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REGULATORY PERSPECTIVES
Cogenerators as Power Producers: Policy Perspectives
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n India, power development is the joint responsibility of the Central and State government. In fact, Section 44 (1) of E(S) Act 1948 bars any licensee or any other person other than the government or a government corporation from setting up a generating station without the consent of the State Electricity Board (SEB) concerned, and Section 44 (2A) requires the SEB to consult the Central Electricity Authority (CEA) before issuing a consent for capacities more than 25 MW.
In India, cogeneration is synonymous with captive generation.
SEBs grant their consent only when it is not possible for them to supply the same power within the next 24 months, or if it is not possible for the licensee or any other person other than the government or a government corporation to obtain it more economically within a reasonable time from another appropriate source. As such there was no concrete policy for the development of captive generation/cogeneration.
The power sector was considered a core sector for accelerated development under the various Five-Year Plans. However, by 1991 the country was facing acute energy shortages (7.9%) and peaking shortages of 16.7%. Until 1991, the public sector was being funded mainly through budgetary support and external borrowings. The growth of the economy called for commensurate growth in infrastructure facilities.
It was realized that it is no longer possible to continue with the practice of budgetary support due to growing demand of other sectors, basically the social sector, and on account of severe borrowing constraints. Thus efforts were initiated in 1991 to bring private sector into generation to supplement the efforts of the public sector. A new policy framework was established and the Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 were suitably amended in October 1991 to facilitate the entry of private generating companies. Several incentives were offered to the private sector.
Despite best efforts and policy initiatives at the Government level, various measures have not given desired results. There has not been significant investment coming to the sector. Large capacity additions were not expected due to long gestation periods of large plants and it was expected that the country would face huge energy shortages of the order of 15% and peaking shortages of 30% by the end of 1996-97.
Thus there was a need to open an alternative route other than private generating companies, where the industries themselves will be interested in meeting their own power demand by pooling resources together. Captive/cogeneration power plants offer such an alternative.
With the setting up of Regulatory Commissions in 1998 at the Center and State level, these have to play a prominent role and provide support to the state government at the policy front.
Central Government Policy Initiatives
The Center asked all state Governments in October1995 for the first time to create an institutional mechanism allowing captive/cogeneration power plants an easy and automatic entry through quick clearance, rational tariff for purchase of surplus power by the grid, and third party access for direct sale of power to other industrial units. The Center notified a resolution on "Promotion of Cogeneration Power Plants" on 6 November1996. The basic features are:
- It recognised the importance of cogeneration and emphasized its development with the combined objectives of promoting better utilization of precious energy resources in industrial activities and creation of additional power generation capacity in the system.
- Captive power plants of any other persons (including juristic persons and excepting generating companies) are not subject to the provisions of Section 29(2) of the E(S) Act.
- It recognized that industry in general and a process industry in particular needs energy in more than one form, and if the energy requirements and supply to the industrial units are carefully planned overall efficiency of a very high order is possible to achieve.
- Emphasis on institutional mechanisms highlighting the issues involved.
- Two basic cogeneration cycles have been identified:
- Topping Cycle - Any facility that uses fuel input for power generation and heat for other industrial activities. In any facility with a supplementary firing facility, it would be required that the useful heat to be utilized in the industrial activities, is more than the heat to be supplied to the system through supplementary firing by at least 20%.
- Bottoming Cycle - Any facility that uses waste industrial heat for power generation by supplementing heat from any fossil fuel.
Qualifying Requirements
A facility may qualify to be termed as a cogeneration facility if it satisfies certain operating and efficiency standards.
Qualifying Requirements for Topping Cycle:
- It depends on the type of fuel used as the overall efficiency levels likely to be achieved for power generation varies with the choice of fuel. For coal and refinery bottoms, the sum of useful power output and one half the useful thermal output should be greater than 45% of the facility's energy consumption. For liquid fuel, the sum of useful power output and useful thermal output should be greater than 65% of the facility's energy consumption.
- The Facility must be able to supply at least 5 MW of power for at least 250 days in a year.
Qualifying Requirements for Bottoming Cycle:
The total useful power output in any calendar year must not be less than 50% of the total heat input through supplementary firing.
