Wind Project

Development
Roadmap
Procedures,
lessons learned and
risk assessment
Wind Project Development Roadmap

List of Contents

Acknowledgements �������������������������������������������������������������������������������������������������������������������������������������������������� 11
Foreword��������������������������������������������������������������������������������������������������������������������������������������������������������������������������12
Executive Summary��������������������������������������������������������������������������������������������������������������������������������������������������� 14
Policy & Action Matrix for Accelerating Wind Power Generation in Ethiopia�������������������������������� 25

Introduction�������������������������������������������������������������������������������������������������������������������������������������������������������������������36
Role of public-private partnerships��������������������������������������������������������������������������������������������������������������������� 37
Enabling framework for public-private partnerships��������������������������������������������������������������������������������� 39
Public-private partnerships in the energy sector����������������������������������������������������������������������������������������� 42
Independent power producer projects in Sub-Saharan Africa������������������������������������������������������������ 46
Development process for wind energy projects������������������������������������������������������������������������������������������ 50

1. Wind Resource Assessment���������������������������������������������������������������������������������������������������������������������������53

1.1 Ethiopia����������������������������������������������������������������������������������������������������������������������������������������������������������������������57
Burden and regulatory framework������������������������������������������������������������������������������������������������������������������ 60
Barriers and action options for development�������������������������������������������������������������������������������������������� 64

2. Site Selection����������������������������������������������������������������������������������������������������������������������������������������������������������66
2.1 Ethiopia����������������������������������������������������������������������������������������������������������������������������������������������������������������������71
Burden and regulatory framework������������������������������������������������������������������������������������������������������������������ 72
Barriers and action options for development�������������������������������������������������������������������������������������������� 72

3. Grid Connection�����������������������������������������������������������������������������������������������������������������������������������������������������73
3.1 Ethiopia����������������������������������������������������������������������������������������������������������������������������������������������������������������������77
Burden and regulatory framework������������������������������������������������������������������������������������������������������������������ 79
Barriers and action options for development�������������������������������������������������������������������������������������������� 81

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4. Planning and Environmental Approvals�������������������������������������������������������������������������������������������������82

4.1 Ethiopia����������������������������������������������������������������������������������������������������������������������������������������������������������������������85
Burden and regulatory framework������������������������������������������������������������������������������������������������������������������ 92
Barriers and action options for development�������������������������������������������������������������������������������������������� 98

5. Power Sale������������������������������������������������������������������������������������������������������������������������������������������������������������� 101

5.1 Ethiopia��������������������������������������������������������������������������������������������������������������������������������������������������������������������102
Burden and regulatory framework����������������������������������������������������������������������������������������������������������������104
Barriers and action options for development������������������������������������������������������������������������������������������106

6. Project Financing and Bankability����������������������������������������������������������������������������������������������������������� 108

6.1 Ethiopia��������������������������������������������������������������������������������������������������������������������������������������������������������������������110
Burden and regulatory framework����������������������������������������������������������������������������������������������������������������115
Barriers and action options for development������������������������������������������������������������������������������������������118

7. Procurement Process and Construction��������������������������������������������������������������������������������������������� 121

7.1 Ethiopia��������������������������������������������������������������������������������������������������������������������������������������������������������������������122
Burden and regulatory framework����������������������������������������������������������������������������������������������������������������123
Barriers and action options for development������������������������������������������������������������������������������������������130

8. Operation & Maintenance���������������������������������������������������������������������������������������������������������������������������� 132

8.1 Ethiopia��������������������������������������������������������������������������������������������������������������������������������������������������������������������135
Burden and regulatory framework����������������������������������������������������������������������������������������������������������������136
Barriers and action options for development������������������������������������������������������������������������������������������138

Bibliography�����������������������������������������������������������������������������������������������������������������������������������������������������������������140

Published February 2018

Danish Energy Agency, Tel: +45 3392 6700, website: [Link]/en 3

Wind Project Development Roadmap

List of Figures

Figure 1: Investment commitments to public-private infrastructure projects in emerging

countries, 1990-2015. Source: WBG, PPI project database.������������������������������������������������������������������� 38
Figure 2: Breakdown analysis of investment commitments to public-private infrastructure
projects in emerging countries, by sector, 1990-2015. Source: WBG, PPI project database.38
Figure 3: Fundamental phases of PPP project process (The World Bank, 2011).���������������������� 39
Figure 4: Private participation activity in the electricity sector, 1990-2015 (power generation
plus transmission & distribution). Source: WBG, PPI project database.������������������������������������������ 42
Figure 5: Total investment in completed power generation plants: Sub-Saharan Africa
(excluding South Africa), 1990-2013 (Eberhard et al., 2016).����������������������������������������������������������������� 46
Figure 6: Investments in power generation in Sub-Saharan Africa (excluding South Africa),
1994-2013 (Eberhard et al., 2016). DFIs investments in IPPs are excluded from the analysis.
����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������47
Figure 7: Independent power project technology capacity (% of MW) in Sub-Saharan Africa
(excluding South Africa), 1994-2014 (Eberhard et al., 2016).����������������������������������������������������������������� 47
Figure 8: Development process line for onshore wind projects.��������������������������������������������������������� 50
Figure 9: Stakeholders and parties involved in the development of wind energy projects.�� 50
Figure 10: Wind energy costs as a function of wind speed and capacity factory (Milborrow,
2017).����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������53
Figure 11: Weibull distribution of the wind speeds at the Danish site Hvide Sande (DEA et al.,
2017).����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������54
Figure 12: Power curve of the V117-3.3 and V126-3.3 turbine (DEA et al., 2017).������������������������ 55
Figure 13: Probability distribution of annual energy production. Source: Renewable Energy
Focus.��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������56
Figure 14: Main steps in the energy yield assessment process (MEASNET, 2016).������������������ 56
Figure 15: Mesoscale wind resource map of Ethiopia (ESMAP, 2016).������������������������������������������� 57
Figure 16: Sample installation configuration for wind sensors and equipment (NREL, 1997).
����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������59
Figure 17: Year-to-year variation of the estimated production from a Vestas V47 wind turbine
close to Abu Darag. The average production for the 11-year period is 3.5 GWh/y (DTU, 2004).
����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������60
Figure 18: Impact of wind resource estimate on project economy (Krohn, 2012).�������������������� 61
Figure 19: Annual energy production estimates for a 50MW wind farm (Boquet et. al., 2010).
����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������62

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Figure 20: Wind turbine selection for a site in an Egyptian BOO wind tender (Krohn, 2014).
����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������62
Figure 21: Wind turbine class according to IEC 61400-1 standard (DEA et al., 2017).�������������� 66
Figure 22: Potentially developable areas for a wind farm in Newport Chemical Depot (NREL,
2013).����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������68
Figure 23: Comparison of capital cost breakdown for typical onshore and offshore wind
power systems (IRENA, 2016).������������������������������������������������������������������������������������������������������������������������������ 73
Figure 24: Graphical representation of liabilities and costs in the grid connection process of
wind farms between wind project developers and the Danish TSO.����������������������������������������������� 74
Figure 25: Grid connection granting procedure applied in Denmark (DEA et al., 2017).�������� 75
Figure 26: Overview of wind project delays in Brazil. Data refers to September 2014 (IRENA &
CEM, 2015).���������������������������������������������������������������������������������������������������������������������������������������������������������������������76
Figure 27: Top left: ESMAP mesoscale wind resource map of Ethiopia. Top right: Ethiopian
population density map. Bottom: Ethiopian power system expansion master plan study.
Sources: ESMAP, AfriPop and EEPC.����������������������������������������������������������������������������������������������������������������� 78
Figure 28: Environmental and social risks for financial institutions (EIB & Frankfurt School of
Finance & Management, 2017).��������������������������������������������������������������������������������������������������������������������������� 85
Figure 29: EIA flowchart and process (The World Bank, 2017).����������������������������������������������������������� 89
Figure 30: IFC performance standards on environmental and social sustainability (IFC, World
Bank Group, 2012).������������������������������������������������������������������������������������������������������������������������������������������������������ 90
Figure 31: Representation of the coordination among South African departments for the
REIPPP programme (Eberhard & Naude, 2016).����������������������������������������������������������������������������������������� 94
Figure 32: Left figure: mean wind speeds over the Gulf of Suez (DTU, 2004). Right figure: main
migration paths in the Gulf Of Suez area (World Bank Group, 2012). ��������������������������������������������� 95
Figure 33: Recommendations from the ESIA study (World Bank Group, 2012).�������������������������� 96
Figure 34: Mechanisms implemented for supporting renewable energy policies (REN 21,
2015).��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������101
Figure 35: Organizational diagram of the Ethiopian Energy Sector excluding fossil fuels (Azeb
Asnake, 2015).��������������������������������������������������������������������������������������������������������������������������������������������������������������102
Figure 36: Breakdown of final electricity consumption in Ethiopia for 2014. Source: IEA
Statistics.������������������������������������������������������������������������������������������������������������������������������������������������������������������������103
Figure 37: Top ten business environment constraints (World Bank, 2015).���������������������������������104
Figure 38: Comparison of costs with cash collected in 2014. U.S. dollars per kWh billed from
African utilities (Trible et. al., 2016).�������������������������������������������������������������������������������������������������������������������105

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Figure 39: Structure of The World Bank guarantees used in Kenya for 4 IPPs projects (World
Bank Group, 2017). ��������������������������������������������������������������������������������������������������������������������������������������������������114
Figure 40: Overview of existing and planned export interconnections between Ethiopia and
neighbouring countries (Lemma, 2017).��������������������������������������������������������������������������������������������������������117
Figure 41: Comparison of capital cost breakdown for wind power systems in established RE
markets (IRENA, 2016)��������������������������������������������������������������������������������������������������������������������������������������������121
Figure 42: Cost breakdown of onshore wind projects in South Africa during REIPPP bid
window 3 (Department of Trade and Industry, 2015).����������������������������������������������������������������������������121
Figure 43: Breakdown of upfront costs based on REIPPP (Eberhard & Naude, 2016).����������123
Figure 44: Key Differences in permitted local content requirements (Eberhard & Naude, 2016).
��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������124
Figure 45: Onshore wind value chain (EIB & IRENA, 2015).�����������������������������������������������������������������125
Figure 46: Local content breakdown per component during REIPPP bid window 3 of wind
projects (Department of Trade and Industry, 2015).��������������������������������������������������������������������������������126
Figure 47: Renewable energy employment by countries and technologies (IRENA, 2017).
��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������128
Figure 48: Jobs for local citizens in the South African REIPPP programme (where 1 job = 1
person-years) (Eberhard & Naude, 2016).����������������������������������������������������������������������������������������������������129
Figure 49: Workforce requirements along the wind value chain (IRENA, 2017).�����������������������129
Figure 50: Are wind generators balancing responsible? (EWEA, 2015).����������������������������������������133
Figure 51: Main operational planning activities from D-28 to real-time operation (DEA et al.,
2017).��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������134
Figure 52: Overview of the operational planning system used by the Danish TSO (Energinet,
2016).��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������135
Figure 53: Information on the operational wind farms in Ethiopia (SAIS China-Africa Research
Initiative, 2016).������������������������������������������������������������������������������������������������������������������������������������������������������������136
Figure 54: Operational and under development wind farms in Ethiopia. Source: Ethiopian
Electric Power.������������������������������������������������������������������������������������������������������������������������������������������������������������136
Figure 55: Elements of the job creation criterion for the REIPPP programme (Eberhard &
Naude, 2016).���������������������������������������������������������������������������������������������������������������������������������������������������������������137
Figure 56: Job creation outcomes for the REIPPP programme (where 1 job = 1 job year)
(Eberhard & Naude, 2016).�����������������������������������������������������������������������������������������������������������������������������������137

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List of Tables

Table 1: Factors contributing to successful independent power project investments in

emerging countries (Eberhard et al., 2016)���������������������������������������������������������������������������������������������������� 45
Table 2: Planned generation projects (2015-2025) with their implementation scheme (Lemma,
2017), (Fekede, 2017).������������������������������������������������������������������������������������������������������������������������������������������������ 48
Table 3: Ranking methodology for wind site selection (3E, 2017).����������������������������������������������������� 69
Table 4: Overview of the IFC Environmental, Health, and Safety Guidelines.������������������������������� 91
Table 5: Overview of the IFC EHS Guidelines for Wind Energy.����������������������������������������������������������� 92
Table 6: Benchmarking data of the Ethiopian power sector (World Bank Group, 2014).�����103
Table 7: Benefits of World Bank Guarantees World Bank, 2016).�����������������������������������������������������115
Table 8: International comparison on local content requirements (GIZ, 2013), (IRENA & CEM,
2015), (Power Africa, 2017).����������������������������������������������������������������������������������������������������������������������������������127
Table 9: Breakdown analysis of O&M costs for onshore wind farms (IRENA, 2016).��������������132

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Wind Project Development Roadmap

List of Acronyms and Abbreviations

AEP Annual Energy Production

AfDB African Development Bank
AWPGE Accelerating Wind Power Generation in Ethiopia
BIRR Ethiopian Unit of Currency
BNDES Brazilian National Bank of Development
BOO Build-Own-Operate
BOP Balance of Plant
bps Basis Points (1bps = 0.01%)
BW Bid Window
ca. Circa
CCGT Combined-Cycle Gas Turbine
CEF Cost Estimate Fee
CEL Application Letter of Grid Access
CFD Computational Fluid Dynamics
DAFF South African Department of Agriculture, Forestry and Fisheries
DEA Danish Energy Agency
DFI Development Financial Institution
DOE South African Department of Energy
DBSA Development Bank of Southern Africa
DSO Distribution System Operator
DWA Department of Water Affairs in South Africa
DWS Department of Water and Sanitation in South Africa
EAPP Eastern Africa Power Pool
ECA Export Credit Agency
ED Economic Development
EEA Ethiopian Energy Authority
EEP Ethiopian Electric Power
EEPC Ethiopian Power System Master Plan Study
EEPCo Ethiopian Electric Power Company
EEU Ethiopian Electric Utility
EGP Egyptian Pound
EHS Environment, Health and Safety

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 Wind Project Development Roadmap

EIA Environmental Impact Assessment

EPC Engineering Procurement & Construction
EPE Environmental Policy of Ethiopia
ERA Ethiopian Roads Authority
ESIA Environmental & Social Impact Assessment
FEPA Federal Environmental Protection Authority in Ethiopia
FX Foreign Exchange
GDP Gross Domestic Product
GoE Government of Ethiopia
GTFP Global Trade Finance Program
GTP2/GTPII Growth & Transformation Plan 2
HFO Heavy Fuel Oil
IBRD International Bank for Reconstruction and Development
ICT Information and Communication Technology
IDA International Development Association
IEC International Electrotechnical Commission
IFC International Financial Cooperation
IMF International Monetary Fund
IPP Independent Power Producer
IRR Internal Rate of Return
LIC Low Income Country
LCR Local Content Requirement
L/C Letter of Credit
M One Million
MASEN Moroccan Agency for Solar Energy
MDB Multilateral Development Bank
MIGA Multilateral Investment Guarantee Agency
MoFEC Ministry of Finance and Economic Cooperation in Ethiopia
MoEFCC Ministry of Environment, Forest and Climate Change in Ethiopia
MOI Ministry of Industry in Ethiopia
MOT Ministry of Trade in Ethiopia
MoWIE Ministry of Water, Irrigation & Energy in Ethiopia

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Wind Project Development Roadmap

MSD Medium-Speed Diesel

NBE National Bank of Ethiopia
NEA National Energy Administration
NERSA National Energy Regulator of South Africa
NIMBY Not-In-My-Back-Yard
NMA National Meteorology Agency in Ethiopia
NPV Net Present Value
NT National Treasury
OCGT Open-Cycle Gas Turbine
ODA Official Development Assistance
OECD Organisation for Economic Co-operation and Development
O&M Operational & Maintenance
ONE Office National de l`Electricite´
POC Point of Connection
PPA Power Purchase Agreement
PPI Public-Private Infrastructure
PPP Public-Private Partnership
PCG Partial Credit Guarantee
PRG Partial Risk Guarantee
PRI Partial Risk Insurance
Pxx Probability Value
R Rand (South African Unit of Currency)
RE Renewable Energy
REIPPP Renewable Energy Independent Power Producer Programme
RFP Request for Proposal
ROE Return on Equity
RSA Republic of South Africa
SA South Africa
ToR Terms of Reference
TSO Transmission System Operator
USD United States Dollar
VAT Value-Added Tax
WBG World Bank Group
WT Wind Turbine
WTG Wind Turbine Generator
WTO World Trade Organization

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 Wind Project Development Roadmap

Acknowledgements

The Wind Project Development Roadmap - Procedures, lessons learned and risk assessment
was prepared by the Accelerating Wind Power Generation in Ethiopia (AWPGE) Programme
Team of the Danish Energy Agency, in cooperation with the Ministry of Water, Irrigation and
Energy of Ethiopia, and Ethiopian Electric Power.

The AWPGE Programme is a joint undertaking between the Ethiopian Ministry of Water,
Irrigation and Energy (MoWIE), Ethiopian Ministry of Finance and Economic Cooperation
(MoFEC), Ethiopian Electric Power (EEP), Ethiopian Energy Authority (EEA), the World Bank
Group (WBG), the Danish Energy Agency (DEA), Energinet, and the Royal Danish Embassy in
Ethiopia. The Programme is funded and supported by the Danish Climate Envelope.

The analysis was developed and authored by Andrea Isidori from the DEA under the supervision
of Henrik Breum, Special Advisor & Ethiopia Country Coordinator at the DEA. Benoît Bizet from
DEA also provided valuable remarks and review to the work.

The team wishes to thank Sahele Tamiru Fekede, Director for Directorate of Energy Planning
and Development Follow-Up, MoWIE, Abebe Tadesse, Senior Expert and ISP-PPP Coordinator,
MoFEC and Daniel Mulatu, Manager for Generation Strategy and Investment, EEP for the
valuable comments and substantive inputs provided during the execution of the analysis.

The team is also grateful to the Danish Ambassador to Ethiopia Mette Thygesen, Åge Sandal
Møller and Tigist Kebede Ayalew (Royal Danish Embassy in Ethiopia), Nikolaj Lomholt
Svensson (MoWIE), Lars Nielsen (Delegation of the European Union to Ethiopia), Rahul Kitchlu,
Robert Schlotterer, Jukka-Pekka Strand and Jung Eun Yoon (World Bank Group) and Marievi
Vestarchi (DEA) for fundamental recommendations and assistance provided at various stages
of this work.

Sincere gratitude goes to Ivanna M. Arizcurinaga Z. and Toke Rueskov Madsen (DEA), primary
editors and producers of this report.

Front and back cover photos by Nikolaj Lomholt Svensson

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Wind Project Development Roadmap

Foreword

Ethiopia is one of Africa’s fastest growing economies and

has an ambition to maintain its growth in order to reach
middle-income status and universal access to electricity
within the next decade. In line with its Climate Resilient
Green Economy Strategy, National Determined Contribution
(NDC) and National Electrification Program the needed rapid
growth in power generation will be based on renewables.
This makes Ethiopia one of the most progressive developing
countries in the global climate negotiations and an active
leader in various forums, including the Partnering for
Green Growth and the Global Goals 2030 (P4G Initiative).

Hydropower will take the lion’s share of the new generation capacity. However, several initiatives
are being pursued to enhance Ethiopia´s power generation capacity, to diversify the energy
mix and increase climate resilience, including protection from more frequent droughts due to
climate change. Wind energy is expected to play a key role in this transition along with other
renewable energy sources such as geothermal and solar energy. The national development
objectives of the Government of Ethiopia, as set out in the Growth and Transformation Plan
II, stipulates that the share of wind power should increase to 1,200 MW by 2020/21. This will
require mobilizing of substantial private investments in a short timeframe and at a scale to
ensure long-term sustainable growth and development.

The Government of Ethiopia has made concrete interventions to review the sector policy in
relation to the successful agreement with Independent Power Producers (IPPs) and recently
the Parliament ratified the comprehensive Public-Private Partnership Proclamation. At the same
time, there is a great need for concerted support to develop robust institutional, regulatory and
legal frameworks, required to create a conducive business environment, which in turn will
attract private developers and investors

This Wind Project Development Roadmap address these issues and presents a thematic
policy and action matrix for accelerating wind power generation in Ethiopia. These have been
drafted by experts from the Danish Energy Agency in collaboration with various key Ethiopian
agencies, including the Ministry of Water, Irrigation and Energy (MoWIE), Ministry of Finance
and Economic Cooperation (MoFEC), Ethiopian Energy Authority (EEA) and Ethiopian Electric
Power (EEP).

In this regard, the Roadmap should serve as a valuable blueprint for matching the new policy
guidelines for public-private partnerships in the energy sector with the best international
practises. Clarifying such procedures and potential investment risks will be paramount to

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ensure competitive tenders and optimal risk distribution, bringing down the costs for new
wind energy substantially.

Successful implementation of this policy is in our hands. I wish to invite all the stakeholders in
the energy sector – public and private, domestic and international - to ensure that the proposal
and lessons learned provided in this Roadmap are accordingly taken into account.

Dr. Eng. Seleshi Bekele

Minister, Ministry of Water, Irrigation and Energy

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Wind Project Development Roadmap

Executive Summary

As specified in the Ethiopian Growth & Transformation Plan II (GTP2, 2015-2020), the
Government of Ethiopia (GoE) plans to increase its power generation by 17,000 MW from
different renewable sources, including wind (1,200 MW). Of this wind power expansion, about
900 MW are planned to be developed by the private sector through IPP wind auctions. The first
round of onshore wind tenders will be auctioned for a number of projects with a total capacity
of 500 MW, and developed in collaboration with the Ethiopian Ministry of Water, Irrigation and
Energy (MoWIE), the Ministry of Finance and Economic Cooperation (MoFEC), the Ethiopian
Electric Power (EEP), the Ethiopian Energy Authority (EEA), the World Bank Group (WBG) and
the Danish Energy Agency (DEA).

This report provides guidance and extensive analysis concerning the development of procured
onshore wind projects. The guide starts with a review of the role and scope of public-private
partnerships (PPP) in emerging countries for the development of energy projects with special
focus on Sub-Saharan countries. Deep dives and key lessons are provided in respect to
the appropriate design of PPP in the energy sector and on the different phases and actors
involved in the project process. The roadmap then analyses the different foundation blocks
of the development of wind projects, from pre-feasibility stage until operation & maintenance.

The scope of this report is to offer insight for public, private decision makers and key
stakeholders as well as to clarify best practices and potential risks in critical areas of wind
project investments in new renewable energy markets including optimal distribution of these
between public and private stakeholders. The themes mentioned above will be described
in details, supplying international case studies and lessons learned. Furthermore, extensive
analysis and guidance will be provided for Ethiopia focusing on future frameworks and
regulation of wind power projects.

Public-private partnerships in the energy sector

The engagement of the private sector is perceived as an essential strategy for accelerating
and implementing infrastructure projects, including the ones in the power generation
sector (renewable energy included). Public-private partnerships in the power generation
sector are typically represented by independent power producers (IPPs), which design, finance,
build, operate, maintain and decommission a power generation plant and contract to sell the
electricity generated to a publicly owned power utility. IPP projects have been developed in
many different countries and power market environments, from purely deregulated electricity
markets or power markets regulated by vertically integrated state-owned utilities to hybrid-
market structures where public and private investments coexist.

The right setup of the PPP framework varies accordingly to the unique political and

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institutional capacity of every separate country, but a strong leverage of the private sector
can be achieved only through the implementation of a favourable, transparent and long-
term sustainable PPP framework. Key factors for supporting the IPP´s enabling environment
include a fair competition and transparency in the procurement and contracting process, the
establishment of independent regulation and reforms in the electricity power market, long-
term and cost-effective planning strategies for generation and transmission & distribution, and
noteworthy efforts to improve financial health of off-takers (utilities or private companies).

PPPs programs indeed tend to have significant differences from traditional public forms
of procurements. Quite often governments fail to identify or properly perform the new
required processes and functions, due to the lack of expertise, strong political commitment
to advance a PPP program or lack of transparency and coordination. Policy makers should
not underestimate the complexity and the vital function of identifying a successful “champion”
appointed to drive the PPP agenda and provide it with the necessary executive authority.

Wind Resource Assessment

Site-specific wind resources are the foundation for power generation in any wind power
project. For project developers and governments which would like to exploit wind resources,
the starting point of the wind resource assessment is the examination of wind resource maps
(wind atlas) for a specific country or region. However, the large sensitivity of wind energy
production to wind speed, topography, land cover, and obstacles requires microscale analyses
and additional wind measurement campaigns directly on potential wind project sites. This is
usually accomplished with the installation of wind monitoring equipment on-site, during the
project feasibility stage.

When wind data has been collected and quality is checked, the annual energy production
of a potential wind farm may be evaluated. The calculation is strictly dependent on several
elements such as wind turbine power curve, which relates to each wind speed the energy
produced by a specific wind turbine model, meteorology of the site (atmospheric stability, air
density, etc.), project site size (which reflects the wind power capacity installed) and estimated
losses due to wind turbine placement, electrical losses and unavailability. The stochastic
nature of the wind also has a direct influence, referred as uncertainty, on the estimation
of the annual energy yield. Sources of uncertainty are typically represented by wind speed
measurement, wind extrapolation (spatial, vertical, and temporal), power curve, wake effect,
air density, etc.

The business and investment case and bankability of wind power projects rely on accurate
and objective estimates of wind data and annual energy output models. Bankable wind
measurements require complex and costly campaigns, which are typically based on
internationally recognized standards such as IEC 61400-12 standards and MEASNET
guidelines. It is paramount both for governments, project developers and financiers to address
credible independent specialists or measurement institutions for performing wind resource

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Wind Project Development Roadmap

assessments (wind atlas and on-site wind measurements).

Ethiopia is one of the countries included in the World Bank Energy Sector Management
Assistance Program (ESMAP). This initiative will guide the future scaling-up of wind power
in Ethiopia estimating and verifying the wind energy resource potential of the country. The
tangible output of the programme is the development of the Ethiopian wind atlas, which will
provide long-term regional measurements and pre-screening information on deployable wind
resource areas.

Concerning IPP wind tenders and on-site wind measurements, the choice of the GoE to
appoint independent consultants for developing wind resource campaigns on specific
sites for the first IPP wind tenders will make possible to produce early data in short time as
well as objective estimates of the annual power production of wind farm projects for IPP
developers and investors. If the quality of the wind data collected is considered consistent
by developers, investors, and lenders, this may sensibly reduce project pre-development
costs for developers and therefore lead to competitive and lower bid prices.

Site Selection

A wind resource estimate is simply a starting point for the identification of potential sites for
wind farm projects. The process of site selection involves other important aspects that project
developers and auctioneers should properly investigate during feasibility studies for selecting
sites. These key topics that need to be clearly inspected are:

•• Wind Turbine Class. Wind turbines are usually designed for specific wind conditions
since different wind sites can have very different wind resources. Hence, one of
the crucial parameters to take into consideration in the design of wind power
plants is the wind turbine class. Turbulence, wind speed and extreme wind
events are the key parameters, which determine the optimal wind turbine class.

•• Terrain description of sites. The terrain features that influence the wind flow
close to the ground are represented by the geometry of the terrain surface
(elevation, slope, etc.), the surface characteristics of the terrain (roughness
length) and the presence of nearby obstacles (buildings, forest, etc.).

