Project Appraisal Document (PAD) - Climate Investment Funds

Document of

The World Bank

FOR OFFICIAL USE ONLY Report No: PAD2067

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED IBRD LOAN IN THE AMOUNT OF US$150 MILLION,

A PROPOSED CLEAN TECHNOLOGY FUND (CTF) LOAN IN THE AMOUNT OF US$28 MILLION,

AND A PROPOSED CTF GRANT IN THE AMOUNT OF US$22 MILLION

TO THE

SOLAR ENERGY CORPORATION OF INDIA LIMITED

FOR AN

INNOVATION IN SOLAR POWER AND HYBRID TECHNOLOGIES PROJECT

March 31, 2017

Energy and Extractives Global Practice South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS

(Exchange Rate Effective March 29, 2017)

Currency Unit = Indian Rupee (INR) INR 64.9 = US$1

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AFS Annual Financial Statement AGM Assistant General Manager AWP Annual Work Plan BMS Billing Management System CA Chartered Accountant CAAA Controller of Aid, Accounts, and Audit CAG Comptroller and Auditor General CEA Central Electricity Authority CERC Central Electricity Regulatory Commission CG Corporate Governance CGFA Corporate Governance and Financial Assessment CO2 Carbon Dioxide COP21 Conference of the Parties CPF Country Partnership Framework CPSU Central Public Sector Utility CQS Selection Based on the Consultants’ Qualifications CSR Corporate Social Responsibility CTF Clean Technology Fund CTU Central Transmission Utility CUF Capacity Utilization Factor CVC Central Vigilance Commission DA Designated Account DGM Deputy General Manager DGS&D Directorate General of Supplies and Disposal Discom Distribution Company DPE Department of Public Enterprises DPR Detailed Project Report EMP Environmental Management Plan EPC Engineering, Procurement, and Construction ERR Economic Rate of Return ESIA Environment and Social Impact Assessment ESMF Environment and Social Management Framework ESS Employee Self-Service FM Financial Management GAAP Governance and Accountability Action Plan

GDF Gender Development Framework GDP Gross Domestic Product GHG Greenhouse Gas GM General Manager GOI Government of India GRM Grievance Redress Mechanism GW Gigawatt IA Implementing Agency ICAI Institute of Chartered Accountants of India ICB International Competitive Bidding IEA International Energy Agency IPF Investment Project Financing IPO Initial Public Offering IPP Indigenous Peoples Plan IUFR Interim Unaudited Financial Report JV Joint Venture KPI Key Performance Indicator KfW Kreditanstalt für Wiederaufbau (German Development Bank) kV Kilovolt kW Kilowatt kWh Kilowatt-hour LCOS Levelized Cost of Storage M&E Monitoring and Evaluation MANIREDA Manipur Renewable Energy Development Agency MNRE Ministry of New and Renewable Energy MoEFCC Ministry of Environment, Forest and Climate Change MPR Monthly Progress Report MW Megawatt NAPCC National Action Plan for Climate Change NDC Nationally Determined Contribution NGO Nongovernmental Organization NEFT National Electronic Funds Transfer NPV Net Present Value NSM National Solar Mission NTPC National Thermal Power Corporation NVVNL NTPC Vidyut Vyapar Nigam Limited O&M Operations and Maintenance PABR Penna Ahobilam Balancing Reservoir PACE-D Partnership to Advance Clean Energy - Deployment PAP Project-Affected Person PFR Prefeasibility Report PMC Project Management Consultancy POWERGRID Power Grid Corporation of India Limited PPA Power Purchase Agreement PPSD Project Procurement Strategy for Development PV Photovoltaic PSA Power Sale Agreement RAP Resettlement Action Plan

RBI Reserve Bank of India R&D Research and Development RE Renewable Energy REOI Request for Expression of Interest RPF Resettlement Policy Framework RPO Renewable Purchase Obligation R&R Rehabilitation and Resettlement RTGS Real-Time Gross Settlement RTI Right to Information SDRC Social Development and Resettlement Cell SECI Solar Energy Corporation of India Limited SIA Social Impact Assessment SNA State Nodal Agency SPV Special Purpose Vehicle STEP Systematic Tracking of Exchanges in Procurement T&D Transmission and Distribution ToR Terms of Reference TPA Tripartite Agreement UDAY Ujjawal Discom Assurance Yojana UNFCC United Nations Framework Convention on Climate Change USAID United States Agency for International Development USD/US$ United States Dollar VGF Viability Gap Funding WTG Wind Turbine Generator

Regional Vice President: Annette Dixon

Country Director: Junaid Kamal Ahmad

Senior Global Practice Director: Riccardo Puliti

Practice Manager: Demetrios Papathanasiou

Task Team Leader(s): Surbhi Goyal, Gevorg Sargsyan

The World Bank Innovation in Solar Power and Hybrid Technologies (P160379)

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BASIC INFORMATION

Is this a regionally tagged project? Country(ies) Lending Instrument

No Investment Project Financing

[ ] Situations of Urgent Need of Assistance or Capacity Constraints

[ ] Financial Intermediaries

[ ] Series of Projects

Approval Date Closing Date Environmental Assessment Category

26-Oct-2017 31-Mar-2023 A - Full Assessment

Bank/IFC Collaboration

No

Proposed Development Objective(s) The Project Development Objective is to demonstrate large-scale innovative renewable energy technologies in India.

Components

Component Name Cost (US$, millions)

Component A: Investments in Innovative Technologies (Estimated Cost: US$398 million of which IBRD Loan: US$150 million; CTF loan: US$28 million; and CTF Grant: US$20 million)

398.00

Component B: Technical Assistance and Institutional Strengthening of SECI (Estimated Cost: US$2 million of which CTF Grant: US$2 million)

2.00

Organizations

Borrower :

Solar Energy Corporation of India Limited

Implementing Agency : Solar Energy Corporation of India Limited


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[ ✔ ] Counterpart Funding

[ ✔ ] IBRD [ ] IDA Credit [ ] Crisis Response Window [ ] Regional Projects Window

[ ] IDA Grant [ ] Crisis Response Window [ ] Regional Projects Window

[ ✔ ] Trust Funds

[ ] Parallel Financing

Total Project Cost: Total Financing: Financing Gap:

400.00 400.00 0.00

Of Which Bank Financing (IBRD/IDA):

150.00

Financing (in US$, millions)

Financing Source Amount

Borrower 200.00

Clean Technology Fund 50.00

International Bank for Reconstruction and Development 150.00

Total 400.00

Expected Disbursements (in US$, millions)

Fiscal Year 2018 2019 2020 2021 2022 2023

Annual 0.00 15.00 20.00 40.00 60.00 65.00

Cumulative 0.00 15.00 35.00 75.00 135.00 200.00

INSTITUTIONAL DATA

Practice Area (Lead)

Energy & Extractives


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Contributing Practice Areas

Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating

1. Political and Governance Low

2. Macroeconomic Low

3. Sector Strategies and Policies Moderate

4. Technical Design of Project or Program Substantial

5. Institutional Capacity for Implementation and Sustainability Substantial

6. Fiduciary Substantial

7. Environment and Social Substantial

8. Stakeholders Moderate

9. Other

10. Overall Substantial


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COMPLIANCE

Policy

Does the project depart from the CPF in content or in other significant respects?

[ ] Yes [✔] No

Does the project require any waivers of Bank policies?

[ ] Yes [✔] No

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 ✔

Natural Habitats OP/BP 4.04

Forests OP/BP 4.36

Pest Management OP 4.09

Physical Cultural Resources OP/BP 4.11 ✔

Indigenous Peoples OP/BP 4.10 ✔

Involuntary Resettlement OP/BP 4.12 ✔

Safety of Dams OP/BP 4.37

Projects on International Waterways OP/BP 7.50

Projects in Disputed Areas OP/BP 7.60 ✔

Legal Covenants

Conditions

PROJECT TEAM

Bank Staff

Name Role Specialization Unit

Surbhi Goyal Team Leader(ADM Responsible)

Energy GEE06


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Gevorg Sargsyan Team Leader Energy GEEDR

Satyanarayan Panda Procurement Specialist(ADM Responsible)

Procurement GGO06

Dilip Kumar Prusty Chinari Financial Management Specialist

Financial Management GGO24

Amit Jain Team Member Energy GEE06

Bipulendu Narayan Singh Team Member Energy GEE06

Boonsri Prasertwaree Kim Team Member Project Administration GEE06

Gaurav D. Joshi Safeguards Specialist Environment GEN06

Gopalaswamy Srihari Team Member Social Development GSU06

Guido Agostinelli Team Member Energy CBDSB

Neetu Sharda Team Member Project Administration SACIN

Parthapriya Ghosh Safeguards Specialist Social Development GSU06

Peter Mockel Team Member Energy Storage CBDSB

Pyush Dogra Safeguards Specialist Environment GEN06

Extended Team

Name Title Organization Location


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INDIA

Innovation in Solar Power and Hybrid Technologies

TABLE OF CONTENTS

I. STRATEGIC CONTEXT ...................................................................................................... 8

A. Country Context ................................................................................................................. 8

B. Sectoral and Institutional Context ..................................................................................... 9

C. Higher Level Objectives to which the Project Contributes ............................................. 11

II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................ 12

A. PDO ................................................................................................................................... 12

B. Project Beneficiaries ......................................................................................................... 12

C. PDO-Level Results Indicators ........................................................................................... 13

III. PROJECT DESCRIPTION .................................................................................................. 13

A. Project Components ......................................................................................................... 13

B. Project Cost and Financing ............................................................................................... 14

C. Lessons Learned and Reflected in the Project Design ..................................................... 15

IV. IMPLEMENTATION ........................................................................................................ 16

A. Institutional and Implementation Arrangements ........................................................... 16

B. Results Monitoring and Evaluation ................................................................................. 17

C. Sustainability .................................................................................................................... 17

D. Role of Partners ................................................................................................................ 18

V. KEY RISKS ..................................................................................................................... 18

A. Overall Risk Rating and Explanation of Key Risks ........................................................... 18

VI. APPRAISAL SUMMARY .................................................................................................. 19

A. Economic and Financial (if applicable) Analysis .............................................................. 19

B. Technical ........................................................................................................................... 21

C. Financial Management ..................................................................................................... 21

D. Procurement ..................................................................................................................... 22

E. Social (including Safeguards) ............................................................................................ 23

F. Environment (including Safeguards) ................................................................................ 23

G. Other Safeguard Policies (if applicable) .......................................................................... 25


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H. World Bank Grievance Redress ....................................................................................... 25

VII. RESULTS FRAMEWORK AND MONITORING ................................................................... 26

ANNEX 1: DETAILED PROJECT DESCRIPTION ......................................................................... 31

ANNEX 2: IMPLEMENTATION ARRANGEMENTS .................................................................... 41

ANNEX 3: IMPLEMENTATION SUPPORT PLAN ...................................................................... 59

ANNEX 4: ECONOMIC AND FINANCIAL ANALYSIS ................................................................. 61

ANNEX 5. CLEAN TECHNOLOGY FUND .................................................................................. 69


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I. STRATEGIC CONTEXT

A. Country Context

1. India’s power sector is undergoing sustained growth to continue to fuel economic growth and meet the needs of its population. India’s annual gross domestic product growth rates averaging above 7 percent led peak power and energy demand to grow at 4.9 percent and 5.3 percent annually, respectively since 2008. Energy demand will continue to grow rapidly, contributing about a quarter of the increase in global energy demand by 2040. An ambitious power generation capacity expansion effort is underway, with installed capacity exceeding 300 GW in 2016 and expected to rise to 1,076 GW by 2040. Significant gains have been made in expanding electricity access, from 56 percent of the population in 2001 to over 80 percent in 2016.1

2. Despite these achievements, reliable grid electricity supply remains a challenge. It is estimated that about 250 million people are without grid connections, and of these, around two-thirds reportedly choose not to connect because electricity supply is unreliable. Heavily indebted distribution companies (Discoms)2 are unable to afford network investments and adequate power purchases to allow them to provide reliable supply. Households and agricultural consumers face unreliable supply and load shedding. Industrial and commercial enterprises have invested in expensive, inefficient, and polluting diesel backup generation and incur associated coping costs.

3. India’s per capita electricity consumption is expected to grow in the coming years. India is currently the world’s third largest consumer of electricity; however, per capita consumption, at 1,090 kWh, is only one-third of the global average. Significant growth in electricity demand is expected due to rising incomes and rapidly urbanizing population. Combined with the expansion of access, this poses challenges for the already vulnerable system and the Government of India’s (GOI) goal of providing 24×7 power for all.

4. The power sector is heavily reliant on coal. Coal consumption in power generation and industry is expected to continue to grow significantly, making India the world’s largest source of growth in coal use over the next decade. Around 60 percent of India’s electricity generation is coal-fired (192 GW) and about 50 GW coal-fired capacity is expected to be installed by 2020. An ambitious program to increase renewable energy (RE)-based generation capacity to 175 GW by 2022 is also underway. RE (excluding large hydropower) currently accounts for around 15 percent of power generation capacity. However, even if India achieves its target of 40 percent non-fossil-fuel-based generation capacity by 2030, this will only contribute to 25 percent of energy supplied.

5. In this context, renewable energy has a critical role to play. India’s Nationally Determined Contribution (NDC), as declared in Paris at the Conference of Parties (COP 21), includes the goals of expanding its RE, energy efficiency, forestry, urban, and pollution reduction programs. In its NDC, India has made several commitments, including to (a) adopt a climate friendly and cleaner path; (b) reduce its

1 IEA (International Energy Agency). 2016. “World Energy Outlook.” 2 Annual and cumulative financial losses by public Discoms are about US$15 billion and US$66 billion, respectively.


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carbon intensity by 33–35 percent by 2030 from 2005 level; and (c) achieve about 40 percent cumulative electric power installed capacity from non-fossil-fuel based energy resources by 2030, among others.

B. Sectoral and Institutional Context

6. A combination of investments in networks, additional clean energy generation capacity, and energy efficiency is critical for India in meeting its NDCs while curbing thermal generation and therefore greenhouse gas (GHG) emission growth. In generation, the development of India’s RE has grown significantly over the past decade, with the implementation of major policy and regulatory measures for harnessing RE resources. As of January 2017, India had successfully added more than 50 GW of grid-connected RE (excluding 44 GW in large hydropower capacity).3 The major contributor to this achievement has been wind power (29 GW), followed by solar power (9 GW), bio-power (8 GW), and small hydropower (4.3 GW).4 Together, wind and solar power constitute nearly 80 percent of this added capacity. The rate at which this capacity addition has occurred is commendable, considering that total RE installed capacity was just 7.7 GW less than a decade ago (2007 figure).5

7. Solar and wind power are likely to continue as the dominant share of RE in India for the foreseeable future. Their growth trajectory over the last decade and present level of installed capacity clearly indicate significant potential for both categories. This potential is also reflected in the GOI’s 2022 target of 175 GW, which envisages 160 GW coming from solar (100 GW) and wind (60 GW). Recognizing the potential of solar energy to contribute to India’s energy security, and taking advantage of falling solar photovoltaic (PV) prices, which increases the likelihood of more quickly reaching grid parity, the GOI enhanced cumulative solar targets from 20 GW to 100 GW in June 2015 under the National Solar Mission (NSM).6

8. However, scaling up stand-alone solar and wind plants faces major constraints, including land scarcity, variability of supplied energy, and underutilized associated facilities especially evacuation infrastructure. Land acquisition requirements for stand-alone solar and wind projects are estimated at about 5 acres per megawatt (MW) and 8–10 acres per MW, respectively.7 If investments are made only in stand-alone projects, then to achieve 175 GW RE targets by 2022 will require huge amounts of land, usually in contiguous areas, which is difficult to access in a densely populated country like India.

9. RE sources of generation follow a set generation pattern, for instance, solar power is generated only during the daytime while the wind power generation is generally maximum at night. Also, RE generation varies from season to season, for instance, highest capacity utilization factor (CUF) for solar generation has been recorded in the summer months (March to June). Furthermore, the utilization factor of their respective evacuation infrastructure as well as of the related infrastructure (such as access roads, right-of-way, manpower) is also low for stand-alone RE projects, which increases capital as well as

3 For details, refer to http://www.cea.nic.in/reports/monthly/executivesummary/2017/exe_summary-01.pdf. 4 For details, refer to http://mnre.gov.in/mission-and-vision-2/achievements/. 5 Comptroller and Auditor General of India, http://www.cag.gov.in/sites/default/files/audit_report_files/Union_Civil_Performance_Renewable_Energy_Report_34_2015.pdf. 6 The NSM was launched on January 11, 2010, by former Prime Minister Manmohan Singh. 7 On a footprint basis, however, the land acquisition requirements for wind are much lower.


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operating costs of such projects. Given this and with a targeted increase in the share of RE, the grid integration cost in terms of variability as well as utilization is expected to be much higher for such projects.

10. India has made tremendous progress in stand-alone solar and wind installations in the last seven to eight years. Because of large-scale deployment of wind and solar plants, capital costs and related power purchase agreement (PPA) tariff have fallen significantly. Solar, which was not considered a bankable technology in the early years of launch of NSM, is now funded by commercial banks purely on project finance basis. However, innovative technologies such as energy storage and floating solar are still considered risky by commercial banks, making it difficult to mobilize private investments in such projects.

11. As solar-wind hybrid systems are co-located on the same piece of land, it improves the generation profile of the hybrid plant on increased power generated per unit piece of land as compared to stand-alone RE plants. Further, the complementarity of solar and wind electricity-generation patterns provide an opportunity to improve utilization of the associated evacuation infrastructure while providing greater balance in the energy supply.8 Addressing the variable nature of the RE sources of generation plays a vital role in maintaining grid stability especially in light of the 175 GW RE targets of the GOI. Several Indian states are blessed with excellent wind and solar resources, together offering ideal sites for implementing utility-scale RE hybrid projects. To date, hybrid projects in India have been limited to small-scale and off-grid ones. Existing installations include a few kilowatt projects, while tendering for a 2.5 MW project at Rangreek in Himachal Pradesh state is currently underway. To increase the uptake of hybrid technologies, the GOI recently issued a draft policy on hybrid systems that targets achieving 10 GW of generating capacity by 2022 through hybridization of solar and wind power projects.9

12. Given the variable nature of RE, energy storage is becoming increasingly important. While RE penetration up to 15–20 percent is relatively easy to integrate into the grid, higher levels may cause challenges. With significant wind and solar capacity addition expected in coming years, the grid will continue to face severe transmission capacity constraints and stability issues. As noted in the United States Agency for International Development’s (USAID) ‘Assessment of the Role of Energy Storage Technologies for Renewable Energy Deployment in India’ report, Power Grid Corporation of India Limited (POWERGRID), the central transmission utility (CTU), estimates that it would need 20 GW of flexible generation, including super critical thermal generators and energy storage solutions, to take care of peak load requirements by 2017. The report further notes that the power sector in India is facing stability issues caused by an increasing share of RE in the grid. Several Indian states which have a high level of grid-connected RE capacity (such as Tamil Nadu with about 44 percent) suffer from transmission capacity constraints. This translates into a significant portion of power (between 30 percent and 50 percent in many cases) not getting evacuated during peak generation, resulting in loss to the system as well as to the generators. While transmission capacity is being augmented to take care of evacuation needs, it has been slow. Moreover, an increase in the RE mix is likely to put further pressure on the system. Energy storage can be used as an option for reducing ‘backdown’ of generation and also reducing or postponing transmission capacity expansion. Electricity storage can help with load shifting to meet peak demand, grid stabilization, improved generation efficiency, and better utilization of transmission capacity. However,

8 A study conducted by the Reiner Lemoine Institute and Solarpraxis AG concluded that combining wind turbines and PV systems results in generating up to twice the amount of electricity across the same surface area, while shading losses caused by wind turbines amount to just 1–2 percent. 9 For details, refer to http://mnre.gov.in/file-manager/UserFiles/Draft-Wind-Solar-Hybrid-Policy.pdf.


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though the energy storage solutions still do not meet the financial viability test, with falling prices and enhanced performance, storage is expected to gradually become competitive. With the launch of India’s Smart Grid and Electrical Vehicle initiatives by the GOI, along with the promotion of on-site solar energy and rural microgrids, energy storage is fast evolving into a critical component of the country’s energy strategy. Such initiatives focus on addressing the issues related to standards, regulation and policy, engineering design, process methodologies, technology selection, and so on for storage solutions.

13. With regard to floating solar PV technology, it can help ease pressure on land resources by placing the power plant on water bodies. Preliminary studies suggest that utilization of just 10 percent of India’s water bodies would allow for the development of about 300 GW of floating solar PV generation capacity.10 This technology will not only reduces demand for land, in case of hydropower dams but can also help optimize the utilization of existing evacuation infrastructure. Additional advantages of the technology include lower cleaning requirements and potential positive externalities by reducing evaporation, controlling algae growth, and providing shade to fish and other marine life. To date, the uptake of floating solar technologies in India has been modest, with installations ranging between 10 kW and 100 kW. At present, India has no utility-scale floating solar plants. The GOI is also promoting floating solar technology by initiating work on screening of potential sites for establishment of such plants in various states.

