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Cover Story | June 2017

On the Cusp of Transformation

Nimish Vora, Associate Director - Energy & Utilities, PWC talks about how the puzzle of waste treatment in rapidly growing urban areas has attracted attention of policy makers in India.
Recent initiatives have improved public awareness and attracted investors to the Waste to Energy (WtE) segment. And, having experienced a learning cycle of last two decades, India is at the cusp of major transformation in MSW processing.

Current scenario
Share of urban population in India is set to increase from 33 per cent today to 50 per cent by 2050 and this will phenomenally increase Municipal Solid Waste (MSW) generation. As of today, only 82 per cent of the total 62 million tons of MSW generated is being collected, while the remaining 18 per cent is littered. Moreover, only 28 per cent of collected waste is presently treated.

Scientific disposal of waste is a much neglected aspect of solid waste management (SWM) in India. Urban local bodies (ULB) spend a meagre Rs.25-50 per tonne on processing and disposal of waste. The problem of insufficient waste treatment is further aggravated by very high disparity within the country. The segment thus requires urgent attention, so MSW treatment is improved consistently across all the states.

Class-I cities contribute to almost 80 per cent of India's MSW. Untreated waste demands larger land for open dumping and harms the environment. If the current practices continue, about 12.4 km2/year of precious urban land would be required for landfilling, which will eventually become unfit for any use for as long as a half century. Indian cities require a solution which can process huge volume of MSW with minimal land. Waste to Energy (WtE) is uniquely positioned for this.

Generation technologies
Broadly three technologies are prevalent for WtE:
With source segregation yet to be implemented in India, thermal conversion is the obvious choice for treating MSW. It reduces volume of MSW to less than 15 per cent, saving precious urban land. End product electricity can have long-term revenue contracts, and it can access market beyond project's catchment area. MNRE recommends this technology for cities with population over 2 million and MSW generation of more than 300 tonnes per day (TPD).

WtE potential
The developed world generates around 1-2.5 kg MSW per capita/day. However, mega cities in India presently generate only 1/4th of it. UN has estimated rise in per capita generation by 250 per cent in the next 15 years. Industrialisation, urbanisation, and lifestyle changes would further add 100 million tonnes of MSW annually.

Under Swachh Bharat Mission (SBM), GoI has emphasised achieving 100 per cent scientific processing and disposal of MSW by 2019. On conservative assumption that the volume of uncollected waste doesn't increase from present level and about 95 per cent collected waste is processed, it reveals a phenomenal over 16 per cent CAGR for WtE over the next 15 years. This means that out of India's total WtE potential (in MWs), 80 per cent is yet to be tapped.

Implementation hurdles WtE facilities in last decade have faced several challenges.
Feedstock supply:
Assessment of MSW characteristics and quantity forecast are found unreliable at planning stage. Quantity varied beyond 50 per cent and gross calorific value (GCV) varied in the wide range from 800-2,200 kCal/kg. This made it difficult to design an efficient treatment facility.
In MSW, construction debris are found to be at a worrisome level. It requires a great deal of mechanical or manual separation.

Project structuring and economic viability:
WtE projects are awarded under DBFOT model at times with inappropriate scope of work. For e.g., scope of closure of sanitary landfill sites (SLF) demands capex and opex beyond useful life of the asset, which is very difficult to finance and operate in absence of revenues.

Several projects are contracted with either Nil Tipping fees [Tipping fee is the charge ULB pays to the project developer for processing MSW] or Royalty fees [If tipping fees are in negative, they are termed as Royalty fees. Local authority earns it for supplying MSW]. This is in complete contrast to the philosophy of 'polluter pays'. Gujarat govt. asked its ULBs to waive off Royalties to make electricity tariff cheaper, but, ULBs are not willing to let it go. Such administrative gaps severely delays WtE projects.

For electricity regulators, WtE is a completely new aspect. At times, they assume project parameters without studying operating projects, and determine unviable generic tariffs.

