Winrock International India (WII) conducted this training program in Bangalore on 22 March 2002 to facilitate information exchange among financiers and sugar mills on the financial mechanisms, including state policies, for sugar cogeneration projects. This program was carried out under the professional development component of USAID's GEP-ABC project, and was also supported by the Ministry of Non-conventional Energy Sources (MNES).
While welcoming the participants, Dr Saroj Mishra, Senior Program Officer, WII, explained that faster progress could be achieved through a "policy and financing" combination. Dr Mishra also highlighted the implementation of high-efficiency bagasse cogeneration projects through USAID's GEP-ABC program, which has helped in demonstrating the extended operation of sugar mills using bagasse and other biomass fuels and the selection of higher capacities of boilers and turbines for increasing energy generation per unit of biomass. He concluded by describing the features of the training program that would help in exchanging information on financing- and policy-related issues, to help generate new cogeneration projects.
Mr John Smith-Sreen, Deputy Director, E3, USAID/India, talked about USAID's recognition of the critical link between environmental protection and sustainable development by promoting alternative forms of energy such as bagasse cogeneration. He made a reference to President Bush's new approach to the challenge of climate change by their long-term commitment based on scientific research and technology transfer, ensuring economic growth spurring creative solutions, harnessing the power of markets and seeking global participation. He felt this new approach to addressing climate change would help contribute significantly to USAID's efforts in local air pollution and GHG gas mitigation in India. The achievements under the GEP-ABC project have been CO2 offset potential through bagasse cogeneration projects and the efficiency improvement in NTPC's thermal power plants. The benefits of localized power generation, particularly at the tail-end of the grid, in terms of lower T&D losses, reliable and quality power, reduced equipment wear and tear of transformer, taking pressure off from the central grid and displacing coal as a fuel source were also discussed.
Mr Douglas M Jewell, Program Manager, National Energy Technology Laboratory, appreciated the information dissemination activities of the GEP-ABC program, and highlighted the Clean Coal Program, and DOE's bio-fuel programs supported through demonstration projects.
Shri BR Prabhakara, former Secretary, MNES, while inaugurating the training program, said that southern states such as Tamil Nadu, Karnataka, and Andhra Pradesh have shared a substantial portion of the renewable energy achievement in the country. He categorized three major factors which could accelerate creation of capacity:
- Finance at reasonable rates of interest with reasonable documentation requirements, rates of interest, repayment periods, and promoters' contributions. Interest subsidies could take the place of capital subsidies to avoid complications and disbursements to developers.
- Secondly, some utilities are not interested in 15 or 20 MW projects because they are small, seasonal and run for only eight months or so. They do not have assured power year-round, and distribution and sub-station costs are high.
- The third issue is the creation of evacuation facilities for which the utility should take the lead for encouraging sugar mills. Power sector reforms also do not mention any credit for developing renewable energy. It is their option to take the power to meet bottom lines. Environmental considerations are not priorities under the power sector reforms. Therefore, they are not forced to follow the government's guidelines regarding tariffs, wheeling/banking charges, and other incentives for the promotion of renewable energy. He mentioned that the best generating capacity needed is using local resources, to ensure energy independence in a small way. Therefore, bagasse-based cogeneration needs to be supported. He also
emphasized the need of proper involvement of consultants and boiler manufacturers, and that the right advice should be given to owners who wish to implement a cogeneration project. He expressed his happiness over the continuing financing support from IREDA for bagasse cogeneration projects and mentioned the need for an aggressive role for the National Cooperative Development Corporation (NCDC) for supporting cooperative sugar mills.
Dr B Shivalingiah, Managing Director, Karnataka Renewable Energy Development Ltd (KREDL), expressed that the interest in renewable energy is growing which will help in reducing the supply-demand gap. He mentioned that it is critical for cogeneration units to run for twelve months instead of just nine months during the crushing season. The remaining three months is very crucial for the Karnataka government where the peak demand is more which can be adjusted also by looking at alternative fuels in addition to bagasse for the same unit. Energy plantations can be grown nearby for cogeneration for increasing the availability of biomass fuels. He informed that KREDL has currently set up an "Escort" system to help with the problems with the government to get their cooperation.
Following the inaugural session, the technical sessions presented overviews of the Karnataka experience, GEP-ABC experience and various financing opportunities. Reviewing the Karnataka experience, a presentation by KREDL mentioned the potential of 900 MW using bagasse of about 30,000 tons per day generated by 38 sugar factories. If the 15 sugar factories that have been given a license also establish cogeneration plants, then about 1,300 MW of cogeneration potential is available in the state. At present, the government of Karnataka has issued an NOC to 35 existing and licensed sugar factories for setting up cogeneration plants in the state with a capacity of 648 gross MW and 400 exportable MW. Already eight sugar mills and one paper mill have commissioned cogeneration plants with an installed capacity of 153 MW out of which around 102 MW is being exported, to KPTCL. Karnataka stands second in the development of cogeneration after Tamil Nadu. The policy environment in the state is as per MNES' guidelines, which allows third party sale and for the current year the purchase price is Rs 3.16 per unit. Karnataka is also one of the very few states to offer capital subsidy of Rs 25 lakhs/MW. Till date, six sugar factories have availed of this capital subsidy and an amount of Rs 1,500 lakhs has been disbursed. As per the recent budget announcement, this capital subsidy scheme is to be extended to 31 March 2004.