14. To scale up the development of innovative and demonstrable solar energy technologies, the GOI formed the Solar Energy Corporation of India (SECI) in 2011 as one of the key implementing agencies (IAs) for taking forward implementation of NSM. Recently, SECI’s mandate was broadened to cover the entire gamut of RE sources. As a Central Public Sector Utility (CPSU) dedicated to the RE domain, with the twin objectives of technology and market development, SECI is responsible for finding appropriate technological and market-based solutions to overcome constraints currently faced by the RE sector. Through the proposed project, such innovative technologies will be demonstrated at a scale to showcase the anticipated benefits from such technologies while addressing financing challenges by proving the concept and hence likely to mobilize future private sector investments. The project is part of the US$1 billion engagement sought by the GOI from the World Bank in the RE sector.11

C. Higher Level Objectives to which the Project Contributes

15. Alignment with the GOI’s national priorities. The project is aligned with the GOI’s National Action Plan for Climate Change (NAPCC), issued in 2008 to enhance India’s ecological sustainability and encourage sustainable energy sources. In December 2015, the GOI upscaled the target of RE capacity to 175 GW by the year 2022 which includes 100 GW from solar,12 60 GW from wind, 10 GW from bio-power, and 5 GW from small hydropower. In addition, the proposed project is consistent with the GOI’s goal of providing uninterrupted power for all by 2019. The GOI has reiterated these commitments as part of its NDC to achieve about 40 percent cumulative electric power installed capacity from non-fossil-fuel energy resources by 2030.

10 According to a preliminary assessment of Renewable Energy College, Kolkata. 11 During their July 2014, January 2015, and June 2016 meetings, Prime Minister Narendra Modi and President Jim Yong Kim discussed World Bank financing for solar projects in the country. In particular, the GOI requests have been received for three other World Bank engagements to support (a) the establishment of grid-connected rooftop PV (US$648 million) and (b) shared infrastructure for solar parks (US$200 million, in two phases). 12 This is under NSM, launched in 2010, as part of the NAPCC.


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16. Alignment with the World Bank’s India Country Partnership Framework (CPF). The proposed project is aligned with the three pillars of the CPF for India: transformation, integration, and inclusion. Under transformation, it directly aims to reduce GHG emissions and local environmental pollution associated with the alternate coal-based thermal power generation, to be displaced by adding clean power generation capacity and fostering innovative RE development. Further, the new technologies are likely to transform the way forward for achieving the 175 GW RE targets set by the GOI while optimally utilizing the constrained resources. Under integration, the project will accelerate investment in innovative solar power and hybrid technologies. Further, the project is expected to bring benefits in terms of removing barriers to promoting such innovative technologies that optimally utilizes the available resources while boosting confidence of private investors in such technologies. It further targets for improved quality of power, reliability and affordability to the people of India. Under inclusion, it offers the opportunity to increase electricity access by increasing the availability of electricity generation in the system. In addition, the project is expected to generate employment opportunities and provide opportunities of growth to the surrounding areas.

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

17. The Project Development Objective is to demonstrate large-scale innovative renewable energy technologies in India.

B. Project Beneficiaries

18. The project’s direct beneficiaries are (a) people in the participating states and elsewhere who will benefit in terms of better quality of supply due to the electricity generated in the subprojects as well as cleaner air; (b) Discoms, which will be able to meet their Renewable Purchase Obligation (RPO) with electricity generated from such subprojects; (c) SECI, which will be able to meet the RE targets of 1,000 MW while developing it as an entity that is able to fully deliver on its sector mandate; and, (iv) industry in terms of reduced technological and integration risks.

19. The expected benefits of the project are

(a) Increased electricity supply;

(b) Avoided GHG emissions from displacement of thermal generation;

(c) Lower grid-integration costs of solar-wind hybrid plants compared to stand-alone plants resulting from complementarities in generation patterns of wind and solar and better utilization of transmission infrastructure. The same holds true for the floating solar plants wherever these are installed on the existing reservoirs of say hydropower/irrigation projects;

(d) Better optimization of land areas under solar-wind hybrid plants compared to stand-alone solar and wind plants; and


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(e) Generation of lessons, which should contribute to mainstreaming and scaling up investments in these technologies.

C. PDO-Level Results Indicators

20. The following indicators will be used to track progress in achieving the PDO. The specifics regarding the key performance as well as intermediate results indicators are detailed in Section VII.

(a) Cumulative installed capacity of 300 MW

(b) RE power generation (in megawatt hours [MWh])

(c) GHG emissions avoided

III. PROJECT DESCRIPTION

A. Project Components

21. The proposed project aims to support the GOI to promote large-scale deployment of innovative technologies in the RE sector, including solar-wind hybrid systems, integrated energy storage for solar and wind, and floating solar PV panels. SECI will be the borrower as well as the implementing agency (IA) for the project. The proposed project will have two components.

22. Component A: Investments in Innovative Technologies (Estimated cost: US$398 million, including US$150 million from the World Bank, US$48 million from the Clean Technology Fund - CTF [CTF loan in the amount of US$28 million and a proposed CTF grant in the amount of US$20 million13], and US$200 million from SECI). This component will finance the following:

(a) Large-scale solar-wind hybrid power plant(s), potentially with short-term energy storage, with a cumulative capacity of about 230 MW. Such subprojects are expected to improve power generated per unit piece of land while reducing the variability of the generation from stand-alone RE plants. The first site of estimated capacity of 150 MW has been identified near Ramgiri District in the state of Andhra Pradesh. Finalization of the exact land coordinates as well as solar and wind resource assessments along with technical due diligence of the site is underway. Prefeasibility studies for solar-wind hybrid plants at a few other potential sites are also underway.

(b) Stand-alone plants for solar PV with storage, with a cumulative capacity of 50 MW. Because such technology is not yet commercially viable, the project will demonstrate the benefits expected out of storage solutions and hence is a step toward opening up the market for private sector investments. Based on the technical as well as financial due diligence, duration of energy storage for the identified subprojects will be decided.

13 For determining project costs, it is assumed that 50 MW PV with 1 hour storage (50 MWh) will be installed. At an installed cost of battery of US$400 per kWh, a grant of US$20 million will be required to set up the storage part of the energy storage project.


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(c) Large-scale floating solar PV power plants with a cumulative capacity of about 20 MW. The first sites being explored for such investments are located in Andhra Pradesh and Kerala. The sites identified in these states have an estimated potential of 10 MW each. As this technology is not yet commercially viable, the project aims to prove the concept by locating such subprojects at sites where there is existing associated infrastructure such as reservoirs of the operating dams and/or sites where there are externalities such as high evaporation loss (in case of irrigation dams) and/or where the land is either not available or too expensive. This approach will ensure that the subproject is sustainable.

23. The investments under the project are expected to crowd-in private investments in these technologies by proving the concept, creating the enabling environment (by engaging and informing the decision-making process of the policy makers as well as regulators), and showcasing the anticipated benefits while providing the lessons learned to replicate the experience. The project will also bring out approaches for successful implementation of such technologies through suitable risk mitigation strategies and prudent project design and implementation, not only within India but also in other countries.

24. While the proposed technologies will contribute to long-term scale-up and cost reduction of RE, they will require initial subsidies. Storage technologies in particular will require grant financing in early stages of introduction to the Indian market. Floating solar will also require concessional financing to help achieve investments at scale, which will help drive costs down.

25. Component B: Technical Assistance and Institutional Strengthening of SECI (estimated cost: US$2 million from the CTF grant). This component will finance the following activities:

(a) Capacity building and institutional strengthening to enhance SECI’s core competencies (across functions such as human resources, project management and monitoring, procurement and contract management, financial management [FM]) that will enable it to maintain sustainability of the investments made under the project;

(b) Support in developing a pipeline of subprojects through supporting prefeasibility studies, site identification, social and environmental assessment, techno-commercial studies, and other preparatory activities;

(c) Developing policy and regulatory proposals to support scale-up of innovative technologies.

B. Project Cost and Financing

26. The project is designed as an Investment Project Financing (IPF), which will cover the investments required for capital costs of assets (for example, PV panels, wind turbines, mounting structures, cables, linked evacuation system, and batteries). Total World Bank and CTF financing requirements are estimated at US$200 million, representing 50 percent of the total project cost. Of this US$200 million, the World Bank will provide US$150 million IBRD financing, while the CTF will contribute US$50 million. Thus, the subprojects will be financed through a combination of IBRD lending, CTF loan, CTF grant, and counterpart funding, including internal accruals, equity, land, and support from the GOI (wherever applicable).


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27. The IBRD loan will have a variable spread, with a final maturity of [25 years], including a grace period of [5 years] and level repayments. The CTF loan is offered with a service charge of 0.25 percent per year on the disbursed and outstanding loan balance and 40-year maturity, including a 10-year grace period, with principal repayments at 2 percent for years 11–20 and 4 percent for years 21–40. Principal and service charge payments accrue semiannually. A management fee equivalent to 0.45 percent of the total loan amount will be charged, to be capitalized from the loan proceeds, following the effectiveness of the loan.

Project Components Project Cost

(US$, millions) IBRD Financing (US$, millions)

CTF (US$, millions)

Counterpart Funding (US$,

millions)

Component A: Investments in Innovative Technologies

398 150 48 200

Component B: Technical Assistance and Institutional Strengthening of SECI

2 0 2 0

Total Costs 400 150 50 200

C. Lessons Learned and Reflected in the Project Design

28. The project builds on the lessons learned from the past engagements with POWERGRID series, where the concessional financing supported the public sector in investments in new technologies such as high-capacity transmission corridors including high-voltage direct current lines, enabling opening up the market. Once the base is set up and the technology is proven, the private sector is more confident in entering a new segment. Engagement with SECI will also ensure that this project is a national demonstration project instead of a state-specific engagement. It will also help in containing the transaction cost with no financial intermediary in between and it being a direct financing to the project owner. Hence, to promote technical innovations in the sector, SECI is the most appropriate player to be engaged with. Further, along with promoting the new technologies, the project will also inform the decision makers, including Ministry of New and Renewable Energy (MNRE) (policy-making body) as well as Central Electricity Regulatory Commission (CERC) (the regulator), to make informed choices and build the ecosystem that will further encourage the investments to come in the sector.

29. The project also builds on the experience from other RE projects such as ‘Shared Infrastructure for Solar Parks’ where the project is supporting the public investments that will foster crowding-in of private investments and opening up the market. Similar lessons were learned from POWERGRID projects as well where the investments were supported in creating the public infrastructure (transmission links across the regions and the states) while encouraging mobilization of investments in generation assets.

30. It also builds on the lessons from projects such as POWERGRID (initial investments in first and second power system development projects) as well as the Haryana Power System Improvements Project that entities foraying into new territories will need support in executing the subprojects in a professional and sustainable manner. Hence, the project will utilize the funds available under Component 2 to provide necessary support in strengthening the institution as well as developing the pipeline of subprojects.


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31. The project also builds on the experience of IFC’s venture capital investments in energy storage technology. IFC has invested in four early-stage companies in the sector (Fluidic Energy, Ioxus, Microvast, and AST). Working with these companies has yielded market intelligence on pricing of batteries and on their performance and reliability in the field. In particular, storage prices have been falling faster than anticipated in the past four years, and large grid-scale projects have resulted in lower prices in markets outside India.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

32. SECI will be the borrower as well as the IA for the project. SECI was established in 2011 with a mission to promote and commercialize cleaner sources of energy and specifically solar energy in the country. In June 2015, SECI was converted from a Section 8 company14 (a not-for-profit organization) to a Section 3 company, under the Companies Act 2013, while expanding its scope from solar energy to include non-solar RE. This change has laid the way for SECI to become a self-sustaining organization involved in investing, trading electricity, and consultancy in the area of RE.

33. SECI is an IA for multiple schemes of MNRE such as the 680 MW grid-connected solar PV project under Phase-II Batch-I of NSM (commissioned), 2 GW Phase-II Batch-III, and 5 GW Phase-II Batch-IV; rooftop solar PV program; solar parks; CPSU scheme; and canal top/bank scheme. SECI also acts as an offtaker of solar power under Phase-II Batch-I and subsequently sells the power to state Discoms on pooled basis under long-term power sale agreements (PSAs). SECI also recently commissioned a 10 MW solar power plant in Jodhpur, Rajasthan. Further, SECI provides consultancy services to CPSUs/government entities that are keen to set up solar power projects. SECI has also entered into a number of joint ventures (JVs), mostly on equal partnership, with various state nodal agencies (SNAs), for the development of the solar parks.

34. SECI has been mandated to own 1,000 MW of solar projects in the country. As mentioned above, SECI commissioned its 10 MW solar project in Rajasthan in March 2016 from which it is selling power to NTPC Vidyut Vyapar Nigam Limited (NVVNL) under a 25-year PPA at a fixed tariff of US10.8 cents per unit (or INR 7.04 per unit). SECI is planning to upgrade this plant to a solar-wind hybrid plant. It is also in the process of developing a pilot project of 2.5 MW on solar-wind hybrid in Rangreek, in the state of Himachal Pradesh. SECI recently also invited a tender for a 100 MW project with short-term storage in the state of Andhra Pradesh. It so far has no presence in floating solar, given that there are only a few small installations in the country ranging from 10 kW to 100 kW. The proposed project builds on lessons learned from these pilot projects being constructed/tendered in India either through SECI or otherwise. The project also takes into account the international experience in implementing the storage (California - United States of America, United Kingdom); floating solar (Japan, California - United States of America, United Kingdom); and hybrid technologies and floating solar experience (Japan, Maldives, United Kingdom, and so on).

35. The direct lending to SECI (and not routed through a financial institution) will help contain the transaction costs and be more hands-on with regard to issues such as project and technical design,

14 Formerly called Section 25 as per the Companies Act 1956.


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procurement strategy, implementation support, and transferring lessons learned for a wider application across the national boundaries. However, as SECI is a relatively new organization and will need to be strengthened to deliver its mandate, the proposed project is designed to provide necessary support. Further, the MNRE will provide the overall policy guidance to open up these market segments for further investments. These plants will be grid-connected, and the state Discoms and bulk consumers will purchase the electricity generated from these plants based on a pre-agreed PPA. As the Discoms also play a vital role here as an offtaker of the power purchased from the investments, the financial fragility of such concerned companies will be an important factor while making investments in any of the identified subprojects.

36. SECI, in consultation with the World Bank, will carry out detailed subproject assessments (across FM, safeguards, procurement, and technical aspects). SECI will take the lead in preparing and consolidating progress reports, financial statements, and Interim Unaudited Financial Reports (IUFRs).

B. Results Monitoring and Evaluation

37. SECI will provide the World Bank with quarterly physical progress and IUFRs, annual information on progress of the key performance indicators, audited financial statements, and such other information as the World Bank may reasonably require. Monitoring and evaluation (M&E) will be linked to the project targets (key performance as well as intermediate indicators). SECI will carry out a midterm review and report its findings and conclusions to the World Bank two-and-a-half years after effectiveness and will review these with the World Bank. Section VII sets out the project’s key performance as well as intermediate results indicators. The World Bank will field implementation support missions twice per year.

C. Sustainability

38. As these subprojects will be grid-connected, and the state Discoms and bulk consumers will purchase the electricity generated from these plants based on a pre-agreed PPA, the sustainability of the investments will build in the subproject selection and design. Such mechanism will ensure cost recovery as well as guarantee minimum return on the investments made by SECI.

39. Further, SECI has recently been included in the tripartite agreement (TPA) with the GOI, Reserve Bank of India (RBI), and the state governments to ensure a payment security mechanism for supply arrangements between CPSUs (such as National Thermal Power Corporation [NTPC], POWERGRID, SECI) and state Discoms for supply of power. The long-term TPA ensures that payments on account of supplying solar power to the Discoms will be received by SECI on time. Given this, the long-term investment rating of SECI has also been upgraded from ‘AA minus’ to ‘AA plus’ by ICRA Limited, a credit rating firm in India.

40. SECI has been a profit-making company. It intends to launch its Initial Public Offering (IPO) in three to five years, implying that it will be eager to adopt the capacity-building and institutional-strengthening measures over the project implementation period. With the launch of the IPO, corporate governance (CG) practices will strengthen, further ensuring improved monitoring of the investments.

41. As the project supports the new technologies, the project has concessional financing from the CTF that will enable demonstrating of the perceived benefits of such technologies while fostering


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development of the policy and regulatory framework that is expected to open up the market for higher-scale investments.

D. Role of Partners

42. Many development partners are active in the clean energy space. Kreditanstalt für Wiederaufbau (German Development Bank, KfW) is working closely with the GOI to mobilize investments in the floating solar sector, especially in the state of Kerala. USAID, under the Partnership to Advance Clean Energy - Deployment (PACE-D) program, has prepared draft bidding documents for demonstration storage projects. A White Paper on Framework for Development of RE Hybrids in Karnataka has been published by USAID under the PACE-D program. The National Renewable Energy Laboratory is working under the contract with the World Bank and USAID for a ‘greening the grid’ study to help with integrating higher share of renewables into the grid. The World Bank is working closely with partners and building on these engagements.

V. KEY RISKS

A. Overall Risk Rating and Explanation of Key Risks

43. The key risks and issues associated with the proposed project are as follows.

44. The risk associated with ‘institutional capacity for implementation and sustainability’ and fiduciary risk are rated Substantial because SECI, which was formed only in 2011, relatively needs to strengthen project management and fiduciary (for example, procurement, contract management, and FM) capacity and manpower availability. Thus, during project preparation and implementation, the World Bank plans to work with SECI, in consultation with the GOI, to strengthen SECI’s institutional capacity. To mitigate this risk, the World Bank plans to work with SECI (in consultation with the MNRE) to build their core competencies in fiduciary, safeguards, and other areas as part of Component 2 of the project.

45. The risk associated with ‘technical design of the project’ is rated Substantial as the project promotes innovative technologies with modest cumulative installation capacity; the construction and operation of first-of-its-kind utility-scale project could pose a challenge. Technical challenges in designing the project includes duration and type of storage optimization, sizing and design of floating solar plants, proportional capacity allocations of solar and wind in hybrid plants etc. This risk will be mitigated by appropriate development of technical specifications, selection of most suitable procurement method and qualification criteria, following feedback from the market, and warranty requirements.

46. The risk associated with ’environment and social’ is rated Substantial as safeguard impacts are expected to be site specific, restricted mainly to the innovative solar and hybrid technologies and their immediate surroundings. The impacts resulting from storage technologies can be handled more easily than those from installation of power-generation devices. While the Government plans to prioritize the use of unproductive, state-owned land for innovative solar and hybrid technologies, resettlement of communities residing on government land may be required. In cases of new construction or capacity augmentation of existing construction, it is possible that private land could be acquired for the substation. A detailed safeguards assessment study [is being]/will be carried out for each plant to assess the magnitude of such aspects and outline mitigation plans accordingly. Specialized studies may be required


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on the impacts of proposed wind turbine installations on birds. For floating solar plants, environmental issues such as impacts on aquatic life will need to be carefully addressed. (According to the IA, for the first 10 kW floating solar plant in Kolkata, no such impacts have been noted.)

47. Overall risk. The team proposes to rate the overall risk during project preparation as Substantial. The overall risk is rated Substantial given SECI’s capacity development needs, the innovative technologies being promoted, and the potential contractual issues involved. To address these concerns, the project intends to work with SECI to strengthen it institutionally.

VI. APPRAISAL SUMMARY

A. Economic and Financial (if applicable) Analysis

Economic Analysis

48. Because project sites have not been identified for storage and floating solar technologies, only

the proposed 150 MW solar-wind hybrid generation plant in the state of Andhra Pradesh is analyzed.15 The proposed investment is economically viable. It helps displace thermal generation, lowers grid integration costs of solar and wind technology, improves the utilization of land and transmission infrastructure, and reduces global and local environmental emissions. The baseline economic rate of return (ERR) of the ‘with project’ scenario is 18.3 percent with a net present value (NPV) of US$35.5 million, against a counterfactual comprising generation using imported coal and a discount rate of 10 percent (table 1).16 Local and global environmental benefits contribute 14 percentage points to the ERR and US$85 million to the NPV, enabling the project to cross the hurdle rate of 10 percent. The proposed investment in Andhra Pradesh will help reduce 6 million tons of GHG emissions over the life of the project.

