more trustin the offtaker doing this type of measurement

    workthan in their wind measurements, since

    topographical measurement quality can be

    verified ex post, but wind resource assessments

    can only be verified after the wind farm has been

    built.7 No geotechnical sampling priorto

    tendering sites increases risks for bidders

    (foundation costs).

    The Egyptian tender model mentioned above

    includes geotechnical sampling.

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    Environmentaland Social ImpactsBarrier Possible Solutions

    1 Wind developmentcompetes with otherland

    use in province/region

    Recommendation: National program of pre-screening of relevant

    regions for environmental & social issues, e.g. birds,

    telecommunications, archeological sites, waterways, etc., i.e.

    preliminary environmental impact and social assessment studies

    (EISA). Map layers can be combined with (1) wind atlas (2)generic grid reinforcement cost map to find suitable development

    areas. Most successful examples from Denmark and Germany

    have been copied elsewhere (e.g. Spain, USA offshore).2 Project risk whether

    environmental and social

    impact assessment will

    be positive or not

    For IPP/BOO projects on predetermined sites, government should

    do preliminary environmental impact and social assessment

    studies, ensuring a near-certain approval of project.

    3 Private land use: Poorlydefined property rights

    or indigenous people's

    rights

    Land registration program may be needed to determine property

    rights in the area of the site. Special problems when handl ing

    collectively owned land by farming communities orindigenous

    people's rights. Extensive literature on the subject available from

    e.g. the World Bank (+ upcoming WB publication on bestpractice for handling environmental and social issues in relation

    to wind farms)4 Private land use:

    Landowner resistance to

    project

    Guidelines for compensation of landowners in accordance with

    national practice for similar types of projects. It is important that

    all landowners within wind farm perimeter receive some sort of

    compensation per turbine on their land + compensation foraccess

    roads. In some jurisdictions transmission mast compensation rules

    can be used as a model. Even landowners without turbines or road

    use should receive some (lower) compensation to avoid political

    blockage of project from non-compensated landowners. Good

    elaborated model guidelines issued in Ontario, Canada.

    6 Laws or resistanceagainst land being taken

    out of farming

    Land need not be purchased for wind farms, but can be leased forthe duration of the PPA, and legislation and regulations should

    allow this. Close to 98% of the land area will remain arable after a

    wind farm has been installed (only turbine & transformer platforms

    and access roads are needed for wind farming)7 Local resistance to

    project due to lack of

    information /

    participation

    Community income sharing schemes are known from other power

    generation projects. Best practice for local information / hearing

    practice are known, e.g. from ADB, IFC or World Bank safeguard

    guidelines.8 Concerns about safety

    for neighbors and

    workers on site

    All wind turbines installed in the country must be required to be

    type certified for a technical lifetime at least equal to the duration

    ofthe PPA by an accredited entity in accordance with the most

    recent version of the IEC 61400 standards as fit for purpose in thesiteenvironment.

    9 Ornithological concernsabout bird or bat

    populations

    Ornithological studies (1 year) may be required as part of

    environmental impact assessment (EIA) in critical areas.

    Mitigation measures may be needed (e.g. temporary stoppage

    during high-density migration, if wind farm is placed in an

    important bird migration path). The determination of whether an

    area needs additional studies is best done in the environmental

    screening phase (point 1 above), where zones may be labeled red

    (prohibition), or yellow (bird studies required), or green (no

    bird studies required).

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    6 Decommissioning requirements for

    wind farm undefined, risk of ghost

    wind farms

    Decommissioning requirements should be defined

    in the PPA, or regulated generally. Best practice is

    to require that foundations are removed to 1 m

    below grade and that land is restored to its original

    state after PPA termination. Any turbine, which has

    been out of service for a year must be removed

    from the site and the terrain restored as when

    decommissioning. A security/guarantee

    arrangement for this (bond) is useful to include inthe RPF documents or the PPA.

