· Web viewThe waste that is collected is Molasses and Baggase. BAGGASE The Purified Juice is now Crystalized, Packaged and Sold.. Sugarcane is crushed so as to extract all its juice.

SUMMER INTERNSHIP REPORT ON

INVESTMENT OPPORTUNITY IN BAGASSE BASED COGENERATION PLANTS & REVIEW OF REC

MECHANISM

UNDER THE GUIDANCE OF

Dr. Rohit Verma, Dy. Director (NPTI)

Mr. S. Baskaran, Asst.Vice President, IL&FS Energy

Submitted by

ASHISH BENIWAL

Roll No: 1120812203

MBA (POWER MANAGEMENT)

Sector 33, Faridabad-121003, Haryana

(Under Ministry of Power, Govt. of India)

MAHARSHI DAYANAND UNIVERSITY, ROHTAK

August 2012

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DECLARATION

I, ASHISH BENIWAL, ROLL NO 1120812203, student of MBA (POWER MANAGEMENT) at National Power Training Institute, Faridabad hereby declare that the Training Report entitled –

“Investment Opportunity in bagasse based cogeneration plants & Review of REC Mechanism” is an original work and the same has not been submitted to any other institute for the award of any degree.

A seminar presentation of the training report was made on_______________________________

And the suggestions as approved by the faculty were duly incorporated.

Dr. RohitVerma AshishBeniwal

Project In charge MBA (Power Mgmt.)

NPTI Faridabad NPTI Faridabad

Counter Signed

Director/Principal of the Institute

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EXECUTIVE SUMMARY

It is high time that we as a nation embrace alternative energy sources such as Biomass

(Bagasse) and invest for our future. Bagasse cogeneration describes the use of fibrous

Sugarcane waste - bagasse - to cogenerate heat and electricity at high efficiency in sugar mills.

There is abundant opportunity for the wider use of bagasse-based cogeneration in sugarcane-

producing countries and to contribute substantially to high efficiency energy production. This

potential can make a meaningful contribution to the energy balance especially in developing

countries i.e. India, Brazil, Thailand, Pakistan.

It offers a viable option in the energy supply mix, particularly in the context of the present

constraints on conventional sources. It also offers an attractive investment option to the private

sector, in the context of the recently announced policies and drive towards private sector

generation.

Government of India has come up with handful of schemes for the promotion of

renewables in our country. India has a potential of 5000MW in Non-fossil fuel based

cogeneration and it is necessary to make the investment in this kind of energy attractive and

financial viable.

Indian sugar mills, both in the private and co-operative / joint sectors, have

acknowledged importance of implementing high efficiency grid connected Non fossil fuel

based cogeneration power plants for generating exportable surplus. In fact, additional revenue

stream by sale of exportable power to State Electricity Boards (or third party customers) at

Preferential tariff or at APPC and earn REC benefits, either way will help sugar mill to achieving

long term sustainability, given the fiercely competitive domestic and international sugar markets.

This report will discuss about Investment opportunities for Non-fossil fuel(Bagasse)

based cogeneration plants. The report also includes REC mechanism review to attract

investment in these bagasse based cogeneration plants.

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ACKNOWLEDGEMENT

Apart from efforts of the person doing the project, the success of any project depends largely on the encouragements and guidelines of many others. I take this opportunity to express my gratitude to the people who have been instrumental in the successful completion of the project.

I first thank MR.HAZIQ BEG, CHIEF OPERATING OFFICER, IEDCL, for giving me the opportunity to work on such an insightful project.

A special vote of thanks to Mr. BASKARAN, ASST. VICE PRESIDENT, IEDCL and also my project guide for his support and guidance during this project.

Special thanks to Mr. ANKESH DESAI, MANAGER, IEDCL & Mr. DINESH KAUNDAL, MANAGER, IEDCL for their support during my project.

I also record my sincere thanks to Mr. SAMANT JHA, ASST. MANAGER, IEDCL for his guidance during this project.

I also give my immense pleasure to thank the entire staff of IL&FS ENERGY for their immeasurable cooperation necessary for carrying out project related work.

I feel deep sense of gratitude Mr. S.K.CHAUDHARY, PRINCIPAL DIRECTOR, CAMPS, my internal project guide Mr. ROHIT VERMA, DEPUTY DIRECTOR, NPTI and Mrs. MANJU MAM, DEPUTY DIRECTOR, NPTI for arranging my internship at IL & FS ENERGY and being a constant source of motivation and guidance throughout the course of my internship.

I also extend my thanks to all the faculties in CAMPS (NPTI), for their support and guidance in my project.

ASHISH BENIWAL

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LIST OF TABLES

Table 1 State-wise Potential of Bagasse based cogeneration

Table 2 Sugar mills located in Haryana and Mill Wise Crushing Capacity

Table 3 Status of Biomass Cogeneration, Bagasse Cogeneration & Biomass Projects in Haryana

Table 4 Panipat Coop. Sugar Mills Data.

Table 5 Calculation of electricity potential in Panipat Sugar Mill

Table 6 Project Snapshots

Table 7 Financials of the Project

Table 8 Fees and Charges for REC

Table 9 NAPCC target implementation for RE Energy

Table 10 Demand Potential of RE Power Requirement (in MUs)

Table 11 REC Floor Price + APCC vs. Preferential Tariff

Table 12 REC Mean Price + APCC vs. Preferential tariff

Table 13 REC Forbearance Price vs. Preferential Tariff

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LIST OF FIGURES

Figure 1 Time line of Sugar Industry Development

Figure 2 Graph of REC Floor Price vs. Preferential Tariff

Figure 3 Graph of REC Mean Price vs. Preferential Tariff

Figure 4 Graph of REC Forbearance Price vs. Preferential Tariff

LIST OF ABBREVIATIONS

APPC Average Power Purchase Cost

ARR Annual Revenue Requirement

CDM Clean Development Mechanism

CEA Central Electricity Authority

CER Certified Emission Reduction

CERC Central Electricity Regulatory Commission

CUF Capacity Utilization Factor

DISCOM Distribution Company

DOE Designated Operational Entity

ERCOT Electric Reliability Council of Texas

GBI Generation Based Incentive

GOI Government of India

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IPP Independent Power Producer

IRR Internal Rate of Return

KWh Kilo Watt Hour

MNRE Ministry of New & Renewable Energy

MoP Ministry of Power

MWh Mega Watt Hour

NAPCC National Action Plan on Climate Change

NFFO Non Fossil Fuel Obligation

NPV Net Present Value

OFGEM Office of Gas and Electricity Markets

ORER Office of Renewable Energy Regulator

PDD Project Design Document

PLF Plant Load Factor

PPA Power Purchase Agreement

PUCT Public Utility Commission of Texas

RE Renewable Energy

REC Renewable Energy Certificate

ROC Renewable Obligation Certificate

RPO Renewable Purchase Obligation

RPS Renewable Purchase Specifications

SERC State Electricity Regulatory Commission

UNFCC United Nations Framework Convention onClimate

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TABLE OF CONTENTS

Declaration........................................................................................................................................i

Executive Summary.........................................................................................................................ii

Acknowledgment ......................................................................................................................….iii

List of Tables..................................................................................................................................iv

List of Figures..................................................................................................................................v

List of Abbreviations.......................................................................................................................v

Contents……………………………………………………………………………………….…vii

Chapter-1 INTRODUCTION & PROBLEM STATEMENT

1.1 Introduction…………………………………………………………………………………...1

1.2 Problem Statement……………………………………………………………………………1

1.3 Scope of Project……………………………………………………………………………….1

1.4 Objective of Project…………………………………………………………………………...2

1.5 About the Organization……………………………………………………………………......2

Chapter-2LITERATURE REVIEW & METHODOLOGY ADOPTED

2.1 Literature Survey……………………………………………………………………………...5

2.2 Existing Legal Framework & Policies………………………………………………………...9

2.3 Methodology Adopted……………………………………………………………………….15

Chapter-3 INVESTMENT OPPORTUNITY IN PANIPAT COOP. SUGAR MILL

3.1 Sugar Industries process……………………………………………………………………..16

3.2 Benefits of adopting Co-generation system in sugar industries……………………………..17

3.3Co-Generation and Choice of Technology…………………………………………………..18

3.4 Bagasse based Cogeneration potential

(Current Status & Future potential)………………………………………………………….24

3.5 Status of Sugar Industries in Haryana………………………………………………………..26

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3.6 Status of Biomass Cogeneration, Bagasse Cogeneration & Biomass Power Projects in Haryana……………………………………………………………………………………....28