49. Storage solutions are not yet economically viable as the benefits are not properly captured in the current policy and regulatory framework. While energy storage prices are falling faster than the industry anticipated a few years ago, the premium relative to the base solar PV levelized cost of energy (LCOE) is still significant. It is estimated that for the system of solar PV and storage planned under the Project, the cost of storage would be about 50% of the cost of solar PV, which will considerably increase the cost of generation. Furthermore, the policy and regulatory framework for grid storage is still under development in India. Without it, the economic value of storage solutions cannot be fully monetized, and storage projects are harder to amortize. As only its cost is fully recognized while not recognizing benefit properly, the storage technology requires grant funding for demonstration at scale and related technical assistance to create enabling environment.

15 The economic analysis presented is provisional and will be updated once the feasibility study of the proposed investment is completed. 16 This economic analysis is consistent with the following guidelines: (a) Operational Policy and Bank Procedure 10.00, IPF; (b) Power Sector Policy and Investment Projects: Guidelines for Economic Analysis; (c) Social Value of Carbon in Project Appraisal 2014; and (d) Discounting Costs and Benefits in Economic Analysis of World Bank Projects 2016.


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Table 1. Summary of Economic Analysis on Solar-Wind Hybrid

Note: The economic analysis presented in the table is provisional and will be updated once the feasibility study of the proposed investment is completed.

Financial Analysis

50. SECI, since its inception stage, has acted as a disbursement agency for the funds under Viability Gap Funding (VGF) schemes and carries out the tender process for both rooftop and ground-mounted solar schemes. Moreover, SECI also handles schemes for solar park implementation. Alternatively, SECI is also involved in power trading and offers project management consultancy (PMC) services. SECI has applied for a Category I license to trade power that will enable it to have no limit on the volume of electricity to be traded in a year.

51. There have been some important developments in recent times bringing in new potential and prospects of growth for SECI that recently brought out a wind energy tender for procurement of 1 GW CTU-connected wind power on competitive basis, a pioneering effort in itself. The tender saw the most competitive tariffs (US$5.3 cents or INR 3.46 per unit) in the history of the wind market in the country. Now, SECI intends to develop about 300 MW capacity in innovative technologies with World Bank support.

Base Case Sensitivity[1] Discount rate 10.0% 6.0%

[2] Economic rate of return[3] ERR [ ] 18.3% 18.3%[4] ERR excluding GHG benefits [ ] 4.9% 4.9%[5] ERR excluding GHG and local env. benefits [ ] 4.0% 4.0%[6] Levelized cost of solar + wind hybrid US$/Kwh 0.06 0.05[7] Levelized cost of counterfactual US$/Kwh 0.04 0.04[8][9] Composition of NPV[10] Costs[11] Solar PV Capital Costs 115 MW [$USm] 71 77[12] Solar PV O&M [$USm] 10 15[13] Wind Capital Costs 35 MW [$USm] 45 49[14] Wind O&M [$USm] 3 5[15] Incremental Transmission Costs [$USm] 6 6[16] Incremental Transmission O&M [$USm] 1 1[17] Incremental Grid Integration Costs [$USm] 11 18[18] total costs [$USm] 146 170[19] Benefits[avoided thermal generation][20] Avoided fuel costs: Gas [$USm] 0 0[21] Avoided fuel costs: Coal [$USm] 77 114[22] Capacity credit: Coal [$USm] 19 22[23] total benefits [$USm] 96 135

[24] NPV (before environmental benefits) [$USm] -50.1 -35.0

[25] local environmental benefits: avoided grid generation [$USm] 3.4 5.5[26] NPV (incl. Local environmental benefits) [$USm] -46.7 -29.5[27] value of avoided GHG emissions [$USm] 82.1 126.1[28] NPV (including environment) [$USm] 35.5 96.5

[29] Lifetime GHG emissions, undiscounted mtons CO2 -6.0 -6.0


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52. An estimation of profits and expenses has been carried out from ongoing activities and activities currently in pipeline for SECI. The company is past the formative years and now has some important assignments in hand, several of which have also seen substantial work happening. Every year, there has been a marked expansion of SECI’s activities and the annual cash inflows, which is reflected in estimated revenues. On the financial front, with a total revenue of US$89 million (INR 5,790 million) and net profit of US$3 million (INR 191 million) in its fifth year of existence (and second year of profitability), SECI has been growing. Net profit of the company has increased by 80.19 percent from US$1.6 million (INR 106 million) in FY2015 to US$3 million in FY2016, while the net worth of the company has increased by more than 110 percent from US$16 million (INR 1,040 million) to US$34 million (INR 2,211 million) during the same period.

53. Further, the revenue projections for the next five years indicate a slow but steady growth for SECI. With the fall in solar tariff in the country, there is a looming uncertainty around VGF and hence that stream of revenue is expected to narrow down, while the revenue earnings from the SECI-owned assets are expected to grow manifold with assets under the proposed project getting commissioned by 2022 (refer to annex 4).

B. Technical

54. Strategic relevance. The proposed site for the hybrid project has been identified in the town of Anantapur in the state of Andhra Pradesh (Latitude - 14.21.29.7 N, Longitude - 77.31.18.9 E). The area of the plot is estimated to be about 1,500 acres and is completely owned by the Government of Andhra Pradesh. A 33/220 kV substation with transmission capacity of 150 MW exists at Ramgiri within 10 km from the site. Ample space exists for setting up additional bays for connecting load from the proposed hybrid plant.

55. Technical soundness. While the technologies supported under the project are relatively nascent for India, the project will support only well-tested and proven technologies. The project will also factor in and conform to international experience and good practices in storage, hybrid, and floating solar technologies: (a) technical standards and specifications; (b) grid integration of innovative solar technologies; and (c) relevant business models. The project will finance subprojects making use of technically proven and commercially viable solutions. While the subproject’s technical qualification criteria could be further fine-tuned, they generally would be in line with international standards and account for local regulatory, technical, and climatic conditions.

C. Financial Management

56. SECI has been functional for more than five years and has been entrusted with management and implementation of a number of schemes of MNRE but is yet to gain experience in implementing a World Bank project. SECI is designated as the IA for this project. An FM assessment of SECI indicates that project FM arrangements can be built on SECI’s existing systems, to provide reasonable assurance over the use of the project funds, subject to implementation of the agreed measures.

57. The project will use SECI’s own financial systems. Based on the budget estimate for FY2016/17, SECI has put a budget request with the line ministry to infuse INR 500 crore as equity capital. A separate ledger will be maintained for the project. The project will be subject to internal audit on terms of reference


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(ToR) agreed with the World Bank and reports will be reviewed by the World Bank. SECI currently has a stand-alone application system (Billing Management System [BMS]) to monitor the physical and financial progress. IUFRs will be submitted to the World Bank within 45 days from close of the calendar quarter, which will form the basis for reimbursement. External audit will be conducted by the audit firm appointed by the Comptroller and Auditor General (CAG), under ToR agreed with the World Bank.

58. The FM risk rating is assessed as ‘Moderate’. Project FM arrangements including the form/contents of the financial report, ToR of project internal and external audit, and key internal controls will be documented in the FM Manual. Key internal control procedures have been reinforced in the FM Manual and compliance will be reviewed by the internal auditors and the World Bank. The World Bank will review the implementation and continued adequacy of the project FM arrangements during six-monthly implementation support missions. Audit reports and progress reports will be reviewed and mitigation measures will be agreed with the project in case of issues reported by the auditors.

D. Procurement

59. Procurement for the proposed project will be carried out in accordance with Procurement Regulations for IPF Borrowers for Goods, Works, Non-Consulting and Consulting Services, dated July 1, 2016, hereinafter referred to as ‘Regulations’ and the provisions stipulated in the Legal Agreement. The project will be subject to the World Bank’s Anti-Corruption Guidelines, dated October 15, 2006, and revised in January 2011 and July 1, 2016.

60. Procurement risk assessment and mitigation. All procurement under the project will be undertaken in SECI by the Contract Department, which is headed by the General Manager/Contract. The procurement capacity assessment carried out by the World Bank staff concluded that the staff in SECI office have limited or no experience in World Bank procurement process, specifically for works using the International Competitive Bidding (ICB) method of procurement and hence, procurement staffing arrangements need to be strengthened.

61. SECI is in the process of strengthening its contracts division by recruiting more procurement experts. SECI will also develop a comprehensive training program to be implemented over the life of the project, including on procurement and contract management. SECI also intends to prepare a Procurement Manual, which will include all procurement processes, decision making, and safe upkeep and management of records. Under the project, SECI will also establish a comprehensive system for handling complaints. While the overall risk rating for the project is ‘Substantial’, the residual risk rating after taking proposed mitigation measures remains Substantial given the lack of World Bank procurement experience in SECI.

62. Project Procurement Strategy for Development (PPSD). As per the requirement of the Regulations, SECI will prepare a PPSD, from which a Procurement Plan will be developed to decide procurement methods and approaches for procurement. The first Procurement Plan will include all procurement to be taken up during the first 18 months of project implementation, which has to be agreed and submitted with the World Bank through the Systematic Tracking of Exchanges in Procurement (STEP) system. It will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.


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E. Social (including Safeguards)

63. Issues and impacts. While communities are expected to benefit from the project as a result of the generation of additional livelihood sources and corporate social responsibility (CSR) investments, project implementation may also lead to adverse social impacts. During the construction phase of investments, these might include loss of land or structures, loss of livelihood and/or loss of access to areas for livelihood support, loss of common property resources, and public safety issues because of labor influx and construction activities. The social impacts are not confined to the generation areas only; they also include the area covered by the transmission line that will evacuate power as a linked facility.

64. Mitigation measures. Because exact subproject sites are yet to be identified, SECI is in the process of preparing an Environment and Social Management Framework (ESMF) for the project, which is to be followed by subprojects to be identified later. Preparation of the ESMF is based on social profiling of similar and probable candidate sites. The ESMF is to be applied to all subprojects under this project. The ESMF will include a Resettlement Policy Framework (RPF), which will specify the procedures, probable impacts, eligibility, entitlements, and other measures to be followed in the event of resettlement and/or land acquisition. The project will also ensure that developers come up with a CSR plan and implement the same in the project area. Because subprojects will be spread all across the country, some locations may have the presence of indigenous population. Therefore, as part of the ESMF, a Tribal Management Framework (TMF) will be prepared, with the objective of including tribal communities in the project to achieve the highest possible positive impact of the interventions to improve their quality of life. The ESMF will include a Gender Development Framework (GDF), which will help analyze gender issues during the preparation stages of the project and design interventions to address women’s needs. Gender analysis will be part of the social impact assessment (SIA). The ESMF will also include (a) an Integrated Grievance Redress Mechanism (GRM); (b) specific procedures on public consultation and disclosure; (c) monitoring arrangements covering subproject selection, appraisal, and implementation; (d) schedule, procedures, and ToR for periodic environmental and social audits; and (e) a plan to augment the institutional capacity of SECI to manage project-related social issues. The ESMF will be disclosed in the country, as well as in the World Bank’s Internal Documents Unit.

65. After subproject sites are identified, screening and SIA will be carried out to identify any adverse impact in line with the ESMF. While the Government plans to prioritize the use of state-owned unproductive land for innovative solar and hybrid technologies, resettlement of communities settled on government land may be required. Additionally, there is a possibility of acquiring private land for substations in case of new construction or augmentation of capacity of the existing ones. The project will have tailor-made interventions to engage with local communities and key stakeholders to ensure their inclusion and participation in the planning and implementation stages. The project will establish mechanisms to ensure smooth implementation of the Resettlement Plan/Indigenous Peoples Plan (IPP)/Gender Action Plan in line with the ESMF. SECI may contract a nongovernmental organization (NGO) for implementation of Resettlement Action Plan (RAP) and IPP. The project will also establish a grievance redress cell.

F. Environment (including Safeguards)

66. The project sites have not yet been finalized. However, the environment and social baseline study of the selected solar (ground mounted as well as floating) and wind projects to identify threats and issues


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that may have an impact on the project has been completed by an independent agency. Based on this data, SECI is in process of preparing a site-agnostic ESMF that upon finalization will be disclosed in the country as well as on the World Bank’s website. As the sites are being identified and finalized, SECI will undertake a site-specific Environment and Social Impact Assessment (ESIA) based on the ESMF, which will also include a ToR for the ESIA. SECI has finalized the ToR and is in the process of hiring an ESIA consultant to conduct a site-specific ESIA. Thus, site-specific Environmental Management Plans (EMPs) will be developed for each site.

67. While India has gained experience in developing solar and wind projects and impacts are well known along with possible mitigation measures, floating solar is a new dimension for the country. It started in 2014 with a pilot project of 10 kW in Kolkata, with a few more projects in Chandigarh, Maharashtra, and Kerala. The experience of such projects has encouraged SECI to upscale floating solar to 20 MW with installations of about 10 MW each in Andhra Pradesh and Kerala. The preliminary site identification study for Andhra Pradesh (Penna Ahobilam Balancing Reservoir [PABR] dam) has not noted any major impacts on physical, natural, and biological environment. The site appears to have minimal impacts on flora and fauna, without significant sensitive features from a cultural and historical perspective and is also distant from national parks and wildlife sanctuaries. It identifies slight impact due to flooding (around 10 ha of cultivable land if flooding occurs) and construction impacts such as dust and occupational health safety. One significant observation for this site from the environmental safeguards perspective could be that the dam on which floating solar is proposed supplies drinking water to Anantapur town and water quality could be one aspect which needs to be examined in detail during the ESIA.

68. Environmental impacts and management. The following issues and potential impacts are envisaged:

(a) Impacts on natural physical environment because of excavations for laying foundation, water for construction and operation stage, area for storage of spare parts/equipment, and so on. The physical environment would be affected—for instance, alteration of drainage in the site and surrounding areas at construction and operation stages.

(b) Impacts on biological environment especially if forestland is acquired, then the appropriate clearance procedures are to be adopted for conversion of land use/compensatory land allocation in case of solar installation and ensuring necessary precautions for safety buffer and so on in case of wind installations. Wherever the sites have high tree cover, minimum alteration to existing ground cover should be ensured. Further, site-specific ESIA studies, to be undertaken for each location, shall establish the wildlife species movement corridors/paths/habitat, if any, applicable in and around the proposed site. The ESIA study will also identify adequate mitigation measures to ensure no conflicts/poaching occurs during the various stages of project development. There will not be any anticipated impacts on the ambient noise levels and air quality because of such subprojects.

(c) Impacts on visual environment especially in case of wind installations. The preferable locations for most of the high-density wind areas are in the hilly regions or forested land; thus there is a higher probability of blocking or hampering scenic value of the place.


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(d) Impacts on the settlement because of disruption/change in the built infrastructure environment (roads, sewage system, water supply, solid waste disposal, and so on).

69. In each subproject, the ESIA will be undertaken to develop an Environmental and Social Management Plan (ESMP), which would be the key document focused on implementation, after the potential site-specific impacts have been identified. It will ensure that the project impacts are reduced to an acceptable level during implementation of the subproject. Thus, the ESMP will be the document for ensuring that all the preceding analysis is used to preserve/improve overall environmental quality within the influence area of the project.

70. Consultations and disclosure. Can be added once ESIA is awarded.

71. Institutional arrangements. Will add after ESIA.

G. Other Safeguard Policies (if applicable)

72. No other safeguard policies are triggered.

H. World Bank Grievance Redress

73. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

.

http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service

http://www.inspectionpanel.org/


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VII. RESULTS FRAMEWORK AND MONITORING

Results Framework COUNTRY : India

Innovation in Solar Power and Hybrid Technologies Project Development Objectives

The Project Development Objective is to demonstrate large-scale innovative renewable energy technologies in India.

Project Development Objective Indicators

Indicator Name Core Unit of Measure

Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection

Name: Generation Capacity of Renewable Energy (other than hydropower) constructed

✔ Megawatt 0.00 300.00 Annual

Progress Report

SECI

Generation Capacity of Renewable Energy constructed - Other

✔ Megawatt 0.00 300.00 Annual

Progress Reports

SECI

Description: This measures the capacity of renewable energy (other than hydropower) constructed under the project. The TTL should specify the type of renewable power (i) wind; (ii) geothermal; (iv) solar; or (iv) other. For hydropower refer to code Hydropower (LH). The baseline value for this indicator will be zero.


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Name: Renewable Energy generated (in megawatt hours)

Megawatt hour(MWh)

0.00 496000.00 Annual

Progress Report

SECI

Description:

Name: Greenhouse Gas Emissions Avoided (tons of CO2 equivalent per year)

Tones/year 0.00 412000.00

Description:

Intermediate Results Indicators



Name: Installed Capacity under solar-wind hybrid (in megawatt)

Megawatt 0.00 230.00 Annual

Progress Report

SECI

Description:

Name: Installed Capacity under standalone plants for


Progress Report

SECI


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solar/wind with storage (in megawatt)

Description:

Name: Installed capacity under floating solar PV (in megawatt)


Progress Report

SECI

Description:

Name: Grievances received that are addressed within two months of receipt

Percentage 0.00 100.00 Annual

Progress Report

SECI

Description: This indicator measures the grievances/ complaints received and percentage addressed within a period of two months from date of receipt


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Target Values Project Development Objective Indicators FY

Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 YR6 End Target

Generation Capacity of Renewable Energy (other than hydropower) constructed

0.00 0.00 0.00 0.00 0.00 150.00 150.00 300.00

Renewable Energy generated (in megawatt hours)

0.00 248000.00 248000.00 496000.00

Greenhouse Gas Emissions Avoided (tons of CO2 equivalent per year)

0.00 206000.00 206000.00 412000.00

Generation Capacity of Renewable Energy constructed - Other

0.00 0.00 0.00 0.00 0.00 150.00 150.00 300.00

Intermediate Results Indicators FY


Installed Capacity under solar-wind hybrid (in megawatt)

0.00 0.00 0.00 0.00 0.00 150.00 80.00 230.00

Installed Capacity under standalone plants for solar/wind with storage (in megawatt)

0.00 0.00 0.00 0.00 0.00 0.00 50.00 50.00

Installed capacity under floating solar 0.00 0.00 0.00 0.00 0.00 0.00 20.00 20.00


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PV (in megawatt)

Grievances received that are addressed within two months of receipt

0.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00


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Annex 1: DETAILED PROJECT DESCRIPTION

COUNTRY: India


1. The proposed project aims to support the GOI to promote large-scale deployment of innovative technologies in the RE sector, including solar-wind hybrid systems, integrated energy storage for solar and wind, and floating solar PV panels. This will be done in partnership with SECI, a CPSU under MNRE. The proposed project will have two components.

2. Component A: Investments in Innovative Technologies (Estimated cost: US$398 million, including US$150 million from the World Bank, US$48 million from the CTF [CTF loan in the amount of US$28 million and a proposed CTF grant in the amount of US$20 million17], and US$200 million from SECI). This component will finance the following:

(a) Large-scale solar-wind hybrid power plant(s), potentially with short-term energy storage, with a cumulative capacity of about 230 MW. Such subprojects are expected to improve power generated per unit piece of land while reducing the variability of the generation from stand-alone RE plants. The first site of estimated capacity of about 150 MW has been identified near Ramgiri District in the state of Andhra Pradesh.18 Finalization of the exact land coordinates as well as solar and wind resource assessments along with technical due diligence of the site is under way. Prefeasibility studies for solar-wind hybrid plants at several potential sites are also under way.

(b) Stand-alone plants for solar PV with storage, with a cumulative capacity of 50 MW. Because such technology is not yet commercially viable, the project will demonstrate the benefits expected out of storage solutions and hence is a step toward opening up the market for private sector investments. Based on the technical as well as financial due diligence, duration of energy storage for the identified subprojects will be decided.

(c) Large-scale floating solar PV power plants with a cumulative capacity of about 20 MW. The first sites being explored for such investments are located in Andhra Pradesh and Kerala. The sites identified in these states have an estimated potential of 10 MW each. As this technology is not yet commercially viable, the project aims to prove the concept by locating such subprojects at sites where there is existing associated infrastructure such as reservoirs of the operating dams and/or sites where there are externalities such as high evaporation

17 For determining project costs, it is assumed that 50 MW PV with 1 hour storage (50 MWh) will be installed. At an installed cost of battery of US$400 per kWh, a grant of US$20 million will be required to set up the storage part of the energy storage project. 18 Plant locations and capacity have been specified, depending on the interest conveyed by the respective state-union territory administrations; these may subsequently change, depending on the technical due diligence. Other locations will also be explored during the preparation phase to be funded under this project or used to build the pipeline for future investments.


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loss (in case of irrigation dams) and/or where the land is either not available or too expensive. This approach will ensure that the subproject is sustainable.

3. SECI will be the principal sponsor and owner of the proposed power plants. SECI will build power plants through a competitive bidding process for selecting EPC contractors. These plants will be grid-connected, and the state Discoms and bulk consumers will purchase the electricity generated from these plants through a PPA.

