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Cover Story | May 2012

Biomass power and cogeneration in India

Biomass and cogen have their own sets of challenges but they can play a significant role in India's energy mix, says Amit Kumar.

India's per capita energy consumption of 733 kWh is one of the lowest in the world and its power sector is characterised by shortages, with electricity demand 7.6 per cent higher than supply, and peak electricity demand 10.6 per cent higher than peak capacity. Moreover, nearly 65 per cent of power is generated by fossil fuels and the majority of this is coal-fired (83 per cent). The prospect of new demand being served by fossil fuels will result in India becoming one of the largest sources of the growth in global emissions. Expected growth in power demand also poses energy security concerns for India - in recent years, imports have accounted for an increasingly larger share of fossil fuels. The reliance on imported fuels will continue to constrain the development of the domestic energy manufacturing base, with associated social and economic implications as well.

In such a scenario, wherein India faces challenges in sustaining rapid economic growth, the means to development should be sustainable and environmentally efficient. Therefore, renewable energy sources attain significant importance. Among renewable energy sources, biomass holds the unique distinction of being available in all energy carrier forms, i.e., biomass can be used to generate electricity and as fuel for heating applications as well. Besides, energy from biomass is also non-intermittent. Available modern bio-energy technologies for producing electricity and for meeting heating requirements from biomass provide ample opportunities for meeting energy needs in a sustainable manner, improving the quality of life and protecting the environment while also addressing climate change. It is expected that cleaner sources of bio-energy will contribute to sustainable development, especially of rural areas through agricultural modernisation, rural electrification, provision of cleaner cooking fuels, employment generation and opportunities for small entrepreneurial activities.

The Indian leadership has been up to the challenge and been proactive in encouraging capacity addition in biomass-based power projects. As per MNRE figures, the total installed capacity in grid connected biomass-based power projects is 3,095.13 MW. Of this 1,142.60 MW is contributed by biomass power whereas the remaining 1,952.33 MW comes from Bagasse based-cogeneration projects.

Besides, in the off-grid space, a total capacity of 348 MWe in biomass (non-bagasse) cogeneration plants, 16 MWe in rural biomass gasifiers and 132 MWe in industrial biomass gasifiers has been installed. The chart (above) describes the year on year capacity addition in grid-connected biomass and cogeneration power projects in India.

The achievement so far has been commendable, but it would be important to mention that there are challenges that need to be worked upon. Both cogeneration (bagasse and non-bagasse) and biomass power have their sets of challenges and barriers that need individual attention. The government has introduced enabling policies to promote both routes to generate power from biomass. But the question that needs to be pondered over is if the initiatives taken so far could help realise the full potential from biomass. If not, then what can be done?

Cogeneration

By definition, cogeneration is generation and utilisation of energy in different forms simultaneously by using fuel in a cost-effective, efficient and environmentally responsible way. India's sugar industry competes with Brazil's as the world's largest and is the country's second-largest agriculture-based industry (after textiles). As a means of meeting their factory needs for electricity and steam, and of disposing off the large quantities of bagasse left over after processing sugar cane, sugar mills all around the world burn bagasse in boilers to produce both steam and power. The schematic diagram (above) shows the cogeneration power scheme in a typical sugar mill.

Besides meeting captive heating and electricity requirements, cogeneration can have a number of additional advantages too. By employing cogeneration methods, process efficiencies of up to 80 per cent can be achieved whereas the efficiency that can be achieved without it would normally be only around 30-35 per cent. Surplus power generated from cogen projects, especially the ones that use biomass as the primary fuel, would add to the overall renewable energy based installed power capacity in the country. Substituting fossil fuels would bring obvious environmental benefits as well. As per a study sponsored by the Brazil Development Bank (BNDES) in 2008, the reduction in emission through cogeneration in sugar mills is estimated to be about 0.55 tonnes of CO2 equivalent for every tonne of bagasse used. Furthermore, surplus power generated can lead to more widespread supply of electricity, particularly in rural areas.

