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 Feasibility
Site 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
Assurance
The 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.         Micrositing
Micrositing 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 Hybridization
These 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 provisions
a)     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.
Conclusion
Having 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)

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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