Benefits of Cogeneration Systems:
- High efficiency - by utilizing the same fuel to provide heat and electricity, and thereby reduce fuel consumption, fuel cost, electric utility bills, and provide economic competitive advantages through a maximized return on investment capital;
- More useful energy due to recovery of otherwise wasted heat; and energy conservation;
- More environment friendly because of efficient fuel use and reduced air emissions (GHG, sulfur dioxide, nitrogen oxides, particulate) and reduced thermal pollution;
- A reliable source of power and process steam or heat. This is particularly important in regions prone to frequent disruptions in electricity supply;
- Onsite electricity generation can eliminate losses (8-10%) in the transmission and distribution systems; and
- Low gestation period.
Foreign Investment Policy
- Foreign investors can enter into a joint venture with an Indian partner for financial and/or technical collaboration and also for setting up renewable energy-based power generation projects.
- Liberalized foreign investment approval regime to facilitate foreign investment and transfer of technology through joint ventures.
- The proposals for up to 74% foreign equity participation in a joint venture qualifies for automatic approval.
- 100% foreign investment as equity is permissible with the approval of the Foreign Investment Promotion Board (FIPB).
- Various Chambers of Commerce and Industry Associations in India can be approached for providing guidance to investors in finding appropriate partners.
- Foreign investors can also set up a liaison office in India.
- Government of India is also encouraging foreign investors to set up renewable energy based power generation projects on Build Own and Operate (BOO) basis.
Policy Initiatives at State Government Level
- For encouraging investment by the private and public sector companies in power generation through renewable energy, a set of guidelines have been issued by the Ministry of Non-Conventional Energy Sources for consideration by the States.
- In addition, some States are providing concession/ exemption in State Sales Tax and Octroi, etc.
- Maharashtra allows projects on a co-operative basis also and the Maharashtra State Electricity Board provides equity participation.
- Karnataka extends a subsidy of Rs 2.5 million/MW.
The Need for Cogeneration:
- When it makes economic sense to the industry.
- The cost of power supplied by the utility is more than the cost of generation by the cogeneration power plant.
- The utility is not being able to provide reliable enough or good quality power causing inconvenience/loss to the industry.
- Driven by efficiency considerations.
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Wheeling @ 2% |
AP, Haryana, Kar, (6%), Mah., UP, TN, Punjab, Rajasthan
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Banking 8-12 months
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AP, Haryana, Kar, Mah., UP @ 2% (24 Months), TN, MP, Punjab, Rajasthan |
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Third Party Sale |
AP, Haryana, Kar, Mah., MP, Punjab, Rajasthan |
| Buy-Back Rs 2.25 per kWh (1994 Base Year) |
AP, Haryana, Kar, Mah., UP, TN, MP, Rajasthan |
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Annual Escalation 5% |
AP, Haryana, Kar, Mah., UP, TN, MP, Rajasthan |
AP - Andhra Pradesh; Kar - Karnataka; UP - Uttar Pradesh; TN - Tamil Nadu; MP - Madhya Pradesh; Mah - Maharashtra
Current Scenario in Cogeneration Facilities
- Stand-alone Plants - Meeting emergency or captive requirement of industry with or without parallel operation with the State Grid
- Plants having surplus/excess capacity over and above captive requirement of industry requiring parallel operation with the grid
- Backup supply from the utility is required in most cases
Issues Involved
- Price of power exchanged
- Apportionment of cost between thermal and power output
- Return to cogenerator
- Discounting of benefits to the utility as well as cogenerator
- Stranded cost to utility and under-utilization of transmission assets of the utility
- Avoidable cost to the utility
The SERCs have to look at the pricing issues in a proper perspective. Backup power supply arrangement with the utility and settlement of accounts, parallel operation with the grid, compatibility with the State Grid and its safety, wheeling of power, banking arrangements with the utility, and third party sale of power.
Courtesy: Mr SC Srivastava, Dy Chief (Engineering), Central Electricity Regulatory Commission
(CERC), Core 3, 5th floor, SCOPE Complex, 7 Institutional Area
Lodi Road New Delhi 110003; Tel: 011-436 4895
Fax: 436 0010/0058
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