India Biomass Power Sector

A REPORT ON INDIA’S BIOMASS POWER SECTOR SUBMITTED BY RAVI JAIN 1226109240 TO Prof. V.L.RAO IN PARTIAL FULFILLMENT OF THE COURSE BUSINESS ENVIRONMENT POLICY 04th December, 2009 GIIB, Visakhapatnam

EXECUTIVE SUMMARY The total installed capacity in India is 150000MW but we are facing a power deficit of around 10%. The per capita power consumption is 665 kWh and this figure is steadily increasing. To meet this increasing demand and reduce the current peak shortage, the Government has planned to double the existing capacity to 3,00,000MW over the next decade (2010-20). BIOMASS POWER SCENARIO India has a biomass availability of 150 million MT per annum which gives us a potential to install 16,000MW of biomass based power plants. But only 600MW is installed and another 600MW is under implementation. To realise this huge potential we need an investment of Rs.1,00,000 crore. Some reasons for lack of investments in Biomass sector are:  It costs around Rs.6cr/MW for a Biomass plant whereas a thermal plant requires only about Rs.4.5cr/MW.  Availability of Biomass fuel with high calorific value (> 4000kcal/kg) PROMOTIONAL INCENTIVES 1. Accelerated Depreciation 80% in first year (Boiler and Turbine). 2. Income Tax Holiday under Section 80 1A for 10 years. 3. Concessional import duty; excise duty exemptions on equipments & components required for initial setting of the project. 4. Sales tax exemption in some states. 5. IREDA provides loans for biomass power projects. 6. Preferential Tariff in 14 States.

INVESTMENTS  India and Germany have signed a Rs.140 crore deal to install 7 Biomass projects in India.  During the 11th Plan period, the Government of India aims to add 500MW capacity through biomass in many states, including Maharashtra, Uttar Pradesh, Tamil Nadu and Karnataka.  AllGreen, a leading renewable energy developer in India, plans to raise US$100 Million to set up ten 6.5MW biomass-to-energy projects across India over three years. The first three, projected to go on-stream by March 2010, will be in Karnataka, Tamil Nadu and Madhya Pradesh.  French nuclear power specialist Areva and US-based Astonfield Renewable Resources are teaming up to invest about €100m ($142bn) in biomass power plants across India. BIOMASS CULTIVATION  Low productivity of 5 T/Hectare  Biomass cultivation over 11 million Hectares of wasteland can generate a total of 12 million direct and indirect jobs and a revenue of over Rs. 20,000 crore.  Oil content of Jatropha seeds should be increased from 33% to 50% MAJOR COMPANIES  PRIVATE SECTOR  Clenergen Power Corporation Limited – 64 MW + 16 MW worth Rs. 1,135 crore  Oriental Green Power – 8 X 8 MW worth Rs. 730 crore  Astonfield-Areva Power – 100 MW worth Rs. 630 crore  PUBLIC SECTOR  Indian Renewable Energy Development Association (IREDA) – 250 MW

1. INDIA’S POWER SCENARIO – INTRODUCTION Total Installed Capacity 1,50,323 MW Per-capita Power Consumption 704 kWh Power Generation 2.4% of the World Power Consumption 3.3% of the World Power Sector Composition 2.9 7.7 Coal Gas 24.7 Oil 53.3 Hydro Nuclear Renewa ble 0.9 10.5 Usage 22.9 24.8 Domestic Industrial Commercial 8.1 Agricultural 35.6

1.1 GROWTH OF THE SECTOR POST-INDEPENDENCE

2. SUPPLY-DEMAND GAP There appears to be no solution in sight for the prolonged and worsening power crisis facing the country with continuing slippages in capacity addition targets, unacceptably high levels of transmission and distribution (T&D) losses, power thefts and rampant corruption. The growing scarcity, poor quality and high cost of power with frequent outages is an issue of great concern at a time when serious efforts are being made to put the economy back on a higher growth trajectory. With mounting power deficits, many States are facing a crisis situation. While the overall demand-supply gap averages around 12-14%, 10 out of 28 States have a deficit of more than 20%. The peak level power deficits are much higher. 2.1 REVENUE LOSS India Inc. lost Rs 43,205 crore during 2008-09 due to high outages of power, both scheduled and non-scheduled. Such direct losses had more than doubled since 2003 when these were estimated at Rs 22,000 crore. The opportunity cost of power shortages in the last financial year has amounted to Rs 2,89,000 crore or a 6 per cent loss in GDP terms. Indians are forced to spend around Rs 30,000 crore every year on inverters and generators because of widespread power shortages and load shedding. Residential and commercial users in India have so far spent about Rs 1 lakh crore on buying invertors and generators; this amount could have helped build new generating capacity of nearly 30,000 MW. The deteriorating power supply situation is not only because of the big slippages in capacity addition targets in successive Five Year Plans but also because of whopping T&D losses. While the country’s installed capacity for power generation now is 1,51,073 MW, only about 96,000 MW is available for actual consumption due mostly to these losses and power thefts.

