As per section C.1 of the PDD the life time of the project is 20 years and how there can be renewable crediting period for 21 years?

The PP has already webhosted one project for the first phase a month back and this is the second project – identical to the earlier one. Hence, the issues are also identical.

The consultant has adopted Equity IRR for additionality demonstration. PDD states, “The PP has chosen Equity IRR as the financial indicator since the Project is financed by both debt and equity. Further, equity IRR has been a well-known financial indicator for evaluation of power projects in the country”. When the project is financed by both debt and equity whether project should be used or equity IRR should be used?  Are the projects financed by both debt and equity evaluated by project IRR or equity IRR? PP/consultant has got everything wrong. It appears that equity IRR has been chosen because the project will prove non-additional if project IRR is adopted. Use of equity IRR for this project is incorrect and it should be evaluated based on project IRR only. 

PDD states, “The Beta value taken for this analysis is based on the beta values of the listed power companies engaged in similar business at the time of investment decision estimated by regressing monthly returns on stock against local index BSE Sensex for a period of 5 years or from the date of listing if the listing happened at a later date”. What is the logic of taking five years or BSE sensex as the representative of market return?  PDD also reveals that the beta of varying durations is combined to calculate industry beta. No wonder the asset beta is as high as 1.03, when the beta of power sector is less than 1. PDD does not disclose the cut-off date. The cut-off date largely determines the beta.  The expected return on equity at >18% is very high compared to 16% recommended by MERC. 

PP/Consultant has tried all the possible means to make the project additional, like

-	Assuming PLF of 16. 76% (as against the MERC recommended PLF of 20% of Wind I zone)
-	One time bullet escalation in O&M cost by 15% without any basis as the PDD does not give the source;
-	O&M contingency at 10% from 3rd to 20th year once again without any basis;
-	De-escalation in O&M contingency cost by 5% from 3rd to 20th year for reasons not clear and explained; and 
-	Above all Asset manager’s cost of Rs.15 lakhs with 5% escalation per annum
-	Annual Trustee and security fee of Rs.1 lakh

With such assumptions no project will be non-additional. Paragraph 5 of Sub-step 2(b) of Additionality Tool states, “When applying Option II or Option III, the financial/economic analysis shall be based on parameters that are standard in the market, considering the specific characteristics of the project type, but not linked to the subjective profitability expectation or risk profile of a particular project developer. Only in the particular case where the project activity can be implemented by the project participant, the specific financial/economic situation of the company undertaking the project activity can be considered”. Are these assumptions standard in the market? These are all based on subjective profitability expectation of the project developer. While PLF less than 20% (which is standard for Maharashtra wind power projects) should not be considered, none of the expenditures other than O&M cost and insurance should be taken into account in additionality demonstration. 


Even accepting the given expected return on equity and MAT, the WACC should be around 13%. At the revised tariff of Rs.5.37/kWh and PLF of 20%, if all ‘non-market standard’ expenditures are removed, the project IRR would be more than 13%.