4377 initial comments to request for review

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HeadquartersTV NORD CERT GmbH

Langemarckstrae 2045141 Essen

Phone: +49 201 825-0Fax: +49 201 [email protected]

DirectorDipl.-Volk

Deputy diDipl.-Ing.

Initial Comments to RequeProject in India" (Ref. no.

Dear Honourable Members o

Please find below the responfor review for the above menti

If you have any questions do

Yours sincerely,

TV NORD JI/CDM Certificat

Rainer Winter

TV NORD CERT GmbH P.O. Box 10 32 61 45032 Essen

CDM Executive Board

Our / Your Reference Contact

Rainer WinterE-Mail: rwinte

sw. Ulf Theike

rectorWolfgang Wielptz

Registration OfficeAmtsgericht EssenHRB 9976VAT No.: DE 811389923Tax No.: 111/5706/2193

DeutBankAcco

BIC (IBAN

201ru

st for Review of project 12.25 MW Bu377)

the CDM Executive Board,

se of the TV NORD JI/CDM Certificationioned project No. 4377.

not hesitate to contact us.

ion Program

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1-10-07 SO1-FO41-hi_ik.docx rev0 Page 1 of 7

ndled Wind Power

rogram to the request

TV NORD CERT GmbH

Langemarckstrasse 2045141 EssenGermany

Phone: +49 201 825-0Fax: +49 201 825-2517

[email protected]

TV

Date

07.10.2011


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Initial Comments to Request forReview

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2011-10-07 SO1-FO41-ruchi_ik.docx Rev. 0 / 2011-02-08

Question Raised by the EB1 The DOE is requested to further substantiate how it has validated the suitability of

the input values to the investment analysis in line with VVM 1.2, paragraph111(b), in particular: total investment cost for each of the 5 sub-bundles;

Changes Made in/ Reference

PDD

FVR Page 45, 46

FinancialModels

ER Sheet

Additional Comment by PP

Additional Comment by DOEVR provides the total investment cost of each of the 5 sub bundles. The total investment and thecost per MW are given below

Total Investment (Rs in million) asper

Cost per MW (Rs in million)as per

Offer letter Purchase order Offer letter Purchase orderRSIL (Phase I)-5MW 278.00 252.24 55.60 50.44NSAIL-1.25MW 66.50 63.21 53.20 50.56RSIL (Phase IIA)-2.4 MW 146.00 134.31 60.83 55.96RSIL(Phase II B)-2.4 MW 152.00 144.04 63.33 60.02RGL-1.2 MW 55.00 55.78 45.83 46.48

DOE validated the investment cost based on the offer letters, which were available to the PP at thetime of decision making (conformity to guidance 6 of Annex 5 EB 62.). It could be observed fromthe data given above that the project cost ranges from 45.83 Million/MW to 63.33 mn/ MW. Whilevalidating the investment cost, DOE compared the cost with other registered wind power projects,which took the investment decision around the same time. The comparison reviled that the costwas ranging from Rs. 49.7 Million/MW to Rs 66.37 Million/MW with majority of the projectsassuming a cost around Rs.60.00 Million/MW. Sindhiya Infrastructre (3046)1 has assumed a costof Rs. 66.33 million/MW; Taurian Iron and steel (3511) has assumed a cost of Rs. 58.73 Million /MW; Lal Mahal Limited (3578) has assumed a cost of Rs. 60.67 million/MW; Aradhya Steel (3584)

1 The numbers given within brackets refer to the registration number of the respective projects with UNFCCC.


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has considered a cost of Rs. 63 million/MW and Vikram Traders (3575) has considered a cost ofRs. 62.67 million/MW. Thus, it could be seen that the project cost is well within the range, rather atthe lower end of the range.Besides, DOE also compared the cost as per the purchase order, which represents the actualinvestment made by each of the PPs in the bundle. Based on the purchase order, it was observedthat in all the cases, except (RSIL phase I), the difference between the cost as per the purchaseorder and the offer letter has been less than 10%. As the VR reveals, the project remain additionaleven when the project cost is subjected to 10% variation indicating that the projects would remainadditional even if the actual investment made is taken into consideration in financial indicatorcalculation. In the case of RSIL Phase I the difference in the cost between offer letter andpurchase order is 10.23%. However, as the breakeven point of the financial indicator to the project

cost is 11%, the project would remain additional even if the purchase order (which represent theactual investment made) is taken into consideration for computing the financial indicator. In theabove background, DOE was convinced that the investment cost is appropriate and in line withVVM Para 111 (a), (b) for each of the 5 sub bundles.The VR has been updated by incorporating the above mentioned explanation.