3. BIOMASS POWER SECTOR The key drivers for Biomass energy in India are the following:  The demand-supply gap, especially as population increases  A large untapped potential  Concern for the environment  The need to strengthen India’s energy security  Pressure on high-emission industry sectors from their shareholders  A viable solution for rural electrification Also, with a commitment to rural electrification, the Ministry of Power has accelerated the Rural Electrification Program with a target of 100,000 villages by 2012. The Ministry of Power has set an agenda of providing Power to All by 2012. It seeks to achieve this objective through a comprehensive and holistic approach to power sector development envisaging a six level intervention strategy at the National, State, SEB, Distribution, Feeder and Consumer levels. Biomass generation is of two types:  Direct co-generation (using agricultural waste), and  Bagasse based co-generation (sugar plants) 3.1 POTENTIAL BIOMASS FUELS Important sources of biomass and their characteristics are given here. A. Crop residue and farm wastes The straw of cereals and pulses, stalks and seed coats of oil seeds, stalks and sticks of fibre crops, pulp and wastes of plantation crops, peelings, pulp and stalks of fruits and vegetables and other wastes like sugarcane trash, rice husk, molasses, coconut shells etc. comes under this category. Most of the crop residues have a higher ash content and mainly constitutes carbon, oxygen and hydrogen. Volatile matter content is 60-75%. The agricultural residues are hygroscopic in nature. Ash content varies from 0.5 to 2.8 per cent.

B. Industrial wastes These wastes include wastes from paper mills, chemical mills etc. for eg., paper wastes, plastic wastes, textile wastes, gas, oil, paraffins, cotton seeds and fibres, bagasse etc. Plastic and rubber wastes have good calorific value. C. Forest wastes Logs, chips bark and leaves together constitute forest wastes. Sawdust is the forest based industry waste. Forest products are also used as a. domestic fuel in many developing countries. D. Logging residues Tree tops, small stems and roots removed from a standard logging operation and broken debris generally considered as logging residues. It contains 40-50% moisture, 50% carbon, 40% oxygen and nitrogen 5%. E. Residues of wood product industries Bark, knots, sawdust etc. are obtained from wood product industry. Moisture content of these residues is around 20% with 67% volatile matter and 11 % organic carbon. F. Residues from pulp and paper industries The bark and black liquor produced in pulp and paper factories can be used as major source of energy in the paper industry. Moisture content varies from 5-10% with organic. carbon 8-11 per cent. G. Municipal solid wastes Generally municipal solid wastes refer to a mixture of domestic, small construction and demolition wastes left out within a community. Composition of municipal solid wastes is given in the Figure. It shows the heterogenic nature of these waste mixtures. Percentage (weight) 10.7 1 Paper 2 Metals 41 24 3 Glass, Stones, Ceramics 4 Plastic, rubber 5 Garbage, yard wastes 6 Miscellaneous 4.9 11.2 8.2

H. Municipal sewage sludge The sludge contains 95% water, and 5% organic matter and nutrients as the main constituents. These can be utilized for the production of methane through anaerobic digestion. I. Animal wastes The moisture content of the manures ranges from 60 to 85 percent. The nitrogen varies from 0.3 to 0.9 %, phosphorus 0.05-0.1 % and potassium 0.12 to 0.8% Available statistics indicates production of 1300 million tonnes of dung annually from all types of animals. Of the total produced, 84% is of cow and buffalo dung and 13% goat and sheep droppings. Dung is used as a fuel in the form of cakes and biogas. Availability of biomass resources in India along with their coal equivalent is shown in Table . Sl.No Biomass Availability Coal equivalent (Tones/Yr.) (Tones/Yr.) Agricultural residues 1 Rice straw 9 58.4 2 Rice husk 19.9 15.7 3 Jute sticks 2.5 2.3 4 Wheat straw 50.5 37.5 5 Cattle dung 1,335.00 128 Agro-industrial bi-products 1 Bagasse 28.1 22.4 2 Molasses 2.1 0.8 3 Oil seed cakes 6.7 0.9 4 Saw dust 2 3.4 Forest products 1 Mahua flowers 1 0.4 2 Leaves, tops etc. 3.3 3 The share of energy in biomass sources is shown in the figure below.