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    Experience/Capacityfor IPP/BOO ProjectsBarrier Possible Solutions

    1 Disagreement aboutwhich party bears

    which risks in

    IPP/BOO contracts

    Best practice for all tendered IPP/BOO contracts is that the party

    who effectively can control each risk or who most cheaply can cover

    it, bears that risk. For risks, which are outside the control of either

    party such as exchange rate risks, and prices that affect project

    economics, they are usually most cheaply carried by the electricity

    offtaker. It is in the interest of the electricity offtaker to reduceproject risks as much as possible in order to achieve a low electricity

    price. The offtaker will have an interest in doing as much pre-

    development as possible in the special case of IPP/BOO tendering

    on predetermined sites in order to reduce risk.2 BOO or BOOT

    contracts?Wind farms have a standard certified technical lifetime of 20 years.

    PPAs should generally have a term of 15-25 years, a

    decommissioning requirement and terminate thereafter. It is unwise

    to insert any option for the bidder to continue projects thereafter,

    since economic conditions may change substantially in the meantime

    (giving windfall capital gains to project owner).3 Price indexation of

    PPA contracts(applies to FIT

    contracts as well)

    The primary economic advantage of wind energy is that the

    electricity offtaker can do fixed-price electricity contracts for aduration of 20 years. Wind farm projects should therefore normally

    be done as primarily fixed-tariff (energy only) take-or-pay contracts

    forthe duration of the PPA. Wind farm owners are safe with this

    solution, since they will take out nominal, not real (price-indexed)

    loans from their financiers. A small component limited to labor and

    parts content in O&M (maximized to about 15-20% initially) could

    be indexed.

    Exchange rate indexation is another issue treated under the finance

    subject. Price indexation of bids between the time of bidding and

    financial close or commissioning is a separate issue.

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    CriticalMass Issues, Local Participation, Local ContentBarrier Possible Solutions

    1 High local contentrequirement beyond balance-

    of-plant (i.e. roads,

    foundations and electrical

    works) is not economic forsmall projects

    The most important prerequisite for local manufacturing is

    to have a stable wind program with a time horizon of at least

    5-10 years, and a credible continuity of national policy

    despite changes in government. Otherwise it is too expensive

    to do investment and training of local staff. Localmanufacturing - particularly of small volumes - may imply

    significant cost and reliability penalties. Simple one-off

    programs in a single year will only generate local work on

    installation (balance-of-plant), but this may be quite

    significant - 20-35% of projectinvestment.2 Tower manufacturing is most

    amenable to localization for

    larger projects

    Transportation costs often mean that towers may be

    manufactured locally economically for larger projects in any

    case. Towers account for a relatively large share of the value

    ofa wind turbine, about 15-20%. Local manufacturing

    requires ISO 9000-series certification of the supply chain3 Nacelle assembly is

    (mistakenly) seen as avaluable means of

    employment and technology

    transfer

    Nacelle assembly accounts for around 2% of the price of a

    wind turbine or less, hence there is no economic gain, littleemployment and high quality risk associated with local

    manufacturing. The manufacturing process for wind turbines

    in not substantially different from other forms of large

    machinery manufacturing.4 Rotor blade manufacturing

    requires high, continuous

    order volume

    Rotor blade molds are expensive assets, which - like blades -

    are difficult to transport, hence they need to be run with high

    capacity utilization, i.e. the local market has to be relatively

    large and continuous. Raw materials normally need to be

    100% imported. Blades typically account for 12-15% ofthe

    value of a wind turbine. Local manufacturing requires ISO

    9000-series certification of the supply chain

    5 High local content is moredifficult to achieve in price-

    based (FIT) system than in

    quantity-based tariff systems

    Annual volume is politically uncontrollable in a FIT systemand in practical terms also uncontrollable in a green

    certificate system. Volume and suppliers can be controlled

    accurately in a pipeline of IPP/BOO tenders (or EPC tenders

    by the national utility/government)6 Small project size fails to

    attract experienced

    international bidders and

    turbine manufacturers in

    tenders

    Large, experience international wind developers with good

    access to finance focus on projects in the 100-250 MW

    range, or on pipelines or bundles of projects from this size

    and up.