Investor lag
To put into perspective the investor hesitation towards WtE, we have to acknowledge that most of the value creation in wind or solar projects occur during construction phase by optimising its capex, and with speedy development. The operating risks and expenses for these projects are low and they can be re-financed during operating life to further enhance value for the investors. However, WtE projects are completely different.

Resource risk: Feedstock varies widely with population and climate. Supplementary fuel often has limited availability and uncertain prices.
Technological risk: Unlike other RE, foreign technology requires a complete overhaul before it can be deployed for Indian MSW.
Financing challenges: Country specific features make it difficult to attract foreign capital. Local financing is the only option. But, early failures have made lenders reluctant to finance projects.
High management bandwidth: Meticulous project development and a sound operational prowess are key for the successful WtE project. But a small NPV size of WtE project doesn't justify management bandwidth for a prolonged period. Though it makes sense at portfolio level, rapid scale up is not easy.

Policy interventions
a)Urban ministry should make it mandatory for Smart Cities to achieve 100 per cent collection and treatment of the MSW.
b)ULBs should structure a WtE project considering risk allocation and operational-financial efficiencies:

Collection-primary and secondary transport of MSW: BOO model with annual tipping fees would optimise on capex and opex while developing a supply chain for segregated MSW,
Transfer stations-SLF-Post closure: BOT model funded by govt. will reduce financing cost, and
MSW processing: DBFO model with electricity tariff as revenues would address operational risks.
c) Resistance from local citizen has derailed development of WtE project in Karnataka. ULB should clearly demarcate the land before inviting bids.
d) ULB should isolate construction and demolition waste from mixing with MSW. ULB could be shared additional revenues from higher Plant Load Factor (PLF), similarly, it should compensate for insufficient MSW.
e) Electricity regulators should resort to project specific tariff determination to safeguard commercial viability of WtE projects.
f) MNRE should provide generation based incentives for energy from WtE projects.

Make in India
After decades of investment in R&D, developed countries have evolved the WtE technologies within safe emission levels. Full import cost of such plant and machinery would be in the range of $90-100 million. Increasingly, the OEMs are getting fabrication and assembling done through contract manufacturers in India. This can reduce equipment cost to by almost 75 per cent, making WtE project more economical.

India based manufacturing would be very competitive for export in SAARC and South East Asian countries which have similar profile of MSW. This will also generate local employment.

Rural employment
Challenge of low GCV MSW, brings unique opportunity for rural India. Farm residues in dry form can be excellent supplement to improve GCV. Village Level Entrepreneurs (VLEs) can assume responsibility of collecting biomass, agriculture residues from farmers and transport to the WtE project. VLEs can be paid through GCV linked pricing. They would be able to provide the complete reach in the catchment area. VLEs can set up facility to convert biomass into briquettes/pellets which have high density to reduce storage and transportation cost.

Apart from improving livelihood in rural region, it will prevent open burning of farm waste, which recently chocked national capital for several days with air pollution. Rabi crops residues when dried in summer, would be able to complement with low GCV MSW during monsoon.

Future outlook
Conducive policies by MoUD, MoP and MNRE; and Swachh Bharat Mission are encouraging ULBs to plan WtE projects. Tariff policy has mandated distribution utilities to purchase power from WtE projects. Recently notified GST rates have brought cheer for WtE sector. GST is defined at 5 per cent for key equipment for WtE project, and services provided in waste management are exempted from tax.

Swachchata sarvekshyan under SBM has triggered mass awareness in solid waste management. Smart cities like Jabalpur have already deployed large scale WtE project to process MSW.

MSW generation is set to increase many fold in India. Improving lifestyle is set to increase energy content in MSW, leading to abundant feedstock for WtE project. 70 per cent of country's WtE potential, is stored in eight states experiencing rapid urbanisation. WtE offers post-tax equity returns in attractive range of 14-16 per cent in India. It is more than `35,000 crore investment opportunity for committed investors.

WtE offers a unique solution to land starved growing cities. With indigenous customisation, it offers a potential to produce 2.4 GW of clean power in ecologically sensitive manner. Improvement in transaction design, well-coordinated administration, and facilitative regulatory framework can transform urban India by extracting value from its waste.

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