3.2 ADVANCEMENTS IN BIOMASS ENERGY TECHNOLOGIES Technological advancement in biomass energy is derived from two spheres - biomass energy production practices and energy conversion technologies. A rich experience of managing commercial energy plantations in varied climatic conditions has emerged during the past two decades. Improvements in soil preparation, planting, cultivation methods, species matching, bio-genetics and pest, disease and fire control have led to enhanced yields. Development of improved harvesting and post harvesting technologies has also contributed to reduction in production cost of biomass energy. Technological advancements in biomass energy conversion comes from three sources - enhanced efficiency of biomass energy conversion technologies, improved fuel processing technologies and enhanced efficiency of end-use technologies. Versatility of modern biomass technologies to use variety of biomass feedstock has enhanced the supply potential. Small economic size and co-firing with other fuels has also opened up additional application. For electricity generation, two most competitive technologies are direct combustion and gasification. Typical plant sizes at present range from 0.1 to 50 MW. Co-generation applications are very efficient and economical. Fluidized bed combustion (FBC) is efficient and flexible in accepting varied types of fuels. Gasifiers first convert solid biomass into gaseous fuels which is then used through a steam cycle or directly through gas turbine/engine. Gas turbines are commercially available in sizes ranging from 20 to 50 MW. Technology development indicates that a 40 MW combined cycle gasification plant with efficiency of 42 percent is feasible at a capital cost of 1.7 million US dollars with electricity generation costs of 4 cents/ KWh.

3.3 MODERN BIOMASS TECHNOLOGY IN INDIA: EXPERIENCES A decade of experience with modern biomass technologies for thermal, motive power and electricity generation applications exists in India. Gasifier technology has penetrated the applications such as village electrification, captive power generation and process heat generation in industries producing biomass waste. An important aspect of small gasifier technology in India is the development of local manufacturing base. The large sized gasifier based power technologies are at R&D and pilot demonstration stage. The thrust of the biomass power programme is now on the grid connected megawatt scale power generation with multiple biomass materials such as rice straw, rice husk, bagasse, wood waste, wood, wild bushes and paper mill waste. Enhanced scale has improved economics as well as the technology of biomass power generation. Technology improvement is also derived from joint ventures of Indian firms with leading international manufacturers of turbines and electronic governors. 3.4 R&D AND PILOT PROJECT EXPERIENCES Four gasifier Action Research Centers (ARCs) located within different national institutions and supported by the MNES have developed twelve gasifier models, ranging from 3.5 to 100 KW. Two co-generation projects (3 MW surplus power capacities) in sugar mills and one rice paddy straw based power project (10 MW) were commissioned. While the co-generation projects are successfully operated, the 10 MW rice straw based power project completed in 1992 ran into technological problems and is closed since last two years due to want of suitable raw material. A rice husk based co-generation plant of 10.5 MW capacity installed by a private rice processing firm in Punjab and commissioned in 1991 faced problems such as unavailability of critical spares of an imported turbine and uneconomical tariffs from the state utility despite power shortage in the state. The rapid escalation in the price of rice husk and low capacity utilization added to the cost making the operation uneconomical.

3.5 LARGE SCALE ELECTRICITY GENERATION PROGRAMMES The future of modern biomass power programme rests on its competitive ability vis-à-vis other centralized electricity generation technologies. The biomass electricity programme took shape after MNES appointed the task force in 1993 and recommended the thrust on bagasse based co-generation. Programme for biomass combustion based power has even more recent origin. It began in late 1994 as a Pilot Programme launched with approval of two 5 MW projects. Interest subsidy programmes on the lines of that for the bagasse based co-generation was extended in 1995. The programme also initiated a grid connected biomass gasification R&D-cum- Demonstration project of 500 Kilo Watt (KW) capacity. A decentralized electricity generation programme initiated in 1995 provided support for total of 10 to 15 MW of small decentralized projects aimed at energy self sufficiency in electricity deficient rural locales. 3.6 TECHNOLOGY FOR PRODUCTION OF BIOMASS Modern biomass supply has to be driven by the dynamics of energy market. Supply of biomass at a competitive cost can be ensured only with a highly efficient biomass production system. Productivity of crops and trees depend critically on agro-climatic factors. To enhance biomass productivity, the Ministry for New and Renewable Energy (MNES) is supporting nine Biomass Research Centers (BRCs) in nine (of the fourteen) different agro- climatic zones in India with an aim to develop packages of practices of fast growing, high yielding and short rotation (5-6 years) fuelwood tree species for the degraded waste lands in these zones. Some centers have existed for over a decade. Packages of practices for 36 promising species are prepared. Biomass yield of up to 36.8 tons per hectare per year is reported from some promising fuel-wood species. Since the knowledge of these package of practices has remained limited within the research circles, their benefits remains to be realized. The mean productivity of farm forestry nationally is very low at 4.2 tons per hectare per year. Exploitation of bioenergy potential is vitally linked to the adequate land supply. While the use of cultivable crop land for fuel