3.7Analysis of Investment Opportunity in Bagasse based Cogeneration Plants

(Case Study of Panipat Sugar Coop. Mills Ltd.)…………………………………………….31

Chapter-4 REC MECHANISM

4.1 REC Mechanism in India……………………………………………………………………36

4.2 Salient Features of REC Framework………………………………………………………...39

4.3 REC Potential Market Assessment…………………………………………………………..44

4.4 Comparison of REC & Preferential Tariff Sale option for FY 2011-12…………………….46

Chapter-5 CONCLUSION AND RECOMMENDATIONS

5.1 Conclusion…………………………………………………………………………………...52

5.2 Recommendation…………………………………………………………………………….52

5.3 Limitations of Project………………………………………………………………………..52

5.4 Future Scope of Project……………………………………………………………………....53

BIBLIOGRAPHY…...………………………………………………………………………….54

ANNEXURES

Annexure-A..................................................................................................................................57

Annexure-B..................................................................................................................................58

Annexure-C……………………………………………………………………………………..59

Chapter 1

INTRODUCTION & PROBLEM STATEMENT

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1.1 Introduction

In India, out of 566 sugar mills, 315 are in the co-operative sector and 251 are in the private sector. Besides 136 units in the private sector are in various stages of implementation. In Haryana alone, at present, there are 15 sugar mills in operation with an annual capacity of 4825 tons of sugarcane crushing capacity as per the Haryana State Co-operative Sugar Factories Federation.

The estimated Potential for bagasse cogeneration in India is 5000 MW.

1.2 & 1.3 Problem Statement & Scope of the Project

The bagasse cogeneration scheme is doing well in the private sector sugar mills whereas problems are being faced in promoting optimum cogeneration in the cooperative sector sugar mills. The problems mainly are institutional and financial resulting from the profits that have to be given back through higher cane price in cooperative sector sugar mills. In view of this, the GoI offers a higher incentive package and upfront subsidy support for cooperative/public sector sugar mills for taking up cogeneration projects.

The new capital subsidy Scheme announced in December, 2006, provides for subsidy to projects for setting up biomass combustion based power projects and bagasse cogeneration projects in private/cooperative/public sector sugar mills. The capital subsidy is released to Financial Institutions which provides loan to the project developer on setting up biomass power and bagasse cogeneration project towards reducing the loan amount and deemed as pre-payment of loan by the developers. The new scheme provides for higher level of capital subsidy for bagasse cogeneration projects in cooperative/public sector sugar mills. Capital subsidy is also being provided for Non-bagasse Cogeneration Projects in industries.

During the 11th Plan, the MNRE has provided Central Financial Assistance through following schemes under the Biomass Power, Bagasse Cogeneration and Non-bagasse Cogeneration Programs.

i. Setting up Biomass Power projects (IPPs) and Bagasse Cogeneration Projects by private/cooperative/public sector sugar mills;

ii. Bagasse cogeneration projects in cooperative/public sector sugar mills through BOOT model implemented by IPPs/State Government Undertakings/SPVs.

iii. Bagasse cogeneration projects in existing cooperative sugar mills employing boiler modifications.

iv. Non-bagasse cogeneration projects set up in industries for meeting their captive heat and power requirement.* The scheme (ii) and (iii) has been initiated during the year 2010-11

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A capacity of 1667 MW from bagasse cogeneration in sugar mills has so far been commissioned mainly in the states of Tamil Nadu, Uttar Pradesh, Karnataka, Andhra Pradesh, Maharashtra, Chhattisgarh, Punjab and Rajasthan. The target of 1200 MW Bagasse Cogeneration has been set for 11th Plan period. During the first 04 years of the 11th Plan a capacity addition of about 1044 MW from Bagasse Cogeneration was achieved.

1.4 Objective of the Project

This report, based on Bagasse Cogeneration, describes the use of fibrous sugarcane waste – Bagasse – to cogenerate heat and electricity at high efficiency in Co-operative Sugar Factories of Haryana.

This report indicates that there is abundant opportunity for the wider use of Bagasse based cogeneration in sugarcane-producing states in India and to contribute substantially to high efficiency energy production. Yet this potential remains largely unexploited. The potential to make a meaningful contribution to the energy balance is especially great in Uttar Pradesh, Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh and Gujarat. Overall, the potential in these states of India (which accounts for 90% of Indian cane production) reaches as high as 37% in Uttar Pradesh and 22% in Maharashtra and, as an average, a significant 59% of total cane production.

The report covers suggestions and illustrations for the following so as to suitably maximize financial gains for Sugar Factories operating in Haryana:

The best methodology for utilizing REC certificates in addition to electricity trading, Effective usage of surplus Bagasse in electricity generation, To study investment opportunities in Bagasse based cogeneration plants. To review REC mechanism in India to attract investment in bagasse based cogeneration

plants.

1.5 About the Organization

Infrastructure Leasing & Financial Services Limited (IL&FS) is one of India's leading infrastructure development and finance companies.

IL&FS was promoted by the Central Bank of India (CBI), Housing Development Finance Corporation Limited (HDFC) and Unit Trust of India (UTI). Over the years, IL&FS has broad-based its shareholding and inducted Institutional shareholders including State Bank of India, Life Insurance Corporation of India, ORIX Corporation - Japan and Abu Dhabi Investment Authority.

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IL&FS has a distinct mandate - catalyzing the development of infrastructure in the country. The Organization has focused on the commercialization and development of infrastructure projects and creation of value added financial services.

From concept to execution, IL&FS houses the expertise to provide the complete array of services necessary for successful project completion: visioning, documentation, development, finance, management, technology and execution.

Financial Services

At IL&FSs’ conception, the development of skills in financial services was considered a critical ingredient to the commercialization of infrastructure. The Financial Services division took shape to cater to this need.

Over the last decade, this division has expanded its services to offer a suite of sophisticated financial services and today boasts of being one of the largest integrated financial services provider and a one-stop financial solution resource for its clients.

Teams at IL&FS comprise of finance professionals with several years of experience. Continuously engaged in developing innovative, layered and competitive solutions, these professionals have demonstrated, time and again, that the key to unraveling full value for customers is based on the fusion of ‘micro’ financial elegance and ‘macro’ enterprise-wide architecting.

Public Private Partnership

IL&FS has evolved into a prominent institution that harnesses the power of Public Private Partnership, to develop and finance infrastructure projects across a variety of sectors. Almost uniquely, IL&FS has succeeded in turning infrastructure capacity creation into a commercially

IL&FS is committed to providing projects with financial investment, managerial expertise and inputs that ensure efficiency in service delivery. We offer a full range of financial, project development and management services. These services include investment banking, project financing, project development, management and implementation, asset management, merchant banking, corporate advisory services and back office services.

IL&FS Energy

IEDCL a Subsidiary of your Company is uniquely placed with a pan India presence for the development of power projects from both Conventional and Non-Conventional Energy sources. It provides a gamut of services in the Power sector from Concept to Commissioning IEDCL is currently associated with power projects aggregating to approximately 10,000 MW under various stages of implementation. Some of the major projects under implementation under the flagship of IEDCL are as follows:

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Generation – Conventional • 4,000 MW Imported Coal based Supercritical Thermal Power Project in Tamil Nadu – Rs 240 billion

• 1,600 MW Coal based Supercritical Thermal Power Project in Andhra Pradesh along with APGENCO – Rs 85 billion

• 726.6 MW Gas based Combined Cycle Power Project in Tripura along with ONGC – Rs 35 billion

Generation – Non-Conventional:

• 45 MW Tipang Hydro Electric Project – Rs 2.60 billion .

• 24 MW Passo-Dissing Hydro Electric Project – Rs 1.40 billion.

• 80 MW Bagasse base Cogeneration projects in Maharashtra – Rs 4 billion.

Advisory Mandate:

• 3 x 1320 MW Coal based Thermal Power Project form Government of Bihar – Rs 240 billion.

• 2 x 250 MW Coal based Thermal Power Project at Barauni for BSEB – Rs 27.50 billion.

• 1,320 MW Coal based Thermal power Project for the Union Territory of Daman & Diu and Dadra & Nagar Haveli – Rs 63 billion.

• Development of various Hydro power projects in the state of Uttarakhand.

