World Bank Documentdocuments.worldbank.org/curated/en/523301554170679058/... · 2019-04-24 · document of the world bank for official use only report no: pad2067 international ank

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$21.81 MILLION

TO THE

SOLAR ENERGY CORPORATION OF INDIA LIMITED

FOR AN

INNOVATION IN SOLAR POWER AND HYBRID TECHNOLOGIES PROJECT

March 7, 2019

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.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective October 31, 2018)

Currency Unit = Indian Rupee (INR) INR 74.1 = US$1

FISCAL YEAR

April 1 - March 31

Regional Vice President: Hartwig Schafer

Country Director: Junaid Kamal Ahmad

Senior Global Practice Director: Riccardo Puliti

Practice Manager: Demetrios Papathanasiou

Task Team Leader(s): Surbhi Goyal, Gailius J. Draugelis

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank AFS Annual Financial Statement BESS Battery Energy Storage Solution BMS Billing Management System BP Bank Procedure CA Chartered Accountant CAG Comptroller and Auditor General CEA Central Electricity Authority CERC Central Electricity Regulatory Commission CO2/CO2 Carbon Dioxide CPF Country Partnership Framework CPSU Central Public Sector Undertaking CQS Selection Based on the Consultants’ Qualifications CSR Corporate Social Responsibility CTF Clean Technology Fund CTU Central Transmission Utility CUF Capacity Utilization Factor DA Designated Account Discom Distribution Company DPE Department of Public Enterprises DPR Detailed Project Report DSI Design, Supply and Install EPC Engineering, Procurement, and Construction ERP Enterprise Resource Planning ERR Economic Rate of Return ESIA Environment and Social Impact Assessment ESMF Environment and Social Management Framework ESMP Environment and Social Management Plan ESO Environment and Social Officer FM Financial Management FSPV Floating Solar Photovoltaic GDF Gender Development Framework GHG Greenhouse Gas GoI Government of India GRM Grievance Redress Mechanism GW Gigawatt HR Human Resources HVDC High voltage direct current ICAI Institute of Chartered Accountants of India ICB International Competitive Bidding IEA International Energy Agency IFC International Finance Corporation Ind-AS Indian Accounting Standards IPDP Indigenous Peoples Development Plan IPF Investment Project Financing ISHTP Innovation in Solar Power and Hybrid Technologies Project

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 LCOE Levelized Cost of Energy M&E Monitoring and Evaluation MAC Marginal Abatement Cost MDB Multilateral Development Bank MNRE Ministry of New and Renewable Energy MW Megawatt MWh Megawatt-hour NAPCC National Action Plan for Climate Change NDC Nationally Determined Contribution NGO Nongovernmental Organization NITI Aayog National Institution for Transforming India Aayog NPV Net Present Value NSM National Solar Mission NTPC National Thermal Power Corporation NVVNL National Thermal Power Corporation Vidyut Vyapar Nigam Limited OE Owner’s Engineer OM Operations Manual O&M Operations and Maintenance OP Operational Policy PACE-D Partnership to Advance Clean Energy - Deployment PAP Project-Affected People PMC Project Management Consultancy POWERGRID Power Grid Corporation of India Limited PPA Power Purchase Agreement PPSD Project Procurement Strategy for Development PSA Power Sale Agreement PV Photovoltaic QPR Quarterly Progress Report RAP Resettlement Action Plan RBI Reserve Bank of India RE Renewable Energy REOI Request for Expression of Interest RPF Resettlement Policy Framework RPO Renewable Purchase Obligation R&R Rehabilitation and Resettlement RTI Right to Information SECI Solar Energy Corporation of India Limited SHG Self Help Group STEP Systematic Tracking of Exchanges in Procurement TCIL Telecommunications Consultants India Limited ToR Terms of Reference

TPA Tripartite Agreement TWh Terrawatt-hour UDAY Ujjawal Discom Assurance Yojana USAID United States Agency for International Development US$ United States Dollar VGF Viability Gap Funding WBG World Bank Group WSH Wind-Solar Hybrid WTG Wind Turbine Generator

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Innovation in Solar Power and Hybrid Technologies (P160379)

I

BASIC INFORMATION BASIC_INFO_TABLE

Country(ies) Project Name

India Innovation in Solar Power and Hybrid Technologies

Project ID Financing Instrument Environmental Assessment Category

P160379 Investment Project Financing

B-Partial Assessment

Financing & Implementation Modalities

[ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC)

[ ] Series of Projects (SOP) [ ] Fragile State(s)

[ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s)

[ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country

[ ] Project-Based Guarantee [ ] Conflict

[ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster

[ ] Alternate Procurement Arrangements (APA)

Expected Approval Date Expected Closing Date

29-Mar-2019 31-Dec-2024

Bank/IFC Collaboration

No

Proposed Development Objective(s)

The Project Development Objectives (PDO) are to demonstrate the operational and economic feasibility of utility-scale innovative renewable energy technologies and battery energy storage solutions, and to strengthen institutional capacity to facilitate scale-up of such technologies on a commercial basis in India.

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Components Component Name Cost (US$, millions)

Component A: Investments in Innovative RE Technologies & BESS (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, Capacity Building, Implementation Support, Monitoring and Dissemination (Estimated Cost: US$1.81 million of which CTF Grant: US$1.81 million)

1.81

Organizations

Borrower: Solar Energy Corporation of India Limited

Implementing Agency: Solar Energy Corporation of India Limited

PROJECT FINANCING DATA (US$, Millions)

SUMMARY-NewFin1

Total Project Cost 399.81

Total Financing 399.81

of which IBRD/IDA 150.00

Financing Gap 0.00

DETAILS-NewFinEnh1

World Bank Group Financing

International Bank for Reconstruction and Development (IBRD) 150.00

Non-World Bank Group Financing

Counterpart Funding 200.00

Borrower/Recipient 200.00

Trust Funds 49.81

Clean Technology Fund 49.81

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Expected Disbursements (in US$, Millions)

WB Fiscal Year 2019 2020 2021 2022 2023 2024 2025

Annual 0.00 25.00 30.00 50.00 40.00 35.00 19.81

Cumulative 0.00 25.00 55.00 105.00 145.00 180.00 199.81

INSTITUTIONAL DATA

Practice Area (Lead) Contributing Practice Areas

Energy & Extractives

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

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 ⚫ Substantial

4. Technical Design of Project or Program ⚫ Moderate

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5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial

6. Fiduciary ⚫ Substantial

7. Environment and Social ⚫ Substantial

8. Stakeholders ⚫ Moderate

9. Other

10. Overall ⚫ Substantial

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 ✔

Performance Standards for Private Sector Activities OP/BP 4.03 ✔

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 ✔

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Legal Covenants Sections and Description Section I.A.1 of Schedule 2 to the Loan Agreement

SECI to: (a) maintain Project oversight though its Board of Directors; (b) ensure that all subprojects are carried

out/managed by qualified project teams acceptable to the Bank.

Sections and Description Section I.A.2(a) of Schedule 2 to the Loan Agreement

SECI to select and hire, within a month of effectiveness, and maintain until at least one year of commencement of

commercial operation of the Ramagiri Subproject, the service of a consulting firm to perform the functions of the

owner’s engineer.

Sections and Description Section I.A.2(b) of Schedule 2 to the Loan Agreement

SECI to maintain throughout implementation of the Project the services of environmental and social officers with

qualifications, experience and terms of reference satisfactory to the Bank.

Sections and Description Section I.B of Schedule 2 to the Loan Agreement

SECI to prepare, adopt and thereafter implement the Project in accordance with the Operations Manual

satisfactory to the Bank.

Sections and Description Section I.C. Schedule 2 to the Loan Agreement

SECI to select and appraise any proposed subproject under Component A of the Project in accordance with the

Operations Manual and the Safeguard Documents and submit the subproject(s)’ detailed report to the Bank for its

no-objection, as a condition precedent to the financing of such subproject(s).

Sections and Description Section I.D of Schedule 2 ot the Loan Agreement

SECI to prepare within six months of effectiveness, and thereafter implement, a corporate business plan

satisfactory to the Bank.

Sections and Description

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Section I.E.1 of Schedule 2 to the Loan Agreement

SECI to carry out the the Project in accordance with the ESMF, and the ESMPs, RAPs (including GAPs) and IPDPs

prepared or to be prepared pursuant to the ESMF.

Sections and Description Section I.E.2 of the Schedule to the Loan Agreement

Prior to commencing any civil works for any subproject, or part thereof, and/or disbursing any funds thereunder,

SECI to ensure that: (a) the proposed subproject has been screened in accordance with the guidelines, standards

and procedures of the ESMF, and any linked-activities associated to it have been screened in accordance with the

Banks’s safeguard policies; (b) the respective ESMP(s), RAP(s) (including GAP(s)) and/or IPDS(s) required for such

subproject or linked activities as per the ESMF or the Bank’s safeguard policies, as applicable, have been prepared

and submitted to the Bank for review, and the Bank has notified SECI in writing its no-objection to them; and (c) the

safeguard documents prepared for such subproject and linked activities have been disclosed, in local language(s), at

least 30 days prior to commencement of the respective civil works.

Sections and Description Section I.E.3 of Schedule 2 to the Loan Agreement

SECI to ensure that, prior commencing any civil works on a subproject, or the commencing of any civil works by any

agency in respect of “linked activities”: (i) all relevant government permits/clearances have been obtained, and/or

any conditions imposed have been fulfilled/met; (ii) all preconstruction conditions imposed by government

authorities have been complied with/fulfilled; and (iii) all resettlement measures for the respective subprojects or

linked activities have been properly executed, including full payment of any resettlement compensation or

provision of relocation assistance to displaced persons as per the applicable ESMF and/or RAP entitlements.


For any contract for civil works under the Project, SECI to ensure compliance with the safeguard documents as part

of the contractors’ obligations pursuant to the provision of the respective contract documents.

Sections and Description Section I.F of Schedule 2 to the Loan Agreement

In the event that any civil works for “linked activities” associated to a subproject had commence prior to the

identification and selection of such subproject, the eligibility of such subproject for financing shall be contingent to:

(a) the responsible agency for such “linked activity” having carried out an environmental and social screening of

such activity in accordance with the Bank’s safeguard policies and submitted the report with any safeguard

documents to the Bank; (b) satisfactory evidence or a written commitment by the responsible agency for those

“linked activities” ensuring that it will implement those activities as per the Bank’s safeguard policies and the

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approved safeguard documents; (c) the Bank reviewing the above and granting its no-objection; (d) the disclosure

of the due diligence report and applicable safeguard documents by the responsible agency; and (e) the full

execution of the resettlement measures by the responsible agency for such “linked activities” or part thereof,

including the full payment of compensation and/or provision of relocation assistance to displaced persons.


SECI to: (i) maintain throughout implementation monitoring and evaluation protocols and record keeping

procedures to supervise and assess the implementation of, and compliance with, the Safeguard Documents; and (ii)

prepare and furnish to the Bank by no later than 30 months after effectiveness (mid-term) and 6 months prior to

the closing date (Project-end), comprehensive safeguard implementation reports on general compliance with the

safeguard documents and the social and environmental impact of Project activities, prepared by independent

consultants with qualification and experience and under terms of reference satisfactory to the Bank.

Sections and Description Section I.G of Schedule 2 to the Loan Agreement

SECI to maintain and operate throughout implementation a multi-layered integrated grievance redress mechanism

for the handling of stakeholders’ complaint, including a central grievance redress cell at SECI’s headquarters and

subproject-level grievance redress offices at the respective subproject sites to be set up prior to commencement of

the corresponding sub-project civil works.

Sections and Description Section III.C of Schedule 2 to the Loan Agreement

SECI to pay out of its own counterpart resources the cost of: (a) any land acquisition required for the Project; (b)

any compensation, resettlement and rehabilitation payment to displaced persons; (c) any compensatory

afforestation payments; (d) any interest during construction; (e) any retention money deducted from contract

payment and not released by the closing date; and (f) any expenditures objected or considered ineligible by the

auditors.

Conditions

Type Description Effectiveness All legal agreements to become effected jointly, upon the execution and delivery and

fulfillment of all conditions precedent to the effectiveness of, or the right of SECI to make withdrawal applications under, all legal agreements (i.e. CTF Loan, CTF Grant, IBRD Loan, IBRD Guarantee, and CTF Guarantee).

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Type Description Disbursement SECI to prepare and adopt the Operations Manual for the Project prior to withdrawing funds

from Categories (1), (2) and (3) (i.e. all components under the project).

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TABLE OF CONTENTS

DATASHEET ……………………………………………………………………………………………………………………………………………….. I

I. STRATEGIC CONTEXT ...................................................................................................... 1

A. Country Context ................................................................................................................. 1

B. Sectoral and Institutional Context ..................................................................................... 2

II. PROJECT DESCRIPTION .................................................................................................... 5

A. Project Development Objective ......................................................................................... 5

B. Project Components ........................................................................................................... 6

C. Project Beneficiaries ........................................................................................................... 8

D. Results Chain ...................................................................................................................... 9

E. Rationale for Bank Involvement and Role of Partners ...................................................... 9

F. Lessons Learned and Reflected in the Project Design ..................................................... 10

III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 11

A. Institutional and Implementation Arrangements ........................................................... 11

B. Results Monitoring and Evaluation (M&E) Arrangements ............................................. 12

C. Sustainability .................................................................................................................... 12

IV. PROJECT APPRAISAL SUMMARY ................................................................................... 12

A. Technical, Economic and Financial Analysis .................................................................... 12

B. Fiduciary ............................................................................................................................ 16

C. Safeguards ......................................................................................................................... 18

V. KEY RISKS ..................................................................................................................... 22

VI. RESULTS FRAMEWORK AND MONITORING ................................................................... 23

ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN ................................... 32

ANNEX 2: ECONOMIC AND FINANCIAL ANALYSIS ................................................................. 48

ANNEX 3. CLEAN TECHNOLOGY FUND .................................................................................. 62

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I. STRATEGIC CONTEXT

A. Country Context

1. India continues to be the world’s fastest growing major economy. After growing at 7.2 percent in FY2018, the economy expanded by 7.7 percent in the first half of the current fiscal year. This robust performance was underpinned by a revival in industrial activity, strong private consumption complemented by rising investment, and a rise in exports of goods and services. Meanwhile, the external headwinds that characterized the first half of the year have subsided. The dramatic decline in oil prices, since October 2018, has allowed the current account deficit to return to relatively benign levels. Likewise, the large portfolio capital outflows that materialized from April 2018 onwards (against the background of current account imbalances and heightened perceptions of emerging markets risk) have eased and capital inflows have resumed (resulting in a stabilization of the exchange rate and bond yields). With the normalization of external circumstances, foreign reserves have remained at around US$396 billion, which represents a comfortable level (equivalent to about 9 months of imports). Going forward, growth is projected to reach 7.3 percent for the full current fiscal year and to firm-up thereafter, at around 7.5 percent, primarily on account of robust private consumption, a rise in exports of goods and services, and a gradual increase in investments. However, the current account deficit is projected to remain elevated in FY2019.

2. India’s rapid economic development requires a power system that can continue to meet demand for better quality and cleaner electricity services for a growing population. It is among the top five fastest growing global economies and home to over one-sixth of the world’s population. Over the past decade, India’s economic performance drove average annual growth of peak power demand and energy demand to 5.1 percent and 5.5 percent, respectively.1 Already the third largest electricity consumer in the world, India’s electricity demand has significant headroom as its per capita electricity consumption is only one-third of the global average.

3. The Government of India (GoI) considers India’s low per capita electricity consumption a constraint on meeting its inclusive economic development objectives, including providing universal electricity access. Therefore, the supply and reliability of electricity services are a national priority. With major efforts, significant gains have already been made in expanding electricity access to over 80 percent of the population in 2016 from 56 percent in 2001.2 The GoI has an ambitious goal of providing uninterrupted power for all homes, industrial and commercial establishments, etc., through its 24x7 Power for All Program, targeting universal access to electricity by 2022.3

4. While India’s energy policy is based on energy security and self-sufficiency, the path India’s power sector will take has both local and global impacts given its scale and fuel mix. An ambitious power generation capacity expansion effort is underway to increase installed capacity to over 1,200 gigawatts (GW) by 2040 from 334 GW in 2018.4 Under GoI’s draft National Energy Policy, coal power capacity in a

1 Calculated for 2007-2017. Central Electricity Authority (CEA) (May 2017). “Growth of Electricity Sector in India from 1947-2017”. 2 IEA. 2016. “World Energy Outlook.” 3 National Institution for Transforming India (NITI) Aayog (27 June 2017). “Draft National Energy Policy”. 4 Source: Table 9, Draft National Energy Policy, Niti Aayog. Two scenarios presented are business-as-usual: 1204 GW total,

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business-as-usual scenario would grow from 194 GW in 20185 to 441 GW by 2040, unless clean energy initiatives are effective in bringing a supply alternative at scale and at lower cost. International Energy Agency (IEA) estimates suggest India would contribute more than any other country to the projected rise in global energy demand while its CO2 emissions are expected to triple between 2015-2040 (IEA, 2015).

5. Investments in clean power generation, energy efficiency, and electricity networks are critical to address local needs and India’s global commitments (Nationally Determined Contribution [NDC]). India’s NDC aims to increase to 40 percent the share of installed electric power capacity from non-fossil-fuel-based energy resources by 2030. This includes plans to more than quadruple the country’s (non-hydropower) renewable energy (RE) capacity to 175 GW by 2022. The target requires up to US$220 billion in investments in generation, as well as substantial complementary investments in strengthening the electricity network.

B. Sectoral and Institutional Context

6. The GoI has demonstrated its commitment to significantly increasing the share of RE in the country’s electricity generation mix. Over the past decade, utility-scale solar photovoltaic (PV) and wind power generation projects have successfully crowded in commercial investments from privately and publicly owned investors. India’s installed capacity of non-hydro renewables increased more than five-fold in a decade, from 11 GW in 2008 to 69 GW in 2018 (excluding about 45 GW in large hydropower capacity).6 In 2015, the GoI signaled confidence in RE by raising its national installed generation capacity targets to 175 GW by 2022, including targets for wind (60 GW), solar power (100 GW), biomass power (10 GW), and small hydropower (5 GW).

7. With a large resource potential, an increasingly supportive enabling policy environment, and favorable market trends, solar PV and wind power are expected to lead future large scale non-hydro RE capacity additions in India. By April 2018, wind (34 GW) and solar power (21.6 GW) comprise nearly 80 percent of total installed RE generation capacity.7 Competition through well designed auctions, declining component costs, enforcement of renewable purchase obligations (RPO), introduction of payment security mechanisms covering off-taker risk and other policy support have driven record prices of utility -scale solar PV and wind. For instance, the World Bank Group-supported 750 megawatts (MW) Rewa Solar Park Project in Madhya Pradesh delivered a record-making levelized cost of energy (LCOE) of INR 3.3/kilowatt-hour (kWh) (or US$0.05 /kWh) through a reverse auction.

8. As the share of renewables increases, India’s wind and solar power sectors are expected to face new constraints. First, the significantly higher share of variable RE will increase grid management challenges, requiring more ancillary services, back up supply, load shifting capabilities and improved RE generation system performance. Second, curtailments that lead to under-utilized evacuation infrastructure will rise if poor forecasting practices, disincentives to optimize designs, under-developed

Ambitious: 1260 GW total. 5 CEA (31 January 2018). “All India Installed Capacity (in MW) of Power Stations”. 6 Executive Summary of Power Sector, April 2008 to March 2018, CEA 7 Executive Summary of Power Sector, March 2018, CEA

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ramping arrangements, removal of transmission bottlenecks and other related challenges are not dealt with. Third, critically, suitable land for viable projects may become scarce. Land acquisition requirements for stand-alone solar (about 5 acres per MW) and wind (about 8-10 acres per MW) suggest vast land needs to meet RE targets.8 Expansion opportunities are limited as contiguous and accessible sites with the ‘best’ RE resources are being taken up. Wind potential is also highly concentrated in India, with seven states (Andhra Pradesh [AP], Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, and Tamil Nadu) comprising 97 percent of India’s wind power potential and virtually all operating wind capacity9. Fourth, climate change-related risks are likely to affect inter-annual and seasonal trends in RE resource availability, adding to state and regional dispatch coordination challenges. Fifth, while the GoI is working to resolve financial conditions of distribution utilities in the medium term, off-taker risk makes investors and financiers rely on precedents and take conservative positions when viewing new business models that may be necessary to introduce innovative solutions to emerging challenges.