remains controversial under the "food versus fuel" debate, there exists a vast supply of degraded land which is available cheaply for fuel-wood plantations. The estimates of degraded land vary from 66 million hectares (Ministry of Agriculture, 1992) to 130 million hectares (SPDW, 1984). With improved biomass productivity and efficient energy conversion, it is feasible to sustain a significant share of biomass in total energy use in India by utilizing a fraction of this degraded land for biomass plantation. 3.7 COMPETITIVENESS OF MODERN BIOMASS ELECTRICITY Biomass based electric power generation technologies succeeded in niche applications such as supplying electricity in decentralized location and industries generating biomass waste. The large scale penetration of biomass power technologies depends on their delivered cost and reliability in direct competition with conventional electricity sources in centralized electricity supply. In India, the principal competing source for electricity supply is the coal based power. Biomass energy cost is highly variable, depending upon the source, location etc. Delivered cost of coal also varies depending upon the extraction costs and logistic costs which vary with the distance from the mine. Coal power plants are built with large scale technology, with a standard size of 500 MW. Scale of grid based biomass plants vary from a 1 MW to 50 MW. The base price of coal in India is Rs. 48 per Giga Joule (GJ) and biomass is Rs. 72 per GJ. Evidently, the delivered cost of electricity from a 50 MW biomass based power plants is higher compared to coal power plant by 15 percent. In future this gap can be expected to reduce due to three reasons:  The scale difference between coal and biomass plants shall narrow,  Cost of biomass shall reduce due to improved plantation practices, and  Coal price shall increase since it is an exhaustible resource.

3.8 BIOMASS POWER UNDER FAIR COMPETITION: INTERNALIZING THE EXTERNALITIES Associated with conventional electric power plants are some negative social and environmental externalities. Throughout the coal and nuclear fuel cycles, there are significant environmental and social damages. Contrarily, biomass energy offers positive environmental and social benefits. Biomass plantation is often a best way to reclaim degraded lands and to generate sizable employment. Fossil fuel plant operations pose local, regional as well as global hazards. Biomass combustion also emits pollutants; however aggregate damage during the fuel cycle is much less compared to fossil or nuclear fuel cycle. Governments in countries like Sweden and Denmark have now implemented measures to internalize the externalities from conventional fuel use. Biomass offers most promising future carbon mitigation options. A fair competition requires internalization of the social and environmental externalities of competing sources. Coal combustion for electricity generation is associated with two negative externalities - namely CO2 and SO2 emissions. Typical coal used in Indian power plants emits 3.2 tons of carbon per tera joule (tC/TJ) and 0.1 ton of sulphur dioxide per TJ. Estimates of carbon tax for stabilizing emissions in 2010 at 1990 level are highly variable. Comparative assessment of different models in the U.S.A. by Energy Modelling Forum indicates a range of $20 to 150 (EMF, 1993). In developing countries, lower marginal costs for carbon mitigation are reported. SO2 tax in the range of $100 to $400 per tons is reported. Even with low environmental taxes, electricity from coal power plant is more expensive than biomass power plant. With high taxes, biomass electricity is far cheaper. Under a fair competition therefore, when environmental externalities from fossil fuels are internalized, the biomass produced electricity can be competitive vis-à-vis conventional coal power plants. This points to a very promising future for biomass power technologies.

3.9 CONVERSION TECHNOLOGIES 3.9.1 CO-FIRING Biomass co-firing in modern, large- scale coal power plants is efficient, cost-effective and requires moderate additional investment. In general, combustion efficiency of biomass can be 10 percentage points lower than for coal at the same installation, but co-firing efficiency in large-scale coal plants (35%-45%) is higher than the efficiency of biomass-dedicated plants. In the case of co- combustion of up to 5%-10% of biomass (in energy terms) only minor changes in the handling equipment are needed and the boiler is not noticeably de- aerated. 3.9.2 COMBUSTION IN DEDICATED POWER AND CHP PLANTS Biomass can be burned to produce electricity and Combined Heat – and – Power (CHP) via a steam turbine in dedicated power plants. The typical size of these plants is ten times smaller (from 1 to100 MW) than coal-fired plants because of the scarce availability of local feedstock and the high transportation cost. A few large-scale such plants are in operation. The small size roughly doubles the investment cost per kW and results in lower electrical efficiency compared to coal plants. Plant efficiency is around 30% depending on plant size. This technology is used to dispose of large amounts of residues and wastes (e.g bagasse). Using high-quality wood chips in modern CHP plants with maximum steam temperature of