•• Land rights, use and planning process. Specific regulatory requirements, current and
future land usage, the proximity of neighbouring dwellings, and/or military areas, civil
aviation restrictions, environmental and social issues, habitats and cultural heritage are key
constraints which may partially or entirely limit the realization of wind projects. Securing land
and property rights are also very sensitive topics, which in some cases may be extremely
time-consuming. In the whole process, it is advisable that Governments act as facilitators
concerning the different acquisition procedures, settling also land acquisition rights
beforehand, which could be subsequently passed to successful bidders and significantly

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reduce uncertainty regarding project-building.

•• Electrical connection access. The analysis of grid assessment conditions for a

selected wind project site is fundamental for ensuring the technical and commercial
viability of the proposed wind farm. The grid connection location should not impose
severe technical, economic, or practical problems due to the distance to the
wind farm, the connection voltage level and the proposed routing of the cables.

•• Ease of construction and infrastructure. During the feasibility and screening process of
potential sites for wind farms, a decision maker should not underestimate the importance
of the construction infrastructure of the preselected site. This assessment should be
extended also to the road infrastructure of the site and the adjacent areas. Indeed, the
development of a wind farm requires the use of bulky vehicles and components, which
may be difficult to transport and move on-site. Therefore, the site should be also evaluated
for its specific construction suitability.

After the evaluation of these constraints, it is possible to geo-localize areas, within a country
or a specific region, where it is feasible to deploy wind projects. Thereafter, the main outcome of
the wind feasibility study is to rank potential sites for assessing their suitability and value of interest.
Typically, for IPP wind tenders, either the auctioneer is in charge for the site selection process or
the project developer. The recent trend of international IPP wind tenders shows that whereas
project developers are in charge of the process of site selection, governments impose location
constraints to secure that site selected will be suitable for the development of wind projects.

The choice of the Government of Ethiopia to develop “site-specific” wind IPP auctions
should be seen as part of an overall strategy to enhance local public acceptance and
avoid public unrest, minimize costs and risks for project developers and financiers, as well
as ensuring a smooth and on-track project implementation. Indeed, the land acquisition
process is perceived as a significant risk in most African countries. Hence, choosing in advance
project sites would ensure that several critical and onerous tasks of the pre-development
project phase, such as securing land, assessment of the road & construction infrastructure
of the sites, electrical connection access, and availability of the required transmission
capacity will be handled beforehand by the GoE and relevant central and local authorities.

Grid connection

The analysis of grid assessment conditions for a selected project site is fundamental for
ensuring the technical and commercial viability of the proposed wind farm. From the
perspective of a project developer, discussions with grid operators and examination of
local electricity transmission and distribution systems are necessary to evaluate whether an
electrical connection to the proposed site is technically and commercially viable.

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Wind Project Development Roadmap

Speaking from the perspective of a Transmission System Operator (TSO), reinforcements

and extensions of the power transmission and distribution networks should be envisioned
on a long-term energy dispatch strategy, and should carefully consider the addition of
large shares of variable renewable energy. In circumstances of high winds, the capacity of
the grid may be locally limited and difficulties can rise to evacuate this power. International
experiences, such as the ones in Germany and China among others, showed that the addition
of wind generation capacity in remote areas quite far from large load centres is often translated
in loss of potential wind power generation through curtailments and consequently loss of
income and value for either the IPP or off-taker depending on the Power Purchase Agreement
contract (PPA). Hence, future power plants investments (including wind power plants) and
extensions on the transmission infrastructure should be strategically envisaged.

Recent wind power auctions showed that several winning projects rely on additional
transmission reinforcements in order to dispatch their generation. This strategy requires
a detailed allocation of liabilities, which in some auction cases have been assigned to project
developers. In this way, project developers implicitly become responsible for potential defaults
or delays of a completely separate entity (the one in charge of the transmission works). This
may result in high-risk premiums on auctions and in some cases discourage the wind
power developers to bid. If on the contrary, the liability relies on the transmission company, a
proper risk-sharing strategy should be implemented for protecting project developers and split
risks and penalties between the TSO and the power purchase buyer.

One of the most well-spread design procedures in wind auctions is the identification of a
physical connection point (POC) of the wind farm within the transmission network. The POC
represents then, the “watershed” of liabilities and costs associated with the grid connection
process between the project developer and the transmission system operator.

For Ethiopia, the strategy of implementing site-specific wind IPP auctions should implicitly
ensure that the required transmission infrastructure will be in place and projects will be
optimally located to best match demand with power generation capacity. Despite the largest
Ethiopian wind resources are located in the south and south-east regions of the country, the
before mentioned areas are barely populated and served by transmission lines. Therefore,
wind projects in these specific areas may firstly be complex to implement due to the missing
transmission infrastructure needed. Secondly, they may be cost-prohibitive to implement
and may not be optimally placed to serve load centres and aggregation points. Hence, it
is paramount that future power plants investments (including wind power plants) and
extensions on the transmission infrastructure should be strategically placed to serve at
best load and dispatch centres.

Planning and Environmental Approvals

After the identification of a potential site by means of verified technical analyses, the further
development of a wind project includes a proper determination of potential planning and

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environmental issues on the selected site of interest. Initial assessments are usually carried
out consulting available data, environmental mappings, engaging with national as well as
local planning authorities to make the project bankable both regarding development financing
institutions (DFIs) and commercial banks. The main scope of the consultation with state and
local authorities is to determine the “planning” suitability of the selected site. Furthermore,
the development of a wind project should imply identifying main drivers and factors of the
assessment analyses required to progress a planning application for the establishment of
wind farms.

In frontier renewable energy markets, the planning process for wind project developers can
be extremely time consuming and difficult to navigate in, based upon lack of experience and
procedures for appropriate authorities. For these reasons, the establishment of a nodal
government agency can sensibly simplify and reduce lead times required for processing
planning procedures. The main role of th this central govenrment agency (often referred
as “one-stop-shop”) is to grant and procure all the permits needed for the development of
renewable energy projects (wind farms included) by coordinating the necessary permissions
between different authorities and agencies both centrally and locally.

Generally, the development of a large wind farm requires carrying out and/or complying with
a full Environmental and Social Impact Assessment (ESIA) study, which is subject to specific
environmental and/or planning laws of a country. Again the ESIA is also a pre-qualification
criteria’s for many investors and lenders, both DFIs and commercial banks as well as many
institutional investors. The ESIA assessment identifies the relevant environmental, social and
economic effects associated with the wind project proposal. The typical contents of an EISA
study are:

• Data on developer
• Site description
• Project description
• Overview of main alternatives
• Review of the status of environment
• Description of potential significant impacts
• Assessment of effects in case of accidents
• Description of mitigation measures to reduce the impact
• Monitoring programme

The choice of implementing site-specific wind IPP auctions sets up the leadership role
of the Ethiopian auctioneer in the administrative and regulatory framework needed for
processing permits, licenses, planning procedures for the site of the IPP wind project.
For IPP wind auctions, a proper strategy should be considered for assigning obligations
and processing licenses. As previously cited, a fast-track and agile implementation plan can
be represented by the establishment of a government agency in charge for granting and

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Wind Project Development Roadmap

licensing the permitting approvals required in wind tenders. Specifically for environmental
and social issues, the Ethiopian Environmental Impact Assessment Proclamation provides a
strong regulative framework for an effective implementation of the ESIA system in the country.
Furthermore, the recent transformation of the Environmental Protection Authority (EPA) into
the Ministry of Environment, Forest and Climate Change is also a positive move to strengthen
its capacity and legal means to enforce the law.

For the first wind energy tenders, it is advisable that the Ethiopian auctioneer will provide
the necessary permits and ESIA studies to potential bidders, beforehand bid submission.
Where needed, the Ethiopian national legislation and standards on Environmental Health
& Safety (EHS) can be supplemented with the adoption of IFC`s Performance Standards
and EHS guidelines. These international standards may be used as a comprehensive and
exhaustive framework for carrying out ESIA studies for wind projects, on which bidders will
be required to comply with. Excluding hydro power projects in fact, specific assessment
documentation in Ethiopia is lacking for other renewable energy technologies, including wind
energy facilities.

It is advisable that the GoE will start to process detailed guidelines for wind project planning
and environmental impact assessment, identifying the potential effects that wind farms (and
other RE plants) may have on the environment, and relative mitigation practices that may be
applicable. The guidelines should provide a detailed analysis of the legislative framework,
national and local centres of expertise in the Ethiopian RE sector. These detailed procedures
should be envisaged as a powerful tool both for facilitating competent authorities in the
implementation and monitoring of the ESIA process and for clarifying applicants on the
relevant legislation and components of the authorization process.

Power Sale

Finding a creditworthy buyer of the power produced by a wind farm is one of the main
prerogatives of project developers. Two main categories of power sales can be identified: sales
on the spot market and bilateral contracts. Through the sale of power on the spot market, wind
farm owners sell the electricity generated by the wind farm directly into the electricity spot
market. Bilateral contracts are instead set by power purchase agreements (PPAs) between a
power seller (project developer/project company) and a creditworthy buyer (or consortium),
mostly referred as off-taker. PPAs prices for wind power are typically set either by competitive
mechanisms such as renewable tenders (where the off-taker is mostly represented by a state-
owned utility or a transmission system owner) or by feed-in-tariff / feed-in-premium (FiT/FiP)
payment policies. Although FiTs and FiPs are very popular mechanisms, the use of competitive
tendering procedures is increasing worldwide.

With the implementation of the Growth & Transformation Plan II (GTP2, 20015-2020), the
Government of Ethiopia is planning massive financial investments to lift the power sector. The
ambitious energy plan is driven by an intensive electrification programme of the country and by

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an increased demand for electricity (>25%), led to a great extent by the growing contribution of
the industrial sector in the power side demand. To meet consumption demands, governments
in Africa (including Ethiopia) are generally subsidizing electricity supplies. In this matter,
Ethiopian electricity tariffs are the lowest among Sub-Saharan countries. Cost-reflective tariffs
are necessary to reduce the financial gap in the sector over the medium to long-term and
make a sustainable and bankable business model for the sector.

Project Financing and Bankability

For lenders and investors, it is essential to fix, to a great extent, project revenue streams and
minimize risks of their loans and investments. Hence, a proper allocation and mitigation
strategy of risks is necessary for making projects bankable and investment graded. A well-
structured and bankable power purchase agreement is typically based on different
counterpart risks, guarantees and de-risking options. The main elements of these risks and
mitigating policies are described below.

• Off-taker payment support or guarantees

• Dispatch risk
• Foreign exchange
• Change in laws or in taxation
• Transmission or interconnection risk
• Force majeure
• Dispute resolution and termination payments
• Transferability of ownership

An appropriate risk mitigation strategy is fundamental for mobilizing private sector funding
and for ensuring the viability, bankability and profitability of renewable energy projects
in frontier markets such as Ethiopia. One of the main challenges in developing renewable
energy projects in emerging countries is represented by the potential risk of the off-taker to
fulfil payment obligations for the entire lifetime of a project (20-30 years). For these reasons,
project developers and lenders require more security instruments compared to similar
projects developed in OECD countries. These security instruments (credit enhancement)
that independent power producers commonly seek are among others the issuance of
sovereign guarantees by the host government, liquidity letters of credit, and/or guarantees
instruments offered by DFIs to backstop the PPAs obligations of the off-taker.

The direct involvement of the World Bank Group in the Ethiopian wind auctioning process
is fundamental to catalyse private financial flows through the activation of guarantees and
risk mitigations instruments in PPA contracts. Typically, these financial products cover risks
associated with payment obligations arising from contracts signed by Governments or
Governments owned entities, regulatory risk (i.e. change in law, negation or cancellation

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Wind Project Development Roadmap

of license, tariff adjustment, etc.), currency risk (convertibility and transferability), political
force majeure (expropriation, war and civil disturbance) and frustration of arbitration. The
activation of DFI guarantees usually requires that Governments will sign counter-guarantees
(i.e. indemnity agreements) with the financial institution that provides such financial products.
Besides the clear benefits of providing credit enhancement in favour of IPP financing, the GoE
should not underestimate the impact of the different types of credit enhancement policies on
their balance sheets and debt frameworks.

Concerning instead risks due to currency exchange rate, project developers are resolute on
signing PPA contracts in hard currencies (USD, EUR), mostly due to the absence of a long-
term capital market instruments in most developing countries. Whereas PPA contract prices
in hard currencies may shield project developers from local currency fluctuations, on the
other side they expose governments to significant foreign exchange risks. Hence, offset
procedures need to be carefully implemented both for limiting foreign exchange volatility
issues and for ensuring enough availability of foreign currency in the country.

Procurement Process and Construction

The financial closure of a wind project and its construction stage are strongly dependent on
the negotiated procurement contracts for the different construction elements of the wind farm.
Construction elements include all wind turbines components, their transport and assemblage,
as well as civil and electrical works, which are often grouped together and referred to the
category “balance of plant”.

Typically, agile and bankable wind projects are established through engineering-procurement-
and-construction (EPC) contracting procedures by the developer or investor of the project. One
of the major advantages of EPC mechanisms (both for primary and secondary contractors) is
the ability to centralize and regulate liabilities through a single point of contact (EPC contractor).
This is also the reason why among lenders and investors, EPC contracts are the most preferred
contract topologies for achieving bankability in wind farm projects.

For a reliable and safe operation of wind farms, it should be mandatory that the procured
equipment of wind IPP auctions comply with international technical standards such as the
IEC 61400 standards. These standards have been adopted by several countries around the
world and are used as foundation for the development of national standards for wind turbine
generator systems. It should be mentioned that the use of wind infrastructure equipment
complying with international standards does not represent a bond in procuring equipment
locally and foster economic development criteria in auction tenders. The strict criteria of the
South African renewable energy procurement programme (REIPPP) in terms of local content
requirements (LCRs) and internationally certified equipment are a proof of this possible synergy
in the procurement strategy.

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In the design of local content rates in wind tendering auctions, it is advisable that before
introducing LCRs, the Government of Ethiopia should conduct in-depth studies on the
potentialities of Ethiopian manufacturing industries along the wind value chain to provide
components and services. The GoE should investigate potential limits in the availability of
skilled local suppliers and/or production facilities, quality of components and qualifications of
the local workforce. Depending on the status of these crucial indicators, local content shares
in wind auction tenders should be gradually phased in.

An effective entry point for implementing LCRs in IPP wind tenders is represented by sourcing
locally services associated with the balance of plant (BOP), construction, and operational
& maintenance phases of the wind farm. Potentially, the manufacturing process of large
wind turbine components close to their destination market could also reduce logistics and
transportation costs. However, the production localisation of these components in new
markets is often limited due to high quality standards and specialized manufacturing processes
required for fabricating these items.

Another fundamental priority of Governments contracting renewable energy projects is the

creation of local employment. According to IRENA, the renewable energy sector employed
worldwide 9.8 million people, directly and indirectly, in 2016. Since 2012, the jobs in the solar
and the wind sector have experienced the most consistent increase (more than doubling).

Operation & Maintenance

The Operation and Maintenance (O&M) process of a wind farm is the latest stage of the
development of wind projects. The O&M management process is typically regulated through
long-term agreements between the turbine manufacturer, the project developer and the wind
farm operator. Developing the most appropriate O&M model is a complex matter and it varies
from project to project. Due to most of the cost in a wind project is fixed capital cost it is very
important that the wind turbines are available as much as possible when the wind is blowing.
Constant monitoring wind turbines and preventive maintenance are important in an operating
strategy to maximize the return of the investment in a wind power project. This also ensures a
better predictability by the TSO taking into account the weather and wind forecasts.

Moreover, due to the volatility of wind energy, the power output of wind farms is highly
depending on wind speeds. This fact also has a direct impact on reliability and security of
supply into power systems, especially in countries with a high penetration of VRE sources.
Over the past years, stricter grid codes have transformed wind farms from passive power
generation units to active generation units with grid support characteristics.
In most EU states wind power generators are already balancing responsible in financial or
legal terms. Hence, relying on accurate and iterative forecasts is paramount both for wind
farm operators and TSOs. For TSOs, the fundamental idea with forecasting procedures is
to plan ahead and base the dispatch planning procedure on the best available data at any

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Wind Project Development Roadmap

time. The main target is to minimise the remaining imbalances to be handled with expensive
automatic reserves by using cheaper manual reserves for anticipative balancing.

The frontier status of the Ethiopian wind energy market and more in general of the liberalized
electricity market is backed up by a dispatch generation strategy which relies exclusively on a
centralized function, where power generators are dispatched by the national TSO, EEP. Efforts
should be concentrated on the development of the necessary framework for implementing
a well-functioning market with high penetration of renewable energy sources. Tangible
short and long-term recommendations in this regard are:

• Establishment of a functioning intraday and balancing market

• Ensuring proper market monitoring mechanisms and preserving market transparency to
a satisfactory level
• Sophisticated forecast methods in place in the power system
• Market mechanisms that properly value the provision of ancillary or grid support services
for all market participants including wind power
• Balancing market arrangements providing for the participation of wind power generators
• The necessary transmission infrastructure

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 Wind Project Development Roadmap

Policy & Action Matrix for Accelerating Wind

Power Generation in Ethiopia

The matrix is organized in thematic objectives for the deployment of IPP competitive tender
procedures specifically for Ethiopia. The policy & action matrix draws upon the detailed
suggestions and procedures described within the singular chapters of this roadmap. The
matrix is organized in a logical and temporal framework and it aims to depict initial and high
prioritized initiatives versus long-term sustainable procedures for developing and scaling up
IPP wind power in large scale. Within the matrix, the different themes and sectorial focuses
suggested for Ethiopia are directly addressed to the relevant implementing bodies and
responsible units of the country.

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

Ethiopian  Launch Phase II of the  Drawing upon the MoWIE

wind atlas ESMAP programme to outcomes of the Phase II,
validate the mesoscale produce the final wind
wind map prepared by atlas for Ethiopia (Phase III
DTU of the ESMAP programme)

 Install measurement  Include in the final version MoWIE

masts in the sites identified of the Ethiopian wind atlas,
with wind climate a higher resolution
perspective for wind atlas mapping output, including
deployment detailed values of
topography and surface
roughness

 Start wind measurement  Map country wind MoWIE

campaigns and data potential for strategic &
acquisition energy planning purposes EEP

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Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

Ethiopian  When enough data is MoWIE

wind atlas gathered, make all existing &
meteorological and wind NMA
resource data accessible

 Establish a national centre of MoWIE

excellence for directing and
monitoring energy research
and development, as well as
undertaking specific
programmes to promote the
green energy agenda of the
country

High quality  Address credible  Ensure a cost-reflective IPP Unit

wind data independent specialists strategy for implementing on-
for IPP to perform wind site measurement
auctions measurement campaigns (transfer costs to
campaigns according winning bidders or appoint
to IEC 61400-12 and project developers as
MEASNET guidelines responsible party)

 Prioritize and start on-  For future IPP wind projects, IPP Unit
site wind measurement ensure that wind
campaigns for IPP measurement campaigns will
tenders on the sites always comply with IEC
identified by the 61400-12 standards and
prefeasibility studies MEASNET guidelines

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 Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

High quality  Ensure public access to  If the auctioneer will be in IPP Unit
wind data existing topographic charge of site selection of
for IPP maps or undertake future IPP wind tenders,
auctions
topographical surveys in guarantee that geotechnical
prioritized sites. Include and topographic data for
this data in tender IPP wind sites are part of
documents tender documents

Identification  Address specialists for  Whether the auctioneer or IPP Unit/PPP

of potential ranking and identifying the IPPs will be in charge of DG
sites for IPP high potential wind areas site selection of future IPP
wind for the first round of IPP wind tenders, limit project
projects tenders. The geo- sites to specific and suitable
localization of wind sites zones for wind deployment
should be carried out by
a multi-criteria ranking
methodology

 Ensure a high involvement and coordination with the TSO IPP Unit
for the determination of auction sizes and site selection

 Develop well-coordinated generation and transmission IPP Unit

plans for proper prioritization of wind sites

 Conduct site visits on the sites identified to support the IPP Unit
detailed assessment of each site

 Match the specific terrain complexity of the identified wind IPP Unit
sites with an appropriate number of installed wind masts

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Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

Identification  Ensure that road  Increase construction of IPP Unit

of potential infrastructure and access quality road infrastructure &
sites for IPP are strong evaluation and trunk roads to ERA
wind projects criteria for wind sites facilitate access to wind
selection development areas

 Ensure a fast-track dispensation regarding width and ERA

height restrictions on trunk roads

Wind farm  For the first IPP wind  Restrict wind project sites IPP Unit
connection to tenders, limit project sites in specific zones where
grid to specific zones where transmission capacity is
transmission capacity is already in place or it will
already in place and in be strategically upgraded
proximity of load centres

 In the evaluation of  Perform accurate grid EEP

potential sites for the first studies, simulations
round of IPP tenders, models, and capacity
perform power flow expansion plans based on
assessments to optimal investment
determine the availability policies for grid and off-
of transmission capacity grid expansion. Account
also for dispatch and
operational strategies,
based on large shares of
REs in the power system

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 Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

Wind farm  Ensure that wind turbines  Continue to update grid IPP Unit
connection to procured by IPPs during codes, improve capacity &
grid the first round of wind building and competency EEA
tenders comply with the on grid codes with respect
latest version of to increasing levels of
Ethiopian grid codes for renewables and wind
RE plants power

 Grant a grid connection  Grant a grid connection EEP

permit to bidders permit to bidders (valid in
case the auctioneer will be
still responsible for the site
selection process) or
develop a detailed
approval process for
connecting new
generation facilities,
including wind farms (valid
in case IPPs will be directly
responsible for the
selection of future wind
sites)

 In wind tender documents, separate costs for wind farm IPP Unit
connection from the costs for grid reinforcement. Identify a
suitable point of connection within the grid network, then
allocate liabilities and costs among IPPs and the TSO

Account for  Within the wind PPAs, create a compensation scheme for IPP Unit
grid IPPs in the occurrence of wind power curtailments and/or
infrastructure grid congestion (deemed generation clauses)
constraints

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Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

Account for  Improve O&M of the EEP

grid transmission & distribution &
infrastructure networks EEU
constraints

 Develop key transmission EEP

corridors for evacuating
RE power

 Where applicable, tender EEP

and roll-out transmission
assets before new wind
farms become operative

Planning &  Consider appropriate  In respect to the future MoWIE,

environment organizational anchoring strategy for the selection of PPP DG
approvals and staffing of a IPP sites (auctioneer or &
dedicated government IPPs), either enforce the IPP Unit
agency - this can central role of the
sensibly simplify the government unit
planning procedure for appointed for IPP
granting licenses and transactions or develop
permits for wind projects detailed planning
guidelines for the
regulatory environment of
wind projects. Improve
capacity building within
the competent authorities

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 Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

Planning &  Where applicable,  Develop accurate MoEFCC

environment supplement EHS national documentation and &
approvals legislation and standards legislative guidance for FEPA
with IFC´s Performance project planning and ESIA,
Standards and IFC´s EHS specifically for wind farms
Guidelines for Wind and other renewable
Energy energy technologies

 Prepare ESIA studies for selected IPP wind sites. Ensure IPP Unit/PPP
ESIAs are part of the tender documents. The processing DG,
costs may be passed to winning bidders

 Ensure an effective enforcement of ESIA studies, based on MoEFCC,

good monitoring systems, effective mechanisms for FEPA
accountability and relevant capacity building within the &
competent authorities MoWIE

 Make sure that land rights and facility site lease agreements IPP Unit
for IPP projects are settled beforehand bid submission

PPA tariffs  It is advisable to  Improve the growth and MoFEC

and denominate PPA tariffs in sustainability of the &
payments hard currencies (i.e. USD, Ethiopian debt capital NBE
EUR) market and local currency
financing. Then, PPA tariffs
in local currency can be
established

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Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

PPA tariffs  It may be necessary to  Expand foreign exchange EEP

and provide financial generation and foreign &
payments instruments like Partial exchange reserves of the MoFEC
Risk Guarantees (PRGs) for country
wind tenders to mitigate
potential risks of
convertibility and
transferability of foreign
currency

 For “hedging” foreign  Institute government MoFEC

exchange exposure, intervention to reduce cost &
project developers and of loans through grant NBE
lenders may require to funding, credit guarantees
include a foreign currency and tax incentives
indexation formula in the
PPA tariff (full-price
indexation or only the
O&M component of the
tariff)

 MOFEC through NBE will facilitate IPPs to have a series MoFEC

of FX accounts at any eligible offshore bank. These &
accounts however will be opened by Ethiopian NBE
Commercial bank to be approved by NBE. The
accounts will be managed by a trustee fund agreement
to be entered between the IPP, NBE, the commercial
bank and the foreign bank. The money will be held on
trust for the IPP by the commercial bank of Ethiopia.
These accounts are basically used to hold the funding,
insurance premium and debt service. The IPP is also
allowed to open a local FX account at the Ethiopian
commercial bank to mirror the offshore accounts

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 Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

Credit support  For supporting the off-  Enhance policies and MoFEC
for off-taker´s taker´s payment electricity tariff regulations &
obligations obligations of PPAs and to improve the solvency of MoWIE
attract foreign direct the off-taker
investments, it may be
necessary to provide
different risk mitigation
instruments such as
short term liquidity
support, a sovereign
guarantee and a letter of
credit within the tender
documents

 The sovereign guarantee  Continue to enhance the MoFEC

itself may not be credit quality of the
sufficient to provide sovereign through export
comprehensive risk diversification, completion
mitigation for lenders. of infrastructure
Guarantees from programmes,
international finance strengthening institutional
institutions and policy frameworks and foreign
risk insurance should be exchange generation
then enforced in tender
documents

Off-taker’s  Include delay-liquidated damages in the wind PPAs to IPP Unit/PPP

protection account for potential failures by the project company to DG
achieve commercial operation by the scheduled
commercial operation date (COD)

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Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

Off-taker’s  Include performance-liquidated damages in the wind PPAs IPP Unit/PPP

protection to compensate potential failures by the project company to DG
achieve minimum capacity and energy thresholds by the
contracted wind project

Procurement  For a reliable and safe operation of wind farms, it should be IPP Unit
quality mandatory that the equipment procured in wind IPP &
requirement tenders comply with international standards such as the PPP DG
s IEC 61400 standards

Bid  Evaluate the inclusion of  Appraise the inclusion of PPP DG

evaluation non-price components for local ownership or benefit &
criteria bids evaluation to promote models and higher values IPP Unit
political and local of local content spending
community development as non-price components
and broaden the wind IPP for bids to promote public
programme´s success support and acceptance

 It is advisable that local  Support domestic

content requirements in manufacturing and PPP DG
bids will be phased in training to meet skills &
based on state-of-art of the requirements, encourage IPP Unit
Ethiopian manufacturing foreign firms to delocalize
industry to provide manufacturing facilities in
services and components the country, and initiate
along the wind value chain targeted research projects

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 Wind Project Development Roadmap

Recommended policies and actions

Responsible
Objective Short-term Long-term
Unit

Bid  Make sure that the weighting system for price and non- PPP DG
evaluation price components in the evaluation of wind/RE auction bids &
criteria reflect government´s priorities (procure cheap and reliable IPP Unit
wind/RE generation, prioritize socioeconomic development
objectives, boost local manufacturing, job creation, LCRs)

 Ensure an effective on-going monitoring strategy of PPP DG

economic development criteria during construction and &
operation of wind projects (i.e. attach termination points in IPP Unit
the PPA to underperformance in respect of economic and
development criteria)

System  Revise national grid codes  Ensure that TSO and DSO EEA
integration of and require measures for operate according to &
wind power voltage control, active and international best EEP
reactive power control by practices for dealing with
wind turbines large shares of wind and
RE energy (i.e. maximize
the value of generated RE
power, use of advanced
forecasting techniques
and procedures, adopt
enhanced on-line
monitoring tools and
communication
technologies)

 Ensure proper market  Establishment of a well- EEA

monitoring mechanisms functioning intraday and &
and preserve market balancing market for the EEP
transparency provision of ancillary and
grid support services

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Introduction

The Government of Denmark and the Government of Ethiopia have initiated a development
partnership as there is mutual commitment to the global agenda on climate change and green
growth. The “Accelerating Wind Power Generation in Ethiopia” (AWPGE) programme is a joint
undertaking between the Ministry of Water, Irrigation and Energy (MoWIE), the Ministry of
Finance and Cooperation (MoFEC), the Ethiopian Electric Power (EEP), the Ethiopian Energy
Authority (EEA), Danish Energy Agency (DEA), the Danish Transmission System operator (TSO)
[Link], the Danish Ministry of Foreign Affairs and the Royal Danish Embassy in Ethiopia.
The AWPGE programme was signed by the GoE and the Danish Embassy in Addis Ababa on
December 2016.