9. The GoI is exploring innovations, such as wind-solar hybrid (WSH) parks, floating solar PV (FSPV) and combining these with battery energy storage solutions (BESS), to address emerging challenges. As WSH systems are configured to operate at one point of interconnection, and can have complementary generation patterns (diurnal and seasonal), they can improve the generation profile per unit of land and optimize use of associated evacuation infrastructure as compared to stand-alone RE plants.10 Noting that there are large areas of India where both resources have potential, the GoI recently issued a policy that opens the door to investing in WSH systems with a BESS option.11 Under the policy, the fiscal and financial incentives granted to stand-alone wind and solar PV are being extended to WSH. With regard to FSPV, it can help to ease pressure on land resources by placing the RE 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 FSPV generation capacity.12 Additional advantages of the technology include optimizing utilization of existing power evacuation infrastructure, improved efficiencies of PV panels due to a surface water cooling effect, lowering PV panel cleaning requirements, and potentially reducing evaporation. All considered, FSPV is not expected to differ significantly in terms of LCOE from ground-mounted fixed-tilt solar PV.13 Despite all these benefits, there is no large scale WSH in operation and the uptake of FSPV in India has been modest, with operating installations ranging between 10 kilowatts (kW) and 500 kW.

10. BESS can provide a range of transformative benefits to the power system, some coupled to RE generation while others supporting network functions. Lack of a track record in the Indian power system, high costs and an under-developed enabling environment limit the deployment of BESS. BESS is viewed increasingly by the GoI and the governments across South Asia as an enabling technology for a range of constraints faced by their power systems specifically due to the increase in deployment of variable RE. Due to its scalability in energy storage and output, grid-scale BESS can enable firmer output of variable

8 On a footprint basis, however, the land acquisition requirements for wind are much lower. Nevertheless, the estimate factors in safety zones, access roads and ancillary facilities required for a wind power plant. 9 Central Statistics Office (2018) “Energy Statistics”. Estimates of wind potential and capacity as of March 31, 2017. 10 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. 11 National Wind-Solar Hybrid Policy (May 14, 2018). Ministry of New and Renewable Energy. 12 According to a preliminary assessment of Renewable Energy College, Kolkata. 13 World Bank Group, ESMAP and SERIS 2018. Where Sun Meets Water: Floating Solar Market Report – Executive Summary. Washington, DC: World Bank.

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RE. BESS can contribute towards smoothening the load curve and shifting the peak, potentially replacing some investments in relatively expensive peak generation. BESS can also substitute or defer the transmission requirements and enhance resilience of the grid. Interest in BESS has converged with other planned transformations of India’s energy and transport sectors, including deployment of distributed renewables, smart meters and electric vehicles. While these capabilities are attractive to the Indian power system, its ecosystem does not support revenue streams to defray (still high but falling) BESS costs largely because there is no consensus among stakeholders regarding how to facilitate a BESS market to capitalize on its economic potential. Early attempts at auctions have been disappointing as a result.

11. The GoI has appointed the Solar Energy Corporation of India Limited (SECI) to implement a wide range of support schemes to help achieve its ambitious RE targets, including the development of innovative clean energy solutions such as WSH, FSPV and BESS. SECI is the only Central Public Sector Undertaking (CPSU) with a primary mandate from the GoI to undertake its own investment and facilitate commercial participation in RE market development. As higher RE targets are set and the market encounters new barriers, demands on SECI to promote and quickly bring innovative solutions to the market are increasing. The GoI is using this Project to support SECI’s institutional capacity as a market facilitator of accelerated and innovative RE deployment. SECI will leverage World Bank Group (WBG) and Clean Technology Fund (CTF) resources for commercial test beds to bring wind and solar expertise together for the first time – to work through technical and commercial design issues in WSH and FSPV investments and integrate demonstration of currently non-commercial BESS solutions. The demonstration of these subprojects will help to build up track records of performance that will be disseminated to investors, financiers and policy makers. SECI will also use this knowledge to improve the structuring of its auctions and enhance the likelihood of their success for WSH and FSPV systems. The Bank and International Finance Corporation’s (IFC) advisory group are coordinating support to SECI to enhance learnings from such subprojects, support SECI’s market facilitation role and improve its auction platform.

C. Relevance to Higher Level Objectives

12. The Project is consistent with the WBG Country Partnership Framework (CPF) FY2018-2022 discussed at the Board on September 20, 2018 (Report No. 126667-IN), particularly the focus on promoting resource-efficient growth through access to sustainable energy and facilitating the market for next generation RE technologies.

13. The Innovation in Solar Power and Hybrid Technologies Project (ISHTP) aims to accelerate removal of binding constraints to crowding in private sector participation and commercial investment, thereby maximizing finance for development (MFD). The GoI has invited the WBG to support demonstration of innovative RE and BESS by SECI. The lack of experience in deploying several of these technologies in India, and globally, at scale is a barrier to market uptake that the GoI would like SECI, with the support of this Project, to help address. Several market sounding exercises during this Project’s preparation confirmed a great amount of general private sector interest but investors in India signaled these solutions are not yet commercially viable because they perceive a range of regulatory and performance uncertainties for this new suite of innovations. This includes a lack of sufficient revenue streams, regulatory uncertainty from underdeveloped and relatively new policies, a lack of experience in designing, constructing, operating and managing multiple renewable technologies and battery systems as one power plant, limited global experience, conservative views of financiers on innovations, and still

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attractive returns with familiar standalone wind and solar projects. Stakeholders at market sounding exercises welcomed SECI’s initiative to undertake a few demonstration projects to build market confidence. The value addition expected from WBG support is to enable (a) provision of international best practices in WSH, FSPV, and BESS; (b) expanding access to international market players to reduce risk perception while increasing competition; (c) learning and market development through collection of data on technical and economic performance; and, (d) favorable financing terms to lower transaction costs of innovative project development. Currently, given the stage of development of these innovations in India and SECI being the market facilitator, alternatives to investment support to SECI would be unable to address the market information barriers as efficiently.

14. SECI is the key GoI platform for RE market development and the project strengthens its market facilitation capabilities. As a public sector institution, SECI is in a unique position to quickly generate and share with the ecosystem – comprising of regulators, policy makers, financiers and the private sector – the knowledge and lessons learned from India’s first investments in such commercially marginal technologies. As illustrated in the Results Chain, SECI would leverage this project to increase RE capacity, accelerate strengthening the ecosystem, and build market confidence in the viability of WSH, FSPV and BESS solutions sufficiently to reduce barriers to greater private sector participation. The project will also build on the World Bank’s ongoing work in power system planning and improved power market design for higher integration of RE in the country with the system operator, and on another analytical exercise with an objective to assess viability of suitable business models for deployment of BESS in transmission and distribution systems in India.

15. With an integrated World Bank Group (WBG) team, the WBG is well positioned to remove barriers through this Project as a first step toward expanding options for more private sector participation in the deployment of WSH, FSPV and BESS. The Project is introducing best practices in these initial demonstration subprojects and strengthening SECI’s capacity to monitor and disseminate results. Working together with SECI on addressing these barriers will build an institutional memory that will also help the WBG team to prepare additional support that is customized to local market conditions. The team is also coordinating with IFC’s advisory services, which is discussing a potential mandate for transaction advisory support in solar with SECI. This package of services is expected to be leveraged to provide support aimed at ultimately scaling up proven solutions.

16. The Project has been assessed for climate co-benefits according to the Joint Multilateral Development Bank (MDB) Methodology for Tracking Climate Finance. The total climate co-benefits in the project amounts to the full IBRD financing amount of US$150 million (100 percent).

II. PROJECT DESCRIPTION

A. Project Development Objective

17. The Project Development Objectives (PDO) are to demonstrate the operational and economic feasibility of utility-scale innovative renewable energy technologies and battery energy storage solutions, and to strengthen institutional capacity to facilitate scale-up of such technologies on a commercial basis in India. The following indicators will be used to track progress in achieving the PDO. The specifics regarding the key performance and intermediate results indicators are detailed in Section VI.

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(a) Generation capacity of RE constructed (in megawatt [MW]) (b) RE Generated (in megawatt hours [MWh]) (c) GHG emissions avoided (tons/year) (d) Each solution (hybrid, FSPV and BESS) demonstrated at least once through subprojects (e) Regulations, codes or standards for BESS issued.

B. Project Components

18. The ISHTP will support SECI, as the implementing agency and borrower of funds, to finance innovative RE and BESS subprojects to demonstrate applications that can be deployed at a large scale in India’s power system. Furthermore, the project will build SECI’s market facilitation capacity in a rapidly evolving RE market by monitoring deployment and performance of first subprojects and disseminating its experience in design, construction, operation and contractual arrangements to renewable market stakeholders in India. The proposed project has two components:

Component A: Investments in Innovative RE Technologies and BESS (US$398 million equivalent)

19. This Component will support innovative RE and BESS subprojects. The scope of subprojects will be defined based on site requirements, including: (a) site development; (b) construction of RE power plants and BESS, including design, supply and installation of equipment, associated civil works, and construction of ancillary infrastructure; (c) design and construction of power evacuation and other common infrastructure (i.e. road access, water supply); (d) operations and maintenance (O&M) contracts; and (e) incremental operating costs14. An ISHTP Operations Manual (OM) sets investment criteria for subprojects. The estimated cost of this component is US$398 million, which includes US$150 million from the World Bank, US$28 million from the CTF loan, US$20 million from the CTF grant, and US$200 million from SECI. The eligible subproject typologies are:

(a) Utility-Scale Hybrid Subprojects: (about 300 MW targeted) The ISHTP will finance greenfield utility-scale hybrid solutions, combining wind, solar PV and/or BESS technologies that are tailored to meet site-specific requirements. Subprojects are expected to demonstrate benefits for the Indian power system, including better capacity utilization factors, reduced variability of RE power plants (i.e. due to the relative diurnal and seasonal complementarity of solar and wind resources), and optimized use of power evacuation infrastructure. The first subproject has been appraised and comprises about 31 percent of IBRD/CTF financing:

160 MW Solar PV-Wind Power Plant with BESS Subproject in Ramagiri, Andhra Pradesh (‘Ramagiri WSH Subproject’): This is the first project of its kind in India and at this scale in the world. The subproject comprises the design, construction, and O&M of co-located 120 MW solar PV, 40 MW wind power, 10 MW/20 megawatt-hours15 (MWh) BESS, associated infrastructure, and control and energy

14 Incremental operating costs means the reasonable costs of incremental expenditures incurred by the Borrower on account of Project implementation, management and monitoring, including, inter alia: (i) costs of incremental staff salaries (other than consultants but including salaries of civil servants seconded to the Borrower); (ii) dissemination of Project related information; (iii) office rental and leasing operation and maintenance of equipment; (iv) office supplies and utilities; (v) travel and boarding/lodging allowances; (vi) leasing, operation and maintenance of vehicles; (vii) advertising and communication expenses; and (viii) bank charges. 15 20 MWh is dispatchable energy capacity of BESS.

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management systems. It is located on about 900 acres in the Ramagiri and Muthavakuntla villages, Anantapuramu district of AP, a wind and solar resource-rich province. The WSH power will be transmitted to a 220/33 kilovolts (kV) grid substation through a 33 kV internal feeder line and will be evacuated via a double circuit (D/C) 220 kV transmission line to the 400/220 kV Hindupuramu substation that is located about 45 km from the grid substation site. The grid substation, 220 kV evacuation line and interconnection with the Hindupuramu substation are being constructed by the AP Transmission Company (APTRANSCO) under the GoI’s Green Energy Corridor Project, that aims to remove transmission bottlenecks for RE. The AP Southern Power Distribution Company, Ltd. (APSPDCL) will be the sole off-taker under a long-term power purchase agreement (PPA) signed with SECI. The BESS is installed to demonstrate use cases which benefit the generator: avoiding curtailment, minimizing deviation settlement mechanism penalties due to forecasting/scheduling errors, and piloting ramp rate control benefits.

(b) BESS Subprojects: (about 40 MWh targeted) The ISHTP will finance BESS applications integrated with

other existing or new RE generation technologies or providing grid services enabling improved use of power. As this technology is not yet commercially viable, selection of subprojects will be determined inter alia by the use cases most likely to be deployed at large scale in the Indian power system including time shifting, capacity firming, ramp rate control, and frequency regulation, and by the ability under existing regulations to recover at least part of the costs of the BESS. A US$20 million CTF grant has been allocated to partially defray the costs of these subprojects. The first BESS application is integrated with the above-mentioned 160 MW Ramagiri subproject in AP.

(c) Utility-Scale FSPV Subprojects: (about 100 MW targeted) The ISHTP will finance FSPV power plant

subprojects – solar PV systems installed on synthetic floating beds anchored to the bottom or on the shore of selected water bodies. Sites will be selected where there is high demonstrative value, such as near existing associated infrastructure such as reservoirs of the operating dams or sites where the land is either unavailable or too expensive. Based on initial discussions by SECI in multiple states including AP, Kerala, Jharkhand, and Tamil Nadu, the target capacity estimate of a potential pipeline of subprojects ranges from 50-100 MW.

Component B: Technical Assistance, Capacity Building, Implementation Support, Monitoring and Dissemination (US$1.81 million equivalent)

20. This component is financed by the CTF grant and will support technical assistance, studies, workshops, training, study tours, and other capacity building and dissemination activities, including (but not limited to):

(a) Designing/developing policy and regulatory proposals, and carrying out monitoring and dissemination activities, stakeholder consultations, knowledge sharing activities (including workshops and training) to reduce market information barriers for regulators, policy makers, and private sector, and facilitate the scale-up of innovative RE and BESS technologies.

(b) Developing Subproject proposals and support their implementation, including (i) site identification activities, (ii) preparation of environmental and social feasibility, and other subproject-readiness assessment, plans and/or studies, (iii) preparation of bidding documents, (iv) safeguards and project

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monitoring, and (v) project management and engineering services.

(c) Developing SECI’s institutional capacity by, inter alia: (i) reviewing, updating and implementing SECI’s business plan and human resources (HR) plan, and (ii) strengthening SECI’s core functions and business lines, including (A) project, process, and organization management, (B) monitoring, engineering, procurement, financial and contract management, and, (C) O&M functions.

C. Project Beneficiaries

21. The project’s direct beneficiaries are: (a) distribution utilities which purchase electricity from ISHTP assets to meet their RPO; (b) customers who receive reliable, clean electricity from ISHTP assets; (c) wind, solar PV and BESS market players and policy makers who will gain invaluable market intelligence generated by ISHTP subprojects and disseminated by SECI; (d) SECI, which will build its capacity to deliver its RE sector mandate as a market facilitator; and, (e) society will benefit from system-wide positive externalities of (i) avoiding local coal-fired power plant emissions and greenhouse gas (GHG) emissions and (ii) improving resource use.

22. The expected benefits of the project are: (a) Increased renewable electricity supply; (b) Avoided GHG emissions; (c) Improved resource use through (i) lower grid-integration costs of WSH and FSPV plants; (ii) optimization of land use - clean power generated per unit of land area by WSH and FSPV (through use of reservoirs rather than land); and, (iii) optimization of use of shared infrastructure facilities, such as, linked transmission systems; (d) Improved integration of RE generation sources in the Indian power system; and, (e) Generation of lessons, which should contribute to mainstreaming and scaling up investments in these technologies.

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D. Results Chain

E. Rationale for Bank Involvement and Role of Partners

23. The proposed project is well-placed to help the GoI in designing and implementing its recently launched initiatives in promoting innovative technologies for sustainable energy future of the country and assisting it in meeting its NDC. It aims to reduce GHG emissions and local environmental pollution associated with the coal-based thermal power generation alternative, to be displaced by adding clean power generation capacity and fostering innovative RE development. It contributes towards de-risking the sector by absorbing the first-mover risks, facilitating high quality project preparation, and providing long term and lower cost financing to ensure a successful demonstration effect that is needed as a step toward accelerating commercial investments in yet unproven innovative RE and BESS solutions. Its investments will further contribute to improved reliability and affordability of clean power. With a strong focus on removing market information barriers, it is aligned with the ‘Lighthouse India’ initiative as it will share lessons learned about the project-supported innovative solutions within and outside the country.

24. 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 states of Maharashtra and Kerala. United States Agency for International Development (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. In

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the past, the National Renewable Energy Laboratory worked under the contract with the World Bank and USAID for a ‘greening the grid’ study to help with integrating higher share of RE into the grid. The WBG is working closely with partners and building on these engagements.

F. Lessons Learned and Reflected in the Project Design

25. The project design reflects lessons learned from the Bank’s longstanding series of Power System Development Projects with Power Grid Corporation of India Limited (POWERGRID), the Grid-Connected Rooftop Solar Program, the Coal-Fired Generation Rehabilitation Project in India, and IFC’s venture capital investments in BESS:

(a) Policy makers and regulators take informed decisions in creating enabling ecosystems while commercial investors gain confidence in entering into new market segments once their knowledge base in new technologies is developed and a credible track record of performance is established. For instance, POWERGRID projects demonstrated high-capacity transmission corridors including high voltage direct current (HVDC) lines. This allowed regulators and policy makers to make informed choices and build the ecosystem that supported creation of a new market. POWERGRID projects and the Grid-Connected Rooftop Solar Program also point to the need to ensure that subproject implementation is undertaken in a professional and sustainable manner to produce desired results.

(b) Platforms that succeed in quickly scaling innovation rely on existing institutional arrangements that can successfully and sustainably implement demonstration projects and provide credible dissemination channels. They are fit-for-purpose, suitable to local conditions, and combine blended financing with performance monitoring, convening and coordinating capacity and well-targeted knowledge sharing. For instance, in Coal-Fired Generation Rehabilitation Project, concessional Global Environment Facility (GEF) was leveraged with IBRD to test feasibility of renovation and modernization concept in improving energy efficiency of the selected thermal power station units as pilots. The ISHTP will leverage SECI’s role in the market and within the GoI’s renewable ecosystem as a CPSU. Its capacity to coordinate among central and state government and market players, its incentive structure as a profit-seeking enterprise to structure commercially feasible transactions, its mandate to facilitate RE market development (such as by fostering public-private partnerships through solar park schemes), and its investment and auction business models provide a strong foundation to address the barriers to successfully introducing the selected innovations to the Indian power system.

(c) Frequent and targeted interactions with market players are needed for successful market facilitation. The ISHTP 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. During preparation, SECI with Bank support has undertaken four market sounding consultations on the Ramagiri subproject and BESS applications, which has significantly informed project design.

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III. IMPLEMENTATION ARRANGEMENTS

A. Institutional and Implementation Arrangements

25. SECI will be the borrower, grant recipient, and implementing agency of this project. The Bank will sign loan/financing agreements directly with SECI with a guarantee from the GoI. SECI will be responsible for ensuring that investments meet criteria set out in the project’s OM, which details eligibility criteria, technical, fiduciary and safeguards requirements, investment decision guidelines, monitoring and evaluation (M&E) requirements, and institutional and implementation arrangements for the project and reporting the same to the GoI and the World Bank. The OM, satisfactory to the Bank, has been prepared by SECI.