4. Component B: Technical Assistance and Institutional Strengthening of SECI (estimated cost: US$2 million from the CTF grant). This component will finance the following activities:

(a) Capacity building and institutional strengthening to enhance SECI’s core competencies (across functions such as human resources, project management and monitoring, procurement and contract management, FM) that will enable it to maintain sustainability of the investments made under the project;

(b) Support in developing a pipeline of subprojects through supporting prefeasibility studies, site identification, social and environmental assessment, techno-commercial studies, and other preparatory activities;

(c) Developing policy and regulatory proposals to support scale-up of innovative technologies.

Large-Scale Solar-Wind Hybrid Power Plant(s)

5. As per the recent targets of 175 GW announced by the GOI, a cumulative capacity of 160 GW is from wind and solar power (100 GW of solar and 60 GW of wind), to be added by 2022. The requirement for land estimated at approximately 3 to 5 acre/MW for solar and approximately 8 to 10 acre/MW for wind (albeit on footprint basis the land acquisition requirement for wind will be lower) and power evacuation infrastructure will be significant. However, the development of stand-alone solar and wind power projects suffers from the following limitations:

(a) Limited scope of land optimization

(b) Separate evacuation infrastructure for wind and solar projects

(c) Lower utilization of evacuation infrastructure as variable power generation profile with seasonal variation in the power output

(d) Higher cost of capital and longer project development time

6. Large-scale deployment of solar-wind hybrid projects can be a potential solution to address the above mentioned limitations. A typical RE hybrid system may be described as a system combining two (or more) RE sources, operated jointly, and providing increased system efficiency as well as greater balance in the energy supply.

7. India has vast RE potential and few states are blessed with excellent wind and solar resources together offering ideal sites for implementation of utility-scale RE hybrids. Though a few small-scale and


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off-grid hybrid projects are already implemented in India, no utility-scale solar-wind hybrid project has been implemented in any state across India so far.

8. The following factors make India an ideal country for setting up solar-wind hybrid projects.

(a) Availability of about 240 to 300 sunny days in a year with good solar radiation of 5.4 to 6.2 kWh/m2/day

(b) Overlap with regard to potential sites with both wind and solar resources

9. Under the USAID technical assistance program, a techno-commercial study was conducted on solar-wind hybrid for a location in the state of Karnataka. Simulation results from the study19 highlighted the following with regard to capital costs of hybrid projects compared with capital costs of stand-alone wind and solar projects:

(a) Savings, even though marginal, were observed in capital cost of solar-wind hybrid projects compared with stand-alone wind and solar projects.

(b) Solar-wind hybrid projects would yield a 24 percent CUF for a 70:30 energy mix compared with the CUF of 26 percent for stand-alone wind sites and 20 percent for stand-alone solar sites.

(c) Levelized cost of generation from solar-wind hybrid projects varied between US$0.07 per kWh (INR 5.00 per kWh) and US$0.08 per kWh (INR 5.60 per kWh) for different wind-solar mix ratios, while the levelized cost of generation from a stand-alone wind project was between US$0.07 per kWh (INR 4.82 per kWh) and US$0.10 per kWh (INR 6.94 per kWh) for a stand-alone solar project.

10. Assuming the cost of additional evacuation infrastructure to be about INR 1 crore to INR 1.2 crore per MW (US$0.147 million to US$0.176 million per MW), state transmission utility savings will be in the range of INR 540 crore to INR 650 crore (US$79.24 million to US$95.39 million). These calculations were done only for four potential districts in the state of Karnataka. There can be more potential areas/districts which could be further explored and utilized.

11. There are essentially two ways to develop solar-wind hybrid projects: greenfield hybrid (wind-solar) RE project and brownfield hybrid (wind-solar) RE project. Under the greenfield RE hybrid project, significant flexibility exists for devising configuration, capacity mix (wind-solar), generation, and evacuation planning taking into account resource assessment and site-specific considerations. However, under the brownfield RE hybrid project, while design flexibility and configuration options are limited, the development time can be significantly reduced because of availability of land and existing infrastructure. In a typical co-located brownfield RE hybrid project, solar panels are installed in the vacant spaces between the wind turbines upon addressing shadow effect thereby enhancing power generation from given landmass harnessing both the RE sources.

19 White Paper on Framework for Development of RE Hybrids in Karnataka: USAID, PACE-D Technical Assistance Program


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12. While several small-scale (kilowatt range) hybrid schemes have been operational for some time, there is no MW-scale RE hybrid installation yet in India. There are several challenges related to technical, commercial, and regulatory aspects which need to be addressed before these projects can be implemented on the ground. The main challenges associated with implementation of solar-wind hybrid projects have been summarized in Figure A1.1.

Figure A1.1. Implementation Challenges20

13. Solar-wind hybrid projects provide several advantages for states and developers. These are higher utilization factor for evacuation and transmission infrastructure, improved generation profile and reduced variability/intermittency in generation, additional generation, exploiting economies of scale for operation and maintenance, and gainfully utilizing available land and other infrastructure. However, the development and operation of solar-wind hybrid projects depend upon a number of stakeholders that need to perform their respective roles and responsibilities to develop an appropriate policy, regulatory and operational framework. The indicative roles and responsibilities are listed in table A1.1.

Table A1.1. Roles and Responsibilities of Key Stakeholders for Development of a Solar-Wind Hybrid Project

Key Stakeholders Roles and Responsibilities

State/central government Develop a draft RE hybrid policy for the state

Bring clarity in RPO targets

20 Source: USAID PACE-D report

• Interconnection Point

• Different practices for wind & solar being followed in the state

• Clear demarcation of roles (State Transmission

Utility/Developer)

• Metering and Energy Accounting

• Need for modification of procedures for Joint Meter

Reading (JMR) and Loss apportionment

• Transmission & Evacuation Arrangement

• Planning Codes/Standards to recognize benefits of hybrid operations

• Forecasting & Scheduling (F and S) regime

• Rules for Fand S and deviation settlement for wind

and solar to aligned for hybrid options

TECHNICAL CHALLENGES:

• Need for Flexibility of Off-take

arrangements• Multiple generators/owners

with sale options

(Captive/Sale to DISCOM/inter-state) needs to

be enabled

• Clarity on extending

Fiscal/Financial Benefits under Wind Policy, Solar Policy and

Investment Schemes to RE Hybrid• Eligible RE Hybrid

project(s)/Capacity, share of

Wind:Solar

COMMERCIAL CHALLENGES:

• Tariff treatment

• Generic tariff is not necessary

• Composition of share of WiSH

projects would depend upon site specific aspects

• Treatment under RPO• Need to separately track

Solar/Non-Solar Renewable Purchase Obligation (RPO)

REGULATORY CHALLENGES:


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Key Stakeholders Roles and Responsibilities

Provide incentives for the promotion of RE hybrids

Ensure access to the grid, transparency, and efficiency in implementing such schemes

Regulator (forum of regulators, central/state regulators)

Ensure nondiscriminatory access to the grid

Develop RE hybrid rules and regulations

Develop interconnection, metering, and energy accounting frameworks

Define roles and responsibilities of the key stakeholders

Discom Assist in developing technical standards and interconnection agreements

Metering of generation from different RE sources - RPO compliance

Process applications efficiently and ensure nondiscriminatory behavior

Project developer Develop RE hybrid project and ensure proper O&M

Ensure compliance of technical and safety standards

Selection of appropriate wind-solar generation mix

14. The first solar-wind hybrid project is being planned at the Ramgiri site in Andhra Pradesh. The learnings from the development of the project would go a long way in garnering insights into technological, operational, and commercial aspects of solar-wind hybrid schemes. The learnings from these pilot/demonstration projects such as factors to be considered for designing solar-wind hybrid scheme, sizing of capacity mix of wind-solar power, transmission capacity factors, associated cost-benefit analysis of operating hybrid projects, interconnection difficulties and metering/energy accounting framework, and so on would be useful for proliferation of wind-solar hybrid projects in India.

15. This will also create a foundation and a benchmark for other regulatory commissions to formulate suitable regulatory intervention measures and would facilitate state government to evolve policy regime to encourage the development of solar-wind hybrid projects in their respective state. Besides, it would create an enabling framework for existing wind power developers in the states (such as Rajasthan, Gujarat, Madhya Pradesh, Tamil Nadu, Maharashtra, Andhra Pradesh) to explore options for developing brownfield solar-wind hybrid projects.

Energy Storage Plant

16. India has over 30 GW of RE, an annual growth rate of over 19 percent in RE capacity over the last five years (2007–2012). Further, the GOI has set a target for 15 percent of power consumption to be generated from RE sources by 2022. States such as Tamil Nadu, which have a high level of RE generation, are already suffering from transmission capacity constraints, which prevent evacuation of RE during the peak season. With significant wind and solar capacity addition expected in coming years, the grid will continue to face severe transmission capacity constraints and stability issues. POWERGRID, the national grid company, estimates that it would need 20 GW of flexible generation, including super critical thermal generators and energy storage solutions, to take care of peak load requirements by 2017. Energy storage solutions can offer a range of benefits, including time shifting, grid stabilization, shaving of peak demand, improved generation efficiency, and improved utilization of transmission capacity.


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17. As noted in USAID’s ‘Assessment of the Role of Energy Storage Technologies for Renewable Energy Deployment in India’ report,21 the power sector in India is facing a number of challenges, among them power shortages of over 9 percent of peak demand, transmission and distribution (T&D) constraints, and stability issues caused by an increasing share of RE in the grid. In its present scenario, the Indian energy market offers an appropriate environment for the use and scale-up of energy storage solutions. Several states which have a high level of grid-connected RE capacity (such as Tamil Nadu with about 44 percent) suffer from transmission capacity constraints. Based on given RE targets, a significant portion of power (between 30 percent and 50 percent in many cases) may not get evacuated during peak generation, resulting in loss to the system as well as the generators. While transmission capacity is being expanded to take care of evacuation needs, expansion has been slow. Energy storage can be used as an option for reducing ‘backdown’ of generation and also reducing or postponing transmission capacity expansion.

18. With the success of solar PV in India, the potential benefits of energy storage with regard to smoothing variability, and for time-shifting production to peak load times will gain importance. While energy storage is not the only means of addressing variability, recent research by de Sisternes et al. (2016)22 has demonstrated that its value increases with increasing levels of renewable generation. There is no fixed ceiling beyond which energy storage is indispensable. Rather the point beyond which it is a viable option in the asset mix is a function of renewable penetration, geographic diversity and interconnection (or lack of), and the capacity of the system to absorb variability. On an empirical basis, other markets seem to begin to show commercial deployment of storage beyond a level of roughly 10 percent of renewable penetration (Figures A1.2).

Figure A1.2. Penetration of Solar and Wind Generation by Country and Storage Market Activity23

21 “Technical Assistance Program Assessment of the Role of Energy Storage Technologies for Renewable Energy Deployment in India.” Partnership to Advance Clean Energy - Deployment (PACE-D). March 2014. 22 de Sisternes, F. J. et al. 2016. “The Value of Energy Storage in Decarbonizing the Electricity Sector.” 23 Source: BNEF, IFC


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19. Effective energy storage solutions have the ability to meet these challenges and enhance deployment of RE technologies through: (a) Time shift for use of generated energy; (b) Scheduling of energy; (c) Grid stabilization; (d) Peak shaving of demand; (e) Sale of power during peak demand; and (f) Inter-state PPAs for RE.

20. There is little doubt about the technical efficacy of storage for addressing the challenges of high wind and solar penetration. The challenge is monetization of the benefits. Whereas the benefit of renewable generation is made explicit by the PPA for grid-tied generation and by feed-in-tariff or by net metering for distributed generation, the effect on the grid is absorbed by the system, and socialized. Monetization requires at least one of the following mechanisms:

(a) Introduction of a market for storage-based ancillary services (The first step in a number of markets has been a frequency regulation scheme.)

(b) Willingness of offtaker to pay for improved power quality through storage at independent power producer (IPP)—for example, solar PV output firmed for slower ramp

(c) Willingness of offtaker to pay a premium for solar/wind output at certain times of day (for example, in the early evening peak).

21. In advanced storage markets, most of these conditions are in place. For example, the PJM system in the U.S. North-East provides a marketplace into which stand-alone energy storage systems can bid for frequency regulation services. Without that provision, as is the case in a number of less advanced storage markets, frequency regulation can only be provided by generation assets, e.g. gas plants. Other markets have followed PJM, including California, the U.K., and Germany.

22. . In Hawaii, several solar PV IPPs have been able to place a premium on dispatchable capacity through a battery co-located with PV, and in California, storage has been procured to replace and augment gas peaker capacity, shifting solar PV generation by several hours to the evening AC peak.

23. Energy storage deployments in emerging markets worldwide are expected to grow over 40 percent annually in the coming decade, adding approximately 80 GW of new storage capacity to the estimated 2 GW existing today.

24. The cost optimization for battery storage is expected to be achieved through large-scale implementation and corresponding economies of scale. According to USAID’s PACE-D program financial analysis on energy storage, storage technologies that can be implemented at cost levels of less than US$500 per kW and less than US$0.10 per kWh/discharge cycle (electrical storage) have a huge potential for application in India.24 The financial analysis also shows that average capital costs for energy storage would need to drop by 80 percent before many of the technologies would be viable. However, they also state that no comprehensive cost-benefit analysis has been undertaken for energy storage technologies in India but that there is likely a strong economic case for energy storage in the country. Therefore, any utility-scale integrated RE and battery storage project would be dependent on a range of subsidies and other financial incentives to capture the economic benefits of the project. It is also believed that the

24 “Technical Assistance Program Assessment of the Role of Energy Storage Technologies for Renewable Energy Deployment in India.” USAID’s PACE-D, March 2014.


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financial viability of RE integration with battery storage will be possible because of the combined effect of reduction in energy storage costs, increase in tariffs for wind, and increase in fossil fuel prices.

25. The U.S. Department of Energy’s energy storage database25 lists 45 projects and installations of electrochemical energy storage systems in the United States. It also further indicates that more than 10 MW, 23 in Europe, and 3 in India. There is a clear potential for India to develop energy storage at this point.

26. The market for energy storage in the South Asia region will be dominated by India. In India, several key factors are driving the market for energy storage, perhaps most notably the ambitious NSM. India’s rapid population growth, particularly in urban areas, is driving the need for increased investment in both electricity-generation capacity and T&D infrastructure across the country. Furthermore, the country experiences frequent power outages because of severe weather, insufficient generation capacity, and fragile infrastructure, which contribute to the need for new investments to improve the grid’s resilience and reliability.

27. A number of planned projects have been delayed or cancelled because of a lack of affordable financing and to cost overruns resulting from poorly planned development and limited local technical expertise. Furthermore, the weak condition of the grid and poorly organized energy markets are proving to be significant barriers to deploying storage. However, there have been positive developments in recent months. A July 2016 tender for several hundred megawatts of new solar PV capacity includes the requirement that every 50 MW of PV capacity must have 5 MW/2.5 MWh of associated energy storage. This type of requirement, typically only used for island grids, is necessary to ensure grid stability because the energy storage solutions will be used to smoothen solar PV output and control ramp rates. To overcome barriers to storage development in India and throughout the region, this type of requirement for combined solar PV plus storage may be crucial for establishing local technical expertise and developing investor trust in the technology and project development process.

Figure A1.3. India Stationary Storage Market

25 www.energystorageexchange.org.

-

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

8,000.0

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

US

$, M

illio

ns

MW

Remote Power Systems

Behind-the-Meter

Utility-Scale

Total Revenue


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Source: Navigant Research.

28. Under the project, SECI plans to build about 50 MW solar PV project with energy storage. The SECI proposal accelerates the speed of catching up with other energy markets by beginning the project before a finished regulatory framework on energy storage. While this will lead to an earlier deployment, it also increases the project risk as the monetization of storage is still undefined at this point.

29. This project will serve the purpose of proving grid-scale energy storage in India, both technically and economically. For technical viability, the project will prove the point through successful implementation of the plan/build/run process. For economic viability, the first step is establishing the economic benefits the storage will bring to the system. The second step is putting an arrangement in place to enable monetization of the benefits, either through regulation or through contracting.

Floating Solar Plants

30. Commercial development and implementation of land neutral PV solutions started around 2010-2011, with floating PV projects internationally. The main intention was to use the available water bodies for local energy needs (for example, to supply farm irrigation pond pumps with power) and to implement solar PV plants in regions where the land was either not available or the price was too high (for example, commercial solar PV systems in Japan). Main advantages of floating solar plants are:

(a) Saving of valuable land,

(b) Availability of water for solar panel cleaning,

(c) Greater energy generation with regard to a land-based system because of lower ambient air temperatures,

(d) Avoidance of conflict with farmers because of land acquisition,

(e) Reduction of water evaporation, and

(f) Reduction of algae growth.

31. India’s first floating solar plant technology was developed by India’s Renewable Energy College. The funding for the project was provided by the MNRE. Power plant of capacity 10 kW was successfully established and tested by India-headquartered module manufacturer Vikram Solar in Rajarhat, New Town in Kolkata in December 2014. Yet another project for installation of floating solar plant has been commissioned by NTPC having a capacity of 100 kW in Kerala’s Kayamkullam district. India’s leading hydropower generator National Hydro Power Corporation, in association with Renewable Energy College, is planning to set up another 50 MW floating solar PV project in Kerala.

32. The floating solar power industry is relatively consolidated with a handful of players dominating the industry. Scarcity of easily available land areas is creating ample growth opportunities for the global solar panels market. However, higher installation and maintenance costs are a major challenge, thereby limiting number of players. The floating solar projects have mainly been implemented in Japan, Republic


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of Korea, Brazil, United States, United Kingdom, India, and Australia. Key industry players in floating solar are Ciel et Terre, Solaris Synergy, Infratech, Kyocera, Pristine Sun, and LG CNS.

33. About 20 MW of capacity is being targeted under the proposed project with SECI. Two proposed sites are in Andhra Pradesh (PABR Dam in Anantapuram District) and Kerala (Kollam District) with an approximate capacity of 10 MW each. Anantapur is a district of Andhra Pradesh within the high solar radiation zone and was selected for setting up of 10 MW floating solar power plant. Preliminary studies are underway for the potential sites in both the states. Detailed project reports will be prepared by SECI upon completion of the prefeasibility report.


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Annex 2: IMPLEMENTATION ARRANGEMENTS

COUNTRY: India


Project Institutional and Implementation Arrangements

1. SECI was established in 2011 with a mission to promote and commercialize cleaner sources of energy and specifically solar energy in the country. Since then, SECI has embarked on a mission to become the leader in exploring new technologies and their deployment to harness solar energy. Conversion from Section 8 company to Section 3 company in 2015laid the way for SECI to become a self-sustaining and self-generating organization which can engage itself in owning solar power plants generating assets and selling power and expanding in other segments of solar sector activities, including manufacturing of solar products and materials.

2. SECI is an IA for many of the MNRE’s schemes such as the 680 MW grid-connected solar PV project under Phase-II Batch-I of NSM (commissioned), the 2,000 MW Phase-II Batch-III, and the 5,000 MW Phase-II Batch-IV; rooftop solar PV program; solar parks; CPSU scheme; and canal top/bank scheme. SECI also acts as an offtaker of solar power under Phase-II Batch-I and subsequently sells the power to state Discoms on pooled basis under long-term PSAs. SECI also owns a 10 MW solar power plant in Jodhpur, Rajasthan, which was commissioned in March 2016. Further, SECI provides consultancy services to CPSUs/government entities keen to set up solar power projects. SECI has also entered into a number of JVs, mostly on equal partnership, with various SNAs, for the development of the solar parks.

3. SECI will be the borrower as well as the IA of this loan. SECI will carry out detailed assessments of the subprojects (across safeguards and technical aspects) in consultation with the World Bank. SECI will prepare and submit the progress reports and IUFRs to the World Bank.

Financial Management

4. This FM assessment of SECI as an IA of the project was conducted with an objective to determine whether SECI has acceptable FM arrangements (such as, budgeting, funds flow, accounting and internal controls, reporting, and auditing) that are capable of recording correctly all transactions and balances, support the preparation of regular and reliable financial statements, safeguard the entity’s assets, and are subject to acceptable auditing arrangements.

5. IA: SECI is under the administrative control of the MNRE. It is the only CPSU dedicated to the solar energy sector. It was originally incorporated as a Section 25 company26 (not-for-profit company) under the Companies Act 1956; however, it has recently been converted into a Section-3 company under the Companies Act 2013. The mandate of the company has also been broadened to cover the entire RE domain. In the present outlook of the RE sector, especially solar energy. As mentioned above, SECI has a major role to play in the sector’s development.