Other/Additional documents

Question Raised by the EB(b) the tariff used for the RGL sub-bundle given that it is lower than the other sub-bundles supplying to the grid and why it does not consider any increase; and

Changes Made in/ ReferencePDD Reference for RGL tariff is changed (reference number 37 )

FVR Page 133 and 134 of Annex 3 of the report

FinancialModels

Reference for tariff (RGL) is added in form of web-link.

ER Sheet


Additional Comment by DOEThe question consists of two issues, viz.,

a) The reason for low tariff; andb) Reasons for not subjecting it to escalation

:Both the issues are addressed in seriatim in the following paragraphs:


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a) Reason for the low tariff:

This is because while other projects are wheeling power for captive consumption, RGLsub-bundle is selling power to the grid. In the case of power wheeled for captiveconsumption, tariff which the company would have paid had it imported from the grid isthe relevant tariff; However, in cases where the power is sold to the grid, the tariff paidby the grid (which is determined by the ERC) is the relevant tariff. The rate at which thegrid sells the power is always higher than the rate at which it purchases power. SinceRGL sub bundle is selling power to grid (grid is buying power) the tariff assumed for

RGL sub bundle is lower than the tariff assumed for other sub-bundles.

b) Reasons for not subjecting the tariff to escalation

The RGL sub bundle is located in Tirunelveli district of Tamil Nadu. The project isexporting the entire power to the grid, As mentioned earlier tariff for the power suppliedto grid is determined by the Tariff Order of the ERC. As per paragraph 10.2 of TNERCtariff order on non conventional energy sources (May 2006 page 91)2 Since theagreement period proposed in this order is twenty years, the terms and conditionsincluding the purchase rate ordered now will continue to be applicable till the end ofagreement period. When the Commission revisits that tariff and allied issues after the

control period, the revisions will be applicable to the generators of renewable energysources commissioned after such revised order. Therefore, the tariff is fixed. It is forthe above reason that the tariff used for the RGL sub-bundle is not considered for anyincrease as the tariff order was available during the decision making. Moreover, asensitivity analysis conducted by subjecting the tariff to reasonable variation asrequired by paragraph 20 and 21 of Annex 5 EB 62, reveals that the project wouldremain additional even if the tariff is escalated by 10% as the IRR works out to only8.08% as against the benchmark of 10.5%.

The VR has been updated by incorporating the above mentioned explanation.

Other/Additional documents

Question Raised by the EB(c) no increase in tariff for sub-bundles RSIL Phase I Erode, RSIL PhaseIIA and RSIL Phase IIB while other cost such as the O&M costs consideran yearly increase.The DOE shall also explain the validity of these tariffs at the time ofinvestment decision and whether the tariffs used are tariff paid by thegrid or tariff related to electricity savings.

Changes Made in/ Reference

2http://tnerc.tn.nic.in/orders/nces%20order%20-approved%20order%20host%20copy.pdf


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PDD Reference and value for tariff is changed (reference numbers 33, 34,35), page 24, 25, 26 IRR values and sensitivity analysis table fromelectricity bills earlier to the publicly available web-links

FVR Page 47, 48, 49

Financial Models The tariff values applicable based on state electricity tariff rates havebeen applied for (RSIL- IIA, RSIL-IIB, RSIL-I)

ER Sheet


Additional Comment by DOEThis question consists of two issues, viz.,

a) validity of tariff and the nature of tariffb) not escalating the tariff while O&M cost is subjected to escalation; and

Both the issues are addressed in seriatim in the following paragraphs:

a) Validity of tariff and the nature of tariff

We submit that in all the three cases referred to by the EB, the power is wheeled for captiveconsumption and hence represents electricity savings. The tariff considered in the financiallyindicator calculation represents the tariff prevailing at the time of investment decision3which ispublicly available and pertaining to the decision making period. The tariff rates are as follows;