540°C, electrical efficiency can reach 33%-34% (LHV), and up to 40% if operated in electricity-only mode. Fossil energy consumed for bio-power production using forestry and agriculture products can be as low as 2%-5% of the final energy produced. 3.9.3 GASIFICATION Biomass conversion into biogas can be either from fast thermo-chemical processes (e.g., pyrolysis) which can produce biogas and other fuels, with only 2%-4% of ash, or from slow anaerobic fermentation - which converts only a fraction (50%- 60%) of feedstock but produces soil conditioners as a byproduct. The biogas can be used in combustion engines (10 kW to 10 MW) with efficiency of some 30%-35%; in gas turbines at higher efficiencies or in highly-efficient combined cycles. Biomass integrated gasification gas turbines (BIG/GT) are not yet in commercial use, but their economics is expected to improve. The first integrated gasification combined cycle (IGCC) running on 100% biomass (straw) has been successfully operated in Sweden. Technical issues appear to have been overcome. IGCC plants are already economically competitive in CHP mode using black-liquor from the pulp and paper industry as a feedstock 3.9.4 TYPICAL COSTS Because of widely varying feedstocks and conversion processes, it is difficult to identify typical costs for biomass energy. The most economical approach is to use local biomass to avoid costly, energy-consuming transportation. Pelletisation can facilitate transportation but not all biomass readily forms pellets. The cost of electricity from dedicated solid biomass plants depends on:  Technology  Feedstock quality and cost  Regional location  Size of the plant. Large-size plants require biomass transportation over long distances. Small size means higher investment cost per kW and lower electrical efficiency relative to coal plants.

3.10 BIOMASS POWER SECTOR STATUS As of Oct 30, 2009 another 600 MW capacity projects are under implementation. 3.11 POTENTIAL India has a biomass availability of 150 million MT per annum. This gives us a potential to install 16,000 MW of biomass based plants. To realise this potential we need an additional investment of Rs.1,00,000 crore. The Table gives a clear picture of the utilized and unutilized potential of biomass power in India.

Crop Biomass Biomass Power Area State Productio Generatio Surplus Potentia (kha) n (kT/Yr) n kT/Yr (kT/Yr) l (MWe) Andhra pradesh 2540.2 3232.0 8301.7 1172.8 150.2 Assam 2633.1 6075.7 6896.3 1398.4 165.5 Bihar 5833.1 13817.8 20441.8 4286.2 530.3 Chattisgarh 3815.5 6142.8 10123.7 1907.8 220.9 Goa 156.3 554.7 827.2 129.9 15.6 Gujarat 6512.9 20627.0 24164.4 7505.5 1014.1 Haryana 4890.2 13520.0 26160.9 9796.1 1261.0 Himachal pradesh 710.3 1329.2 2668.2 988.3 128.0 Jammu & kashmir 368.7 648.7 1198.7 237.7 31.8 Jharkhand 1299.8 1509.0 2191.2 567.7 66.8 Karnataka 7277.3 38638.5 23766.8 6400.6 843.4 Kerala 2041.7 9749.7 9420.5 5702.6 762.3 Madhya pradesh 9937.0 14166.9 26499.6 8033.3 1065.4 Maharashtr a 15278.3 51343.3 36804.4 11803.9 1585.0 Manipur 72.6 159.4 318.8 31.9 4.1 Meghalaya 0.8 14.0 42.0 8.4 1.1 Nagaland 27.1 87.6 149.2 27.2 3.1 Orissa 2436.6 3633.3 5350.4 1163.4 147.3 Punjab 6693.5 27813.7 46339.8 21267.0 2674.6 Rajasthan 12537.5 93654.8 204887.6 35531.1 4595.0 Tamil nadu 2454.0 24544.6 15976.6 6658.7 863.7 Uttar pradesh 12628.2 46800.8 50416.7 11725.9 1477.9 Uttaranchal 66.4 135.8 159.9 51.6 6.6 West bengal 5575.6 21062.8 23316.0 2959.7 368.3 105786. 139355. Total 8 399262.1 546422.6 8 17981.8

JATROPHA It is possible to use the wasteland (63 million hectares available at present) to grow multipurpose biofuel plants such as Jatropha & Eucalyptus with minimum input. Once grown, the crop has 50 years of life and fruiting can take place in two years. It yields up to five tonnes per hectare oil seeds and produces two tonnes of biodiesel. Jatropha & eucalyptus plants grown in 11 million hectare of land can yield revenue of approximately Rs 20,000 crores, a year and provide employment to over 12 million people both for plantation and running the extraction plant, he added. There is a need to improve the oil content of Jatropha seed from the present 33% to at least 50%. Another area requiring further research is to develop seeds which can produce fruits throughout the year.

