5 points of caution for wind power investors

Here are five things the new investors should know while making investment in wind power.

After thrust on green energy by the Government of India way back in 1993, many private wind turbine developers are operating in the Indian market to fulfil huge power demand. However, it is unfortunate that adaptability of technology and components in Indian market is far inferior from expectation and promises made by their developers are never kept.

To maintain, sustain and increase their market share each wind turbine operators are making verbal assurances at the time of marketing the wind turbines in terms of generation, grid availability, component life and replacement, O&M agreement terms for compensation for shortfall in machine availability, percentage of reactive power drawl and percentage of transmission losses. But all these come with some hidden riddles and customers who are not quite aware of business intricacy get convinced to make investment in wind power technology expecting quite high returns projected by the wind turbine developers.

To avoid this, one may consider adhering to following points so as to take informed decision and make correct choice:
Do not expect the PLF (Power Load Factor) of over 22 to 25 per cent in any case on which generation in terms of units are arrived. If developers are offering more PLF, tell them to give IRR (Internal Rate of Return) working based on 22 per cent to 25 per cent PLF only though as per their assurance more can be achieved. Also note that across India “A” class wind sites are blocked and not available and you are making investment in “B” or “C” class sites and hence though machine might be capable of giving higher PLF, in fact it will not be achieved due to wind availability. Always consider the margin of 20 per cent to 25 per cent less generation than projected by wind turbine developer. Keep following points in mind and note how projections are given for such high generation and return:
• Normally generation exhibited by a developer is based on 100 per cent machine and grid availability which is ideal condition and never achieved. Even in O&M agreement, compensation for machine availability start if the same is less than 95 per cent and also restricted to 40 per cent of O&M expenses which is a meagre amount. In fact, machine availability is around 96 per cent to 97 per cent (if there is no major breakdown) and grid availability is always beyond the control of developer and no guarantee or warranty is given. Make sure that restriction as percentage of O&M expenses are not there in O&M contract.

• Grid availability is biggest issue and particularly in high wind season. Appreciate any transmission company (like GETCO, in case of Gujarat) has fixed strength to carry load and it has happened that capacity of wind farm of nearby area is more than transmission capacity of transmission company resulting into grid failure particularly in high wind season and thereby precious loss of units. Make sure what is sub-station capacity and what approximate load is coming in near future before making investment. If possible take the same in writing with schematic diagram.

• As wind is seasonal and in India main wind season is between mid-May to mid-September only. Normally all breakdown of machines, non-availability of grid, forced back down etc. take place during the same season only due to harsh conditions.

• Almost all WTG developers get their transmission lines pass through farms and/or land of third party and it is quite probable that the said third party/ farmers/ villagers may create issue and make force shutdown of the grid resulting into generation loss. Many sites in Gujarat, Maharashtra and other States have gone through the said phase and many are witnessing the same at present.

• While calculating machine availability, the same is considered as last factor. For example if your WTG is stopped due to machine failure and at the same time grid is not available then stoppage hours will go into grid failure and not machine failure. For grid failure there is no compensation. It is smart manoeuvre to mislead investors.

• If your site is near sea, transmission lines are more likely to trip during monsoon, high wind season due to salty atmosphere and for which there is no permanent solution with any wind turbine developer.

Selection of site and within site location is of also very important. WTG should not come under shadow effect of other WTG and direction should be proper. The said factor can vary generation to 2 to 3 per cent within the same site itself.

Many wind turbine operators are not showing all expenses in their IRR working and restrict the same to O&M expense and insurance cost which is not correct and true. Once you install wind turbine there is Gujarat Energy Development Agency (GEDA) cost of certification (in case of Gujarat) ` 10,000 per MW per year, Plus SLDC fees and charges Plus transmission charges of
` 3822/- per day per MW (` 1,16,253/- per month per MW), overhead cost / administration / personnel cost
(` 15,000 to 20,000 per month), third-party’s scheduling and forecasting consultancy charges
(` 5,000 per month) etc. All such expenses should be included in IRR calculation given by WTG developer.

Any other income such as carbon credit should not be considered as part of IRR. Presently, there is hardly any wind turbine project goes through CDM validation process and even if it goes there is no demand for carbon credit in world market. Present rates are only 65 cent per carbon credit and at that rate also no market availability certainty. Expenditure, time, energy, resources and knowledge needed to get through CDM validation is also a major point. At the same time even in GETCO contract they make point for sharing of carbon credit revenue and hence it will not come in totality to the customer.

Today almost all wind turbine operators are passing through huge financial crisis and their main thrust is on selling wind turbines. In view of their financial positions, they fail to make appropriate arrangement for trained personnel in sufficient number to take care of breakdowns. At the same time they lack inventory of critical
components such as transformer, blades at the site or warehouse nearby. This results into undue delay
in restoration or repair and resultant loss of generation.

Conclusion
We should not make a point that investment in wind energy is high risk investment or one should not invest. The above points are only precautionary guidelines to any potential investor to take informed decision. Energycon India has more than 26 years of experience in this field and helps new investors to take informed decision which benefit them in long run.

Authored by__

Bhupendra Rajpara,
Director, Energycon India Pvt Ltd

(DISCLAIMER: Views expressed above are the author’s own.)