26. SECI is under the administrative control of the Ministry of New and Renewable Energy (MNRE) which is the nodal ministry responsible for achieving the GoI’s RE targets. MNRE will continue to provide overall policy guidance and will support SECI in a manner possible to ensure that the lessons from this project are internalized by other government agencies and market stakeholders.

27. SECI, a CPSU, was established on September 20, 2011, to facilitate the implementation of the National Solar Mission (NSM). In November 2015, SECI was converted to a commercial company involved in investing, trading and consultancy services in RE. It is the only CPSU dedicated for RE sector project implementation and is the largest off-taker of solar power in India. SECI has experience in implementing a wide range of instruments to implement RE policies and foster market development. It is responsible for the first and subsequent Viability Gap Financing (VGF) schemes and tariff-based auctions for a cumulative planned solar and wind power generation capacity of more than 25 GW, of which 16 GW worth of PPA has been signed (of which 5 GW has been commissioned and the balance 11 GW is under implementation). In these schemes, SECI acts as an offtaker of the procured solar and wind power and subsequently sells the pooled power to distribution utilities under long-term power sale agreements. SECI is also implementing schemes to support rooftop solar PV projects, solar park schemes (through joint ventures [JV] with various state nodal agencies), and has implementation experience either as a project management consultant or as a developer for investments similar to the expected ISHTP subprojects, with a cumulative capacity of over 100 MW.

28. The ISHTP is overseen by the Managing Director while SECI’s Director (Power Systems) has overall responsibility for its implementation. The ISHTP’s key management functions are assigned across the organization under the supervision of respective Department Heads. For Component A, teams are organized for the preparation of subprojects, including detailed project reports (DPR), environment and social impact assessments (ESIA), bid documents and financing. Bid document preparation, management of Design, Supply and Install (DSI) (including O&M) contracts and other aspects of subproject implementation are being undertaken by SECI’s contracts department with the support of an Owner’s Engineer (OE) in the case of the first subproject. Bid documents are reviewed by technical and financial departments before approval. Adjustments to team compositions are made depending on need of the subproject. Component B implementation will be overseen by the Departments which are the beneficiaries of the support. Dissemination activities will be designed and organized by Solar/Power Systems department of SECI. Corporate Planning department of SECI will be responsible for preparing the

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ISHTP project progress monitoring reports (including key performance indicators [KPI]). ISHTP institutional arrangements are also defined in the ISHTP OM.

B. Results Monitoring and Evaluation (M&E) Arrangements

29. SECI will provide the World Bank with quarterly progress reports and quarterly interim unaudited financial reports (IUFR), annual information on progress of the KPIs for the project components, audited financial statements and such other information as the World Bank may reasonably require. M&E will be linked to the PDO indicators and intermediate indicators, presented in Section VI. The indicators have annual intermediate targets as well as end targets that are measured as of March 31 every year and at the end of the project, respectively. About three years after effectiveness, SECI will carry out a thorough review of project implementation and report their findings for a mid-term review with the World Bank.

C. Sustainability

30. Long term sustainability will depend on the commercial operation of ISHTP’s RE power plants and successful demonstration of BESS applications. Sustainable investments will produce the desired demonstration effects in the market. ISHTP power plants will be grid connected (potentially, in island systems also) and electricity generated will be purchased by state distribution companies (Discom) or bulk consumers under PPAs, regulated by Central Electricity Regulatory Commission (CERC) or state regulators. This mechanism will assure cost recovery and a minimum return on investment for SECI. BESS applications are likely to be subsidized by grant resources because the regulatory environment does not yet allow adequate revenue streams to be generated from these applications. Nevertheless, successful demonstration of BESS applications and commercially feasible WSH and FSPV subprojects will reduce perceived risks and knowledge gaps that prevent commercial scale up of these innovative technologies.

31. SECI’s capacity to effectively develop and implement these subprojects as well as execute well-targeted dissemination and other market facilitation exercises will also be essential to ensuring sustainable outcomes. SECI’s ability to evolve its business model with prevailing RE market developments will be a factor to the sustainability of its role as a market facilitator. As a public-sector company and with a mandate to promote innovative RE technologies in a fast-moving market, it has a strong incentive to build its capacity and to continually align and encourage stakeholders (suppliers, developers, off-takers, central and state government agencies) to introduce new ideas and innovative technologies into the power system.

IV. PROJECT APPRAISAL SUMMARY

A. Technical, Economic and Financial Analysis

32. Technical. The project is designed under a framework approach based on concepts that have been successfully applied in other World Bank projects in India. Solar and wind power are mature technologies and BESS supported by the project will need to have established track records based on prevailing industry experience. The integration of these three technologies and their behavior in power systems is new not just in India but also world-wide, relative to stand-alone RE technologies. Strict standards will be applied to products, equipment and design/supply/installation/O&M contracting for

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vendor qualifications. The project will conform to international experience and good practices in storage, hybrid and floating solar technologies. SECI will ensure subprojects will follow technical, safeguards and fiduciary requirements that comply with World Bank policies and which are specified in the Project’s OM. The 160 MW WSH-BESS subproject in AP was prepared based on a DPR, complementary geotechnical and wind micro-siting studies, and an ESIA. Bid documents are prepared with an OE commissioned by SECI. SECI is in process of selecting a DSI contractor through competitive bidding and will sign a 10-year O&M contract. Further, SECI will retain an OE for post-award phase and initially for at least one year of O&M period. Likewise, all subprojects will be supported with appropriate technical preparation and safeguards compliance-related studies.

33. Economic and Financial16. Economic and financial due diligence for the Project considered (a) the economic and financial robustness of the 160 MW Ramagiri WSH subproject; and (b) a nationally representative economic assessment of the targeted types and capacities of subprojects under ISHTP – WSH combined with BESS; WSH without BESS; stand-alone BESS; and FSPV. Economic and financial returns of the Ramagiri subproject are robust to changes in key input variables such as cost overruns and schedule delays, energy curtailment, variation in capacity utilization factor (CUF) and the price of project alternatives such as coal power. As potential sites for additional subproject engagements are still being identified, an economic and financial assessment of such additional subprojects will be undertaken as part of their feasibility study/DPR.

Subproject Economic Analysis

34. The 160 MW Ramagiri subproject is economically viable against a counterfactual analysis of the AP energy system17. The economic rate of return (ERR) of the “with project” scenario is 15.6 percent (Net Present Value [NPV] US$55.2 million over the 25-year life of the project). The levelized economic cost of electricity from Ramagiri is US$0.053 per kWh compared with US$0.077 per kWh for the counterfactual. The subproject reaches the ERR hurdle rate only with the inclusion of local and global externalities. The subproject is likely to reduce GHG emission between 4.7 and 6.4 million metric tons of CO2 over its life, mainly by displacing coal power. The marginal abatement cost (MAC) of Ramagiri is US$4.1 per ton of CO2, which makes it a cost-effective option for reducing GHG emissions in India.

35. As a WSH, the Ramagiri subproject offers slightly better economic returns than would a solar-only alternative in the proposed location, even after absorbing the cost of a pre-commercial BESS. The subproject uses land more optimally in terms of energy density – with 40 MW of wind occupying 92 acres that could otherwise only produce 13.8 MW of additional solar. The subproject has an ERR of 7.8 percent relative to the solar-only counterfactual, owing to the emissions benefits of the additional hybrid plant output displacing grid energy.

16 This analysis is consistent with the following World Bank guidelines: i) Operational Policy and Bank Procedure 10.00, Investment Project Financing; ii) Power Sector Policy and Investment Projects: Guidelines for Economic Analysis; iii) Shadow Price of Carbon in Economic Analysis Guidance Note 2017; and iv) Discounting Costs and Benefits in Economic Analysis of World Bank Projects 2016. Estimated project financial and economic costs are based on the DPR. 17 An integrated assessment model was used to estimate the Ramagiri subproject’s impact on generation mix, emissions, and system cost in the AP power system over the project lifetime - permitting counterfactual analysis of how the AP power system would have otherwise provided the equivalent generation profile.

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36. BESS is not yet economically viable against alternatives, but demonstrations could unlock transformational benefits for low-carbon energy in India. The ERR of the BESS system on its own against alternate flexible generation options such as open cycle gas, spinning reserve of coal plants, and reservoir hydropower plants, is -3.8 percent, -11.5 percent and -38.2 percent, respectively. However, the increasing need to shift generation from the afternoon solar peak output to the peak demand in the evening, combined with falling BESS costs, will improve the economics of storage in India. The analysis considered a BESS system cost of US$390/kWh, but at US$236/kWh the ERR clears the hurdle when local and global externalities are included, or at US$187/kWh without externalities. By piloting BESS in a WSH application, the project will remove BESS barriers by improving commercial and regulatory capacity and reducing perceptions of technology risk. The introduction of BESS to a dynamic national model of the Indian power system out to 2041 resulted in reduced need for 130 GW of coal power capacity, an increase in solar capacity by 240 GW, and a reduction in cumulative emissions by 3000 million tons of CO2 relative to a counterfactual where BESS is unavailable.

37. Sensitivity and risk. The Ramagiri subproject’s ERR is robust to changes and uncertainties in key input variables, analyzed through switching values and a formal probabilistic risk assessment using Monte Carlo analysis. When assessed against the AP energy system counterfactual, the probability of not meeting the hurdle rate is less than 0.3 percent. With 90 percent likelihood, the ERR will fall between 13.5 percent and 27.4 percent. Under favorable conditions, the ERR of the project could be as high as 34 percent. The potential for commissioning delays, CUF uncertainty, and system curtailment have the largest effect on ERR. Further, the ERR without environmental externalities fails to reach the hurdle with 99.2 percent likelihood.

Figure 1. Probability distribution of ERR of the Ramagiri subproject considering uncertainties

Subproject Financial Analysis

38. The financial analysis confirms that the Ramagiri subproject will be financially viable. The subproject’s Financial Internal Rate of Return (FIRR) is 12.2 percent (NPV of US$25.1 million), which is above the 9.4 percent weighted average cost of capital (WACC) of the subproject. The equity IRR is estimated to be 19.2 percent. The application of CERC Guidelines to the Ramagiri subproject yields a

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levelized electricity tariff of INR 4.40/kWh (US$0.065/kWh). BESS capital cost is assumed to be financed with CTF grants, though BESS O&M is included in the financial costs. The financial NPV remains robust under a range of analyzed scenarios.

39. Distributional Analysis: Finances of off-taking Discoms need not be adversely affected by the subproject. The subproject generation is slightly more expensive than thermal power, with average unit power purchase costs in AP of INR 4.13/kWh for FY 2018-19, but Ramagiri is substantially cheaper than the INR 4.99/kWh paid for renewables already developed in AP18.

Project-level Benefits

40. In addition to the Ramagiri subproject analysis above, which included both economic assessment of a WSH with BESS as well as a representative standalone BESS subproject, economic analyses are conducted for an indicative FSPV subproject and a WSH subproject without BESS. The ERRs of both FSPV (29.7 percent) and WSH without BESS (21.8 percent) are even more attractive than for the comparable WSH with BESS analyses (19.8 percent), employing the same assumptions including for the mixture of power sources that are displaced by the subproject generation.

41. The total project’s anticipated emissions benefits are likely to exceed 11 million tons CO2 over the asset lifetimes, and approximately 0.5 million tons CO2 on average each year. The project will support 18 terawatt hours (TWh) of generation over the asset lifetimes, and over 0.7 TWh on average each year.

Corporate Financial Analysis

42. SECI continues to be financially sustainable with the additional investment under the project. The project will help to diversify SECI’s revenue profile, which currently relies mainly on power trading, fund handling/viability gap financing schemes and project management consultancy services. This will address SECI’s financial resilience as some of its traditional sources of revenue (management of Viability Gap Financing schemes) is expected to wind down. The company is past the formative years and has marked growth in revenues over its seven years of existence, reaching about US$160 million (equivalent INR 11,759 million) in revenues and realizing a net profit of about US$8.7 million equivalent (INR 647 million), its fourth year of profitability (FY2018). In percentage terms, the net profit of the company has increased by almost 40 percent in FY2018 from US$6 million (INR 465 million) in FY2017, while the net worth of the company has increased by more than 18 percent from about US$50 million (INR 3,683 million) to US$60 million (INR 4,368 million) during the same period.

43. Future revenue projections over a ten-year period estimate a steady growth trajectory. With the fall in solar tariff in the country, there is an uncertainty around VGF and hence that stream of revenue is expected to narrow down for SECI, while the revenue earnings from the SECI-owned assets are expected to grow manifold with all assets under the proposed project getting commissioned by 2023. A key risk to future revenue from new operating assets is the non-payment by electricity supply off-takers, i.e. state-owned utilities. SECI is mitigating this risk by its inclusion in a tripartite agreement (TPA) with the GoI,

18 AP Electricity Regulatory Commission (APERC) (27 March 2018). Retail Supply Tariffs. Chapter V: Power Purchase Cost for FY2018-19.

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Reserve Bank of India (RBI), and the state governments that establishes a payment security mechanism for payment by state utilities.

B. Fiduciary

(i) Financial Management (FM)

44. 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 as listed in Annex 1 and detailed in the ISHTP OM.

45. The main challenge to satisfactory FM under the project relates to SECI’s relatively weaker internal control and oversight mechanisms that SECI is working on continuously to strengthen its FM, which has been demonstrated most recently by adoption of entity FM Manual. The proposed risk mitigation measures therefore focus on assisting the finance department in implementing the provisions of its entity FM Manual, and identifying and helping address weaknesses in their corporate governance framework.

46. The FM and accountability arrangements under the project have been detailed below.

(a) Planning and budgeting. The annual budget for the project will be governed by the timelines and procedures detailed in the entity FM Manual and will be aligned to the approved business plan. The project annual plan should be finalized and approved before the beginning for the concerned financial year.

(b) Internal control, rules, and regulations. SECI’s internal control framework and administrative procedures are laid out in its entity FM Manual. Project specific guidelines have been documented in the ISHTP OM. The project will be subject to internal audit in line with the terms of reference (ToR) agreed with the World Bank.

(c) Accounting and financial reporting. SECI will use its own financial systems but maintain a separate ledger for ISHTP in its accounts. While SECI has transitioned to Indian Accounting Standards (Ind-AS)19, reporting of project expenditure in the IUFRs will be done on a cash basis.

(d) External audit. External audit for the project will be conducted by the audit firm empaneled with the Comptroller and Auditor General (CAG) of India, under ToR agreed with the World Bank which will also be annexed to the ISHTP OM. The entity and project audit report will be submitted to the World Bank within six months from the close of the financial year.

47. Disbursement arrangements. IUFRs should be submitted to the World Bank within 45 days from the end of each calendar quarter. The project also has provisions of retroactive financing under which project-related expenditure incurred since September 1, 2018, subject to withdrawals up to an aggregate amount not to exceed: (a) US$30 million out of the Loan proceeds; (b) US$5.6 million out of the CTF Loan proceeds; and (c) US$4.362 million out of the CTF Grant20.

19 The balance sheet for the financial year 2017-18 has been prepared as per Ind-AS. 20 Amount being 20 percent or less of the project’s funds can be claimed under retroactive funding.

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48. Table 1 specifies of eligible expenditures that may be financed out of proceedings of the loan.

Table 1. Table of IBRD Loan, CTF Loan, and CTF Grant Proceeds

Category

Amount of the Loan Allocated (expressed in

US$)

Amount of the CTF Loan Allocated

(expressed in US$)

Amount of the CTF Grant

Allocated (expressed

in US$)

Percentage of Expenditures to be

financed (inclusive of Taxes)

(1) Goods, works, non-consulting services, and consulting services for Hybrid Subprojects, BESS Subprojects and FSPV Subprojects, and Incremental Operating Costs under Component A the Project

149,625,000 28,000,000 0 100 percent

(2) Goods, works, non-consulting services, and consulting services for: (a) BESS Subprojects; or (b) BESS Elements in Hybrid Subprojects or FSPV Subprojects, under Component A the Project

0 0 20,000,000

100 percent

(but excluding the expenditures financed

against BESS Subprojects and/or BESS Elements in Hybrid Subprojects and

FSPV Subprojects financed under Category

1)

(3) Goods, non-consulting services, consulting services, Workshops & Training and Incremental Operating Costs for Component B the Project

0 0 1,810,000 100 percent

(4) Front-end Fee 375,000 N/A N/A N/A

(5) Interest Rate Cap or Interest Rate Collar premium

0 N/A N/A N/A

TOTAL AMOUNT 150,000,000 28,000,000 21,810,000

(ii) Procurement

49. Procurement for the proposed project will be carried out in accordance with Procurement Regulations for Investment Project Financing (IPF) Borrowers for Goods, Works, Non-Consulting and Consulting Services, dated July 1, 2016, Revised Nov 2017 and Aug 2018; hereinafter referred to as ‘Regulations’ and the provisions stipulated in the Legal Agreement. The project will be subject to the

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World Bank’s Anti-Corruption Guidelines, dated October 15, 2006, and revised in January 2011 and July 1, 2016.

50. Procurement risk assessment and mitigation. All procurement under the project will be undertaken in SECI by its Contract Department, which is headed by the General Manager/Contract. As per procurement capacity assessment of SECI, it was noted that it has limited experience in the World Bank procurement process for works using International Competitive Bidding (ICB) and hence, procurement staffing arrangements need to be strengthened.

51. SECI is in the process of strengthening its contracts department by recruiting more procurement experts. As part of capacity building and institutional strengthening plan of SECI, a comprehensive training program will be implemented over the life of the project. Such plan should also include trainings on procurement and contract management. SECI now has a Board-approved Procurement Policy, which includes all procurement processes, decision making, and safe upkeep and management of records. Under the project, SECI also established and adopted a comprehensive system for handling complaints. The overall risk rating related to procurement for the project is ‘Substantial’ given the limited experience in the World Bank procurement processes.

52. Project Procurement Strategy for Development (PPSD). As per the requirement of the Regulations, SECI has prepared a PPSD, from which the Procurement Plan is developed indicating procurement methods and approaches for procurement. The first Procurement Plan includes all procurement to be taken up during the first 18 months of project implementation, which has been 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.

C. Safeguards

(i) Environmental Safeguards

53. All project sites have not yet been finalized, except for the Ramagiri subproject. However, the environment and social baseline study of the existing solar (ground mounted as well as floating) and wind projects (not necessarily of SECI) to identify threats and issues that may have an impact on the project has been completed by an independent agency. Based on this data, SECI has prepared a site-agnostic Environment and Social Management Framework (ESMF) that has been approved by the World Bank and 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 ESIA based on the ESMF, which also includes a ToR for the ESIA, including Environmental and Social Management Plan (ESMP). The ESIA and ESMP have already been drafted and disclosed for Ramagiri subproject.

54. The ESIA for Ramagiri subproject that has been reviewed by the Bank indicates that the site-specific impacts on the environment are likely to be manageable. The site is mostly rocky and located in a rainshadow area of AP. It has little vegetation and only a few seasonal streams crossing through the site. The transmission line and substation would also have some impacts, but these could be managed through implementation of the ESMP prepared for the subproject. The ESIA also analyzed 3 candidate alignments for the transmission line. The key potential impact includes some disturbance to drainage,

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that can be mitigated with design modifications in specific locations/stretches in the site. The other possible impacts include the risk to safety of workers and people using that area. No important wildlife (avian or terrestrial) has been reported in the project area. However, a small stretch of the transmission line could pass through a patch of reserved forest land but no significant impacts are expected there, as it is not a known haven for wildlife. There would be some potential impacts of the establishment of dwelling colonies for labor force and this can strain the local infrastructure. Operation stage aspects with environmental concerns would include, managing hazardous substances – such as oils, damaged panels, availability of water for panel washing – estimated at approximately 75 m3 per day, and safe operating conditions.