As specified in the Ethiopian Growth & Transformation Plan II (GTP2, 2015-2020), the GoE plans
to increase its power generation by 17,000 MW from different renewable sources, including
wind (1,200 MW). Of this wind power expansion, about 900 MW are planned to be developed
by the private sector through IPP wind auctions. The first onshore wind tender will be auctioned
for 100 MW and developed in collaboration with the Ethiopian Ministry of Water, Irrigation and
Energy (MoWIE), the Ministry of Finance and Economic Cooperation (MoFEC), the Ethiopian
Electric Power (EEP),the Ethiopian Energy Authority (EEA), the World Bank Group (WBG) and
the Danish Energy Agency (DEA).

This report provides guidance and extensive analysis concerning the development of procured
onshore wind projects. The guide starts with a review of the role and scope of public-private
partnerships (PPP) in emerging countries for the development of energy projects with special
focus on Sub-Saharan countries. Deep dives and key lessons will be provided in respect to
the appropriate design of PPP in the energy sector and on the different phases and actors
involved in the project process. The roadmap then analyses the different foundation blocks
of the development of wind projects, from pre-feasibility stage until operation & maintenance.

The scope of this report is to offer insight for public and private decision makers and key
stakeholders and clarify best practices and potential risks in critical areas of wind project
investments in new renewable energy markets. The themes mentioned above will be described
in details, supplying international case studies and lessons learned. Furthermore, extensive
analysis and guidance will be provided for Ethiopia.

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 Wind Project Development Roadmap

Role of public-private partnerships

In emerging countries, the estimated demand for investments in the power sector, the urgent
need for increasing power generation capacity and the budget constraints of public funds had
the effect to engage many governments in the development of PPPs, with the aim of improving
infrastructure and enhancing public service delivery. In the last two decades, PPPs have been
used in more than 134 emerging countries, contributing about 15–20 percent of total investment
in infrastructure projects. On average, investments in PPPs were estimated at USD 79 billion
annually during the period 2007-2011 (World Bank Group, 2014) with a cumulative investment
of USD 815.5 billion during the time period 1990-2015. Among the different sectors, the largest
investments have been concentrated in information and communication technology (ICT),
followed by investments in the electricity and transportation sectors (see Figure 1 and Figure 2).

According to the World Bank Group, the PPPs expression identifies and defines “a long-term
contract between a private party and a government entity, for providing a public asset or
service, in which the private party bears significant risk and management responsibility, and
remuneration is linked to performance. PPPs typically do not include service contracts or
turnkey construction contracts, which are categorized as public procurement projects or the
privatization of utilities where there is a limited ongoing role for the public sector” (The World
Bank, 2015). The main benefits that long term PPP contracts can bring to governments for the
delivery of public services can be summarized as follows (The World Bank, 2011):

• Greater efficiency in the use of resources. Splitting risks optimally between the public and
the private sector, and implementing a robust PPP framework and bidding process can
sensibly encourage a more efficient use of resources. In the realization of PPP projects
in fact, it is a priority and interest of the private party to properly consider the long-term
implications of the design costs, the construction quality of the asset and budget for long
term maintenance, which is often lacking in traditional forms of public sector procurement.

• Capital at risk to performance. The explicit exposure of capital invested by the private
sector gives an incentive to design and build the asset on time and within budget.
Furthermore, the capital exposure to long-term performance of the asset/infrastructure
service has the pronounced effect of bearing the asset over its entire lifetime.

• Quality assurance. Compared to standard public procured processes, PPP projects

can ensure a greater level of quality assurance. The successful engagement of the
public sector with the market and the effectiveness of long term PPP contracts rely on
robust legal, regulatory and implementation frameworks. Moreover, private parties
such as lenders and investors, which will directly provide capital, rely on revenue
streams based upon the long term performances of the service delivered/asset built.

• Close examination. The long-term horizon of PPP processes requires a detailed breakdown
analysis of risks, costs and benefits that the project will face. Therefore, more prominence

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will be placed on outcomes, outputs and associated standards compared to conventionally

procured projects.

Figure 1: Investment commitments to public-private infrastructure projects in emerging

countries, 1990-2015. Source: WBG, PPI project database.

Figure 2: Breakdown analysis of investment commitments to public-private infrastructure

projects in emerging countries, by sector, 1990-2015. Source: WBG, PPI project database.

The process of PPP projects can be summarized into a different series of well-defined phases
(see Figure 3), many of which may also be used in the context of traditional public procured
projects. However, it is paramount to underline that “traditional project procurement has usually
more focused on inputs and so PPPs require a fundamental change in the way projects are
prepared and in the nature of the information that needs to be provided to private sector
bidders. In details, private sector investors will require contractual and regulatory certainty as

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 Wind Project Development Roadmap

a precondition of participation in PPP and expect to understand from an early stage the risks
will be asked to assume and share” (The World Bank, 2011).

Figure 3: Fundamental phases of PPP project process (The World Bank, 2011).

Enabling framework for public-private partnerships

The engagement of the private sector is perceived as an essential strategy for accelerating
and implementing infrastructure projects. At the same time, a strong leverage of the private
sector can be only achieved by the implementation of a favorable, transparent and long-term
sustainable PPP framework and management process. The setup of the right PPP framework
varies accordingly to the unique political and institutional capacity of every separate country,
but generalized guidelines can be provided for drawing a sustainable implementation route.
These recommendations are:

•• Policy framework. Setting up a clear policy framework is paramount to explain

the core rationale and the implementation process of PPPs, both for the public
and the private sector. The latter expects to operate counting on a PPP policy
framework that can set out essential principles such as (The World Bank, 2011):

1. PPP proclamation and detailed guidelines that will be used by the public sector to
select, prepare, and procure PPP projects.
2. Assigning key roles, obligations and core management responsibilities through the
entire PPP value chain, from project selection and preparation to procurement and
contract monitoring
3. Process of handling and resolving disputes.

•• Legal and regulatory framework. The engagement of the private sector and the likelihood
of successful PPPs rely on the governments´ capacity of implementing an effective legal,

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Wind Project Development Roadmap

regulatory, institutional and contractual framework, which will be able to ensure and support
long term PPP contracts. The right legislation setup may range from allowing the public sector
to contract with private bodies for the delivery of typically public infrastructure services (such
as electricity or water) to the establishment of a transparent implementation process, driven
by a sturdy independent regulator. Private investors will also look for financial viable contracts
as well as for transparent mechanisms to monitor the project and clear out liabilities and
potential disputes, which may rise during the lifetime of the project (The World Bank, 2011).

•• Investment framework. Governments should undertake realistic and coherent investment

plans and project pipelines to demonstrate how and in which extent the PPPs will play a
credible role in the development of specific programs. It is also crucial both for the public
and the private sector, that PPPs are envisaged as project-pipelines in specific sectors,
rather than an isolated project-event. Establishing bankable PPP pipelines is fundamental
to enhance the likelihood of receiving more bids from high-quality investors and the
replicability in terms of costs and quality of the PPP process (The World Bank, 2011).

•• Implementation framework. PPPs programs are generally successful only if the strong
government commitment is backed up by the choice of a successful PPP DG or “champion”
appointed to drive the PPP agenda (World Bank Group, 2014). PPPs programs indeed tend
to have significant differences from traditional public forms of procurements and quite often
governments fail to identify or properly perform the new required processes and functions.
“When governments are unable to undertake these functions efficiently, for instance due to
the lack of expertise or other constraints, various institutional solutions exist to implement
these tasks such as a coordinating agency, PPP DG, external consultants, etc.” (The World
Bank, 2011). As highlighted by (Sanghi et al., 2007), “if a specialized PPP DG is created, it
must be able to perform these functions effectively. That means it needs to be given the
necessary executive authority rather than simply act as an advisory body”.

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 Wind Project Development Roadmap

PPP DDGs - International experiences and lessons learned

The qualitative assessment of eight PPP DDGs in various developing and

developed countries points to some lessons with regard to the appropriate
design and use of PPP DDGs and some reasons for the positive correlation
between successful PPP programs and the use of PPP DDGs.

• Less effective governments tend to have less effective PPP DDGs. Lack of
political commitment to advance a PPP program or lack of transparency
and coordination within government agencies will reduce the chances of
success for a PPP DDG. Even with a good design, a PPP DDG is unlikely to
be effective in such an environment.

• Without high-level political support for the PPP program, a PPP DDG most
likely will fail.

• Relatively successful PPP DDGs directly target specific government

failures. A clear focus on responding to particular government failures is
essential to ensuring the success of the institutional solution selected.

• The authority of a PPP DDG must match what it is expected to achieve.

If a PPP unit is expected to provide quality control or assurance, it needs
the authority to stop or alter a PPP that it perceives to be poorly designed.
However, this executive power must be coupled with a mandate to
promote good PPPs, or the unit may simply wield a veto without adding
value.

• A PPP DDG’s location in the government is among the most important

design features, because of the importance of interagency coordination
and political support for a PPP DDG’s objectives. In a parliamentary
system, a PPP DDG is most likely to be effective if located in a strong
ministry of finance or treasury. In non-parliamentary systems, such as the
presidential system of the Philippines and many Latin American countries,
the best location for a PPP DDG is less clear. In a country with a strong
planning or economic policy coordination agency, that agency might
make a natural home for a PPP DDG.
Sources: (Sanghi et al., 2007), (The World Bank, 2011).

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Public-private partnerships in the energy sector

Tapping and mobilizing private capital and resources is one of the key-components to scale up
generation and transmission & distribution capacity, and increase electricity supply. Focusing
only on power generation (renewable energy included), PPPs are typically represented by
independent power producers (IPPs), which design, finance, build, operate, maintain and
decommission a power generation plant and contract to sell the electricity generated to a
publicly owned power utility.

The specific requirements and circumstances of a country contribute to determine the unique
structure of the created partnership and its methodology of operation (The World Bank, 2015).
IPP projects have been developed in many different countries and power market environments,
from purely deregulated electricity markets or power markets regulated by vertically integrated
state-owned utilities to hybrid-market structures where public and private investments coexist.

Figure 4: Private participation activity in the electricity sector, 1990-2015 (power generation plus
transmission & distribution). Source: WBG, PPI project database.

Beyond the different topology of the enabling environment, deciding factors for supporting
IPPs include a fair competition and transparency of the procurement and contracting process,
the establishment of independent regulation and reforms in the electricity power market, long
term and cost-effective planning strategies for generation and transmission & distribution,
and noteworthy efforts to improve financial health of off-takers (utilities or private companies).
The recent trend of transformation and liberalization of power markets in Latin America is
indeed one of the best examples of this excellent synergy between public and private in the
development of PPPs and IPP projects in the electricity sector (see Figure 4).

As pointed out by (Eberhard et al., 2016), different factors and elements are necessary to
unlock sustainable IPP investments in emerging countries. The most representative ones for
Sub-Saharan Africa have been summarized in the following table. The majority of them will be
discussed and contextualized afterwards in this report (chapter 5 and 6), specifically for IPP
wind projects.

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Factor Detail

Country level

Stable country context Stable macroeconomic policies

Legal system allows contracts to be enforced, laws to be upheld,

arbitration

Good repayment record and investment-grade rating

Previous experience with private investment

Clear policy framework Framework enshrined in legislation

Framework that clearly specifies market structure and roles and

terms for private and public sector investments (generally for a
single-buyer model, since wholesale competition is not yet seen
in the African context)

Reform-minded “champions” to lead and implement framework

with a long-term view

Transparent, Transparent and predictable licensing and tariff framework

consistent, and fair
Cost-reflective tariffs
regulation
Competitive procurement of new generation capacity required by
regulator

Coherent power sector Power planning roles and functions clarified and allocated
planning
Planning function skilled, resourced, and empowered

Fair allocation of new build opportunities between utility and IPPs

Built-in contingencies to avoid emergency power plants or

blackouts

Competitive bidding Planning linked to timely initiation of competitive

practices tenders/auctions

Competitive procurement process adequately resourced and fair

and transparent

Danish Energy Agency, Tel: +45 3392 6700, website: [Link]/en 43

Wind Project Development Roadmap

Project level

Favourable equity Local ownership & local capital/partner contribution if possible

partners
Risk appetite for project

Experience with developing country project risk

Involvement of a DFI partner (and/or host country government)

Reasonable, fair and competitive ROE

Development-minded firms

Favourable debt Competitive financing

arrangements
Local capital/markets that mitigate foreign exchange risk

Risk premium demanded by financiers, or capped by off-taker,

matches country/project risk

Creditworthy off-taker Adequate managerial capacity

Efficient operational practices

Low technical losses

Commercially sound metering, billing, and collections

Sound customer service

Secure and adequate Robust PPA (stipulates capacity and payment as well as
revenue stream dispatch, fuel metering, interconnection, insurance, force
majeure, transfer, termination, change-of-law provisions,
refinancing arrangements, dispute resolution, and so on)

Security arrangements where necessary (escrow accounts,

letters of credit, standby debt facilities, hedging and other
derivative instruments, committed public budget and/or
taxes/levies, targeted subsidies and output-based aid, hard
currency contracts, indexation in contracts)

Credit enhancements Sovereign guarantees

and other risk
Political risk insurance (PRI)
management and
mitigation measures Partial risk guarantees (PRGs)

International arbitration

44
 Wind Project Development Roadmap

Strategic management Sponsors who work to create a good image in the country
and relationship through political relationships, development funds, effective
building communications, and strategic management of their contracts,
particularly in the face of exogenous shocks and other stresses

Positive technical Efficient technical performance high (including availability)

performance
Sponsors who anticipate potential conflicts (especially related to
O&M and budgeting) and mitigate them

Table 1: Factors contributing to successful independent power project investments in emerging countries
(Eberhard et al., 2016)

Danish Energy Agency, Tel: +45 3392 6700, website: [Link]/en 45

Wind Project Development Roadmap

Independent power producer projects in Sub-Saharan

Africa
According to the IEA New Policies Scenario in the World Energy Outlook (IEA, 2016), Sub-
Saharan electricity demand is expected to more than triple by 2040, and reach 1,300 terawatt
hours (TWh) under current and proposed government policies and measures. The cost of
addressing the needs of Sub-Saharan Africa’s power sector has been estimated at USD
40.8 billion a year, which is equivalent to 6.35% of Africa’s gross domestic product (GDP). If a
massive power sector development is to be successfully supported, significant investments
are therefore needed, including a larger capitalization of private investments for accelerating
this crucial transition (IEA, 2016).

Although public utilities and governments have historically been the major sources of funding
for new power generation capacity, the trend is currently changing. In fact, the majority of
African governments are unable to finance their power needs through public funds, and most
African utilities do not have investment-grade credit ratings, so they cannot raise sufficient
debt at affordable rates. Official development assistance (ODA) and development finance
institutions (DFIs) have played and still play a key role in facilitating and filling gaps for attracting
private investments in the region. Currently, private investments in IPPs projects and Chinese
funding are currently the fastest-growing sources of finance for Africa’s power sector (see
Figure 5 and Figure 6). By the end of 2014, IPP projects have been developed in 18 different
Sub-Saharan countries. Among them, 59 projects (6.8 GW of installed generation capacity
with a total investment equal to USD 11.1 million) were located outside South Africa, mainly in
Nigeria, Kenya, Côte d’Ivoire, Ghana, Uganda, and Tanzania. If South Africa is also included,
the total number of IPPs projects rise to 126, with an overall installed capacity of 11 GW and
investments of USD 25.6 billion (Eberhard et al., 2016).

Figure 5: Total investment in completed power generation plants: Sub-Saharan Africa (excluding South
Africa), 1990-2013 (Eberhard et al., 2016).

The majority of the IPP capacity contracted in Sub-Saharan Africa is thermal power, mostly
represented by open and combined-cycle gas turbines (OCGT, CCGT). Besides that, the
momentum and growth of renewables in the power generation mix have been remarkable in
several countries. Among them, South Africa has developed the most ambitious renewable
energy IPP procurement programme (REIPPP), where solar PV and onshore wind represented
the greatest portion of the added capacity.

46
 Wind Project Development Roadmap

Figure 6: Investments in power generation in Sub-Saharan Africa (excluding South

Africa), 1994-2013 (Eberhard et al., 2016). DFIs investments in IPPs are excluded from
the analysis.

Figure 7: Independent power project technology capacity (% of MW) in Sub-Saharan

Africa (excluding South Africa), 1994-2014 (Eberhard et al., 2016).

Danish Energy Agency, Tel: +45 3392 6700, website: [Link]/en 47

Wind Project Development Roadmap

Ethiopia

In 2015, the country awarded its first-ever power purchase agreement to an Independent
Power Producer (IPP) for the realization of the Corbetti 500 MW geothermal power plant.
As its
specified in the Ethiopian
power generation Growthfrom
by 17,000MW & Transformation Plan
different renewable II (GTP2,
sources, 2015-2020),
including the GoE
wind (1,200 MW).is
planning to increase
The majority its power
of this power generation
expansion by 17,000MW
is intended frombydifferent
to be developed renewable
the private sources,
sector through IPP
tender auctions.
including wind (1,200TheMW).
table The
below providesofathis
majority detailed
power overview of the
expansion is generation
intended to projects included
be developed
in GTPII and their modalities of financial implementation.
by the private sector through IPP tender auctions. The table below provides a detailed overview
of theTable
generation
2: Plannedprojects included
generation in GTPII and
projects (2015-2025) theirimplementation
with their modalities of financial
scheme implementation.
(Lemma, 2017), (Fekede,
2017).

No. Energy Power Size Energy CAPEX Project

Source Plant (MW) (GWh) (MUSD) Finance

1 Geba 1 + Geba 2 372 1749 572 Government

2 Genale 6 246 1542 588 Government
3 Sor 50 350 186 Private
4 Upper Dabus 326 1460 628 Private
5 KoYisha 2160 6500 2689 Government
6 Birbir 467 2759 1231.1 Private
7 Werabesa + Halele 436 2028.6 886 Private
8 Hydro Yeda 1 + Yeda 2 280 1101.8 540 Private
9 Genale 5 100 577.7 298 Private
10 Tams 1700 5760 3241.5 Private
11 WabiShebele 87 693.2 887.8 Private
12 Lower Didessa 550 987 619.2 Private
13 Tekeze II 450 2768 1690.4 Private
14 Lower Dabus 250 640 866.3 Private
15 Gojeb 150 569.7 526.8 Private
Total 7579 29174.5 15282.7
1 Corbetti Phase I 200 1577 760 Private
2 Corbetti Phase II 100 788 760 Private
Geothermal
3 Corbetti Phase III 200 1577 1140 Private
4 Aluto II 70 552 266 Private
Total 570 4494 2660
1 Ayisha 300 954 570 Private
2 Debrebirihan 100 318 190 Private
Wind
3 Adama III 150 477 285 Private
4 Other Sites 1050 3339 1995 Government
Total 5200 18761 11210
1 Metehara 100 175.2 210 Private
2 Mekele 100 175.2 210 Private
3 Humera 100 175.2 180 Private
Solar Other Sites
(including 500 MW
4 4900 8584.8 8820 Private
for IFC Scaling
solar programme)
Total 5200 18761 11210
1 Biomass Different Sites 420 3091 865 Private
Table 2: Planned generation projects (2015-2025) with their implementation scheme (Lemma, 2017),
(Fekede, 2017).

48

Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 43
 Wind Project Development Roadmap

As highlighted by (UNDP, 2015), the implementation of sound and robust IPP/PPP projects
depends on the existence of an appropriate legal framework as well as political certainty. In
January 2018, the GoE has passed the comprehensive Public-Private Partnership Proclamation.
The main scope of the PPP proclamation is the establishment of a legislation and institutional
framework for PPPs, which will be led by a decision-making public agency with a full mandate
at the federal level. So far, the lack of an appropriate PPP/IPP legislation, existing laws and
regulation limits have been seen as main constraints for fostering IPP/PPP projects in the
country.

Main constraints and challenges for IPP projects in Ethiopia

• Lack of regulatory and legal framework

• Lack of skilled taskforce of experts for PPPs

• Limited human resources

• Re-allocation of several projects from EPC to IPP procurement modalities

• “Fast-track” approach for the implementation of projects, regardless of

their procurement modalities (EPC/IPP, direct negotiation/competitive
bidding)

• Large amount of land required (especially for solar projects)

• Issues for guarantees instruments and letters of credit

• Convertibility and Transferability issues

• Use of Offshore Foreign Exchange (FX) Account Restriction

• Use of Onshore FX Account Limitation

• Priority Access to Foreign Exchange

• EEP Financial Viability

• Lack of Streamlined assistance from donors or DFIs

Source: Lemma, 2017

Danish Energy Agency, Tel: +45 3392 6700, website: [Link]/en 49

Wind Project Development Roadmap

Development process for wind energy projects

Development
The process
project viability for wind
of a wind farm energy projects
is an iterative and multi-disciplinary process which
encompasses technical, regulatory, commercial and financial elements. Due to the complex
The project viability of a wind farm is an iterative and multi-disciplinary process which
nature of the investment
encompasses technical, case, key stakeholders
regulatory, commercial andshould approach
financial the process
elements. Due to thethrough a step-
complex nature
by-step decision-making procedure, which will gradually assess the viability of the
of the investment case, key stakeholders should approach the process through a step-by-step business
case. The figure below
decision-making provides
procedure, a visual
which roadmap
will gradually of thethe
assess development process
viability of the for onshore
business case. The
wind projects.
figure below provides a visual roadmap of the development process for onshore wind projects.

Figure 8: Development
Figure process
8: Development line line
process for onshore wind
for onshore projects.
wind projects.

The diagram below shows the basic contractual structure of a project financed wind farm.
The diagram below shows the basic contractual structure of a project financed wind farm.

Figure 9: Stakeholders
Figure andand
9: Stakeholders parties involved
parties in in
involved the development
the developmentofofwind
windenergy
energyprojects.
projects.

The detailed contractual structure will vary from project to project, depending also on the
procurement strategy used, the contract terms and the allocation of liabilities and risks.

50
Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 43
 Wind Project Development Roadmap

The detailed contractual structure will vary from project to project, depending also on the
procurement strategy used, the contract terms and the allocation of liabilities and risks.
Nevertheless, the business case of onshore wind projects may be enclosed in these main
assessment areas:

• Wind resource assessment

• Site selection
• Grid proximity and connection
• Planning and environmental approvals
• Power sale
• Project financing and bankability
• Procurement process and construction
• Operation and maintenance
• Decommissioning or repowering

The themes mentioned above will be described in details, and specific analysis and guidance
will be provided for the Ethiopian case. It should be mentioned that this report focuses on pre-
development, project management and operational aspects of onshore wind farms. Therefore,
analysis won´t be provided for the decommissioning or repowering process of wind farms,
since it is out of scope for this specific work.

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Wind Project Development Roadmap

52
 Wind Project Development Roadmap

1. Wind Resource Assessment

An accurate wind energy resource assessment is probably one of the most important elements
in identifying viable wind projects. Since the power available in the wind is a cube function of
the wind speed, small changes in average wind speeds have a large impact on the energy
output. Just for reference, if the wind speed is doubled, the wind power increases by a factor of
8. Hence, the project viability of a wind farm is extremely sensitive to accuracy and magnitude
of wind resources. Figure 10 provides an exhaustive explanation of this strict correlation
comparing the costs of wind projects as a function of the wind speed and the capacity factor.

Figure 10: Wind energy costs as a function of wind speed and capacity factory (Milborrow, 2017).

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Wind Project Development Roadmap

Furthermore since winds vary both on short and long-term (time of day, seasons, etc.), accurate
wind studies on specific sites have to focus on multiple aspects of the data such as mean
annual wind speed, frequency distribution of the wind at various speeds, turbulence intensity,
wind shear, and maximum gusts (extreme wind events). These parameters are critical for
estimating the potential energy in the wind as well as the choice of turbine technology for the
specific site.

For project developers and governments which would like to exploit wind resources, the
starting point of the
and maximum gustswind resource
(extreme wind assessment
events). Theseis parameters
the examination of wind
are critical resourcethe
for estimating maps
for potential
a specific country
energy in the orwindregion
as well(if
asthey already
the choice exist).technology
of turbine The most foraccurate
the specificway
site. to develop
wind resource maps is through the Wind Atlas methodology and advanced programs such
For project developers and governments which would like to exploit wind resources, the starting
as Computational Fluid Dynamics and WAsP/WindPRO. The method makes it possible to
point of the wind resource assessment is the examination of wind resource maps for a specific
transform
country orwind data
region fromalready
(if they existing meteorological
exist). masts
The most accurate wayand extrapolate
to develop wind properties
wind resource maps is at
specific
throughsites
thewith
Winda radius up to 200 km.
Atlas methodology andThis new set
advanced of datasuch
programs enables project developers
as Computational Fluid to
develop accurate
Dynamics calculations on The
and WAsP/WindPRO. the expected
method makesenergy yield at the
it possible selectedwind
to transform [Link] from
existing meteorological masts and extrapolate wind properties at specific sites with a radius up to
200 [Link]
However, This new set ofofdata
sensitivity enables
energy project developers
production to wind speedto develop accurate
requires calculations
further analyseson bythe
actual
expected energy yield at the selected sites.
on-site measurements. This is usually achieved during the project feasibility stage through the
installation
However, of thewind monitoring
sensitivity of energy equipment
production to on-site. The longer
wind speed requiresthe duration
further analyses of by
theactual
windon- study
is, the
site more accurate This
measurements. the production estimates
is usually achieved will the
during be. project
Generally, the time
feasibility stagewindow
through of thewind
data installation
acquisitionof wind
for monitoring
on-site wind equipment on-site. The
measurement longer the duration
campaigns ranges of the wind
from 1 to study
5 years is, the
with a
more accurate the
10-minute time resolution. production estimates will be. Generally, the time window of wind data
acquisition for on-site wind measurement campaigns ranges from 1 to 5 years with a 10-minute
time resolution.
The data collected can be then sorted into bins of wind speed classes of 1 m/s each and
theThe energy
data contained
collected can in be
thethen
wind at ainto
sorted certain
bins ofsite
windmay then
speed be expressed
classes of 1 m/s eachby aand frequency
the
distribution. Usually,inthe
energy contained theWeibull
wind at a distribution
certain site is often
may thena precise approximation
be expressed for the
by a frequency wind speed
distribution.
Usually, the
distribution. Weibull
From distribution is often
a mathematical pointa ofprecise
view, approximation for the wind
the Weibull function speed distribution.
is strictly dependent on
From a mathematical point of view, the Weibull function is strictly dependent
two site-specific parameters: A and k. The former is called Weibull scale parameter, which on two site-specific
parameters: A and k. The former is called Weibull scale parameter, which is proportional to the
is proportional to the mean wind speed of the site, while k is called shape parameter. Small
mean wind speed of the site, while k is called shape parameter. Small values for k imply very
values for k imply very variable winds with repeating extreme winds events, while constant
variable winds with repeating extreme winds events, while constant winds are characterized by
winds arek characterized
larger values. For k=2, by thelarger
Weibullk distribution
values. Foryields
k=2, to
the Weibull distribution
a Rayleigh distribution. yields to a Rayleigh
distribution.

