Document of. The World Bank INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A

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1 Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD2067 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED IBRD LOAN IN THE AMOUNT OF US$150 MILLION, A PROPOSED CLEAN TECHNOLOGY FUND (CTF) LOAN IN THE AMOUNT OF US$28 MILLION, AND A PROPOSED CTF GRANT IN THE AMOUNT OF US$22 MILLION TO THE SOLAR ENERGY CORPORATION OF INDIA LIMITED FOR AN INNOVATION IN SOLAR POWER AND HYBRID TECHNOLOGIES PROJECT March 31, 2017 Energy and Extractives Global Practice South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective March 29, 2017) Currency Unit = Indian Rupee (INR) INR 64.9 = US$1 FISCAL YEAR January 1 - December 31 ADB AFS AGM AWP BMS CA CAAA CAG CEA CERC CG CGFA CO2 COP21 CPF CPSU CQS CSR CTF CTU CUF CVC DA DGM DGS&D Discom DPE DPR EMP EPC ERR ESIA ESMF ESS FM GAAP ABBREVIATIONS AND ACRONYMS Asian Development Bank Annual Financial Statement Assistant General Manager Annual Work Plan Billing Management System Chartered Accountant Controller of Aid, Accounts, and Audit Comptroller and Auditor General Central Electricity Authority Central Electricity Regulatory Commission Corporate Governance Corporate Governance and Financial Assessment Carbon Dioxide Conference of the Parties Country Partnership Framework Central Public Sector Utility Selection Based on the Consultants Qualifications Corporate Social Responsibility Clean Technology Fund Central Transmission Utility Capacity Utilization Factor Central Vigilance Commission Designated Account Deputy General Manager Directorate General of Supplies and Disposal Distribution Company Department of Public Enterprises Detailed Project Report Environmental Management Plan Engineering, Procurement, and Construction Economic Rate of Return Environment and Social Impact Assessment Environment and Social Management Framework Employee Self-Service Financial Management Governance and Accountability Action Plan

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

4 RBI R&D RE REOI RPF RPO R&R RTGS RTI SDRC SECI SIA SNA SPV STEP T&D ToR TPA UDAY UNFCC USAID USD/US$ VGF WTG Reserve Bank of India Research and Development Renewable Energy Request for Expression of Interest Resettlement Policy Framework Renewable Purchase Obligation Rehabilitation and Resettlement Real-Time Gross Settlement Right to Information Social Development and Resettlement Cell Solar Energy Corporation of India Limited Social Impact Assessment State Nodal Agency Special Purpose Vehicle Systematic Tracking of Exchanges in Procurement Transmission and Distribution Terms of Reference Tripartite Agreement Ujjawal Discom Assurance Yojana United Nations Framework Convention on Climate Change United States Agency for International Development United States Dollar Viability Gap Funding Wind Turbine Generator Regional Vice President: Annette Dixon Country Director: Junaid Kamal Ahmad Senior Global Practice Director: Riccardo Puliti Practice Manager: Demetrios Papathanasiou Task Team Leader(s): Surbhi Goyal, Gevorg Sargsyan

5 BASIC INFORMATION Is this a regionally tagged project? Country(ies) Lending Instrument No Investment Project Financing [ ] Situations of Urgent Need of Assistance or Capacity Constraints [ ] Financial Intermediaries [ ] Series of Projects Approval Date Closing Date Environmental Assessment Category 26-Oct Mar-2023 A - Full Assessment Bank/IFC Collaboration No Proposed Development Objective(s) The Project Development Objective is to demonstrate large-scale innovative renewable energy technologies in India. Components Component Name Component A: Investments in Innovative Technologies (Estimated Cost: US$398 million of which IBRD Loan: US$150 million; CTF loan: US$28 million; and CTF Grant: US$20 million) Component B: Technical Assistance and Institutional Strengthening of SECI (Estimated Cost: US$2 million of which CTF Grant: US$2 million) Cost (US$, millions) Organizations Borrower : Implementing Agency : Solar Energy Corporation of India Limited Solar Energy Corporation of India Limited Page 1 of 78

6 [ ] Counterpart Funding [ ] IBRD [ ] IDA Credit [ ] Crisis Response Window [ ] IDA Grant [ ] Crisis Response Window [ ] Trust Funds [ ] Parallel Financing [ ] Regional Projects Window [ ] Regional Projects Window Total Project Cost: Total Financing: Financing Gap: Of Which Bank Financing (IBRD/IDA): Financing (in US$, millions) Financing Source Amount Borrower Clean Technology Fund International Bank for Reconstruction and Development Total Expected Disbursements (in US$, millions) Fiscal Year Annual Cumulative INSTITUTIONAL DATA Practice Area (Lead) Energy & Extractives Page 2 of 78

7 Contributing Practice Areas Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance Low 2. Macroeconomic Low 3. Sector Strategies and Policies Moderate 4. Technical Design of Project or Program Substantial 5. Institutional Capacity for Implementation and Sustainability Substantial 6. Fiduciary Substantial 7. Environment and Social Substantial 8. Stakeholders Moderate 9. Other 10. Overall Substantial Page 3 of 78

8 COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [ ] No Does the project require any waivers of Bank policies? [ ] Yes [ ] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 Physical Cultural Resources OP/BP 4.11 Indigenous Peoples OP/BP 4.10 Involuntary Resettlement OP/BP 4.12 Safety of Dams OP/BP 4.37 Projects on International Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP 7.60 Legal Covenants Conditions PROJECT TEAM Bank Staff Name Role Specialization Unit Surbhi Goyal Team Leader(ADM Responsible) Energy GEE06 Page 4 of 78

9 Gevorg Sargsyan Team Leader Energy GEEDR Satyanarayan Panda Dilip Kumar Prusty Chinari Procurement Specialist(ADM Responsible) Financial Management Specialist Procurement Financial Management GGO06 GGO24 Amit Jain Team Member Energy GEE06 Bipulendu Narayan Singh Team Member Energy GEE06 Boonsri Prasertwaree Kim Team Member Project Administration GEE06 Gaurav D. Joshi Safeguards Specialist Environment GEN06 Gopalaswamy Srihari Team Member Social Development GSU06 Guido Agostinelli Team Member Energy CBDSB Neetu Sharda Team Member Project Administration SACIN Parthapriya Ghosh Safeguards Specialist Social Development GSU06 Peter Mockel Team Member Energy Storage CBDSB Pyush Dogra Safeguards Specialist Environment GEN06 Extended Team Name Title Organization Location Page 5 of 78

10 INDIA Innovation in Solar Power and Hybrid Technologies TABLE OF CONTENTS I. STRATEGIC CONTEXT... 8 A. Country Context... 8 B. Sectoral and Institutional Context... 9 C. Higher Level Objectives to which the Project Contributes II. PROJECT DEVELOPMENT OBJECTIVES A. PDO B. Project Beneficiaries C. PDO-Level Results Indicators III. PROJECT DESCRIPTION A. Project Components B. Project Cost and Financing C. Lessons Learned and Reflected in the Project Design IV. IMPLEMENTATION A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation C. Sustainability D. Role of Partners V. KEY RISKS A. Overall Risk Rating and Explanation of Key Risks VI. APPRAISAL SUMMARY A. Economic and Financial (if applicable) Analysis B. Technical C. Financial Management D. Procurement E. Social (including Safeguards) F. Environment (including Safeguards) G. Other Safeguard Policies (if applicable) Page 6 of 78

11 H. World Bank Grievance Redress VII. RESULTS FRAMEWORK AND MONITORING ANNEX 1: DETAILED PROJECT DESCRIPTION ANNEX 2: IMPLEMENTATION ARRANGEMENTS ANNEX 3: IMPLEMENTATION SUPPORT PLAN ANNEX 4: ECONOMIC AND FINANCIAL ANALYSIS ANNEX 5. CLEAN TECHNOLOGY FUND Page 7 of 78