55. The ESMP provides for mitigation measures commensurate with the potential impacts identified for this subproject, covering the pre-construction, construction, operation, and decommissioning stages. It lays down the requirements for providing compensatory plantation for the small likely impact, facilities and infrastructure to be provided in the camp sites for use by labourers. It envisages minimum disturbance to the locals through provision of all basic facilities as part of the contractor’s mandate. It also requires contractors to provide for safe working conditions while working in potentially risky situations, and for safe passage for locals, including traffic management during the transportation of material to the site. Separate supply of water for the site is envisaged as the site is located in a water scarce area. Specific measures for safe operation of the substation, and the transmission infrastructure are also included in the ESMP. This covers the used oils and batteries, which will be managed in line with applicable regulation of the GoI. For the solar panels, take back arrangement for damaged panels and storage of end-of-life panels will follow standard industry practice.

56. While India has gained experience in developing solar and wind projects and impacts are well known along with possible mitigation measures, FSPV 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 FSPV to 100 MW. To guide eventual selection and assessment of sites, screening criteria have been developed for the FSPV sub-projects and integrated into the ESMF, including avoidance of protected areas and those important for conservation whether on land or water. Subsequent site specific ESIA will identify and assess impacts of such FSPV like impacts on the aquatic ecology, dust and occupational health safety, water quality for drinking purposes, as well as any other issues related to water environment.

57. Consultations and disclosure. On-site consultations have been undertaken during the ESIA preparation for Ramagiri site and for the transmission line alignment during February 2018 and May 2018. These included potentially affected local persons whose views were recorded and taken into account during finalization of the ESIA, including the ESMP and Resettlement Action Plans (RAP). In addition, several consultations were carried out with key stakeholder government departments, like Agriculture, Forests, Revenue, Water Management to ascertain their views and take their suggestions on how to make project design more effective.

58. Institutional arrangements. SECI, through its Managing Director will be responsible for implementation of the project in line with Bank policy requirements. In order to ensure that the subprojects are implemented with relevant provisions of the ESMP and RAPs, Environmental and Social Officer (ESO) has been hired by SECI. Detailed ToR for this position, inter alia, include facilitating timely

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preparation of sub-project ESIA, participation in consultations, and review of contract documents to ensure that EMP provisions are included in it. This individual will be assisted by experts who will be handling site issues once implementation begins. The contractor team should have its own expertise to implement the portions of the ESMP that pertain to their responsibilities. The Bank will coordinate with SECI on the regular monitoring of the project with ESO providing the first interface.

(ii) Social Safeguards

59. Issues and impacts. While communities are expected to benefit from the project due to 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, 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.

60. Mitigation measures. As not all subprojects have been identified yet, SECI has prepared an ESMF for the entire project including transmission line. 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 includes a Resettlement Policy Framework (RPF), which specifies 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 across the country, some locations may have the presence of indigenous population. Therefore, as part of the ESMF, an Indigenous Peoples Planning Framework has been 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 also includes 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 ESIA. The ESMF also includes (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 social audits; and (e) a plan to augment the institutional capacity of SECI to manage project-related social issues.

61. So far only one subproject site has been identified that falls in the revenue villages of Ramagiri (Mandal - Ramagiri) and Mutavakuntla (Mandal - Kanaganapalli) in Anantapuramu District of AP. The entire land is owned by government but has been assigned to landless below poverty line (BPL) families. The SIA results show that project will take 355 hectares (ha) of land from 216 assigned land owners. Though land has been assigned for cultivation, none of the land parcels are used for cultivation due to lack of irrigation facility. To ensure smooth implementation of the Resettlement Plan and Gender Action Plan (GAP), SECI will engage services of a third party agency/nongovernmental organization (NGO)/experts. Additionally, transmission line will pass through private agricultural land of 5 mandals affecting 333 households. However, no structure will be affected by the transmission line. As per state government’s order, all those having land under tower footings and under the right of way (ROW) will be compensated for restrictive use of land. Land under tower footings will receive 100 percent of the market value of the land where as those under ROW will receive 15 percent of the market value. Site preparation activities including land acquisition will be done by SECI with assistance from New and Renewable Energy

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Development Corporation of Andhra Pradesh (NREDCAP), the state nodal agency for promoting RE in AP and from AP Solar Power Corporation Private Limited (APSPCL), the public-sector entity to promote solar projects in the state.

62. Citizen Engagement: As part of participatory process multiple stakeholders (both primary and secondary) were identified and consulted for identification of critical issues and potential impacts. The consultations were carried out through Focus Group Discussions and meetings with the project affected people (PAP) and other community members in the project villages. Apart from community members, consultations were carried out with village head, panchayat members, patwaris, district authorities, division and sub-division officials, forest officials and the business community. The findings of the consultations have been recorded in RAP. As part of the sub project implementation, SECI and developer will engage with local communities and key stakeholders to ensure their inclusion and participation in the planning and implementation stages. Mid-term evaluation of RAP implementation will also assess degree of involvement of community in the implementation process. Under the project, SECI has established a central level GRM at its headquarters and will also establish sub-project level grievance redress cells at the respective sub-project sites prior to commencement of the corresponding civil works.

63. Disclosure: The ESMF was disclosed in-country on August 6, 2018 and on Bank’s website on August 8, 2018. The ESIA and RAP for Hybrid Park was disclosed in-country and on Bank’s website on November 16, 2018. RAP for Transmission Line was disclosed in-country on November 16, 2018 and Bank’s website on December 14, 2018.

(iii) Other Safeguards

64. Not applicable.

(iv) Grievance Redress Mechanism

65. 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.

(v) Gender

66. Gender: As the project focuses on innovative technologies and their enabling environments, gender interventions seek to strengthen female labor force participation within the implementing agency, SECI. Women constitute 20 percent of SECI’s workforce and it is noted that such posts are mostly

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

http://www.inspectionpanel.org/

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concentrated in Finance, Corporate Planning, and HR. For instance, 38 percent of Finance staff are women. Presently, there are no women in senior management (at the level of Board of Directors or jobs considered senior). Women constitute 13 percent of SECI employees in engineering and technical departments. Although SECI is an equal opportunity employer, it understands this gender gap in its current management structure. Under this project, SECI will prepare and implement a Gender Action/Management Plan that will support the employment and promotion of more women throughout the organization. To this end, SECI will do a study to identify opportunities for further inclusion of women. The study is expected to be ready by year 2 which will provide a baseline and help identify targets to increase female labor force participation in SECI. Progress will be tracked throughout the duration of the project. Intermediate indicators to monitor that the study to be conducted by SECI and implementation of its recommendations over the remaining project period have been introduced. By implementing the Gender Action/Management Plan, SECI aims to increase the share of women in its workforce, targeting an overall increase in number of women in SECI, and in technical department by 10 percent each from baseline value.

V. KEY RISKS

67. The overall risk rating of the ISHTP is Substantial for the following reasons:

68. Sector Strategies and Policies. The lack of a regulatory and policy ecosystem that supports ISHTP subprojects poses substantial risks to the technical design of the project. While the risk to such an ecosystem not being put in place over the ISHTP’s lifetime is moderate (MNRE WSH policy is adopted in May 2018), the final details of associated adjustments to codes, standards and regulations may affect how the subprojects would operate and generate revenues. This may pose considerable burden on SECI’s financial performance and its ability to carry out the ISHTP as designed. This risk would be managed by supporting a strong knowledge dissemination program aimed at enhancing the policy and regulatory ecosystem supporting the deployment of innovative RE solutions.

69. Institutional Capacity for Implementation and Sustainability. While SECI has deep experience implementing a wide range of programs, its lack of a long track record in developing and operating its own large-scale power plants poses substantial risks associated with its institutional capacity for implementation and sustainability. SECI also has not implemented a World Bank-supported project. As a relatively new commercial enterprise, SECI is establishing various standard operating procedures, such as, it has already adopted an FM Manual and a Procurement Policy. Preparation of the Ramagiri subproject has provided SECI substantial on-the-job capacity building opportunities in subproject development, supported by the Bank Group team. This is expected to be replicated in other subprojects during implementation and enhanced by ISHTP technical assistance. The business plan (proposed for revision) will identify capacity building needs that will also be supported by the ISHTP.

70. Fiduciary. The fiduciary risk is rated substantial due to the (i) existence of stand-alone systems for various financial functions, (ii) absence of requisite number of independent directors on Board of the Company and the Audit Committee, (iii) inadequate documentation of internal processes and practices, and (iv) limited experience in the World Bank procurement process. The roll-out of the finance module of the Enterprise Resource Planning (ERP) system by the end of the current financial year, the recent appointment of one independent director, the adoption of the entity FM Manual and the recent migration

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to Ind-AS are expected to significantly improve the robustness of the FM systems in the organization. With regard to procurement, SECI has already adopted a Procurement Policy. It will also develop a training program in procurement especially contract management to be implemented over the life of the project.

71. Environment and Social. The safeguards risk is rated substantial due to (i) 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, (ii) in cases of new construction or capacity augmentation of existing construction, it is possible that private land could be acquired, and (iii) limited prior experience of working on large scale floating solar projects as well as BESS. However, it is to be noted that the impacts are expected to be site specific and restricted mainly to the subproject and its immediate surroundings. A detailed ESIA will be carried out for each subproject to assess the magnitude of such aspects and outline mitigation plans accordingly. The impacts resulting from storage technologies can be handled more easily than those from installation of power-generation devices. For FSPV plants, environmental issues such as impacts on aquatic life will need to be carefully addressed. However, as per the stakeholders of the first 10 kW FSPV plant in Kolkata, no such impacts have been noted. Similarly, specialized studies may be required on the impacts of proposed wind turbine installations on birds.

VI. RESULTS FRAMEWORK AND MONITORING

.

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

24

Results Framework COUNTRY: India

Innovation in Solar Power and Hybrid Technologies

Project Development Objective(s)

The Project Development Objectives (PDO) are to demonstrate the operational and economic feasibility of utility-scale innovative renewable energy technologies and battery energy storage solutions, and to strengthen institutional capacity to facilitate scale-up of such technologies on a commercial basis in India.

Project Development Objective Indicators

RESULT_FRAME_T BL_ PD O

Indicator Name DLI Baseline Intermediate Targets End Target

1 2 3 4

Demonstrate Operational & Economic Feasibility of Utility-Scale Innovative RE Technologies & BESS

Generation Capacity of Renewable Energy (other than hydropower) constructed (CRI, Megawatt)

0.00 0.00 160.00 300.00 350.00 400.00

Generation Capacity of Renewable Energy constructed - Other (CRI, Megawatt)

0.00 0.00 160.00 300.00 350.00 400.00

Renewable Energy generated (in megawatt hours) (Megawatt hour(MWh))

0.00 0.00 308,550.00 578,550.00 671,550.00 764,550.00


25

RESULT_FRAME_T BL_ PD O


1 2 3 4

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

0.00 0.00 210,000.00 390,000.00 450,000.00 510,000.00

Strengthen Institutional Capacity to Facilitate Scale-Up of Such Technologies on a Commercial Basis

Each solution (hybrid, floating solar PV and battery energy storage) demonstrated at least once through subprojects (Yes/No)

No No No No Yes Yes

Regulations, codes or standards for battery energy storage solutions issued (Yes/No)

No No No No Yes Yes

PDO Table SPACE

Intermediate Results Indicators by Components

RESULT_FRAME_T BL_ IO


1 2 3 4

Investments in Innovative Renewable Energy Technologies and Battery Energy Storage Solutions

Installed Generation Capacity of Hybrid Power Plants (Megawatt)

0.00 0.00 160.00 300.00 300.00 300.00

Installed Generation Capacity of Floating Solar PV Power Plants (Megawatt)

0.00 0.00 0.00 0.00 50.00 100.00


26



1 2 3 4

Number of MW/MWh-Scale Battery Energy Storage Solutions Installed (Number)

0.00 0.00 1.00 2.00 2.00 2.00

Grievances received that are addressed within two months of receipt (Percentage)

0.00 100.00 100.00 100.00 100.00 100.00

Technical Assistance, Capacity Building, Implementation Support, Monitoring and Dissemination

Number of Market Sounding, Workshops and Other Dissemination Activities Completed (Number)

0.00 3.00 6.00 9.00 12.00 15.00

Number of Stakeholders Informed and Consulted Through Market Sounding and Dissemination Activities (Number)

0.00 50.00 100.00 150.00 200.00 250.00

Number of Innovative Battery Energy Storage and Renewable Energy Subprojects Implemented (Number)

0.00 0.00 1.00 2.00 2.00 3.00

Number of Types of Innovative Battery Energy Storage and Renewable Energy Solutions Demonstrated (Number)

0.00 0.00 1.00 1.00 2.00 3.00

Number of Standard Procurement Documents for Innovative Solutions Developed (Number)

0.00 0.00 1.00 1.00 2.00 3.00

Number of Detailed Project Reports/Feasibility Studies for Innovative Battery Energy

1.00 2.00 3.00 4.00 4.00 4.00


27



1 2 3 4

Storage and Renewable Energy Projects Prepared (Number)

Study to Develop Career path for women employees in SECI and Implementation of Recommendations of such Study (Yes/No)

No No Yes Yes Yes Yes

Percentage of women in total workforce of SECI (Percentage)

20.00 20.00 20.00 25.00 25.00 30.00

Percentage of women in technical departments of SECI (Percentage)

13.00 13.00 13.00 18.00 18.00 23.00

IO Table SPACE

UL Table SPACE

Monitoring & Evaluation Plan: PDO Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Generation Capacity of Renewable Energy (other than hydropower) constructed

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;

Cumulative figures annually

Progress Report

SECI will collect and report the data in progress reports.

SECI


28

or (iv) other. For hydropower refer to code Hydropower (LH). The baseline value for this indicator will be zero.

Generation Capacity of Renewable Energy constructed - Other

Cumulative figure annually

Progress Reports


SECI

Renewable Energy generated (in megawatt hours)

This indicator measures actual energy generated from the subprojects supported under this Project.

Annual

Progress Report


SECI

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

This indicator calculates Greenhouse Gas (GHG) emissions avoided for all subprojects.

Annual

Progress Report

SECI will collect and report the data in progress report.

SECI

Each solution (hybrid, floating solar PV and battery energy storage) demonstrated at least once through subprojects

Each solution (hybrid, floating solar PV and battery energy storage) demonstrated at least once through subprojects

Annual

Progress Reports


SECI

Regulations, codes or standards for battery energy storage solutions issued

Regulations and/or codes and/or standards for battery energy storage solutions issued in the country

Annual

Progress Reports

SECI to report on this indicator

SECI

ME PDO Table SPACE


29

Monitoring & Evaluation Plan: Intermediate Results Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Installed Generation Capacity of Hybrid Power Plants

Installed generation capacity of hybrid power plants by SECI with financing from ISHTP.

Annual

Progress Report


SECI

Installed Generation Capacity of Floating Solar PV Power Plants

Installed generation capacity of floating solar PV power plants by SECI with financing from ISHTP.

Annual

Progress Report


SECI

Number of MW/MWh-Scale Battery Energy Storage Solutions Installed

Installed number of battery energy storage solutions by SECI with financing from ISHTP.

Annual

Progress Report


SECI

Grievances received that are addressed within two months of receipt

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

Annual

Progress Report

SECI will collect and report the data in progress report.

SECI

Number of Market Sounding, Workshops and Other Dissemination Activities Completed

The number of workshops, market sounding and other dissemination activities implemented by SECI using ISHTP financing.

Annual

Progress Report


SECI

Number of Stakeholders Informed and Consulted Through Market Sounding and Dissemination Activities

The number of stakeholders participating in dissemination activities and stakeholder

Annual

Progress Report


SECI


30

consultations implemented by SECI for ISHTP-supported innovative solutions.

Number of Innovative Battery Energy Storage and Renewable Energy Subprojects Implemented

The number of subprojects implemented by SECI using ISHTP financing.

Quarterly

Progress Report


SECI

Number of Types of Innovative Battery Energy Storage and Renewable Energy Solutions Demonstrated

The number of types of innovative solutions demonstrated by SECI using ISTHP financing.

Quarterly

Progress Report

SECI will collect and report data in progress reports.

SECI

Number of Standard Procurement Documents for Innovative Solutions Developed

The number of standard procurement documents developed for innovative solutions that have been demonstrated by SECI using ISHTP financing.

Annually

Progress Report


SECI

Number of Detailed Project Reports/Feasibility Studies for Innovative Battery Energy Storage and Renewable Energy Projects Prepared

Technical reports prepared for innovative RE projects

Quarterly

Progress Report


SECI

Study to Develop Career path for women employees in SECI and Implementation of Recommendations of such Study

Study to be completed by Year 2 and the implementation of the recommendations to be implemented by Year 4 of the project period

Quarterly

Progress Report

SECI will collect and report the data in progress reports

SECI

Percentage of women in total workforce of SECI

This indicator will monitor increase in number of

Annual

Progress Report


SECI


31

women employees in SECI (share of total).

Percentage of women in technical departments of SECI

This indicator will monitor increase in number of women in technical departments of SECI (share of total).

Annual

Progress Reports


SECI

ME IO Table SPACE


32

Annex 1: Implementation Arrangements and Support Plan

Project Institutional and Implementation Arrangements

1. SECI will be the borrower, grant recipient, and implementing agency of this project. The Bank will sign loan and grant agreements directly with SECI and a Guarantee Agreement with the GoI.

2. SECI will be responsible for ensuring investments meet criteria set out in the ISHTP OM, which details eligibility criteria, technical, fiduciary and safeguards requirements, investment decision guidelines, M&E requirements, and institutional and implementation arrangements for the project. SECI will follow the selection criteria (not limited to) in Table A1.1 below, which is elaborated further in the project’s OM, to identify the subprojects under ISHTP. Such investment criteria include a combination of techno-economic, fiduciary, environmental, and social requirements to be a part of the project. The OM, satisfactory to the Bank, has been prepared by SECI. SECI will be responsible for monitoring, evaluation and reporting to the GoI and the World Bank.

3. SECI, a CPSU under the administrative control of MNRE, was established on September 20, 2011 and facilitates the implementation of the NSM as well as in achieving its targets. As the GoI envisions it to be a self-sustaining and self-generating power organization, in November 2015, SECI was converted to a profit-making organization under Section 3 of the Companies Act of India (2013) from a non-profit organization under Section 25. SECI’s scope of activities were expanded by the GoI to cover all RE resources.

4. SECI is the nodal agency for handling MNRE’s schemes such as the 750 MW grid-connected solar PV project under Phase-II Batch-I of NSM (commissioned), the 2,000 MW under Phase-II Batch-III of NSM, and the 5,000 MW under Phase-II Batch-IV of NSM; rooftop solar PV program; solar parks; and, CPSU scheme. SECI also acts as an off-taker 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 (PSA). Further, SECI provides consultancy services to CPSUs/government entities keen to set up solar power projects. SECI has also entered into a number of joint ventures, mostly on equal partnership, with various state nodal agencies, for the development of the solar parks.

5. SECI is in in process of updating its business plan to identify key areas where it would like to focus on, reflecting market conditions and its mandate from the GoI/MNRE. Currently, SECI owns a 10 MW of ground mounted solar PV in Jodhpur, Rajasthan, and 1 MW of rooftop solar PV in Andaman and Nicobar. SECI is working towards expanding its asset base through this project. SECI is cognizant that it may be unsuccessful in entering commercial RE markets penetrated by a wide range of developers if it cannot deliver at competitive tariff levels. It is also aware that it is not the only CPSU supporting GoI in its NSM targets. However, SECI’s comparative advantage lies in selection of investments in innovative or nascent RE technologies. Such technologies where there is little or no performance track records and where there are barriers to commercial scale up, but which have large potential benefits to the Indian power system. SECI’s plan to have regular interactions with market players and regulators will be necessary to maintain relevance and its effectiveness as a market facilitator.