Figure 11: Weibull distribution of the wind speeds at the Danish site Hvide Sande (DEA et al., 2017).
Figure 11: Weibull distribution of the wind speeds at the Danish site Hvide Sande (DEA et al., 2017).

54
Production estimate

When wind data has been collected and quality is checked, the annual energy production (AEP) of
 Wind Project Development Roadmap

Production estimate

When wind data has been collected and quality is checked, the annual energy production (AEP)
of a wind farm may be evaluated. Its calculation is strictly dependent on several parameters:

• Wind turbine power curve (which relates for each wind speed the energy produced by a
specific wind turbine model)
• Meteorology of the site (atmospheric stability, air density, etc.)
• Project site size (which reflects the wind power capacity installed)
• Estimated losses due to wind turbine placement, electrical losses and unavailability.

Since the AEP value varies from turbine to turbine, the choice of the appropriate wind turbine
model for a specific site is a complex aspect of the development of a wind farm. Hence,
a winning strategy for the selection of wind turbines should be based on optimizing the
economic feasibility of the project as well as taking into account site-specific characteristics
and constraints. On this last matter, topographical data of the site, proximity to obstacles
and wind data collected are critical aspects for the selection and correct placement of wind
turbines (micro-siting). The detailed wind turbine classification will be explained in chapter 2.

Figure 12: Power curve of the V117-3.3 and V126-3.3 turbine (DEA et al., 2017).

The stochastic nature of the wind has also a direct influence, referred as uncertainty, on the
estimation of the annual energy yield. Typically, the expected yearly production of a wind
farm is specified at different probability values (Pxx). These probability values represent the
probability that the energy production estimate will be exceeded. In the wind industry, it is
common modelling energy yields for P50, but financial institutes usually require P75 and
P90 probability values. Higher the probability is, more conservative and less uncertain is the
estimate of energy production for project developers and investors. It should be mentioned
that recently financial institutions and governments start to require wind study documentation
from independent consultants for obtaining project finance closure.

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Wind Project Development Roadmap

Figure 13: Probability distribution of annual energy production. Source: Renewable Energy Focus.

Figure 14: Main steps in the energy yield assessment process (MEASNET, 2016).

56
 Wind Project Development Roadmap

1.1 Ethiopia
Ethiopia is one of the countries included in the World Bank programme ESMAP. This initiative
will guide the future scaling-up of wind power in Ethiopia by confirming the resource potential
and supporting the GoE and commercial developers in utilizing the data obtained. The wind
resource campaign can be divided into three different phases (ESMAP, 2016):

Figure 15: Mesoscale wind resource map of Ethiopia (ESMAP, 2016).

Phase 1

The wind mapping process is developed by means of a “model-measure-remodel” technique.

The mesoscale modelling is derived from available global meteorological reanalysis data such
as Modern-Era Retrospective Analysis for Research & Applications (MERRA). Based on this
data, further modelling runs are implemented to obtain higher levels of resolution including as
well climate effects outside the country of interest (trade winds). The final modelling run will
usually cover a minimum of 10 years of historical wind data for each grid cell in the country, at
multiple heights, down to a frequency of 10 minutes. An unvalidated mesoscale wind resource
model of Ethiopia is presented in Figure 15.

Phase 2

To validate the modelling outputs of Phase 1, ground-based wind measurement data is

needed from across the country at multiple heights. Sometimes wind data is available from
meteorological weather stations, but usually, their use for wind power validation purpose is
very limited due to poor maintenance or absence of wind masts at 50+ meters above the
ground level. Hence, it is often necessary to commission a series of wind measuring sites.
Generally, a standard wind measurement site consists of a lattice or tubular tower, where
at least anemometers and wind vanes at vertical intervals of 20m are mounted to take wind

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Wind Project Development Roadmap

speed and direction measurements. The current industry standard height is set at 80m (with
anemometers at 20m, 40m, 60m and 80m). Usually, such data is measured from sites of high
interest to developers. It is also essential that this measurement data is accompanied by
other relevant metadata, such as full site reports, installation reports, photographs, and other
supporting evidence that will enable the mesoscale modellers to determine the characteristics
and quality of the data being provided.

The properties of a high-quality measurement campaign, according to (Jain, 2010) and

(McCrone et al. 2014), can be summarized as follows:

• Use a high-quality (Class I anemometer) calibrated anemometer, as close to hub

height as possible (preferably > 2/3 of hub height). Install anemometers, preferably
at three heights, so that vertical extrapolation may be accurately performed.

• Use redundant anemometers so that potential for loss of data due to tower shadow or
sensor failure is minimal. Use long booms to minimize the impact of flow distortion.

• Deploy two or more met-masts for a wind farm site, preferably one met-
mast for every 5-8 turbines or 10–20 MW capacity (the lower number
is for a complex terrain and the higher number for a simple terrain).

• Collect and analyse daily data feeds rigorously. Ensure that raw data is archived and
an audit trail exists for data corrections, so that the data can be independently verified.

• Collect data for at least 1 year; if the measurement is done for more than 1 year, then
collect data for a full 2 or 3 years.

Phase 3

When sufficient data is gathered to enable validation, a final, validated Ethiopia Wind Atlas will
be developed and made publicly available. Specifically for the first Ethiopian IPP wind tenders
and for other prioritized sites, 17 different wind masts and one LIDAR will be erected and wind
measurements will be carried out for one to two years in compliance with the international
standard IEC 61400-12-1 (MEASNET, 2016). Furthermore, due to the complexity of terrain in
many of the relevant Ethiopian sites, more than one measurement mast may be needed per
site. It should be emphasized that having measurements for more than one year can further
improve the accuracy of the wind data and reduce the uncertainty of the availability of wind
resources as well as estimates of AEP. The possibility to relay on wind measurements data
for two years is one of the main scopes of the measurement programme, but its successful
implementation may be affected by delays in implementation. The measuring campaign is
led by the World Bank Group.

58
 Wind Project Development Roadmap

Figure 16: Sample installation configuration for wind sensors and equipment (NREL, 1997).

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Wind Project Development Roadmap

Burden and regulatory framework

The choice of developing wind resource campaigns on specific sites makes possible to
produce early data in short time as well as estimates of annual power production for IPP
developers and investors. These on-site measurements have to be correlated with regional
long-term wind data, usually acquired from meteorological weather stations. The accuracy of
this data in Ethiopia may be objected by project developers and investors and introduce high
uncertainty on the AEP estimate, especially for correlating short-term wind data with the long-
term one. The reason is that there may be few or no long-term quality wind measurements at
50+ meters above the ground level (referred to as observed data sets), which form the primary
input to computing long-term wind data sets. By lacking good-quality long-term wind data
and low correlations with concurrently measured data, financiers may require developers
to measure wind speed up to 3–5 years (Asian Development Bank, 2014). Figure 17 further
clarifies the impact of short and long-term wind conditions on the estimated yearly production
of a wind farm sited in Egypt. The AEP value indeed varies by ±12% from the long-term average
during the 11-year time horizon.

Figure 17: Year-to-year variation of the estimated production from a Vestas V47 wind turbine close to Abu
Darag. The average production for the 11-year period is 3.5 GWh/y (DTU, 2004).

As previously stated, whereas on the one hand financial institutions and governments have
recently required documentation of wind resource assessment from independent professionals,
on the other hand, project developers are usually the responsible ones to appoint consultants
for performing wind studies. Concerning this specific issue, let´s provide an example for an
exhaustive analysis (see Figure 18).

60
 Wind Project Development Roadmap

One should consider leading an on-site wind measuring campaign. The results of the
measurement campaign may lead to uncertainties of the actual wind farm performance.
Sources of uncertainty are usually represented by wind speed measurement, wind speed
extrapolation (spatial, vertical, and temporal), power curve, wake, air density, etc. In developed
renewable markets and regions with well-documented wind data, total uncertainty (measured
in terms of standard deviation of AEP as a percentage of average AEP) is about 10-16%, and
for newer renewable markets, it may easily reach values up to 20–25% (Asian Development
Bank, 2014).

Considering the results of Figure 18, let´s assume a reference case with no uncertainty in
the wind measurement campaign (δ= 0.0%) and a scenario with a negative uncertainty of
δ= -16% (lower wind speed than the base case campaign estimate). The latter leads to an
energy estimate 30% lower than the reference case and to an internal rate of return (IRR) value
56% lower. Hence, the impact of the wind speed estimate is crucial for the project economy,
and consequently, the uncertainty associated with the AEP has a strong lock-in effect on the
project bankability.

Figure 18: Impact of wind resource estimate on project economy (Krohn, 2012).

In the design of wind energy tenders, transferring the liability of accurate wind resource data
to the auctioneer may lead to high-risk premiums for bidders on the final auction bid prices. At
the same time, if the quality of the wind data collected is considered consistent by developers
and private investors, this may sensibly reduce project pre-development costs for developers
and therefore let to competitive and lower bid prices.

An important point of discussion should be open on the impact of the production estimate
(P50, P75, P90) for pricing bids. The use of less conservative estimates such P50 has the great
advantage of driving down bid tariffs as shown in the Brazilian and South African auction
experiences. Whereas these two countries used the same production estimate method (P50) for
pricing bids, different outcomes occurred during financial closure. In details, after bidders were
awarded, Brazil’s IPPs struggled to secure financing for their projects, resulting in significant
delays. This happened because financial institutions (both commercial and institutional) are

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Wind Project Development Roadmap

typically more conservative and, specifically for Brazil, they only financed projects on the basis
of P90 data (GIZ, 2013). On the contrary, this risk was eliminated in South African IPP auctions
by requiring financing to be locked-in at bid submission (Eberhard & Naude, 2016).

Figure 19: Annual energy production estimates for a 50MW wind farm (Boquet et. al., 2010).
Figure 19: Annual energy production estimates for a 50MW wind farm (Boquet et. al., 2010).

At the end, it is paramount to advise the auctioneer of the IPP wind auction in opting for
At
windtheturbines
end, it isdesigned
paramount
andto certified
advise the auctioneer to
in according of IEC
the 61400
IPP wind auction for
standards in opting for wind
strengthening
turbines designed and certified in according to IEC 61400 standards for strengthening reliability
reliability and safety of operation of wind farms. At the same time, the auctioneer should not
and safety of operation of wind farms. At the same time, the auctioneer should not narrow down
narrow down too much the catalogue of suitable wind turbines, since the model which best
too much the catalogue of suitable wind turbines, since the model which best fits a specific site
fits a specific
should site out
be pointed should be pointed
by project out bybyproject
developers, developers,
fulfilling by fulfilling
bid requirements (legal bid requirements
aspects, planning
criteria, grid codes, etc.) and maximizing capacity factor and project economy. The figureproject
(legal aspects, planning criteria, grid codes, etc.) and maximizing capacity factor and below
[Link]
illustrates figure
clear belowofillustrates
example a clear example
this cost-benefit mechanism of this
for cost-benefit
the selectionmechanism
of a suitableforwind
the
selection
turbine of a suitable
model during awind
windturbine
tendermodel during
in Egypt, a wind tender
procured throughinaEgypt, procured through
build-own-operate (BOO)a
concession arrangement.
build-own-operate (BOO) concession arrangement.

Rotor Hub Full load Turbine Project

Power AEP Capacity Investment
Type diameter height hours price investment
(kW) (MWh/year) factor (EGP/MWh/yr)
(m) (m) (MWh/MW) (M EGP) (M EGP)
V90-3.000 3000 90 80 7,088.58 2,363 27% 18.5 22.2 3,132
V90-3.000 3000 90 90 7,496.98 2,499 28.5% 19.5 23.4 3,121
V112-3.000 3000 112 94 10,383.68 3,461 39.5% 27.2 32.6 3,143
V90-1.800 1800 90 80 6,046.65 3,359 38.3% 15.5 18.6 3,076

Figure 20: Wind turbine selection for a site in an Egyptian BOO wind tender (Krohn, 2014).
Figure 20: Wind turbine selection for a site in an Egyptian BOO wind tender (Krohn, 2014).

62
 Wind Project Development Roadmap

Auction feature Responsible Stakeholder

Auction feature Auctioneer (Government) Project Developer

Development of Wind Atlas: Wind Atlas:

wind resource
campaigns  Wind measurements are usually  Very limited scope, since no
performed by independent developer is in a position to
consultants, ensuring a high make the required investment
degree of objectivity of the data on a country-scale
produced
On-site wind measurement
 Extreme relevance for providing campaigns:
long-term regional
measurements and pre-  Lead to a more exhaustive
screening information on assessment both for wind
deployable wind resource areas resource quality and risk
management
On-site wind measurement
campaigns  Other important factors can be
evaluated simultaneously, such
 In frontier RE markets with few as micro-siting, site layout,
experienced developers, it may technology choice and proper
be necessary to appoint the O&M strategy
auctioneer as responsible unit
 It may be redundant that pre-
 Limited scope for governments qualified bidders will perform
to measure site wind resource similar wind measurement
for auctions campaigns on the same site.

 Bankable wind measurements  Bankable wind measurements

require complex and high costly require complex and costly
campaigns (IEC 61400-12 campaigns (IEC 61400-12
standards) standards)

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 Wind Project Development Roadmap

Barriers
Barriers andand action
action options
options for development
for development

Fact Impact Appropriate Action Relevance for Ethiopia

Absence of For developers it may Governments should make Low risk
public data on limit the attractiveness public and accessible all It is the main outcome of the
wind energy to conduct feasibility existing meteorological and ESMAP measurement
resources studies wind resource assessment campaign (currently under
data. development) and wind
If wind resource data does assessment part of the
not exist, governments AWPGE programme
should initiate a wind
resource assessment
program
Inaccurate or The bankability and Address credible Medium risk
limited wind the investment viability independent specialists or Best case scenario, the wind
data of wind power projects measurement institutions in measurements for the 1 IPPst

rely on accurate and performing wind resource auction will be based on 1

objective estimates of assessments year of collected data. The on-
wind data and annual site measurements need to
energy output models be correlated with regional
long-term wind data, whose
accuracy may be objected
Wind turbine The choice of the wind Project developers should Recommendation
model for the turbine model should only use turbines designed GoE should find a right
site be based on a trade- and certified along IEC 61400 balance in ensuring the use of
off strategy between Standards wind turbines IEC certificated
WTG price and site- for the auction, not imposing
specific power at the same time too strict
generation potential constraints on the catalogue
(cheap WTG but low of usable turbine models
power generation -
expensive WTG but
high power
generation)
Inaccuracy or The topography of the Ensure public access to High relevance due to
unavailability site has a direct existing data or undertake complex terrain morphology
of impact on the topographical surveys in of the country. For the first
topographic assessment of the priority areas auctions is a low-risk factor,
data annual energy yield of since it should be mitigated
the wind farm. This by accurate wind resource
may lead to erroneous measurements with several
considerations on masts at the specific auction

64
Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 76
 specific power at the same time too strict
generation potential constraints on the catalogue
(cheap WTG but low of usable turbine models
Wind Project Development Roadmap
power generation -
expensive WTG but
high power
generation)
Inaccuracy or The topography of the Ensure public access to High relevance due to
unavailability site has a direct existing data or undertake complex terrain morphology
of impact on the topographical surveys in of the country. For the first
topographic assessment of the priority areas auctions is a low-risk factor,
data annual energy yield of since it should be mitigated
the wind farm. This by accurate wind resource
may lead to erroneous measurements with several
considerations on masts at the specific auction

Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 76

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Wind Project Development Roadmap

2. Site Selection

A wind resource estimate simply represents a good starting point for the identification of
potential sites for wind farm projects. The site selection process involves other important
aspects that project developers and auctioneers should properly consider during feasibility
studies for selecting sites. The key constraints that need to be clearly addressed are:

• Wind turbine class

• Terrain description of sites
• Potential size of sites
• Process of securing land
• Ease of construction
• Electrical connection access

Wind turbine class

Wind turbines are usually designed for specific wind conditions since different wind sites
can have very different wind resources. Hence, one of the crucial parameters to take into
consideration in the design of wind power plants is the wind turbine class. Turbulence, wind
speed and extreme wind events are the key parameters, which determined the turbine class.
The table below provides a better understanding of the wind turbine classification based
on the IEC 61400-1 international standard published by the International Electrotechnical
Commission.

Figure 21: Wind turbine class according to IEC 61400-1 standard (DEA et al., 2017).

Referring to Figure 21, the roman number defines the reference wind speed Vref. Hence, the
reference wind speed with class I, II and III represent sites with the high, medium and low wind
speeds, respectively. In the standard wind turbine classes, the average annual wind speed at
hub height is calculated as Vave= 0.2* Vref where Vref is defined as the 50-year extreme wind
speed over 10 minutes and V50,gust represents the extreme 50-year wind gust over 3 seconds.
The extreme 50-year wind speed by definition is the wind speed, which is statistically exceeded
once in 50 years (DEA et al., 2017). The letter of the turbine classes defines instead, the mean
turbulence intensity Iref calculated at 15 m/s. Hence, the turbulence intensity with class A, B

66
 Wind Project Development Roadmap

and C represents sites with higher, medium and lower turbulence characteristics, respectively.
The turbulence characteristics are strongly dependent on the surface roughness, terrain and
surface heat flux and atmospheric stability. The category S in the wind turbine class is used
for values specified by the developer which fall outside of the general categories (DEA et al.,
2017).

Terrain description of sites

The terrain features that influence the wind flow close to the ground and therefore have a large
impact in the wind resource assessment of a specific site can be divided into three groups
(DTU, 2004):

• The geometry of the terrain surface (elevation, slope, etc.)

• The surface characteristics of the terrain (roughness length)
• Nearby obstacles (houses, trees, etc.)

An accurate description of the overall geometry of the terrain surface is a prerequisite for reliable
modelling of the wind flow over the terrain. The most important feature is the elevation of the
terrain surface above sea level. The terrain slope of a site instead has direct consequences
both on the ease of construction of a specific site as well on the accuracy to model the wind
flow accurately when the terrain gets steeper. As a rule of thumb, the upper limit to accurately
predict linearized wind flows with a linear model such as WASP is placed at slopes of about
30% (~17º) (DTU, 2004).

The surface characteristics of the site terrain are usually envisaged within the roughness
length. In general, the more pronounced the roughness of the site surface is, the more the wind
will be slowed down. For example, forests, long grass and bushes will slow the wind down
considerably, while water surfaces are smoother and will have less influence on the wind.
Furthermore, the identification of the proper roughness class for a site should also reflect the
proximity of obstacles placed nearby the wind farm. In general two different types of approach
should be considered when dealing with obstacles in wind resource assessment (DTU, 2004):

• If a wind turbine is closer than about 50 obstacle heights to the obstacle and closer than
about three obstacle heights to the ground, the object should be considered as an obstacle.
In this case, the obstacle should not at the same time be considered as a roughness element

• If the wind turbine is further away than about 50 obstacle heights or higher than about
three obstacle height, the object should most likely be included in the roughness class
description

Potential size of site

As also highlighted in the previous chapter, the economic viability of a wind project is strongly

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Wind Project Development Roadmap

dependent on site size and consequently on the power capacity that can be installed. Crucial
constraints may be represented by regulatory requirements, current and future land usage,
the proximity of neighbouring dwellings and/or military areas, civil aviation restrictions,
environmental and social issues, habitats, cultural heritage. These topics will be object of
detailed analyses on chapter 4.

Figure 22: Potentially developable areas for a wind farm in Newport Chemical Depot (NREL, 2013).

Securing Land

Project developers should carefully evaluate the potential number of landowners affected by
the development of the wind farm and the actual and future use of lands involved in the
development of the wind power infrastructure. A good practice for project developers is to
find out information on land ownership through consultation with land registries. Based on the
different topology of landowners and land use, project developers should initiate negotiations
for securing land through appropriate ownership/lease models.

Construction issues

During the feasibility and screening process of potential sites for wind farms, a decision maker
should not underestimate the importance of the construction infrastructure of the selected
site. This assessment should be also extended to the road infrastructure of the site and the

68
 Wind Project Development Roadmap

adjacent areas. Indeed, the development of a wind farm requires the use of heavy and bulky
vehicles and components, which may be difficult to transport and move on-site. Therefore,
the site should be also evaluated for its specific construction suitability. Moreover, in some
geographical areas, potential sites for wind turbines are only accessible through dirt roads,
which during specific time intervals of the year (raining seasons, bad weather conditions)
might be flooding. This aspect may have severe consequences on the construction timeline
causing undesirable delays.

Electrical connection access

The analysis of grid assessment conditions for a selected project site is fundamental for ensuring
the technical and commercial viability of the proposed wind farm. Due to the complexity of the
topic, this subject will be analysed in detail in chapter 3.

Site ranking
Site ranking
After the evaluation of the constraints presented before, it is possible to geo-localize areas
After the
within evaluation
a country orofa the constraints
specific regionpresented
where itbefore, it is possible
is feasible to geo-localize
to deploy areasThereafter,
wind projects. within a
country or a specific region where it is feasible to deploy wind projects.
the main outcome of the wind feasibility study is to rank potential sites for assessing Thereafter, the main
their
outcome of the wind feasibility
suitability and value of interest. study is to rank potential sites for assessing their suitability and
value of interest.

AAranking
ranking methodology forevaluating
methodology for evaluatingsites
sitesisispresented
presented below
below (3E,
(3E, 2017).
2017). In In details,
details, different
different
weights are
weights are applied
appliedfor
forevaluating
evaluatingdifferent features.
different Please
features. notenote
Please that that
some constraints
some such as
constraints such
terrain complexity and environmental and social constraints are assumed to be already
as terrain complexity and environmental and social constraints are assumed to be already considered
in the pre-screening process of the site selection.
considered in the pre-screening process of the site selection.
Table 3: Ranking methodology for wind site selection (3E, 2017).

Wind Power Density Distance to Grid Capacity of Site Road Infrastructure

weight: 30% weight: 30% weight: 15% weight: 15%

Value [W/m2] Score Value [km] Score Value [MW] Score Value [Class, km] Score
10 Substation +2.5 >700 10 Class A to C, 10
>1200
< 10 km extra <10 km
1100 9 0-2 km 10 400-700 7.5 Class D to E, 7.5
<10 km
1000 8 2-5 km 7.5 100-400 5 Class A to C, 5
10-50 km
900 7 5-10 km 5 50-100 2.5 Class D to E, 2.5
10-50 km
800 6 10-20 km 2.5 <50 0 Any Class 0
>50 km
700 5 >20 km 0
600 4
500 3
400 2
300 1
200 0
Table 3: Ranking methodology for wind site selection (3E, 2017).

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Wind Project Development Roadmap

2.1 Ethiopia
The first IPP wind tender has been envisioned allocating the responsibility of the site selection
process to the auctioneer. The auctioneer has also clarified the size of the first round of IPP
wind tenders (500 MW) deployable on five different location sites.

Moreover, according to the Ethiopian law, all land is owned by the State, which defines also
proper regulatory guidelines on how to acquire land and pay compensation. Under the
constitution of Ethiopia, Article 40(3) says: “the right to ownership of rural and urban land, as
well as of all natural resources, is exclusively vested in the State and in the peoples of Ethiopia.
Land is a common property of the Nations, Nationalities and Peoples of Ethiopia and shall not
be subject to sale or to other means of exchange”.

Further, a rural land holder whose land has been presently expropriated shall, in addition
to the compensation payable under the article of Proclamation number 455/2005, be paid
as displacement compensation which shall be equivalent to ten times the average annual
income secure during the five years preceding the expropriation of the land. As shown by
(Alemu, 2015), in some cases land expropriation in the Ethiopian country has encountered
resistance from farmers, because compensation payment is seen too unfair for sustaining
life after eviction. This has created and still creates various economic and social problems
especially within the farming communities (Alemu, 2015).

It may be useful to provide indicative numbers and direct experience on this matter specifically
for the two wind farms already implemented in Ethiopia. According to a research initiative
(SAIS China-Africa Research Initiative, 2016), the owner of the two wind farms (Ethiopian
Electric Power) paid a total of 39.1 million birr (USD 1.81 million) in compensation for the
land used to construct the Ashegoda Wind Farm (EPC contractor Vergnet), and a total of 17.5
million birr (USD 810,000) in compensation for the Adama Wind Farm Phase II (EPC contractor
HydroChina). Compensation was distributed and farmers were highly encouraged to use banks
to save their money. The project manager of the Ashegoda Wind Farm recalled that many
farmers were able to use the extra income to buy large farming equipment. Vergnet reported
that there was no problem with land acquisition. On the other hand, HydroChina reported that
the payment process was slow and the company had to pay out of its own pocket first so that
the project could move forward (SAIS China-Africa Research Initiative, 2016).

In the ongoing Ethiopian IPP solar tender developed in collaboration with Power Africa, the
successful bidder is designated as the responsible party for securing access to the facility
site and he is also required to conclude the facility site lease agreement. During the whole
process, the GoE will act as a facilitator concerning the different acquisition procedures and it
will also provide guarantee for land acquisition in the remote event that the successful bidder
has “diligently” attempted to procure such acquisition right for more than 120 days without
positive result. In this context, the term “diligent” refers to “pursue all reasonably available
procedures for obtaining such interest, including the offer of a rent or purchase price which a

70
 Wind Project Development Roadmap

person carrying out the successful bidder´s activities would reasonably expect to pay for such
an interest” (Power Africa, 2017).

Burden and regulatory framework

Framing the compensation process for land expropriation due to the establishment of wind
turbine facilities, it should be noted that in the majority of the cases the land allocated for
wind infrastructure may be still used for mostly of the agriculture and ranching purposes.
In relation to this matter, it is essential to highlight that the compensation process should
not be only limited to the expropriated landholders, but it should also be extended to all the
residents located within a certain distance from the wind turbines. In Denmark for example, all
the real estate owners within a distance equal to 6 times the wind turbine height are entitled
to compensation for potential loss of property value.