12 I. STRATEGIC CONTEXT A. Country Context 1. India s power sector is undergoing sustained growth to continue to fuel economic growth and meet the needs of its population. India s annual gross domestic product growth rates averaging above 7 percent led peak power and energy demand to grow at 4.9 percent and 5.3 percent annually, respectively since Energy demand will continue to grow rapidly, contributing about a quarter of the increase in global energy demand by An ambitious power generation capacity expansion effort is underway, with installed capacity exceeding 300 GW in 2016 and expected to rise to 1,076 GW by Significant gains have been made in expanding electricity access, from 56 percent of the population in 2001 to over 80 percent in Despite these achievements, reliable grid electricity supply remains a challenge. It is estimated that about 250 million people are without grid connections, and of these, around two-thirds reportedly choose not to connect because electricity supply is unreliable. Heavily indebted distribution companies (Discoms) 2 are unable to afford network investments and adequate power purchases to allow them to provide reliable supply. Households and agricultural consumers face unreliable supply and load shedding. Industrial and commercial enterprises have invested in expensive, inefficient, and polluting diesel backup generation and incur associated coping costs. 3. India s per capita electricity consumption is expected to grow in the coming years. India is currently the world s third largest consumer of electricity; however, per capita consumption, at 1,090 kwh, is only one-third of the global average. Significant growth in electricity demand is expected due to rising incomes and rapidly urbanizing population. Combined with the expansion of access, this poses challenges for the already vulnerable system and the Government of India s (GOI) goal of providing 24 7 power for all. 4. The power sector is heavily reliant on coal. Coal consumption in power generation and industry is expected to continue to grow significantly, making India the world s largest source of growth in coal use over the next decade. Around 60 percent of India s electricity generation is coal-fired (192 GW) and about 50 GW coal-fired capacity is expected to be installed by An ambitious program to increase renewable energy (RE)-based generation capacity to 175 GW by 2022 is also underway. RE (excluding large hydropower) currently accounts for around 15 percent of power generation capacity. However, even if India achieves its target of 40 percent non-fossil-fuel-based generation capacity by 2030, this will only contribute to 25 percent of energy supplied. 5. In this context, renewable energy has a critical role to play. India s Nationally Determined Contribution (NDC), as declared in Paris at the Conference of Parties (COP 21), includes the goals of expanding its RE, energy efficiency, forestry, urban, and pollution reduction programs. In its NDC, India has made several commitments, including to (a) adopt a climate friendly and cleaner path; (b) reduce its 1 IEA (International Energy Agency) World Energy Outlook. 2 Annual and cumulative financial losses by public Discoms are about US$15 billion and US$66 billion, respectively. Page 8 of 78

13 carbon intensity by percent by 2030 from 2005 level; and (c) achieve about 40 percent cumulative electric power installed capacity from non-fossil-fuel based energy resources by 2030, among others. B. Sectoral and Institutional Context 6. A combination of investments in networks, additional clean energy generation capacity, and energy efficiency is critical for India in meeting its NDCs while curbing thermal generation and therefore greenhouse gas (GHG) emission growth. In generation, the development of India s RE has grown significantly over the past decade, with the implementation of major policy and regulatory measures for harnessing RE resources. As of January 2017, India had successfully added more than 50 GW of gridconnected RE (excluding 44 GW in large hydropower capacity). 3 The major contributor to this achievement has been wind power (29 GW), followed by solar power (9 GW), bio-power (8 GW), and small hydropower (4.3 GW). 4 Together, wind and solar power constitute nearly 80 percent of this added capacity. The rate at which this capacity addition has occurred is commendable, considering that total RE installed capacity was just 7.7 GW less than a decade ago (2007 figure) Solar and wind power are likely to continue as the dominant share of RE in India for the foreseeable future. Their growth trajectory over the last decade and present level of installed capacity clearly indicate significant potential for both categories. This potential is also reflected in the GOI s 2022 target of 175 GW, which envisages 160 GW coming from solar (100 GW) and wind (60 GW). Recognizing the potential of solar energy to contribute to India s energy security, and taking advantage of falling solar photovoltaic (PV) prices, which increases the likelihood of more quickly reaching grid parity, the GOI enhanced cumulative solar targets from 20 GW to 100 GW in June 2015 under the National Solar Mission (NSM) However, scaling up stand-alone solar and wind plants faces major constraints, including land scarcity, variability of supplied energy, and underutilized associated facilities especially evacuation infrastructure. Land acquisition requirements for stand-alone solar and wind projects are estimated at about 5 acres per megawatt (MW) and 8 10 acres per MW, respectively. 7 If investments are made only in stand-alone projects, then to achieve 175 GW RE targets by 2022 will require huge amounts of land, usually in contiguous areas, which is difficult to access in a densely populated country like India. 9. RE sources of generation follow a set generation pattern, for instance, solar power is generated only during the daytime while the wind power generation is generally maximum at night. Also, RE generation varies from season to season, for instance, highest capacity utilization factor (CUF) for solar generation has been recorded in the summer months (March to June). Furthermore, the utilization factor of their respective evacuation infrastructure as well as of the related infrastructure (such as access roads, right-of-way, manpower) is also low for stand-alone RE projects, which increases capital as well as 3 For details, refer to 4 For details, refer to 5 Comptroller and Auditor General of India, df. 6 The NSM was launched on January 11, 2010, by former Prime Minister Manmohan Singh. 7 On a footprint basis, however, the land acquisition requirements for wind are much lower. Page 9 of 78

14 operating costs of such projects. Given this and with a targeted increase in the share of RE, the grid integration cost in terms of variability as well as utilization is expected to be much higher for such projects. 10. India has made tremendous progress in stand-alone solar and wind installations in the last seven to eight years. Because of large-scale deployment of wind and solar plants, capital costs and related power purchase agreement (PPA) tariff have fallen significantly. Solar, which was not considered a bankable technology in the early years of launch of NSM, is now funded by commercial banks purely on project finance basis. However, innovative technologies such as energy storage and floating solar are still considered risky by commercial banks, making it difficult to mobilize private investments in such projects. 11. As solar-wind hybrid systems are co-located on the same piece of land, it improves the generation profile of the hybrid plant on increased power generated per unit piece of land as compared to standalone RE plants. Further, the complementarity of solar and wind electricity-generation patterns provide an opportunity to improve utilization of the associated evacuation infrastructure while providing greater balance in the energy supply. 8 Addressing the variable nature of the RE sources of generation plays a vital role in maintaining grid stability especially in light of the 175 GW RE targets of the GOI. Several Indian states are blessed with excellent wind and solar resources, together offering ideal sites for implementing utility-scale RE hybrid projects. To date, hybrid projects in India have been limited to small-scale and offgrid ones. Existing installations include a few kilowatt projects, while tendering for a 2.5 MW project at Rangreek in Himachal Pradesh state is currently underway. To increase the uptake of hybrid technologies, the GOI recently issued a draft policy on hybrid systems that targets achieving 10 GW of generating capacity by 2022 through hybridization of solar and wind power projects Given the variable nature of RE, energy storage is becoming increasingly important. While RE penetration up to percent is relatively easy to integrate into the grid, higher levels may cause challenges. With significant wind and solar capacity addition expected in coming years, the grid will continue to face severe transmission capacity constraints and stability issues. As noted in the United States Agency for International Development s (USAID) Assessment of the Role of Energy Storage Technologies for Renewable Energy Deployment in India report, Power Grid Corporation of India Limited (POWERGRID), the central transmission utility (CTU), estimates that it would need 20 GW of flexible generation, including super critical thermal generators and energy storage solutions, to take care of peak load requirements by The report further notes that the power sector in India is facing stability issues caused by an increasing share of RE in the grid. Several Indian states which have a high level of gridconnected RE capacity (such as Tamil Nadu with about 44 percent) suffer from transmission capacity constraints. This translates into a significant portion of power (between 30 percent and 50 percent in many cases) not getting evacuated during peak generation, resulting in loss to the system as well as to the generators. While transmission capacity is being augmented to take care of evacuation needs, it has been slow. Moreover, an increase in the RE mix is likely to put further pressure on the system. Energy storage can be used as an option for reducing backdown of generation and also reducing or postponing transmission capacity expansion. Electricity storage can help with load shifting to meet peak demand, grid stabilization, improved generation efficiency, and better utilization of transmission capacity. However, 8 A study conducted by the Reiner Lemoine Institute and Solarpraxis AG concluded that combining wind turbines and PV systems results in generating up to twice the amount of electricity across the same surface area, while shading losses caused by wind turbines amount to just 1 2 percent. 9 For details, refer to Page 10 of 78