4. BARRIERS TO ACCELERATED BIOMASS POWER DEVELOPMENT In India, the deployment of biomass power generation technologies has been slow. The difficulties facing the implementation of biomass power projects may differ slightly depending upon whether the projects are drawing their biomass resources from a captive (sugar, rice mills, etc.) as opposed to a distributed source (cotton stalks, mustard or rape seed stalks; etc.). The development of biomass power projects involves broadly three categories of sponsors:  Sugar Mills and Cooperatives  Private Sector/Small Entrepreneurs (largely biomass processors) and  Independent Power Producers (IPP, power generation companies) Based on the trial and error of past experiences, the following specific barriers to development of biomass power projects and replication of identified models have been recognized. 4.1 ABSENCE OF EFFECTIVE INSTITUTIONAL AND FINANCING MECHANISMS The common barriers constitute:  Insufficient capacity of the stakeholders and inadequate institutional and policy framework at the national, regional and local levels;  Lack of institutional support in dealing biomass power projects such as distribution and sale of electricity;  Absence of commercial and service networks (e.g. biomass depots for collection, transportation and delivery of biomass fuels) at the national, regional and local levels; and  Limited access to financing and lack of interest on part of the SEBs in promoting biomass power generation. 4.2 LACK OF ADEQUATE POLICY FRAMEWORK Non-uniform policies - different states have different policies on wheeling, banking, and third party sales that impede the growth of biomass power projects, because of uncertainty in power purchase rates and insufficient security mechanisms for financial institutions. The present tariff policies of the government for conventional supply do not consider all the

benefits of biomass projects, such as minimal transmission and distribution (T&D) losses, substantial overall environment and social benefits to local people. Likewise, the benefits to SEBs due to additional reactive power generation, improved quality and availability of local power are overlooked. The result is a non-level playing field for renewables. 4.3 LACK OF EFFECTIVE REGULATORY FRAMEWORK Lack of capacity amongst the regulators to adequately take into account the various economic, social and environmental costs of conventional energy sources as well as the benefits of renewable generation. 4.4 LACK OF TECHNICAL CAPACITY The technologies for biomass power development, both for combustion and gasification technologies have not yet been fully standardized, packaged, documented and validated as they are still in the early stages of commercialization. 4.5 ABSENCE OF EFFECTIVE INFORMATION DISSEMINATION The information generally available on viable biomass resources and biomass power technological configurations and project parameters at national and international levels is limited. There is no documentation of earlier experience of projects, such as information on project performance. Furthermore, the mode of information dissemination largely remains ineffective due to lack of capacity among the stakeholders (farmers, project developers or promoters) in this sector. With these two integral elements not being adequately integrated to the existing information dissemination strategy, the potential is not fully realized. 4.6 LIMITED SUCCESSFUL COMMERCIAL DEMONSTRATION MODEL EXPERIENCE The commercial viability of the biomass power projects is yet to be demonstrated in India on a visible scale. Viable business models need to be established to improve the confidence levels of investors and regulators. Given the nature of the investors in the cooperative and small entrepreneur sectors, this limited confidence poses high-perceived risk, which leads to larger up-front capital requirements.

In addition to the before-mentioned, the barriers specific to spreading proposed investment models are identified and described below. 4.7 BARRIERS FACED BY COOPERATIVE SUGAR MILLS High transaction costs – On account of non-standardized agreements and delays in signing of the project development agreements (PDAs) and power purchase agreement (PPAs), the costs per transactions are prohibitively high. Limited access to funds and difficulties in raising equity – Financial institutions are reluctant to finance cooperatives and small investors, which expresses itself in unreasonable securitization requirements. Long gestation period – The experience to date has been that the project development cycle requires several years to complete. The pre-project implementation phase (involving project design, documentation, loan sanctions/approval) has taken more than two years in many projects. Low technological confidence – The lack of standardization and the introduction of high pressure boilers (greater than 67 kg/cm2) have led to a resistance to switch over to alternative processes and business models. Limited capacity – Cooperatives have a low capacity to design/develop, operate, and manage grid connected power projects. Fuel supply risks – As these projects are largely considered to make use of captive biomass, the fuel-supply risks revolve mostly around the question of physical availability, which is a function of rainfall, harvesting effectiveness, and productivity. High management risks – Since the cooperative sector is subject to change in management every five years, and is influenced by political factors, the risks for biomass power projects becomes high.