33

6. SECI has 67 permanent staff with a rolling cadre of temporary employees on secondment from other enterprises or government agencies or on contract. The staff have a range of skills including engineering (with backgrounds mainly in solar energy), accounting, and business administration. SECI is supervised by a Chairman / MNRE official, and led by a Managing Director. Four Directors manage four operational units of Solar; Power Systems (PS); Finance; and, HR. However, at the moment, only two Directors are there holding additional charge of the vacant posts. A General Manager oversees a fifth division for Contracts and Procurement (CP). Each Department is supported by combinations of General Managers, Additional General Managers and teams of Senior Managers, Managers, Deputy Managers and Senior Engineers.

7. The ISHTP is overseen by the Managing Director while SECI’s Director PS has overall responsibility for its implementation. The ISHTP’s key management functions are assigned across the organization under the supervision of respective Department Directors. For Component A, teams are organized for the preparation of subprojects, including DPRs, ESIAs, bid documents and financing. Bid document preparation, management of DSI (including O&M) contracts and other aspects of subproject implementation will be undertaken by SECI’s contracts department with the support of an OE in the case of the first subproject. Bid documents are reviewed by technical and financial departments before approval. Adjustments to team compositions are made depending on need of the subproject. Component B implementation will be overseen by the Departments which are the beneficiaries of the support. Dissemination activities will be designed and organized by Corporate Planning department of SECI, which is also responsible for preparing the ISHTP project progress monitoring reports (including KPIs). For the entire ISHTP, implementation arrangements for fiduciary (FM and procurement) and safeguards (environment and social) compliance assurance, including Grievance Mechanism, are defined below.

Table A1.1. Project’s Selection Criteria for Subprojects21

Head Description/output

Site, Resource and Technology related

Availability of adequate solar/wind resource

Availability/Visibility of power evacuation infrastructure near the site

Quantifiable benefits of the technology in comparison to solar and wind projects, as applicable

Indicative tariff worked out on the basis of CERC model should be in the range of prevailing market tariff (if applicable)

Subproject is technically feasible

Power offtake Willingness of host state for power offtake through long term PPA, or availability of alternative power offtake arrangement for the project

Credibility of power offtake entity

Payment security mechanism such as inclusion under Tri-partite Agreement

Financial returns for WSH and FSPV subprojects

Minimum project IRR of 8 percent (post-tax)

Minimum equity IRR of 14 percent (post-tax)

For BESS subprojects Use cases that face market barriers and have potential to be replicated

21 Such subproject selection criteria can be modified upon agreement between SECI and World Bank.


34

Head Description/output

Environment and Social Safeguards

Availability of land with minimum vegetation cover

Ownership to be preferably with the Government, with minimum private land requirement

Minimum Rehabilitation and Resettlement (R&R) requirements

No environmentally sensitive zones

Compliance with subproject-related World Bank safeguards requirements

Financial Management (FM)

8. After an FM assessment was carried out for SECI, which included collection and analysis of data as well as review and discussions on implementation arrangements, the FM arrangements have been finalized based on several factors such as sustainability and accountability. These are elaborated below.

9. Planning and Budgeting. Planning of activities and the corresponding budgeting exercise in SECI are primarily driven by the annual Memorandum of Understanding (MoU) between MNRE, GoI and SECI. Based on the agreed targets as documented in the MoU, SECI prepares its annual budget estimates for revenue and expenditure. Recurrent expenditure is usually projected on an incremental basis. As of now, SECI’s planning and budgeting processes lack a medium-term perspective and are not based on the longer-term vision for the Corporation.

10. Given that SECI will expand its operations under the project and that there will be greater non-government debt funding for SECI’s planned projects, SECI’s planning and budgetary processes need to be strengthened and upgraded by anchoring it on a medium-term vision document with a well-defined strategy for meeting the Corporation’s goals and objectives. As a step in this direction, a detailed planning and budgetary framework has been incorporated in its entity FM manual.

11. Accounting. SECI prepares its annual financial statements (AFS) 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. SECI uses the accounting software Tally which encompasses all of SECI’s lines of business/ schemes. SECI has a total of 15 bank accounts22 – one for each of the programs it manages for MNRE as well as one for its own internal operations. Bank reconciliation statements are generated on monthly basis. Currently, there are two IT systems in SECI that supplement the accounting function:

• Billing Management System (BMS) which functions more as a record management database and not for processing of bills.

• Employee Self Service (ESS) which is a stand-alone payroll system that helps record expenditure

reimbursement claims by staff in addition to payroll processing and deduction of statutory dues and payments.

22 At the time of project appraisal


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12. To consolidate and update accounting guidelines, specifically the shift of the accounting methodology to the Ind-AS, SECI has appointed consultants for preparing a detailed accounting manual. The FM Manual 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.

13. Internal Control (excluding Internal Audit). The existing delegation of financial powers is basic and needs to be expanded to meet the requirements of the expanding business operations of the Corporation. SECI has recently initiated revision of the existing framework of delegation of financial powers based on industry standards and good practices.23

14. Given the nature of its operations, SECI has multiple contracts with third party vendors under implementation by its various departments. However, it does not have one consolidated view of the progress of these contracts, both financial and physical. Each department maintains a separate excel sheet that records these details and is updated manually. There is no clear designation of responsibility or specified periodicity for updating these records. It is essential, hence, that SECI adopts a formal contract management system. This could be in the form of a separate IT system that is integrated with the accounting software or could be part of the ERP solution being adopted by SECI.

15. Internal Audit. The responsibility for conducting Internal audit is assigned to an external professional audit firm which carries out internal audit bi-annually. The appointment of the internal auditor for 2017-18 was not done competitively and no specific ToR for the internal audit were issued and shared with the auditors. To strength the internal audit, the entity FM Manual includes detailed ToR for the internal auditors in line with specificities of SECI’s operations. Also, SECI should ensure that the auditors are appointed through a competitive tendering process.

16. Financial reporting. Currently, SECI does not have an automated system of periodic compilation and consolidation of accounting/ financial information. Financial reports generated from the accounting system are modified manually for meeting information requests from the Management. The business intelligence/ reporting module of the envisaged ERP system can be expected to address this gap.

17. External Audit. The statutory auditors of SECI are appointed by Comptroller and Auditor General of India (C&AG), the supreme audit institution of India. A study of the audits for 2014-17 reveals that there are (a) no delays in the conduct of audits, (b) no major issues highlighted, and (c) unqualified reports for all years, except for 2015-16, where qualifications were non-financial in nature. The individual audit reports of the JVs which are published in SECI’s annual report under ‘Consolidated’ accounts however, contain some observations. In 2015-16, the JVs were mostly new companies.

18. External audit of the project’s AFS will be conducted by a firm of CAs, acceptable to the World Bank based on a mutually agreed ToR. SECI will share the annual audited report within six months from the end of each financial year, that is, September 30 of each year, starting with the year in which first disbursement

23 This exercise is expected to be completed by March 2019.


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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.

19. Disclosure. Pursuant to the World Bank Access to Information rules, AFS of the project will be disclosed on the websites of SECI and the World Bank.

20. Corporate Governance. A corporate governance assessment was also carried out for SECI. The findings were benchmarked against the existing regulatory framework viz., the Department of Public Enterprises’ (DPE) Guidelines and the Companies Act 2013. Key areas of non-compliance emerged from the absence of the prescribed number of independent directors on the Corporation’s Board of Directors. The absence of these key members adversely impacts the ability of the Board to be objective in its judgement and independent in its oversight in any company. The functioning of the Audit Committee, in particular, is affected by the absence of independent directors. Critical actions agreed with SECI for improving its score on corporate governance parameters include (a) updation of the business plan and finalization of enterprise risk management policy, and, (b) active follow up with the GoI for appointment of the remaining independent directors.

21. Disbursements. Disbursements will be made on the basis of the quarterly IUFRs. Retroactive financing will be available for eligible expenditure, subject to compliance with the World Bank’s procurement procedures. Expenditures incurred since September 1, 2018, subject to expenses up to an aggregate amount of: (a) US$30 million out of the Loan proceeds; (b) US$5.6 million out of the CTF Loan proceeds; and (c) US$4.362 million out of the CTF Grant. 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.

22. 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 have been documented in the ISHTP OM.

Procurement

23. 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, Revised Nov 2017 and Aug 2018; 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.

24. As per the requirement of the Regulations, a PPSD is already developed, based on which the Procurement Plan is prepared, which sets 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.


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Box A1.1. Summary of the PPSD

All procurement under the project will be undertaken in SECI by the Contracts Department, which is headed by the General Manager/Contracts. As per the procurement capacity assessment of SECI, it was noted that it has limited experience in the World Bank procurement process for works using the ICB. Hence, 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. SECI has identified one site in AP for development of 160 MW hybrid project (Solar Wind and storage). Under this project, SECI will procure subproject by using DSI in a single package and as single stage document with two envelopes and will own the assets. O&M for the initial few years (Ten years) will be in the scope of the selected DSI contractor. This is arrived at after four rounds of interactions with the market.

Goods, IT system, and non-consulting services. Details are in the Project’s Procurement Plan.

Consultancies. The project is likely to include several major consultancy contracts depending on the need of each of the subproject. Some of such consultancies envisaged are: (a) Selection of OE, (b) Project Management Consultancy (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 Impact Assessment. The project will use Bank procurement documents for all these consultancy activities.

Major Procurement activities: Three DSI contracts with estimated value of US$399.81 million (further details are in the Project’s Procurement Plan).

Procurement and contract approaches

Contract Attribute Selected approach

Requirements

Specifications Both Conformance and Performance; Conformance to technical Specification and Performance based on measured outputs.

Sustainability Requirements

Yes; O&M period for 10 years

Contract Strategy

Contract Type DSI Contract

Pricing and Costing Mechanism

Lump Sum Contract

Selection of Cost and Price Mechanism

Schedule of Rates

Supplier Relationship Adversarial (Competitive)

Price Adjustments Fixed Price

Form of Contract (Terms and Conditions)

O&M contract for 10 years

Selection Method

Selection Method Requests for Bids (RFB)

Selection Arrangement No e-Reverse Auction

Market Approach

Open and International Competitive Bidding (using e-procurement method) Single Stage, two envelope bid system [i.e. Envelope1: qualification and technical bid; and Envelope 2: financial (price) bid] will be followed. No BAFO No Negotiations

Qualification Post Qualification


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Evaluation Criteria

Evaluation Selection Method

Lowest (L1) Techno commercial qualified bidder basis

Evaluation of Costs Lump Sum Contract Price + Adjusted Bid Price based on NPV for O&M contract

Domestic Preference No, Domestic Preference will not be applicable

Rated Criteria Not applicable. Pass/ Fail criteria will be applied. Evaluation will be done on INR Cost/Unit

Contract Management

Contract Management Approach

OE (firm) will be hired to supervise the contract

Key Performance Indicators (KPIs) – Measures

• Material quality clearance during the Pre- dispatch inspection (PDI) stage.

• Timely achievement of in process milestones during execution phase.

• Achievement of Functional/Performance guarantees during Project commissioning phase

• Achievement of Functional/Performance guarantees during the O&M phase.

• Timely release of the milestone payment by the owner/SECI

Procurement risk mitigation

As risk mitigation, SECI is in the process of strengthening the contracts department by recruiting more procurement experts. SECI will also develop a training program, including on procurement and contract management, to be implemented over the life of the project. SECI has prepared a Procurement Policy, which includes all procurement processes, decision making, and safe upkeep and management of records. SECI has also established a comprehensive system for handling complaints. The procurement risk rating for the project is Substantial, given the lack of experience in handling ICB with World Bank procedure on the part of SECI.

Procurement methods As per General Conditions.

Review arrangements

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

Works, DSI 10

Goods and non-consulting services 2

Consultant firms 1

Direct selection 0.05

25. Systematic Tracking of Exchange in Procurement (STEP). STEP is a web-based tool owned by the World Bank which helps in tracking 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. SECI officials are already trained on STEP and it is already using STEP in uploading general procurement notice (GPN) and the initial few procurement activities.

26. E-procurement system. SECI will be using the e-procurement portal of Telecommunications Consultants India Limited (TCIL) www.tcil-india-electronictender.com for carrying out all e-tendering procedures under the proposed ISHTP Project. This will help in enhancing transparency and minimizing

http://www.tcil-india-electronictender.com/


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collusion in the bidding process. TCIL is a Public-Sector Enterprise of GoI which is a trusted and safe platform for conducting the e-tendering activities. TCIL has been used by SECI for all of its e-tenders and has demonstrated highest level of transparency, Security Protocols and ease of conducting the e-tendering procedures. Apart from SECI, the major PSUs/Government organizations are also using TCIL as their e-tendering platform including POWERGRID, National Thermal Power Corporation, Bharat Electronics Limited, Water and Power Consultancy Services, etc. The e-procurement system is reviewed by World Bank team from April 3-4, 2018 and cleared by Bank after receiving STQC certification.

27. Procurement capacity. SECI’s Contracts Department will do all procurement for the project. The Contracts Department’s head and a few other officials are from POWERGRID and they have some World Bank procurement experience. However, SECI as an entity does not have any World Bank-funded project procurement experience. Apart from delays in the procurement process, contract management delays and handling of disputes are potential problem areas.

28. Procurement training. Key staff of SECI can attend procurement trainings at the Indian Institute of Management, Lucknow/Administrative Staff College of India, Hyderabad. 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.

29. Procurement risk assessment. Table A1.2 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.

http://www.procurementlearning.org/


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Table A1.2. Assessed Procurement Risks and Mitigation Measures

Risk Factor Initial Risk Mitigation Measure Completion

Date Residual

Risk

Limited capacity and exposure resulting in potential 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

Possible non-compliance due to limited awareness with regard to 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 factors impacting the procurement process

Substantial • Disclosure of procurement-related information

• Appropriate handling of complaints

Continuous from year 1

Moderate

Overall Risk Substantial Substantial

30. 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 for National Competitive Procurement (NCP) agreed with the GoI Task Force (and as amended for time to time) shall be used for bidding.

(b) Open advertising of the procurement opportunity will be required, including giving adequate time for submission of bids.

(c) No special preference 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) Except with the prior concurrence of the Bank, there shall be no negotiation of price with the bidders, even with the lowest evaluated bidder.

(e) Government e-Marketplace (GeM) set-up by Ministry of Commerce, GoI will not be acceptable except for procurement under RFQ method.


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(f) At the Borrower’s request, the Bank may agree to the Borrower’s use, in whole or in part, of its electronic procurement system, provided that the Bank is satisfied with the adequacy of such system.

(g) Procurement will be open to eligible firms from any country. This eligibility shall be as defined under Section III of the Procurement Regulations. Accordingly, no bidder or potential bidder shall be declared ineligible for contracts financed by the Bank for reasons other than those provided in Section III of the Procurement Regulations.

(h) The request for bids/request for proposals document shall require that Bidders/Proposers submitting Bids/Proposals present a signed acceptance (in the form attached) at the time of bidding, to be incorporated in any resulting contracts, confirming application of, and compliance with, the Bank’s Anti-Corruption Guidelines, including without limitation the Bank’s right to sanction and the Bank’s inspection and audit rights.

(i) Procurement Documents include provisions, as agreed with the Bank, intended to adequately mitigate against environmental, social (including sexual exploitation and abuse and gender-based violence), health and safety (“ESHS”) risks and impacts.

(j) The Borrower shall use an effective mechanism for resolving procurement related complaints in a timely manner.

31. Domestic preference. The provision of domestic preference will not be applied for DSI contracts in accordance with Annex VI of the Regulations.

32. 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 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 SECI.

33. Anticorruption measures

(a) Disclosure requirements. The project shall comply with the disclosure requirements stipulated in the World Banks’ Procurement Regulations. 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, selection based on the Consultants’ Qualifications (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 the World Bank’s external website and United Nations Development Business online: (i) GPN (already published on February 19, 2018); (ii) REOI 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


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US$300,000. The project shall also publish on its website any information required under the provisions of disclosure, as specified by the Right to Information (RTI) Act of India.

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

34. 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.

35. The high-risk and high-value procurements, if any, will be identified for increased contract management support and indicated in the Procurement Plan. SECI will develop KPIs (refer Box A1.1 on PPSD) for such contracts and such 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.

36. Complaint handling mechanism. SECI has already established 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 timeframe. 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.

37. Procurement from government-owned entities. The project does not envisage the use of World Bank funds for any goods, works, 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

38. Environmental and Social impacts and management. The following issues and potential impacts are envisaged under the project, for which an ESMF has been prepared to guide the assessment of subsequently identified:

(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


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ground cover in such sites is a chosen strategy. In case of wind power plants, the probability of high wind density areas falling under forest land with heavy tree coverage, necessary precautions for safety buffer, and so on, should be considered while planning such power generation facilities. The proposed RE projects should be within a controlled access area, 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.

(c) Health and Safety issues: The project will require careful management of the construction phase to ensure safe execution, when large scale wind turbine generator (WTG) and solar panel installation will be undertaken. Safe working conditions for workers and clearly delineated areas for safe movement of other users of areas close to the site would need to be ensured in line with the ESMF and subsequent ESMPs for each site.

(d) Impact on community: So far only one subproject site has been identified that falls in the revenue village Ramagiri (Mandal - Ramagiri) and Mutavakuntla (Mandal - Kanaganapalli) of Anantapuramu District of AP State. The entire land is owned by government but has been assigned to landless below poverty line (BPL) families. As per state government’s order, all those having land under tower footings and under the right of way (ROW) will be compensated for restrictive use of land. Land under tower footings will receive 100 percent of the market value where as those under ROW will receive 15 percent of the market value. The ESIA of transmission line has been completed and disclosed.

(e) 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.

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

39. The currently identified subproject has been assessed and an ESMP has been prepared to manage the likely adverse impacts. In each subsequent subproject, the ESIA will be undertaken to develop an ESMP / RAP / Indigenous People Development Plan (IPDP), 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 safeguard instruments ensure that all the preceding analysis is used to preserve/improve overall environmental quality within the influence area of the project.


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40. For successful implementation of environmental and social mitigation measures, institutional setup plays a vital role. Properly trained environmental staff will need to be deployed for overseeing the execution of the sub-projects. Specialized services of experts such as for monitoring aquatic ecology conditions may be required based on findings of the ESIA for sites for FSPV plants. SECI will implement the RAP and/or ESMP. SECI will engage services of a third party agency/NGO/experts for implementation of the RAP/ IPDP. The RAP/IPDP 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.

41. Role of state government. Land for setting up of the hybrid/BESS/FSPV 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. With regard to FSPV, 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.

42. Roles and responsibilities of Environmental and Social Officer (ESO). 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 R&R of PAP with the objective that standards of living of the PAP improves or at least PAP regain their previous standards of living. The roles and responsibilities of the ESO hired by SECI shall be to: (i) Prepare ToR for any studies required in line with the ESMF and oversee implementation of RAP/ESMP or other management plans prepared; (ii) Participate in and facilitate consultations with stakeholders; (iii) 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; (iv) Assist PAPs to resolve their grievances arising out of the project; (v) Coordinate the training and capacity-building initiatives for contractors and project staff on social and environmental requirements under the project; (vi) Review contract documents and contractors’ performance to ensure that ESMP provisions related to works are included in the contract documents and the contractors comply with them; (vii) Act as a resource person in trainings based on experience in implementing this project and previous relevant work; (viii) Oversee and report to SECI on implementation of ESMP provisions included in the works contract for each subproject in the state; (ix) Liaise with state administration for land acquisition/procurement and implementation of the RAP; (x) Report progress, highlighting environmental and social issues not addressed, to provide for midcourse correction; (xi) Assist PAPs in approaching the GRM; and (xii) Carry out other responsibilities as required from time to time.