    Small projects below 50 MW may have difficulty getting

    turbines, if they are the first in a region without an

    established service network.

    A possible way of obtaining a critical mass of MW is to

    bundle several non-contiguous project sites into a single

    tender, as is being done in the Philippines.June 18, 2010 Soren Krohn [email protected]

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    Off-Grid Small Scale Wind (Wind-Diesel) Applications Thissession is fairly distinctfrom the rest of the sessions and addresses the issues related to small

    wind, primarily in hybrid wind-diesel mini-grids. The session does not address the market

    for small battery charge, i.e. typically turbines from 100W-1000W. The note and table attached

    below lists the typical barriers cited by developers of small systems.

    Key Subjects:

    Small Wind-Diesel Systems

    Institutional barriers: Client base, Quality of service standards Tariffs/subsidies Diesel subsidies distort economics

    Turbine supply barriers Quality of small turbines Manufacturer experience Operation and maintenance, service network

    Systems integration barriers

    System design costs, (expensive to design from scratch)

    Diesel suitability and operating strategies / rules?

    Available expertise?

    Reliable controller systems?

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    Introducing one or more wind turbines in a diesel grid can be an economically efficient fuel-

    saving measure, even with fairly poor wind resources of a mean of, say, 5 m/s at hub height, since

    fuel is expensive. Wind is cleaner than othertechnologies.

    MarketGrid-connected projects are developed by utilities or IPPs, while stand-alone renewable energy

    systems are usually owned by consumers - or in a few cases by renewable energy service

    companies. Mini-grid renewable energy systems generally require a significant degree of

    community involvement. Utilities are usually not interested in off-grid areas and slow to respond

    when there are technical problems with mini-grids because of the high transaction costs. Mini-

    grid electrification uses different business models, and require specifically designed tariff

    schemes coordinated with subsidies.

    The supply side of the market is characterized by many small firms with very low produc tion

    volume. These firms have enough difficulties to survive in the marketplace, and usually have

    little of no expertise to help clients develop a viable business model.

    MarketRegulationMost mini-grid service providers are often not regulated or over-regulated. If regulated, quality of

    service standards tend to be unrealistically high and expensive to comply with. M ini-gridelectrical systems for use in developing countries have in the past often suffered from over-design

    and lack of repeatability. This means that engineering and designing each energy supply system

    from the bottom up have made project planning almost as expensive as the system itself.

    The rural electrification agency is inevitably the de facto regulator because of its administration

    of subsidies to small grid operators. There is a chicken and egg problem for subsidies and

    tariffs. Potential operators must know both tariff and subsidy levels before they can make

    investment decisions. Government will usually decide on external subsidies, but a regulator can

    nullify government granted subsidies with low tariffs.

    Technology

    This note refers to wind-diesel wind installations, typically with 5 kW to 330 kW turbines (5 m to33 m rotor diameter). This market is distinct from:

    1. The large grid-connected mainstream high-volume wind market for wind turbines,

    typically 850 kW - 3.6 MW (50 m -120 m rotor diameter)

    2. The very small 100-1000 W wind battery chargers

    Wind-diesel integration has been most successful in medium-sized diesel grids in e.g. Australia,

    China and on US naval bases, using conventional mainstream turbines of 225 kW and up.

    In the late 1970s and early 1980s mainstream grid-connected turbines were typically 15-75 kW,

    but this market segment has disappeared from the mainstream wind turbine market due to

    economies of scale. Mainstream manufacturers now focus on wind turbines from 850 kW to 3.6MW. This market is dominated by large manufacturers with billions of turnover with many years

    of cumulative design and operating experience and large service networks.

    Present-day manufacturers of small wind turbines have generally developed their own designs of

    turbines, mostly in the 15-75 kW range, and some have licensed somewhat larger, older turbine

    designs from mainstream manufacturers. Few of these manufacturers have a long track record or

    a global service network. The vast majority of commercial small turbine designs from 25 kW and

    up tend to be no less complex to build and maintain than large wind turbines.

