Presented below are my personal observations on the PDD submitted for webhosting. The data presented in the PDD is limited. The additionality is neither conclusive nor in line with the methodology. If the PP does decide to change the additionality to benchmark analysis, then the DOE is requested to get the PDD webhosted again. 

Baseline

The project proponent has chosen the baseline as lignite based power plant. The baseline for power generation in India, as of now is coal based power plants – sub critical or supercritical which are connected to the grid. The PP has chosen lignite as baseline which has increased the CERs from the project when compared to choosing the grid as the baseline. If lignite is the most economic alternative, the DOE should also analyze the portfolio of PP’s power projects and understand as to how many projects have they themselves installed or are planning to install. 

If lignite is most economic baseline, then PP should provide list of lignite power plants in India and the recent capacity additions. According to data from CEA, only 3580 MW lignite power plants are commissioned, out of which only 500 MW are with private players. Then how was it concluded that lignite is the baseline? The DOE should do a thorough check to understand whether lignite is really the baseline, keeping in mind the capacity additions using coal, and the other CDM registered NG power projects in India.

The price of lignite is given as 0.78 Rs/kg in the PDD whereas the Minister of State for Industries, Gujarat said in a press article that the rates of lignite being produced from the Rajpardi and Tadkeshwar mines are fixed at Rs. 1500 and Rs. 1400 per MT respectively, while that of being mined in Bhavnagar and Matano Madh is Rs. 1250 and Rs.1000 per MT in that order! (http://www.expressindia.com/latest-news/govt-slashes-lignite-prices-by-rs-150-per-metric-tonne/413343/). The DOE should independently verify as to what were the prevailing prices of lignite rather than relying on the DOE to establish authenticity. The PP being a major operator in the power sector may find it relatively easy to obtain a quotation for Lignite from some small time supplier. 

Additionality

The methodology considers a project additional under the following circumstances

a)	There is a more economically attractive and GHG intensive alternative available to the project activity (lower levelized cost when compared to the project activity); and
b)	The project on a standalone basis is not financially attractive (low IRR as compared to standard industry benchmark)

While the PP has demonstrated that there is a more economically attractive option available as compared to the project activity, it has not demonstrated that the project on a standalone basis is not financially viable . As the project activity involves displacement of power on the grid and the alternative can be set up by any other entity as well, it needs to undertake a benchmark analysis. In order to perform benchmark analysis, the PP needs to take into account the tariff that it receives from the sale of power. 

The plant is being setup as a Merchant Power Plant (MPP) and hence may not enter into a long term PPA. It is a well known fact that merchant power plants are very attractive, because they get higher tariff than PPA based power plants. An article in Powernomics is quoted here.

“Returns for pure merchant power plants, in the short to medium term, are expected to be significantly higher than the return of projects under long-term supply agreements. This is abundantly apparent from the fact that the weighted average short-term power price was around Rs. 7/KwH (April–Sept. 2008) and the levelized tariff quoted by various bidders for supplying power on long-term basis to state electricity boards (SEBs), in the same period, was in the region of Rs 2.50 - 3 /KwH (for coal linkage projects). The higher returns have prompted private developers to develop both peak load plants and base load plants as merchant power plants. An example is Jindal Power Limited’s 1000 MW coal based thermal plant (merchant) at Raigarh, Chhatisgarh. Based on the data available publicly, it appears that the plant generated a profit after tax of Rs 575 cr in Q3 of the fiscal year 2008-2009 (i.e. the first quarter after the commissioning of all units of the plant). Hence, it appears that profit after tax (PAT) for merely two quarters for this project would be perhaps more than the entire equity invested (http://www.constructionupdate.com/products/powertoday/2009/May2009/002.html).” 

A search on the internet for the tariff of merchant power plants in India shows that the tariff is Rs. 8-10/ unit (http://myiris.com/shares/research/ESSBL/POWEROTH_20090401.pdf/ http://www.mptradeco.com/short-term-oct08-dec08.pdf).  The PP should take note of the returns the project will get on account of merchant sales and make sure a proper financial indicator like IRR/ NPV is chosen which reflects revenue also.

The website of Lanco mentions that Lanco has a power trading unit called Lanco Power Trading Limited which has been awarded the National Power Trading Licence of CERC. It also says that on 21st May 2008, LPTL transacted 19.81 MUs, the highest for any single day transaction since its inception (http://www.lancogroup.com/power/powertrading/powertrading.html). The DOE should strictly verify the documentary evidence behind the statement made by the PP that the “project activity is quite susceptible to issues like nature of its sale contracts, pricing of merchant power and regulatory risk, development of adequate transmission corridor for evacuation of merchant power…”

Debt Equity

The project is apparently, 100% debt funded as is the case with most MPPs (www.lancogroup.com/Lanco_News_Is27.pdf). This is contrary to the debt equity ratio of 75:25 assumed in the PDD. Apparently, the PP has used standard parameters rather than project specific value. Additionality has to be project specific and each and every parameter should be project specific. The DOE should verify

a)	The assumptions used by the banks for project appraisal in particular the tariff and the PLF for the plant. Since the loan has already been sanctioned, the plant load factor should be taken from the project report submitted to the banks based on which the term loan has been sanctioned. (The PLF should essentially be verified as there is a chance that the PP would reduce the PLF claiming uncertainty in sales on a short term basis). 
b)	Was the debt funding approved after taking into account CDM and if so, is there an explicit mention of it in the loan agreement signed with the 21 banks. It would be a little difficult to believe that the bank sanctioned the loan assuming CDM funds and then fails to incorporate anything related to CDM in the loan agreement)

Common Practice

The table in Page 24 of the PDD giving list of NG power plants in Southern Grid does not include the 469 MW NG power project by Gautami Power Limited (Mentioned in Page 9 of the PDD). This project was commissioned in 2006, and is being operated since then without CDM funds. The PP needs to justify how this plant is operational. 

Gas Availability

At the time when Lanco was conceptualizing the project activity, it was running its existing project on Naphtha. The cost of Naphtha is multiple times that of Natural Gas. Still Lanco chose to run its power on Naptha rather than on Natural Gas. The reason for this most likely should be non availability of Natural Gas. There are multiple other power plants which could not be operational for want of gas. In such an event, the applicability of the methodology itself would need to be questioned.