Transmission Projects :

• 680 Kms of 400 KV Transmission line in North Eastern Region – Rs 17 billion.

• 400 KV Indo – Nepal Transmission link – Rs 2.40 billion

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Chapter- 2

LITERATURE REVIEW & METHODOLOGY ADOPTED

2.1 Literature Survey

Revin P. Beeharrry et al (1996) stated that the availability and exportable electricity-production potential of bagasse and sugarcane residues are estimated for various technologies which determine steam production and utilization at cogenerating sugar factories. Almost 565 kg of fibrous sugarcane biomass (expressed as kilograms of bagasse at 50% moisture) are potentially available for exportable electricity production for every tone of cane milled. A “bagasse proper only” strategy would utilize 28% of the fibrous cane biomass and can potentially produce between 60 to 180 kW h of electricity per tons of mill able cane. Use of cane tops and leaves as a bagasse extender would utilize another 32% of the sugarcane biomass and the electricity output could range between 146 and 401 kW h/t of mill able cane. The extreme case where 100% of the fibrous sugar cane biomass is utilized has the potential of producing up to 678 kW h/t of mill able cane.

M.P. Sharma et al (1999) stated that with the increase in industrialization coupled with population growth, the demand for power is rapidly increasing, thereby jeopardizing the economic and social growth of the country. In addition to power from conventional sources, the New & Renewable Energy Sources (NRES) has been found to have enormous potential. About 800 MW of power from renewables has already been created while about 2000 MW is likely to be added in near future. Among the NRES, bagasse based co-generation of surplus power in Indian sugar mills has been given a new boost, as more than 3500 MW of surplus power potential exist in sugar mills only (10,700 MW from all industries). These industries are being encouraged by the Govt. of India to generate surplus power & feed to the grid by offering a number of incentive schemes.

An attempt has been made in his paper to present energy scenario, co-generation potential, technological options available, incentives for encouraging power generation in sugar industry, techno-economic analysis of co-generated power and future scope of research & development in this vital field.

Chaprey et al (2006) discussed that the Cogeneration of steam and electricity has become the norm in the sugarcane industry worldwide. This process has been taken further to a stage where sugar companies can export a substantial amount of energy to the grid. Mauritius and Reunion Islands have implemented state of the art technology in bagasse energy cogeneration. It is on this basis that the potential for cogeneration in Zimbabwe’s sugar industry is being examined. The findings indicate that it is technically feasible to implement such a project. A full economic and financial feasibility study would still need to be done. Two plants of 105 MW each can be put in place, providing about 517 GWh of clean bagasse  firm power to the Zimbabwe Electricity Supply Authority. Bagasse would be used during the crop season and coal during the off-crop

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season. Coal usage during the off-season, will enable the exportation of extra power to the grid. This kind of project, which can save money for the utility, meets about 8% of the country’s electrical energy needs, reduces the amount of foreign currency needed to import electricity, results in improved efficiency in the sugar industry and can avoid the use of 293 750 tons of coal, hence avoiding the emission of 885 000 tonnes of carbon dioxide and the production of 47 000 tonnes of coal ash. The sugar millers would accrue revenue benefits equal to those revenues from selling sugar that accrue to the milling activities only.

M.V. Biezma et al (2006) stated that The combined production of mechanical or electrical and thermal energy using a simple energy source affords remarkable energy savings and in many cases makes it possible to operate with greater efficiency when compared to a system producing heat and power separately. The economic optimization in the design and operation of a combined heat and power (CHP) unit is usually performed through an examination of the investment criteria. In spite of the numerous criteria available, virtually the only ones used to determine whether to reject or to accept a project have been the net present value (NPV), internal rate of return (IRR) and payback period (PP). The aim of this paper is to develop a clear description and understanding of the uses and limitations of many different project evaluation techniques and to show when these methods are connected and are applicable to cogeneration plants. 

Chaphekar et al (2006) stated that the increasing price of fossil fuels, the increasing need for the power supply reliability and security and the increasing demand for energy-efficient technologies are tending to favor the application of small power generation solutions. An excellent approach to these solutions is to install combined heat and power systems that can be configured to operate under normal conditions to supply local power needs but with grid back up. Cogeneration is also called 'total energy' or 'combined heat and power'. It is the use of a single fuel such as gas to simultaneously produce useful heat and electricity from the same source. While cogeneration matches other power generation options in terms of the investment costs, it provides an indigenous source of the electrical energy for the nation, saves on foreign exchange, is a tool for the employment and wealth creation and agent for abatement of environmental degradation. A significant potential exists for generating electricity from various products such as bagasse, a waste product of the cane milling process, agricultural, animal, municipal solid waste etc. Several studies in India and other parts of the world, point to the sugar industry as a prime candidate for supplying low cost, non-conventional power via cogeneration. The different systems have been designed for electricity generation from all types of wastes.

Khatavakar et al (2006) sated that The increasing price of fossil fuels, the increasing need for the power supply reliability and security and the increasing demand for energy-efficient technologies are tending to favor the application of small power generation solutions. An excellent approach to these solutions is to install combined heat and power systems that can be configured to operate under normal conditions to supply local power needs but with grid back up. Cogeneration is also called 'total energy' or 'combined heat and power'. It is the use of a single fuel such as gas to simultaneously produce useful heat and electricity from the same source. While cogeneration matches other power generation options in terms of the investment costs, it provides an indigenous source of the electrical energy for the nation, saves on foreign exchange, is a tool for

15

the employment and wealth creation and agent for abatement of environmental degradation. A significant potential exists for generating electricity from various products such as bagasse, a waste product of the cane milling process, agricultural, animal, municipal solid waste etc. Several studies in India and other parts of the world, point to the sugar industry as a prime candidate for supplying low cost, non-conventional power via cogeneration. The different systems have been designed for electricity generation from all types of wastes. The major power outages in North America and Europe have resulted in focus on developing energy technologies like domestic scale micro CHP (combined heat and power) to reduce the reliance of the consumers on large generators and the grid.

De souza et al (2008) discusses how the revenue from the sale of certified emission reductions (CERs) can contribute to the attractiveness of investment in projects of bagasse-based cogeneration. It was observed that revenue from CERs is probably not enough to make these investments acceptable in the economic and financial aspect. However, his study speculates that clean development mechanism projects will be strategic to build a positive image concerning the social responsibility and sustainability of the business in the sugar cane sector.

Borroso et al (2009) stated thatrRenewable sources have recently emerged as a generation option for many countries in order to promote clean energy development. I n the case of Brazil, small Hydro plants and cogeneration from sugarcane waste (bagasse) have been attractive alternatives during the past years, with hundreds of MW installed since 2004. Despite their advantages, both alternatives are hindered by seasonal yet complementary availability. This forces producers to discount (or price) the risks faced when selling firm energy contracts and may ultimately lead to projects being commercially unattractive. We propose a stochastic optimization model that defines the optimal composition of a portfolio based on these two renewable sources in order to maximize the revenue of an energy trading company. At the same time, this model mitigates hydrological and fuel unavailability risks, thus allowing the participation of both sources in the forward market environment in a competitive manner.

Uturbey et al (2009) deals with generation expansion from biomass co-generation. A methodology to assess investment decisions, based on cash flow analysis and financial tools, is presented. In order to incorporate the investor risk aversion criterion, a measure of risk given by the probability of obtaining negative cash flows net present values, is employed. Main uncertainties that influence cash flows are taken into account by Monte Carlo simulation and managerial flexibilities given by investment alternatives are compared employing a Real Options approach. Moreover, in order to illustrate the proposed methodology, the paper presents an analysis of the investments opportunities in the Brazilian power market for co-generation from sugar cane bagasse.