4.8 BARRIERS FACED BY PRIVATE SECTOR High transactions cost – Private sector/other entrepreneurs have difficulties raising loans on existing financing norms due to perceived high risks by FIs, negotiations on PPA clauses related to escrow/LC, etc. Limited interest in power projects – Private sector/other investors have been unable to put equity/debt on power development due to limited “proof-of-concept” demonstrations, apart from rice-husk power plants. High investment risks - For the project promoters and financial institutions, there is a perceived high investment risk due to the limited number of visibly successful demonstrations. Lack of working capital – Limited access to banks for working capital requirements for storing huge stocks of biomass materials for ensured year round operation. Fuel supply risks – For biomass processors, the fuel-supply risks are twofold. The first set are the physical availability, found in the case of all biomass power projects (rainfall, harvesting effectiveness, and productivity). The second are the questions of contracted supply encountered when dealing with distributed biomass supplies. The in-ability to lock-up sufficient supplies of biomass from various sources will serve as a hindrance to project finance and implementation. Operational risks – These include the use of high-pressure boilers with multi-fuel based biomass power plants; the lack of experience using distributed biomass materials.

4.9 BARRIERS FACING INDEPENDENT POWER PRODUCER MODEL High transaction costs - The absence of fuel depots means that the cost of setting up of depots and difficulty in establishing fuel linkage for year round operation, lead to high transaction costs. Limited access to financing – For power projects seeking to use distributed biomass resources, there are no established lenders. Lack of working capital – Limited access to banks for working capital requirements for storing huge stocks of biomass materials for ensured year round operation. Lack of infrastructure – The ability to connect small-scale generators to the grid is limited. Fuel supply risks – The fuel-supply risks again fall into two categories, with perhaps the second group being the most formidable for this group of producers. The first set are the physical availability, found in the case of all biomass power projects (rainfall, harvesting effectiveness, and productivity). Secondly, the questions of contracted supply are encountered when dealing with distributed biomass supplies. The inability to lock-up sufficient supplies of biomass from various sources will serve as a hindrance to project finance and implementation. Fuel-supply agreements and mechanisms are critical to projects for these actors. Operational risks – There are operational risks associated with utilizing high pressure boilers with multi fuel based biomass power plants and the limited demonstration ability of different entrepreneurial models to suit the local situation and biomass types.

5. GOVERNMENT REGULATIONS India is one of the countries that is most involved in developing the use of renewable energies and is trying to make the opportunity for investors more attractive than costly. 5.1 FINANCING SOURCES AND INCENTIVES To promote renewable energy technologies in the country, the government has put in place some subsidies & fiscal incentives. The Indian Renewable Energy Development Agency has been set up under Ministry for Non-Conventional Energy Sources and is a specialized financing agency to promote and finance renewable energy projects. Following is a short list of new measures: • Income tax breaks • Accelerated depreciation • Custom duty/duty free import concessions • Capital/Interest subsidy • Incentives for preparation of Detailed Project Reports (DPR) and feasibility reports More details are as follows: • 100 percent income tax exemption for any continuous block of power for 10 years in the first 15 years of operations • Providers of finance to such projects are exempt from tax on any income by way of dividends, interest or long-term capital gains from investment made in such projects on or after June 1, 1998 by way of shares or long-term finance • Accelerated 100-percent depreciation on specified renewable energy-based devices or projects • Accelerated depreciation of 80 percent in the first year of operations • Interest rate subsidies to promote commercialization of new technology • Lower customs and excise duties for specified equipment • Exemption or reduced rates of central and state taxes.

5.2 MINISTRY FOR NON-CONVENTIONAL ENERGY SOURCES – FISCAL AND FINANCIAL BENEFITS • Two-thirds of the project cost subject to a maximum of Rs. 2.00 crore per 100 KW for procurement of modules, structures, power conditioning units, cabling etc. to the implementing agency. The balance cost on land, extension of grid lines, transformers, civil works, foundation and erection and commissioning, etc. is met by the implementing agency. • Up to Rs.1.0 lakh for the preparation of Detailed Project Report (DPR) for the grid interactive SPV power projects. • 2.5 percent of its share of project cost, subject to a maximum of Rs.5 lakhs for performance evaluation, monitoring, report writing, etc. to the State Nodal Agency. • Interest subsidy of up to 4 percent to Financial Institutions including IREDA, Nationalized Banks etc. for captive power projects of maximum capacity 200 KW by industry. 5.3 ENVIRONMENTAL LEGISLATION 2001 Energy Conservation Act • Focus on energy efficiency • Standards and labeling • Designated consumers requirements • Energy conservation building codes • Energy conservation fund • Bureau of Energy Efficiency 2003 Electricity Act • Combined several existing pieces of legislation • Intended to accelerate growth of power sector • Targets additional 10 percent from renewable by 2012 (1000 MW/year capacity) • Competitive market-based