As per MNRE, an additional power capacity equivalent to 5,000 MW could be generated through bagasse-based cogeneration in the country's 550 sugar mills, if these sugar mills were to adopt technically and economically optimal levels of cogeneration to extract power from bagasse produced by them. As an example, if steam generation temperature/pressure is raised from 400°C/33 bar to 485°C/66 bar, more than 80 KWh of additional electricity can be produced for each ton of cane crushed. The sale of surplus power generated through optimum cogeneration would help a sugar mill improve its viability, apart from adding to the power generation capacity of the country.

In view of this, the MNRE has instituted a number of schemes and programmes to incentivise the adoption of advanced technology for bagasse-based power generation. The incentives offered by the ministry include Central Financial Assistance (CFA) in the form of capital subsidy to set up bagasse-based cogeneration power projects. State Electricity Regulatory Commissions (SERCs) have determined preferential tariffs and Renewable Purchase Obligations (RPO) for purchase of power from biomass and bagasse-based power projects. Besides, financing for such projects is also facilitated through the Indian Renewable Energy Development Agency (IREDA). At present, bagasse based cogen projects contribute 1,952.33 MW to the national grid. With the specification of favourable tariffs and incentives guaranteed from state governments for bagasse-based cogeneration, sugar producing states have seen rapid capacity addition in cogeneration which has subsequently led to increase in power generation. Maharashtra and Uttar Pradesh, owing to the high potential in bagasse cogeneration have observed rapid growth in power generation in the last three years. States like Haryana, Punjab, Rajasthan and West Bengal have low generation but have shown rapid growth and are also catching up fast.

In addition to bagasse-based cogeneration, the MNRE also encourages the deployment of biomass (non-bagasse) cogeneration in the industrial sector for meeting captive thermal and electrical energy requirements. The ministry promotes decentralised power generation through supply of surplus power to the grid, conservation of fossil fuels for captive requirements in industry and reduction in GHG emissions in industry under the 'Biomass Co-generation (non-bagasse) in Industry' programme. Under the programme, MNRE offers capital subsidies of up to Rs 20 lakh/ MWe1 to set up cogen facilities in the industry.

However, there are significant challenges that still impede rapid adoption of biomass cogeneration in the Indian industry. The major obstacle to overcome before biomass cogeneration in India's industrial sector can be effectively exploited relates primarily to issues with power purchase agreements between the cogenerators and the local utility. A firm and well thought out power purchase price that would stand for the project's entire life would affect cogeneration economics in the most significant way. Therefore, the preferential tariff determined for power from cogen projects should appropriately account for an increase in the cost of power. For instance, the preferential tariff should ideally account for increase in cost of generation due to a spurt in the minimum statutory/support price offered by the government to sugarcane farmers across the country. Data estimates reveal that states which are prominent producers of sugarcane in the country have continuously increased the support prices of sugarcane since 2004-05. Consequently, the price paid by the sugar mills to procure sugarcane has increased since, leading to an increase in the cost of generation of power. However, the Electricity Regulators have not agreed to increase the cogeneration power tariff to commensurate the high cost of generation and made this activity economically less attractive. Similarly, the tariffs should also account for competing applications of bagasse such as in the paper and pulp industry to ensure that power generation remains the most economically viable use for bagasse. Therefore, if such issues continue to come up in future, it would act as a dampener for the growth of the cogeneration industry.

Another significant barrier pertains specifically to the cooperative sugar sector in India. The cooperative sugar sector contributes 48 per cent of the total sugar production in the country but is largely characterised by comparatively smaller mills than private ones. Lower crushing capacity mills are less efficient as compared to larger ones and it is costly to undertake mill expansion in order to install cogeneration facilities. Moreover, since most such cooperative mills have a number of farmers as their stockholders, they do not have much capital that they can use for investments. Limited equity holdings and the 'un-corporate' culture of cooperatives (Haya, Ranganathan and Kirpekar, 2009) make them less creditworthy and limit their access to equity and debt, which is needed to invest in cogeneration. Therefore, measures to enhance the creditworthiness of small scale cooperative sugar mills should be taken.

Besides, some measures will also have to be taken to allay utility apprehensions regarding the reliability and availability of privately generated power from cogeneration projects, incentivise utilities to purchase such power, overcome challenges associated with grid integration and ensure adequate fuel supplies for year-round cogeneration.

