Green Urban renewal in Indian metropolitan city

Urban renewal and green infill development can happen only when renewed built spaces goes for LEED rating. Even after LEED rating, the realty sector is the biggest energy consumer. To decrease the carbon footprint of the existing urban cores & fringes, promotion of renewable energy use (Solar PV or Thermal) is the call of the day.

We need to encourage owners of existing built stock and developers of new projects to at least use 25 % of required daily consumption from renewable resources, preferably insitu BIPV or grid linked PV power plant developed far away.

In India, Jawaharlal Nehru National Solar mission (JNNSM) of Ministry of New and renewable energy resources (MNRE) is promoting development of Megawatt Scale PV Power Plant and use of hybrid mini-grid inverter based PV power packs (less than 1 MWp) through directly subsidized higher PPA with NVVN- NTPC or higher feed in tariff to be paid by local distribution companies that has renewable energy use obligations  in the near future. There is a limit to subsidy available under JNNSM and it is difficult to sustain due to limited sources/ option of debt funds.

Realty sector being one of the biggest consumers of power, through abatement in use of conventional energy and gradual shift to use of non conventional energy can reduce national carbon footprint. Its also a sector where majority of the projects enjoy good return on investment within average payback period of 10 years.

In the following paragraphs I have tried to explain the policy intervention required to achieve the reduction target of national carbon foot print through non fiscal incentives called Green Transfer of Development Rights (GREEN TDR).

Reference case study

Slum up gradation, urban renewal and maintenance of heritage buildings succeeded in Indian metros like Mumbai only after involvement of private developers and stakeholders.

In Mumbai a plot of mixed use land gets an FAR of 2.5. If there is a slum, chawl or degraded old building, the developer gets additional far of 1.5 (60 % of allowable FAR), adding to FAR of 4.

The additional FAR acts as an incentive for redevelopment of Brownfield sites and degraded housing stock or urban infill development by private developer.The developer  accommodate existing stake holders within the plot and create additional housing or commercial stock to fund it.

The additional FAR, that cannot be consumed within the plot becomes TDR (Transferable Development rights) for use in other plots in less dense area of the city.

The connected load of commercial buildings (part of mid-rise mid density or low-rise high density development, global FAR > 2) in Indian metropolitan cities varies between 5 W/Sft to 10 W/Sft of FAR (we can assume an average of 7.2 W/Sft).

Generally these projects are along major arterial (public transport corridors – bus based or metro) to sub-arterial roads enjoy an FAR of more than 2. i.e. on a plot of  10 Acre enjoying an FAR of 2, the project FAR area is 0.87 Million Sft and the Gross built-up area will be 1 Million Sft. The connected load of the project will be 7.2 MW.

Proposed Policy and its introduction

The proposal is explained as follows using following assumptions and presented as a generic case.

1.      The owners of existing buildings or new projects for low rise –high density to mid rise mid  density commercial project ( 10 Acre, FAR 2, BUA of 1 Mn Sft, connected load of 7.2 MW) intends to get “X” (25 %) of connected load from a grid linked PV power Plant.

2.      Assuming 18 % CUF, the PV power Plant will be 40 MWp. The EPCC cost of the project at current price will be Rs 440 Cr and annual O & M will be Rs 4 Cr PA escalating @ 6.7 % PA, i.e. totaling Rs 489.01 Cr (Rs 440 + Rs 49.01) as on date.

3.      This project is assumed to fetch lease rental of at least Rs “R”/Sft/Month for gross floor area, where “R” is average lease rental of previous three financial years. Lets assume lease rental “R” to be Rs 100/Sft/Month, i.e. Rs 12000/Sft after 10th year (time value of money is not considered for simplification) or sale price of Rs 12000/Sft.

4.      Additional rentable Gross floor area required to capitalize PV Power plant and O & M cost over a period of 10 years is 0.375 Mn Sft. i.e minimum additional FAR of 37.5 %.

5.      The real estate project developer develops 40 MWp Grid linked PV Power Plant and gets additional 37.5 % of base FAR.

6.      The power plant injects power to the grid and real estate project uses the power by just paying the required wheeling charges.