26 now called Section 8 under the Companies Act 2013


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6. Governance framework. Its governance structure includes a Board of Directors, which is an independent body appointed by the GOI, as per the requirement under the Companies Act and other statutes. The Secretary (MNRE) is the Chairman of the governing body, and the Managing Director, Director (Power Systems), Director (Finance), and Director (Human Resources) are the Board members. The project will be implemented by the Senior Management Team comprising the respective department heads with General Manager/Assistant General Manager/Deputy General Manager (GM/AGM/DGM) ranks and is subject to general control and supervision of the governing body. As per the governance framework, during 2015–16, the governing body met five times. Based on the business needs, the SMT meets from time to time. With a total revenue of US$89 million (INR 5,790 million) and profit after tax of US$3 million (INR 190 million) in FY2015-16, SECI has set the trajectory for robust growth. Considering the emerging market and growth opportunity of SECI, a good CG practice is inevitable. Also, this is a statutory requirement as per the Companies Act as well as per the guidelines issued by the Department of Public Enterprises (DPE) of Ministry of Heavy Industries and Public Enterprises on CG. SECI is yet to appoint sufficient independent directors and women directors as required by the statute. Consequent to the non-availability of independent directors, the constitution of the Audit Committee and its function is not as per DPE guidelines.

7. The present governance structure of SECI will apply to the project and in case of any significant change in the legal framework, prior concurrence of the World Bank will be obtained. The project’s annual work plan (AWP) and budget, financial reports, and project financial statements will be approved by/placed before the Board, as applicable for the entity, prescribed in the Companies Act 1956.

8. Audit Committee. In compliance with Companies Act, SECI has constituted an Audit Committee. The Chairman, a Government Nominee Director and Director (Power Systems) being the member of Audit Committee, met twice in FY2015-16. Director (Finance), internal auditors, and statutory auditors are special invitees in the Audit Committee meetings. The minutes of the meetings are placed before the Board for confirmation.

9. Transparency. SECI has a Vigilance Department entrusted with roles and guidelines issued by the Central Vigilance Commission, which directly reports to the Board, of any wrongdoing, complaints, and reports, to bring equity and fairness in its system and procedures. Also, SECI has implemented the Right to Information (RTI) Act, 2005 to provide information to the citizens of India and also to maintain accountability and transparency in the working of the company. SECI presently has its own website, where it discloses the financial reports, contracts awarded, and its annual financial statements (AFSs)/annual report.

10. Legal framework: SECI is a company registered under Companies Act 2013 (the Act), governed by rules and regulations as prescribed in the Act, and the FM framework of its own, as directed by the official memoranda issued time to time, by the governing body. It maintains separate books of accounts for each vertical/scheme/line of business and uses the format of the financial statements prescribed under the Act. SECI is planning to develop an FM Manual which would serve as a guide for carrying out day-to-day financial accounting and management activities under appropriate checks and controls.

11. Institutional arrangements. SECI currently operates though its corporate office in Delhi. SECI has put in place an organization structure, as appropriate, considering the projects under implementation and to be implemented. There are functional departments, each headed by the respective GM/AGM/DGM.


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Presently, the finance function is headed by a full-time AGM (Finance) who is supported by a team of experts/qualified staff. Presently, SECI has on it rolls 67 regular employees (including directors and employees on deputation), 8 advisers having domain expertise of working in their field, apart from 49 support staff hired through manpower agencies. Further, recruitment notification for 12 posts have already been published, which shall be filled soon. Additionally, the Board has approved 61 posts at various levels to be recruited soon.

12. Planning and budgeting. Based on the inputs received from the implementing department, the finance team of SECI prepares AWPs and estimate funds requirement for each project/scheme and submits to the Board for its approval and inclusion in the MNRE budget. Based on the budget estimate for FY2016-17, SECI has requested US$77 million (INR 5,000 million) as equity capital infusion and a further provision of required amount is likely to be included in the supplemental budget. Also, SECI has raised a few term loans from the scheduled banks, to meet the funding gap. Funds managed by SECI during the initial years is not that significant. However, in the last financial year, the total expenditure managed by SECI was US$84 million (INR 5,470 million), which reflects that the fund management system is satisfactory considering the current size of implementation.

13. SECI’s current budgeting system is geared toward meeting its current requirement. Given that it will expand its operations and that there will be greater nongovernment debt funding for SECI’s planned projects, there is a need to further strengthen and upgrade planning and budgetary control systems on commercial lines consistent with industry best practices. It is recommended that SECI develops a budgetary control framework in the FM Manual as part of strengthening overall FM arrangements in the organization. The entity budget will incorporate a separate budget based on the annual approved work plans. Thus, it would facilitate monitoring of budgeted and actual expenditure of the project on a periodic basis, analysis of variances, and corrective actions. The project budget and variances will also be reflected in the quarterly IUFR of the project.

14. Funds flow. Funds are budgeted and raised though equity capital from the line ministry and in the form of term loans from the scheduled commercial banks. The fund is maintained in current/savings bank account at corporate office and withdrawals are restricted to the authorized limit. All payments by SECI are made either through National Electronic Funds Transfer (NEFT) or Real-Time Gross Settlement (RTGS). Regular reconciliations are done between the bankbook and the passbook.

15. The IBRD funds from this loan will be directly borrowed by SECI with a guarantee from the GOI. Under the project, SECI will open a new segregated bank account (Designated Account [DA]) denominated in INR (or a foreign currency), in a scheduled commercial bank to receive the advances under the loan. SECI envisages receiving an advance as and when required to lower the negative carrying costs but will, however, retain the flexibility of requesting advances up to US$7.6 million (INR 500 million) or equivalent. Foreign currency payments to suppliers/vendors could be released directly from this DA. SECI would have the flexibility of converting INR into foreign currency for meeting project-related foreign currency payments and in these cases, the expenditures will be reported to the World Bank using the actual rate of currency conversion. Alternatively, SECI could also seek direct payments by IBRD to suppliers/contractors based on duly authorized bills and documents for amounts exceeding US$1.5 million (INR 100 million). SECI will use a dedicated bank account for the World Bank-financed project to clearly delineate the funds flow. This will facilitate the accounting and preparation of the group ledger for the project and the quarterly IUFR.


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16. Accounting. Financial accounting in SECI is the responsibility of Finance and Accounts Department currently headed by DGM (Finance), reporting to Director (Finance). There is only one accounting unit in corporate office where accounting is carried out using Tally accounting software. SECI prepares its AFSs on accrual principles and follows accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI). Significant accounting policies are disclosed in the annual report. Accounting encompasses all lines of business/schemes under the purview of SECI. Separate vertical-wise ledgers are maintained and the balance in the Ledger Account is taken to the balance sheet of SECI. Expenditure report is submitted to the senior management from time to time, as requested. The system is complemented by the following stand-alone software applications.

(a) BMS. The BMS helps monitor contract execution (both physical and financial progress), advances, fund flow, dues, and retention of works accounts.

(b) Employee Self-Service (ESS): The ESS is a stand-alone payroll system, which helps manage the personnel timing, expenditure, related statutory dues, and payments.

17. SECI will use the existing accounting system and an agreed chart of accounts for project accounts. The account heads will be suitably grouped to generate financial statements and schedules in the required formats. For the project, there will be a separate group ledger with general and subledger codes to capture the project expenditure by category/component/contract package for monitoring and reporting, following double entry system of accounting on accrual basis. Separate general ledger codes would be used to segregate the IBRD and counterpart-financed project resources and expenditure from other routine activities of SECI.

18. FM Manual. SECI has issued office memoranda from time to time, containing guidelines for carrying out accounting and FM activities. To consolidate and update the guidelines and to address SECI’s current and future requirements, internal controls, industry best practices, computerized environment, International Financial Reporting Standards, and other statutory requirement and management reporting needs, SECI has been advised to develop an FM Manual covering accounting, budgeting, cost accounting, internal audit, and financial reporting. The manual will play an important role in that it will serve as a guide for carrying out day-to-day financial accounting and management activities under appropriate checks and controls, bring about uniformity and consistency in practices across SECI, and form the basis for audits and improvements.

19. Internal control. Currently, SECI does not have any FM Manual. However, there is a clear segregation of duty between transaction approval, payment, recording, and custody of assets created. Letter of Authorization for withdrawal limit has been issued to the banks and all bank transactions are done up to the authorized limit under joint signatures of authorized staff. All payments are processed and recorded at the corporate office of SECI. Bank reconciliation is done for each account on a quarterly basis. The contract execution and billing information is captured in a database maintained at the corporate office and reviewed for eligibility/utilization by a designated engineer for the work and the department head. Authorization limit is issued to the banks from time to time. All payments by SECI are made either through NEFT or RTGS.


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20. SECI will ensure that the current control framework is continued and look for improvement, if required; the designated team maintains a contractor register; reconciliation is done on time; and payments to vendors are made electronically.

21. Internal audit. Currently, the internal audit work has been assigned to an external professional audit firm which periodically carries out internal audit. The internal auditors verify and review the control framework of all the departments. The internal auditors report every quarter to the AGM (Finance), who seeks explanations and follows up on actions undertaken to resolve the issues. Finally, the report is placed before the Audit Committee for ratification. The audit reports have been submitted till March 2016. Except for non-deduction of statutory dues, non-appointment of women director, and few reconciliation issue, no major observations are made by the auditor.

22. SECI’s internal audit system will be extended to cover project transactions on ToR agreed with the World Bank. The World Bank will review the internal audit reports during missions and a summary of internal audit findings and follow-up pertaining to the project will be prepared by SECI and shared with the World Bank. Extended ToR for project internal audit will be included in the FM Manual.

23. Contract management. The designated engineer in charge verifies the work done and the bill and the respective department head authorizes the payment. Because the project involves significant expenditure on works contracts, a formal and adequate contract management system in SECI would be important. SECI will maintain a contractor register and ensure that the records/documents pertaining to guarantees are adequate and updated. These will be detailed in the FM Manual. These processes are presently unintegrated and manual. There is an opportunity for implementing a computerized system for contract management.

24. Financial reporting. SECI does not have any automated system of periodic compiling and consolidation of accounting/financial information. However, the financial reports can be generated from the accounting system and with the manual intervention reports can be prepared for the Management Information System. However, SECI is in the process of development of the Centralized Project Monitoring System, wherein the details regarding physical and financial progress in the project can be monitored along with supporting documents. Recently, SECI has developed the Power Trading Software through which data of energy traded and corresponding payment to the developers and receipt from the buying utilities is being done and monitored.

25. SECI prepares AFSs, which have been finalized and audited till FY2015/16. The annual accounts are prepared as per the applicable Indian GAAP requirement complying with Indian accounting standards issued by ICAI. From FY2017-18 onwards, SECI shall be governed by IndAS (Converged International Financial Reporting Standards). The AFS comprises the balance sheet, income and expenditure account, and cash flow statement, as per the statutory requirement.

26. Project expenditure will be reported through quarterly IUFRs in an agreed format. IUFRs will be based on the books of account considering actual expenditure incurred and disbursed (adjustment will be made for the accruals and provisions) and will be submitted within 45 days from the close of the quarter. SECI will put in place a system for periodic compilation of project receipts and expenditure from the books based on collection of information. SECI will prepare separate AFSs for the project, and the form and content will be included in the FM Manual.


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27. External audit. SECI being a public sector undertaking, its statutory auditors are appointed by CAG, GOI. Moreover, it is subject to annual accounts audit under Section 139 of the Companies Act 2013 by CAG. Presently, CAG has appointed M/s L D Saraogi & Co., Chartered Accountants (CAs), as statutory auditors for FY2016/17. There is no delay noticed in audits so far. The reports are issued within the time limits as prescribed by the law. There are no major issues in the audit report of the past three years. CAG has provided unqualified report on all these years, except for FY2015/16, where qualification is non-financial in nature. The audit reports are placed before the Board/Audit Committee for adoption.

28. External audit of the project AFS will be conducted by a firm of CAs, acceptable to the World Bank, on ToR agreed with the World Bank. SECI will share the annual audited report within nine months from the end of each financial year, that is, December 31 of each year, starting with the year in which first disbursement is made by the World Bank. The audit report for the expenditures incurred under retroactive financing will be combined with the first-year audit report. The annual audit report would consist of (a) audit opinion; (b) project financial statements; and (c) management letter highlighting weaknesses, if any. The World Bank will continue to review the entity-audited AFS for any major audit qualifications or accountability issues. Pursuant to the World Bank Access to Information rules, AFSs of the project will be disclosed on the websites of SECI and the World Bank.

29. Finance and accounts staffing. Overall FM responsibility will vest in the Director (F) at the corporate office supported by staff comprising of an AGM (F), DGM (F), Finance Manager, and five Senior Accounts Officers. Some of the finance executives have experience of dealing with the World Bank in their previous organizations. The project accounts and finance staff will be trained in respect of the World Bank Procedures in due course of time. The project finance and accounting function is staffed adequately for the current level of business. However, SECI will ensure that the staffing is reviewed periodically and recruitment will be undertaken in the areas and levels as per the needs of the project/organization. SECI will tag a nodal officer for monitoring the project financials.

30. Disbursements. There are no disbursement conditions. SECI envisages receiving an advance from the loan. Disbursements will be made on the basis of the quarterly IUFRs. Supporting documentation, including vouchers, invoices, receipts, completion reports, certificates, and other documentation, will be retained by SECI and made available to the World Bank during project supervision and also be audited as a part of annual audit of the project AFS. Eligible expenditures will comprise works, consulting and non-consulting services, goods, workshops and training, and incremental operating costs incurred for implementing the project. Ineligible expenditure will include cost of land acquisition, expenditure on rehabilitation and reconstruction, retention money unless actually paid, and expenditure considered ineligible by the auditors/World Bank.

31. Retroactive financing. Retroactive expenditure will be eligible for financing subject to compliance with the World Bank’s procurement procedures. Expenditures incurred up to one year before the expected date of signing of the Legal Agreement, subject to 20 percent of total financing, can be claimed. For retroactive financing, SECI will submit a separate stand-alone IUFR certifying the actual expenditure incurred and disbursed for the project, and this will be subject to audit by the project auditors.

32. Implementation support. The World Bank will review the implementation and continued adequacy of the project FM arrangements at the SECI corporate office, during six-monthly implementation support missions. The review would include timely disbursement, adequacy of FM


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staffing, and appointment of internal and external auditors by SECI. Audit reports and progress reports will be reviewed and measures will be agreed with SECI in case of issues reported by the auditors.

33. Agreed actions. SECI will complete the following agreed actions listed in table A2.1.

Table A2.1. Agreed Actions

Action Responsibility Timeline

Budget approval for 2016/17 for project expenditure SECI May 31, 2017

Finalize first draft of FM Manual SECI May 31, 2017

Finalize ToR of external audit World Bank/SECI May 31, 2017

Finalize format of IUFR World Bank/SECI By negotiation

FM and disbursement training World Bank/SECI May 31, 2017

CGFA assessment World Bank/SECI March 31, 2017

Note: CGFA = Corporate Governance and Financial Assessment.

34. Based on the FM assessment, it is established that the FM systems in the proposed project can be predicated on the extant systems of SECI, supplemented by stronger internal controls and the World Bank’s reporting and auditing requirements. The project FM arrangements will be documented in the FM Manual (available by negotiation).

35. The residual FM risk is assessed as Moderate, as given in table A2.2. This will be reviewed and updated based on actions taken during project implementation.

Table A2.2. FM Risk Table

Risk Risk Description Risk

Rating Risk Mitigating Measures

Residual Risk

Entity level (SECI)

SECI may not have the capacity to implement the project and provide reasonable assurance over the use of project funds. Overall, SECI has been functional for more than five years, yet does not have the experience of implementing any World Bank-supported project. In FY2015/16, it managed a total expenditure of INR 546 crore.

S The FM systems of SECI will be supplemented by the World Bank-specific reporting and auditing requirements. Agreed project FM arrangements will be documented in the entity’s FM Manual. Periodic training will be conducted for financing and accounting staff to increase the capacity.

M

Budgeting Project funds may not be adequately budgeted. SECI is in the process of raising its equity capital with the coming budget.

M SECI will ensure that need-based funds are available to the project on a timely basis. Fund requirements will be budgeted and raised through equity capital from the MNRE and term loans from commercial banks.

M

Funds flow Funds flow mechanism may restrict availability of funds to the field executing agencies on a timely basis.

M For the project, funds flow will be through a project-specific bank account at the corporate office. It is envisaged that the

L


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Risk Risk Description Risk

Rating Risk Mitigating Measures

Residual Risk

Presently, all payments to vendors are though NEFT or RTGS at the corporate office.

project will be seeking advance from the loan. All payments will be electronic and within the authorization limit.

Accounting Inadequate accounting may lead to project transactions not being recorded appropriately or with delay. Accounting is currently carried out at the SECI corporate office using Tally software and there is a significant element of manual consolidation during reporting and disbursement claim. There is, however, a standard chart of accounts and the system can provide project-wise and component-wise accounting data.

M SECI will open a separate group ledger for the project in Tally, based on the agreed chart of accounts. Detailed project FM arrangements will be documented in the FM Manual. It is proposed to adopt an integrated Enterprise Resource Planning system which will further strengthen this function.

L

Internal controls

There is a risk of noncompliance with transactional controls and rules and regulations. A system of internal audit has been instituted but is largely transaction and compliance oriented. Internal audit has reported control deficiencies such as statutory noncompliance and reconciliation issue.

M The project will be subject to internal audit on ToR acceptable to the World Bank. Observations pertaining to the project in quarterly internal audit reports will be compiled, monitored, and followed up by the SECI Audit Committee and reported to the World Bank. Internal controls will be documented in the FM Manual.

M

Financial reporting

There may be a risk of inadequate and delayed submission of financial reports. SECI has not instituted a system of periodic consolidation of its financial and accounting information.

S Financial reporting to the World Bank will be through quarterly IUFRs with an agreed form and content. SECI will institute a system of quarterly compilation and reporting of project accounts.

M

Auditing There may be a risk of delay in completing annual audit of project financial statements. Audit of SECI is completed up to financial year 2015/16 within nine months from close of the financial year.

M Audit of the project financial statements will be done by an independent firm of CAs acceptable to the World Bank, under ToR agreed with the World Bank. The World Bank will also monitor the audited financial statements of the entity.

M

L=Low, M=Moderate, H=High, S=Substantial


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Disbursements

Procurement

36. General. Procurement for the proposed project will be carried out in accordance with Procurement Regulations for IPF Borrowers for Goods, Works, Non-Consulting and Consulting Services dated July 1, 2016, hereinafter referred to as ‘Regulations’ and the provisions stipulated in the Legal Agreement. The project will be subject to the World Bank’s Anti-Corruption Guidelines, dated October 15, 2006, and revised in January 2011 and July 1, 2016.

37. As per the requirement of the Regulations, a PPSD is being developed, based on which the Procurement Plan will be prepared, which will set out the process to be followed by the borrower during project implementation for the procurement of goods, works, non-consulting, and consulting services financed by the World Bank. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Box A2.1. Summary of the PPSD

All procurement under the project will be undertaken in SECI by the Contract Department, which is headed by the General Manager/Contract. The procurement capacity assessment of SECI concluded that the staff in SECI office have limited or no experience in World Bank procurement process, specifically for works using the ICB method of procurement in World Bank projects and procurement staffing arrangements need to be strengthened.

As a result, the procurement risk has been assessed as ‘Substantial’.

Brief Description of Activities to Be Procured

Works. Under this project, SECI will procure the project through the EPC mode and own the assets. O&M for the initial few years (to be decided after necessary due diligence) will be in the scope of the selected EPC contractor.

SECI intends to tender out in multiple packages of 50 MW each. This is because even this package size for such innovative technologies will be the largest in India, there are constraints on availability of large areas of contiguous land, and a smaller package size is likely to increase competition. However, this will be firmed up based on the PPSD.

Goods, IT system, and non-consulting services. To be decided.

Consultancies. The project includes several major consultancy contracts: (a) Construction Supervision, (b) PMC, (c) Consultancy Services for preparation of DPR, (d) Consultancy for M&E, (e) Consultancy for Internal Audit, and(f) Consultancy for Environmental and Social Assessment. The project has to finalize the procurement documents such as RFP for Construction Supervision Consultancy and selection of PMC to be further expanded.

Project components. Summary of the requirements, including the cost estimate.

Component Description Cost Estimates (US$) Duration Months Remarks

Works

Goods and equipment

Consultancies

Procurement and contract approaches

Attribute Selected Arrangement

Rated criteria Yes

BAFO Yes, if agreed

Negotiations Yes, if agreed

Procurement risk mitigation


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As risk mitigation, SECI is in the process of strengthening the contract division by recruiting more procurement experts. SECI will also develop a comprehensive training program to be implemented over the life of the project, including on procurement and contract management. SECI plans to prepare a Procurement Manual, which will include all procurement processes, decision making, and safe upkeep and management of records. SECI will also establish a comprehensive system for handling complaints as a part of the GAAP. While the overall risk rating for the project is Substantial, the residual risk rating after taking proposed mitigation measures remains Substantial given the lack of experience on the part of SECI.