Features include • National Electricity Policy • Delicensing of generation and captive generation • Public ownership of transmission companies • Open access in transmission • Freedom for distribution licenses • Establishment of State Electricity Regulatory Commissions • License-free generation and distribution in rural areas Provisions and activities impacting the power sector • Elimination of ceiling on foreign equity participation • Streamlining the procedure for clearance of power projects • Establishment of the Central Electricity Regulatory Commission • Formulating an action plan to set up the National Grid State reforms impacting the power sector • Unbundling the State Electricity Boards (SEB) into separate generation, transmission and distribution companies • Privatizing the generation, transmission and distribution companies • Setting up independent state electricity regulatory commissions • Making subsidy payments for subsidized categories of customers by state governments • Making tariff reforms by state governments • Enabling legislation and operational support extended to the SEB/utility • Improving operations of SEBs, particularly with regard to better management practices, reduction of transmission and distribution losses, better metering and reduction of power theft

6. INVESTMENTS IN BIOMASS POWER PLANTS The recent changes in the Renewable Power policies and the incentives provided by the government have been able to attract private investments in the Biomass Power sector, both, domestic and FDI. 6.1 DOMESTIC • Green Planet Energy Private Limited has invested a sum of 9.6 billion rupees (US$228/€145 million) on setting up 14 biomass power projects in the state of Punjab. This has added 147MW of renewable energy to the state's portfolio. • AllGreen, a leading renewable energy developer in India, plans to raise US$100 Million to set up ten 6.5MW biomass-to-energy projects across India over three years. The first three, projected to go on-stream by March 2010, will be in Karnataka, Tamil Nadu and Madhya Pradesh. • Oriental Green Power, a renewable energy generation company promoted by Shriram EPC, Chennai, is planning to set up eight biomass-based power plants across the country with an investment of Rs 1,000-Rs 1,100 crore. The proposed eight plants - each having a power generation capacity of up to 8 mega watts (MW) - would come up in Tamil Nadu, Andhra Pradesh, Maharashtra, Punjab and Rajasthan over the next two years. • Ind-Barath Energy Utkal (IBEUL) has put forward plans to set up a 20MW biomass power plant at Chiplima near Sambalpur in Orissa. IBEUL's biomass plant is to be built on a 40 acre site and the company has already lodged the plans with the state government owned Industrial Promotion and Investment Corporation of Orissa (Ipicol) and the Orissa Renewable Energy Development Agency (OREDA). The company expects the plant to be operational 18 months after the Orissa government has allocated the land for the project.

6.2 FDI • Clenergen Corporation India Pvt. Ltd, a wholly owned subsidiary of Clenergen Corporation USA, will install two new biomass power projects, a 16MW plant in Tamil Nadu and a 64MW plant in Karnataka. The company has estimated an expenditure of around $236 million for the proposed plants, and plans to raise $83 million in equity from the Indian stock markets. Clenergen expects the Tuticorin plant in Tamil Nadu to be commercially operational in the last quarter of 2010. • French nuclear power specialist Areva and US-based Astonfield Renewable Resources are teaming up to invest about €100m ($142bn) in biomass power plants across India. Under the terms of the deal, announced by the companies last week, 10 biomass facilities with a capacity of about 10MW each will be built. Areva will cover 40 per cent of project costs, with Astonfield funding 60 per cent.

7. CONCLUSION The very high potential of biomass, India’s capacity to add 16,000 MW through biomass, biomass generation becoming financially viable, an established institutional framework with industrial base, increased awareness of environmental issues and energy security issues are the factors that will help the penetration of biomass power generation. However, this depends on how the challenge of adapting to the changing face of the power sector in India is handled.

REFERENCES  ITALIA, Italian Trade Commission Wind & Biomass Power in India – Profile, 2009  Energy Independence – Indian Institute of Petroleum Shailendra Tripathi & L.D.Sharma, 10/12/2005  Renewable Energy Policy, 2009 Ministry of Non-conventional Energy Sources  Indian Power Sector – An Overview of Recent Developments (2009) Infrastructure Leasing & Financial Services  http://www.eai.in/blog/2009/01/india-biomass-power-plants.html 12/11/2009 by Renewable Energy Consulting  http://www.thehindu.com/2009/02/14/stories/2009021452830300.htm 14/02/2009 by Mythili G. Nirvan  http://www.biofuelsdigest.com/blog2/2009/01/13/india-launches-review-to- stimulate-investment-in-biomass-to-power/ 13/01/2009  Indian Biomass Power Sector: A Potential Destination For North American Investors FROST & SULLIVAN, 22/09/2009  http://www.scribd.com/doc/16930431/2009-Power-Scenario-in-India Indian Power Scenario, 2009 Rahul Vikram, National Power Training Institute (NPTI)

India Biomass Power Sector

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