Gender

43. Since the bifurcation of AP and Telangana, data on these states is limited. The information on gender provided is therefore of undivided AP. Gender disaggregated data of ESIA reflects a gender disparity in literacy levels and work participation rate amongst men and women. National Family Health Survey-4 (NFHS-4) shows that in AP (undivided) 44 percent of women have experienced physical or sexual violence. Although domestic violence was neither observed nor reported during the village consultations, the high percentage of domestic violence in AP is a cause for concern. AP has a long history of social mobilization


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around SHGs in rural areas, that were originally created to address poverty and inter-related economic disadvantages. Centered around women’s groups, these SHGs worked to enhance livelihood, improve savings, and leverage these to access formal credit to further economic activity. Over time, SHGs were federated into village organizations and block/mandal level samakhyas that often identified economic activities that could be scaled up through producer organizations. An added dimension through such mobilization has been greater awareness of rights, thus increasing women’s voice and agency and their participation in local self-government institutions. The project therefore offers opportunities for convergence with these groups to facilitate improved health and education outcomes in the state. Institutional mechanisms for convergence and effective implementation of these programs has been developed as part of RAP. The development of large-scale innovative technologies will attract significant investments from project developers/generators which will generate employment opportunities for the local population. Women members will be encouraged to participate during construction. Additionally, for long term employment gain, SHGs will be leveraged to enable affected households to lower their vulnerability. Gender needs and priorities will be identified by the active participation of women at the project implementation stage to ensure positive gender outcomes. During project implementation gender sensitization trainings will be conducted for staff of implementing agencies to ensure gender constraints and priorities are taken into account at every stage.

Monitoring and Evaluation

44. SECI will monitor all the subprojects to ensure conformity to the requirements of the ESMF. All the safeguards documents prepared for the subprojects and its linked activities, in line with ESMF and agreed ToR, will be prepared and submitted to the Bank for review and its written no-objection before appropriate disclosure by SECI. 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 Quarterly Progress Reports (QPR) for all subprojects and regular visits by the environmental and social specialists of SECI.

45. Any technical, managerial, policy, or regulatory issues identified by SECI with regard to the compliance of the safeguard will be duly highlighted and the proposed mitigation measures incorporated in the relevant document (such as ESIA, ESMP, and QPR). 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.

46. An external evaluation, based on ToR agreed with the World Bank, of the RAP/IPDP implementation for subprojects will also be undertaken twice during the implementation of the project – at midterm and at the end of the implementation. During implementation, meetings will be organized by SECI inviting all contractors for providing information on the progress of the project work. Project monitoring will be the responsibility of SECI who will submit QPRs 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)


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a. Not Applicable

Strategy and Approach for Implementation Support

47. 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.

48. 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 with Task Team Leadership provided by staff based in the Bank’s New Delhi Office.

49. 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.

50. 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 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.

51. 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

52. 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.

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


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(c) Intermediate technical missions by specialists, as needed, on identification of new subprojects and institutional capacity strengthening activities.

(d) Quarterly implementation (physical and financial) progress reports prepared by SECI. (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.

53. Table A1.3 summarizes the implementation support plan.

Table A1.3. 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 staff annually

12–48 months

• Implementation support

• FM, procurement, and safeguards

• Technical

• Safeguards

• FM

• Procurement

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


48

Annex 2: Economic and Financial Analysis

BESS prices in India

1. Storage technology is evolving into a potentially crucial component of India’s overall energy development strategy. Storage provides utilities with multiple power management benefits, including time shifting, grid stabilization, shaving of peak demand, and improved utilization of transmission capacity.

2. 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. ICF’s economic modeling for the Indian energy system anticipates a near-term rapid decline in battery capital costs to US$217/kWh by 2020 and US$43/kWh by 2040.

3. The Ramagiri subproject economic analysis models a range of BESS costs due to the market uncertainty in India. There are widely differing estimates for installed BESS cost for the Indian market, with ICF estimating US$700/kWh, while Bloomberg’s EPVAL model assumes US$483/kWh, and Bloomberg New Energy Finance (BNEF) assumes US$390/kWh. BNEF’s estimate was used in the base case economic analysis, though the mean of the Monte Carlo analysis was taken as US$500/kWh, with estimates in excess of US$700/kWh representing the outer range. With the experience gained from capital cost, Engineering, Procurement and Construction (EPC) cost, and the specifications of a particular storage technology (especially cycle life, round trip efficiency, and depth of discharge), the project will serve as an important reference for future storage projects in India.

4. Analysis commissioned by the World Bank indicates that by 2041 the availability of storage in India could increase the penetration of solar power by 240 GW, and reduce the growth of coal power by 130 GW. Importantly, the study shows that even without carbon pricing storage enables substantially more solar power capacity in India than would a scenario where storage is not available. Dispatch order and capacity investments in the model are made without internalizing the social cost of carbon.

Figure A2.1. Capacity of RE in India modeled in IPM through 2041 where storage is available to the system (Case 1) and where storage is unavailable (Case 2).


49

Economic Analysis

5. The economic and financial analysis24 of the 160 MW Ramagiri WSH powerplant with BESS used inputs from the most recent CERC benchmarks for PV capital and O&M costs, wind capital and O&M costs, as well as land, civil and general works, and evacuation25. Distributions of project CUF, system curtailment assumptions, and battery utilization and functionality are outputs of the project technical design.

6. Counterfactuals sought to assess the economic merits of the Ramagiri subproject relative to a scenario where the project is not constructed, and alternate options for providing equivalent energy services. The “no project” scenario for the Ramagiri hybrid and BESS employed two different model representations of the generation that would have taken its place. An “IPM grid” model used an integrated assessment model to assess how the AP energy system would have supplied the Ramagiri generation profile in absence of the project. A “simple grid” counterfactual assumes that Ramagiri’s electricity generation would otherwise come from a mix of coal (70 percent), gas (15 percent) and hydro (15 percent) and is static over the lifetime of the project. The dynamic and static models produce very similar results. A third counterfactual examines the merits of the Ramagiri hybrid with BESS against a solar-only counterfactual, which has become an increasingly economical source of renewable power generation in India.

Table A2.1. Baseline economic analysis assumptions

7. The Ramagiri subproject reduces AP’s power system costs, including the need for additional thermal capacity and fuel expenditure, by US$99 million. The share of thermal in the IPM counterfactual

24 This analysis is consistent with the following World Bank guidelines: (a) Operational Policy and Bank Procedure 10.00, Investment Project Financing, (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. 25 CERC Petition No. 17/SM/2015 (23 March 2016)

baselinecoal project efficiency 0.36CoalPrice growth 1.00System curtailment 0.032PV capacity factor 0.22Degradation of PV output [%] 0.0070Wind capacity factor 0.25Battery roundtrip efficiency [%] 0.8Battery life (years) [years] 10Battery cycles per day [cycles] 1Battery state of charge [%] 0.5Battery degradation (function of cycles/day) [%] 0.020PV system cost (excl. Solar Park charges) [Rs. Lakh/MW] 400PV O&M expenses [Rs. Lakh/MW] 7Wind system cost (excl. Solar Park charges) [Rs. Lakh/MW] 550Wind O&M expenses [Rs. Lakh/MW] 10BESS system cost [US$/kWh] 390BESS O&M expenses [Rs. Lakhs/MWh] 1O&M expense escalation 0Land, Civil and General Works, and Evacuation [Rs. Lakh/MW] 104Solar Park Annual Charges [Rs. Lakh/MW] 3Solar Park escalation 0discount rate 0.1


50

declines from 76 percent in 2020 to 56 percent by 2044; with much of the remainder coming from new solar plants. The “without project” model shows an increase in coal consumption for power generation by 1.9 million tons, and additional emissions of 4.7 million tons CO2.

8. Some models show a negative marginal abatement cost for the Ramagiri subproject when a low discount factor is used. This indicates that more patient private investors could find this project to be feasible, without public incentives. However, being at the threshold of viability does not negate the uncertainty surrounding BESS prices. In all models, the subproject fails to reach the ERR without inclusion of local and global externalities.

Table A2.2. Ramagiri Subproject Counterfactual Models - Summary of Economic Analysis (at 2018 constant prices)

Base Case Base Case(high SPC*)

Sensitivity Base Case Sensitivity Base Case Sensitivity

Discount rate 10% 10% 6% 10% 6% 10% 6%

Economic rate of return

ERR [ ] 15.6% 25.0% 15.6% 19.8% 19.8% 7.8% 7.8%

ERR excluding GHG benefits [ ] 5.3% 5.3% 5.3% 8.5% 8.5% -3.5% -3.5%

ERR excluding GHG and local env. benefits [ ] 4.7% 4.7% 4.7% 5.2% 5.2% -4.8% -4.8%

Levelized cost of Hybrid + BESS [US$/kWh] 0.053 0.053 0.041 0.053 0.041 0.042 0.033

Levelized cost of counterfactual [US$/kWh] 0.077 0.109 0.075 0.077 0.076 0.049 0.039

Composition of NPV

Costs

Solar PV Capital Costs 120 MW [$USm] 51.06 51.06 57.07 51.06 57.07 51.06 57.07

Solar PV O&M [$USm] 8.92 8.92 13.53 8.92 13.53 8.92 13.53

Wind Capital Costs 40 MW [$USm] 23.40 23.40 26.16 23.40 26.16 23.40 26.16

Wind O&M [$USm] 4.07 4.07 6.17 4.07 6.17 4.07 6.17

Battery Capital Costs 10 MW, 20 MWh [$USm] 7.33 7.33 8.19 7.33 8.19 7.33 8.19

Battery O&M [$USm] 0.27 0.27 0.40 0.27 0.40 0.27 0.40

Associated Land & Infrastructure Costs [$USm] 21.42 21.42 22.23 21.42 22.23 -- --

Incremental Transmission O&M [$USm] 1.96 1.96 2.89 1.96 2.89 -- --

Total costs [$USm] 118.43 118.43 136.63 118.43 136.63 95.05 111.52

Benefits

Avoided fuel costs: Coal [$USm] 49.65 73.35 8.89 13.30

Avoided fuel costs: Gas [$USm] 24.35 36.23 4.37 6.58

Capacity credit: Coal [$USm] 9.85 10.61 1.65 1.77

Capacity credit: Gas [$USm] 2.46 2.65 0.41 0.44

Capacity credit: Hydro [$USm] 4.43 4.77 0.74 0.80

Capacity credit: Solar [$USm] 68.94 71.54

Avoided O&M [$USm] 1.89 2.86 12.36 17.44

Total benefits [$USm] 99.27 99.27 138.70 83.85 120.19 97.35 111.87

NPV (before environmental benefits) [$USm] -19.2 -19.2 2.1 -34.6 -16.4 2.3 0.4

Local environmental benefits: avoided grid generation [$USm] 3.77 3.77 5.25 16.59 27.29 0.61 1.01

NPV (incl. Local environmental benefits) [$USm] -15.4 -15.4 7.3 -18.0 10.8 2.9 1.4

Value of avoided GHG emissions [$USm] 70.6 141.1 108.4 71.0 109.7 12.8 20.1

NPV (including environment) [$USm] 55.2 125.7 115.7 53.0 120.5 15.7 21.4

Lifetime GHG emissions, undiscounted [mtons CO2] -4.70 -4.70 -4.70 -4.81 -4.81 -0.89 -0.89

Marginal abatement cost $US/ton 4.1 4.1 -0.4 7.2 3.4 -2.6 -0.4

IPM grid Simple Grid Solar-Only

* This model uses a "high" range for the social price of carbon. The methodology is described in World Bank (Nov. 2017). "Guidance note on shadow price of carbon in economic analysis".


51

9. Sensitivity: The sensitivity analysis calculates the switching values for those variables identified in the project risk matrix, including curtailment and lower-than-expected CUFs, delays in project commissioning, cost of system components, with the following key findings:

• Capital cost. Total costs in the system model are US$132 million, comprising of US$68 million solar PV costs, US$31 million in wind, US$9.8 million for the BESS and US$21 million for land, transmission and associated infrastructure. Capital costs would have to increase 1.3 times or to US$172 million for the ERR to fall below the hurdle rate. Given that market rates for solar and wind capital expenditures are well grounded, this is highly unlikely; meanwhile the BESS system cost would have to be six times the estimate in the base model to compromise the hurdle rate.

• Displaced carbon emissions. Because displacement of coal power is central to the GHG mitigation-

associated economic benefits of the project, the ERR is sensitive to the share of coal in the

counterfactual. Coal’s share would have to be roughly half of the modelled capacity for the project

to fall below the hurdle. The analysis uses Bank recommended social value of carbon, which

increases from US$37 per ton in 2018 to US$68 per ton in 2045. The social value of carbon would

have to be 42 percent of the base case for the ERR to fall below the hurdle rate.

• CUF of solar and wind. The base case of the economic analysis assumes CUFs of 22 percent for

solar and 25 percent for wind, on the basis of P90 levels. The CUFs would have to be 15 percent

for solar or 2 percent for wind for the project to be made unviable. Alternatively, the PV

degradation rate would have to increase from 0.7 percent per year to 7.6 percent per year.

• Energy Curtailment. The base case of the economic analysis assumes that 3.2 percent of the

energy from the solar park will be curtailed. Energy curtailment would have to approach one-

third of the system output before the subproject is unviable.

Table A2.3. Values of each key variable that would make the project fall below the ERR target of 10 percent

Simple grid IPM grid

PV [Rs. Lakh/MW] 400 832 624

Wind [Rs. Lakh/MW] 550 1842 1380

BESS [US$/kWh] 390 3524 2376

PV [%] 22 12 15

Wind [%] 25 -4 2

Curtailment [%] 3.2 38 29

[%/year] 0.7 13.7 7.6

[%] 70 38

multiplier 1 -0.25

[%] 23 -60

[years] 0 3.1

multiplier 1 0.11 0.42

PV degradation

CUF

System Cost

Switching Value

(w/ externalities)UnitBaseline

ValueInput

Social Price of CO2 (multiplier from

Low price trajectory)

Capacity credit of coal, gas, hydro

Coal price escalation

Share of coal in counterfactual

Commercial Operation Date delay


52

10. Ramagiri’s GHG emission reductions valued using Bank recommended social value of carbon constitutes 10 percentage points of the ERR and US$70.6 million of the NPV. The subproject is likely to reduce GHG emission by between 4.7 and 6.4 million metric tons of CO2 over its life. Since the project is mainly expected to displace generation from coal plants that are located far away from dense urban areas rather than diesel self-generation in urban areas, local environmental benefits from avoided PM10, NOx and SOx are not a significant determinate of economic viability.

11. The project’s anticipated total emissions benefits are likely to exceed 11 million tons of CO2. This estimate was calculated using the Ramagiri subproject model, with emissions factors calculated for hybrid projects (against a simplified national grid counterfactual), for BESS projects (against a coal spinning reserve counterfactual), and for FSPV projects (using the solar outputs of the Ramagiri subproject).

Table A2.4. Anticipated CO2 emissions benefits of the total project investment

Table A2.5. Anticipated energy production of the total project investment

12. The BESS sizing was chosen on the basis of Ramp Rate Control and curtailment avoidance, which have different economic implications. Ramp rate control has system level benefits for grid operation and system stability, but does not increase the energy output of the subproject (instead incurring a roundtrip efficiency loss with each battery cycle, on the order of 10 GWh over the battery life at one cycle per day). Conversely, using the BESS for curtailment avoidance enables the Ramagiri subproject to increase electricity sales. On the basis of estimated curtailment26, and assuming that the BESS is operated at a 50 percent average state of charge to permit ramp rate control, 36 GWh of additional capacity was available

26 The Ramagiri subproject is assumed to have 3.2 percent of its annual energy output curtailed, on the basis of a full year of curtailment data from the nearby Rayala wind farm supplied by APTRANSCO. The curtailment pattern varies seasonally, with some months in the spring and winter experiencing no curtailment in the model year.

Yearly average Total by end year

300 MW HYBRID only 0.030 [MtCO2/MW] 0.36 9.00

40 MWh BESS only 0.0030 [MtCO2/MWh] 0.01 0.12

100 MW FSPV only 0.028 [MtCO2/MW] 0.11 2.83

PROJECT TOTAL CO2 REDUCTION 0.48 11.9

Projected emissions savings

[million tCO2]Component A targets

Ramagiri-derived

emissions

savings per installed unit

Yearly average Total by end year

300 MW HYBRID only 45.6 GWh/MW 547 13676

40 MWh BESS only 3.6 GWh/MWh 14 144

100 MW FSPV only 42.9 GWh/MW 172 4293

PROJECT TOTAL REDUCTION 725 18113

Projected project generation

[GWh] (undiscounted)Component A targets

Ramagiri-derived

generation

per installed unit


53

due to curtailment avoidance. Considering both use cases and the IPM modelled system counterfactual, the Ramagiri BESS on its own has an ERR of -12 percent and marginal abatement cost of US$244/tCO2.

Table A2.6. Monte Carlo Input Assumptions

Figure A2.2. Monte Carlo Analysis Results - Sensitivity of ERR with Environmental Externalities to key variables

Name Graph Min Mean Max Name Graph Min Mean Max

Commissioning delays

[years]0.00 0.23 3.00

BESS Rountrip

Efficiency [%]0.71 0.87 0.96

Coal displaced in

Counterfactual [%]0.55 0.73 0.99 BESS lifetime [years] 5.02 10.00 15.20

System curtailment 0.00 0.03 1.00BESS system cost

[US$/kWh]307.19 500.00 1220.60

PV Capacity Factor 0.18 0.24 0.31PV System cost [Rs.

Lakh/MW315.49 400.00 484.04

Wind Capacity Factor 0.15 0.29 0.44Wind system cost [Rs.

Lakh/MW]422.73 550.00 686.01


54

Figure A2.3. Monte Carlo Analysis Results - Sensitivity of ERR without Environmental Externalities to key variables

Figure A2.4. Monte Carlo Analysis Results - Sensitivity of GHG Emissions reductions to key variables


55

Table A2.7. BESS versus counterfactual models - Summary of Economic Analysis Results

Base Case Base Case(high SPC*)

Sensitivity Base Case Sensitivity Base Case Sensitivity Base Case Sensitivity

Discount rate 10% 10% 6% 10% 6% 10% 6% 10% 6%


ERR [ ] -12.1% -6.2% -12.1% -3.8% -3.8% -11.5% -11.5% -38.2% -38.2%

ERR excluding GHG benefits [ ] -20.3% -20.3% -20.3% -7.4% -7.4% -22.8% -22.8%

ERR excluding GHG and local env. benefits [ ] -20.7% -20.7% -20.7% -9.3% -9.3% -23.5% -23.5%

Levelized cost of BESS [US$/kWh] 0.21 0.18 0.21 0.18 0.21 0.18

Levelized cost of counterfactual [US$/kWh] 0.12 0.12 0.08 0.08 0.01 0.01

Composition of NPV

Costs

Battery Capital Costs 10 MW, 20 MWh [$USm] 7.33 7.33 8.19 7.33 8.19 7.33 8.19 7.33 8.19

Battery O&M [$USm] 0.19 0.19 0.25 0.19 0.25 0.19 0.25 0.19 0.25

Total costs [$USm] 7.52 7.52 8.43 7.52 8.43 7.52 8.43 7.52 8.43

Benefits

Avoided fuel costs: Coal [$USm] 1.18 1.52

Avoided fuel costs: Gas [$USm] 2.67 3.45 0.00 0.00 0.00 0.00

Capacity credit: Coal [$USm] 0.33 0.35

Capacity credit: Gas [$USm] 1.01 1.08 0.00 0.00 0.00 0.00

Capacity credit: Hydro [$USm]

Avoided O&M [$USm] 0.12 0.15 0.03 0.04 0.05 0.08

Total benefits [$USm] 1.70 1.70 2.06 3.80 4.69 1.54 1.91 0.00 0.00

NPV (before environmental benefits) [$USm] -5.8 -5.8 -6.4 -3.7 -3.7 -6.0 -6.5 -7.5 -8.4

Local environmental benefits: avoided grid generation [$USm] 0.04 0.04 0.06 0.29 0.39 0.05 0.06 0.00 0.00

NPV (incl. Local environmental benefits) [$USm] -5.7 -5.7 -6.3 -3.4 -3.4 -5.9 -6.5 -7.5 -8.4

Value of avoided GHG emissions [$USm] 1.1 2.1 1.4 0.6 0.8 1.3 1.7 0.2 0.3

NPV (including environment) [$USm] -4.6 -3.6 -4.9 -2.8 -2.5 -4.6 -4.7 -7.3 -8.1

Lifetime GHG emissions, undiscounted [mtons CO2] -0.0238 -0.0238 -0.0238 -0.0277 -0.0277 -0.0598 -0.0598 -0.0108 -0.0108

Marginal abatement cost $US/ton 244.4 244.4 268.0 134.3 135.2 100.0 109.1 693.3 778.1

IPM grid Gas Coal Hydro

* This model uses a "high" range for the social price of carbon. The methodology is described in World Bank (Nov. 2017). "Guidance note on shadow price of carbon in economic analysis".


