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Goldman Sachs: More on Indias new wind-forecast rules

Natalie Obiko — Bloomberg Business Week — July 28, 2013

Goldman Sachs Group Inc.’s ReNew Wind Power Pvt. said an Indian rule requiring wind farms to predict output will lead to penalties that will wipe out profits in the industry.

ReNew joins Tata Power Co. (TPWR), both among India’s largest renewable-energy utilities, in voicing concern as wind-farm developers seek a court injunction against the directive ordering day-ahead forecasts for generation. India’s electricity regulator will fine developers if predictions aren’t correct.

“The level of accuracy they’re asking for isn’t possible,” said Sumant Sinha, chief executive officer of ReNew, which is backed by a $385 million investment from Goldman Sachs. “Most people will end up paying very significant charges.”

The Central Electricity Regulatory Commission imposed the order this month. The directive, applying to farms built since May 3, 2010, will affect developers including ReNew, Tata, CLP Holdings Ltd. (2) and Morgan Stanley-backed Continuum Wind Energy Pte, which have added some of the largest projects in that time.

Penalties may amount to as much as 15 percent of revenue, destroying profitability in an industry that has attracted about $10 billion of investment since 2011, Sinha said. ReNew, which doesn’t disclose its operating capacity, will find it “tough” to meet its own target of adding 200 megawatts a year, he said.

Court Injunction

The Wind Independent Power Producers Association has filed for an injunction at the Delhi High Court, Sunil Jain, the lobby’s president, said in a July 25 e-mail. Another industry body, the Chennai-based Independent Wind Power Association, is considering doing similar, said Chairman K. Kasthurirangaian.

Objections from the industry have already delayed the order by two years and developers have had sufficient time to prepare, Rajiv Bansal, the regulator’s secretary, said by phone.

Forecasting of wind generation, an intermittent energy source, is carried out in parts of Europe and the U.S. to help stabilize the grid. In India, scheduling will allow wind power to be sold across states and help authorities prepare network upgrades to accept more clean energy.

Wind farms of 10 megawatts or more will predict their generation for the following day every 15 minutes. Missing estimates by more than 30 percent will incur penalties.  Continue reading, here….

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One Comment on “Goldman Sachs: More on Indias new wind-forecast rules”

  1. Mark Lively July 31, 2013 at 4:41 pm #

    In regard to “Goldman’s ReNew Says India Wind-Forecast Rule Will Erase Profits”, Bloomberg News, July 28, 2013, the problem is not the forecast rule but that the Central Electricity Regulatory Commission (CERC) has begun moving away from the competitive market concepts that it installed 11 years ago, moving toward a system of penalties.

    Under a competitive market, if one wind generator was 10 MWH over forecast and anther was 10 MWH under forecast, both would see the same price, though with opposite but offsetting financial effects. The price might be very high which would please the generator that was over and displease the generator that was under. Or the price might be very low which would please the generator that was under and displease the generator that was over. But both would see the same price. The utility would pay one wind generator the same amount for the overage that the utility collected from the other wind generator for the underage.

    Under a penalty concept, both generators will be displeased, both facing an economic impact that was harmful to their financial interest. The penalty would inure to the befit of the utility. Even when the amount of wind forecast errors netted out to zero, the utility would make money because the penalties always flow to the utility. Under a competitive market, the payments can balance out.

    In the U.S., the Federal Energy Regulatory Commission (FERC) seems enamored with the imbalance penalty contained in Bonneville Power Administration’s tariff. When a generator is too far out of balance (25%), penalties accrue, even if the imbalances of the various generators balance out. The utility makes money on imbalances, just as is proposed by CERC.

    I wrote about how to modify the BPA penalty concept in “Reply Comments Of Mark B. Lively In Regard To Using Prices Instead Of Penalties For (1) Regulation And Frequency Response, (2) Energy Imbalance, (3) Generator Imbalance, And (4) Inadvertent Energy,” Preventing Undue Discrimination and Preference in Transmission Services, FERC Docket No. RM05-25-000 and RM05-17-000, 2006 September 20. (Go to http://www.livelyutility.com/library.php# and look for RM05-25.) The result would be something like the imbalance mechanism that CERC is abandoning.

    In 2002 and 2003, India implemented an imbalance mechanism that looked at the net imbalance on the network to set the price for imbalances at generators and loads. When the system imbalance was a shortage, the price for generator and load imbalances would be high. When the system imbalance was a surplus, the price for generator and load imbalances would be low. Recently, CERC has been abandoning this competitive market for large imbalances and is moving toward the BPA penalty concept that FERC embraces. I think this change is a step backwards and the wind scheduling issue is part of that backward movement.

    I don’t think that the 2002 method for pricing imbalances is perfect. The prices don’t get extreme enough. The prices don’t change geographically. The prices don’t reflect various market forces. (See http://abt-india.blogspot.com/2007/10/windpower-discussion-on-inpowerg.html) But the mechanism tries to create a competitive market structure instead of a penalty structure, a penalty structure that always rewards the utility.

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