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    Installing a wind turbine in a diesel environment makes the system more complex, requiring

    experts for hybrid system integration. An electronic control system is required to dis tribute

    generation between the different types of generators and to maintain voltage and frequency.

    Such a system also includes a variable dump load, where excess electricity is wasted in a resistor

    bank. Such a control system is fairly complex, since many diesel units cannot operate well below

    load factors of around 50% without developing a coke-like substance within the engine. Suitable

    diesel engines, which can operate at low loads, often with extra insulation to maintain temperature

    and standard operating procedures to clean the engines may be necessary in smallgrids. It is economically preferable to have one small diesel genset and a number of larger ones in

    order to run a wind-diesel system efficiently (without having large diesels produce energy that

    has to be wasted). That is a different optimization than what is preferred in pure diesel grids (with

    a few large standard units).

    The following table lists key barriers in this market and possible solutions:

    Institutional BarriersBarrier Possible Solutions

    1 Inexperienced client base, often co-operatives. Often little or no assistance

    from national utility.

    Rural electrification agency should provide

    support and capacity building

    2 Most mini-grid service providers are oftennot regulated or over-regulated.

    The rural electrification agency is inevitably the

    de facto regulator. There are replicable, good

    regulation models available.3 Quality of service standards tend to be

    unrealistically high and expensive to

    comply with. Project planning is often

    almost as expensive as the system itself.

    Standards for service such as power quality

    must be set realistically, affordable, easily

    monitored and enforced.

    4 Worldwide, almost all rural electrificationprograms involve some forms of subsidies.

    It is often difficult to agree on adequate

    tariffs and subsidies cover O&M costs and

    allow for recovery of capital costs.

    Regulators may often nullify pre-existing

    payment schemes.

    Benchmarks should be used whenever possible

    rather than actual costs for prices or subsidies.

    Individual cost-of-service calculations are often

    not workable. "Regulation by contract" is

    needed: Regulators should not be able to

    unilaterally change the tariff for mini-grid

    operators during the contract period.5 Subsidies for diesel do not entercurrent

    financial project calculations, i.e. economic

    analysis is distorted

    System costs should be evaluated on the basis

    of true economic costs

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    Wind Turbine Supply Related BarriersBarrier Possible Solutions

    1 Small volume, lack of replicable projects

    Create high market

    volume, with multiple

    replicable projects

    2 Commercially unattractive niche, few experienced suppliers witha long track record. Many small suppliers focused on debugging

    product, and with limited commercial long-term viability. Many

    upstarts focused on entering market for mainstream machines

    aftera brief learning period. Upstarts very dependent on

    government assistance for technology development.3 Market extremely dependent on development aid, few projects

    have been sustainable and lasted 20 years.4 Cost of service network similar to that of large mainstream

    machines5 Wind turbines are generally as complex to build and maintain as

    large turbinesProject foradditional

    assessment and research

    required by international

    wind research institutes

    SystemsIntegration BarriersBarrier Possible Solutions

    1 Conservative norms for grid quality require expensive non-standard gold-plated power engineering designs, hence

    high unit costsDevelop or allow use of

    current standard solutions

    with acceptable quality of

    supply.

    2 Conservative norms for diesel unit minimum load andoperating strategy (barrier from utilities, and diesel

    manufacturers)3 Generic problem with smallest diesel genset unit size and

    required minimum diesel load (plant strategy is different

    from conventionally optimized diesel grids)4 Hybrid systems with diesel requires experienced integrators

    on both controller and diesel side - very few available.

    Create high market volume,

    with multiple replicable

    projects

    5 Few, tested, reliable controllers (w/ automatic dump loads).Grid integration is difficult, either complex turbines with

    synchronous generators are required and/or frequency

    converters.6 Standardization and repeat orders fail to take off, hence

    vicious circle for manufacturers and integrators

    June 18, 2010 Soren Krohn [email protected]