Procurement methods

Type of Procurement Method Threshold (US$, millions)

Works International open procurement > 40 National open procurement < 40 National request for quotation < 0.1

Goods, IT, and non-consulting services International open procurement > 3 National open procurement < 3 National request for quotation < 0.1

Consultant firms CQS < 0.3 LCS, FBS - in justified cases QCBS, QBS - in all other packages

Direct selection With prior agreement based on justification

Note: CQS = Selection Based on the Consultants’ Qualifications; FBS = Selection under a Fixed Budget; LCS = Least-Cost Selection; QBS = Quality-Based Selection; QCBS = Quality- and Cost-Based Selection.

Review arrangements

Type of Procurement Prior Review Threshold (US$, millions)

Works 10

Goods and non-consulting services 2

Consultant firms 1

Direct selection 0.05

38. STEP. An online STEP shall be adopted to prepare and submit the Procurement Plan once the initial Procurement Plan has been agreed. STEP is a web-based tool owned by the World Bank which helps in tracking dates of the different stages of a procurement activity that is planned or under implementation. The system establishes a new, easy-to-use, and more efficient way for the World Bank teams and the clients to interact while at the same time providing an audit trail of the process. The World Bank team has already trained the staff of IAs in operating STEP.

39. E-procurement system. SECI is using the platform of Telecommunications Consultants India Ltd. for e-procurement. The details will be shared by SECI, which will be reviewed by the World Bank.

40. Procurement capacity. The SECI Contract Department will do all procurement for the project. The Contract Department head and some other officials are from POWERGRID and they have some World Bank procurement experience. However, SECI per se does not have any World Bank-funded project procurement experience. Apart from delays in the procurement process, contract management delays and disputes are potential problem areas.

41. Procurement planning. For each contract to be financed by the loan, the different procurement methods or consultant selection methods to be used, the need for prequalification, estimated costs, prior review requirements, and time frame will be reflected in the Procurement Plan to be agreed between the


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borrower and the World Bank team. The capacity-building plan will also be reflected in the Procurement Plan. The Procurement Plan, as agreed, will be uploaded in STEP. The Procurement Plan is currently being developed. Based on discussions with SECI, both the World Bank and the project have evolved and committed to respective time frames for processing the procurement requirements at various stages.

42. Advance procurement and retroactive financing. Retroactive financing up to an amount of 20 percent of the credit amount will be available under the project, for financing expenditures incurred within 12 months before the date of loan signing for eligible activities procured under agreed guidelines.

43. Procurement training. Key staff may be sent for trainings at the Indian Institute of Management, Lucknow/Advertising Standards Council of India, Hyderabad/National Institute of Financial Management, Faridabad. The project could also avail of the free massive open online course on public procurement (www.procurementlearning.org) offered by the World Bank as well as the paid Professional Diploma in Public Procurement course delivered through the Charter of Public Procurement Studies.

44. Procurement risk assessment. Table A2.3 describes major procurement-related risks and the mitigation plan. The risk ratings have been decided based on both the probability of occurrence of various events as well as their likely impact. Based on the risk factors and mitigation measures, the overall residual procurement risk rating for the project is determined as ‘Substantial’. The residual rating on procurement will be reviewed and updated periodically by the World Bank.

Table A2.3. Assessed Procurement Risks and Mitigation Measures (to be updated after PRAMS is completed)

Risk Factor Initial Risk Mitigation Measure Completion

Date Residual

Risk

Limited capacity and inefficiencies resulting in delays in procurement and contract management processes

High Hiring of skilled procurement staff with World Bank procurement knowledge for handling procurement activities

Monitoring through Procurement Plan and quarterly reports

Use of e-Procurement and contract management tools

Participation in trainings and workshops

During the first two years of project implementation

Substantial

Noncompliance with agreed procurement arrangements

Substantial Training and hand-holding provided by the World Bank

Prior and post reviews by the World Bank

Internal and external audits

Continuous from year 1

Moderate

External interference in the procurement process

Substantial Disclosure of procurement-related information

Appropriate handling of complaints

Continuous from year 1

Substantial

Overall Risk Substantial Substantial

45. Procurement methods. Table A2.4 describes various procurement methods to be used for activities financed by the loan. These, along with agreed thresholds, will be reproduced in the Procurement Plan. The thresholds indicated in the table 2.4 apply to the initial 18-month implementation

http://www.procurementlearning.org/


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period and are based on the procurement performance of the project; these thresholds may be subsequently modified.

Table A2.4. Thresholds for Procurement Approaches and Methods

Thresholds for Procurement Approaches and Methods

Thresholds (US$ equivalent)

Open international (goods, IT, and non-consulting services)

>3 million

Open national (goods, IT, and non-consulting services)

>100,000 and up to 3 million

National request for quotation (goods/works/non-consulting services)

Up to 100,000

Open international (works) >40 million

Open national (works) >100,000 and up to 40 million

Direct selection No threshold For goods/works/non-consulting services: As per paragraphs 6.8–6.10 of the Regulations For consultants: As per paragraphs 7.13–7.15 the of Regulations

Short list of national consultants Up to 800,000

46. Procurement prior review thresholds. The World Bank will prior review (thresholds based on substantial rating) the following contracts:

(a) Works. All contracts more than US$10 million equivalent

(b) Goods and information technology. All contracts more than US$2 million equivalent

(c) Non-consulting services. All contracts more than US$2 million equivalent

(d) Consultants. All contracts more than US$1 million equivalent for firms and more than US$300,000 equivalent for individuals

(e) Direct selection. All contracts more than US$50,000 equivalent

47. The above thresholds are for the initial 18-month implementation period; based on the procurement performance of the project, these thresholds may be subsequently modified. Even for large-value post review cases, the inputs of the World Bank on technical specifications/ToRs will be obtained by the project. The prior review thresholds will also be indicated in the Procurement Plan. The Procurement Plan will be subsequently updated annually (or at any other time if required) and will reflect any change in prior review thresholds. The prior review thresholds will be mutually reviewed during project implementation and modified based on the risk assessment.

48. In the case of contracts subject to prior review, the IA shall seek the World Bank’s no-objection before granting/agreeing to (a) an extension of the stipulated time for performance of a contract that either increases the contract price or has an impact on the planned completion of the project; (b) any substantial modification of the scope of works, goods, non-consulting services or consulting services, or


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other significant changes to the terms and conditions of the contract; (c) any variation order or amendment (except in cases of extreme urgency) which, singly or combined with all variation orders or amendments previously issued, increase the original contract amount by more than 15 percent; and (d) the proposed termination of the contract.

49. National procurement procedure conditions. National competition for the procurement of goods, works, and non-consulting services according to the established thresholds will be conducted in accordance with paragraphs 5.3–5.5 of section V of the Regulations and the following provisions:

(a) Only the model bidding documents agreed with the GOI task force (and as amended from time to time) shall be used for bidding.

(b) Invitations to bid shall be advertised in at least one widely circulated national daily newspaper (or on a widely used website or electronic portal with free national and international access along with an abridged version of this advertisement published in a widely circulated national daily, among others, giving the website/electronic portal details from which the details of the invitation to bid can be downloaded) at least 30 days before the deadline for the submission of bids.

(c) No special preferences will be accorded to any bidder either for price or for other terms and conditions when competing with foreign bidders, state-owned enterprises, small-scale enterprises, or enterprises from any given state.

(d) Extension of bid validity shall not be allowed with reference to contracts subject to World Bank prior review without the prior concurrence of the World Bank (i) for the first request for extension if it is longer than four weeks and (ii) for all subsequent requests for extension irrespective of the period (such concurrence will be considered by the World Bank only in cases of force majeure and circumstances beyond the control of the purchaser/employer).

(e) Rebidding shall not be carried out with reference to contracts subject to World Bank prior review without the prior concurrence of the World Bank. The system of rejecting bids outside a predetermined margin or ‘bracket’ of prices shall not be used in the project.

(f) Rate contracts entered into by the Directorate General of Supplies and Disposals (DGS&D) will not be acceptable as a substitute for national competition procedures unless right to audit and fraud corruption clauses are incorporated. The DGS&D contracts and its new version will be acceptable, however, for any procurement under the shopping procedures.

(g) No negotiations are conducted even with the lowest evaluated responsive bidders.

50. Domestic preference. The provision of domestic preference will be applied in the evaluation of bids in accordance with annex VI of the Regulations.

51. Record keeping. All records pertaining to award of tenders, including bid notification, register pertaining to sale and receipt of bids, bid opening minutes, bid evaluation reports and all correspondence


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pertaining to bid evaluation, communication sent to/with the World Bank in the process, bid securities, and approval of invitation/evaluation of bids would be retained by the IAs.

52. Anticorruption measures

(a) Disclosure requirements. The project shall comply with the disclosure requirements stipulated in the World Banks’ Procurement Regulations for IPF Borrowers effective July 1, 2016. Accordingly, the following documents shall be disclosed on the project’s website: (i) Procurement Plan and all subsequent updates; (ii) invitations for bids for goods; (iii) requests for expression of interest (REOIs) for selection/hiring of consulting services; (iv) short list of consultant; (v) details of contract awards; (vi) lists of contracts following Direct Contracting, CQS, or Single-Source Selection on a quarterly basis; and (vii) action-taken reports on the complaints received on a quarterly basis.

(b) The following details shall be published by SECI through STEP on its behalf on the World Bank’s external website and United Nations Development Business online: (i) General Procurement Notice; (ii) REOIs for consulting services estimated to cost more than US$300,000; and (iii) contract award details of all consulting services, with estimated cost of more than US$300,000. The project shall also publish on its website any information required under the provisions of disclosure, as specified by the RTI Act of India.

(c) Further, IAs will also publish on their websites any information required under the provisions of ‘suo moto’ disclosure as specified by the RTI Act.

53. Oversight and monitoring by the World Bank. All contracts not covered under prior review by the World Bank will be subject to post review during implementation support missions and/or special post review missions, including missions by consultants hired by the World Bank. To avoid doubts, the World Bank may conduct, at any time, independent procurement reviews of all the contracts financed under the loan.

54. The high-risk and high-value procurements, if any, will be identified for increased contract management support and indicated in the Procurement Plan. The IA will develop KPIs for such contracts and the KPIs would be monitored during actual execution of the contracts. The World Bank team will provide additional due diligence and independent review of the contract performance of such identified procurements.

55. Frequency of procurement supervision. The World Bank will normally carry out implementation support missions, including review and support on procurement, on a semiannual basis. Mission frequency may be increased or decreased based on the procurement performance of the project.

56. Complaint handling mechanism. SECI shall establish a complaint handling mechanism to address complaints/grievances from contractors/suppliers more effectively. On receipt of complaints, immediate action will be initiated to acknowledge the complaint and redress within a reasonable time frame. All complaints during bidding/award stage as well as complaints during the contract execution along with the analysis and response of SECI shall invariably be submitted to the World Bank for review.


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57. Procurement from government-owned entities. The project does not envisage the use of World Bank funds for any goods and services to be sourced from government-owned entities. However, in the event that certain goods, works, and services are required to be sourced from government-owned entities, such procurement shall be subject to meeting the eligibility criterion as per the Procurement Regulations for IPF Borrowers. Otherwise, such goods, works, and services shall be procured using SECI funds.

Environmental and Social (including safeguards)

58. Environmental impacts and management. The following issues and potential impacts are envisaged under the project:

(a) Impacts on natural physical environment. The proposed RE projects will require excavations for laying foundation, water for construction and operation stage, area for storage of spare parts/equipment, and so on. The physical environment would be affected—for instance, alteration of drainage in the site and surrounding areas at construction and operation stages.

(b) Impacts on biological environment. Wherever forestland is acquired for RE projects, the appropriate clearance procedures are to be adopted for conversion of land use/compensatory land allocation. There is a high probability that these projects are likely to come up in remote/barren land parcels with minimal tree cover. The protection of existing tree cover is crucial in such areas and should not lead to removal of trees. Minimum alteration to existing ground cover in such sites is a chosen strategy. In case of wind power plants, the probability of high wind density fall under forestland with heavy tree coverage, all necessary precautions for safety buffer, and so on should be considered while planning such power generation facilities. The proposed RE projects should be completely contained entities with controlled access, thereby minimizing the risks of wild animals getting affected in all aspects. Site-specific ESIA studies, to be undertaken for each location, shall establish the wildlife species movement corridors/paths/habitat, if any, applicable in and around the proposed site. The ESIA study will also identify adequate mitigation measures to ensure no conflicts/poaching occurs during the various stages of project development. There will not be any anticipated impacts on the ambient noise levels and air quality because of the proposed solar, wind, and hybrid solar-wind projects. The proposed subproject is likely to have minimal short-term adverse impacts in terms of increased noise levels during the construction phase.

(c) Impacts on visual environment. The concern for the impact on visual environment is predominant in wind power projects where the height of the wind turbine is often at 50 meters, 80 meters, or 100 meters. The movement of the wind turbine and the motion at which it moves can be harmful for the exposed sensitive receptors. The preferable locations for most of the high-density wind areas are in the hilly regions or forested land; thus there is a higher probability of blocking or hampering scenic value of the place.

(d) Impacts on the settlement infrastructure. Based on the reviews and the studies for the RE power sector, the disruption/change in the built infrastructure environment (roads, sewage system, water supply, solid waste disposal, and so on) does affect the settlements in its


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surroundings. This often occurs because the infrastructure is made available for the power plants by compromising/changing the existing fabric of the area.

59. In each subproject, the ESIA will be undertaken to develop an ESMP, which would be the key document focused on implementation, after the potential site-specific impacts have been identified. It will ensure that the project impacts are reduced to an acceptable level during implementation of the subproject. Thus, the ESMP will represent the document for ensuring that all the preceding analysis is used to preserve/improve overall environmental quality within the influence area of the project.

60. For successful implementation of environmental and social mitigation measures, institutional setup plays a vital role. SECI will implement the RAP and/or ESMF. SECI may contract an NGO for implementation of the RAP and IPP. The RAP/IPP will be implemented over a period of one year. During the operation phase, SECI will be responsible for planning and implementation of CSR activities in the project areas.

61. Role of state government. Land for setting up of the hybrid/storage/floating subprojects will be identified by the respective state government. To provide for such a large tract of contiguous land, the state government may prioritize the use of government waste/nonagricultural land to speed up the acquisition process. The use of private land shall be minimized. The objective, while identifying the land, will be to keep the land cost as low as possible to attract the developers. If no contiguous piece of land is available at one location, then land spread over few locations in close vicinity can also be considered while bearing the technical feasibility in consideration. Possibility of using manmade large-scale water bodies, existing lakes, and other water bodies (excluding critical habitats, wetlands, backwaters and other ecologically fragile aquatic ecosystems) will be actively explored. The subprojects must have at least 2 ha per MW toward installation of solar PV (including for floating solar PV subprojects) and at least 2 ha per 1.5–2 MW for single wind turbine generator (WTG) installation.

62. Role of National Institute of Wind Energy (NIWE). In the case of wind farms/individual WTG clearance, NIWE is the sole approving authority in India. The proposals to set up and operate the WTG stations require prior testing and technical clearance from NIWE/MNRE. Such clearances are in addition to the defence clearances and forest clearances, wherever applicable. An environment and social officer will also be designated within NIWE so that preliminary screening of the environmental and social impacts (based on the guidelines mentioned in the ESMF) can be undertaken during the planning stage. This will help in ensuring that the mitigation measures required to minimize/avert adverse impacts can be integrated into the design and implementation phase of the wind/hybrid projects.

63. Roles and responsibilities of Social and Environmental Officer. Development of subprojects may result in relocation of the people or affect their livelihood. For upliftment of people and community development, there will be a need for Rehabilitation and Resettlement (R&R) of Project-Affected People (PAP) with the objective that standards of living of the PAP improves or at least regain their previous standards of living. The roles and responsibilities of the social and environmental expert hired by SECI shall be to:

(a) Prepare ToR for any studies required and qualitative dimensions to the implementation of RAP/ESMP;


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(b) Participate in and facilitate consultations with stakeholders;

(c) Participate in project meetings and report on the issues related to environmental management and social safeguards to provide for any midcourse corrections that may be required based on the situation on the ground;

(d) Assist PAPs to resolve their grievances;

(e) Coordinate the training and capacity-building initiatives;

(f) Review contract documents to ensure that EMP provisions related to works are included in the contract documents;

(g) Act as a resource person in trainings based on experience in implementing this project and previous relevant work;

(h) Oversee and report to SECI on implementation of EMP provisions included in the works contract for each subproject in the state;

(i) Liaise with state administration for land acquisition/procurement and implementation of the RAP;

(j) Report progress, highlighting social issues not addressed, to provide for midcourse correction;

(k) Assist PAPs in approaching the grievance redressal mechanism; and

(l) Carry out other responsibilities as required from time to time.

Monitoring and Evaluation

64. SECI will monitor all the subprojects to ensure conformity to the requirements of the ESMF. The monitoring will cover all stages of planning and implementation. The monitoring will be carried out through the environmental and social safeguard compliance reports that will form a part of Monthly Progress Reports (MPRs) for all subprojects and regular visits by the environmental and social specialists of SECI.

65. SECI identify technical, managerial, policy, or regulatory issues with regard to the compliance of the safeguard compliance reports. The identified issues will be duly incorporated. Policy and regulatory issues will be debated internally by SECI and the need for appropriate interventions will be determined. These interventions could include appropriate revision of the ESMF document/R&R policy in consultation with the World Bank or suitable analytical studies to influence policy or programs of the state, if found necessary/warranted.

66. An external evaluation of the RAP/IPP implementation prepared for subprojects and will also be undertaken twice during the implementation of the project - midterm and at the end of the implementation as per the ToR. During implementation, meetings will be organized by SECI inviting all


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EPC contractors for providing information on the progress of the project work. Project monitoring will be the responsibility of SECI who will submit MPRs to the World Bank. The reports will compare the progress of the project to targets set up at the commencement of the project.

Role of Partners (if applicable)

67. Not Applicable


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Annex 3: IMPLEMENTATION SUPPORT PLAN

COUNTRY: India


Strategy and Approach for Implementation Support

1. Strategy and approach for implementation support. The development of the project strategy for implementation support is based on the nature of project activities and their commensurate risk profile in accordance with the Systematic Operations Risk-Rating Tool. The implementation support plan, described below, will be a live document to be regularly reviewed and revised as and when required during implementation.

2. Technical support. The World Bank will provide the required technical support through sector specialists. The implementation support will include at least two missions per year, along with continuous exchange of correspondence and regular communication.

3. FM. Implementation support will review the project’s FM system, including, but not limited to, accounting, reporting, and internal controls. Support will be provided through regular interactions, half-yearly implementation support missions, and thematic implementation support missions, if required.

4. Procurement. Implementation support will include (a) review of procurement documents and provision of timely no-objection; (b) detailed guidance to project staff on the World Bank’s Procurement Guidelines; (c) monitoring of procurement progress against the detailed Procurement Plan; (d) review of contract management activities; and (e) identification of capacity-building and training needs of project staff and officials of partner state PIAs on procurement processing and provision of training, if required. The support will be provided through regular interactions, half-yearly implementation support missions, and thematic implementation support missions, if required.

5. Environmental and social safeguards. The safeguards specialists on the World Bank’s project team will supervise various activities to ensure full compliance with the World Bank’s operational policies and procedures and the agreed readiness criteria for subprojects on environmental and social safeguards. Implementation support will be provided through regular interactions, half-yearly implementation support missions, and thematic review missions, if required.

Implementation Support Plan and Resource Requirements

6. Implementation support plan. The team will consist of a mix of headquarters and country office specialists in the areas of technical, procurement, FM, and safeguards. These specialists will facilitate the timely, efficient, and effective implementation support for the client. Project implementation and supervision will be conducted through the following:

(a) Project launch, to be conducted soon after project approval, whereby all project functionaries will be brought together to ensure their clear understanding of the project scope, design, process, and responsibilities


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(b) At least two regular supervisory missions per year over the project duration

(c) Intermediate technical missions by specialists, as needed, on identification of new solar parks

(d) Quarterly implementation (physical and financial) progress reports prepared by the responsible PIA

(e) A midterm review about half way through implementation/loan tenure to review the project’s progress and assess the need for any midcourse corrections

(f) An Implementation Completion and Results Report at the end of the project to assess achievement of the PDO and lessons learned

7. Given that the team will need to work with new entrants for additional solar parks to be supported under the project, table A3.1 summarizes the implementation support plan.