The choice of the GoE to develop a “site-specific” wind IPP auction should be seen as part of
an overall strategy to ensure local public acceptance and avoid public unrest, minimize costs
and risks for project developers and financiers and ensure a smooth and on-track project
implementation. Indeed, the land acquisition process is perceived as a significant risk in most
African countries. Hence, choosing in advance the project site would ensure that several critical
and onerous tasks of the pre-development project phase, such as securing land, electrical
connection access and assessment of the road & construction infrastructure will be handled
and coordinated by the GoE.

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 Wind Project Development Roadmap

Barriers and
Barriers and action
action options
options for development
for development

Fact Impact Appropriate Action Relevance for Ethiopia

Restricted Regulatory Wind atlas should be Low risk, since the ESMAP
developable requirements and key developed and used to programme and the on-site
areas constraints may identify potential wind measurement campaigns
narrow down the size development zones in line from the World Bank should
of a site that may be with the strategic lead to a priority list of
deployable. This may environmental and planning potential sites for wind
limit economies of framework development (Outcome 1.1 of
scale and prevent the AWPGE programme)
commercial viability of
specific projects
Limited height The deployable energy If regulatory constraints for Recommendation
allowance for yield for a specific site specific sites are not This issue need to be
selected site is constrained by specified or available, project investigated in more details
regulatory permits on sites should be analysed for
height limit. This limits different hub heights and
the choice of the hub rotors
height and rotor size
for turbines
Sites are Inadequate access If it is appropriate for the Low risk
inaccessible infrastructure in project economy, new It should be mitigated by
to combination with bad access and road Outcome 1.1 of the AWPGE
construction weather conditions infrastructures should be programme. The selection of
may generate delays implemented potential sites will be also
in the project based on the conditions of
implementation as the road infrastructure, which
well as increasing can be directly supported by
sensibly the project planned site visits
costs

Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 88
72
 Wind Project Development Roadmap

3. Grid Connection

The analysis of grid assessment conditions for a selected project site is crucial for ensuring the
technical and commercial viability of the proposed wind farm. The grid connection location
should not impose severe technical, economic, or practical problems due to the distance to
the wind farm, the connection voltage level, the proposed routing of the cables, etc.

Discussions with grid operators (mostly referred as transmission and distributor operators) and
examination of local electricity transmission and distribution systems are necessary to evaluate
whether an electrical connection to the proposed site is technically and commercially viable.
As a rule of thumb, the farther away the existing high voltage grid is, the more expensive the
connection grid will be. The figure below provides an order of size about the costs associated
with the grid connection both for onshore and offshore wind farms.

Figure 23: Comparison of capital cost breakdown for typical onshore and offshore wind power systems
(IRENA, 2016).

Project developers, grid and utility planners, and governments should also be aware of potential
impacts of other power generation developments that may be under consideration in the areas
designated for wind projects. Further, the capacity of the grid may be locally limited and in
extreme conditions wind power curtailments may occur. Hence, reinforcements and upgrades
of transmission and distribution networks should be carefully planned and envisioned on a
long-term energy dispatch strategy. For instance, recent experience in wind power auctions
showed that several winning projects relay on additional transmission reinforcements in order
to dispatch their generation. This strategy requires a detailed allocation of liabilities, which in
some cases have been assigned to project developers. In this way, project developers implicitly
become responsible for potential defaults or delays of a completely separate entity (the one in
charge of the transmission works). This may result in high-risk premiums on auctions and in
some cases discourage the wind farm development (IRENA & CEM, 2015).

If on the contrary, the liability relies on the transmission company, a proper risk-sharing strategy
should be implemented for protecting project developers and split carefully risks and penalties
between the transmission operator company and the power purchase buyer (off-taker). This

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Wind Project Development Roadmap

mechanism may be implemented identifying a physical connection point (POC) of the wind
farm within the transmission network. The POC represents then, the “watershed” of liabilities
and costs associated with the grid connection process between the project developer and
the transmission system operator. For instance, this beforehand “cost-sharing” approach is
implemented in Denmark for the realization of wind onshore projects above 1.5 MW and it is
described in the
associated following
with the grid section.
connection process between the project developer and the transmission
system operator. For instance, this beforehand “cost-sharing” approach is implemented in
Approval
Denmark process of windofpower
for the realization plantsprojects
wind onshore in Denmark
above 1.5 MW and it is described in the
following section.

Project developers
Approval thatofwish
process windtopower
build plants
wind power plants in Denmark are responsible for
in Denmark
connection costs from the wind turbines until the POC, which is specified by the transmission
Project developers that wish to build wind power plants in Denmark are responsible for connection
system operator (TSO) or the distribution system operator (DSO). Beyond this point, the TSO/
costs from the wind turbines until the POC, which is specified by the transmission system operator
DSO (TSO)
is the or
entity responsible
the distribution for potential
system costs Beyond
operator (DSO). and works of grid
this point, theexpansion/reinforcement
TSO/DSO is the entity
due to the windforfarm
responsible construction.
potential Figureof24
costs and works provides
grid a detailed graphical
expansion/reinforcement overview
due to the of the
wind farm
construction. Figure 24 provides a detailed graphical overview of the Danish
Danish grid connection process for large onshore wind farms, connected to the high voltage grid connection
process for large onshore wind farms, connected to the high voltage side (HV) of the power grid
side (HV) of the power grid managed by the Danish TSO (Energinet).
managed by the Danish TSO (Energinet)

TSO´s responsibility Project Developer´s

responsibility

Figure 24: Graphical

Figure representation
24: Graphical of liabilities
representation and
of liabilities andcosts
costsin
in the gridconnection
the grid connection process
process of wind
of wind farmsfarms
between
between wind project
wind developers
project and the
developers Danish
and TSO.
the Danish TSO.

In more detail, wind turbines that are installed, maintained and serviced in Denmark must be
Moreover,
certifiedwind turbines
according to thethat are installed,
requirements maintained
in the Danish and Scheme
Certification serviced in Denmark
(executive must
order no. 73 be
certified according
of January th to thewhich
25 2013), requirements
are grounded in the Danish Certification
on international Scheme
standards. Based (executive
on the order
certificated
no. 73wind turbines, a
of January wind2013),
25th powerwhich
plant can
are be designed on
grounded andinternational
approved by standards.
the relevant Based
authorities.
on the
Based on the executive order from the Danish government, the TSO (Energinet)
certificated wind turbines, a wind power plant can be designed and approved by the relevant and DSO’s is
obligated to bring the grid connection point in the proximity of the wind power plant site (DEA et al.,
authorities. Based on the executive order from the Danish government, the TSO (Energinet)
2017).
and DSO’s is obligated to bring the grid connection point in the proximity of the wind power
plant When a project
site (DEA et al.,developer
2017). is applying for a grid connection permit, the facility owner has to follow
the process depicted in Figure 25. The procedure for granting grid connection is the same whether
the new power generating facility is located in the transmission or in the distribution system. As
Whenstated
a project
earlier,developer is undertaker
the electricity applying for a grid connection
(TSO/DSO) is the authoritypermit, the facility
which decides whereowner has to
the point
followofthe processwill
connection depicted in Figure
be located inside 25.
the The procedure
existing grid. Thefor granting
facility ownergrid connection
is allowed is thethe
to operate same
facility only after that the grid operator will issue a final operational notification,
whether the new power generating facility is located in the transmission or in the distribution which is based on a
compliance test document approved by the grid operator.
system. As stated earlier, the electricity undertaker (TSO/DSO) is the authority which decides

74 Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 65
 Wind Project Development Roadmap

where the point of connection will be located inside the existing grid. The facility owner is
allowed to operate the facility only after that the grid operator will issue a final operational
notification, which is based on a compliance test document approved by the grid operator.

Figure 25: Grid connection granting procedure applied in Denmark (DEA et al., 2017).
Figure 25: Grid connection granting procedure applied in Denmark (DEA et al., 2017).

EveryEvery
third third
yearyear
a regular review
a regular and
review inspection
and inspectionof ofthe
the actual compliance
actual compliance status
status areare performed.
performed.
SuchSuch an inspection
an inspection couldresult
could result in
in an
an interim
interim operational
operational notification and aand
notification newacompliance test
new compliance
shall be performed after a maintenance or repair (DEA et al., 2017).
test shall be performed after a maintenance or repair (DEA et al., 2017). Additionally, project
developers and decision makers may underestimate the potential complexities in gaining
authorization of connection to the local electrical network. These requests of access can be
Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 66

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 Wind Project Development Roadmap

protracted for a long time and they may be technically complex to be handled simultaneously
by grid operators, especially in countries newly exposed to low carbon transition programs
Additionally, project developers and decision makers may underestimate the potential complexities
and with high green incentives and/or subsidies.
in gaining authorization of connection to the local electrical network. These requests of access can
be protracted for a long time and they may be technically complex to be handled simultaneously by
In 2011
grid for example,
operators, Turkey
especially adoptednewly
in countries an innovative
exposed procedure
to low carbon in order to face
transition three-year
programs anddelays
with
in wind
high greenand solar applications
incentives due to connection
and/or subsidies. In 2011 for permits.
example,In this new mechanism,
Turkey the Turkish
adopted an innovative
regulator in
procedure EMRAorderprovides
to face licenses
three-yearonly to projects
delays in windwhich not require
and solar additional
applications due grid expansion
to connection
permits. In this newIfmechanism,
or reinforcement. supplementary the Turkish regulator
grid works need toEMRA provides licenses
be performed, only to projects
the transmission system
which not require additional grid expansion or reinforcement. If supplementary
operator initiates an auction to determine the allocation of connection rights for a specific grid works need to
besubstation.
performed,Eachthe transmission
bidder specifiessystem operator
a fee per MW initiates an auction
of installed to determine
capacity (referredthe as allocation of
“contribution
connection rights
margin”) that hefor
is awilling
specificto substation. Each bidder
pay if the license specifies
is obtained a fee per
(IRENA MW 2015).
& CEM, of installed capacity
(referred as “contribution margin”) that he is willing to pay if the license is obtained (IRENA & CEM,
2015).

Grid connection – The case of Brazil

Grid connection – The case of Brazil
The
Thefirst
firstexclusive
exclusivewind
windenergy
energy auction
auction in Brazil was
in Brazil wasrealized
realizedinin2009,
2009, where
where 2 GW
2 GW werewere
contracted.
contracted. AsAs
of of
April 2017,
April there
2017, were
there 1414
were auctions
auctions with
witha participation
a participationof wind energy
of wind andand
energy the
installed wind energy capacity reached approximately 11 GW.
the installed wind energy capacity reached approximately 11 GW.
Figure 26 provides a snapshot of the wind projects contracted during the first three Brazilian
Figure 26 provides a snapshot of the wind projects contracted during the first three Brazilian
wind auctions (2009-2010-2011). One of the aspects that stand out is the percentage of
wind auctions (2009-2010-2011). One of the aspects that stands out is the percentage
delayed projects
of delayed in thein2010-2011
projects auctions,
the 2010-2011 respectively
auctions, 80%80%
respectively and and
92%92%of the overall
of the awarded
overall
projects.
awarded projects. Delays were not caused by project developers, but they were related toin
Delays were not caused by project developers, but they were related to problems
obtaining
problems environmental licences and due
in obtaining environmental to grid
licences andexpansion.
due to gridInexpansion.
details, 30-35% of delayed
In details, 30-35%
projects were projects
of delayed due to grid
wereconnection delays.
due to grid connection delays.

Figure
Figure 26:
26: Overview of wind
Overview of windproject
projectdelays
delaysininBrazil.
[Link]
Datarefers
referstotoSeptember
September 2014
2014 (IRENA
(IRENA & CEM,
& CEM, 2015).
2015).

76 Project Development Roadmap – Procedures, lessons learned and risk assessment

Wind 67
 Wind Project Development Roadmap

Old scheme:

• After auction winners were announced, usually 3 years before the contractual
delivery date, transmission was planned, auctioned and built (co-planning of
transmission and generation)

• Shorting the time horizon of contractual delivery time to ca. 2 years, critical
environmental constraints for transmission facilities & underbidding in
transmission auctions led to unforeseen and prolonged delays

• In the auctions, the risk of such constraints to the provision of generation was
allocated almost entirely to energy buyers due to deemed generation clauses in
PPA contracts

Solution (new scheme):

• The Brazilian Energy Planning Agency tenders transmission facilities before

auctioning new generation (based on technical info and availability of wind
resources)

• Removal of deemed generation clauses due to transmission delays (risks

allocation to sellers)

• Sellers have comparatively more certainty about the reinforcements to the

transmission networks will be online at the time of the contractual date of delivery
Source: (IRENA & CEM, 2015)

3.1 Ethiopia
The choice of a site-specific wind IPP auction should implicitly ensure that the required
transmission infrastructure will be in place and the project will be optimally located to best
match demand with power generation capacity. Indeed, this aspect is one of the most crucial
elements for a successful implementation of any renewable energy auctioning programmes.
Figure 27 clarifies the complexity and the cross-disciplinary elements that need to be considered
to strategically allocate wind projects, transmission investments and extensions.

Despite the largest Ethiopian wind resources are located in the south and south-east regions of
the country; these areas, earlier mentioned, are barely populated and served by transmission
lines. Therefore, wind projects in these specific areas may be firstly complex to implement due
to the missing transmission infrastructure needed. Secondly, they may be cost-prohibitive to
implement and finally, it may not be optimally placed to serve load centres and aggregation
points. Recent experience showed that the latter phenomenon may lead to congestion
problems on transmission lines, which in turn may origin wind curtailments. According to the
China’s National Energy Administration (NEA) for instance, China in 2016 curtailed 49.7 TWh of
wind electricity, wasting 20% of the entire annual wind power generated.

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 Wind Project Development Roadmap

Hence, it is paramount that future power plants investments (including wind power plants) and
extensions on the transmission infrastructure should be strategically placed in proximity of load
and dispatch centres. The outcomes of the Ethiopian Power System Expansion Master Plan
Study (EEPC) highlight the results exposed beforehand.

Figure 27:
Figure 27:Top
Topleft:
left:ESMAP
ESMAPmesoscale
mesoscalewind
windresource map
resource map ofof
Ethiopia. Top
Ethiopia. Topright:
right:Ethiopian
Ethiopianpopulation density
population density
map. Bottom: Ethiopian power system expansion master plan study. Sources: ESMAP, AfriPop and
map. Bottom: Ethiopian power system expansion master plan study. Sources: ESMAP, AfriPop and EEPC. EEPC.

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Burden and regulatory framework

It is necessary that the Ethiopian auctioneer during the first IPP wind auction and throughout
the broader renewable auctioning programme will effectively coordinate with the Ethiopian
transmission system operator (TSO) EEP, in order to identify adequate transmission planning
and investment programmes to support tender procedures.

In line with this planning strategy, two critical auction criteria need to be properly clarified:

• Location constraints for wind IPP auctions

• Distribution of grid connection works and costs among project developers and TSO

The latest trend of renewable energy auctions in the African Continent (Egypt, Morocco,
Zambia, Uganda and South Africa Round 5) seems to encourage geographical constraints
and/or specific site-locations for IPP renewable tenders. Limited grid power capacity, long-
term dispatch strategies and optimization of transmission investments are the main reasons
that lead auctioneers to choose project sites beforehand. Probably, the South African REIPPP
programme represents one of the most valuable lesson learned on the decisive role of the grid
connection process on the auctions outcomes.

The REIPPP auction programme started in 2011 envisaging project developers as responsible
of the selection of project sites. Unfortunately, a lack of effective coordination between Eskom
(the South African TSO) and the DOE (Department of Energy) on Eskom´s transmission
planning caused unexpected delays on financial close of some projects and additional
transmission costs for the TSO, which have been followed by repeated increases in consumer
power prices. During the years, the grid connection procedure became the key-risk for the
continuity of the South African programme. This endless and critical threat led the government
to change the auctioning criteria concerning site location for the new bidding window (round
5, which has not be set already), limiting project sites to specific zones where transmission
capacity is already in place, or will be strategically upgraded to follow the “focused” expansion
of South Africa’s grid (Eberhard & Naude, 2016).

The other auction criterion which may have a large influence on the grid connection process
is the allocation of liabilities and costs for the connection of the wind farms to the national
grid. It is common practice in auctioning procedures to split costs and works between
project developers and transmission grid operators. In details, project developers are usually
accountable for the internal grid interconnection facilities of the wind farm, while TSOs are
responsible for ensuring that adequate transmission infrastructure is in place before projects
reach commercial operation date. This implementation strategy implicitly places a heavy
burden on auctioneers and transmission operators, since both parties are required to provide
beforehand tenders, detailed documentation and studies on grid stability, feasibility studies,
grid interconnection information as well transmission planning.

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Wind Project Development Roadmap

Indeed, the effectiveness of this cost-allocation strategy and the ability to reduce risks and
burden for project developers are highly enhanced in conjunction with the choice of site-
specific auctions. Let´s refer to the REIPPP programme again. Since bidders were free to choose
projects location (until bid round 4), Eskom had cumulatively processed 1,120 application
letters of grid access (CELs) from project developers by the end of round 4a. Ultimately, only
83 preferred bidder sites were supported, which leads to a bare success rate of 7.4%. This
high working load and low success rate associated with these CELs placed a huge strain
on Eskom’s resources, which at the end of 2013 led Eskom to introduce a Cost Estimate Fee
(CEF) to process and issue a CEL (Smit, 2015).

It is also advisable for a reliable grid connection procedure to ensure that bidders will select
wind turbine generators (WTGs) and equipment compliant with strict grid code requirements.
Currently, the Ethiopian Energy Authority (EEA) is developing new transmission and distribution
grid codes. The first draft of these documents is already available online. Moreover, on this
matter, the Danish TSO, Energinet, will be responsible to coordinate with the GoE the capacity
building program related to an effective wind power integration strategy, which is part of
the Government-to-Government cooperation programme between Denmark and Ethiopia
(Outcome 2.2 of the AWPGE programme). This wind power integration strategy includes
a detailed review of connection codes, a least-cost wind deployment plan and an optimal
dispatch strategy for power systems with a significant share of wind and renewables.

The general grid connection codes structure includes requirements to be fulfilled for the
following technical areas (DEA et al., 2017):

• Stability impact and requirements related to facility size

• Requirements on facility robustness
• Requirements on power quality
• Requirements on controllability
• Requirements on information exchange & security
• Requirements on documentation & verification

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Barriers and action options for development

Barriers and action options for development

Fact Impact Appropriate Action Relevance for Ethiopia

Underestimating Long distance At an early stage, developers Through a careful site
the procedure for between potential and governments should selection strategy, the risk
grid connection site and grid access engage with grid operators to can be minimized.
point can be a cost- clarify grid access, studies Outcome 2.2 of the
prohibitive aspect for needed and indicative AWPGE programme
projects connection costs should further mitigate
this risk for future
prioritizing sites
Ambiguous and Transmission and/or Governments should develop Through a careful site
weak procedure distribution grid clear and agile policies to selection strategy, the risk
for grid connection operators may not allow grid access to can be minimized.
wish or be able to Independent Power Producers Moreover, EEA is currently
connect all the and regulate the process developing new
potential wind farm application transmission and
projects. Long feeder distribution codes.
lines may be difficult Outcome 2.2 of the
and expensive to AWPGE programme
acquire and permit should also further
mitigate the risk
Delays in grid Connection fee may Connection rates should Low risk for the first
connections be inappropriate. reflect real costs. auctions, potentially
Point of connection Split connection costs from medium-highrisk to fulfil
may be disputed grid reinforcement costs and the ambitious GTP II
among project assign liabilities among deliverables. The results
developers and stakeholders of Outcome 2.2 of the
transmission AWPGE programme may
operators provide long-term
guidance and strategy
Bottlenecks and The capacity of the Reinforcements and upgrades Medium-high risk due to
congestion in the grid may be locally of transmission and the poorness of the grid
power capacity limited and in distribution networks should capacity. Outcome 2.2 of
system extreme conditions be carefully planned and the AWPGE programme
wind power envisioned on a long-term will provide guidance and
curtailments may energy dispatch strategy. strategy for robust
occur Furthermore, in case of dispatch strategies and
curtailments, a compensation capacity building on grid
scheme to the developer may planning
be established

Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 101
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4. Planning and Environmental Approvals

After the identification of a potential site by means of verified technical analyses and agreements
with landowners, wind farm project developers need to properly determine potential planning
and environmental issues on the selected site of interest. Initial assessments are usually carried
out consulting available data, environmental mappings, engaging as well with national and
local planning authorities. The main scope of the consultation process with state authorities
is to determine the “planning” suitability of the selected site. Furthermore, project developers
should identify main drivers and factors of the assessment analyses required to progress a
planning application for the establishment of wind farms.

In frontier renewable energy markets, the planning process for wind project developers can
be extremely time consuming and difficult to navigate in. For this reason, the establishment
of a nodal government agency (often referred as “one-stop-shop”) can sensibly simplify and
reduce lead times required for processing planning procedures. The main role of the one-stop-
shop agency is to grant and procure all the permits needed for the development of renewable
energy projects (wind farms included).

Generally, project developers of wind farms are required to carry out or comply with a full
Environmental Impact Assessment (EIA), which is subject to specific environmental and/or
planning laws of a country. The assessment identifies all the relevant environmental, social and
economic effects associated with the wind project proposal. Hence, the study will encompass
detailed analyses on the proposed wind project design (including number and position of
wind turbines) as well as extensive information on the life cycle of the proposed wind farm
(from construction and operation through decommissioning).

Typically, the following issues are investigated and cleared out in an EIA study:

Landscape and visual assessment

The existing site landscape has to be described and the visual impact of the proposed wind
farm needs to be evaluated and clearly described. Typically, large and uniform landscapes
are more suitable for large wind turbines, since such landscapes can match better the large
dimensions of the turbines.

Noise assessment

A noise analysis is fundamental to demonstrate that turbines will comply with the relevant noise
guidelines of the location of the proposed wind farm. In Denmark for example, wind turbines
must respect noise limits in accordance with the Statutory Order. In open country, the noise
level must not exceed 44 dB (A) at any dwelling at 8 m/s wind velocity and 42 dB (A) at 6 m/s.
These noise limits are to be kept outdoors at a maximum distance of 15m from the dwelling.

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In housing areas and noise sensitive recreational areas such as e.g. camping sites or summer
cottages – more restrictive levels are required of 39 and 37 dB (A) at 8 and 6 m/s respectively.
In 2012, an additional limit for the low frequency noise indoors was added to the legislation,
equal to 20 dB both at 6 and 8 m/s. It is the developer’s responsibility to demonstrate these
limits are met before that the wind turbines can be installed, and after they are established the
owner covers also the cost to undertake supplementary noise measurements and calculations,
if demanded by the authorities (Danish Energy Agency, 2015).

Shadow flicker

The number and predicted duration of shadow flicker effects from wind turbines have to be
addressed for all the nearby buildings. Planning guidelines should regulate the phenomenon
appropriately as well as to indicate the permitted location of wind turbines in respect to the
nearest neighbours. This restriction is usually described as a minimum distance of wind
turbines from surrounding neighbours, but also from roads. These values are provided as
multiple numbers of the wind turbine height. In Denmark, the location of new wind turbines
must respect a distance from the nearest neighbours of minimum 4 times the total height of
the wind turbine. Furthermore, no more than 10 hours with shadow effects can occur on a
yearly basis towards neighbours (Danish Energy Agency, 2015).

Flora and fauna

The wind farm impact on the ecosystem of the selected site needs to be assessed. This may
be extended to potential alterations of vegetation and fauna habits due to the construction of
the wind farm. Particular attention should be also placed on the potential impact to any bird or
bat species that may use the site. These impacts include the risk of collision with wind turbines
and if the construction of a wind farm may affect the way species use the site. If a bird study is
needed, this should be implemented both in spring and autumn in order to properly account
migrating species as well.

Hydrological assessment

Based on the particular location of the wind farm, the EIA may cover an assessment of the wind
farm impact on surface and underground water systems. The analysis may also be protracted
to potential impacts of erosion, sedimentation and contamination of the nearest watercourses
during the wind farm construction phase (Clean Energy Council).

Heritage assessment

For some sites with high historical or aboriginal importance, the EIA should cover an
assessment of the heritage values present at the selected wind farm location and include
specific consultations with local communities.

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Socio-economic assessment

This specific assessment addresses the effects of the wind farm in the local community. It
encompasses potential impacts on health and infrastructure services up to the ones on the
local and regional economy.

Transport and road infrastructure assessment

The study includes potential impacts on the traffic and road infrastructure to accomplish the
development of the wind farm. Movements of heavy and bulky vehicles might require special
road reinforcements and modifications, which need to be carefully considered.

Electromagnetic interference and aircraft safety

The analysis covers the influence of the wind farm on communication devices and radar
instruments (electromagnetic impact). Moreover, an assessment of aircraft safety should be
provided, which usually includes consultation with military and civil aviation authorities.

Hazard and fatal flaw management

The EIA clears out also the potential hazards and incidents that may occur during the
development and construction of the wind farm. The analysis should include an emergency
response plan, carefully settled after consultation with local and regional emergency institutions.
Project developers should notice that before obtaining a wind farm concession agreement and
so construction works can start, all necessary consents and authorizations must be granted.

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Figure 28: Environmental and social risks for financial institutions (EIB & Frankfurt School of Finance &
Management, 2017).

4.1 Ethiopia
The choice of implementing site-specific wind IPP auctions sets up the leadership role of the
auctioneer for granting and processing permits, licenses, planning procedures for the sites
of the first IPP wind projects. Recent IPP auctions on specific site locations confirm this trend
(Zambia, Egypt, Morocco, and Denmark offshore among others). Furthermore, releasing
project developers from the acquisition of planning approvals and environmental permits
is extremely relevant for ensuring a rapid implementation of projects, avoiding delays and
potential social and environmental challenges.
Due to the nature of wind energy facilities, the proposed wind farm may be particularly
associated with cumulative socio-environmental impacts for the various project stages
(preconstruction, construction, operation and decommissioning). When an EIA includes also
social elements, then it is usually referred as environmental and social impact assessment
(ESIA). The section below summarizes the Ethiopian and international environmental and
social regulations applicable to wind energy facilities.

The Environmental Policy of Ethiopia (EPE, 1997)

This policy, issued in 1997, provides a number of guiding principles that indicate and require
a strong adherence to sustainable development. The overall environmental policy goal is
determined to improve and enhance the health and quality of life, to promote sustainable,

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social and economic development through the sound management and use of natural,
human-made and cultural resources and the environment as a whole to meet the needs of
the present generation without compromising the ability of future generations to do so.

The Environmental Policy of Ethiopia provides a number of guiding principles that require
adherence to principles of sustainable development. In particular the need to ensure that an
environmental impact assessment (Abdi, 2012):

• Considers impacts on human and natural environments

• Provides for early consideration of environmental impacts in projects and programs design

• Recognizes public consultation

• Includes mitigation and contingency plans

• Provides for auditing and monitoring

• Is a legally binding requirement

For the effective implementation of the Environmental Policy of Ethiopia, the policy encourages
the creation of an organizational and institutional framework from federal to community levels.

Environmental Impact Assessment Proclamation (299/2002)

EIA proclamation of Ethiopia ([Link].299/2002) has made the environmental and social
assessment a mandatory legal prerequisite for the implementation of major development
projects, programs and plans. It is a proactive tool and a backbone for harmonizing and
integrating environmental, economic, cultural, and social considerations into a decision-
making process, in a manner that promotes sustainable development. The proclamation
requires the proponent of the project (whether it is public or private) must prepare an ESIA
following the requirements specified in the legislation (article 8) and associated guidelines
(Gubena, 2016).