Diwakar et al ( 2010) discussed that the use of bagasse, rice husk and municipal solid waste as a fuel for power generation can be an option to supplement the growing power demand as the conventional power source i.e. fossil fuel is diminishing day by day. So bagasse, rice husk and MSW have the substantial potential of such energy to be tapped in a synergistic manner. The potential of power generation by bagasse in Uttar Pradesh is 1400 MW which can replace approximately 560 tonne of coal otherwise. The greenhouse emissions are also lower in the burning of bagasse reducing the environmental pollution. Also the potential of power generation

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by rice husk in Uttar Pradesh is 257.05 MW which is equivalent to energy of approximately 102 tonne of coal. At district Etawah the power generation by rice husk is approximately 9.45 MW. Likewise the potential of power generation by MSW in Uttar Pradesh is 258 MW which can save approximately 103 tonne of coal. If the power is generated by all these non-conventional fuels in Uttar Pradesh then the overall power generation potential would be 1916.5MW equivalent to 766.42 tonne of coal. Even the blending of rice husk with the bagasse and MSW both is possible to have appreciable calorific value in case of scarcity of any one of three at a place. An effort is made here to study and analyze keeping the availability and environmental pollution in view of all these resources at district Etawah of Uttar Pradesh in the country

Zunli Zhang et al (2011) aimed at cost allocation problem of cogeneration plant products, the paper presents a new heat-electricity product cost allocation method named equivalent allocation method. In the method, the heat-electricity product cost is divided into Fixed Cost and Variable Cost. They are allocated respectively based on the unit type and the equivalent characteristic between heat product and electricity product. Compared with other existent allocation methods, the equivalent allocation method reflects "deciding electricity by heat" principle and market attribute more reasonably. It is observed that the equivalent allocation method can promote encouraging cogeneration’s investment, reducing speculation behaviors of cogeneration's corporations and enhancing energy saving in cogeneration's corporations and heat users.

Barbara Haya et al (2011) mentioned that the Indian government has set the challenging goal of increasing its electricity capacity six- to eight-fold in the next 30 years in the context of significant capacity shortfalls and a financially ailing electricity sector. The central and state governments are subsidizing renewable energy because of energy security concerns, to promote domestic resources and a diversity of fuel supply. International funds made available through the international climate change regime could potentially provide much needed support to pay the higher costs that most renewable energy requires. This article performs a case study analysis of the history of the development of one renewable energy technology in India—cogeneration of sugarcane waste—focusing on the barriers this technology has faced in the past and now faces, and how well international and domestic efforts have worked to overcome these barriers. The goal of this work is to lend insight into the effective structure of future international support mechanisms being discussed for inclusion under the post-2012 climate change regime. This study finds that bagasse cogeneration has faced layers of informational, technical, regulatory and financial barriers that have changed over time, and differed significantly between the private and cooperative sugar sectors. Each of the programmes designed to support bagasse cogeneration had a role to play in enabling the bagasse cogeneration currently installed, and no single programme would have been successful on its own. Some barriers to the technology needed directed efforts designed to address the specific context of the sugar sector in India; simply subsidizing the technology or putting a price on carbon was not enough. Where climate (global) and development (local) priorities differ, projects that bring about international goals risk running into conflict with other more pressing domestic goals. Interviews at mills attempting to access carbon financing through the Kyoto Protocol's Clean Development Mechanism (CDM) indicate that additionally-testing is a challenge to the effectiveness of this mechanism. Any effort to exploit the remaining 86% of the estimated national potential for high efficiency bagasse cogeneration will need to address the special financial and political conditions facing cooperative mills.

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2.2 Review of Existing Legal Framework

The Preamble to the Electricity Act 2003 records the following: “An Act to consolidate the laws relating to generation, transmission, distribution, trading

and use of electricity and generally for taking measures conducive to development of

electricity industry, promoting competition therein, protecting interest of consumers and

supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent

policies regarding subsidies, promotion of efficient and environmentally benign policies,

constitution of Central Electricity Authority, Regulatory Commissions and establishment

of Appellate Tribunal and for matters connected therewith or incidental thereto.”

Further, the EA 2003 has following provisions for promotion and development of Renewable

Energy sources in India.

Section 86(1)(e): The State Commission shall ‘promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee.’

Section 61(h): The Appropriate Commission shall, subject to the provisions of the Act, specify

the terms and conditions for the determination of tariff, and in doing so, shall be guided by the

promotion of co-generation and generation of electricity from renewable sources of energy.

Section 86(1)(b): The SERCs shall discharge the function to regulate electricity purchase and

procurement process of distribution licensees including the price at which electricity shall be

procured from the generating companies or licensees or from other sources through agreements

for purchase of power for distribution and supply within the State.

Section 3(1): The Central Government shall, from time to time, prepare the National

Electricity Policy and tariff policy, in consultation with the State Governments and the

Authority for development of the power systems based on optimal utilization of resources such

as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy.

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Section 3(3): The Central government may, from time to time in consultation with the

State governments, and the Authority review or revise, the National Electricity Policy and

tariff policy referred to in section 3(1).

Section 79(k): The Central Electricity Regulatory Commission (CERC) shall discharge the

functions assigned under the Act.

Section 66: The Appropriate Commission shall endeavor to promote the development of a market (including trading) in power in such manner as may be specified and shall be guided by the National Electricity Policy referred in Section 3 in this regard.

National Electricity Policy was notified by Central Government in February 2005 as per

provisions of Section 3 of EA 2003. The Clause 5.12 of NEP outlines several conditions in

respect of promotion and harnessing of renewable energy sources. The salient features of the said

provisions of NEP are as follows.

Non-conventional sources of energy being the most environment friendly there is an urgent

need to promote generation of electricity based on such sources of energy. For this purpose,

efforts need to be made to reduce the capital cost of projects based on non-conventional and

renewable sources of energy. Cost of energy can also be reduced by promoting competition

within such projects. At the same time, adequate promotional measures would also have to

be taken for development of technologies

and a sustained growth of these sources.

The Electricity Act 2003 provides that co-generation and generation of electricity from non-

conventional sources would be promoted by the SERCs by providing suitable measures for

connectivity with grid and sale of electricity to any person and also by specifying, for purchase of

electricity from such sources, a percentage of the total consumption of electricity in the area of a

distribution licensee. Such percentage for purchase of power from non-conventional sources

should be made applicable for the tariffs to be determined by the SERCs at the earliest.

Progressively the share of electricity from non-conventional sources would need to be increased

as prescribed by State Electricity Regulatory Commissions. Such purchase by distribution

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companies shall be through competitive bidding process. Considering the fact that it will

take some time before non-conventional technologies compete, in terms of cost, with

conventional sources, the Commission may determine an appropriate differential in prices to

promote these technologies.

Industries in which both process heat and electricity are needed are well suited for

cogeneration of electricity. A significant potential for cogeneration exists in the country,

particularly in the sugar industry. SERCs may promote arrangements between the co-

generator and the concerned distribution licensee for purchase of surplus power from such plants.

Cogeneration system also needs to be encouraged n the overall interest of energy efficiency and

also grid stability.

National Electricity Policy was notified by Central Government during January 2006 as per

provisions of Section 3 of EA 2003. Tariff Policy (TP) has further elaborated the role of

regulatory commissions, mechanism for promoting harnessing of renewable energy and

timeframe for implementation etc. The Clause 4 of the TP addresses various aspects associated

with promotion and harnessing of renewable energy sources. The salient features of the said

provisions of TP are as under:

Pursuant to provisions of section 86(1)(e) of the Act, the Appropriate Commission shall fix a

minimum percentage for purchase of energy from such sources taking

into account availability of such resources in the region and its impact on retail

tariffs. Such percentage for purchase of energy should be made applicable for the

tariffs to be determined by the SERCs latest by April 1, 2006. It will take some

time before non-conventional technologies can compete with conventional

sources in terms of cost of electricity. Therefore, procurement by distribution

companies shall be done at preferential tariffs determined by the Appropriate

Commission. Such procurement by Distribution Licensees for future requirements

shall be done, as far as possible, through competitive bidding process under

Section 63 of the Act within suppliers offering energy from same type of non-

conventional sources. In the long-term, these technologies would need to compete

20

with other sources in terms of full costs.

The Central Commission should lay down guidelines within three months for pricing non-

firm power, especially from non-conventional sources, to be followed in cases where such

procurement is not through competitive bidding."

Energy situation and Government Policy

Prevalent Scenario

The Central Electricity Authority (CEA) has projected an energy shortfall of 10.3 per cent and a peak shortage of 12.9 per cent in the country during the current financial year (2011-12), even though significant consumer base is yet to be provided with electricity connections. In the previous financial year, energy shortage was 8.5 per cent and peak shortfall 9.8 per cent. The peaking shortage in the current financial year would prevail in all the regions, varying from 5.9 per cent in the north-eastern (N-E) region to 14.5 per cent in the south. The projected energy shortage in N-E will be 7.7 per cent, compared to 11 per cent in the western region.