KREDL, in its recent Action Plan to accelerate sugar cogeneration, is encouraging cooperative sugar mills to put up cogeneration units by contributing equity to units with sound financial health. KREDL has also recommended to the government to make it mandatory for all new sugar factories to set up cogeneration units. With respect to evacuation of power, since the Karnataka Power Transmission Corporation Ltd does not accept power generated from cogeneration plants in the day time due to various voltage fluctuations, frequency variations, etc., it has recommended to the government and KPTCL to set up new sub-stations and to strengthen the transformer capacity in existing sub-stations in order to evacuate power round the clock during the crushing season.
Mr S Shivamullu, Director, Transmission, KPTCL said that about 4400 MW of installed capacity belongs to the state and about 900 MW comes from the central generating stations. Karnataka has so far achieved a maximum peak load of about 4,500 MW with a peak power shortage of about 20% and around 10-12% of energy shortage. The state welcomes power generation from non-conventional energy sources. However, in the future it would be limited to 10% (the current figure stands at 7.5-8%) of installed capacity. The state already has an installed capacity of 301.05 MW from non-conventional energy projects out of which about 41% (123.5 MW) is based on bagasse cogeneration. The state has plans to add 433.7 MW, which are in the pipeline, for which PPAs have been finalized. This additional capacity also has a major share of bagasse cogeneration, almost 53% of the total. The state allows third party sale and wheeling charges are 20%. In some cases, for captive use it is 15%, for wind it is 10%,
For evacuation arrangements, KPTCL permits only a direct line from the power plant to the nearby sub-station. KPTCL does not allow the loop-in-loop-out arrangement from generating stations to a nearby existing line. The transmission line is designed in such a way that the transmission loss should not be more than 2%. The percentage voltage regulation in the case of power plants should not be more than 2.5%. For their loads, at the tail end they allow a voltage regulation of 6% for LT (400V) and 9% in the case of HT installations.
Mr Shivamullu also discussed the tariff, which is around Rs 3.16 per unit based on the MNES guideline, whereas the average realization rate for the utility is Rs 2.25 resulting in a loss of 91 paise. He also mentioned the average cost of supply is Rs 3.56 and it is also subsidizing the consumer and the generator thus weakening the financial position of KPTCL. There are discussions to buy electricity from cogenerators at Rs 1.75 a unit. KPTCL is also strategizing to involve bagasse cogenerators to collect dues to KPTCL from the farmers.
Sagar Sugars, a beneficiary of the GEP-ABC project, presented in detail about its 20-MW cogeneration project. This project is planning to run 180 days in the crushing season (can export 9.9 MW of power) and 150 days in the off-season (can export 16.94 MW of power to the grid). This project is eligible for financial benefits of Rs 62.4 million due to excise and customs duty exemptions and MNES interest subsidy of 36.3 million. USAID provided a grant of Rs. 33.6 million. The presentation also outlined procedures for obtaining disbursement for duty exemptions and the sub-grant amount. It also cautioned about the delay in getting the Project Implementation Authority Certificate (PIAC).
Mr Pranab Ghosh of Rabo India Finance Pvt Ltd while introducing Rabobank India operations in India highlighted their interest in bagasse cogeneration and financing issues. Mr Suneet Gupta of BTS Investments Advisors Pvt. Ltd presented his company's operations in venture capital (VC) financing.
Presenting an overview of cogeneration development, Mr Subhash Mathurvaishya of Infrastructure Leasing and Financial Services Ltd (IL&FS) described their various project implementation activities in Tamil Nadu and Maharashtra. He mentioned about grouping 8 sugar factories in Tamil Nadu for sugar cogeneration to ensure a total project size of 140 MW. He also hinted at the abysmal progress of cogeneration development in the cooperative sector due to limited experience of financial institutions in lending to cooperative sector, difficulty in raising funds and the absence of "Core Lending Institution". He emphasized SERC's response to policy developments, stable PPAs through securitization of payments, creditworthiness of developers, and project development agreements with sugar factories as good indicators for growth in sugar cogeneration.
Mr BK Thungappa, Project Advisor of Davangere Sugar Co Ltd presented his views on cogeneration project development and financing. He said that some of the sugar mills are suffering heavily financially and are looking for any government-assisted financing to implement cogeneration projects. He hoped that the government would make available adequate funds through the Sugar Development Fund (SDF) facility for encouraging cogeneration in cooperative sugar mills. He mentioned that good equipment with high performance should be selected, irrespective of price, for successful and reliable operation of cogeneration plants.
Mentioning the programs under MNES and USAID, Mr SC Natu of Maharashtra Industrial and Technical Consultancy Organization Ltd (MITCON) said that relaxed norms by FIs and steady policies are required for faster development of projects.
The financing sector and the government's policy were identified as major drivers in bolstering growth. Participants expected that a flexible approach by financing institutions by moving away from their conventional balance-sheet based approach will further enhance the cogeneration capacity. At the same time, under current power reforms, state policies with reasonable wheeling and banking charges with an attractive long-term power purchase agreement, will mobilize equity investments. This will also encourage foreign banks for debt financing of cogeneration projects, which are emerging as small power producers.
Following the training program, Mr Jewell, NETL and Dr Mishra, WII visited Shamanur Sugars to review their cogeneration unit performance. Remarkably happy with the consistent performance of this unit in supplying excess power to the grid, Mr Jewell also appreciated their efforts in creating a composting facility by using feedstock as pressmud and the spent wash from the distillery in addition to excellent water supply management.
Courtesy: Dr Saroj Mishra, Senior Program Officer, WII