The Ministry of Environment, Forest and Climate Change (MoEFCC) or the sector Ministries
delegated by it and relevant Regional Environmental Agencies will then review the ESIA and
either approve the project (with or without conditions) or reject it. Proclamation 295/2002 requires
regional states to establish or designate their own regional environmental agencies. The
regional environmental agencies are responsible for coordination, formulation, implementation,
review and revision of regional conservation strategies as well as environmental monitoring,
protection and regulation (Article 15). Relating to ESIA specifically, Proclamation 299/2002
gives regional environmental agencies the responsibility to evaluate ESIA reports of projects
that are licensed, executed or supervised by regional states and that are not likely to generate
inter-regional impacts. Regional environmental agencies are also responsible for monitoring,
auditing and regulating the implementation of such projects. The institutional standing of

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regional environmental agencies varies among regions. In some regions, they are established
as separate institutions, while in others they are within Regional Sector Bureaus (e.g., Bureau
of Land Use Administration).

To put this Proclamation into effect the Ministry of Environment, Forest and Climate Change
has issued an ESIA Directive (Directive no.1/2008) and other draft procedural guideline
documents, which provide details of the ESIA process and its requirements (The Federal
Democratic Republic of Ethiopia, Ministry of Agriculture and Natural Resource, 2016).

Environmental Pollution Control (Proclamation No. 300/2002)

Complementary to the Environmental Policy of Ethiopia and the EIA Proclamation, the
Pollution Control Proclamation requires ongoing activities to implement measures that would
reduce their degree of pollution to a set limit or quality standard. Thus, one of the dictates of
the legislation is to ensure, through inspection, the compliance of ongoing activities with the
standards and regulations of the country through an environmental audit.

Process and procedures for Environmental Impact Assessments in Ethiopia

These steps are stipulated in the EIA Procedural Guideline (2003), which largely follows the
standards for environmental management procedures and processes under the World Bank
operation Guideline.

Screening

The screening process enables the Competent Authority to decide on:

• The need for and level of assessment required

• The level of government responsible for the project (Federal or Regional)
• Other necessary permits or approval processes required (e.g. rezoning, etc.),
• Merit-based acceptability of the consultant to assist the proponent
• The public participation process
• The total life-cycle of the project

Therefore, a proponent is required to submit a screening report to the Competent Authority,

based on which the different decisions will be made on whether an EIA is required and the
type of EIA that will be required (full or partial/preliminary) (Sileshi Consultants PLC, 2012).

Scoping

The EIA Procedural Guideline (2003) outlines that during the scoping process a proponent
should prepare a detailed plan of study for the scoping exercise. This plan of study is important

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for ensuring whereas public consultation is required and for the identification of all the relevant
parties including other government departments. The plan of study for EIA should contain the
following topics (Sileshi Consultants PLC, 2012):

• A description of the environmental issues identified during scoping that may require further
investigation and assessment
• A description of the feasible alternatives identified during scoping that may be further
investigated
• An indication of additional information required to determine the potential impacts of the
proposed activity on the environment
• A description of the proposed method of identifying these impacts
• A description of the proposed method of assessing the significance of these impacts

Mitigation and Impact Management

The EIA proclamation explicitly states that an environmental impact study report shall contain,
as a minimum, a description of mitigation measures proposed to eliminate, minimize, or mitigate
negative impacts. In practice, the process of impact identification begins during screening
and continues through the scoping phase, where key issues are identified and classified into
impact categories for further study. However, in the mitigation phase, the likely impacts are
analysed in greater detail in accordance with the terms of reference (ToR) developed by the
proponent and approved by the Competent Authority. (Abdi, 2012).

Monitoring and Reporting

The EIA Proclamation states that:

• The Authority or the relevant regional environmental agency shall monitor the
implementation of an authorized project in order to evaluate compliance with all
commitments and obligations imposed on the proponent during authorization
• When the proponent fails to implement the authorized project in compliance with the
commitments entered into or obligations imposed upon him/her, the Authority or the
relevant regional environmental agency may order him/her to undertake specified
rectification measure
• Any other authorizing or licensing agency shall, in tandem with the Authority’s or the
relevant regional environmental agency’s decision to suspend or cancel any authorization
to implement a project, suspend or cancel the license it may have issued in favour of the
project

Public Consultation and Disclosure

The EIA proclamation stipulates that the Competent Authority or the relevant regional
environmental agency shall:

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• Make any environmental impact study report accessible to the public and solicit comments
on it
• Ensure that the comments made by the public and in particular by the communities likely
to be affected by the implementation of a project are incorporated into the environmental
impact study report as well as in its evaluation

Figure 29: EIA flowchart and process (The World Bank, 2017).

IFC Performance Standards on Environmental and Social Sustainability

IFC’s Performance Standards on Environmental and Social Sustainability have become

globally recognized as a benchmark for environmental and social risk management in the
private sector. These standards are generally considered as “gold” standards for infrastructure
projects. The Performance Standards are directed towards providing guidance on how to
identify risks and impacts and are designed to help to avoid, mitigate and, manage risks and
impacts as a way of doing business in a sustainable way, including stakeholder engagement
and disclosure obligations of the client in relation to project-level activities. In the case of direct
investments for the IFC (including project and corporate finance provided through financial
intermediaries), the IFC requires that its clients apply the Performance Standards to manage
environmental and social risks and impacts so that development opportunities are enhanced.
In addition, investors and lenders start to require compliance with these standards even in
the absence of IFC (World Bank Group) funding (Meyer et. al., 2015). These standards can be

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divided into 8 different areas:

1. Assessment and management of environmental and social risks and impacts

2. Labour and working conditions
3. Resource efficiency and pollution prevention
4. Community health, safety and security
5. Land acquisition and involuntary resettlement
6. Biodiversity conservation and sustainable management of living natural resources
7. Indigenous people
8. Cultural heritage

Figure 30: IFC performance standards on environmental and social sustainability (IFC, World Bank Group,
2012).

As recently shown in the IPP solar auctions in Uganda (GET FiT) and Zambia (Scaling Solar
Programme), due to a lack of comprehensive national environmental standards and regulatory
framework in these countries, bidders were required to comply directly with International
Financial Corporation’s (IFC) Environmental and Social Performance Standards. For the short
term, this solution could be also adopted in Ethiopia.

IFC Environmental, Health, and Safety Guidelines

The IFC Environmental, Health, and Safety (EHS) Guidelines are technical reference

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documents with general and industry-specific examples of “Good International Industry

Practice” (GIIP). The EHS Guidelines contain the performance levels and measures that are
generally considered to be achievable in new facilities by existing technology at reasonable
costs. When one or more members of the World Bank Group are involved in a project, these
EHS Guidelines are applied as required by their respective policies and standards. In addition,
when host country regulations (i.e. Ethiopia) differ from the levels and measures presented in
the EHS Guidelines, projects will be required to achieve whichever is more stringent. General
EHS Guidelines contain information on cross-cutting environmental, health, and safety issues
potentially applicable to all industry sectors. They can be accessed at the following website
([Link]/ehsguidelines) and a brief summary is provided in the table below:

1. Environmental 2. Occupational Health and Safety

1.1 Air Emissions and Ambient Air Quality 2.1 General Facility Design and Operation
1.2 Energy Conservation 2.2 Communication and Training
1.3 Wastewater and Ambient Water Quality 2.3 Physical Hazards
1.4 Water Conservation 2.4 Chemical Hazards
1.5 Hazardous Materials Management 2.5 Biological Hazards
1.6 Waste Management 2.6 Radiological Hazards
1.7 Noise 2.7 Personal Protective Equipment (PPE)
1.8 Contaminated Land 2.8 Special Hazard Environments
2.9 Monitoring

3. Community Health and Safety 4. Construction and Decommissioning

3.1 Water Quality and Availability 4.1 Environment

3.2 Structural Safety of Project Infrastructure 4.2 Occupational Health and Safety
3.3 Life and Fire Safety 4.3 Community Health and Safety
3.4 Traffic Safety
3.5 Transport of Hazardous Materials
3.6 Disease Prevention
3.7 Emergency Preparedness and Response

Table 4: Overview of the IFC Environmental, Health, and Safety Guidelines.

The “IFC General EHS Guidelines” are designed to be used together with the “IFC Industry EHS
Guidelines”, which provide guidance to users on EHS issues in specific industry sectors such as
the wind industry. The “IFC EHS Guidelines for Wind Energy” should be applied to wind energy
facilities from the earliest feasibility assessments, as well as from the time of the environmental
impact assessment, and continue to be applied throughout the construction operational and
decommissioning phases. It should be noted that EHS issues associated with the construction
and operation of transmission lines (often associated with the construction of wind energy
facilities) are addressed separately in the “IFC EHS Guidelines for Electric Transmission and
Distribution”. A summary of the IFC EHS Guidelines for Wind Energy is presented in Table 5.

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1. Environment 2. Occupational Health and Safety

1.1 Landscape, Seascape, and Visual impacts 2.1 Working at Height

1.2 Noise 2.2 Working over Water
[Link] 2.3 Working in Remote Locations
1.4 Shadow Flicker 2.4 Lifting Operations
1.5 Water Quality

3. Community Health and Safety 4. Construction and Decommissioning

3.1 Blade and Ice Throw 4.1 Environment

3.2 Aviation 4.2 Occupational Health and Safety
3.3 Marine Navigation and Safety 4.3 Community Health and Safety
3.4 Electromagnetic Interference and Radiation
3.5 Public Access
3.6 Abnormal Load Transportation

Table 5: Overview of the IFC EHS Guidelines for Wind Energy.

Burden and regulatory framework

For the first round of IPP wind auctions in Ethiopia, a proper implementing strategy should
be considered for assigning obligations for approvals and permits as well as for establishing
an agile regulatory environment to process and permitting licenses. As previously cited, this
approach may be strictly correlated with the choice of implementing site-specific wind IPP
auctions and with the decision to establish a dedicated governmentunitin charge for granting
and licensing the permitting approvals required in wind tenders.

As a basis of comparison, it may be useful to provide specific references on the collateral

effects of proceedings and management of permitting approvals in site-agnostic auctions,
mentioning again the REIPPP programme of South Africa. In details, IPP bidders are in charge
for obtaining all the planning approvals and environmental permits before the bidding process.
Figure 31 illustrates the complexity and the extent of cooperation required from all the South
African authorities who had to license IPPs with necessary consents and approvals. Among
others, the Department of Energy (DoE) had to coordinate closely with the Department of
Environmental Affairs (DEA), Department of Water Affairs (DWA), the Department of Agriculture,
Forestry and Fisheries (DAFF), and provincial and municipal departments (Eberhard & Naude,
2016). In addition, by the end of 2013 more than 1,500 environmental authorization applications
had been processed to the DEA in respect of REIPPP projects (Mulcahy, 2014).

The severe burden and the high costs faced by the different governmental departments of
South Africa have been sustained by different auctioning fee schemes. In details, bidders

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are required to pay a registration fee to obtain the IPP auction documentation (Request for
Proposal) and preferred bidders must also pay a pre-development project fee equal to 1%
of their total project costs. From the IPPs’ perspective, the environmental authorization of the
REIPPP programme (which is part of the pre-qualification criteria) represent one of the largest
costs in the bidding process (USD 150,000-450,000) and has the longest lead-time of all the
permissions required. In some project cases, for instance, more than 20 different permissions
were required, taking up to 24 months (Mulcahy, 2014), (Kruger & Eberhard, 2016).

Specifically for Ethiopia, the Environmental Impact Assessment Proclamation provides a

strong regulative framework for an effective implementation of the EIA system in the country.
Furthermore, the recent integration of the Federal Environmental Protection Authority (FEPA)
into the Ministry of Environment, Forest and Climate Change can be seen as a positive move to
strengthen its capacity and legal means to enforce the law. For the implementation of the first
wind energy tenders, it is advisable that the Ethiopian auctioneer will provide potential bidders
necessary permits and an ESIA beforehand bid submission. As previously specified, national
legislation and standards can be supplemented with the adoption of IFC`s Performance
Standards and EHS guidelines. They may be used as a comprehensive and exhaustive
framework for implementing the ESIA, on which bidders will be required to comply with.

Excluding hydro power projects, in fact, specific assessment documentation is lacking for
other renewable energy technologies, including wind energy facilities. It is advisable that the
GoE will start to process detailed guidelines for project planning and environmental impact
assessment, identifying the potential effects that wind farms (and other RE plants) may have
on the environment and relative mitigation practices that may be applicable. The guidelines
should provide a detailed analysis of the legal framework, centres of expertise and applicable
roles in the Ethiopian RE sector. These procedures should be envisaged as a powerful tool
both for facilitating competent authorities in implementing and monitoring the ESIA process
and for clarifying the relevant legislation and components of the authorisation process for
applicants.

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*Only in this specific figure, the abbreviation DEA

stands for Department of Environmental Affairs.

Figure 31: Representation of the coordination among South African departments for the REIPPP programme
(Eberhard & Naude, 2016).

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Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 85

Wind Project Development Roadmap Danish Energylessons

– Procedures, Agency, Tel: +45
learned 3392
and risk6700, website: [Link]/en 85
assessment 95
Wind Project Development Roadmap

ESIA – The case of Gulf of Suez in Egypt

Before tendering wind projects in the Gulf of Suez area, the Government of Egypt
procured an ESIA study covering a total area of 200 km2 to evaluate the potential
impact of wind turbines could have on migrating birds. The full study on birds led to the
identification of different areas classified as green yellow and red in according to the
potential hazard represented by potential wind turbines on migrating birds. In addition,
the ESIA study provided detailed guidelines on appropriate operational strategies for
wind turbines to attenuate their impact on birds.

Figure 33: Recommendations from the ESIA study (World Bank Group, 2012).

Several mitigation strategies were proposed including:

• WTs shutdown for 10 weeks during spring migration (10% energy loss)
• WTs shutdown on demand in times of high migratory activity (1-2% energy loss)
• Bird corridor, 1 km wide (0% energy loss, but loss of 15-20% of valuable windy land
and the shutdown of WTs in the yellow zone was needed anyway)

Solutions adopted by the Government of Egypt for tendering wind projects in the Gulf of
Suez:

• WTs shutdown on demand – best strategy in terms of cost-efficiency (2% energy loss)
• For avoiding potential conflicts of interest, the Egyptian Environmental Authority
was appointed to administer the WT shutdown scheme together with a team of
ornithologists
• The off-taker of the PPA (Egyptian Electricity Transmission) will compensate bidders
for deemed electricity generation during WT shutdown events
• Imposing a maximum tip height of 120 m for the procured wind turbines

Source: (World Bank Group, 2012)

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 Wind Project Development Roadmap

Auction feature Responsible Stakeholder

Auction feature Auctioneer (Government) Project Developer
Procuring approvals
and environmental  Require a one-stop-shop or a  Require that a robust regulatory
permits central government agency framework is already in place
model for simplifying and
coordinating planning  The high processing burden
procedures faced by the different
government departments may
 Minimization of risks due to be compensated by different
land securitization and fees applied to bidders
competition in the land usage
 High costs and burden both for
 Ensure that several steps and project developers and
risks of the pre-development auctioneers
phase are implicitly evaluated
and attenuated  Project developers may lack
competence in preparing local
 High processing costs faced planning applications
by the auctioneer may be
passed to winning bidders  The involvement of multiple
government parties can make
 Disputes and social conflicts licensing process overly
may rise due to land complex and lengthy
expropriation and/or
inadequate compensation  Institutions may lack the
schemes capacity to manage
applications

 Disputes and social conflicts

may rise due to land
expropriation and/or inadequate
compensation schemes

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 Wind Project Development Roadmap

Barriers and action options for development

Barriers and action options for development

Fact Impact Appropriate Action Relevance for Ethiopia

Undefined or Poor guidance To facilitate planning and Medium-high risk
unclear guidance documentation may approval procedures, More accurate
documentation cause unforeseen governments should prepare documentation and
delays in project detailed guidelines for project legislative guidance have to
implementation or in planning and environmental be specified and developed
extreme cases may impact studies on wind farms from the GoE.
lead project and other renewable energy An effective enforcement of
developer to abort technologies EIAs should rely on good
projects monitoring systems,
effective mechanisms for
accountability, significant
capacity building and
awareness. On the short
term, the auctioneer can be
responsible for providing
ESIAs to potential bidders
before bid submission,
requiring bidders to comply
with the relevant national
legislation, complemented
by IFC`s Performance
Standards and EHS
guidelines
Underestimating The time required to Private and public entities Medium risk
planning obtain planning should be established to Due to the complexity of the
approvals time approvals can be provide consultancy to project multi-disciplinary process
quite long. This may developers to navigate in the delays may incur in
lead to serious delays regulatory environment and respecting the tender time
and on projects permitting process of wind frame. A crucial role should
timetable and/or on power development be played by the Ethiopian
timing of tenders competent authority that
will be appointed for
granting all the licenses and
permits needed
Adverse public The opposition of Public consultation and Medium risk
acceptance local population specific compensation The country has general
affected by the wind schemes are key elements of rules and regulations
power infrastructure the consents process in regarding public
may generate social several countries. consultation and

Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 123

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 Wind Project Development Roadmap

and economic Governments should prevent compensation for all

conflicts not-in-my-backyard (NIMBY) projects and it has been
syndromes, enhancing implemented in all previous
policies and strategies, which projects.
encourage the positive impact Butthe amount settlement
of wind energy projects on and delay of compensation
local job creation, economy payment often has been a
and environment benefits challenging issue
and/or compensations
Noise and flicker Legal claims due to Planning guidelines should Low-medium risk, since the
issues weak planning regulate the phenomenon potential sites for first
procedure may lead appropriately as well as auctions will be properly
to stop the operation indicate the permitted location chosen.
of wind turbines that of wind turbines in respect to On long-term, proper
cause harm nearest neighbours guidelines need to be
implemented.
Wild life The impact of WTGs The majority of large Low-medium risk
on birds and wild life infrastructure projects, It is a matter of fact that an
may have serious including wind projects, EIA will be carried out for
consequences require an Environmental the sites selected.
Impact Assessment (EIA) Informationismissing on
before bidding who will be the responsible
authority for its
implementation (auctioneer,
public agency, bidders)

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Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 124
Wind Project Development Roadmap

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5. Power Sale

Finding a creditworthy buyer for the power produced by the wind farm is one of the main
prerogatives of project developers. Two main categories of power sales can be identified:

• Spot market
• Bilateral contracts

Through the sale of power on the spot market, the wind farm owner sells the electricity
generated to the electricity spot market. Hence, the returns of electricity generation are
subjected to the price volatility of the market. The economic viability of project needs to be
assessed by average electricity tariffs as well as forecasts of the tariffs development, making it
difficult for companies to accurately budget and foresee cash flows. This risk can be mitigated
by entering into hedge agreements, which can provide a certainty of revenue.

Bilateral contracts instead are usually set by power purchase agreements (PPAs) between the
power seller (project developer/project company) and a creditworthy buyer (or consortium),
mostly referred as off-taker. The typical profile of an off-taker is a utility, an electricity market
representative, a municipality or a large commercial/industrial corporation. For the power
seller, the main advantage of bilateral contracts is represented by the capacity of securing a
stable and predictable cash flow for a large part (10-25 years) of the operational lifetime of the
wind farm. This feature increases also the confidence of investors and the bankability of the
project is consequently enforced.

PPAs prices for wind power are set either by competitive mechanisms such as renewable
tenders (where the off-taker is mostly represented by a state-owned utility or a transmission
system owner) or by feed-in-tariff / feed-in-premium (FiT/FiP) payment policies. As highlighted
in the picture below, although FiT and FiP are still the most popular mechanisms, the use of
tendering procedures is increasing worldwide.

Figure 34: Mechanisms implemented for supporting renewable energy policies (REN 21, 2015).

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5.1 Ethiopia
Historically, the Ethiopian electricity sector has been operated and strictly regulated by a
vertically integrated state-owned utility EEPCo. Its range of activities ranged from generation
and power planning to transport and distribution. The unbundling process of the electricity
market started in 2013 when EEPCo was split into two entities Ethiopian Electric Power (EEP)
and Ethiopian Electric Utility (EEU). EEP is the sole provider of bulk electricity to users as well
the responsible for generation and transmission. EEU instead, owns, operates and manages
electricity distribution networks. Another body was created as well - Ethiopian Energy Authority
(EEA) with the scope of regulating the electricity and energy efficiency sectors. The Ministry of
Water, Irrigation & Energy (MoWIE) is the lead institution for the Ethiopian Energy Sector and
supervises the three institutions mentioned beforehand. The organizational diagram of the
Ethiopian energy sector is represented in the figure below.

Figure 35: Organizational diagram of the Ethiopian Energy Sector excluding fossil fuels (Azeb Asnake, 2015).

In 2015, the country awarded its first-ever power purchase agreement to an Independent
Power Producer (IPP) for the realization of 500 MW geothermal power plant. Consequently, as
one can clearly deduce the country’s electricity market liberalization has just started, but it is an
ongoing process with prospects for strong growth in the Ethiopian power supply. This fact is
also confirmed by the participation of Ethiopia in the Eastern Africa Power Pool (EAPP), whose
main purpose is to facilitate power trade and cross-border transactions among its members.

At the same time, with the implementation of the Growth & Transformation Plan II (GTP2,
20015-2020), Ethiopia plans to increase its power generation of 17 GW from different renewable
sources, including up to 1,200 MW of wind power capacity. Of this wind power expansion,
around 900 MW are planned to be developed by the private sector through IPP wind auctions.

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The ambitious energy plan is driven both by an intensive electrification programme of the
country and by an increased demand for electricity (>25%) driven to a great extent by the
growing contribution of the industrial sector in the power side demand.

Figure 36: Breakdown of final electricity consumption in Ethiopia for 2014. Source: IEA Statistics.
Figure 36: Breakdown of final electricity consumption in Ethiopia for 2014. Source: IEA Statistics.
The table below summarizes benchmarking data of the Ethiopian power sector derived from

The the World

table Bank
below Group in 2014.
summarizes benchmarking data of the Ethiopian power sector derived from
the World Bank Group in 2014.
Table 6 Benchmarking data of the Ethiopian power sector (World Bank, 2014)

Unit Ethiopia
Power consumption kWh/capita 110
Access to electricity % 26.6
Urban access to electricity % 100
Rural access to electricity % 7,6
Power outages No./month 8.2
Duration of a typical electrical outage hours 4.6
Firms’ value lost due to power outages % of annual 4.6
sales
Time to obtain an electrical connection for firms days 194.3
Percent of firms owning or sharing a generator % 49.1
Transmission & distribution losses % of production 19
Average electricity tariff USD/kWh 0.04
Electricity supply cost USD/kWh 0.10-0.17
Bill collection rate % 87
Cost recovery % of total cost 23.5
Table 6: Benchmarking data of the Ethiopian power sector (World Bank Group, 2014).
The GoE has already secured and he is still planning massive financial investments to liftthe
undermined power sector. In facts, the Ethiopian power consumption is approximately at 110
The GoE has already secured and he is still planning massive financial investments to lift the
undermined power sector. In facts, the Ethiopian power consumption is approximately at 110
kWhWind
per Project
person per year, Roadmap
Development which is– more thanlessons
Procedures, four times
learnedlower
and riskthan the annual average
assessment power
129

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Wind Project Development Roadmap

consumption per capita in Sub-Saharan Africa (488 kWh per capita). Moreover, despite an
exceptionally high level of urban access to electricity (100%), the majority of the rural population
has no access to electricity (92,4%). Furthermore, the overloading of the network frequently
disrupts the power supply of large commercial and industrial customers. To overcome this

Figure 37: Top ten business environment constraints (World Bank, 2015).

discrepancy, backup systems such as diesel-power generators have become a common and
necessary solution among Ethiopian enterprises to hold back power shortages. Around 50%
of businesses in Ethiopia operate their own backup generators and electricity is perceived as
the second biggest constraint in their business operations (The World Bank, 2015).

Burden and regulatory framework

Ethiopian electricity tariffs are among the lowest in the Sub-Saharan countries. For clarity,
it should be mentioned that since power consumers pay VAT and other taxes and fees not
captured by utilities, the actual payments of the electricity users can be higher than the ones
reported in Figure 38 (Trible et. al., 2016). Although the long-term marginal cost of generation in
Ethiopia is low at USD 0.04 per kilowatt-hour (mostly associated with the enormous potential
hydropower generation capacity), the major investment needed in the country’s transmission
and distribution networks and the aggressive power sector expansion embarked by the GoE
had the effect to push up the overall long-term marginal cost of power to around USD 0.17 per
kilowatt-hour. This large deficit between actual electricity tariffs and marginal costs (power
sector under-pricing) is estimated to be equivalent to 1.7% of the GDP. This latter finding
and the associated methodology is explained in details in (Trible et. al., 2016) and (Foster
& Morella, 2010). As new generation plants started to become operative and the number of

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connections increases, the total power sale value is increasing and therefore the marginal cost
is expected to be reduced at USD 0.10 per kWh billed in the medium time horizon. Despite this
encouraging forecast, the financial gap in the power sector needs to be bridged with further
measures in order to not hamper investments in the sector and increase concurrent risk in the
overall system. This means that Ethiopian power tariffs will need to be adjusted upward in the
short and medium term. This trend is also acquiring momentum due to the recent increases
in export sales in the share of power sales and the market opening to IPPs and international
power companies.

Figure 38: Comparison of costs with cash collected in 2014. U.S. dollars per kWh billed from African utilities
(Trible et. al., 2016).

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 Wind Project Development Roadmap

Barriers and action options for development

Barriers and action options for development

Fact Impact Appropriate Action Relevance for Ethiopia

Selling energy Major risks are This risk can be mitigated by Not relevant for Ethiopia, due
directly on the associated with entering into hedge to the absence of a spot
spot market uncertainties of cash agreements, which can market for electricity trade
flows and economic provide some certainty of
returns revenue
Power The creditworthiness Evaluate the Medium risk
purchase of the off-taker is creditworthiness of the off- EEP´s financial status is
agreement fundamental for the taker through an investment currently unknown. Specific
(PPA) economic feasibility of grade credit. Ensure a financial assessments and
the project smooth and transparent independent reports should
coordination process among be carried out to determine
the key-stakeholders (credit EEP`s financial health
rating agency, treasury
department, legal and
accounting department, etc.)
Auction Strict pre-qualification Pre-qualification Medium-high risk due to the
mechanism requirements may lead requirements should be inexperience of Ethiopia on
to high planning and carefully designed with a IPPs auction procedures and
transaction costs, trade-off principle to the infant status of the
which may reduce guarantee enough Ethiopian renewable market
competition and participation and reliability of (excluding hydro)
auction participation, the auction process
especially for small
and new companies
Feed-in-tariffs It may be difficult to FIT schemes require a Not relevant, since no “open
mechanism control the overall continuous administrative door” feed-in-tariffs have been
policy costs and commitment to set the planned yet in Ethiopia
burden on consumers payments accurately. This
may include caps and or
progressive allocation of
capacity
Subsidization To meet consumption Robust and fair political and Medium-high risk
of electricity demands,government economic considerations Ethiopia has one of the lowest
tariffs s in Africa are forced to should drive the electricity tariffs of Africa. Cost
subsidize electricity restructuring of electricity reflective tariffs are necessary
supplies, generating tariffs to reduce the financial gap in
quasi-fiscal deficits the sector over the medium to
averaged at 1.5% of long-term to reduce risk
GDP premiums added by lenders

Wind
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Project Development Roadmap – Procedures, lessons learned and risk assessment 131
 Wind Project Development Roadmap

for underfunded power

projects

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Wind Project Development Roadmap

6. Project Financing and Bankability

The financing process of wind projects is strongly affected by the pre-development steps
presented so far. During the maturation stage of the wind farm project, the required capital
must be procured and the optimal capital structure must be defined. The most common form
of financing wind farm projects is through project financing, often referred as “non-recourse”
financing. This definition implies that the revenue stream generated by the project must be
sufficient to support the financing process. This includes detailed estimates of the expected
level and conditions of debt and equity funding required, exposure to inflation, long-term
currency mismatch, interest rate movements, etc..