56

Table A2.8. Summary of economic results for indicative subproject types, against a counterfactual of 70 percent coal, 15 percent gas and 15 percent hydropower, unless otherwise noted.

Financial Analysis

13. The application of CERC Guidelines to the Ramagiri subproject yields a levelized electricity tariff of INR 4.40/kWh (US$0.065/kWh). Regulations issued by India’s CERC in 2017 determine electricity tariffs of RE projects based on the following components: (a) return on equity; (b) interest on loan capital; (c) depreciation; (d) interest on working capital; and, (e) operation and maintenance expenses. They require tariff to be determined on levelised basis for over the useful life of the project, which is 25 years for both solar and wind projects, and the use of post-Tax weighted average cost as the discount rate.

Base Case Sensitivity Base Case Sensitivity Base Case Sensitivity Base Case Sensitivity

Discount rate 10% 6% 10% 6% 10% 6% 10% 6%


ERR [ ] 21.8% 21.8% 19.8% 19.8% -11.5% -11.5% 29.7% 29.7%

ERR excluding GHG benefits [ ] 9.7% 9.7% 8.5% 8.5% -22.8% -22.8% 14.2% 14.2%

ERR excluding GHG and local env. benefits [ ] 6.2% 6.2% 5.2% 5.2% -23.5% -23.5% 10.4% 10.4%

Levelized cost of Hybrid + BESS [US$/kWh] 0.050 0.038 0.053 0.041 0.209 0.181 0.040 0.031

Levelized cost of counterfactual [US$/kWh] 0.077 0.076 0.077 0.076 0.081 0.080 0.077 0.076

Composition of NPV

Costs

Solar PV Capital Costs 120 MW [$USm] 51.06 57.07 51.06 57.07 57.45 64.20

Solar PV O&M [$USm] 8.92 13.53 8.92 13.53 6.19 10.37

Wind Capital Costs 40 MW [$USm] 23.40 26.16 23.40 26.16

Wind O&M [$USm] 4.07 6.17 4.07 6.17

Battery Capital Costs 10 MW, 20 MWh [$USm] 7.33 8.19

Battery O&M [$USm] 0.27 0.40 7.33 8.19

Associated Land & Infrastructure Costs [$USm] 21.42 22.23 21.42 22.23 0.19 0.25 12.20 12.66

Incremental Transmission O&M [$USm] 1.96 2.89 1.96 2.89 1.12 1.65

Total costs [$USm] 110.84 128.05 118.43 136.63 7.52 8.43 76.96 88.88

Benefits

Avoided fuel costs: Coal [$USm] 49.44 73.09 49.65 73.35 1.18 1.52 42.19 62.17

Avoided fuel costs: Gas [$USm] 24.25 36.10 24.35 36.23 0.00 0.00 20.69 30.70

Capacity credit: Coal [$USm] 9.79 10.55 9.85 10.61 0.33 0.35 8.47 9.13

Capacity credit: Gas [$USm] 2.45 2.64 2.46 2.65 0.00 0.00 2.12 2.28

Capacity credit: Hydro [$USm] 4.41 4.75 4.43 4.77 3.81 4.11

Capacity credit: Solar [$USm]

Avoided O&M [$USm] 1.88 2.84 1.89 2.86 0.03 0.04 1.62 2.46

Total benefits [$USm] 83.48 119.73 83.85 120.19 1.54 1.91 71.36 101.99

NPV (before environmental benefits) [$USm] -27.4 -8.3 -34.6 -16.4 -6.0 -6.5 -5.6 13.1

Local environmental benefits: avoided grid generation [$USm] 16.54 27.22 16.59 27.29 0.05 0.06 14.03 23.01

NPV (incl. Local environmental benefits) [$USm] -10.8 18.9 -18.0 10.8 -5.9 -6.5 8.4 36.1

Value of avoided GHG emissions [$USm] 70.8 109.4 71.0 109.7 1.3 1.7 60.2 92.8

NPV (including environment) [$USm] 59.9 128.3 53.0 120.5 -4.6 -4.7 68.7 128.9

Lifetime GHG emissions, undiscounted [mtons CO2] -4.79 -4.79 -4.81 -4.81 -0.06 -0.06 -4.05 -4.05

Marginal abatement cost $US/ton 5.7 1.7 7.2 3.4 100.0 109.1 1.4 -3.2

Wind-Solar Hybrid + BESSWind-Solar HybridBESS Standalone

(against coal spinning reserve) Floating Solar PV


57

Table A2.9. Project and Equity IRR (Nominal values)

Table A2.10. Sensitivity scenarios for Financial Model

Description Unit 2020 2025 2030 2035 2040 2045

Project IRR computations

Cash outflow

fund drawal [Rs. Lakhs] 89211

Cash inflow

PBDIT [Rs. Lakhs] 12632 12489 12343 12192 12038 11191 10267 9052 7554

Terminal value 4461

Net cashflows [Rs. Lakhs] -89211 12632 12489 12343 12192 12038 11191 10267 9052 12015

Project IRR Post Tax 12.2%

Equity IRR computations

EquityCash outflow

equity fund drawal [Rs. Lakhs] -19746

EquityCash inflow

PBT [Rs. Lakhs] 1082 1035 1079 1120 1156 1979 6001 5794 3645

Depreciation [Rs. Lakhs] 4710 4710 4710 4710 4710 4710 1588 1588 1588

Tax Depr. Benefit [Rs. Lakhs] 0 0 0 0 0 0 0 0 0

less repayment [Rs. Lakhs] 0 -2116 -2116 -2116 -2116 -3610 -3948 -1832 -5364

Net equity cashflows [Rs. Lakhs] -19746 5792 3630 3674 3715 3751 3079 3641 5549 -131

Equity IRR 19.2%

Solar Wind Solar Wind Solar Wind One Time Annual Domestic WB-IBRD WB-CTF Solar Wind BESS Hybrid Hybrid Hybrid

Framework PSA Case 4.00 5.06 570 235 22% 25% 50.00 3.00 9.00% 10.65% 7.08% 7.00 11.24 1.00 4.33 12.39% 20.43%

Base Case-Hedging Cost 4.00 5.50 622 271 22% 25% 91.00 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 4.40 12.21% 19.24%

Base Case-FERV Pass Through 4.00 5.50 622 271 22% 25% 91.00 3.00 9.00% 5.20% 1.63% 3.00 10.00 1.00 3.76 9.47% 19.62%

Wind CUF 30%-Gamesa 4.00 5.50 622 271 22% 30% 91.00 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 4.16 12.21% 19.22%

+5% EPC Cost Variation 4.20 5.78 647 282 22% 30% 91.00 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 4.31 12.20% 19.17%

-5% EPC Cost Variation 3.80 5.23 596 259 22% 30% 91.00 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 4.02 12.23% 19.27%

CUF P75 4.00 5.50 622 271 23% 27% 91.00 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 4.17 12.21% 19.23%

CUF P50 4.00 5.50 622 271 24% 29% 91.00 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 3.96 12.21% 19.23%

Transmission Line in scope of STU 4.00 5.50 556 248 23% 27% 38.80 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 3.82 12.24% 19.36%

Transmission Line in scope of STU-With

FERV Pass Through4.00 5.50 556 248 23% 27% 38.80 3.00 9.00% 5.20% 1.63% 3.00 10.00 1.00 3.29 9.54% 19.80%

Base Case-Solar Park Charges change

(Case-II)4.00 5.50 583 257 22% 25% 60.16 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 4.18 12.23% 19.31%


(Case-III)4.00 5.50 547 246 22% 25% 32.38 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 3.99 12.25% 19.38%


(IV)4.00 5.50 620 270 22% 25% 89.80 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 4.39 12.21% 19.24%


(Case-V)4.00 5.50 545 245 22% 25% 30.30 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 3.98 12.25% 19.39%

Sensitivity Linked 4.00 5.50 622 271 22% 25% 91.00 3.00 9.00% 10.65% 7.08% 3.00 10.00 1.00 4.40 12.21% 19.24%

TariffProject

IRR

EPC Cost

(Rs. Crores)CUF

Capital Cost

(Rs. Crores)

Equity

IRRO&M Expense

ScenarioInterest RateSolar Park Charges


58

Distributional Analysis 27

14. The subproject generates cash inflows by selling power to APSPDCL. The cash outflows are represented by the investment costs of the hybrid generation plant and O&M costs. BESS capital cost is assumed to be financed with CTF grants. However, BESS O&M costs are included in the financial costs.

15. The distributional analysis of the subproject shows that finances of off taking Discoms need not be adversely affected by the project. The average unit power purchase costs of AP Discoms in FY2018-19 (INR 4.19/kWh, ranging between INR 1.90/kWh and INR 4.99/kWh)28 was close to the PPA rate estimated for the Ramagiri subproject. This implies little additional financial cost to Discoms compared to thermal generators owned by APGENCO which averaged INR 4.13/kWh, and savings relative to alternate renewable energy sources in AP, which cost INR 4.99/kWh. The global community is the largest beneficiary of the project given substantial GHG emission reductions. Since the subproject will displace a substantial share of thermal power, these generators are shown as net losers.

16. Off-taker Risk: The Ramagiri subproject offtaker will be APSPDCL, the state Discom. A detailed entity level financial analysis of the entity was undertaken as part of the World Bank’s engagement with AP under 24x7 Power for All project. Based on assumptions of improvement in operational efficiencies, loan re-structuring under Ujjawal Discom Assurance Yojana (UDAY) (through which 75 percent of the debt of the utility will be taken over by the state), and continued tariff adjustments to account for inflationary increase in costs, APSPDCL is expected to turnaround in FY2020. However, SECI has recently been included in the TPA with the GoI, 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, in 2017, the long-term investment rating of SECI was upgraded from ‘AA minus’ to ‘AA plus’ by ICRA Limited, a credit rating firm in India. Hence, there are no as such off-taker risks for SECI.

Table A2.11. Distributional analysis of the Ramagiri Subproject

27 The distributional analysis of the project identifies the economic beneficiaries: who wins and who loses. 28 APERC (27 March 2018). Retail Supply Tariffs. Chapter V: Power Purchase Cost for FY2018-19. http://www.aptransco.gov.in/transco/images/TO2018-19.pdf

All values in US$ millions

SECI/

SPV DISCOMS Govt

Thermal

Generators

Urban

HH

Rural

HH

CTF

grant

Econ impact

without GHG GHG

Total

econ

impact

Hybrid system costsCapital cost -103.2 -103.2 -103.2Taxes on capital cost -36.1 36.1 0.0 0.0O&M costs -15.2 -15.2 -15.2CTF Grants 7.3 -7.3 0.0 0.0Power PurchasePPA payments 151.8 -151.8 0.0 0.0Avoided power purchase costs 160.6 -27.1 -40.9 92.6 92.6Environmental benefitsavoided GHG emissions 0.0 71.0 71.0avoided local health damage costs 5.5 11.1 16.6 16.6

Net impact (NPV) 4.5 8.9 9.0 -40.9 5.5 11.1 -7.3 -9 71 62


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Corporate Financial Analysis

17. Overview. SECI, since its inception, has acted as a disbursement agency for the funds under VGF schemes, carries out the tender process for both rooftop and ground-mounted solar schemes, handles schemes for solar park implementation, offers PMC services, and importantly, is a renewable power trader. 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 of Rajasthan under the MNRE’s bundling scheme of NSM. Solar power from this project is sold to NTPC Vidyut Vyapar Nigam Limited (NVVNL) under a 25-year PPA. The project is functioning satisfactorily. Similarly, SECI’s 1 MW rooftop solar PV project in Andaman Island was commissioned in March 2018 and has been functioning satisfactorily. ISHTP subprojects starting with Ramagiri subproject is targeted for commissioning in mid-2020.

(b) Scheme handling. SECI acts as a disbursement agency for funds under VGF schemes. SECI, as of now, is handling the following VGF schemes for large-scale projects: 750 MW, 2000 MW, and 5000 MW. In addition to this, SECI is also handling 1500 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. Further, SECI also earns revenue as ‘success charges’ against liaisoning with various stakeholders (such as state distribution companies, CTU, STU, etc.) and administrative expenses incurred while facilitating PPA/PSA for the projects under various schemes.

(c) PMC. SECI provides PMC services to various organizations and institutions. Leveraging its expertise, SECI plans to further develop this business line for revenue generation. Examples of PMC services it provides are 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 the Ordnance Factory Board.

(d) Power trading. SECI, a Category I power trading license holder (implying no limit on the volume of electricity to be traded in a year), acts as power trader for various solar and wind projects. SECI is responsible for purchasing power from projects under VGF schemes and tariff-based auctions of the GoI and selling it to various Discoms/Buying Utilities and other customers.

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

18. SECI has been augmenting its business in new areas. There have been some important developments in recent times, bringing in new potential and prospects of growth for SECI that brought out the first a wind energy tender for procurement of 1 GW central transmission utility (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. In subsequent wind tenders and the most recent one of 2 GW capacity, the tariff declined to INR 2.52 per unit, which is highly competitive.


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SECI has also been designated as a nodal agency to bring out tenders under wind-solar hybrid policy of the GoI. SECI will develop additional innovative WSH, FSPV, and BESS projects under the ISHTP.

19. The current financial performance of SECI is generally satisfactory. An estimate of SECI’s financial performance was carried out based on ongoing activities and activities currently in pipeline for SECI. SECI became profitable four years ago, with a total revenue of US$160 million (INR 11,759 million) and net profit of about US$8.7 million (INR 647 million) in its seventh year of existence (FY2018). In addition to revenue growth, SECI’s profitability improved from FY2017 to FY2018. In FY2018, net profit of the company has increased by 40 percent from US$6 million (INR 465 million) in FY2017, while the net worth of the company has increased by more than 18 percent from US$50 million (INR 3,683 million) to US$60 million (INR 4,368 million) during the same period.

20. Revenue projections for the next ten years indicate a steady growth for SECI. With the fall in solar and wind tariffs in the country, there is uncertainty around VGF revenues and have assumed to be nil by FY2026. These are expected to be offset by revenues from power trading as well as SECI-owned assets, which are expected to grow, including revenue generated from assets under the proposed project. The financial projections show a steady rise in return on equity, especially in FY2021 owing majorly to the fact that number of projects under power trading segment almost doubled resulting in an increase in revenue and hence profits of SECI.

21. Debt service coverage ratio and debt-equity ratio remain satisfactory over next ten years. The forecasted minimum debt service coverage ratio is 1.98 in FY2022 but rises again to above 2 as assets begin to commission. The forecasted maximum debt equity ratio is 2.66 in FY2023. This is due to the fact that capital expenditure plan of SECI is assumed for next five years (that is, till FY2023) and hence correspondingly debt is being raised to meet the increase in investments. After FY2023, repayments start and hence tapering down of debt equity ratio. Return on equity is high due to relatively small paid-up capital of US$47 million (INR 3.5 billion) while revenues from trading margin as well as from its own projects show steady growth with commissioning of assets.

22. Key assumptions for financial projections are as below:

a. Operating revenues are taken from audited accounts till FY2018, and for subsequent years calculated based on present commissioning schedules of various projects.

b. The current trading margin of INR 0.07 per unit traded is considered for majority of the Power Trading projects under the ambit of SECI. Such projects include solar power projects, wind power projects, solar-wind hybrid projects, and manufacturing linked solar projects amongst others.

c. Success fee of 0.2 percent has been considered in the year of signing of PPA of the planned projects.

d. Income from PMC charges have been considered at 4 percent from FY2020 onwards while PMC expenses have been considered as 20 percent of the income from PMC charges.


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Table A2.12. Corporate Financial Analysis (in US$ Million)

Head 2017* 2018* 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

INCOME STATEMENT ITEMS

Revenue (excl. other Income) 106 157 351 477 953 1,484 2,644 4,064 5,444 6,773 8,110 8,986 9,589

Expenses (incl Dep & Int.) 98 145 334 456 909 1,437 2,576 3,961 5,313 6,614 7,918 8,775 9,364

Profit before Tax 10 14 18 22 44 47 69 103 131 159 191 211 225

Net Profit 6 9 12 14 29 31 45 67 85 104 125 138 146

FUNDS STATEMENT ITEMS

Operating Cash Flow (post-tax) 37 -45 18 16 51 73 105 139 171 191 210 218 222

Capital Expenditure -10 -1 -24 -125 -129 -125 -131 -101 -16 - - - -

Pre-Financing Cash Flow 27 -46 -7 -109 -78 -52 -26 38 155 191 210 218 222

Financing 14 7 0 102 102 96 103 81 13 - - - -

Cash Available for debt service 42 -37 -5 -6 24 45 77 118 168 191 210 218 222

Debt Service -4 - - - -14 -38 -45 -53 -69 -67 -65 -66 -66

Dividend Paid - -6 -4 -5 -10 -11 -16 -24 -31 -37 -45 -50 -53

Increase in Cash Balance 39 -43 -9 -11 - -4 16 41 68 86 100 102 103

Cash C/F 68 25 16 5 4 0 16 57 125 211 311 413 516

BALANCE SHEET ITEMS

Net Block 8 8 8 53 165 277 377 478 543 522 486 449 413

Capital Work in Progress 0 0 18 125 129 125 131 101 16 - - - -

Total Fixed Assets 8 9 26 178 295 402 508 580 559 522 486 449 413

Total Current Assets 176 257 416 253 155 128 128 151 215 301 401 503 606

Total Assets 185 266 442 431 450 530 636 731 774 823 887 953 1,019

Total Equity 50 59 66 76 94 114 142 185 240 306 385 473 566

Borrowings - - - 102 201 286 378 441 430 407 383 356 326

Current Liabilities 157 219 404 253 156 131 116 105 104 111 118 123 126

Total Debt 157 219 404 355 356 416 494 546 535 518 502 480 453

Total Equity and Liability 207 278 471 431 450 530 636 731 774 823 887 953 1,019

FINANCIAL RATIOS

Return on Equity 13% 15% 17% 19% 31% 27% 31% 36% 36% 34% 32% 29% 26%

Debt Service Coverage Ratio - - - - 3.78 1.98 2.28 2.49 2.42 2.73 3.11 3.23 3.29

Debt Equity Ratio - - 0.01 1.36 2.14 2.51 2.66 2.39 1.80 1.33 0.99 0.75 0.58

* Actual


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Annex 3. Clean Technology Fund

[This Annex presents the Project as it was approved by the CTF committee in Spring 2017; details of the

project’s anticipated impact have been updated as reflected earlier in this document].