15 though the energy storage solutions still do not meet the financial viability test, with falling prices and enhanced performance, storage is expected to gradually become competitive. With the launch of India s Smart Grid and Electrical Vehicle initiatives by the GOI, along with the promotion of on-site solar energy and rural microgrids, energy storage is fast evolving into a critical component of the country s energy strategy. Such initiatives focus on addressing the issues related to standards, regulation and policy, engineering design, process methodologies, technology selection, and so on for storage solutions. 13. With regard to floating solar PV technology, it can help ease pressure on land resources by placing the power plant on water bodies. Preliminary studies suggest that utilization of just 10 percent of India s water bodies would allow for the development of about 300 GW of floating solar PV generation capacity. 10 This technology will not only reduces demand for land, in case of hydropower dams but can also help optimize the utilization of existing evacuation infrastructure. Additional advantages of the technology include lower cleaning requirements and potential positive externalities by reducing evaporation, controlling algae growth, and providing shade to fish and other marine life. To date, the uptake of floating solar technologies in India has been modest, with installations ranging between 10 kw and 100 kw. At present, India has no utility-scale floating solar plants. The GOI is also promoting floating solar technology by initiating work on screening of potential sites for establishment of such plants in various states. 14. To scale up the development of innovative and demonstrable solar energy technologies, the GOI formed the Solar Energy Corporation of India (SECI) in 2011 as one of the key implementing agencies (IAs) for taking forward implementation of NSM. Recently, SECI s mandate was broadened to cover the entire gamut of RE sources. As a Central Public Sector Utility (CPSU) dedicated to the RE domain, with the twin objectives of technology and market development, SECI is responsible for finding appropriate technological and market-based solutions to overcome constraints currently faced by the RE sector. Through the proposed project, such innovative technologies will be demonstrated at a scale to showcase the anticipated benefits from such technologies while addressing financing challenges by proving the concept and hence likely to mobilize future private sector investments. The project is part of the US$1 billion engagement sought by the GOI from the World Bank in the RE sector. 11 C. Higher Level Objectives to which the Project Contributes 15. Alignment with the GOI s national priorities. The project is aligned with the GOI s National Action Plan for Climate Change (NAPCC), issued in 2008 to enhance India s ecological sustainability and encourage sustainable energy sources. In December 2015, the GOI upscaled the target of RE capacity to 175 GW by the year 2022 which includes 100 GW from solar, GW from wind, 10 GW from bio-power, and 5 GW from small hydropower. In addition, the proposed project is consistent with the GOI s goal of providing uninterrupted power for all by The GOI has reiterated these commitments as part of its NDC to achieve about 40 percent cumulative electric power installed capacity from non-fossil-fuel energy resources by According to a preliminary assessment of Renewable Energy College, Kolkata. 11 During their July 2014, January 2015, and June 2016 meetings, Prime Minister Narendra Modi and President Jim Yong Kim discussed World Bank financing for solar projects in the country. In particular, the GOI requests have been received for three other World Bank engagements to support (a) the establishment of grid-connected rooftop PV (US$648 million) and (b) shared infrastructure for solar parks (US$200 million, in two phases). 12 This is under NSM, launched in 2010, as part of the NAPCC. Page 11 of 78

16 16. Alignment with the World Bank s India Country Partnership Framework (CPF). The proposed project is aligned with the three pillars of the CPF for India: transformation, integration, and inclusion. Under transformation, it directly aims to reduce GHG emissions and local environmental pollution associated with the alternate coal-based thermal power generation, to be displaced by adding clean power generation capacity and fostering innovative RE development. Further, the new technologies are likely to transform the way forward for achieving the 175 GW RE targets set by the GOI while optimally utilizing the constrained resources. Under integration, the project will accelerate investment in innovative solar power and hybrid technologies. Further, the project is expected to bring benefits in terms of removing barriers to promoting such innovative technologies that optimally utilizes the available resources while boosting confidence of private investors in such technologies. It further targets for improved quality of power, reliability and affordability to the people of India. Under inclusion, it offers the opportunity to increase electricity access by increasing the availability of electricity generation in the system. In addition, the project is expected to generate employment opportunities and provide opportunities of growth to the surrounding areas. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 17. The Project Development Objective is to demonstrate large-scale innovative renewable energy technologies in India. B. Project Beneficiaries 18. The project s direct beneficiaries are (a) people in the participating states and elsewhere who will benefit in terms of better quality of supply due to the electricity generated in the subprojects as well as cleaner air; (b) Discoms, which will be able to meet their Renewable Purchase Obligation (RPO) with electricity generated from such subprojects; (c) SECI, which will be able to meet the RE targets of 1,000 MW while developing it as an entity that is able to fully deliver on its sector mandate; and, (iv) industry in terms of reduced technological and integration risks. 19. The expected benefits of the project are (a) Increased electricity supply; (b) Avoided GHG emissions from displacement of thermal generation; (c) Lower grid-integration costs of solar-wind hybrid plants compared to stand-alone plants resulting from complementarities in generation patterns of wind and solar and better utilization of transmission infrastructure. The same holds true for the floating solar plants wherever these are installed on the existing reservoirs of say hydropower/irrigation projects; (d) Better optimization of land areas under solar-wind hybrid plants compared to stand-alone solar and wind plants; and Page 12 of 78

17 (e) Generation of lessons, which should contribute to mainstreaming and scaling up investments in these technologies. C. PDO-Level Results Indicators 20. The following indicators will be used to track progress in achieving the PDO. The specifics regarding the key performance as well as intermediate results indicators are detailed in Section VII. (a) Cumulative installed capacity of 300 MW (b) RE power generation (in megawatt hours [MWh]) (c) GHG emissions avoided III. PROJECT DESCRIPTION A. Project Components 21. The proposed project aims to support the GOI to promote large-scale deployment of innovative technologies in the RE sector, including solar-wind hybrid systems, integrated energy storage for solar and wind, and floating solar PV panels. SECI will be the borrower as well as the implementing agency (IA) for the project. The proposed project will have two components. 22. Component A: Investments in Innovative Technologies (Estimated cost: US$398 million, including US$150 million from the World Bank, US$48 million from the Clean Technology Fund - CTF [CTF loan in the amount of US$28 million and a proposed CTF grant in the amount of US$20 million 13 ], and US$200 million from SECI). This component will finance the following: (a) Large-scale solar-wind hybrid power plant(s), potentially with short-term energy storage, with a cumulative capacity of about 230 MW. Such subprojects are expected to improve power generated per unit piece of land while reducing the variability of the generation from stand-alone RE plants. The first site of estimated capacity of 150 MW has been identified near Ramgiri District in the state of Andhra Pradesh. Finalization of the exact land coordinates as well as solar and wind resource assessments along with technical due diligence of the site is underway. Prefeasibility studies for solar-wind hybrid plants at a few other potential sites are also underway. (b) Stand-alone plants for solar PV with storage, with a cumulative capacity of 50 MW. Because such technology is not yet commercially viable, the project will demonstrate the benefits expected out of storage solutions and hence is a step toward opening up the market for private sector investments. Based on the technical as well as financial due diligence, duration of energy storage for the identified subprojects will be decided. 13 For determining project costs, it is assumed that 50 MW PV with 1 hour storage (50 MWh) will be installed. At an installed cost of battery of US$400 per kwh, a grant of US$20 million will be required to set up the storage part of the energy storage project. Page 13 of 78

18 (c) Large-scale floating solar PV power plants with a cumulative capacity of about 20 MW. The first sites being explored for such investments are located in Andhra Pradesh and Kerala. The sites identified in these states have an estimated potential of 10 MW each. As this technology is not yet commercially viable, the project aims to prove the concept by locating such subprojects at sites where there is existing associated infrastructure such as reservoirs of the operating dams and/or sites where there are externalities such as high evaporation loss (in case of irrigation dams) and/or where the land is either not available or too expensive. This approach will ensure that the subproject is sustainable. 23. The investments under the project are expected to crowd-in private investments in these technologies by proving the concept, creating the enabling environment (by engaging and informing the decision-making process of the policy makers as well as regulators), and showcasing the anticipated benefits while providing the lessons learned to replicate the experience. The project will also bring out approaches for successful implementation of such technologies through suitable risk mitigation strategies and prudent project design and implementation, not only within India but also in other countries. 24. While the proposed technologies will contribute to long-term scale-up and cost reduction of RE, they will require initial subsidies. Storage technologies in particular will require grant financing in early stages of introduction to the Indian market. Floating solar will also require concessional financing to help achieve investments at scale, which will help drive costs down. 25. Component B: Technical Assistance and Institutional Strengthening of SECI (estimated cost: US$2 million from the CTF grant). This component will finance the following activities: (a) Capacity building and institutional strengthening to enhance SECI s core competencies (across functions such as human resources, project management and monitoring, procurement and contract management, financial management [FM]) that will enable it to maintain sustainability of the investments made under the project; (b) Support in developing a pipeline of subprojects through supporting prefeasibility studies, site identification, social and environmental assessment, techno-commercial studies, and other preparatory activities; (c) Developing policy and regulatory proposals to support scale-up of innovative technologies. B. Project Cost and Financing 26. The project is designed as an Investment Project Financing (IPF), which will cover the investments required for capital costs of assets (for example, PV panels, wind turbines, mounting structures, cables, linked evacuation system, and batteries). Total World Bank and CTF financing requirements are estimated at US$200 million, representing 50 percent of the total project cost. Of this US$200 million, the World Bank will provide US$150 million IBRD financing, while the CTF will contribute US$50 million. Thus, the subprojects will be financed through a combination of IBRD lending, CTF loan, CTF grant, and counterpart funding, including internal accruals, equity, land, and support from the GOI (wherever applicable). Page 14 of 78