Biomass

Power generation through biomass is one of the most mature and well understood technologies in India. However, the technology has not managed to achieve the scale of installations in comparison to the huge potential which it enjoys, especially in agriculture rich states. Estimates suggest that biomass resources potentially available for power generation could support an installed capacity of 51,000 MW (17,000 MW from agro-residue and 34,000 MW from energy plantation in waste land). However, as noted earlier, capacity equivalent to a shade over 1,100 MW has been realised.

Also as noted earlier, with a view to mandate the development and usage of the renewable sources across the country, enabling legal and regulatory framework has been crafted at the central and state levels to promote power generation from biomass as well. Besides institution of preferential tariffs and specific obligations (for obligated entities) to buy biopower, other incentives have also been instituted. These include fiscal incentives such as 80 per cent accelerated depreciation on capital expenditure, concessional import duty on equipment, excise duty exemption on equipment required for initial setting up of biomass projects, 10 year income tax holiday and capital subsidies in the form of Central Financial Assistance.

Biomass-based power affords a number of advantages other than the obvious benefits of emission reduction and renewable power. Given the dispersed nature of biomass across the country, power generated from biomass could potentially be decentralised and address energy needs in rural areas. This will also create new jobs and income avenues as it will require manpower to effectively run the biomass supply chain. Moreover, biomass-based power is relatively inexpensive as compared to power from other renewable energy sources. However, there are a few underlying issues and challenges that have to be tackled.

One of the biggest problems plaguing the biomass power sector is the non-availability and volatility in cost of reliable and affordable feedstock. This is often on account of the fact that biomass projects are unable to secure guaranteed supplies of feedstock, as it faces high demand from competing applications in breweries, briquetting, paper industry, cattle fodder and rural households. Besides competing applications, price escalation is also caused due to the unorganised and unregulated market for biomass. In most cases, the supply chain of feedstock (collection, transportation and storage) is dominated by third-party owners who exploit their monopoly position to escalate transportation costs (a major component of the landed cost of fuel) and cause artificial price inflation. The volatility of prices also remains an inextricable function of parameters such as regional supply and demand, seasonality, climate change, crop productivity and labour shortages.

To add to the concerns, preferential tariffs do not adequately account for inflation in the cost of biomass. Most SERCs have considered the biomass cost in the range of Rs 900-1,000 per tonne with 5 per cent annual escalation to determine tariffs, but in reality, the cost of biomass has almost doubled in the last five years. In most states, this increase in cost has left a substantial gap between the estimated fuel price considered for tariff determination and the actual fuel price. Many regulatory commissions (including CERC) have given 'Must run' status to biomass power plants only above 10 MW capacities while some have not given this status to any of the biomass power plants. With high utility tariffs (compared to conventional coal-based power), load dispatch remains a key concern area for plants without 'Must run' status.

Improper assessment of feedstock and command areas is an important concern for potential power producers and investors. Estimates of biomass consumption remain highly variable since most biomass is not transacted on the market and hence, potential investors are skeptical of arrangements for sourcing and securing feedstock supply for their projects. The Biomass Atlas was developed in early 2000 (with revision in 2004) and the data used is now outdated. Also, surplus biomass estimates may not give an accurate picture of the viable potential.

In order to optimally realise the potential, evidently some interventions would be required. To start with, the government should sponsor updating of the existing biomass feedstock assessment to give comfort to potential investors. To address challenges posed due to competing uses of available biomass, a policy "push" to promote energy plantations could be useful. Another step to ascertain feedstock supply to biomass power projects could be demarcation of areas that would compel suppliers to sell feedstock to plants within designated areas. Storage and transportation infrastructure needs to be strengthened and perhaps most importantly, a solution to accommodate fluctuation in feedstock prices in tariffs needs to be worked out. With suitable measures in place, biomass could play a significant role in India's energy mix and go a fair way towards ensuring energy security for the country.

The author is Associate Director – Energy and Utilities. With inputs from Priyankar Agarwal- Consultant and Vaibhav Singh - Consultant, PwC India. Views are personal.
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