Table A3.1 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 (RE) generation capacity in supported innovative RE technologies (MW)

400 MW

10 GW29

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

- Thousand Tons over lifetime

[mtCO2eq / 25 years]30

0.48

11.9

12.0

297.5

Financing leveraged through CTF financing (US$ million)

US$420 million

- US$150 million by IBRD - US$200 million by the SECI,

including about US$120 million from commercial banks

- 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]

4.20

39.5

0.17

34.3

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

29 Indian government considered a target of 10 GW by 2022 in a draft Policy for solar and wind hybrid projects (https://www.pv-tech.org/news/india-targets-10gw-solar-and-wind-hybrid-capacity-by-2022). This target, which was not included in the Policy as released in May 2018 (https://mnre.gov.in/sites/default/files/webform/notices/National-Wind-Solar-Hybrid-Policy.pdf) nonetheless motivates the potential for near-term scale-up for the Project. 30 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

https://mnre.gov.in/sites/default/files/webform/notices/National-Wind-Solar-Hybrid-Policy.pdf


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Key Indicators CTF/World Bank-funded

Project

Scaled-up Phase (by 2022)

- 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 RE project sites.

I. Introduction

Background: country and sector context 1. India continues to be the world’s fastest growing major economy. After growing at 7.2 percent in FY2018, the economy expanded by 7.7 percent in the first half of the current fiscal year. This robust performance was underpinned by a revival in industrial activity, strong private consumption complemented by rising investment, and a rise in exports of goods and services. Meanwhile, the external headwinds that characterized the first half of the year have subsided. The dramatic decline in oil prices, since October 2018, has allowed the current account deficit to return to relatively benign levels. Likewise, the large portfolio capital outflows that materialized from April 2018 onwards (against the background of current account imbalances and heightened perceptions of emerging markets risk) have eased and capital inflows have resumed (resulting in a stabilization of the exchange rate and bond yields). With the normalization of external circumstances, foreign reserves have remained at around US$396 billion, which represents a comfortable level (equivalent to about 9 months of imports). Going forward, growth is projected to reach 7.3 percent for the full current fiscal year and to firm-up thereafter, at around 7.5 percent, primarily on account of robust private consumption, a rise in exports of goods and services, and a gradual increase in investments. However, the current account deficit is projected to remain elevated in FY2019.

2. India’s rapid economic development requires a power system that can continue to meet demand for better quality and cleaner electricity services for a growing population. It is among the top five fastest growing global economies and home to over one-sixth of the world’s population. Over the past decade, India’s economic performance drove average annual growth of peak power demand and energy demand to 5.1 percent and 5.5 percent, respectively.31 Already the third largest electricity consumer in the world, India’s electricity demand has significant headroom as its per capita electricity consumption is only one-third of the global average.

3. The Government of India (GoI) considers India’s low per capita electricity consumption a constraint on meeting its inclusive economic development objectives, including providing universal

31 Calculated for 2007-2017. Central Electricity Authority (CEA) (May 2017). “Growth of Electricity Sector in India from 1947-2017”.


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electricity access. Therefore, the supply and reliability of electricity services are a national priority. With major efforts, significant gains have already been made in expanding electricity access to over 80 percent of the population in 2016 from 56 percent in 2001.32 The GoI has an ambitious goal of providing uninterrupted power for all homes, industrial and commercial establishments, etc., through its 24x7 Power for All Program, targeting universal access to electricity by 2022.33

4. While India’s energy policy is based on energy security and self-sufficiency, the path India’s power sector will take has both local and global impacts given its scale and fuel mix. An ambitious power generation capacity expansion effort is underway to increase installed capacity to over 1,200 gigawatts (GW) by 2040 from 334 GW in 2018.34 Under GoI’s draft National Energy Policy, coal power capacity in a business-as-usual scenario would grow from 194 GW in 201835 to 441 GW by 2040, unless clean energy initiatives are effective in bringing a supply alternative at scale and at lower cost. International Energy Agency (IEA) estimates suggest India would contribute more than any other country to the projected rise in global energy demand while its CO2 emissions are expected to triple between 2015-2040 (IEA, 2015).

5. Investments in clean power generation, energy efficiency, and electricity networks are critical to address local needs and India’s global commitments (Nationally Determined Contribution [NDC]). India’s NDC aims to increase to 40 percent the share of installed electric power capacity from non-fossil-fuel-based energy resources by 2030. This includes plans to more than quadruple the country’s (non-hydropower) renewable energy (RE) capacity to 175 GW by 2022. The target requires up to US$220 billion in investments in generation, as well as substantial complementary investments in strengthening the electricity network.

6. The GoI has demonstrated its commitment to significantly increasing the share of RE in the country’s electricity generation mix. Over the past decade, utility-scale solar photovoltaic (PV) and wind power generation projects have successfully crowded in commercial investments from privately and publicly owned investors. India’s installed capacity of non-hydro renewables increased more than five-fold in a decade, from 11 GW in 2008 to 69 GW in 2018 (excluding about 45 GW in large hydropower capacity).36 In 2015, the GoI signaled confidence in RE by raising its national installed generation capacity targets to 175 GW by 2022, including targets for wind (60 GW), solar power (100 GW), biomass power (10 GW), and small hydropower (5 GW).

7. With a large resource potential, an increasingly supportive enabling policy environment, and favorable market trends, solar PV and wind power are expected to lead future large scale non-hydro RE capacity additions in India. By April 2018, wind (34 GW) and solar power (21.6 GW) comprise nearly 80 percent of total installed RE generation capacity.37 Competition through well designed auctions, declining component costs, enforcement of renewable purchase obligations (RPO), introduction of payment security mechanisms covering off-taker risk and other policy support have driven record prices of utility -scale solar PV and wind. For instance, the World Bank Group-supported 750 megawatts (MW) Rewa Solar Park Project

32 IEA. 2016. “World Energy Outlook.” 33 National Institution for Transforming India (NITI) Aayog (27 June 2017). “Draft National Energy Policy”. 34 Source: Table 9, Draft National Energy Policy, Niti Aayog. Two scenarios presented are business-as-usual: 1204 GW total, Ambitious: 1260 GW total. 35 CEA (31 January 2018). “All India Installed Capacity (in MW) of Power Stations”. 36 Executive Summary of Power Sector, April 2008 to March 2018, CEA 37 Executive Summary of Power Sector, March 2018, CEA


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in Madhya Pradesh delivered a record-making levelized cost of energy (LCOE) of INR 3.3/kilowatt-hour (kWh) (or US$0.05 /kWh) through a reverse auction.

8. As the share of renewables increases, India’s wind and solar power sectors are expected to face new constraints. First, the significantly higher share of variable RE will increase grid management challenges, requiring more ancillary services, back up supply, load shifting capabilities and improved RE generation system performance. Second, curtailments that lead to under-utilized evacuation infrastructure will rise if poor forecasting practices, disincentives to optimize designs, under-developed ramping arrangements, removal of transmission bottlenecks and other related challenges are not dealt with. Third, critically, suitable land for viable projects may become scarce. Land acquisition requirements for stand-alone solar (about 5 acres per MW) and wind (about 8-10 acres per MW) suggest vast land needs to meet RE targets.38 Expansion opportunities are limited as contiguous and accessible sites with the ‘best’ RE resources are being taken up. Wind potential is also highly concentrated in India, with seven states (Andhra Pradesh [AP], Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, and Tamil Nadu) comprising 97 percent of India’s wind power potential and virtually all operating wind capacity39. Fourth, climate change-related risks are likely to affect inter-annual and seasonal trends in RE resource availability, adding to state and regional dispatch coordination challenges. Fifth, while the GoI is working to resolve financial conditions of distribution utilities in the medium term, off-taker risk makes investors and financiers rely on precedents and take conservative positions when viewing new business models that may be necessary to introduce innovative solutions to emerging challenges.

9. The GoI is exploring innovations, such as wind-solar hybrid (WSH) parks, floating solar PV (FSPV) and combining these with battery energy storage solutions (BESS), to address emerging challenges. As WSH systems are configured to operate at one point of interconnection, and can have complementary generation patterns (diurnal and seasonal), they can improve the generation profile per unit of land and optimize use of associated evacuation infrastructure as compared to stand-alone RE plants.40 Noting that there are large areas of India where both resources have potential, the GoI recently issued a policy that opens the door to investing in WSH systems with a BESS option.41 Under the policy, the fiscal and financial incentives granted to stand-alone wind and solar PV are being extended to WSH. With regard to FSPV, it can help to ease pressure on land resources by placing the RE 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 FSPV generation capacity.42 Additional advantages of the technology include optimizing utilization of existing power evacuation infrastructure, improved efficiencies of PV panels due to a surface water cooling effect, lowering PV panel cleaning requirements, and potentially reducing evaporation. All considered, FSPV is not expected to differ significantly in terms of LCOE from ground-mounted fixed-tilt

38 On a footprint basis, however, the land acquisition requirements for wind are much lower. Nevertheless, the estimate factors in safety zones, access roads and ancillary facilities required for a wind power plant. 39 Central Statistics Office (2018) “Energy Statistics”. Estimates of wind potential and capacity as of March 31, 2017. 40 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. 41 National Wind-Solar Hybrid Policy (May 14, 2018). Ministry of New and Renewable Energy. 42 According to a preliminary assessment of Renewable Energy College, Kolkata.


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solar PV.43 Despite all these benefits, there is no large scale WSH in operation and the uptake of FSPV in India has been modest, with operating installations ranging between 10 kilowatts (kW) and 500 kW.

10. BESS can provide a range of transformative benefits to the power system, some coupled to RE generation while others supporting network functions. Lack of a track record in the Indian power system, high costs and an under-developed enabling environment limit the deployment of BESS. BESS is viewed increasingly by the GoI and the governments across South Asia as an enabling technology for a range of constraints faced by their power systems specifically due to the increase in deployment of variable RE. Due to its scalability in energy storage and output, grid-scale BESS can enable firmer output of variable RE. BESS can contribute towards smoothening the load curve and shifting the peak, potentially replacing some investments in relatively expensive peak generation. BESS can also substitute or defer the transmission requirements and enhance resilience of the grid. Interest in BESS has converged with other planned transformations of India’s energy and transport sectors, including deployment of distributed renewables, smart meters and electric vehicles. While these capabilities are attractive to the Indian power system, its ecosystem does not support revenue streams to defray (still high but falling) BESS costs largely because there is no consensus among stakeholders regarding how to facilitate a BESS market to capitalize on its economic potential. Early attempts at auctions have been disappointing as a result.

11. The GoI has appointed the Solar Energy Corporation of India Limited (SECI) to implement a wide range of support schemes to help achieve its ambitious RE targets, including the development of innovative clean energy solutions such as WSH, FSPV and BESS. SECI is the only Central Public Sector Undertaking (CPSU) with a primary mandate from the GoI to undertake its own investment and facilitate commercial participation in RE market development. As higher RE targets are set and the market encounters new barriers, demands on SECI to promote and quickly bring innovative solutions to the market are increasing. The GoI is using this Project to support SECI’s institutional capacity as a market facilitator of accelerated and innovative RE deployment. SECI will leverage World Bank Group (WBG) and Clean Technology Fund (CTF) resources for commercial test beds to bring wind and solar expertise together for the first time – to work through technical and commercial design issues in WSH and FSPV investments and integrate demonstration of currently non-commercial BESS solutions. The demonstration of these subprojects will help to build up track records of performance that will be disseminated to investors, financiers and policy makers. SECI will also use this knowledge to improve the structuring of its auctions and enhance the likelihood of their success for WSH and FSPV systems. The Bank and International Finance Corporation’s (IFC) advisory group are coordinating support to SECI to enhance learnings from such subprojects, support SECI’s market facilitation role and improve its auction platform.

India’s CTF Investment Plan

12. 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 A3.2).

43 World Bank Group, ESMAP and SERIS 2018. Where Sun Meets Water: Floating Solar Market Report – Executive Summary. Washington, DC: World Bank.


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Table A3.2 – Revised CTF Investment Plan of India, Indicative Financing Plan (US$ million)

CTF Project/Program MDB CTF financing

Himachal Pradesh Environmentally Sustainable Development Policy Loan

World Bank 100

Partial Risk Sharing Facility for Energy Efficiency World Bank 25

Solar Park: Rajasthan Asian Development Bank (ADB)

200

Shared Infrastructure for Solar Parks World Bank 50

ADB 50

Transmission for Power Evacuation from Solar Parks ADB 50

Grid-Connected Rooftop Solar PV World Bank 125

ADB 125

Solar PV Generation by SECI World Bank 50

Total 775

Project Description

13. The objectives of the proposed ‘Innovation in Solar Power and Hybrid Technologies’ project (ISHTP) are to demonstrate the operational and economic feasibility of utility-scale innovative renewable energy technologies and battery energy storage solutions, and to strengthen institutional capacity to facilitate scale-up of such technologies on a commercial basis in India. Such innovative technologies include WSH systems, integrated BESS for solar and wind, and FSPV plants. 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) Utility-Scale Hybrid Subprojects: (about 300 MW targeted) The ISHTP will finance large-scale greenfield hybrid solutions, combining wind, solar or BESS technologies that are tailored to meet site-specific requirements. Subprojects are expected to demonstrate benefits for the Indian power system, including better capacity utilization factors, reducing variability of RE power plants (i.e. due to the relative diurnal and seasonal complementarity of solar and wind resources), and optimizing use of power evacuation infrastructure. The first subproject of 160 MW WSH with BESS subproject has been identified in Ramagiri village, Anatapuramu district in the state of Andhra Pradesh (AP) (referred as ‘Ramagiri subproject’ is under bidding stage. This subproject has been appraised and comprises about 31 percent of IBRD/CTF financing.

(b) BESS Subprojects: (about 40 MWh targeted) The ISHTP will finance BESS applications integrated with

other RE generation technologies or providing grid services enabling improved use of power. As this technology is not yet commercially viable, selection of subprojects will be determined inter alia by the use cases most likely to be deployed at large scale in the Indian power system including time shifting, capacity firming, ramp rate control, and frequency regulation, and by the ability under existing regulations to recover at least part of the costs of the BESS.


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(c) Utility-Scale FSPV Subprojects: (about 100 MW targeted) The ISHTP will finance FSPV power plant subprojects – solar PV systems installed on synthetic floating beds anchored to the bottom or on the shore of selected water bodies. Sites will be selected where there is high demonstrative value, such as near existing associated infrastructure such as reservoirs of the operating dams or sites where the land is either unavailable or too expensive.

14. Pre-feasibility studies for other sites for WSH plants, BESS applications, and FSPV projects are also underway. Technical assistance (of CTF grant of US$1.81 million) will also be provided for capacity building of SECI.

15. The proposed project will mobilize US$399.81 million, including US$150 million from IBRD, US$49.81 million from CTF and US$200 million from the SECI and commercial 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$21.81 million44 to be extended in the form of a grant which will support investment in BESS 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

16. Emission reduction potential of investment. The first subproject under the ISHTP is likely to reduce GHG emission between 4.6 and 6.4 million metric tons of CO2 over its 25 year lifetime (according to a multi-variate Monte Carlo simulation of project outcomes described in Annex 2), with the emission impact mainly resulting from the displacement of coal power on the AP grid. Savings have been calculated in accordance with the CTF and World Bank guidelines.45

17. 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 3.6 cents or INR 2.44 per kWh), through reverse auction for Bhadla solar park in Rajasthan under

44 At the time of CTF approval the installed cost of battery was US$500 per kWh which was expected to support at least 40 MW PV with 1 hour storage (40MWh). 45 See World Bank, Guidance Manual: Greenhouse Gas Accounting for Energy Investment Operations, 2015.


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the NSM, solar costs have fallen over 75 percent from 2010 levels. Since India lies in the high solar insolation region, declining cost trends in solar PV, along with innovations in BESS technology, WSH and FSPV, offer exciting opportunities for India to address its challenges in the energy sector.

18. The key technical issue for ISHTP is design of its subprojects 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 formulation of technical specifications, selection of most suitable procurement method and qualification criteria, following feedback from the market, and warranty requirements.

Cost-effectiveness

19. The cost effectiveness is US$4.20 per tCO2e for CTF funding and US$39.50 per tCO2e considering total project funding. In the scaled-up phase, the cost effectiveness will improve to US$0.17 per tCO2e for CTF funding and US$34.3 per tCO2e when considering total funding.

20. Marginal Abatement Cost (MAC). In October 2013, the CTF Trust Fund Committee suggested providing information on the estimated 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.46

21. The MAC of the first proposed subproject based on the economic analysis of the 160 MW Ramagiri hybrid with BESS is 4.1 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$3.8 million compared to the thermal counterfactual. (see Economic and Financial Analysis in the PAD for more details)

22. 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

23. Scope of avoided GHG emissions through replication. A draft of India’s national Wind-Solar Hybrid Policy issued in June 2016 considered a target to install 10 GW of the technology by 2022.47 The proposed project will directly contribute toward this scale of deployment, thus contributing to significant emissions reduction. It is expected that CTF and IBRD support for the selected innovative technologies will

46 As indicated in the IEA, Energy Technology Perspectives 2008 Report. 47 However, the final Wind-Solar Hybrid Policy issued by MNRE in May 2018 does not indicate any target.


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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 12.0 million tCO2e per year or 297.5 million tons over the assumed 25-year lifetime of the technologies.

24. 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 are: (a) provision of international best practices in WSH, FSPV, and electricity storage technologies; (b) provision of international best practices to enhance the core competencies of SECI across functions such as HR, 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 WSH, FSPV, and BESS technologies .

Development Impact 25. 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.

26. 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.

27. 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 coal for power generation with an increased supply of electricity from the project and its scale up.

28. Gender Co-benefit. The project is expected to bring positive gender co-benefits by incorporating gender impacts into both components of the project. 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 sub-project. The Environment


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and Social Management Framework (ESMF) includes a 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 sub-project ESIA.

Implementation Potential

29. The project is aligned with GoI’s National Action Plan for Climate Change (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.

30. There is strong project ownership at the highest levels of government including MNRE and at SECI which is 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.

31. Leverage. The total project investment is to be funded through the CTF (US$49.81 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 to be 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

32. 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 WSH, FSPV and BESS 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.

33. The economic rate of return (ERR) of the Ramagiri solar wind hybrid project with BESS, which is analyzed in the PAD, is calculated at 4.7 percent, which is lower than the hurdle rate of 10 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


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benefits associated with this project, which will increase the economic rate of return to 15.6 percent and make the project economically viable.

34. CTF grant funding is particularly important to scale up energy storage solutions because of the following:

(a) While energy storage prices are falling faster than the industry anticipated a few years ago, the premium relative to the base solar PV LCOE is still significant, not least because solar PV energy prices had also been driven down relentlessly. The project enables the implementation and proving the technology as well as business model, ahead of full commercial viability. It will establish best practice in the market, ready to take full advantage of even lower storage prices expected in about two years from now.

(b) Potential investors in solar PV plus storage projects still view the technology as unproven in the

Indian market due to climatic zone (high temperature) as well as non-availability of the qualified workforce while outside India, similar plants have been established for over five years now. The project will demonstrate in proving the technology while helping de-risking it.

(c) As of now, the regulatory framework for grid storage is still under development in India. Without

it, the economic value 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.

Implementation Readiness

35. Among all of the proposed subprojects, the Ramagiri subproject is in the most advanced stage of readiness. This subproject has an estimated capacity of 160 MW and is located in Ramagiri Village in Anantapuramu district in the state of AP. Land coordinates based on solar and wind resource assessment have been finalized and land acquisition has begun. Procurement process to hire DSI player through International Competitive Bidding (ICB) is ongoing. Prefeasibility studies for solar-wind hybrid and FSPV plants at potential sites are also underway.