19 27. The IBRD loan will have a variable spread, with a final maturity of [25 years], including a grace period of [5 years] and level repayments. The CTF loan is offered with a service charge of 0.25 percent per year on the disbursed and outstanding loan balance and 40-year maturity, including a 10-year grace period, with principal repayments at 2 percent for years and 4 percent for years Principal and service charge payments accrue semiannually. A management fee equivalent to 0.45 percent of the total loan amount will be charged, to be capitalized from the loan proceeds, following the effectiveness of the loan. Project Components Project Cost (US$, millions) IBRD Financing (US$, millions) CTF (US$, millions) Counterpart Funding (US$, millions) Component A: Investments in Innovative Technologies Component B: Technical Assistance and Institutional Strengthening of SECI Total Costs C. Lessons Learned and Reflected in the Project Design 28. The project builds on the lessons learned from the past engagements with POWERGRID series, where the concessional financing supported the public sector in investments in new technologies such as high-capacity transmission corridors including high-voltage direct current lines, enabling opening up the market. Once the base is set up and the technology is proven, the private sector is more confident in entering a new segment. Engagement with SECI will also ensure that this project is a national demonstration project instead of a state-specific engagement. It will also help in containing the transaction cost with no financial intermediary in between and it being a direct financing to the project owner. Hence, to promote technical innovations in the sector, SECI is the most appropriate player to be engaged with. Further, along with promoting the new technologies, the project will also inform the decision makers, including Ministry of New and Renewable Energy (MNRE) (policy-making body) as well as Central Electricity Regulatory Commission (CERC) (the regulator), to make informed choices and build the ecosystem that will further encourage the investments to come in the sector. 29. The project also builds on the experience from other RE projects such as Shared Infrastructure for Solar Parks where the project is supporting the public investments that will foster crowding-in of private investments and opening up the market. Similar lessons were learned from POWERGRID projects as well where the investments were supported in creating the public infrastructure (transmission links across the regions and the states) while encouraging mobilization of investments in generation assets. 30. It also builds on the lessons from projects such as POWERGRID (initial investments in first and second power system development projects) as well as the Haryana Power System Improvements Project that entities foraying into new territories will need support in executing the subprojects in a professional and sustainable manner. Hence, the project will utilize the funds available under Component 2 to provide necessary support in strengthening the institution as well as developing the pipeline of subprojects. Page 15 of 78

20 31. The project also builds on the experience of IFC s venture capital investments in energy storage technology. IFC has invested in four early-stage companies in the sector (Fluidic Energy, Ioxus, Microvast, and AST). Working with these companies has yielded market intelligence on pricing of batteries and on their performance and reliability in the field. In particular, storage prices have been falling faster than anticipated in the past four years, and large grid-scale projects have resulted in lower prices in markets outside India. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 32. SECI will be the borrower as well as the IA for the project. SECI was established in 2011 with a mission to promote and commercialize cleaner sources of energy and specifically solar energy in the country. In June 2015, SECI was converted from a Section 8 company 14 (a not-for-profit organization) to a Section 3 company, under the Companies Act 2013, while expanding its scope from solar energy to include non-solar RE. This change has laid the way for SECI to become a self-sustaining organization involved in investing, trading electricity, and consultancy in the area of RE. 33. SECI is an IA for multiple schemes of MNRE such as the 680 MW grid-connected solar PV project under Phase-II Batch-I of NSM (commissioned), 2 GW Phase-II Batch-III, and 5 GW Phase-II Batch-IV; rooftop solar PV program; solar parks; CPSU scheme; and canal top/bank scheme. SECI also acts as an offtaker of solar power under Phase-II Batch-I and subsequently sells the power to state Discoms on pooled basis under long-term power sale agreements (PSAs). SECI also recently commissioned a 10 MW solar power plant in Jodhpur, Rajasthan. Further, SECI provides consultancy services to CPSUs/government entities that are keen to set up solar power projects. SECI has also entered into a number of joint ventures (JVs), mostly on equal partnership, with various state nodal agencies (SNAs), for the development of the solar parks. 34. SECI has been mandated to own 1,000 MW of solar projects in the country. As mentioned above, SECI commissioned its 10 MW solar project in Rajasthan in March 2016 from which it is selling power to NTPC Vidyut Vyapar Nigam Limited (NVVNL) under a 25-year PPA at a fixed tariff of US10.8 cents per unit (or INR 7.04 per unit). SECI is planning to upgrade this plant to a solar-wind hybrid plant. It is also in the process of developing a pilot project of 2.5 MW on solar-wind hybrid in Rangreek, in the state of Himachal Pradesh. SECI recently also invited a tender for a 100 MW project with short-term storage in the state of Andhra Pradesh. It so far has no presence in floating solar, given that there are only a few small installations in the country ranging from 10 kw to 100 kw. The proposed project builds on lessons learned from these pilot projects being constructed/tendered in India either through SECI or otherwise. The project also takes into account the international experience in implementing the storage (California - United States of America, United Kingdom); floating solar (Japan, California - United States of America, United Kingdom); and hybrid technologies and floating solar experience (Japan, Maldives, United Kingdom, and so on). 35. The direct lending to SECI (and not routed through a financial institution) will help contain the transaction costs and be more hands-on with regard to issues such as project and technical design, 14 Formerly called Section 25 as per the Companies Act Page 16 of 78

21 procurement strategy, implementation support, and transferring lessons learned for a wider application across the national boundaries. However, as SECI is a relatively new organization and will need to be strengthened to deliver its mandate, the proposed project is designed to provide necessary support. Further, the MNRE will provide the overall policy guidance to open up these market segments for further investments. These plants will be grid-connected, and the state Discoms and bulk consumers will purchase the electricity generated from these plants based on a pre-agreed PPA. As the Discoms also play a vital role here as an offtaker of the power purchased from the investments, the financial fragility of such concerned companies will be an important factor while making investments in any of the identified subprojects. 36. SECI, in consultation with the World Bank, will carry out detailed subproject assessments (across FM, safeguards, procurement, and technical aspects). SECI will take the lead in preparing and consolidating progress reports, financial statements, and Interim Unaudited Financial Reports (IUFRs). B. Results Monitoring and Evaluation 37. SECI will provide the World Bank with quarterly physical progress and IUFRs, annual information on progress of the key performance indicators, audited financial statements, and such other information as the World Bank may reasonably require. Monitoring and evaluation (M&E) will be linked to the project targets (key performance as well as intermediate indicators). SECI will carry out a midterm review and report its findings and conclusions to the World Bank two-and-a-half years after effectiveness and will review these with the World Bank. Section VII sets out the project s key performance as well as intermediate results indicators. The World Bank will field implementation support missions twice per year. C. Sustainability 38. As these subprojects will be grid-connected, and the state Discoms and bulk consumers will purchase the electricity generated from these plants based on a pre-agreed PPA, the sustainability of the investments will build in the subproject selection and design. Such mechanism will ensure cost recovery as well as guarantee minimum return on the investments made by SECI. 39. Further, SECI has recently been included in the tripartite agreement (TPA) with the GOI, Reserve Bank of India (RBI), and the state governments to ensure a payment security mechanism for supply arrangements between CPSUs (such as National Thermal Power Corporation [NTPC], POWERGRID, SECI) and state Discoms for supply of power. The long-term TPA ensures that payments on account of supplying solar power to the Discoms will be received by SECI on time. Given this, the long-term investment rating of SECI has also been upgraded from AA minus to AA plus by ICRA Limited, a credit rating firm in India. 40. SECI has been a profit-making company. It intends to launch its Initial Public Offering (IPO) in three to five years, implying that it will be eager to adopt the capacity-building and institutional-strengthening measures over the project implementation period. With the launch of the IPO, corporate governance (CG) practices will strengthen, further ensuring improved monitoring of the investments. 41. As the project supports the new technologies, the project has concessional financing from the CTF that will enable demonstrating of the perceived benefits of such technologies while fostering Page 17 of 78