Table A3.1. Implementation Support Plan

Time Period Focus Skills Needed Resource Estimate

First 12 months Project design and technical implementation support

FM and procurement

Safeguards implementation support

Capacity building

Technical

FM

Procurement

Safeguards

Seven to eight staff, three to four trips per state PIA per staff annually

12–48 months Implementation support

FM, procurement, and safeguards

Technical

Safeguards

FM

Procurement

Seven to eight staff, one to two trips per state PIA per staff annually


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Annex 4: ECONOMIC AND FINANCIAL ANALYSIS

1. Rationale for public sector financing. India has been able to attract substantial private investment to develop utility-scale solar and wind generation plants in the country. More than 90 percent of the 36 GW of solar and wind installations in India have been achieved through private investment. However, the private sector may have less appetite to finance utility-scale innovative technologies because of the high risks associated with these technologies. In this context, public investment in solar-wind hybrid, floating PV, and electricity storage technologies will (a) facilitate learning and development of technology through collection of data on technical and economic performance, (b) lead to decreased generation costs over time, and (c) reduce risk associated with private sector investment in these technologies.

2. Value added from World Bank’s support. The key value additions that the support of the World Bank and CTF is expected to facilitate are (a) provision of international best practices in solar-wind hybrid, floating PV, and electricity storage technologies; (b) provision of international best practices to enhance the core competencies of SECI across functions such as human resource, project management and monitoring, procurement and contract management, operations and maintenance (O&M), FM, and implementation of enterprise wide information technology (IT) systems; (c) mobilization of concessional climate finance from the CTF to lower the cost of generation from nascent technologies supported through this project; and (d) facilitation of learning through collection of data on technical and economic performance of solar-wind hybrid, floating PV, and electricity storage technologies.

Solar Wind Hybrid

3. Because project sites have not been identified for storage and floating solar technologies, only

the proposed 150 MW solar-wind hybrid generation plant in the state of Andhra Pradesh is analyzed.27 The proposed investment is economically viable. It helps displace thermal generation, lowers grid integration costs of solar and wind technology, improves the utilization of land and transmission infrastructure, and reduces global and local environmental emissions. The baseline economic rate of return (ERR) of the ‘with project’ scenario is 18.3 percent with a net present value (NPV) of US$35.5 million, against a counterfactual comprising generation using imported coal and a discount rate of 10 percent (table 1).28 Local and global environmental benefits contribute 14 percentage points to the ERR and US$85 million to the NPV, enabling the project to cross the hurdle rate of 10 percent. The proposed investment in Andhra Pradesh will help reduce 6 million tons of GHG emissions over the life of the project.

27 The economic analysis presented is provisional and will be updated once the feasibility study of the proposed investment is completed. 28 This economic analysis is consistent with the following guidelines: (a) Operational Policy and Bank Procedure 10.00, IPF; (b) Power Sector Policy and Investment Projects: Guidelines for Economic Analysis; (c) Social Value of Carbon in Project Appraisal 2014; and (d) Discounting Costs and Benefits in Economic Analysis of World Bank Projects 2016.


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Table 2. Summary of Economic Analysis

Note: The economic analysis presented in the table is provisional and will be updated once the feasibility study of the proposed investment is completed.

4. Sensitivity analysis. The analysis shows that the ERR is robust to unfavorable outcomes of such variables as PV and wind cost, share of energy curtailed, coal price, and CUF. The cost of PV would have to be 68 percent higher and coal prices 71 percent lower than the base case for the ERR to fall below the hurdle rate of 10 percent. Likewise, the share of energy curtailed and the CUF would have to reach 34 percent and 9 percent, respectively, for the ERR to fall below the hurdle rate.

Table 3. Summary of Switching Analysis

Variable Baseline Switching Value

PV capital cost (US$, millions/MW) 0.76 1.28

Wind capital cost (US$, millions /MW)

0.89 2.61

PV capacity factor (%) 20 9

Wind capacity factor (%) 29 −6

Base Case Sensitivity[1] Discount rate 10.0% 6.0%

[2] Economic rate of return[3] ERR [ ] 18.3% 18.3%[4] ERR excluding GHG benefits [ ] 4.9% 4.9%[5] ERR excluding GHG and local env. benefits [ ] 4.0% 4.0%[6] Levelized cost of solar + wind hybrid US$/Kwh 0.06 0.05[7] Levelized cost of counterfactual US$/Kwh 0.04 0.04[8][9] Composition of NPV[10] Costs[11] Solar PV Capital Costs 115 MW [$USm] 71 77[12] Solar PV O&M [$USm] 10 15[13] Wind Capital Costs 35 MW [$USm] 45 49[14] Wind O&M [$USm] 3 5[15] Incremental Transmission Costs [$USm] 6 6[16] Incremental Transmission O&M [$USm] 1 1[17] Incremental Grid Integration Costs [$USm] 11 18[18] total costs [$USm] 146 170[19] Benefits[avoided thermal generation][20] Avoided fuel costs: Gas [$USm] 0 0[21] Avoided fuel costs: Coal [$USm] 77 114[22] Capacity credit: Coal [$USm] 19 22[23] total benefits [$USm] 96 135

[24] NPV (before environmental benefits) [$USm] -50.1 -35.0

[25] local environmental benefits: avoided grid generation [$USm] 3.4 5.5[26] NPV (incl. Local environmental benefits) [$USm] -46.7 -29.5[27] value of avoided GHG emissions [$USm] 82.1 126.1[28] NPV (including environment) [$USm] 35.5 96.5

[29] Lifetime GHG emissions, undiscounted mtons CO2 -6.0 -6.0


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Variable Baseline Switching Value

Energy curtailed (%) 0 34

Coal price (ratio) 1 0.29

Storage Applications

5. Economic benefit. The precise economic benefit of the project can only be calculated with the specific site in mind. The team is preparing the modeling tools required for that. Before site, offtaker, system, and project specifications are known, the team uses assumptions based on published research. EPRI and Sandia National Labs have published work on the value of storage for different applications in the United States of America.

Table A4.1. Economic Value of Storage Applications

Source: EPRI; Sandia National Labs.

6. The value for storage in India will differ because of the differences in several input factors:

(a) PV generation cost is lower.

(b) Storage cost is still higher, as logistics to site and installation will most likely still be more costly.

(c) Competing technology, in particular gas peakers, is more costly.

(d) Tolerance for loss of capacity and for power quality issues is higher, as customers have invested in compensating solutions (for example, generators).

(e) T&D construction cost is lower.

7. Table A4.1 confirms the initial assumption that the SECI PV and storage project will implement either the frequency regulation use case or the renewables capacity firming use case. These two cases combine high economic value with short storage duration. Storage duration of more than four hours would result in a large battery system for the pilot project, with a high cost, and technical risk. Ideally, the

Application Duration (h) Value (US$/kWh) Value (US$/kW)

Price arbitrage 2–8 50–350 134–800

System capacity 5–6 44–142 220–710

Regulation 1 255–2,010 255–2,010

Spinning reserve 1–2 29–225 57–225

Voltage support 1 9–400 9–400

VAR support 1 4–192 4–192

Transmission congestion 3–6 5–368 31–2,208

T&D deferral 3–6 127–1,074 759–6,444

Renewables time-shift 3–5 47–130 201–500

Renewables capacity firming 2–4 44–177 88–915


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pilot will combine both the regulation and the firming applications, demonstrating the value stacking potential of energy storage.

8. However, as of now, the regulatory framework for grid storage is still under development in India. Without it, the economic benefit cannot be fully monetized, and storage projects are harder to amortize. For example, the planned storage asset in the project could deliver several stacked value streams (e.g. solar PV ramp support, frequency regulation, peak forming etc.), with several revenue streams – however, without the necessary regulation, some of these revenue streams may not materialize. The project will deliver practical operational experience which will inform further development of storage regulation. Prior to regulatory certainty, it would be hard to obtain commercial funding.

9. On the cost side, energy storage at a scale higher than 2 MW introduces a challenge in India compared to smaller projects: it is unlikely to be feasible to build large-scale storage with lead acid batteries. Most of the highly competitive local battery industries are based on lead acid technology, though. A number of India-based battery manufacturers have been engaging in research and development (R&D) and are in partnership with other vendors to either extend the life span of lead-acid product lines through advanced lead acid technology, and they have been working on lithium-ion and other advanced chemistries. At this point, however, it is unlikely that a fully local vendor will compete at the multi-MW scale yet. However, the project will need to rely on local EPC contractors and will grow the number of technical personnel in the country that have been exposed to a large-scale battery project.

10. Energy storage procurement prices have been declining in the past two years at a much faster rate than the long-term historical average of about 6 percent per year. Anecdotal evidence suggests a 40 percent to 50 percent drop, attributed to increased global capacity, largely driven by the automotive industry. The grid storage market is still small compared to the electric vehicle markets and benefits from EVs scaling up. The team has recently encountered bids for grid-scale storage projects at a capital cost of around US$300 per kWh capacity. At that price, as with PV, EPC becomes a more important cost driver relative to the capital cost. The project will lead to price discovery for energy storage EPC in India.

11. With the capital cost, EPC cost, and the specifications of a particular storage technology (especially cycle life, round trip efficiency, and depth of discharge), the project will arrive at a Levelized Cost of Storage (LCOS), a key input to future storage projects in India. The project will remain agnostic to battery technology, aiming to select by specification. For the United States, LCOS estimates are today at about US$159 per MWh–US$277 per MWh for frequency regulation and between US$267 per MWh and US$561 per MWh for renewables firming.29

29 Lazard “Levelized Cost of Storage Analysis.” 2016.


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Figure A4.1. Combined PV LCOE and Storage LCOS for IPP and Different Storage Durations

12. Assumptions for this model are as follows:

(a) A total of 50 MW PV IPP with storage for firming, location India.

(b) Tesla-type lithium-ion battery (Flow batteries may be a better fit for 20-year utility projects but lithium-ion is more likely to be bankable at this point.)

(c) Battery cost. US$380 per kWh installed for 2017, dropping at 12 percent per year (based on last known comparable quote at US$305 plus US$50–US$100 for installation).

(d) Some capex and O&M shared with the PV plant. Stand-alone cost would be higher.

(e) This is lower-than-list price and assumes additional discounts for very large installations.

(f) Projections vary. Long-term historical average was 6 percent, one-time drop of 40 percent in the past 18 months from Gigafactory, expectations vary about 12 percent per year for the next five years

(g) Twenty project life batteries are replenished as they fade.

(h) PV US$0.8 per W and declining to US$0.6 per W by 2021.

(i) 10 percent discount rate, 3 percent inflation, 1.5 percent annual price escalation, debt fraction 80 percent, loan interest 5 percent.

8 7 7 7 6

88

7 7 7

1211

10 109

18

16

14

13 12

23

2018

1715

0

5

10

15

20

25

2017 2018 2019 2020 2021

LCOE PV & Storage

15' storage 30' storage 2h storage

4h storage 6h storage


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13. In addition to cost and price discovery, the project will lead to learning by market actors, reducing the time for storage project completion. Figure A4.2 shows the learning effect of compressed project cycles in the California market.

Figure A4.2. Compressed Storage Project Cycles in the California Market, Learning Effect

14. Storage technology is evolving into potentially crucial components of India’s overall energy development strategy, as they provide utility companies with multiple power management benefits, including time shifting, grid stabilization, shaving of peak demand, improved generation efficiency, and improved utilization of transmission capacity.

15. If it is successful, the project would ultimately serve as a model for the development of additional utility-scale integrated RE and energy storage projects in India. In particular, the implementation of these technologies would help improve the overall reliability of the electric power grid, increase the delivery of power by eliminating the need for RE producers to decrease production when the grid is overburdened, generate additional electricity during peak power periods, enable a scheduled dispatch of RE, facilitate the establishment of interstate PPAs, and reduce carbon emissions that mitigate the threat of climate change.

Financial Analysis

16. Overview. SECI, since its inception stage, has acted as a disbursement agency for the funds under VGF schemes and carries out the tender process for both rooftop and ground-mounted solar schemes. Moreover, SECI also handles schemes for solar park implementation. Alternatively, SECI is also involved in power trading and offers PMC services. SECI has applied for a Category I license to trade power that will enable it to have no limit on the volume of electricity to be traded in a year. Current business segments of SECI include the following:

(a) SECI projects. SECI has planned to develop its own solar power projects to have revenue-generation assets for long-term sustainability in its functions. As a part of this, the first project of 10 MW capacity has been commissioned in FY2016 at Badi Sid in Jodhpur District


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of Rajasthan under the MNRE’s bundling scheme of NSM. Solar power from this project is sold to NVVNL under a 25-year PPA. The project is functioning satisfactorily. Further, SECI is also developing a pilot solar-wind-battery hybrid project at Rangreek, Kaza (Himachal Pradesh) in JV with Himachal Pradesh State Electricity Board Ltd. The site for the proposed R&D project is located in the cold desert regions of the Himalayan ranges, at an altitude of approximately 12,000 ft. Apart from the extreme cold winters (temperatures fall to as low as −35° C in the winters), access to site is one of the challenges in implementation of the project.

(b) Scheme handling. SECI acts as a disbursement agency for funds under VGF schemes and carries out the tender process for both rooftop and ground-mounted solar schemes. SECI, as of now, is handling the following VGF schemes for large-scale projects: 750 MW, 2,000 MW, and 5,000 MW. In addition to this, SECI is also handling 1,500 MW capacity under rooftop schemes. These schemes are currently under various stages of implementation. The MNRE provides a set percent of handling fee for various schemes to SECI.

(c) PMC. SECI also provides PMC. Banking on its expertise in the sector, SECI is continuously working to develop PMC as a potential vertical to get revenue generation for its various operations. As a part of this, SECI is providing PMC services to various organizations/institutions. Such services have been expanded to include execution of solar projects on a turnkey basis with orders of more than 850 MW. Some of the clients include Coal India Ltd., Indian Renewable Energy Development Agency, Indian Ports Association, and Ordnance Factory Board.

(d) Power trading. SECI, a Category II power trading license holder, acts as power trader for various solar projects. SECI has been entrusted the responsibility of purchasing power from projects under VGF schemes of the GOI and selling it to various Discoms/Buying Utilities and so on. In this regard, SECI has signed 45 PPAs with solar projects developers who have set up solar PV projects in the states of Rajasthan, Madhya Pradesh, Gujarat, Odisha, Maharashtra, Karnataka, and Tamil Nadu. For sale of this power, SECI has signed 17 PSAs with various Discoms/buying utilities of states, namely Delhi, Odisha, Haryana, Punjab, Himachal Pradesh, Assam, Bihar, and Jharkhand, among others, for a capacity of 680 MW.

(e) CSR. SECI also carries out CSR and off-grid activities such as solar lantern distribution.

17. There have been some important developments in recent times, bringing in new potential and prospects of growth for SECI that recently brought out a wind energy tender for procurement of 1 GW CTU-connected wind power on competitive basis, a pioneering effort in itself. The tender saw the most competitive tariffs (INR 3.46 per unit) in the history of the wind market in the country. The company has also taken up development of about 400 MW capacity of power based on innovative and emerging concepts of hybridization of solar with wind and floating solar PV with or without battery storage with World Bank support.

18. An estimation of profits and expenses has been carried out from ongoing activities and activities currently in pipeline for SECI. The company is past the formative years and now has some important assignments in hand, several of which have also seen substantial work happening. Every year, there has


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been a marked expansion of SECI’s activities and the annual cash inflows, which is reflected in estimated revenues. On the financial front, with a total revenue of INR 5,790 million and net profit of INR 191 million in its fifth year of existence (and second year of profitability), SECI has been growing. Net profit of the company has increased by 80.19 percent from INR 106 million in FY2015 to INR 191 million in FY2016, while the net worth of the company has increased by more than 110 percent from INR 1,040 million to INR 2,211 million during the same period.

19. Further, the revenue projections for the next five years indicate a slow but steady growth for SECI. With the fall in solar tariff in the country, there is a looming uncertainty around VGF and hence that stream of revenue has narrowed down, while the revenue earnings from the SECI-owned assets are expected to grow manifold with assets under the proposed project getting commissioned by 2022.

Table A4.2. Financial Analysis

2017–18 2018–19 2019–20 2020–21 2021–22

Revenue Heads

Project development 1.8 4.7 27.7 64.2 134.6

Scheme handling - VGF and ground-mounted solar 6.5 5.0 1.0 0.2 0.2

Scheme handling - solar rooftop 18.4 24.9 24.9 0.0 0.0

PMC 10.7 23.9 30.6 22.8 8.3

Power trading (margin only, does not include cost of sale of power)

6.9 10.0 9.9 9.9 9.9

CSR activities and off-grid apps 0.1 0.1 0.1 0.2 0.2

Total Revenue 44.4 68.6 94.3 97.3 153.1

Expenditure Heads

Employee expenses 2.6 2.9 3.2 3.5 3.8

Variable expenses - PMC, consulting 2.0 2.2 2.5 2.7 3.0

Variable expenses - VGF scheme and solar park scheme

0.8 0.9 1.0 1.1 1.2

Variable expenses - large rooftop scheme 1.2 1.3 1.5 1.6 1.8

Variable expenses - power trading 2.3 3.3 3.3 3.4 3.4

Total Expenses 9.0 10.7 11.5 12.3 13.2

Profit Before Tax 35.4 57.9 82.8 85.0 139.9


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Annex 5. CLEAN TECHNOLOGY FUND

Table A5.1 Key Indicators for the World Bank Project and Scaled-Up Phase

Key Indicators CTF/World Bank-funded

Project

Scaled-up Phase (by 2022)

Installed renewable energy generation capacity in supported innovative renewable energy technologies (MW)

300 MW 10 GW30

Tons of GHG emissions reduced or avoided - Million Tons per year [mtCO2eq/yr]

- Million Tons over lifetime

[mtCO2eq / 25 years]31

0.4

10.3

13.7

343.5

Financing leveraged through CTF financing (US$ million)

US$420 million

- US$150 million by IBRD - US$200 million by the SECI - US$70 million by public sector for

transmission

US$10.15 billion

- US$150 million by IBRD - US$10 billion by private and public

sector for generation capacity in the hybrid projects

CTF leverage ratio 1 : 8 1:200

Cost effectiveness - CTF cost effectiveness [US$CTF /

tCO2eq avoided over lifetime]

- Total project cost effectiveness [US$Total Project / tCO2eq avoided over lifetime]

4.85

45.6

0.15

29.5

Other co-benefits - Support in meeting the electricity demand and contribute to the universal access agenda.

- Increased opportunities of local employment. - Contribute to cost reduction in solar PV technologies, particularly in

storage applications and floating solar PV.

- Environmental co-benefit: reduced local air pollution

- Gender co-benefit: interventions to be designed to address gender issues in the proposed renewable energy project sites.

30 Indian government has set target of 10 GW by 2022 for solar and wind hybrid projects (https://www.pv-tech.org/news/india-targets-10gw-solar-and-wind-hybrid-capacity-by-2022). Considering the potential scale-up of solar PV-storage applications and floating solar PV, the installed capacity for the scale up phase would be larger. 31 The lifetime of solar PV generation facilities was hereby assumed at 25 years.

https://www.pv-tech.org/news/india-targets-10gw-solar-and-wind-hybrid-capacity-by-2022

https://www.pv-tech.org/news/india-targets-10gw-solar-and-wind-hybrid-capacity-by-2022


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I. Introduction Background: country and sector context 1. India’s power sector is undergoing sustained growth to continue to fuel economic growth and meet the needs of its population. India’s annual gross domestic product growth rates averaging above 7 percent led peak power and energy demand to grow at 4.9 percent and 5.3 percent annually, respectively since 2008. Energy demand will continue to grow rapidly, contributing about a quarter of the increase in global energy demand by 2040. An ambitious power generation capacity expansion effort is underway, with installed capacity exceeding 300 GW in 2016 and expected to rise to 1,076 GW by 2040. Significant gains have been made in expanding electricity access, from 56 percent of the population in 2001 to over 80 percent in 2016.32

2. Despite these achievements, reliable grid electricity supply remains a challenge. It is estimated that about 250 million people are without grid connections, and of these, around two-thirds reportedly choose not to connect because electricity supply is unreliable. Heavily indebted Discoms33 are unable to afford network investments and adequate power purchases to allow them to provide reliable supply. Households and agricultural consumers face unreliable supply and load shedding. Industrial and commercial enterprises have invested in expensive, inefficient, and polluting diesel backup generation and incur associated coping costs. 3. A combination of investments in networks, additional clean energy generation capacity, and energy efficiency is critical for India in meeting its NDCs while curbing thermal generation and therefore greenhouse gas (GHG) emission growth. In generation, the development of India’s RE has grown significantly over the past decade, with the implementation of major policy and regulatory measures for harnessing RE resources. As of January 2017, India had successfully added more than 50 GW of grid-

connected RE (excluding 44 GW in large hydropower capacity).34 The major contributor to this achievement has been wind power (29 GW), followed by solar power (9 GW), bio-power (8 GW), and small

hydropower (4.3 GW).35 Together, wind and solar power constitute nearly 80 percent of this added capacity. The rate at which this capacity addition has occurred is commendable, considering that total RE installed capacity was just 7.7 GW less than a decade ago (2007 figure).36 4. Solar and wind power are likely to continue as the dominant share of RE in India for the foreseeable future. Their growth trajectory over the last decade and present level of installed capacity clearly indicate significant potential for both categories. This potential is also reflected in the GOI’s 2022 target of 175 GW, which envisages 160 GW coming from solar (100 GW) and wind (60 GW). Recognizing the potential of solar energy to contribute to India’s energy security, and taking advantage of falling solar photovoltaic

32 IEA (International Energy Agency). 2016. “World Energy Outlook.” 33 Annual and cumulative financial losses by public Discoms are about US$15 billion and US$66 billion, respectively. 34 For details, refer to http://www.cea.nic.in/reports/monthly/executivesummary/2017/exe_summary-01.pdf. 35 For details, refer to http://mnre.gov.in/mission-and-vision-2/achievements/. 36 Comptroller and Auditor General of India, http://www.cag.gov.in/sites/default/files/audit_report_files/Union_Civil_Performance_Renewable_Energy_Report_34_2015.pdf.