For lenders and investors, it is essential to be able to anticipate to the greatest extent project
revenue streams and minimize risks of their investments. Hence, a proper allocation and
mitigation strategy of risks is necessary for making projects bankable. Typically, a well-
structured and bankable power purchase agreement is always based on the creditworthiness
of the off-taker, different counterpart risks, guarantees and de-risking options. The main
elements of these risks and mitigating policies are described below (OPIC).

Off-taker payment support

Depending on the creditworthiness of the off-taker and the development of the energy sector
in a certain country, short-term liquidity support (e.g. through an escrow account or a letter
of credit) and/or a sovereign guarantee may be required to support the off-takers payment
obligations.

Dispatch risk

This risk implies the possibility that the off-taker may not dispatch the generating facility (in this
case the wind farm). Typically, two different mitigating measures are generally observed by
lenders for addressing the problem:

• “Take or Pay”

Through this contractual obligation, the off-taker pays a fixed tariff composed by a capacity
fee (entirely proportional to the available capacity of the wind farm, so no dispatch is required)
and an energy fee, equivalent to the energy delivered. Through the capacity charge, the project
developer is able to cover the fixed costs of the wind farm, which extend from debt service to
fixed operating costs and an agreed equity return.

• “Take and Pay”

With this strategy, the off-taker is forced to take and pay a fixed tariff for all energy delivered

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from the wind farm. If the energy output of the wind farm cannot be accepted or it is curtailed,
then the off-taker has to pay the “deemed” generation.

Foreign exchange

It represents the financial risk that the wind farm investment´s value will change due to changes
in currency exchange rates. In the majority of the cases, project developers are determined to
shield themselves from currency risks. These hedging measures can include PPA contracts
signed in hard currency (USD, EUR) and adjusted periodically according to determined price
indexes. Whereas PPA contract prices in hard currencies may shield project developers from
local currency fluctuations, on the other side they expose governments to significant foreign
exchange risks. On the contrary, PPA can be also established in local currencies and adjusted
yearly for domestic price inflation or accordingly to a flat annual rate.

Change in law or in tax

There is a concrete risk that the economic projections and returns for project developers may
suddenly change due to modifications in the political scene of a country. Hence, a proper
risk mitigation strategy should be implemented, stating which party in the PPA contract will
assume the risk of law or tax regime change after the date of contract signature. In order for
PPAs to be bankable, several investors require the off-taker to take this risk, possibly supported
by the hosting government.

Transmission or interconnection risk

The PPA should clearly indicate which party bears the risk of connecting the facility to the grid
and transmitting power to the nearest substation.

Force majeure

In case of an event beyond reasonable control (force majeure), the PPA agreement should
also exclude the project developer and the off-taker by their obligations. Risk mitigation
procedures and costs associated with force majeure losses are strongly dependent on
insurance mechanisms and political risks subject to specific countries/regions.

Force majeure events generally can be divided into natural events and political events. The
first ones may include earthquakes, floods, Acts of God and other natural disasters. These
events can be considered to some extent as insurable risks; hence the parties will need to look
at the availability and cost of insurance, the likelihood of the occurrence of such events and
any mitigation measures, which can be undertaken.

Political events instead may include terrorism, riots or civil disturbances, war, strikes, failure
of public infrastructure. Typically, the grantor (off-taker or host government) should be willing
to bear a certain amount of political force majeure risk, especially those risks which are

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uninsurable under normal commercial conditions. These risks are generally considered to be
beyond the control of the contractor (project developer) (The World Bank, 2017).

Dispute resolution and termination payments

The terms of the PPA should include several steps of dispute resolution mechanism including
international commercial arbitration to resolve potential disputes. Moreover, the PPA should
clearly indicate termination policies and liabilities for both parties in case that the PPA would
be terminated before the natural end of the contract.

Transferability of ownership

Over time, wind projects may be refinanced, thus creating a secondary market which may be
represented by an increased participation of long-term financial investors such as insurance
companies and pension funds. Proper clauses and mechanisms should be implemented to
govern and regulate change of ownership, including possible prior consent of the auctioneer
on the transaction. This should be also extended in preserving that changes of ownership
won´t affect terms and liabilities of the original bid proposal.

To summarize, governments and public authorities should take into consideration that
allocating a high level of risk to project developers and bidders reduces inevitably the amount
that lenders will be willing to lend in the project. Consequently this funding gap may be bridged
with more higher-priced equity, if at all, increasing the overall project costs and bid tariffs in
auctioning tenders.

6.1 Ethiopia
According to (S&P, 2017), “the stable outlook of Ethiopia (B grade in sovereign foreign currency
rating) reflects the expectation that economic performance will remain robust and socio-
political tensions will not escalate, while current account deficits and related public sector debt
will not materially deviate from forecasts over the next 12 months”. In addition “among the 17
sovereigns in Sub-Saharan Africa rated by S&P, 16 have a speculative-grade foreign currency
rating, with the only exception of Botswana (A-/Negative/A-2), which has an investment grade
foreign currency rating”.

Appropriate risk mitigation and credit enhancement strategies are therefore essential
for mobilizing private sector funding and ensuring viability, bankability and profitability of
renewable energy projects in frontier markets such as Ethiopia. One of the main challenges
for project sponsors and lenders in developing projects in emerging countries is represented
by the potential default of utilities, inability to fulfil payment obligations for the entire lifetime
of a project (25 years), or by a potential change in the law. This potential scenario can occur
due to the fact that end-user tariffs in several African countries are not cost-reflective. In other
words, the revenue generated from the sale of electricity to consumers is not higher than the

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purchase cost of the national utility (off-taker) in procuring the electricity from IPPs. This gap
creates financial deficits and requires government subsidies in the short run until electricity
tariffs will be fully cost-reflective.

Further, in case of a performance default of utilities in vertically integrated electricity markets,

there is also a concrete risk that the procured electricity from IPPs can´t be sold to third parties
or it can´t be evacuated from the generation unit due to transmission capacity constraints in
the power grid. For all these reasons, project developers and potential lenders will require
more security instruments compared to similar projects developed in OECD countries. These
security instruments (for risk mitigation or credit enhancement) that IPPs commonly seek
are among others the issuance of a sovereign guarantee by the host government, liquidity
structures (e.g. escrow account or letters of credit) and guarantee instruments offered by DFIs
to backstop the PPA obligations of off-takers.

Sovereign Guarantees

“The main function of a sovereign guarantee is to backstop routine payment risks of state-
owned off-takers and satisfy potential termination payments under a PPA contract. A sovereign
guarantee is a direct obligation from the host government to the project company and by
extension to the lenders. A sovereign guarantee is commonly considered a contingent liability
on the host government’s balance sheet and should require a detailed assessment of:

• any regulatory hurdles the government may need to overcome to provide such guarantee
• the impact of the guarantee on the sustainability of its overall public debt levels and its
impact on various financial covenants the government has undertaken to uphold under its
various domestic and international debt obligations
• the policy framework on projects for which such guarantees will be provided, with a view
to ensuring fair and equitable treatment of all independent power producers investing in
power generation in the host country”

“In some cases, the ability of governments to issue such forms of support is constrained by
the government’s need to maintain sustainable public debt levels. In these circumstances,
governments will sometimes be prepared to issue letters of comfort which are not legally
binding, but which give investors and lenders “soft comfort” that the government will not allow
the off-taker to go insolvent and that it will step in to assist the off-taker to meet its obligations
to its creditors. Nevertheless, these forms of soft comfort are usually not sufficient to enable a
project to attract large amounts of foreign investment.“(CLDP & ALSF.).

Letters of Credit

“A letter of credit (L/C) is a financial instrument posted and maintained by an off-taker that
can be drawn upon by a project company in the event that the off-taker fails to pay a capacity
payment, energy payment, deemed energy payment, or a similar payment that is regularly

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due from the off-taker within a relatively short period after the payment becomes due. The
amount available to be drawn under such a letter of credit is usually equal to a few months’
worth of projected payments under the PPA. If the off-taker fails to make such PPA payments,
then the project company can directly make a demand on this letter of credit. This provides
a liquidity buffer enabling the project company to remain solvent with continued operations
whilst being able to meet overheads and service its debt, even if the off-taker fails to pay. The
off-taker is usually obliged to replenish such a letter of credit by paying the issuing bank under
a document called the reimbursement and credit agreement, within the pre-agreed timeline
or when the remaining balance is less than the minimum required level after draws are made
from time to time.

A letter of credit may be less expensive (or have less opportunity cost) versus using a cash escrow
account to cover short-term payment risk. In some cases, by not having the reimbursement
obligation covered by a partial risk guarantee, a payment guarantee or a similar DFI product
(described below), the letter of credit is a less expensive and less complex solution.

However, in other circumstances, commercial letter of credit issuing banks may be unwilling
to take the credit risk of the off-taker as the reimbursing party, or they may only be willing to do
so for the first or two IPP projects in a country, or they may only be willing to take such credit
risk in return for prohibitively high fees. In such cases, cash collateral from the off-taker may
be needed or the host government may agree to take on the obligation to replenish the letter
of credit” (CLDP & ALSF, n.a.).

Political Risk Insurance

“Political risk insurance (PRI) offers coverage for political risks associated with government
actions which deny or restrict the right of an investor or lender to use or benefit from the
project assets and therefore negatively affect the project revenue; or which reduce the value of
the project company. These risks include for instance terrorism and acts of violence, war, civil
disturbances, expropriation of ownership, restrictions on the convertibility of local currency
into foreign exchange and breach of contract by the host government”.

“In this context, DFIs (i.e. MIGA) and national export credit agencies (ECAs) represent the
strongest public insurers active in developing markets. These insurers typically have mandates
to support the policy goals of their sponsoring government or institution, including fostering
development or facilitating exports in certain emerging markets. For these reasons, these
mandates may also place restrictions on the type of investments that are eligible for coverage.
Such restrictions may address environmental issues, eligibility of the investment, or other
issues derived from the insurers´ policy objectives” (CLDP & ALSF, n.a.).

DFIs Guarantees

Although host governments can provide a sovereign guarantee or arrange other risk mitigation

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 Wind Project Development Roadmap

measures, their capability to deliver on IPP commitments may remain in doubt (Eberhard et
al., 2016). Guarantees provided by DFIs and MDBs are credit enhancement and political risk
mitigation instruments offered by third parties for enhancing the credit quality of a sovereign
and for mitigating certain risks, which are not entirely covered in contractual obligations of PPAs.
These products offered by DFIs are commonly referred to partial credit guarantees (PCGs),
partial risk guarantees (PRGs) and project-based guarantees. They can be categorized into
loan guarantees and payment guarantees, as they benefit respectively commercial lenders
and project companies.

African Development Bank Guarantees

The African Development Bank (AfDB) offer two different types of guarantees: partial risk
guarantees and partial credit guarantees. The first ones insulate “private lenders against well-
defined political risks related to the failure of a government or a government-related entity
to honour certain specified commitments. Such risks could include political force majeure,
currency inconvertibility, regulatory risks (adverse changes in law), and various forms of
breach of contract”.

“PCGs serve to partially guarantee debt service obligations of low income countries (LICs)
and well performing state owned enterprises in LICs. Similarly to the PRG, the PCG allows
well performing LICs and state owned enterprises to catalyse more financing at more
attractive terms to finance their development needs. Countries are eligible for PCGs only if
they are classified as countries with low risk of debt distress (green light countries based on
the World Bank / IMF Debt Sustainability Framework traffic light country classification) and
deemed to have adequate debt management capacity. However, subject to meeting some
defined stringent eligibility criteria, the PCG will also be available to state-owned enterprises
in AfDB countries with low to moderate risk of debt distress (green and yellow light countries,
respectively, based on the World Bank / IMF Debt Sustainability Framework traffic light country
classification)” (African Development Bank, 2017).

World Bank Guarantees

“The WB guarantees are defined by the WBG as policy and project guarantees. Policy
guarantees are intended to provide risk mitigation to commercial lenders with respect to debt
service payment defaults by government and can only be used by governments to access
budgetary support in the context of a specific program of policy and institutional actions” (The
World Bank, 2017).

“Project guarantees are applied instead in the context of specific investment projects where
governments wish to attract private investment (equity and/or debt). They are designed to
provide risk mitigation with respect to key risks which are essential for the viability of the
investment. These guarantees may fall under one of the following sub-categories: loan
guarantees or payment guarantees. The first ones are intended to provide risk mitigation to

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Wind Project Development Roadmap

commercial lenders with respect to debt service payment defaults caused directly or indirectly
by government failure to meet specific payment and/or performance obligations arising from
contract, law or regulation. Payment guarantees are intended to provide risk mitigation to
private projects or to foreign public entities with respect to payment default on non-loan related
obligations by the government”.

Figure 39: Structure of The World Bank guarantees used in Kenya for 4 IPPs projects (World Bank Group,
2017).

The direct involvement of DFIs such as the World Bank Group in the Ethiopian wind auctioning
process is fundamental to catalyse private financial flows by means of guarantees and risk
mitigation instruments. These financial products (The World Bank, IFC, MIGA) shelter private
debt against a government’s (or government-owned entities) failure to meet specific obligations
to a private or a public project. Typically, the risks covered are as follows (World Bank, 2016):

• Government (or Government owned entities) payment obligations arising from contract, law
or regulation: scheduled monthly payments, termination payments, subsidies, minimum
revenue guarantee, debt service, etc.
• Regulatory Risk: change in law, negation or cancellation of license, tariff adjustment
• Currency Risk: convertibility, transferability
• Political Force Majeure: expropriation, war & civil disturbance
• Frustration of arbitration

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Private Investors &

Governments
Project Developers

Attract private financing for key sectors such Reduce probability of default (credit
as power generation enhancement)

Open access to capital markets and Reduce loss given default (risk mitigation)
commercial banks

Reduce cost of private financing to more Positive impact in capital requirements for
affordable levels commercial banks

Facilitate Public Private Partnerships Reduce or eliminate key risks associated

with transactions in new and untested
sectors or business areas

Reduce government risk exposure by Mitigate risks the private sector cannot
passing commercial risk to the private control
sector

Improve project sustainability & replicability Open new markets

Improve project bankability, sustainability &

replicability
Table 7: Benefits of World Bank Guarantees World Bank, 2016).

Burden and regulatory framework

Concerning major financial issues and credit enhancement, they will retrace the ones from
the Ethiopian Metehara solar IPP tender. In details, the GoE is providing a sovereign guarantee
in the event that EEP (the off-taker of the solar tender project) won´t be able to comply its
payment obligations under the PPA.

Moreover, due to the unknown financial status of EEP, lenders require from the GoE broader
guarantees instruments that can cover a routine payment, termination payment and other
off-taker obligations under the PPA (Power Africa, 2017). These guarantees have been
backstopped by the World Bank Group by partial risk guarantee instruments.

Another critical challenge resides in the restrict use of Offshore FX accounts in Ethiopia. By law,

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Wind Project Development Roadmap

a project company (which is the most established legal vehicle used by project developers)
is not allowed to open and operate foreign currency account outside Ethiopia. This provision
inhibits as well the ability of the project company to undertake foreign currency exchange
and payment transaction (Power Africa, 2017). Hence, special de-risks mechanisms and
guarantees need to be mobilized for ensuring financial due diligence.

It is advisable for the Ethiopian auctioning process to follow practices that have been
successfully implemented in other African countries and developing countries. In this context,
the robust risk mitigation and credit enhancement policies adopted in Zambia for the first
solar IPP auction under the Scaling Solar programme (which is part of the World Bank Group
solutions) represent a proof of how investor risks can be reduced and competitive tender
processes can be consequently established in frontier Sub-Saharan countries.

Special emphasis in this analysis should be given to the discussion if PPA contracts should
shield or not project developers from financial risks due to inflation and currency exchange rate.
Brazil, Peru and South Africa are examples of countries where full price indexation occurred
during IPP auctions. The IPP solar auction in Uganda represents instead a case reference
where only the O&M component of the PPA tariff was indexed. In the recent Ethiopian solar
auction, the base energy tariff is indexed annually with an escalation rate equal to 2% (Power
Africa, 2017). On the contrary, in the Zambian solar auction no indexation was offered to bids.
Despite this peculiar feature may induce to believe that the resulting bids in Zambia would
have been consistently high (so developers can recover their investment despite the contract’s
loss of value over time), a low bid price record of 6.02 ¢USD/kWh was achieved (Kruger &
Eberhard, 2016).

Concerning instead risks due to currency exchange rate, project developers are keen on
signing PPA contracts in hard currencies (USD, EUR), due to the absence of a long-term capital
market in several developing countries. Therefore, PPA tariffs are usually denominated in US
dollars, such as in Zambia, Uganda, India, Peru, and Morocco. Examples of PPA tariffs signed
in local currency are Brazil and South Africa, among others.

Whereas PPA contract prices in hard currencies may shield project developers from local
currency fluctuations, on the other hand they expose governments to significant foreign
exchange risks. This was the case with some PPA signed by the Indonesian authorities back in
the 1990th. Hence, hedging schemes and offset procedures need to be carefully implemented
both for limiting foreign exchange volatility issues and for ensuring enough availability of
foreign currency. One potential off-set procedure for Ethiopia may be represented by the recent
exporting power deal commitments (established in USD) towards its neighbouring countries
(see Figure 40). They clearly represent a precious resource to create and accumulate foreign
currency reserves.

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 Wind Project Development Roadmap

Interconnections:

 Ethiopia – Sudan (up to 250

MW) & Ethiopia - Djibouti (up to
90 MW) has a practical
Interconnection

 Ethiopia – Kenya 500 KV D.C.

under
construction (up to 2000 MW) ;
PPA signed

 Exports Egypt via Sudan, exports

Sudan and Egypt grouped (the
feasibility study, design, tender
document completed PPA
negotiation with Sudan started
in April 2017)

 1200 MW (Sudan) and 2000 MW

(Egypt) scheme, 3,200MW
assumed exports, Eastern Nile
trade program study

 Exports to Tanzania under

power purchase agreement
negotiation

 Rwanda, Burundi, South Sudan

and Yemen, Memorandum of
Understanding to supply 2000
MW signed
Figure 40: Overview of existing and planned export interconnections between Ethiopia and neighbouring
countries (Lemma, 2017).

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 Wind Project Development Roadmap

Barriers and
Barriers and action
action options
options for development
for development

Fact Impact Appropriate Action Relevance for Ethiopia

Off-taker There may be a Proper de-risking Medium risk

obligation concrete risk the off- mechanisms and Counterpart risks mechanisms
taker may be financial guarantees of dispatch should be addressed by the GoE,
and or technical unable should protect project which also need to be
to temporarily dispatch developers in the PPA backstopped by partial risk
the wind farm agreement. On the guarantees instruments by the
technical side, a robust World Bank.
wind integration strategy Medium risk also due to technical
has to be in place or reasons (weakness of the grid).
developed (if absent) to Outcome 2.2 should mitigate this
avoid or limit wind power specific risk part
curtailments
Currency Changes in local Project developers need Medium-high risk
risks currency exchange to shield themselves from The PPA payments can be made
rates may affect the currency risks by means in BIRR and then converted to USD
PPA price and of hedging measures or currency under special
undermine the wind using hard currencies for compensation from GoE. The
farm investment´s PPA prices limited reserve capacity of foreign
value currency need to be backstopped
by partial risk guarantee
instruments
Foreign The use of onshore and Special dispensation and Medium-high risk
exchange offshore FX accounts consent on IPP MOFEC through NBE will facilitate
Account may be restricted or in transaction requirements IPPs to have a series of FX
some circumstances should be implemented accounts at any eligible offshore
inhibited by governments bank. These accounts however will
be opened by Ethiopian
Commercial bank to be approved
by NBE. The accounts will be
managed by a trustee fund
agreement to be entered between
the IPP, NBE, the commercial bank
and the foreign bank. The money
will be held on trust for the IPP by
the commercial bank of Ethiopia.
These accounts are used to hold
the funding, insurance premium,
debt service. The IPP is also

Wind Project Development Roadmap – Procedures, lessons learned and risk assessment
118 145
 Wind Project Development Roadmap

allowed to open a local FX account

at the Ethiopian commercial bank
to mirror the offshore accounts
PPA Premature contract Based on the reason of Low-risk since the involvement of
termination termination may leave the pre-mature the World Bank Group should
before natural the project developer termination of the ensure proper guarantees
end and the project with no contract, adequate schemes, including liquidity
access to the market guarantees mechanisms facilities and termination payments
should be ensured
(liquidity facilities,
termination payments)

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Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 146
Wind Project Development Roadmap

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7. Procurement Process and Construction

When the final investment decision on the project is matured and financial consent is
achieved, the wind farm project enters in the two last stages of its development: construction
and operations. The financial closure of the project and the construction stage are strongly
dependent on the negotiated procurement contracts for the different construction elements.
Construction elements include all wind turbines parts, including their transport and assemblage
as well as civil and electrical works, which are often grouped together and referred to the
category “balance of plant”.

Figure 41 and Figure 42 provide a cost breakdown analysis of onshore wind projects in
established RE markets and in emerging RE markets, such as South Africa. Wind turbine costs
in developed RE markets represent about 64 to 84% of capital costs (capex) for onshore wind
farms. Instead, the sum of BOP costs, which include grid connection costs, construction works
(civil works plus foundation works) and other costs, ranges from 17 to 34%.

Figure 41: Comparison of capital cost breakdown for wind power systems in established RE markets (IRENA,
2016)

Figure 42: Cost breakdown of onshore wind projects in South Africa during REIPPP bid window 3
(Department of Trade and Industry, 2015).

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Wind Project Development Roadmap

In relatively new RE markets instead (i.e. South Africa), the division of capital costs between the
two main categories (wind turbines and BOP) is less pronounced with BOP costs that represent
up to 45% of the overall capital costs. This difference is traced back to the development status
of the South African wind energy market. Within the BOP category, the expenses on transport
and erection represent the biggest single cost item followed by electrical/grid connection
costs.

Typically, agile and bankable wind projects are established through engineering-procurement-
and-construction (EPC) contracting procedures. One of the major advantages of EPC
mechanisms (both for primary and secondary contractors) is the ability to centralize and
regulate liabilities through a single point of contact (EPC contractor). This is also the reason
why among lenders and investors, EPC contracts are the most preferred contract procedure
for achieving bankability for wind farm projects.

In some cases, EPC contracts for wind farm projects may envisage the use of two separate
procurement contracts. One contract will cover the turbines supply and the other one the
balance of plant. The key points of EPC contracts are:

• A single point of responsibility

• A fixed contract price
• A fixed completion date
• Completion and performance guarantees and liquidated damages
• Caps on liabilities and liquidated damages
• Insurance and Force Majeure

7.1 Ethiopia
Typically engineering-procurement-and-construction (EPC) contracting procedures are the
most established ones along IPP tendering auctions. For example, 49 EPC contractors have
been involved in the 64 projects during the first three rounds of REIPPP programme in South
Africa and in the majority of the cases, as primary or second contractors (Eberhard et al.,
2014). Furthermore, for a reliable and safe operation of wind farms, it should be mandatory
that the procured equipment of wind IPP auctions comply with international standards. The
International Electrotechnical Commission (IEC) standards, which have the reference number
61400 and are entitled “Wind Turbine Generator Systems”, have been adopted by several
countries around the world and are used as the foundation for the development of national
standards.

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Burden and regulatory framework

It should be mentioned that the burden of using wind infrastructure equipment, which
complies with international standards does not represent a bond in procuring the equipment
locally. The strict criteria of the REIPPP programme in terms of local content requirements
and internationally certified equipment are a proof of this possible synergy in the procurement
strategy.

However, as stated by (Eberhard & Naude, 2016), the price of plant equipment is primarily
driven by market conditions (global and local), market dynamics and the life stage of the
technology rather than the design of the procurement process (Sager, 2014). Furthermore,
local tax laws also affect this cost category, particularly in terms of VAT and import duties on
imported equipment. In general a more enabling environment for RE investments will assist
to reduce EPC costs, such as tax incentives or at least clear tax treatment, as well as local
infrastructure upgrades (Eberhard & Naude, 2016). As shown in Figure 43, EPC costs in the
South African wind auctions accounted for three-quarters of the investment costs, on average.
Although EPC costs always constitute the bulk of capital costs, this large value can be also
related due to the strict local content requirements imposed in the South African auctions.

Figure 43: Breakdown of upfront costs based on REIPPP (Eberhard & Naude, 2016).

In tender procedures, local content requirements (LCRs) are usually considered as part of
economic development (ED) criteria and expressed as a percentage of the total project cost
sourced locally through both equipment and services.

By the broad outline of definition, LCRs in the REIPPP programme have been affected by
several changes during the bid windows, as indicated in Figure 44. The changes introduced

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Wind Project Development Roadmap

in BW3 had the effect of making firms move away from simply sourcing local materials, for
elements like support structures, toward the establishment of local manufacturing capacity for
high-value components such as wind towers.

The crucial argument for bidders and investors was and still is whether or not the South African
government-driven demand for renewable energy can be sustained long enough, and at high
enough levels (and high enough prices) to make commercially feasible the establishment of
manufacturing capacity (Eberhard et al., 2014).

Figure 44: Key Differences in permitted local content requirements (Eberhard & Naude, 2016).

Uncertainties about the pipeline of new RE and wind projects, and the security of potential
investments represent a significant barrier for attracting investors and developing local players
within the wind value chain. Experiences from several countries highlighted a set of common
key success factors for the development of local RE components manufacturing. In details
they are (EIB & IRENA, 2015):

• Substantial political support aiming at creating a long-term stable market

• Competitive local players in the global market
• Strong industry innovation potential and skilled workforce
• Investment capacity and strong financing infrastructures

For governments like Ethiopia newly exposed to the wind industry, it is crucial to establish
a predictable and stable pipeline of wind projects and a clear vision on the long-term RE
policy framework. This implies also that governments should properly clarify the objective of
tendering procedures and consider a trade-off principle between developing a local industry
and achieving lower prices. Generally, auctions with minimal or no local content requirements
can encourage foreign players to enter the market. This means renewables may grow more
rapidly and in some instances at lower prices than might otherwise be the case. On the contrary,
the country may forgo with the strategy of domestic development which brings benefits such
as employment, local value, skills and know-how (IRENA, 2017).