22 development of the policy and regulatory framework that is expected to open up the market for higherscale investments. D. Role of Partners 42. Many development partners are active in the clean energy space. Kreditanstalt für Wiederaufbau (German Development Bank, KfW) is working closely with the GOI to mobilize investments in the floating solar sector, especially in the state of Kerala. USAID, under the Partnership to Advance Clean Energy - Deployment (PACE-D) program, has prepared draft bidding documents for demonstration storage projects. A White Paper on Framework for Development of RE Hybrids in Karnataka has been published by USAID under the PACE-D program. The National Renewable Energy Laboratory is working under the contract with the World Bank and USAID for a greening the grid study to help with integrating higher share of renewables into the grid. The World Bank is working closely with partners and building on these engagements. V. KEY RISKS A. Overall Risk Rating and Explanation of Key Risks 43. The key risks and issues associated with the proposed project are as follows. 44. The risk associated with institutional capacity for implementation and sustainability and fiduciary risk are rated Substantial because SECI, which was formed only in 2011, relatively needs to strengthen project management and fiduciary (for example, procurement, contract management, and FM) capacity and manpower availability. Thus, during project preparation and implementation, the World Bank plans to work with SECI, in consultation with the GOI, to strengthen SECI s institutional capacity. To mitigate this risk, the World Bank plans to work with SECI (in consultation with the MNRE) to build their core competencies in fiduciary, safeguards, and other areas as part of Component 2 of the project. 45. The risk associated with technical design of the project is rated Substantial as the project promotes innovative technologies with modest cumulative installation capacity; the construction and operation of first-of-its-kind utility-scale project could pose a challenge. Technical challenges in designing the project includes duration and type of storage optimization, sizing and design of floating solar plants, proportional capacity allocations of solar and wind in hybrid plants etc. This risk will be mitigated by appropriate development of technical specifications, selection of most suitable procurement method and qualification criteria, following feedback from the market, and warranty requirements. 46. The risk associated with environment and social is rated Substantial as safeguard impacts are expected to be site specific, restricted mainly to the innovative solar and hybrid technologies and their immediate surroundings. The impacts resulting from storage technologies can be handled more easily than those from installation of power-generation devices. While the Government plans to prioritize the use of unproductive, state-owned land for innovative solar and hybrid technologies, resettlement of communities residing on government land may be required. In cases of new construction or capacity augmentation of existing construction, it is possible that private land could be acquired for the substation. A detailed safeguards assessment study [is being]/will be carried out for each plant to assess the magnitude of such aspects and outline mitigation plans accordingly. Specialized studies may be required Page 18 of 78

23 on the impacts of proposed wind turbine installations on birds. For floating solar plants, environmental issues such as impacts on aquatic life will need to be carefully addressed. (According to the IA, for the first 10 kw floating solar plant in Kolkata, no such impacts have been noted.) 47. Overall risk. The team proposes to rate the overall risk during project preparation as Substantial. The overall risk is rated Substantial given SECI s capacity development needs, the innovative technologies being promoted, and the potential contractual issues involved. To address these concerns, the project intends to work with SECI to strengthen it institutionally. VI. APPRAISAL SUMMARY A. Economic and Financial (if applicable) Analysis Economic Analysis 48. Because project sites have not been identified for storage and floating solar technologies, only the proposed 150 MW solar-wind hybrid generation plant in the state of Andhra Pradesh is analyzed. 15 The proposed investment is economically viable. It helps displace thermal generation, lowers grid integration costs of solar and wind technology, improves the utilization of land and transmission infrastructure, and reduces global and local environmental emissions. The baseline economic rate of return (ERR) of the with project scenario is 18.3 percent with a net present value (NPV) of US$35.5 million, against a counterfactual comprising generation using imported coal and a discount rate of 10 percent (table 1). 16 Local and global environmental benefits contribute 14 percentage points to the ERR and US$85 million to the NPV, enabling the project to cross the hurdle rate of 10 percent. The proposed investment in Andhra Pradesh will help reduce 6 million tons of GHG emissions over the life of the project. 49. Storage solutions are not yet economically viable as the benefits are not properly captured in the current policy and regulatory framework. While energy storage prices are falling faster than the industry anticipated a few years ago, the premium relative to the base solar PV levelized cost of energy (LCOE) is still significant. It is estimated that for the system of solar PV and storage planned under the Project, the cost of storage would be about 50% of the cost of solar PV, which will considerably increase the cost of generation. Furthermore, the policy and regulatory framework for grid storage is still under development in India. Without it, the economic value of storage solutions cannot be fully monetized, and storage projects are harder to amortize. As only its cost is fully recognized while not recognizing benefit properly, the storage technology requires grant funding for demonstration at scale and related technical assistance to create enabling environment. 15 The economic analysis presented is provisional and will be updated once the feasibility study of the proposed investment is completed. 16 This economic analysis is consistent with the following guidelines: (a) Operational Policy and Bank Procedure 10.00, IPF; (b) Power Sector Policy and Investment Projects: Guidelines for Economic Analysis; (c) Social Value of Carbon in Project Appraisal 2014; and (d) Discounting Costs and Benefits in Economic Analysis of World Bank Projects Page 19 of 78

24 Table 1. Summary of Economic Analysis on Solar-Wind Hybrid Base Case Sensitivity [1] Discount rate 10.0% 6.0% [2] Economic rate of return [3] ERR [ ] 18.3% 18.3% [4] ERR excluding GHG benefits [ ] 4.9% 4.9% [5] ERR excluding GHG and local env. benefits [ ] 4.0% 4.0% [6] Levelized cost of solar + wind hybrid US$/Kwh [7] [8] Levelized cost of counterfactual US$/Kwh [9] Composition of NPV [10] Costs [11] Solar PV Capital Costs 115 MW [$USm] [12] Solar PV O&M [$USm] [13] Wind Capital Costs 35 MW [$USm] [14] Wind O&M [$USm] 3 5 [15] Incremental Transmission Costs [$USm] 6 6 [16] Incremental Transmission O&M [$USm] 1 1 [17] Incremental Grid Integration Costs [$USm] [18] total costs [$USm] [19] Benefits[avoided thermal generation] [20] Avoided fuel costs: Gas [$USm] 0 0 [21] Avoided fuel costs: Coal [$USm] [22] Capacity credit: Coal [$USm] [23] total benefits [$USm] [24] NPV (before environmental benefits) [$USm] [25] local environmental benefits: avoided grid generation [$USm] [26] NPV (incl. Local environmental benefits) [$USm] [27] value of avoided GHG emissions [$USm] [28] NPV (including environment) [$USm] [29] Lifetime GHG emissions, undiscounted mtons CO Note: The economic analysis presented in the table is provisional and will be updated once the feasibility study of the proposed investment is completed. Financial Analysis 50. SECI, since its inception stage, has acted as a disbursement agency for the funds under Viability Gap Funding (VGF) schemes and carries out the tender process for both rooftop and ground-mounted solar schemes. Moreover, SECI also handles schemes for solar park implementation. Alternatively, SECI is also involved in power trading and offers project management consultancy (PMC) services. SECI has applied for a Category I license to trade power that will enable it to have no limit on the volume of electricity to be traded in a year. 51. There have been some important developments in recent times bringing in new potential and prospects of growth for SECI that recently brought out a wind energy tender for procurement of 1 GW CTU-connected wind power on competitive basis, a pioneering effort in itself. The tender saw the most competitive tariffs (US$5.3 cents or INR 3.46 per unit) in the history of the wind market in the country. Now, SECI intends to develop about 300 MW capacity in innovative technologies with World Bank support. Page 20 of 78

25 52. An estimation of profits and expenses has been carried out from ongoing activities and activities currently in pipeline for SECI. The company is past the formative years and now has some important assignments in hand, several of which have also seen substantial work happening. Every year, there has been a marked expansion of SECI s activities and the annual cash inflows, which is reflected in estimated revenues. On the financial front, with a total revenue of US$89 million (INR 5,790 million) and net profit of US$3 million (INR 191 million) in its fifth year of existence (and second year of profitability), SECI has been growing. Net profit of the company has increased by percent from US$1.6 million (INR 106 million) in FY2015 to US$3 million in FY2016, while the net worth of the company has increased by more than 110 percent from US$16 million (INR 1,040 million) to US$34 million (INR 2,211 million) during the same period. 53. Further, the revenue projections for the next five years indicate a slow but steady growth for SECI. With the fall in solar tariff in the country, there is a looming uncertainty around VGF and hence that stream of revenue is expected to narrow down, while the revenue earnings from the SECI-owned assets are expected to grow manifold with assets under the proposed project getting commissioned by 2022 (refer to annex 4). B. Technical 54. Strategic relevance. The proposed site for the hybrid project has been identified in the town of Anantapur in the state of Andhra Pradesh (Latitude N, Longitude E). The area of the plot is estimated to be about 1,500 acres and is completely owned by the Government of Andhra Pradesh. A 33/220 kv substation with transmission capacity of 150 MW exists at Ramgiri within 10 km from the site. Ample space exists for setting up additional bays for connecting load from the proposed hybrid plant. 55. Technical soundness. While the technologies supported under the project are relatively nascent for India, the project will support only well-tested and proven technologies. The project will also factor in and conform to international experience and good practices in storage, hybrid, and floating solar technologies: (a) technical standards and specifications; (b) grid integration of innovative solar technologies; and (c) relevant business models. The project will finance subprojects making use of technically proven and commercially viable solutions. While the subproject s technical qualification criteria could be further fine-tuned, they generally would be in line with international standards and account for local regulatory, technical, and climatic conditions. C. Financial Management 56. SECI has been functional for more than five years and has been entrusted with management and implementation of a number of schemes of MNRE but is yet to gain experience in implementing a World Bank project. SECI is designated as the IA for this project. An FM assessment of SECI indicates that project FM arrangements can be built on SECI s existing systems, to provide reasonable assurance over the use of the project funds, subject to implementation of the agreed measures. 57. The project will use SECI s own financial systems. Based on the budget estimate for FY2016/17, SECI has put a budget request with the line ministry to infuse INR 500 crore as equity capital. A separate ledger will be maintained for the project. The project will be subject to internal audit on terms of reference Page 21 of 78