7.      The real-estate project or the power plat developer gets 50 % of the Carbon Credits.

8.      The Metropolitan City development & planning authorities gets the balance 50 % of the carbon credit throughout the life of the PV Power Plant project for taking policy initiatives

      Additional FAR is only availed in areas allowed by city development plan – Development Control Rules (DCR).

9.      In existing buildings and areas where new buildings cannot consume all the additional FAR, the balance will be treated as Transferable Development Rights (TDR).

The policy initiative is to be taken by Ministry of new & Renewable energy (MNRE) within or outside the scope of Jawaharlal Nehru National Solar Mission (JNNSM) with extended participation of Metropolitan City development & planning authorities and respective power distribution companies.

Benefits vis-à-vis stake holders-

1.      New Real estate project developer-

a)     The EPCC and O & M cost  is recovered within 10 years is underwritten by lease rental from additional FAR consumed.

b)     Free renewable energy after paying wheeling charge. The average unit power cost reduces.

c)      The landlord can charge a nominal levelised tariff for renewable energy component from tenants to prevent power misuse.

d)     Premium lease rental for green quotient and lower unit energy cost.

e)     Tennant stays long to benefit from lower unit energy cost that doesn’t escalate like unbundled power unit cost over the year.

f)        50 % of Carbon Credit.

2.      Existing Real Estate Project Owner-

a)     TDR (i) directly proportional to percentage of energy used from renewable sources and benchmarked cost of renewable energy project; (ii) inversely proportional to average lease rental of previous three financial years.

b)     Green quotient for the project without retrofitting for using green power.

c)      Gets free renewable energy after paying wheeling charge. The average unit power cost reduces.

d)     The PV power plant EPCC and O & M cost  is recovered from sale of TDR and from levelised cost of power paid by tenants, computed for nominal life of the PV Power Plant.

e)     The tenant who stays long gets more benefit from paying only levellised tariff with no escalation over the years for renewable energy component of the total power bill.

f)        50 % of Carbon Credit.

3.      Power Distribution companies-

The cost of additional transmission infrastructure required for grid linking of PV power plant project is Bourne by the power plant developer. Therefore the power distribution company is able to increase its catchment and command area with nominal investment.

4.      Metropolitan City Development and planning authority

a)     Green quotient or urban infill projects without direct intervention similar to slum up gradation projects of Mumbai Metropolitan Development Authority ( MMRDA) .

b)     City becomes more livable.

c)      Additional revenue from 50 % of Carbon Credit.

5.      Ministry of New and Renewable Energy

a)     Meeting the targets of JNNSM with nominal funding due to extended participation of realty sector.

b)     Meeting the targets of JNNSM before time.

c)      Enhanced participation of debt funds as they get the confidence of PV power plant capital cost clubbed with real estate project.

d)     Currently most of the projects are concentrated in North-West India and are away from concentration of consumers. Once the policy is implemented, the power plants can come up in locations which may be low in radiation quotient but has higher concentration of consumers and vibrant realty sector.

e)     Complementing the peak power requirement throughout the country and major energy consumption centers.

f)        Well distribution of projects throughout the country is good from security perspective of assets and distribution of bundles power near major consumer points.

6.      Beyond JNNSM targets – With unspent resources of JNNSM after implementation of this proposal, MNRE can take up decentralized energy centric integrated rural development projects.

How to proceed?

This proposal needs demonstration through a pilot project in any of the Indian Metropolitan city. It requires policy intervention by all the public sector  stake holders mentioned above.

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Mr.Anirban Choudhury (Civil Engineer & Urban Planner) is a project development professional having more than 16 + years experience in development of infrastructure and real estate project (concept to post take-off). Since January 2009, he has been assisting PV Power project proponents in conceptualizing appropriate PV system for developers of MW scale grid linked Power Plant and integration of with LEED Rated realty projects. He is also into M & A and transaction advisory in realty and clean energy sector. Starting June 2010 till May,2011, he headed for a year, the business development function of Solar business Unit of ICOMMTELE Pvt. Ltd., India. Energy & PV Power Plant modeling; energy simulation using appropriate tools; customized solutions for solar field vis-à-vis need for land use and civil works optimization; layout plan in synergy with plant functional & site ecological requirements; work planning & development are his strengths. He has also worked in project design & development management functions for realty projects.

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