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It is advisable that before introducing LCRs in tendering auctions, the GoE should conduct
in-depth studies on the potentiality and ability of local Ethiopian businesses and industries
along the wind value chain to provide components and services. In the design of local content
rates, the GoE should investigate potential limits in the availability of skilled local suppliers
and/or production facilities as well as in the quality of components and the qualification of the
local workforce. Depending on the status of these crucial factors, the GoE should gradually
and carefully phase in local content shares (EIB & IRENA, 2015). The local content portion of
the latest wind EPC bid in Ethiopia can be considered as reference for setting minimum LCR
requirements for the upcoming IPP wind tenders.

Figure 45: Onshore wind value chain (EIB & IRENA, 2015).

Typically, an effective entry point for implementing LCR is represented by sourcing locally
services associated with the BOP, construction and operational & maintenance phase of the
wind farm (foundations, roads, civil works, electrical works, etc.).

Concerning the manufacturing process, the most important components for wind turbines
are represented by blades, rotors, towers, nacelles, generators and electronic components.
Potentially, manufacturing large components close to their destination market could sensibly
reduce logistics and transportation costs. However, the production localisation of these
components in new markets is often limited due to the high quality standards and specialized
manufacturing processes required for these items.

Concerning the manufacturing process of towers, existing local steel manufacturing companies
may represent a precious entry point for establishing a local production. The process can
be executed through minor changes in the existing production processes and/or through an
initial acquisition of licensing technology from specialized foreign companies (EIB & IRENA,
2015). However, as stated before, the most important condition for localising the production
of towers is represented by a stable wind project pipeline. For instance, the delays incurred by
Eskom in finalising the power purchase agreements in the last bid window, have induced a

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Wind Project Development Roadmap

dramatic standstill since the end of 2016 of the two South African tower factories.

The localisation of critical components like blades, generators and gearboxes, it is extremely
complex. In details, at least a critical bulk of 1000 MW per annum is required for safeguarding the
sustainability of the investment for these specific production facilities. Moreover, for ensuring
an effective “know-how” plan, it is advisable that local industries will form joint ventures with
international experienced specialists. In addition, for satisfying the extremely high-quality
standards of these critical components, extensive qualification and training processes are
necessary for the new sub-suppliers. The training phase can take from 3 months to up 15
months for the most critical parts (EIB & IRENA, 2015).

On this subject, Figure 46 provides an extensive analysis of the local content elements and
shares during the bid window 3 of the South African REIPPP. BOP components accounted
for the largest part of the local procurement spend associated with wind projects. In details,
services like foundation and civil works were fully localised, while approximately 17% of the
expenses in electrical and grid connection were outsourced outside South Africa for procuring
special components (oil transformers, etc.) (Department of Trade and Industry, 2015). On the
manufacturing side, no component was fully localised, but towers alone represented 24% of
the local procurement spend.

Figure 46: Local content breakdown per component during REIPPP bid window 3 of wind projects
(Department of Trade and Industry, 2015).

Furthermore, the implementation of strict local content requirements in auctions has been also
questioned recently, since it may represent a strong barrier to market entrance and as such, it
may be in conflict with the World Trade Organization (WTO) rules (GIZ, 2013). To alleviate this
general concern and potential risk, “softer” LCR may be introduced in tender auctions, using,
for instance, LCRs only as a weighted parameter in the winner selection process rather than
as a hard constraint (IRENA & CEM, 2015). Another viable solution may be represented by
splitting the auction demand into LCR and non-LCR tenders. This latter strategy, for instance,
was implemented in India during its 2014 solar auction. The auction results showed that the

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 Wind Project Development Roadmap

levelized cost of electricity generated by plants complying with LCR was approximately 15%
higher than the ones with non-LCR compliance (IRENA & CEM, 2015). Table 8 aims to further
clarify how different LCR requirements have implemented during renewable energy auctions
in different countries.

Another fundamental priority of governments contracting RE projects is the creation of local

employment. According to latest IRENA´s publication (IRENA, 2017), the renewable energy
sector employed worldwide 9.8 million people, directly and indirectly, in 2016. Since 2012, the
jobs in the solar and the wind sector have experienced the most consistent increase (more
than doubling), while employment in large hydropower and solar heating and cooling has
declined (Figure 47). Focusing on the African continent, within the total number of 61000
jobs created, half of them are localised in South Africa and one-fourth in North Africa (mostly
localised in Algeria and Egypt).

Increasing minimum local content requirements

South Africa in bid rounds 1, 2 and 3 (from 25 to 40%)

Local content is no exclusion criterion, but the

Moroccan Agency for Solar Energy (MASEN) asks
for min. 30% from bidders. Industrial integration is
Morocco also a selection criterion under the Integrated
Wind Energy Programme of ONE (Office National
de l´Electricité)

In the 1 IPP solar auction, bidders are required to

st

fulfill 15% of the total project value in local

Ethiopia
content

The proposed auction design strongly favours

local involvement in the production and the
construction of projects as the levels of local
Saudi Arabia
content and local labor play an important role in
the winner selection process

Local content is not required from the auctioneer,

but from the Brazilian National Bank of
Brazil Development (BNDES) to access subsidized
loans

LCR was implemented in the first auctions for

fostering renewable energy, but as the country´s
China wind equipment industry flourished, these
constraints were no longer necessary

Table 8: International comparison on local content requirements (GIZ, 2013), (IRENA &
CEM, 2015), (Power Africa, 2017).

The breakdown analysis of the South African REIPPP´s outcomes in terms of jobs creation is
presented in Figure 48. Globally, the jobs created within the solar and wind sector account

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Wind Project Development Roadmap

for 84% of the total number of jobs among all the renewable energy technologies. Another
peculiar result of the breakdown analysis is to identify how the jobs opportunities are created
within the different segments of the wind value chain. It can be noted that the ratio between
local construction jobs and operations jobs for onshore wind projects from bid window 3 is
more than 1:3. The methodology for counting the jobs is based on the lifecycle of the specific
project phase (construction or operation).

Figure
Figure47:
47:Renewable
Renewableenergy
energy employment by countries
employment by countriesand
andtechnologies
technologies(IRENA,
(IRENA,2017).
2017).

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 Wind Project Development Roadmap

Figure 48: Jobs for local citizens in the South African REIPPP programme (where 1 job = 1 person-years)
(Eberhard & Naude, 2016).

This result is also in line with the outcomes of the recent IRENA publication (IRENA, 2017),
which for clarity of comparison have been also included in this report (see Figure 49).

Figure 49: Workforce requirements along the wind value chain (IRENA, 2017).

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Barriers and action options for development

Barriers and action options for development

Fact Impact Appropriate Action Relevance for Ethiopia

Procured The procured equipment The procured equipment Medium risk

equipment may be not specifically should comply with robust The tender
suitable for the project international standards (i.e. IEC requirements should
purpose, system 61400) shield the auctioneer
integration or location and from low-quality or
may not be ready at prototyping equipment
commercial and system threatening system
safety level stability and
performance
Economic If not properly designed, Local content requirements Low-medium risk
development local content (LCRs) must be accompanied LCRs in IPP wind
criteria requirements in auctions by government policies that aim auctions will
(which are part of to facilitate financing of begradually phased in.
economic development domestic RE industry, sufficient In according to the
criteria) may rise bid tariffs scale and foster a strong progresses and
and/or discourage proper domestic supply chain and a readiness of
competition skilled workforce theEthiopian
manufacturing
capacity and supply
chain, LCRs will
progressively increase
in consecutive bidding
windows
Fixed contract The risk of cost overruns The contractor should have a Medium-high risk.
price and the benefit of any limited ability to claim additional Since high risks lead to
cost savings are to the money, which is limited to high contract prices,
EPC contractor´s account circumstances where the the choice of
project developer has delayed competitive EPC
the contractor or has ordered companies is crucial
variations to the works
Fixed EPC contracts include a Relevant delay liquidated Low risk for the initial
completion guaranteed completion damages will compensate the auctions, mostly
date date that is either a fixed project developer for loss and represented by the EPC
date or a fixed period after damage suffered as a result of companies chosen
the commencement of late completion of the wind Medium
the EPC contract farm riskrepresented by the
ambitious and short-
term RE auction plan

130
Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 159
Fixed contract The risk of cost overruns The contractor should have a Medium-high risk.
price and the benefit of any limited ability to claim additional Since high risks lead to
cost savings are to the money, which is limited to high contract prices,
Wind Project Development Roadmap
EPC contractor´s account circumstances where the the choice of
project developer has delayed competitive EPC
the contractor or has ordered companies is crucial
variations to the works
Fixed EPC contracts include a Relevant delay liquidated Low risk for the initial
completion guaranteed completion damages will compensate the auctions, mostly
date date that is either a fixed project developer for loss and represented by the EPC
date or a fixed period after damage suffered as a result of companies chosen
the commencement of late completion of the wind Medium
the EPC contract farm riskrepresented by the
ambitious and short-
term RE auction plan
(2017-2020) of the GoE,
which may lead to
Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 159
collateral delays and
slow down the project
pipeline
Performance Since the revenue stream EPC contracts should include Risk depends on the
guarantees for the project developer performance liquidated choice of the EPC
depends on the wind damages payable by the profile
farm, it is crucial that the contractor if it fails to meet
wind farm performs as predefined performance
required in terms of guarantees
output and reliability
Caps on Most EPC contractors Project developers may favor The risk should entirely
liability may cap their liability at a the selection of EPC contractors compensated through
percentage of the that do not cap their liabilities. In the choice of EPC
contract price other terms, this means companies offering
preferring contractors with an 100% liability cap
overall liability cap of 100% of
the contract price
Grid access Usually, the PPA will not EPC contracts should clearly Medium-high risk
become effective until define the obligations of the It has been a common
commissioning is project developer in providing problem for South
completed grid access. Investors should Africa, Brazil and Turkey
discourage situations where the among others
obligation of the project
developer to provide grid
access is uncertain

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8. Operation & Maintenance

The operation and maintenance process of a wind farm is the latest stage of the development
8. Operation & Maintenance
of wind projects. The process is usually regulated through long-term agreements between the
turbine manufacturer,
The operation the projectprocess
and maintenance developer of aand
windthefarm
wind
is farm operator.
the latest stage of the development of
wind projects. The process is usually regulated through long-term agreements between the turbine
manufacturer,
Developing thethe project
most developerO&M
appropriate and the wind is
model farm operator.
critical and varies from project to project.
Typically, when project developers purchase wind turbines from a manufacturer, the contract
Developing the most appropriate O&M model is critical and varies from project to project. Typically,
includes a full O&M service agreement, which ensures a specific level of performance for a
when project developers purchase wind turbines from a manufacturer, the contract includes a full
certain period (5-10
O&M service years).which
agreement, When the period
ensures is expired,
a specific theperformance
level of project developer may choose
for a certain to
period (5-10
renovate its agreement
years). When the periodwith the windthe
is expired, turbine
projectmanufacturer,
developer may orchoose
deciding to to internally
renovate conduct
its agreement
allwith
thethe
maintenance
wind turbine activities. Through
manufacturer, a hybrid
or deciding approach
to internally instead,
conduct themaintenance
all the project developer
activities.
performs
Through and takesapproach
a hybrid care exclusively of certain
instead, the tasks, outsourcing
project developer performs andandtakes
subcontracting otherof
care exclusively
certain tasks,tooutsourcing
commitments experiencedand subcontracting
technical companies, other commitments
usually referred as to independent
experienced service
technical
companies,
providers usually referred as independent service providers (ISPs).
(ISPs).
Operation & maintenance costs typically account for 20% to 25% of the total LCOE of current wind
Operation & maintenance
power systems (EWEA, 2009). costs
Thetypically account
costs usually for both
include 20% fixed
to 25% of the total
and variable LCOEFixed
elements. of
current wind power
O&M costs typicallysystems (EWEA, 2009).
are represented The costsadministration,
by insurance, usually include bothgrid
fixed fixed and variable
access fees and
elements. Fixed O&M costs typically are represented by insurance, administration,
service contracts for scheduled maintenance. Variable O&M costs instead include scheduled fixed grid
and
access fees and
unscheduled service contracts
maintenance for scheduled
not covered by fixed maintenance. Variable
contracts, as well O&M costs parts
as replacement instead
and
materials,
include and other
scheduled andlabour costs.
unscheduled maintenance not covered by fixed contracts, as well as
replacement parts and materials, and other labour costs.
Table 7: Breakdown analysis of O&M costs for onshore wind farms (IRENA, 2016).

Component USD/MW/year % of total O&M cost

Wind turbine maintenance 20,100 – 24,500 47.6% -49.3%
Electrical installation
1,100 – 1,300 2.6%
maintenance
Insurances 7,500 – 9,800 18.9% -18.4%
Land rental 4,000 – 6,000 11.7% -9.8%
Management &administration 8,100 – 9,900 19.2% -19.9%
Total 40,800 – 51,500 100%
Table 9: Breakdown analysis of O&M costs for onshore wind farms (IRENA, 2016).
Moreover, due to the volatility of wind energy, the power output of wind farms is highly depending
on wind speeds. This fact has also a direct impact on reliability and security of supply into power
systems, due
Moreover, especially for countries
to the volatility withenergy,
of wind a high the
penetration of RE of
power output sources. Hence,
wind farms over the
is highly past years
depending
onstricter
wind grid codes
speeds. have
This facttransformed
has also a wind
directfarms from
impact onpassive power
reliability and generation
security ofunits to active
supply into
generation units with grid support characteristics. Nowadays, wind farms are connected
power systems, especially for countries with a high penetration of RE sources. Hence, over the to TSO
dispatch
past years centres through
stricter grid codesadvanced communication
have transformed wind networks
farms from (SCADA
passivesystems) in order to
power generation
regularly share information about active and reactive power generation statutes (Vankata & Wu,
units to active generation units with grid support characteristics. Nowadays, wind farms are
2016).
connected to TSO dispatch centres through advanced communication networks (SCADA
systems)
In most in of order to regularly
the EU's membersharestatesinformation
where windabout
poweractive
has and reactive
a share abovepower
2% ingeneration
the annual
generation,
statutes wind &
(Vankata power
Wu, generators
2016). are already balancing responsible in financial or legal terms. In
these countries, wind power producers generally have the same balancing rules as conventional
generation units (EWEA, 2015). Hence, relaying on accurate and iterative forecasts is paramount
132

Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 117
 Wind Project Development Roadmap

In most of the EU’s member states where wind power has a share above 2% in the annual
generation, wind power generators are already balancing responsible in financial or legal
terms. In these countries, wind power producers generally have the same balancing rules
as conventional generation units (EWEA, 2015). Hence, relaying on accurate and iterative
forecasts is paramount for wind farm operators as well as for TSOs, which have to constantly
ensure low overall system operation costs.

The process of forecasting wind power generation is usually divided into different time scales,
depending on the intended application. From few seconds (10s) up to a few minutes (10 min),
forecasts are generally used for active control of wind turbines. This category of forecasts is
usually referred to as “short-term” forecast. For the following 48–72 hours, forecasts are needed
for the power system management and/or energy trading, by means of unit commitments
and economic dispatches (medium-term dispatches). For longer time scales instead (up to
5–7 days ahead), forecasts are deployed for planning the maintenance of power systems.

Figure 50: Are wind generators balancing responsible? (EWEA, 2015).

Danish Energy Agency, Tel: +45 3392 6700, website: [Link]/en 133
Wind Project Development Roadmap

Since the maintenance of wind farms may be particularly costly in several cases, an optimal
maintenance strategy is crucial.

Operational planning in Denmark

A key element in a secure and economically efficient system operation with large shares of
variable renewable energy sources is represented by operational planning based on the best
available schedules and forecasts at different times. This section provides a brief description
of the procedures and tools implemented by the Danish TSO (Energinet) in system operation.
The relevant operational planning starts 28 days before operation – designated as “D-28”, and
the following figure illustrates the main activities from D-28 to real-time operation (DEA et al.,
2017).

Figure 51: Main operational planning activities from D-28 to real-time operation (DEA et al., 2017).

The operational planning process is initiated at D-28 with a first estimate for the available
generation units, expected exchange on interconnectors, minimum generation from renewable
energy sources and demand. This estimate is updated on D-5. The main result on D-1 is the
unit commitment and dispatch resulting from the day-ahead market, and one hour before
operation (H-1), the unit commitment and dispatch is updated according to the result of the
intraday market, which closes at this time. During real-time operation, the system operator
ensures the physical balance of the entire system via manual reserves in the balancing market
and finally via automatic reserves (DEA et al., 2017).

The fundamental idea of these procedures is to plan ahead and base the planning on the
best available data at any time. The target is to minimise the remaining imbalances to be
handled with expensive automatic reserves by using cheaper manual reserves for anticipative
balancing. To support these operational planning procedures some tailor-made IT-tools have
been implemented in the control centre at Energinet. An important system is the so-called
operational planning system illustrated in Figure 52. The operational planning system is used
for collecting all continuously updated schedules and forecasts for generation, import/export
and demand calculating the resulting predicted imbalance for the coming hours. The operator
uses this system to evaluate the predicted imbalance and decide on activation of manual

134
 Wind Project Development Roadmap

reserves for up and down regulation to close as much of the gap as possible before the
operating hour (DEA et al., 2017).

Figure 52: Overview of the operational planning system used by the Danish TSO (Energinet, 2016).

8.1 Ethiopia
Today, wind power capacity accounts for just 324 MW of Ethiopia’s total capacity of 4,180 MW
at the end of 2015, with the vast majority coming from hydropower. The three wind farms are
called respectively Ashegoda, Adama I and Adama II. The first one was contracted in 2008
when EEP signed an EPC contract with Vergnet of France to develop a 120 MW wind farm.
Through a tender invitation, HydroChina and CGCOC signed in 2009 an EPC contract with EEP
to develop a 51 MW wind farm at Adama (Adama I), which also represents the first operational
wind farm in Ethiopia (2012). After its inauguration, EEP signed another EPC contract with
HydroChina to add an additional 153 MW of capacity (Adama II). This additional capacity
came online in 2015 (SAIS China-Africa Research Initiative, 2016).

Furthermore, the GoE has already identified three sites for wind farm development: Aysha
Wind Farm (300 MW), Adama III (150 MW), and Debre Berhan Wind Farm (100 MW). These
new committed investments are part of the Growth & Transformation Plan II (GTP2, 20015-
2020), where Ethiopia plans to increase its power generation capacity of 17,000 MW from
different renewable sources, including up to 1,200 MW of wind power capacity. Of this wind
power expansion, around 900 MW are planned to be developed by the private sector through
IPP wind auctions.

Danish Energy Agency, Tel: +45 3392 6700, website: [Link]/en 135
Wind Project Development Roadmap

Furthermore, the GoE has already identified three sites for wind farm development: Aysha Wind
FarmFigure
(300 MW), Adama IIIon(150
53: Information MW), and Debre
the operational Berhan
wind farms Wind Farm
in Ethiopia (SAIS (100 MW). Research
China-Africa
Initiative, 2016).

FigureFigure
54: Operational and under
54: Operational anddevelopment wind farms
under development in Ethiopia.
wind farms in Source:
[Link]
Source: Electric Power.
Ethiopian
Electric Power.

These new committed investments are part of the Growth & Transformation Plan II (GTP2, 20015-
Burden and
2020), where regulatory
Ethiopia framework
plans to increase its power generation capacity of 17,000 MW from different
renewable sources, including up to 1,200 MW of wind power capacity. Of this wind power
expansion,
The frontieraround
status 900
of theMW are planned
Ethiopian windtoenergy
be developed by the
market and private
more sector through
in general IPP wind
of the liberalized
auctions. market is backed up by a dispatch generation strategy which relies exclusively on a
electricity
centralized function, where power generators are dispatched by the TSO, EEP. Furthermore,
Burden and regulatory framework
compared to other European markets for instance, Ethiopia is a less mature market where
for
Theinstance the penetration
frontier status of windwind
of the Ethiopian and energy
other variable renewables
market and more in (excluding
general of hydro) is less
the liberalized
electricity market
significant and whereis backed
neitherupsome
by aofdispatch generation
the physical, strategy
operational or which reliespreconditions
regulatory exclusively on a
are
centralized
already function,
in place. Thiswhere power (EWEA,
lag includes generators are dispatched by the TSO, EEP. Furthermore,
2015):
compared to other European markets for instance, Ethiopia is a less mature market where for
•instance the penetration
Existence of windintraday
of a functioning and other variable
and renewables
balancing market(excluding hydro) is less significant
and where neither some of the physical, operational or regulatory preconditions are already in
•place.
Balancing
This lag market
includesarrangements
(EWEA, 2015):providing for the participation of wind power generators,
as e.g. short bidding periods
 Existence
• Market of a functioning
mechanisms thatintraday
properlyand balancing
value market of ancillary or grid support services
the provision
 for all market
Balancing participants
market including
arrangements windfor
providing power
the participation of wind power generators, as
• e.g. short bidding periods
A satisfactory level of market transparency and proper market monitoring
• Market mechanisms
Sophisticated thatmethods
forecast properly value the in
in place provision of ancillary
the power systemor grid support services for all
market participants including wind power
 A satisfactory level of market transparency and proper market monitoring
136
 Sophisticated forecast methods in place in the power system
 The necessary transmission infrastructure
 Wind Project Development Roadmap

• The necessary transmission infrastructure

Hence, a capacity building programme on wind power integration is fundamental for

implementing a well-functioning market with high penetration of RES. In this perspective,
the vast experience of Energinet (Danish TSO) can play a crucial role in strengthening the
capacity of EEP to effectively integrate the growing power generation from diversified sources
integrate
and manage the growing power and
power supply generation
demand from diversified
effectively sources
through and manage
a least-cost powerstrategy.
planning supply and
integrate the growing
demand effectively powera generation
through from diversified
least-cost planning [Link] and manage power supply and
demand effectively through a least-cost planning strategy.
To
To conclude,
conclude, itit should
should be be mentioned
mentioned again
again that
that thethe operation
operation && maintenance
maintenance of of wind
wind farms
farms
represents
To conclude,
represents an invaluable
an itinvaluable source
should besourcementionedfor potentially
again that
for potentially boosting local
the operation
boosting employment
& maintenance
local employment possibilities
of wind
possibilities and
andfarms
labor
represents
labor forcean
force skills invaluable
skills
within within source
the
the Ethiopian for
Ethiopianpotentially
country. country.
Recentboosting
Recent local employment
international
international experience possibilities
experience
from from
several and labor
several
auctions,
force
showedskills
auctions, thatwithin
showed the
thatEthiopian
job creation jobhas country.
been
creation Recent
onebeen
has oneinternational
the major theeconomic experience
development
major economic from severaloutcomes.
outcomes.
development auctions,
Citing the
showed
REIPPP
Citing that
the job creation
programme,
REIPPP hasfigures
the two
programme, beentheone
twothe
below major
show
figures economic
inbelow
details howdevelopment
show the job creation
in details outcomes.
how the jobCiting
criterion has the
been
creation
REIPPP
deeply programme,
implemented the
and two
whichfigures below
encouraging show in
results details
have how
been the job
achieved.
criterion has been deeply implemented and which encouraging results have been achieved. creation
In criterion
details, the has been
majority of
deeply
jobs implemented
created and whichwith encouraging andresults
solar have been [Link] In wind
details, the majorityjobsof
In details, theare associated
majority wind are
of jobs created associated projects.
with Focusing
wind and solar technology,
projects. Focusing
jobs created are associated with wind and solar projects. Focusing on
created during the operation of wind farms represent ca. 74% of the total jobs created by wind wind technology, jobs
on wind technology, jobs created during the operation of wind farms represent ca. 74% of the
created
[Link] the operation of wind farms represent ca. 74% of the total jobs created by wind
total jobs created by wind projects.
projects.

Figure 55: Elements of the job creation criterion for the REIPPP programme (Eberhard & Naude, 2016).
Figure 55: Elements of the job creation criterion for the REIPPP programme (Eberhard & Naude, 2016).
Figure 55: Elements of the job creation criterion for the REIPPP programme (Eberhard & Naude, 2016).

Figure 56: Job creation outcomes for the REIPPP programme (where 1 job = 1 job year) (Eberhard & Naude,
Figure 56: Job creation outcomes for the REIPPP programme (where 1 job = 1 job year) (Eberhard & Naude,
2016).
2016).
Figure 56: Job creation outcomes for the REIPPP programme (where 1 job = 1 job year) (Eberhard & Naude,
2016).

Danish Energy Agency, Tel: +45 3392 6700, website: [Link]/en 137
Wind Project Development Roadmap

Barriers andaction
Barriers and action options
options for development
for development

Fact Impact Appropriate Action Relevance for Ethiopia

O&M Developing the The right contracting model Risks may arise from the profile
contracting most appropriate should be based for instance on of the auction winner
model O&M model is the project size, type of and the readiness level of the
crucial, including companies involved and Ethiopian RE labor market,
the assignment competence of project developer supply chain and tax system
of liabilities and
tasks
Wind farm Low percentage Wind farm unavailability and Low-Medium risk
availability values of underperformance should be The auctioneer should require
availability may limited both on PPA contracts detailed forecasts and
have a huge (off-taker´s side) and by means of implement penalties due to wind
impact on the advanced wind farm operational farm underperformance.
energy yield of strategies (project developer´s The competences and proven
the wind farm side). Respectively, off-takers commercial experience of the
and on system should require detailed forecasts wind farm operator is crucial to
planning and set up penalties due wind attenuate underperformance
farm underperformance and and unavailability
unavailability. Project developers
should use advanced tools for
limiting it (root causes analysis,
failure prioritization, condition
monitoring, preventive
maintenance and logistic of
components)
Electricity The liberalization It requires on-going government Medium-high risk
market status of the electricity commitment to resolve The liberalization process of the
market should challenges when vested interests Ethiopian electricity market is at
be seen as a long and cross-subsidies are its early stage. Generation &
and sophisticated unwound transmission are currently
process rather bundle by EEP and grid
than a single infrastructure is under
event development. A regulating and
balancing market is still absent
and the dispatch and scheduling
capability does not rely on
advanced [Link] 2.2
of the AWPGE programme and
the committed development

Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 169

138
 Wind Project Development Roadmap

plans of the EAPP may sensibly

mitigate or erase these capacity
problems
Economic A capacity Economic development criteria Medium risk
development building which relate to community Models of local ownership shall
criteria programme on development, local community be facilitated within the auction
renewable ownership and job creation design. Community share-
energy should be should be always promoted in ownership instead may be
extended to auctions. unfeasible to implement in the
socioeconomic short-term due to lack of
empowerment adequate economic resources
for local communities.
Requirements on community
development and job creation
are therefore of paramount
importance to promote
sustainable socioeconomic
empowerment

Danish Energy Agency, Tel: +45 3392 6700, website: [Link]/en 139
Wind Project Development Roadmap – Procedures, lessons learned and risk assessment 170
Wind Project Development Roadmap

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The Danish Energy Agency’s Centre for Global Cooperation

supports emerging economies to combine sustainable

future energy supplies with economic growth. The initiative

is based on four decades of Danish experience with

renewable energy and energy efficiency, transforming the

energy sectors to deploy increasingly more low-carbon

technologies.

Learn more on our website:

[Link]/en/our-responsibilities/global-cooperation

For further information, please contact:

Henrik Breum

hebr@[Link]

+ 45 3392 7812

Andrea Isidori

ani@[Link]

+ 45 3392 6685