26 (ToR) agreed with the World Bank and reports will be reviewed by the World Bank. SECI currently has a stand-alone application system (Billing Management System [BMS]) to monitor the physical and financial progress. IUFRs will be submitted to the World Bank within 45 days from close of the calendar quarter, which will form the basis for reimbursement. External audit will be conducted by the audit firm appointed by the Comptroller and Auditor General (CAG), under ToR agreed with the World Bank. 58. The FM risk rating is assessed as Moderate. Project FM arrangements including the form/contents of the financial report, ToR of project internal and external audit, and key internal controls will be documented in the FM Manual. Key internal control procedures have been reinforced in the FM Manual and compliance will be reviewed by the internal auditors and the World Bank. The World Bank will review the implementation and continued adequacy of the project FM arrangements during sixmonthly implementation support missions. Audit reports and progress reports will be reviewed and mitigation measures will be agreed with the project in case of issues reported by the auditors. D. Procurement 59. Procurement for the proposed project will be carried out in accordance with Procurement Regulations for IPF Borrowers for Goods, Works, Non-Consulting and Consulting Services, dated July 1, 2016, hereinafter referred to as Regulations and the provisions stipulated in the Legal Agreement. The project will be subject to the World Bank s Anti-Corruption Guidelines, dated October 15, 2006, and revised in January 2011 and July 1, Procurement risk assessment and mitigation. All procurement under the project will be undertaken in SECI by the Contract Department, which is headed by the General Manager/Contract. The procurement capacity assessment carried out by the World Bank staff concluded that the staff in SECI office have limited or no experience in World Bank procurement process, specifically for works using the International Competitive Bidding (ICB) method of procurement and hence, procurement staffing arrangements need to be strengthened. 61. SECI is in the process of strengthening its contracts division by recruiting more procurement experts. SECI will also develop a comprehensive training program to be implemented over the life of the project, including on procurement and contract management. SECI also intends to prepare a Procurement Manual, which will include all procurement processes, decision making, and safe upkeep and management of records. Under the project, SECI will also establish a comprehensive system for handling complaints. While the overall risk rating for the project is Substantial, the residual risk rating after taking proposed mitigation measures remains Substantial given the lack of World Bank procurement experience in SECI. 62. Project Procurement Strategy for Development (PPSD). As per the requirement of the Regulations, SECI will prepare a PPSD, from which a Procurement Plan will be developed to decide procurement methods and approaches for procurement. The first Procurement Plan will include all procurement to be taken up during the first 18 months of project implementation, which has to be agreed and submitted with the World Bank through the Systematic Tracking of Exchanges in Procurement (STEP) system. It will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Page 22 of 78

27 E. Social (including Safeguards) 63. Issues and impacts. While communities are expected to benefit from the project as a result of the generation of additional livelihood sources and corporate social responsibility (CSR) investments, project implementation may also lead to adverse social impacts. During the construction phase of investments, these might include loss of land or structures, loss of livelihood and/or loss of access to areas for livelihood support, loss of common property resources, and public safety issues because of labor influx and construction activities. The social impacts are not confined to the generation areas only; they also include the area covered by the transmission line that will evacuate power as a linked facility. 64. Mitigation measures. Because exact subproject sites are yet to be identified, SECI is in the process of preparing an Environment and Social Management Framework (ESMF) for the project, which is to be followed by subprojects to be identified later. Preparation of the ESMF is based on social profiling of similar and probable candidate sites. The ESMF is to be applied to all subprojects under this project. The ESMF will include a Resettlement Policy Framework (RPF), which will specify the procedures, probable impacts, eligibility, entitlements, and other measures to be followed in the event of resettlement and/or land acquisition. The project will also ensure that developers come up with a CSR plan and implement the same in the project area. Because subprojects will be spread all across the country, some locations may have the presence of indigenous population. Therefore, as part of the ESMF, a Tribal Management Framework (TMF) will be prepared, with the objective of including tribal communities in the project to achieve the highest possible positive impact of the interventions to improve their quality of life. The ESMF will include a Gender Development Framework (GDF), which will help analyze gender issues during the preparation stages of the project and design interventions to address women s needs. Gender analysis will be part of the social impact assessment (SIA). The ESMF will also include (a) an Integrated Grievance Redress Mechanism (GRM); (b) specific procedures on public consultation and disclosure; (c) monitoring arrangements covering subproject selection, appraisal, and implementation; (d) schedule, procedures, and ToR for periodic environmental and social audits; and (e) a plan to augment the institutional capacity of SECI to manage project-related social issues. The ESMF will be disclosed in the country, as well as in the World Bank s Internal Documents Unit. 65. After subproject sites are identified, screening and SIA will be carried out to identify any adverse impact in line with the ESMF. While the Government plans to prioritize the use of state-owned unproductive land for innovative solar and hybrid technologies, resettlement of communities settled on government land may be required. Additionally, there is a possibility of acquiring private land for substations in case of new construction or augmentation of capacity of the existing ones. The project will have tailor-made interventions to engage with local communities and key stakeholders to ensure their inclusion and participation in the planning and implementation stages. The project will establish mechanisms to ensure smooth implementation of the Resettlement Plan/Indigenous Peoples Plan (IPP)/Gender Action Plan in line with the ESMF. SECI may contract a nongovernmental organization (NGO) for implementation of Resettlement Action Plan (RAP) and IPP. The project will also establish a grievance redress cell. F. Environment (including Safeguards) 66. The project sites have not yet been finalized. However, the environment and social baseline study of the selected solar (ground mounted as well as floating) and wind projects to identify threats and issues Page 23 of 78

28 that may have an impact on the project has been completed by an independent agency. Based on this data, SECI is in process of preparing a site-agnostic ESMF that upon finalization will be disclosed in the country as well as on the World Bank s website. As the sites are being identified and finalized, SECI will undertake a site-specific Environment and Social Impact Assessment (ESIA) based on the ESMF, which will also include a ToR for the ESIA. SECI has finalized the ToR and is in the process of hiring an ESIA consultant to conduct a site-specific ESIA. Thus, site-specific Environmental Management Plans (EMPs) will be developed for each site. 67. While India has gained experience in developing solar and wind projects and impacts are well known along with possible mitigation measures, floating solar is a new dimension for the country. It started in 2014 with a pilot project of 10 kw in Kolkata, with a few more projects in Chandigarh, Maharashtra, and Kerala. The experience of such projects has encouraged SECI to upscale floating solar to 20 MW with installations of about 10 MW each in Andhra Pradesh and Kerala. The preliminary site identification study for Andhra Pradesh (Penna Ahobilam Balancing Reservoir [PABR] dam) has not noted any major impacts on physical, natural, and biological environment. The site appears to have minimal impacts on flora and fauna, without significant sensitive features from a cultural and historical perspective and is also distant from national parks and wildlife sanctuaries. It identifies slight impact due to flooding (around 10 ha of cultivable land if flooding occurs) and construction impacts such as dust and occupational health safety. One significant observation for this site from the environmental safeguards perspective could be that the dam on which floating solar is proposed supplies drinking water to Anantapur town and water quality could be one aspect which needs to be examined in detail during the ESIA. 68. Environmental impacts and management. The following issues and potential impacts are envisaged: (a) Impacts on natural physical environment because of excavations for laying foundation, water for construction and operation stage, area for storage of spare parts/equipment, and so on. The physical environment would be affected for instance, alteration of drainage in the site and surrounding areas at construction and operation stages. (b) Impacts on biological environment especially if forestland is acquired, then the appropriate clearance procedures are to be adopted for conversion of land use/compensatory land allocation in case of solar installation and ensuring necessary precautions for safety buffer and so on in case of wind installations. Wherever the sites have high tree cover, minimum alteration to existing ground cover should be ensured. Further, site-specific ESIA studies, to be undertaken for each location, shall establish the wildlife species movement corridors/paths/habitat, if any, applicable in and around the proposed site. The ESIA study will also identify adequate mitigation measures to ensure no conflicts/poaching occurs during the various stages of project development. There will not be any anticipated impacts on the ambient noise levels and air quality because of such subprojects. (c) Impacts on visual environment especially in case of wind installations. The preferable locations for most of the high-density wind areas are in the hilly regions or forested land; thus there is a higher probability of blocking or hampering scenic value of the place. Page 24 of 78