With the ‘Electricity to All by 2012’ program of the Government of India, the demand for the electricity is going to increase significantly. At the same time, the growing demand for fossil fuels in India, fuel prices are continuously rising over the last few years. This has made efficient and optimal utilization of available resources in every application the need of the hour.

‘Cogeneration’, as the name suggests, produces multiple forms of energy such as electricity, steam, shaft power or other forms of energy from a single source of fuel. Due to its ability to produce energy in more than one form, its uses significantly less fuel then what would be needed to produce those forms of energy separately. It is possible to achieve overall efficiency levels of more than 70% through cogeneration. Thus, by achieving higher efficiency, cogeneration facilities contribute to an increase in overall energy efficiency.

Similarly, captive cogeneration facilities are useful as these provide electricity at the place of consumption, thereby avoiding transmission of electricity over long distances. Further, these distributed generation facilities help in improving voltage profiles of the network.

Developments till Date

As power sector reforms were initiated in 1991, which permitted private sector participation in the generation sector, many industrial consumers began exploring options to meet their energy requirements – electricity, process steam and motive power – by installation of captive cogeneration facilities. The Ministry of Power recognized the need to promote such initiatives

21

and notified a policy on 6 November 1996, which specified various forms for the first time, qualification requirements for cogeneration, and outlined the broad contours for the promotion of such industrial cogeneration projects. Enactment of the Electricity Act 2003 (EA 2003) provided further impetus to cogeneration by mandating State Electricity Regulatory Commissions (SERCs) to promote generation from cogeneration and renewable energy sources. Under Section 61 (h) of the EA 2003, the ECRs have to set tariffs in such a manner that generation from cogeneration and renewable energy sources is promoted. While EA 2003 has strengthened the institution of ERCs by entrusting several functions such as licensing tariff determination, market development, etc., it has put the onus of development of policies for optimal utilization of resources on the Central Government.

Encouraging Electricity Procurement from Co-generators

Though several SERCs have formulated Regulations for promotion of generation of electricity from cogeneration and renewable energy sources under 86(1)(e), little has been done to promote ‘Industrial cogeneration’ or co-generators using fossil fuel. The primary reason for this is the underlying fact, which believes EA 03 does not explicitly distinguish between cogeneration using ‘fossil fuel’ and cogeneration using ‘non fossil fuels’ such as Bagasse.

Promotional Tariff for Non Fossil Fuel based Cogeneration

Some ERCs in states such as Maharashtra, Karnataka, etc. have determined ‘promotional tariffs’ for cogeneration projects using non-fossil (Bagasse) fuels. However, no SERC has yet determined tariff for procurement of power by distribution utilities from industrial cogeneration using fossil fuels. In a ‘cost-plus’ regime, it is difficult to determine tariffs for cogeneration projects, as allocation of fuel cost to power, steam and/or shaft power is difficult. The challenge lies in striking a balance between operational requirements of co-generators and addressing concerns of utilities and consumers, who procure power from such co-generators. Further, cogeneration efficiency varies for different modes of operation of cogeneration facilities, to cater to varying power and steam requirements of the industrial plant during start-up, normal operations and breaking down periods.

Harnessing Surplus Captive Generation

According to CEA statistics, captive generation capacity of 20000 MW (for 1 MW and above plants) exists. A large percentage of this capacity is based on liquid fuels and is being utilized at less than 50% plant load factor (PLF). This capacity is less than idle and should be utilized during the current phase of extreme shortage of power. The necessity for the need to develop innovative schemes to tap such idle capacity is addressed by the introduction of RPO and REC policies. MERC recently instituted a mechanism in the city of Pune to tap about 90MW of liquid fuel-based captive capacity. Under this scheme, during peak hours, consumers with captive generation plants will run their plants, thereby reducing drawl from the grid. This would release grid energy, which is supplied to other consumers, thereby eliminating load shedding in the city

22

of Pune. The captive generating plant is being compensated for additional generation costs, which is being collected from consumers of Pune city in the form of a ‘Reliability Surcharge’. MERC developed this scheme through a transparent regulatory process.

Other Key Regulatory Considerations

Under EA 2003, the Regulatory Commissions are required to formulate various regulations, codes and standards in respect of various aspects of power system such as connectivity, transmission and evacuation arrangements, wheeling and banking, etc. However while devising rules and regulations in these matters and to facilitate procurement of power from co-generators, the Regulator will have to address specific operational requirements of cogeneration facilities.

There exist several industrial cogeneration installations using fossil fuels mainly in process industry such as chemicals, petrochemicals, fertilizers refineries and metals and mineral industries. The continuous availability of process steam is essential for continuous process industries, depending on the process and loading, the requirement of process steam and power varies. Typically start-up, standby power and steam requirements for such industries is very high and the cogeneration facility is designed to meet this initial start-up requirement. However during normal operations, surplus capacity available with cogeneration facilities could be harnessed for supply to grid.

The Central Government’s Role

The Central Government has recognized the urgent need for capacity addition in the power sector and has offered several incentives such as waiver of import duty on capital equipment and material to be used for mega ultra-mega power projects. However, in case of smaller capacity power generation projects such as captive and cogeneration facilities, the import duty at full rate is levied on import of power generation equipments. This not only increases the capital cost of cogeneration facility but also discourages competition amongst suppliers of power and plant equipment. As a limited number of power plant equipment manufactures exist in India, this increases the cost of capital goods for industrial consumers. The Central Government should initiate measures to treat cogeneration facilities at par as far as benefits and incentives offered to ‘mega power projects’ are concerned.

Further, fuel cost forms a significant component of the cost of generation projects. Several types of taxes and duties such as import duty, cess, royalty, etc are added to the delivered cost of fuel in the case of fossil fuels. As cogeneration facilities with the higher efficiencies use fuel resources more efficiently, the Central Government should consider exemption or at-least lower rates of taxes and duties to be applicable for fuel used by cogeneration facilities.

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2.3 Methodology Adopted

This project is made based on the data and findings collected by me on the visit to two Sugar Industries in Haryana----

The Panipat Co-op. Sugar Mills Limited in Panipat district of Haryana on 21st June 2012.

The Palwal Co-op. Sugar Mills Limited in Palwal District of Haryana on 29th june 2012.

The data collected is then sorted and analyzed to determine the bagasse potential in both the sugar industries and then to determine how much electricity we can produce from those potentials of bagasse in each of the Panipat and Palwal Sugar Plants.

Then how much investment is required to build a bagasse based cogeneration plants and to calculate payback period and discuss the other financial perspectives.

REC mechanism is also studied to know how it is useful to attract investors in these Sugar Industries of Haryana.

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Chapter 3

INVESTMENT OPPORTUNITY IN PANIPAT COOP. SUGAR MILL

3.1 Sugar Industries Process

In recent times sugar cane prices have been rising exponentially whilst sugar prices have been

rising at a much slower rate. Therefore the profits made by sugar manufacturers are going down

every day. To remain profitable, Sugar manufacturers need to optimize and integrate their

factory’s so as to attain the highest possible output with the least input. Therefore this essay shall

explore the feasibility and need of such a project.

To understand the proposed project better, let us first look at how sugar is made-

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Sugarcane is grown by the farmers and is

subsequintly sold to SBSFL

This Sugarcane is then Crushed and a juice is Obtained. This Juice is

then Purified. The waste that is collected is

Molasses and Baggase. BAGGASE

The Purified Juice is now Crystalized, Packaged and

Sold..

Sugarcane is crushed so as to extract all its juice. Thereafter this juice is purified; the waste

materials that come out are Bagasse and Molasses.

Figure Conventional vs. CHP System

3.2 Benefits of adopting Co-generation systems in Sugar Industries

Not depending on external power to all, sugar plants can be located nearer the sugar nearer the sugar growing areas, thereby saving on transportation cost of sugarcane.

An efficient and sustained co-generation enables the plant to isolate itself from the vagaries of power.

Power generation using bagasse is environmentally cleaner as bagasse produces very little fly ash and no Sulphur.

Net contribution to greenhouse effect from the bagasse based co-generating plant is zero, since the carbon-dioxide absorbed by the sugar cane grown is more than the one emitted by the co-generating plant.

Low capital investment.

Recurring costs are also lower compared to fossil fuel based power plants.

Use of totally renewable source of energy.

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Total saving in the mining, extraction and long distance Transportation expenses of fossil fuels.

Rural location of sugar mills enables co-generated power to be directly fed to the local substation, consequently minimizing T & D losses and the requirement of long feeder lines.