RSIL Phase I Erode in TN, decision in July 2006 tariff at Rs. 3.5 per unit kWhRSIL phase IIA in MP decision in Jan 2007 tariff at Rs. 3.75 per unit kWhRSIL Phase IIB in MP, decision in July 2007 tariff at Rs. 3.80 per unit kWh

b) Not escalating the tariff while O&M cost is subjected to escalation

The DOE has assessed the tariff rates in the host country which are based on the individual tariff

The tariff prevailing in Tamil Nadu at the time of decision making (July 2006) can be accessed at the websitehttp://www.tneb.in/template_3.php?tempno=3&cid=0&%20subcid=54The tariff prevailing in Madhya Pradesh at the time of decision making (January 2007) can be accessed at theWebsite (Page 7, 33KV Industrial) http://www.mperc.nic.in/HV_Rate_schedule_Final%20_31-3-06_Ver_1.pdfThe tariff prevailing in Madhya Pradesh at the time of decision making (July 2007) can be accessed at the website(On page 8, 33KV Industrial) http://www.mperc.nic.in/Retail-Tariff-Sch-HV-FY08%20Final_20070330%20v2.pdf


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orders for each state. The tariffs for state of MP and Tamil Nadu are as follows;

For the state of Tamil Nadu:

Year

Tariff

INR/Unit Reference

w.e.f.

16/03/2003 3.50 http://www.tneb.in/template_3.php?tempno=3&cid=0&%20subcid=54

w.e.f.

01/08/2010 4.00 http://www.tneb.in/TariffDetailsNew.php

For the state of Madhya Pradesh:

Year

Tariff

INR/Unit

Page

No. Reference

2006-07 3.75 7 http://www.mperc.nic.in/HV_Rate_schedule_Final%20_31-3-06_Ver_1.p

2007-08 3.80 8

http://www.mperc.nic.in/Retail-Tariff-Sch-HV-

FY08%20Final_20070330%20v2.pdf

2011-12 3.50 181 http://www.mperc.nic.in/Tariff-order-FY%2011-12-final.pdf

Thus for the state of Tamil nadu the tariff has remained fixed for 7 years and has been revised in2010 while in the state of MP the tariff have actually reduced during the period from 2007-08 to2011-12, thus it is clear that tariff variation does not follow a single trend in each states, thus noescalation was considered as it was not possible for the PP to predict the trends for each state.The similar scenario exists in case of selling the electricity to the grid. In most of the states theelectricity tariff for electricity selling remain fixed for 20 years.

Further the increase in trariff was already taken into account considering the sensitivity analysisfor Tariff.

However, unlike the electricity saving, O&M cost is not fixed and is subject to periodical

increase as enshrined in the offer letter and subsequently in the O&M agreement. Since theO&M cost represent mainly wages & service, stores & spares and repairs & maintenance, allof which are subjected to inflationary forces, O&M cost cannot remain constant.It is for the above reason that the tariff has not been subjected to escalation while the O&Mcost has been subjected to escalation.

Nevertheless as per the EBs comment no increase in tariff for sub-bundles RSIL Phase IErode, RSIL Phase IIA and RSIL Phase IIB while other cost such as the O&M costs consideran yearly increase the DOE has assessed the IRR by keeping the inflow and outflowconstant, i.e the escalation in O&M has been removed for the demonstration purpose. Theresults are as follows;


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Project * Project IRR BenchmarkRSIL I 10.14% 11%RSIL IIA 9.59% 11.75%RSIL IIB 8.72% 11.34%

A separate sheet for calculation is attached keeping the escalation for O&M as zero as Annex1, 2 and 3.

Thus it can be observed that while keeping the escalation in Tariff and O&M as constant theproject still remains additional.

The VR has been updated by incorporating the above mentioned explanation.Other/Additional documents

Annex 1: IRR sheet for RSIL IAnnex 2: IRR sheet for RSIL IIAAnnex 3: IRR shet for RSIL IIB

4377 initial comments to request for review

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