29 (d) Impacts on the settlement because of disruption/change in the built infrastructure environment (roads, sewage system, water supply, solid waste disposal, and so on). 69. In each subproject, the ESIA will be undertaken to develop an Environmental and Social Management Plan (ESMP), which would be the key document focused on implementation, after the potential site-specific impacts have been identified. It will ensure that the project impacts are reduced to an acceptable level during implementation of the subproject. Thus, the ESMP will be the document for ensuring that all the preceding analysis is used to preserve/improve overall environmental quality within the influence area of the project. 70. Consultations and disclosure. Can be added once ESIA is awarded. 71. Institutional arrangements. Will add after ESIA. G. Other Safeguard Policies (if applicable) 72. No other safeguard policies are triggered. H. World Bank Grievance Redress. 73. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank s corporate Grievance Redress Service (GRS), please visit For information on how to submit complaints to the World Bank Inspection Panel, please visit Page 25 of 78

30 VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY : India Innovation in Solar Power and Hybrid Technologies Project Development Objectives The Project Development Objective is to demonstrate large-scale innovative renewable energy technologies in India. Project Development Objective Indicators Indicator Name Core Unit of Measure Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection Name: Generation Capacity of Renewable Energy (other than hydropower) constructed Generation Capacity of Renewable Energy constructed - Other Megawatt Annual Progress Report SECI Megawatt Annual Progress Reports SECI Description: This measures the capacity of renewable energy (other than hydropower) constructed under the project. The TTL should specify the type of renewable power (i) wind; (ii) geothermal; (iv) solar; or (iv) other. For hydropower refer to code Hydropower (LH). The baseline value for this indicator will be zero. Page 26 of 78

31 Indicator Name Core Unit of Measure Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection Name: Renewable Energy generated (in megawatt hours) Megawatt hour(mwh) Annual Progress Report SECI Description: Name: Greenhouse Gas Emissions Avoided (tons of CO2 equivalent per year) Tones/year Description: Intermediate Results Indicators Indicator Name Core Unit of Measure Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection Name: Installed Capacity under solar-wind hybrid (in megawatt) Megawatt Annual Progress Report SECI Description: Name: Installed Capacity under standalone plants for Megawatt Annual Progress Report SECI Page 27 of 78

32 Indicator Name Core Unit of Measure Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection solar/wind with storage (in megawatt) Description: Name: Installed capacity under floating solar PV (in megawatt) Megawatt Annual Progress Report SECI Description: Name: Grievances received that are addressed within two months of receipt Percentage Annual Progress Report SECI Description: This indicator measures the grievances/ complaints received and percentage addressed within a period of two months from date of receipt Page 28 of 78

33 Target Values Project Development Objective Indicators FY Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 YR6 End Target Generation Capacity of Renewable Energy (other than hydropower) constructed Renewable Energy generated (in megawatt hours) Greenhouse Gas Emissions Avoided (tons of CO2 equivalent per year) Generation Capacity of Renewable Energy constructed - Other Intermediate Results Indicators FY Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 YR6 End Target Installed Capacity under solar-wind hybrid (in megawatt) Installed Capacity under standalone plants for solar/wind with storage (in megawatt) Installed capacity under floating solar Page 29 of 78

34 Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 YR6 End Target PV (in megawatt) Grievances received that are addressed within two months of receipt Page 30 of 78

35 Annex 1: DETAILED PROJECT DESCRIPTION COUNTRY: India Innovation in Solar Power and Hybrid Technologies 1. The proposed project aims to support the GOI to promote large-scale deployment of innovative technologies in the RE sector, including solar-wind hybrid systems, integrated energy storage for solar and wind, and floating solar PV panels. This will be done in partnership with SECI, a CPSU under MNRE. The proposed project will have two components. 2. Component A: Investments in Innovative Technologies (Estimated cost: US$398 million, including US$150 million from the World Bank, US$48 million from the CTF [CTF loan in the amount of US$28 million and a proposed CTF grant in the amount of US$20 million 17 ], and US$200 million from SECI). This component will finance the following: (a) Large-scale solar-wind hybrid power plant(s), potentially with short-term energy storage, with a cumulative capacity of about 230 MW. Such subprojects are expected to improve power generated per unit piece of land while reducing the variability of the generation from stand-alone RE plants. The first site of estimated capacity of about 150 MW has been identified near Ramgiri District in the state of Andhra Pradesh. 18 Finalization of the exact land coordinates as well as solar and wind resource assessments along with technical due diligence of the site is under way. Prefeasibility studies for solar-wind hybrid plants at several potential sites are also under way. (b) Stand-alone plants for solar PV with storage, with a cumulative capacity of 50 MW. Because such technology is not yet commercially viable, the project will demonstrate the benefits expected out of storage solutions and hence is a step toward opening up the market for private sector investments. Based on the technical as well as financial due diligence, duration of energy storage for the identified subprojects will be decided. (c) Large-scale floating solar PV power plants with a cumulative capacity of about 20 MW. The first sites being explored for such investments are located in Andhra Pradesh and Kerala. The sites identified in these states have an estimated potential of 10 MW each. As this technology is not yet commercially viable, the project aims to prove the concept by locating such subprojects at sites where there is existing associated infrastructure such as reservoirs of the operating dams and/or sites where there are externalities such as high evaporation 17 For determining project costs, it is assumed that 50 MW PV with 1 hour storage (50 MWh) will be installed. At an installed cost of battery of US$400 per kwh, a grant of US$20 million will be required to set up the storage part of the energy storage project. 18 Plant locations and capacity have been specified, depending on the interest conveyed by the respective state-union territory administrations; these may subsequently change, depending on the technical due diligence. Other locations will also be explored during the preparation phase to be funded under this project or used to build the pipeline for future investments. Page 31 of 78

36 loss (in case of irrigation dams) and/or where the land is either not available or too expensive. This approach will ensure that the subproject is sustainable. 3. SECI will be the principal sponsor and owner of the proposed power plants. SECI will build power plants through a competitive bidding process for selecting EPC contractors. These plants will be gridconnected, and the state Discoms and bulk consumers will purchase the electricity generated from these plants through a PPA. 4. Component B: Technical Assistance and Institutional Strengthening of SECI (estimated cost: US$2 million from the CTF grant). This component will finance the following activities: (a) Capacity building and institutional strengthening to enhance SECI s core competencies (across functions such as human resources, project management and monitoring, procurement and contract management, FM) that will enable it to maintain sustainability of the investments made under the project; (b) Support in developing a pipeline of subprojects through supporting prefeasibility studies, site identification, social and environmental assessment, techno-commercial studies, and other preparatory activities; (c) Developing policy and regulatory proposals to support scale-up of innovative technologies. Large-Scale Solar-Wind Hybrid Power Plant(s) 5. As per the recent targets of 175 GW announced by the GOI, a cumulative capacity of 160 GW is from wind and solar power (100 GW of solar and 60 GW of wind), to be added by The requirement for land estimated at approximately 3 to 5 acre/mw for solar and approximately 8 to 10 acre/mw for wind (albeit on footprint basis the land acquisition requirement for wind will be lower) and power evacuation infrastructure will be significant. However, the development of stand-alone solar and wind power projects suffers from the following limitations: (a) Limited scope of land optimization (b) Separate evacuation infrastructure for wind and solar projects (c) Lower utilization of evacuation infrastructure as variable power generation profile with seasonal variation in the power output (d) Higher cost of capital and longer project development time 6. Large-scale deployment of solar-wind hybrid projects can be a potential solution to address the above mentioned limitations. A typical RE hybrid system may be described as a system combining two (or more) RE sources, operated jointly, and providing increased system efficiency as well as greater balance in the energy supply. 7. India has vast RE potential and few states are blessed with excellent wind and solar resources together offering ideal sites for implementation of utility-scale RE hybrids. Though a few small-scale and Page 32 of 78