Saves the expenditure on safe storage and disposal of bagasse.

A co-generation plant places no financial or administrative burden on the utility as it is executed and managed by the sugar factory.

Power is generated at a lower cost in co-generating systems and pay back periods are shorter.

Provides an initiative to sugar mills to concentrate more on conservation of energy and reduction of steam consumption thereby improving their profitability of operation.

3.3 Co-Generation and Choice of Technology

Introduction

When steam (in the case of steam turbine) or gas (in the case of gas turbine) expands through the turbine, nearly 60 to 70% of the input energy escapes with the exhaust steam or gas. If this energy in the exhaust steam or gas is utilized for meeting the process heat requirements, the efficiency of utilization of the fuel increases. Such an application, where the electrical power and process heat requirements are met from the fuel, is termed "Cogeneration". Most of the industries need both heat and electrical energy. Hence, cogeneration can be a good investment for industries. Cogeneration system may be based on any type of fuel or heat source and with commercially available technology.

Cogeneration Schemes

Cogeneration, based on fuel, plant size and specific application, can be classified broadly under the following categories:

Based on energy source i.e. conventional solid, liquid gas fuels, renewable fuels, process gas etc.

Based on primary equipment i.e. gas turbine, fired boilers heaters, waste heat boilers, steam turbines etc.

Options for Cogeneration

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The two options for gas turbines are:

Gas turbine with waste heat recovery boiler (WHRB) and extraction / back pressure turbines.

Steam boiler with extraction / back pressure steam turbines.

In both the cases, the combustion of fuel releases heat energy. A portion of the heat energy is used for electric power generation, while another portion is used for meeting the process thermal energy requirements through steam.

An ideal cogeneration scheme will be such that, the fuel heat input is exactly equal to the sum of electrical energy and thermal energy requirement of the process plant. In such a case, since all the fuel heat will be fully utilized, the system efficiency will be 100% except for any practical heat release and heat utilization losses. This however is nearly impossible to implement in practice, because of the in-compatibility of the ratio of the electrical and thermal energy requirements of the process plant. Thus, it becomes evident that any cogeneration scheme adopted would meet only one of the two (thermal and electric) energy needs of the plant fully. Since electricity needs can be supplemented with the power from grid also, it follows that the cogeneration scheme should strive to meet the thermal energy requirements fully and generating whatever feasible electricity in the system. Such a system is called as a thermal balanced cogeneration system. In addition, some process plants (like sugar industry) generate fuel in the process. The heat energy content of the fuel, so generated, would be much in excess of the sum of electrical and thermal energy needs of the plant. In such cases, the cogeneration scheme adopted would produce excess electric power (while exactly catering to the thermal energy need s of the process plant through low pressure steam) and the excess electricity can be pumped into the utility grid, which is ever starving for additional electrical power.

Having identified thermal energy balanced system as the best alternative for adoption, there would be still two options possible under this system, viz.,

Generate excess electricity and send the excess to the utility grid. Generate less electricity and buy the balance electricity requirement from the grid.

When the combustion of fuel takes place in a gas turbine (GT) or an internal combustion engine, the exhaust gases from them (which contain the thermal energy for process use) are passed through Waste Heat Recovery Boilers (WHRB) for producing the steam required. It must be noted that, such cases would result in either auxiliary firing (when the energy at GT exhaust is short) or bypassing of some gas to atmosphere, when the energy at GT exhaust is more than the requirement.

Cogeneration Configuration

There are five (5) important configurations of cogeneration possible that will satisfy the above guidelines. They are described below:

Simple back pressure system:

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Case - A: Alternator in stand-alone mode:

In this case, the flow through the turbine depends on the electrical power needs of the plant. Any shortfall of the plant steam requirement is met by drawing the main steam through a PRDS. However, this is a less efficient alternative and should be avoided, if possible. Case - B: Alternator in parallel with grid:

In this case, the flow through the turbine is controlled by the plant steam requirements. Any excess power or shortfall of power is adjusted with the grid. This system is very cost effective. However, it depends very much on the reliability of the grid. Hence, this is not a preferred alternative in most cases.

Extraction cum condensing system

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This system can be operated either in stand-alone mode or paralleled with the grid. The steam flow to the plant as well as the main steam generation can be varied depending on the needs of power and plant steam requirements. In most of the industrial cases, the turbines would accommodate a maximum of two extractions only. This is a very popular alternative because of its high flexibility, even though the overall thermodynamic efficiency would be relatively lower. In order to minimize such efficiency decrements, the quantity of steam condensed should be as low as possible.

Extraction back pressure system:

This is adopted in such cases where the plant steam requirements are at more than one pressure level. The limitations with regard to number of extractions possible in industrial turbines, apply equally well in this case. This is in essence a more elaborate version of the first alternative of Simple backpressure system and hence suffers / enjoys similar advantages and disadvantages.

Gas turbine / diesel sets with WHRB for meeting process steam:

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In this case, the quantum of steam generated by the WHRB is totally dictated by the gas turbine exhaust gas quantity. Hence if the plant steam requirements are more than the quantity generated by WHRB, the shortfall will have to be met by adding auxiliary firing in the WHRB. Having thermally balanced the system, electrical output variations will have to be balanced by connecting the generator to the grid. However in some cases, the steam generated by the WHRB can be more than the plant requirements. In such cases, the steam balance is to be achieved by venting off some of the exhaust gases, bypassing the WHRB.

Gas turbine/diesel sets with WHRB and extraction-cum-condensing steam turbine:

This is a very efficient alternative and meets the fluctuations of steam and power demands of the plant. It is possible for such a system to be either paralleled with the grid or operated on stand-alone mode.

In all the above alternatives, certain standard back up features like PRDS and additional boiler capacities will have to be built for meeting contingencies.

The Available Technology

The most prevalent example of cogeneration is the generation of electric power and heat. The heat may be used for generating steam, hot water, or for cooling through absorption chillers. In a broad sense, the system, that produces useful energy in several forms by utilizing the energy in the fuel such that overall efficiency of the system is very high, can be classified as Cogeneration System or as a Total Energy System. The concept is very simple to understand as can be seen from following points.

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Conventional utility power plants utilize the high potential energy available in the fuels at the end of combustion process to generate electric power. However, substantial portion of the low-end residual energy goes to waste by rejection to cooling tower and in the form of high temperature flue gases.

On the other hand, a cogeneration process utilizes first the high-end potential energy to generate electric power and then capitalizes on the low-end residual energy to work for heating process, equipment or such similar use. Consider the following scenario. A plant requires 24 units of electrical energy and 34 units of steam for its processes. If the electricity requirement is to be met from a centralized power plant (grid power) and steam from a fuel fired steam boiler, the total fuel input needed is 100 units.

Figure: Cogeneration (Bottom) compared with conventional generation (top)

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If the same end use of 24 units of electricity and 34 units of heat, by opting for the cogeneration route, as in fig 2.1 (bottom), fuel input requirement would be only 68 units compared to 100 units with conventional generation.

3.4 Bagasse based Cogeneration potential---- (Current Status & Future potential)

Since the early 1990s, in recognition of the advantages of bagasse cogeneration relative to current

regimes of centralized generation in India, several governmental, national and international

agencies and financial institutions have been acting to promote and develop cogeneration power

projects in Indian sugar mills. In addition to its wider benefits, bagasse cogeneration is seen as

a potential means of meeting India’s renewable energy targets set at 10% of total installed grid

capacity by 2012. A timeline of the industry’s development is given in Figure below.

In 1994, the Indian Ministry of Non-Conventional Energy Sources (MNES) started the process

of helping bagasse cogeneration to take off by urging State Electricity Boards (SEB) to purchase

power from local generators at full avoided costs whilst contributing half of grid connection

costs. Eligibility criteria cover a wide range of configurations, broadening the Programmers

applicability. The implementation of this regime in Maharashtra was particularly advantageous,

with a buyback rate of Rs 4.30 / kWh. After regulators became convinced that such distributed

generation could provide a cost effective and environmentally friendly solution, this eventually

resulted in 710MWe of new capacity being built, planned or contracted.

