6. Background Notes for Session Themes

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Presentation in ADB Quantum Leap in Wind Workshop, 21 June 2010
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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 2010Prepared by Mr. Soren Krohn   Overview of Key Issuesfor Group Discussions      F   i  n  a  n  c   i  n  g    &    C  o  s   t  s      T  u  r   b   i  n  e   &    G  r   i   d   T  e  c   h  n  o   l  o  g  y      P  o   l   i  c  y    &    R  e  g  u   l  a   t   i  o  n      P  r  o   j  e  c   t   D  e  v  e   l  o  p  m  e  n   t      O   f   f  -   G  r   i   d    S  m  a   l   l    W   i  n   d   -   D   i  e  s  e   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.      Financing and Costs   This session addresses financing and cost issues related to large-scale wind projects. There i  sconsiderable overlap with the other sessions, in particular policy & regulation and proj ect  development. The table attached below lists typical barriers to financing projects. Each subject  i  streated in more depth in the notes for the other sessions. The Session Chair may wish to discuss ty  pi c al project finance structure, depending on the interest of the audi e nc e .   Key Issues:   Financing and Costs   ã   Why does financing for wind projects fail or succeed? ã   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  ã   Inadequate legal and regulatory framework ã   Little knowledge of wind in local financial sector  ã   Depth of local long-term capital market     Examples of Major Risks for Wind Farm Financing    Bar rier   Possible Solutions    Note: Most mitigation measures mentioned below ar  e treated in more depth in the policy & regulation s ecti onand turbine & grid s ecti on.   1   Risk allocation be t w ee ncontracting part ie s   Risk should be carried by the party able to control the risk or to most cheaply mitigate the risk. (e.g developer takesw i nd risk, government guarantees against regulatorychanges w it h major economic impact). Risks beyond thecontrol of  eit her party (e.g. exchange rate risk, pri ce  index risk) are generally most cheaply carried by t heelectricity purchas e r.   2   Developer qua li fi cati ons : Insufficient e xperi e nc e ,inadequate capital bas e   Form consortia with experienced c ompani e s   3   Electricity offtaker with little IPP experience & poor  c redi t ra ti ng   Contractual framework needs to be established i naccordance with best international practice. Lack of regulatory framework can partially be remedied by regulation through c ontra ct .PPA may need to be backstopped by governmentguarant ee and partial risk guarantee from credit insurancecompany / MIGA (political risk, payment risk)   4   Wind resource uncertainty, lac k of long-term reference data, poor site m ea surem e nts   Governments and development agencies can financ e modern mesoscale wind atlas work based on s atellite data, meteorological modeling and m ete orologi cal reanalysis data. Guidelines for ToRs available fromWorld Bank (ESMAP).Due to poor long-term meteorology data in m a nydeveloping countries, a ground-based long-term provinc ial measurement program is often needed toobtain referenc e data, which is used to calibratemeasurements in order  t o find long-term mean windspeeds. Good examples of such programs in Egypt andSyri a .Bankable site measurements need to be done by ce rt i fi e dconsultants. At least 12 months of measurement if good,long-term reference data is available from nearby l oc ati ons, otherwise preferably longer time period for m ea surem e nts.   5   Construction risk    Form consortia with experienced companies with l oc al knowledge and e xperi e nc e   6   Land risk, property rights poorly defined, lack of government land use pol ic y   Property rights programs for land registration may beneeded, government land use policy ne e ded      7   Environmental and social risk    Prior screening of land use by government extremelyus e ful (good examples in Denmark, Germany). Suchs c re e ning may involve bird studies, mapping microwavecorridors for telecommunications, aerial markingrequirements close t o airports, potential archeologicalfinds etc .Environmental and social impact assessments are ne e ded,and mitigation measures may need to be i mpl e m e nt e d.Information and participation schemes for  l oc al communities, landowner compensation s c hem e s.   8   Grid risk: Inadequate grids t udi e s, including dynamics ta  bi lit y studies. Missing gridcode or requirements that do notcorrespond to actual grids t rength/s ta  bi lit y   Grid code for wind turbines and wind farms (preferablymodeled on grid codes from major markets are ne e ded).Grid studies for site area required to ensure tec hni cal fe a s i  bi lit y.   9   Revenue risk: Poor creditworthiness of offt a ker,firm PPAs of 20 (or 15) ye a rsduration not available, ta riff subject to political unc e rt ai nty   Firm PPAs of 20 (or at least 15) years with fixed pri ce s a re necessary to obtain an acceptable electricity pri ce .   10   Tariff inadequate for rate of return and/or debt s e rvi cec overage   Wind projects are very capital-intensive and require a (mostly fixed) tariff to service debt. Only O&M c os t s(max 15-20%) need i ndexa ti on.   11   Power curtailment risk    Contracts must be take-and-pay and compensate for  act ua l loss due to grid outages or grid maintenance.(Actual l oss calculated from meteorology mast(s)measurements on s ite and an empirical wind farm power curve for the wind farm).   12   Availability and operations risk    Power purchaser should require quality turbines fromexperienced manufacturers, which are IEC certified by a naccredited entity as fit for purpose in the s ite  environment. Preferably turbine models, which have proved to have a high availability in previous large windfarm projects in similar climatic c ondi ti ons.Sufficient manufacturer warranties and service c ontra ct sw it h training of local staff and manufacturer service team i n region. Spare parts and consumable stocks needed near  site.  Experienced wind farm operator with appropriate t ra i ning program for local s ta ff.   13   Health & safety risks   Adequate health & safety program from deve l oper required. Occupational safety requirements should bestate-of-the-art from developed markets (e.g. fa ll  protection, and lifts in large t urbines).  
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