37 off-grid hybrid projects are already implemented in India, no utility-scale solar-wind hybrid project has been implemented in any state across India so far. 8. The following factors make India an ideal country for setting up solar-wind hybrid projects. (a) Availability of about 240 to 300 sunny days in a year with good solar radiation of 5.4 to 6.2 kwh/m 2 /day (b) Overlap with regard to potential sites with both wind and solar resources 9. Under the USAID technical assistance program, a techno-commercial study was conducted on solar-wind hybrid for a location in the state of Karnataka. Simulation results from the study 19 highlighted the following with regard to capital costs of hybrid projects compared with capital costs of stand-alone wind and solar projects: (a) Savings, even though marginal, were observed in capital cost of solar-wind hybrid projects compared with stand-alone wind and solar projects. (b) Solar-wind hybrid projects would yield a 24 percent CUF for a 70:30 energy mix compared with the CUF of 26 percent for stand-alone wind sites and 20 percent for stand-alone solar sites. (c) Levelized cost of generation from solar-wind hybrid projects varied between US$0.07 per kwh (INR 5.00 per kwh) and US$0.08 per kwh (INR 5.60 per kwh) for different wind-solar mix ratios, while the levelized cost of generation from a stand-alone wind project was between US$0.07 per kwh (INR 4.82 per kwh) and US$0.10 per kwh (INR 6.94 per kwh) for a stand-alone solar project. 10. Assuming the cost of additional evacuation infrastructure to be about INR 1 crore to INR 1.2 crore per MW (US$0.147 million to US$0.176 million per MW), state transmission utility savings will be in the range of INR 540 crore to INR 650 crore (US$79.24 million to US$95.39 million). These calculations were done only for four potential districts in the state of Karnataka. There can be more potential areas/districts which could be further explored and utilized. 11. There are essentially two ways to develop solar-wind hybrid projects: greenfield hybrid (windsolar) RE project and brownfield hybrid (wind-solar) RE project. Under the greenfield RE hybrid project, significant flexibility exists for devising configuration, capacity mix (wind-solar), generation, and evacuation planning taking into account resource assessment and site-specific considerations. However, under the brownfield RE hybrid project, while design flexibility and configuration options are limited, the development time can be significantly reduced because of availability of land and existing infrastructure. In a typical co-located brownfield RE hybrid project, solar panels are installed in the vacant spaces between the wind turbines upon addressing shadow effect thereby enhancing power generation from given landmass harnessing both the RE sources. 19 White Paper on Framework for Development of RE Hybrids in Karnataka: USAID, PACE-D Technical Assistance Program Page 33 of 78

38 12. While several small-scale (kilowatt range) hybrid schemes have been operational for some time, there is no MW-scale RE hybrid installation yet in India. There are several challenges related to technical, commercial, and regulatory aspects which need to be addressed before these projects can be implemented on the ground. The main challenges associated with implementation of solar-wind hybrid projects have been summarized in Figure A1.1. Figure A1.1. Implementation Challenges 20 TECHNICAL CHALLENGES: Interconnection Point Different practices for wind & solar being followed in the state Clear demarcation of roles (State Transmission Utility/Developer) Metering and Energy Accounting Need for modification of procedures for Joint Meter Reading (JMR) and Loss apportionment Transmission & Evacuation Arrangement Planning Codes/Standards to recognize benefits of hybrid operations Forecasting & Scheduling (F and S) regime Rules for Fand S and deviation settlement for wind and solar to aligned for hybrid options COMMERCIAL CHALLENGES: Need for Flexibility of Off-take arrangements Multiple generators/owners with sale options (Captive/Sale to DISCOM/inter-state) needs to be enabled Clarity on extending Fiscal/Financial Benefits under Wind Policy, Solar Policy and Investment Schemes to RE Hybrid Eligible RE Hybrid project(s)/capacity, share of Wind:Solar REGULATORY CHALLENGES: Tariff treatment Generic tariff is not necessary Composition of share of WiSH projects would depend upon site specific aspects Treatment under RPO Need to separately track Solar/Non-Solar Renewable Purchase Obligation (RPO) 13. Solar-wind hybrid projects provide several advantages for states and developers. These are higher utilization factor for evacuation and transmission infrastructure, improved generation profile and reduced variability/intermittency in generation, additional generation, exploiting economies of scale for operation and maintenance, and gainfully utilizing available land and other infrastructure. However, the development and operation of solar-wind hybrid projects depend upon a number of stakeholders that need to perform their respective roles and responsibilities to develop an appropriate policy, regulatory and operational framework. The indicative roles and responsibilities are listed in table A1.1. Table A1.1. Roles and Responsibilities of Key Stakeholders for Development of a Solar-Wind Hybrid Project Key Stakeholders Roles and Responsibilities State/central government Develop a draft RE hybrid policy for the state Bring clarity in RPO targets 20 Source: USAID PACE-D report Page 34 of 78

39 Key Stakeholders Roles and Responsibilities Provide incentives for the promotion of RE hybrids Ensure access to the grid, transparency, and efficiency in implementing such schemes Regulator (forum of regulators, Ensure nondiscriminatory access to the grid central/state regulators) Develop RE hybrid rules and regulations Develop interconnection, metering, and energy accounting frameworks Define roles and responsibilities of the key stakeholders Discom Assist in developing technical standards and interconnection agreements Metering of generation from different RE sources - RPO compliance Process applications efficiently and ensure nondiscriminatory behavior Project developer Develop RE hybrid project and ensure proper O&M Ensure compliance of technical and safety standards Selection of appropriate wind-solar generation mix 14. The first solar-wind hybrid project is being planned at the Ramgiri site in Andhra Pradesh. The learnings from the development of the project would go a long way in garnering insights into technological, operational, and commercial aspects of solar-wind hybrid schemes. The learnings from these pilot/demonstration projects such as factors to be considered for designing solar-wind hybrid scheme, sizing of capacity mix of wind-solar power, transmission capacity factors, associated cost-benefit analysis of operating hybrid projects, interconnection difficulties and metering/energy accounting framework, and so on would be useful for proliferation of wind-solar hybrid projects in India. 15. This will also create a foundation and a benchmark for other regulatory commissions to formulate suitable regulatory intervention measures and would facilitate state government to evolve policy regime to encourage the development of solar-wind hybrid projects in their respective state. Besides, it would create an enabling framework for existing wind power developers in the states (such as Rajasthan, Gujarat, Madhya Pradesh, Tamil Nadu, Maharashtra, Andhra Pradesh) to explore options for developing brownfield solar-wind hybrid projects. Energy Storage Plant 16. India has over 30 GW of RE, an annual growth rate of over 19 percent in RE capacity over the last five years ( ). Further, the GOI has set a target for 15 percent of power consumption to be generated from RE sources by States such as Tamil Nadu, which have a high level of RE generation, are already suffering from transmission capacity constraints, which prevent evacuation of RE during the peak season. With significant wind and solar capacity addition expected in coming years, the grid will continue to face severe transmission capacity constraints and stability issues. POWERGRID, the national grid company, estimates that it would need 20 GW of flexible generation, including super critical thermal generators and energy storage solutions, to take care of peak load requirements by Energy storage solutions can offer a range of benefits, including time shifting, grid stabilization, shaving of peak demand, improved generation efficiency, and improved utilization of transmission capacity. Page 35 of 78

40 17. As noted in USAID s Assessment of the Role of Energy Storage Technologies for Renewable Energy Deployment in India report, 21 the power sector in India is facing a number of challenges, among them power shortages of over 9 percent of peak demand, transmission and distribution (T&D) constraints, and stability issues caused by an increasing share of RE in the grid. In its present scenario, the Indian energy market offers an appropriate environment for the use and scale-up of energy storage solutions. Several states which have a high level of grid-connected RE capacity (such as Tamil Nadu with about 44 percent) suffer from transmission capacity constraints. Based on given RE targets, a significant portion of power (between 30 percent and 50 percent in many cases) may not get evacuated during peak generation, resulting in loss to the system as well as the generators. While transmission capacity is being expanded to take care of evacuation needs, expansion has been slow. Energy storage can be used as an option for reducing backdown of generation and also reducing or postponing transmission capacity expansion. 18. With the success of solar PV in India, the potential benefits of energy storage with regard to smoothing variability, and for time-shifting production to peak load times will gain importance. While energy storage is not the only means of addressing variability, recent research by de Sisternes et al. (2016) 22 has demonstrated that its value increases with increasing levels of renewable generation. There is no fixed ceiling beyond which energy storage is indispensable. Rather the point beyond which it is a viable option in the asset mix is a function of renewable penetration, geographic diversity and interconnection (or lack of), and the capacity of the system to absorb variability. On an empirical basis, other markets seem to begin to show commercial deployment of storage beyond a level of roughly 10 percent of renewable penetration (Figures A1.2). Figure A1.2. Penetration of Solar and Wind Generation by Country and Storage Market Activity Technical Assistance Program Assessment of the Role of Energy Storage Technologies for Renewable Energy Deployment in India. Partnership to Advance Clean Energy - Deployment (PACE-D). March de Sisternes, F. J. et al The Value of Energy Storage in Decarbonizing the Electricity Sector. 23 Source: BNEF, IFC Page 36 of 78