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Figure 1: Timeline of sugar industry development

. Potential for Bagasse Cogeneration in India:

Projections for India’s potential for bagasse cogeneration range from 3.5GW-5.2GW

(2002 projection) to at least 5GW (2004 projection). The potential of 5GW can be easily

increased to over 5.5GW by employing equipment and systems for reduction of steam

and power in sugar processes. By tapping this potential completely reducing annual CO2

emissions by 38.7 million tons. The potential is to be achieved mainly through

improvements in energy efficiency and adoption of extra-high pressure (>60 kg/cm2) and

temperature configurations. More potential could also be achieved by always considering

co-firing with other available fuels as an option, as this would enable mills to continue

exporting power out of season.

Table below illustrates the potential, State by State, for producing exportable surpluses from

sugar mill cogeneration. Figures are based on current mill numbers, capacities, efficiencies and

cane availability as well as future prospects in terms of modernization for optimization of export

potential.

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Table 1: State-wise Potential of Bagasse based cogeneration 1

Sr. No. STATE POTENTIAL OF BAGASSE BASEDENERGY (MW)

1. Maharashtra 1,2502. Uttar Pradesh 1.2503. Tamil Nadu 5004. Karnataka 4005. Andhra Pradesh 3006. Bihar 2507. Gujarat 4008. Punjab 2509. Haryana & Others 400

TOTAL 5,000

As per projections made by MNRE, a cumulative capacity of 2633 MW has been commissioned; this comprises of 1636 MW Bagasse Cogeneration Projects and 997 MW of Biomass Combustion Projects.

Sugar Cane Industry In Haryana

The sugar producing area of Haryana lies along the borders of Uttar Pradesh. The state accounts for 4.13 per cent of the total area and 2.84 per cent of total production of sugarcane in India. Here Ambala, Karnal, Jind, Sonepat, Rohtak, Gurgaon, Kurukshetra and Hissar districts are the major producers. Despite marginal increase in the area of sugarcane between 1972-73 and 2007-08 (at an annual rate of 0.18%) the production has marked rising trend (annual rate being 1.03%) due to high productivity (annual rate of increase being 0.82%).

The lavish measures in form of new promotional policies for the Haryana sugar industry by the state government of Haryana was introduced at a time when it was much needed to further boost the growth of the Haryana sugar industry. The improvements in the plant capacity and the introduction of new techniques which enables the optimization of the existing plant capacities has the further made the growth definite

With the new promotional policies of the Haryana sugar industry, the investors have already starting eying the future prospects.

3.5 Status of Sugar Industry in Haryana The Haryana Sugar Industry consists of 15 sugar mills, consisting of Private and cooperative sugar mills, the study is carried out on few of the sugar mills listed below, some private and some cooperative may not be working.

There are 11 mills in the cooperative sector and 4 mills in the private sector.

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The name of sugar mills Sugar mills located in Haryana and their Mill Wise Crushing Capacity, Cane Crushed and Sugar Produced Along with % Age of Recovery During the last 3 Years is given below:

Table 2Sugar mills located in Haryana and Mill Wise Crushing Capacity Sugar Cane Purchased,

Crushed, Sugar Produced Along with % Age Of Recovery During The Last 3 YEARS (Quantity in lakh quintals)

S.No.

Name of Mill CrushingCapacity(TCD)

Cane Crushed Sugar Produced RecoveryCooperative Sector

2008-09

2009-10

2010-11

2008-09

2009-10

2010-11

2008-09

2009-10

2010-11

1. Panipat 1800 12.48 13.23 22.12 1.05 1.13 1.99 8.40 8.51 9.002. Rohtak 3500 11.34 4.18 22.01 0.89 0.19 1.52 7.85 4.50 6.903. Karnal 2200 16.37 13.33 30.19 1.45 1.1.6 2.81 8.83 8.72 9.304. Sonipat 1250 8.35 9.61 22.23 0.67 0.79 1.83 8.08 8.23 8.255. Shahbad 5000 35.95 22.96 47.03 3.29 2.24 4.42 9.15 9.75 9.406. Jind 1250 5.16 1.13 16.68 0.39 0.09 1.38 7.58 7.95 8.287. Palwal 1250 10.78 6.02 11.76 0.88 0.51 0.86 8.14 8.40 7.308. Meham 2500 10.03 5.71 13.81 0.87 0.46 1.08 8.70 8.08 7.819. Kaithal 2500 9.91 6.80 20.25 0.76 0.55 1.54 7.69 8.05 7.5910. Gohana 2500 8.59 5.59 22.05 0.65 0.41 1.81 7.52 7.42 8.2011. Assandh (Hafed) 2500 1.17 3.64 20.39 0.05 0.25 1.56 4.40 6.93 7.65

Total 26250 130.13 92.20 248.52 10.95 7.78 20.80 8.41 8.44 8.37Private Sector

12. Yamunanagar 13000 68.37 118.21

124.17 6.81 11.96 12.55 9.97 10.12 10.11

13. Bhadson 5000 22.58 29.10 33.89 2.27 2.74 3.19 10.07 9.43 9.4014. Naraingarh 4000 27.29 25.30 28.06 2.51 2.34 2.65 9.18 9.25 9.4515. Bhuna Closed in

2009-104.44 - - 0.34 - - 7.63 - -

Total 22000 122.68 172.61

186.12 11.93 17.04 18.39 9.72 9.87 9.88

Grand Total 48250 252.81 264.81

434.64 22.88 24.82 39.19 9.05 9.37 9.02

Source: http://agriharyana.nic.in/sugarcane_millwise.htm

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3.6 Status of Biomass Cogeneration, Bagasse Cogeneration & Biomass Power Projects inHaryana

Table 3

STATUS OF BIOMASS COGEN, BAGASSE COGEN & BIOMASS POWER PROJECTS IN HARYANA

(As on 30.04.12)Sr. No. SOURCE COMMISSIONED

MW ( Nos. of projects)UNDER EXECUTIONMW ( Nos. of projects)

1. Bagasse Co-gen 46.8 MW (6) -

2. Biomass Co-gen 18.95 MW (9) 6.00 MW (2)

3. Biomass Power 4.00 MW  (1) 191.00 MW (21)

YEARWISE PROGRESS OF RE POWER GENERATION IN HARYANA (MW)

Year Biomass Power Bagasse Co-gen Biomass Co-gen

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Projects

Up to 2004-05 4.00 3.0 -

2005-06 - - -2006-07 - - -2007-08 - 1.8 -2008-09 - - 2.002009-10 - 40.00 3.002010-11 - 2.00 10.452011-12 - - 3.50Total 4.00 46.80 18.95

COMMISSIONED PROJECTS:    Sr. No. Site Capacity Year of commissioning

BIOMASS  POWER PROJECTS1. M/s Nuchem Ltd, Tohana,

Fatehabad(Mustard Straw, Cotton Stalks, Rice Straw based)

4.00 MW 1993-94

BAGASSE COGENERATION1. The Gohana Co operative

Sugar Mill Ltd., Gohana2.00 MW 2003-04

2. The Sonepat Cooperative Sugar Mill Ltd., Sonepat

1.00 MW 2004- 05

3. The Meham Cooperative Sugar Mill

1.80MW 2007-08

4. The Rohtak Cooperative Sugar Mill

16.00MW 2009-10

5. The Shahbad Cooperative Sugar Mill

24.00MW 2009-10

6. The HAFED Cooperative Sugar Mill, Asandh, Karnal

2.00 MW 2010-11

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TOTAL 46.8 MW

BIOMASS COGENERATION1. M/s Bharat Starch Industries,

Yamuna Nagar (plywood waste based)

2.00 MW 2008-09

2. M/s Sainsons Paper Industries, Village-Bakhli, Pehowa, Distt, Kurukshetra (rice husk based)

3.00 MW 2009-10

3. M/s Shri. Vishnu Overseas  Pvt. Ltd., Kaithal(rice husk based)

1.5 MW 2010-11

4. M/s R.P Basmati Rice Ltd, Karnal (rice husk based)

0.5 MW 2010-11

5. M/s Sunstar Overseas Ltd, GT Road, Behlgarh, Sonepat (rice husk based)

1.95 MW 2010-11

6. M/s REI Agro Ltd, ( Unit-II) Bawal Growth Centre, Jaliawas, Rewari (rice husk based)

2.5 MW 2010-11

7. M/s Best Food International (P) Ltd, Village Norata, Tehsil Indri, Karnal(rice husk based)

4.00 MW 2010-11

8. M/s Kayem (PAN) Foods Industries (P ) Ltd., G.T.Road,  Panipat (rice husk based)

0.5 MW 2011-12

9. M/s Satyam Industries Pvt. Ltd, Village Pardhana, Tehsil Israna, Panipat

3.00 MW 2011-12

TOTAL 18.95 MW

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3.7 Analysis of Investment Opportunity in Bagasse based Cogeneration Plants (Case Study of Panipat Sugar Coop. Mills Ltd.)