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(PV) prices, which increases the likelihood of more quickly reaching grid parity, the GOI enhanced cumulative solar targets from 20 GW to 100 GW in June 2015 under the National Solar Mission (NSM).37

5. However, scaling up stand-alone solar and wind plants faces major constraints, including land scarcity, variability of supplied energy, and underutilized associated facilities especially evacuation infrastructure. Land acquisition requirements for stand-alone solar and wind projects are estimated at about 5 acres per megawatt (MW) and about 8–10 acres per MW, respectively.38 If investments are made only in stand-alone projects, then to achieve 175 GW RE targets by 2022 will require huge amounts of land, usually in contiguous areas, which is difficult to access in a densely populated country like India. However, innovative technologies like energy storage and floating solar are still considered risky by commercial banks making it difficult to mobilize private investments in such projects.

6. As solar-wind hybrid systems are co-located on the same piece of land, it improves the generation profile of the hybrid plant in terms of increased power generated per unit piece of land as compared to standalone RE plants. Further, the complementarity of solar and wind electricity-generation patterns provides an opportunity to improve utilization of the associated evacuation infrastructure while providing greater balance in the energy supply.39 To increase the uptake of hybrid technologies, the GOI recently issued a draft policy on hybrid systems that targets achieving 10 GW of generating capacity by 2022 through hybridization of solar and wind power projects.40 Given the variable nature of RE, energy storage is becoming increasingly important. While RE penetration up to 15–20 percent is relatively easy to integrate into the grid, higher levels may cause challenges. With significant wind and solar capacity addition expected in coming years, the grid will continue to face severe transmission capacity constraints and stability issues. With regard to floating solar PV technology, it can help ease pressure on land resources by placing the power plant on water bodies. At present, India has no utility-scale, floating solar plants. The GOI is also promoting floating solar technology by initiating work on screening of potential sites for establishment of such plants in various states.

7. To scale up the development of innovative and demonstrable solar-energy technologies, the GOI formed the Solar Energy Corporation of India (SECI) in 2011 as one of the key implementing agencies for taking forward implementation of NSM. Recently, SECI’s mandate was broadened to cover the entire gamut of RE sources. As a CPSU dedicated to the RE domain, with the twin objectives of technology and market development, SECI is responsible for finding appropriate technological and market-based solutions to overcome constraints currently faced by the RE sector. Through the proposed project, such innovative technologies will be demonstrated at a scale to showcase the anticipated benefits from such technologies while addressing financing challenges by proving the concept and hence, likely to mobilize future private sector investments. The project part of the US$1 billion engagement sought by the GOI from the World Bank in the renewable energy sector.41, 42

37 The NSM was launched on January 11, 2010, by former Prime Minister Manmohan Singh. 38 On a footprint basis, however, the land acquisition requirements for wind are much lower. 39 A study conducted by the Reiner Lemoine Institute and Solarpraxis AG concluded that combining wind turbines and PV systems results in generating up to twice the amount of electricity across the same surface area, while shading losses caused by wind turbines amount to just 1–2 percent. 40 For details, refer to http://mnre.gov.in/file-manager/UserFiles/Draft-Wind-Solar-Hybrid-Policy.pdf. 41 During their July 2014, January 2015 and June 2016 meetings, Prime Minister Mr. Narendra Modi and President Mr. Jim Yong Kim discussed Bank financing for solar projects in the country 42 In particular, the GOI requests have been received for three other Bank engagements to (i) support the establishment of grid


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India’s CTF Investment Plan 8. The CTF Investment Plan for India was originally endorsed in November 2011, and subsequently revised in August 2015, with a total indicative allocation of US$775 million of CTF resources. The revised Investment Plan aims to support GOI’s ambitious target of 100 GW of solar installed capacity by 2022. The Plan includes the following proposed activities (Table A5.2).

Table A5.2 – Revised CTF Investment Plan of India, Indicative Financing Plan (US$ million)

CTF Project/Program MDB CTF financing

(US$ m)

Himachal Pradesh Environmentally Sustainable Development Policy Loan

World Bank 100

Partial Risk Sharing Facility for Energy Efficiency World Bank 25

Solar Park: Rajasthan ADB 200

Shared Infrastructure for Solar Parks World Bank 50

ADB 50

Transmission for Power Evacuation from Solar Parks World Bank 30

ADB 50

Grid-Connected Rooftop Solar PV World Bank 125

ADB 125

Solar PV Generation by SECI World Bank 20

Total 775

9. The Government of India requests to reallocate CTF resources of US$30 million from the World Bank-led Transmission for Power Evacuation from Solar Parks Project to Innovation in Solar Power and Hybrid Technologies Project, a revised title of Solar PV Generation by Solar Energy Corporation of India (SECI). Solar energy installations in India has been a tremendous success in the meanwhile. In this background, the Government of India wants to demonstrate innovative renewable energy technologies like storage, hybrid and floating solar, in order to understand its implication on grid management, land and infrastructure savings, etc. Under the mandate of GOI, SECI is partnering with the World Bank to pilot these technologies on large scale. However these technologies are expensive than regular solar and therefore are in need of concessional climate finance for demonstration at scale. For this reason, the originally envisaged 500 MW of solar PV with SECI has been conservatively revised to 300 MW but with innovative technologies to promote commercial viability of these technologies going forward. 10. The reallocation of CTF resource does not reduce the expected results of the solar park component of the CTF Investment Plan. Transmission for Power Evacuation from Solar Parks Project was supposed to support evacuation of power from solar parks supported by Shared Infrastructure for Solar Parks Project, therefore emission savings from the Transmission Project were not included in the results framework of the Investment Plan to avoid double-counting (see page 21 of the CTF Investment Plan). Investments

connected rooftop PV (US$648 million); and, (ii) shared infrastructure for Solar Parks (US$200 million, in two phases).


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originally planned under the Transmission Project will be taken over by the Government of India and supported by ADB-implemented CTF co-financed project, therefore evacuation of power would not be an issue after reallocation.

11. The installed capacity and the emission reduction directly attributable to the Project with the SECI will be reduced since the target installed capacity is reduced from 500 MW to 300 MW (based on conservative estimates). The project design has changed to demonstrate innovative renewable energy technologies that are currently not yet commercially viable but essential to enable the scaling-up of renewable energy in a sustainable manner. Given the innovative nature of the Project, it requires a larger amount of CTF resource than the originally proposed solar park project with the SECI but will achieve a higher level of transformation. In the future, this Project would allow and expedite the deployment of hybrid, storage and floating solar at scale, which will eventually contribute to a higher penetration of variable renewable energy in the power system. Project Description 12. The objective of the proposed INNOVATION IN SOLAR POWER AND HYBRID TECHNOLOGIES project is to support the GOI to promote large-scale deployment of innovative technologies in the RE sector, including solar-wind hybrid systems, integrated energy storage for solar and wind, and floating solar PV panels. SECI will be the borrower as well as the implementing agency for the project. Under the project, the World Bank will support the setting up of:

(a) Large-scale solar-wind hybrid power plant(s), potentially with short-term energy storage, with a cumulative capacity of about 230 MW. Such subprojects are expected to improve power generated per unit piece of land while reducing the variability of the generation from standalone RE plants.

(b) Stand-alone plants for solar PV with storage, with a cumulative capacity of 50 MW. Since such technology is not yet commercially viable, the project will demonstrate the benefits expected out of storage solutions and hence a step towards opening up the market for private sector investments.

(c) Large-scale floating solar PV power plants with a cumulative capacity of about 20 MW.

13. SECI is in advanced stages of identifying and securing land for hybrid project. Finalization of the exact land coordinates as well as solar and wind-resource assessments along with technical due diligence of the site is underway. Pre-feasibility studies for solar-wind hybrid plants at a few other potential sites are also underway. Technical assistance will also be provided for capacity building of SECI. 14. The proposed project will mobilize US$400 million, including US$150 million from IBRD, US$50 million from CTF and US$200 million from the SECI and local banks. Additional US$70 million will be mobilized from public sector financing for transmission. The CTF funding would comprise US$28 million to be extended under softer concessional terms and US$22 million43 to be extended in the form of a grant which

43 For determining project costs, it is assumed that 50 MW PV with 1 hour storage (50MWh) will be installed. At an installed cost of battery of US$400 per kWh, a grant of US$20 million will be required to set up the storage part of the energy storage project.


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will support investment in storage and technical assistance. Since such technology is not yet commercially viable, the project will demonstrate the benefits expected out of storage solutions and hence a step towards opening up the market for private sector investments. II. Assessment of the Proposed Project with CTF Investment Criteria Potential for GHG Emission Savings 15. Emission reduction potential of investment. The total emissions reduction potential in Phase I has been estimated at 6 million tons of CO2 equivalent (tCO2e) over the assumed 25-year lifetime of the solar PV power-generation facilities within the supported projects. These estimates are based on the installation of 300 MW of renewable energy power-generation capacity, with a capacity factor of 18.9 percent, displacing an equivalent of 496 gigawatt hour (GWh) per year of thermal-based power in the baseline scenario.44 The emission factors under the baseline scenario have been estimated at 830 kilogram per megawatt hour (kg/MWh),45 which is more conservative than the grid emission factor for India.46 Using this emissions factor, the CO2 savings have been estimated at 0.4 million tCO2e per year or 10.3 million tCO2e for 25 years of lifetime. Savings have been calculated in accordance with the CTF and World Bank guidelines.47 16. Technology development status. While the technologies supported under the project are relatively nascent for India, they are technically proven and well-tested in other countries. The project will also factor in and conform to international experience and good practice in storage, hybrid and floating solar technologies: (a) technical standards and specifications; (b) grid integration of innovative solar technologies; and (c) relevant business models. The project will finance subprojects making use of technically proven and financially viable solutions with the financing package offered under the project. While the Project’s technical qualification criteria could be further fine-tuned, they generally would be in line with international standards and account for local regulatory, technical, and climatic conditions. The project will build upon the experience over the past decade in large scale installation of wind and solar power, driven by government policy and rapidly declining costs, propelling the solar industry into the mainstream of energy policy. From 2009, the NSM and state policies—especially in the states of Gujarat, Karnataka, Rajasthan, and Tamil Nadu—helped bring down the cost of generation. With the most recent bid (US 4.4 cents or INR2.97 per kWh),48 through reverse auction for Rewa solar park in Madhya Pradesh under the NSM, solar costs have fallen over 70 percent from 2010 levels. Since India lies in the high solar insolation region, declining cost trends in solar PV, along with innovations in energy storage technology, solar wind hybrid and floating solar, offer exciting opportunities for India to address its challenges in the energy sector. 17. The key risks in the project is technical design of the project as the project promotes innovative technologies with modest cumulative installation capacity, the construction and operation of first-of-its-kind utility-scale project could pose a challenge. This risk will be mitigated by appropriate development of

44 The baseline scenario assumes that imported coal is used for thermal-based power generation. 45 830 kg per MWh for coal generation from supercritical plants. 46 980 kg per MWh from CO2 Baseline Database for the Indian Power Sector, Central Electricity Authority. 47 See World Bank, Guidance Manual: Greenhouse Gas Accounting for Energy Investment Operations, 2015. 48 http://www.bridgetoindia.com/750-mw-rewa-solar-project-break-new-ground/


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technical specifications, selection of most suitable procurement method and qualification criteria, following feedback from the market, and warranty requirements. Cost-effectiveness 18. The cost effectiveness is US$4.85 per tCO2e for CTF funding and US$45.6 per tCO2e considering total project funding. In the scaled-up phase, the cost effectiveness will improve to US$0.15 per tCO2e for CTF funding and US$29.5 per tCO2e when considering total funding. 19. Marginal Abatement Cost. In October 2013, the CTF Trust Fund Committee suggested providing information on the estimated marginal abatement cost (MAC) for projects for which it is likely to exceed US$100 per tCO2e. This decision draws from the CTF criteria, which specify that CTF co-financing will not be available for investments in which the marginal cost of reducing a ton of CO2e exceeds US$200, which reflects the lower-end estimate of the incentive needed to achieve the objectives of the BLUE Map Scenario.49 20. The MAC of the proposed project based on the economic analysis of the 150 MW hybrid project is 9.7 US$/tCO2eq. These calculations confirm that the MAC will not exceed the aforementioned US$100 threshold value per ton of CO2eq. The project will help avoid local and environmental damage costs equal to US$85.5 million compared to the thermal counterfactual. (see Economic and Financial Analysis in the PAD for more details) 21. The MAC is computed as the project’s NPV divided by lifetime CO2e (LCO2) avoided emissions, expressed as follows:

2LCO

NPVMAC ,

Where, NPV stands for Net Present Value and LCO2 stands for lifetime CO2e emissions. Demonstration Potential at Scale 22. Scope of avoided GHG emissions through replication. India’s proposed national Wind-Solar Hybrid Policy targets to install 10 GW by 2022. The proposed project will directly contribute toward the target, thus contributing to significant emissions reduction. It is expected that CTF and IBRD support for the selected innovative technologies will create market confidence that will catalyze further support from other investor groups to help the GOI achieve its targets. The expected emissions reduction from achieving the scaled-up phase is estimated at 13.7 million tCO2e per year or 343.5 million tons over the assumed 25-year lifetime of the technologies.

23. Transformation potential. The proposed project has a high transformational potential as it will contribute to the accelerated development of large-scale innovative technologies and the rapid increase in the share of RE in India’s power sector. The key value additions that CTF support is expected to facilitate

49 As indicated in the International Energy Agency (IEA), Energy Technology Perspectives 2008 Report.


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are: (a) provision of international best practices in solar-wind hybrid, floating PV, and electricity storage technologies; (b) provision of international best practices to enhance the core competencies of SECI across functions such as human resource, project management and monitoring, procurement and contract management, O&M, FM, and implementation of enterprise wide IT systems; (c) mobilization of concessional climate finance from the CTF to lower the cost of generation from nascent technologies supported through this project; and (d) facilitation of learning through collection of data on technical and economic performance of solar-wind hybrid, floating PV, and electricity storage technologies . Development Impact 24. Support to Bridge the Energy Supply Gap and Contribute to the Universal Access Agenda. Power shortages in FY2015 were equivalent to about 3.6 percent of total energy and 4.7 percent of peak-capacity requirements. As previously mentioned, an estimated 250 million people are still not connected to the national electrical grid, and those that are connected face frequent power disruptions. Meeting the growing energy demand of a rapidly growing economy while reducing air pollutants and carbon emissions through solar energy is a top priority for the GOI, particularly given the high costs of the country’s unserved electricity demand and growing energy imports. The development of solar energy will have significant benefits in terms of the reliability and security of electricity supply to consumers. The project is also likely to contribute indirectly to the significant expansion of electricity access as a result of the increased availability of electricity in all project states, where project-supported investments are expected to lead to increased hours of supply to existing customers and greater availability of supply, which may enable the utilities to connect and serve new customers. 25. Increased opportunities of local employment. The development of large-scale innovative technologies will attract significant investments from project developers/generators which will generate employment opportunities for the local population. Local contractors, engaged through ICB, will carry out supply, installation, and erection works. 26. Environmental Co-benefits. Currently, India relies on coal to meet two-thirds of its electricity requirements and is the world’s third-largest carbon emitter. Private investment in diesel-based backup power supplies is widespread. The energy sector also causes local environmental problems. The project’s environmental co-benefits would be substantial. The emissions of local air pollutants, including NOx, SOx and PM10, will be significantly reduced by displacing imported coal for power generation with an increased supply of electricity from the project and its scale up. 27. Gender Co-benefit. The project is expected to bring positive gender co-benefits by incorporating gender impacts into this intervention. Most of the women’s status indicators, including those pertaining to health, literacy, and labor force participation, show that gender equity and women’s empowerment remain serious issues in the affected areas of the proposed projects. As part of the ESMF, a GDF and a Gender Action Plan will be designed to help analyze gender issues in the project-affected areas and design interventions to address women’s needs. Gender analysis will be part of the SIA. Implementation Potential


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28. The project is aligned with GOI’s NAPCC, which was issued in 2008 to enhance India’s ecological sustainability and encourage sustainable energy sources. It is also consistent with the NSM, launched in 2010 as part of the NAPCC to promote India’s development of solar power. The GOI has significantly scaled up NSM’s 20 GW solar power target to 100 GW by 2022. The GOI has reiterated the commitment as part of its NDC to achieve about 40 percent cumulative installed-power capacity from non-fossil-fuel energy resources by 2030. 29. There is strong project ownership at the highest levels of government, including MNRE and SECI responsible for project implementation. This commitment has been demonstrated through these stakeholders’ intensive engagement and involvement throughout the project preparation. As previously mentioned, the GOI and state governments are pushing through a number of policy and regulatory reforms, implementation mechanisms, and incentives to ensure that innovative technologies under the project can be implemented on a large scale mobilizing private sector finance. 30. Leverage. The total project investment are to be funded through the CTF (US$50 million), IBRD (US$150 million), SECI and commercial banks (US$200 million), and public participation in transmission lines (US$70 million). The CTF leverage ratio will be 1 to 8. The CTF leverage ratio will increase to 1 to 200, when considering the Scaled-Up Phase by 2022. The leverage effect is expected very high, as this proposed project will effectively mobilize large amounts of investment in innovative technologies by promoting cost reduction and improving commercial viability of these technologies through demonstrations at scale. CTF Additionality 31. The use of CTF concessional financing under the project is essential to demonstrate innovative technologies that are not yet commercially viable. Given the high cost of technologies and the risk arising from lack of experience in deploying these technologies at scale in the context of India, private sector investors would not be willing to invest in these innovative technologies. By using concessional financing for the investment, the GOI will be able to demonstrate and scale up solar-wind hybrid, floating PV and electricity storage technologies with a reduced cost of capital, which will be translated into cost reduction of the technologies, enhanced understanding of their performance, and thus private sector investment to be promoted for future projects through large-scale demonstrations. 32. The economic rate of return of the solar wind hybrid project, which is analyzed in the PAD, is calculated at 4 percent, which is lower than the hurdle rate of 12 percent. This estimate is based on the baseline scenario before taking into account environmental externalities and can be affected by a range of risk factors. The use of CTF concessional financing to enable the establishment of innovative technologies project is hence essential for fully capturing the local and global environmental benefits associated with this project, which will increase the economic rate of return to 18.3 percent and make the project economically viable.

33. CTF grant funding is particularly essential for storage solutions. While energy storage prices are falling faster than the industry anticipated a few years ago, the premium relative to the base solar PV levelized cost of energy (LCOE) is still significant. It is estimated that for the system of solar PV and storage anticipated under the Project, the cost of storage would be about 50% of the cost of solar PV, which will considerably increase the cost of generation and undermine financial viability of the power plant unless


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the cost of storage is covered by grant. Furthermore, the policy and regulatory framework for grid storage is still under development in India. Without it, the economic value of storage solutions cannot be fully monetized, and storage projects are harder to amortize. For example, the planned storage asset in the project could deliver several stacked value streams, including solar PV ramp support, frequency regulation and peak forming, with several revenue streams – however, without the necessary regulation, some of these revenue streams may not materialize. The project will deliver practical operational experience which will inform further development of storage regulation to be supported by the technical assistance component. Implementation Readiness 34. Among all of the proposed subprojects, the hybrid project is in the most advanced stage of readiness. The first site of estimated capacity of about 150 MW has been identified near Ramgiri district in the state of Andhra Pradesh. Finalization of the exact land coordinates as well as solar and wind-resource assessments along with technical due diligence of the site is underway. Prefeasibility studies for solar-wind hybrid plants at a few other potential sites are also underway.

Project Appraisal Document (PAD) - Climate Investment Funds

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