Table4

The Panipat Co-op. Sugar Mills Limited

OVERVIEW OF PLANTCane Crushing Capacity(TCD) 1800TCDToatal Electrical Energy Consumption per hour(KWh)

2MW/hour

Water consumption per hour 74 Tonnes per hour Oprating hours of plant in a day 24 HoursFor how many months plant runs in a year 6 months ( Nov.-April)What people do in off months of plant? Overhauling & Maintenance work

RAW MATERIALSCane

Cane Quantity Purchased(T) Depending upon availabilityFrom where canne is purchsed- Source and Area

Nearby Farmers

Price at which cane is purchsed Not KnownHarvesting method( manually or machined) Not Known

WaterQuantity of water required for whole plant 74 Tonnes per hourSource of water Tube wellsPossibility to get addidtional water and how much

Not known

ElectricityTotal electrical energy consumption per hour 2MW/HourFrom where power is obtained Grid and Internal Cogen plantTariff for elecricity from grid in off crushing season

Rs. 6/unit

CO-GEN PLANTBoilers( 4 in Nos)

Quantity 3 NosYear of Installation 1956Make Skoda CzechoslovakiaDesigned Presuure of steam 15Kg/cm2Designed Temp. of steam 240CCapacity 15Tonn/HourQuantity 1 NosYear of Installation 1976Make Texmaco

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Designed Presuure of steam 21Kg/cm2Designed Temp. of steam 340CCapacity 25Tonn/Hour

Fuel Used in Both Type of Boilers BagasseTurbine(1 in No)

Year of Installation 1976Make TriveniDesigned Presuure of steam 21Kg/cm2Designed Temp. of steam 340CCapacity 2.5 MW

Alternator(1 in NO)Year of Installation 1976Make Jyoti

CANE PREPARATIONKicker(1 in No)

Clearance between Knives and Slat type conveyor

810mm

HP of motor 30 HPMake of Motor SiemensRPM 72No of Knives 18

Chopper(1 in No)Clearance between Knives and Slat type conveyor

600mm

HP of motor 150 HPMake of Motor SkodaRPM 585No of Knives 42

Cutter (2 in No)Cutter No 1

Clearance between Knives and Slat type conveyor

140mm

HP of motor 250 HPMake of Motor KirloskarRPM 585No of Knives 48

Cutter No 2Clearance between Knives and Slat type conveyor

10mm

HP of motor 250 HPMake of Motor KirloskarRPM 585No of Knives 48

41

MILLING(6 Mills Tandem)Each Mill has 4 Rollers Top roller, Feed roller, Discharge roller &

Underfeed rollerMake Skoda CzechoslovakiaOperation: 1st & 2nd Mills Steam Engine(Skoda make) -

15kg/cm2 3rd & 4th Mills Turbine (Bliss & Morcom make) -

16kg/cm2 5th & 6th Mills Steam Engine(Skoda make) -

15kg/cm2Hydraullic pressure on mills 2500kg/cm2

Juice Heaters(4 in Nos, 2W&2S)Temaperature of Juice in Heaters 70-80CPressure of steam required to heat the juice 4kg/cm22 motors are used 75 Hp and 1440rpm

Evaporator and Pan SectionSteam pressure required 10kg/cm2Temperature of steam required 200C

Centrifugal SeparationSteam pressure required 12kg/cm2Temperature of steam required 220C5 motor are used 25Hp and 1440rpm

Table 5

Calculation of Electricity Potential In Panipat Sugar Mill *

1 Boiler efficiency 60%2 Calorific value of Bagasse 2200KJ/Kg3 Amount of heat required to produce 1 unit of electricity i.e. 1KWh 3600KJ

4 Heat rate required (3)/(1) = 6000KJ/KWh5 Amount of Bagasse required to produce 1KW electricity (4)/(2)= 2.72Kg/h6 Amount of Bagasse required to produce 1MW electricity 2.72Tonn/h

Panipat Sugar Mills Data Analysis for the year 2011-127 Total Cane Crushed 250051.63Tonn8 Total Bagasse produced ( 30.95% of cane crushed) 77390.97 Tonn9 So Total electricity produced by power house (8)/(6)= 28452.56MWh10 Total hours of actual crushing 351511 Electricity potential in Panipat Sugar Mill (9)/(10)=8MW(approximately)

42

*See Annexure A

Thus, For Internal Consumption of Sugar plant 2 MW power is used and Surplus 6 MW is available to supply the grid.

Table 6 : Project Snapshots

S. No.

Assumption Head

Sub Head (2) Unit

1. Power Generation

-Installed Power Generation

-Internal Consumption for Sugar Mill

-Capacity Auxiliary Consumption during stabilisation

-Auxiliary Consumption after stabilisation% 8.50%

-PLF(Stabilization for 6 months)

-PLF(during first year after Stabilization)

-PLF(second year onwards)

-Useful Life

MW

MW

%

%

%

%

%

Years

8

2

8.50%

8.50%

53%

53%

53%

20

2. Project Cost Power Plant Cost Rs Lakhs/MW

3360

3 Financials Assumptions

Debt

Equity

Debt / Loan Amount-Repayment Period

-Interest Rate

Equity Amount-Return on Equity

Depreciation Rate

O&M Expenses for FY 2012-13

Total O&M Escalation

%

%

Rs lakhsYears%

Rs lakhs% P.A.

%

Rs. lakhs

%

70

30

23521012.30%

100814%

24%

64

5.72%

43

Interest on Working Capital % 12.8%

4. Fuel Related Assumptions

Heat Rate

Bagasse Price for FY 2012-13

GCV- Bagasse

Bagasse Price Escalation factor

Kcal/Kwh

Rs/Tonn

Kcal/Kg

3600

1859

2200

5%

5 Tariff Tariff Set by HERC for FY 2012-13 Rs/Kwh 5.73

Table 7 : Financials of the Project

Particulars Year 1 Year 2 Year 3 Year 4Energy available for sale

24.89 MU 24.89MU 24.89MU 24.89MU

Revenue at Rs 5.73 per unit with escalation rate of 2%

1426.197 lakhs

1454.72 lakhs 1482.64 lakhs 1510.57 lakhs

Fuel, O&M, Dep, Interest etc / Total Cost

1316 lakhs 1371 lakhs 1429 lakhs 1492lakh

Profit after Tax

110.197 lakhs 83.72 lakhs 53.64 lakhs 18.57 lakhs

Thus, we can see from the table that there is a huge potential to profit by investing in such bagasse based cogeneration plants.

*See Annexure B

Chapter-4

REC MECHANISM

44

4.1 REC Mechanism in India

For catalyzing the necessary development of renewable energy in India, various policy Instruments have been listed in NAPCC. Renewable Energy Certificate (REC) is one such policy instrument prescribed in the plan. It is anticipated that this mechanism would enable large number of stakeholders to purchase renewable energy in a cost effective manner.

When renewable power is produced, it entails accrual of certain non-energy and societal Beneficial attributes (e.g. environmental and socioeconomic benefits). Renewable Energy Certificates (RECs) or Green tags, Renewable Energy Credits, or Tradable RenewableCertificates (TRCs) as they are at times referred to, represent an aggregation of such attributes of electricity generated from renewable energy sources. These attributes are unbundled from the physical electricity, and the two products—the attributes embodied in the certificates and the commodity electricity—may be traded separately. RECs have at times been viewed as a contractual right (property right) to the environmental attributes of electricity that is generated from renewable energy.

In less than a decade RECs have become the pseudo currency of renewable energy markets, primarily because of their flexibility and the fact that they are not subject to the geographic and physical limitations of commodity electricity. In several countries RECs are being used by utilities and marketers to supply renewable energy products to end-use customers as well as to demonstrate compliance with renewable energy mandates.

The Renewable Energy Certificates (RECs) have the potential to address some of the key issues preventing exploitation of renewable potential in India. Providing the generator or the buyer, an option of cost compensation through sale of such certificates will incentivize development of R.E. projects over and above the Renewable Purchase obligation set by regulatory commissions at state level.

Drivers for REC in India

India has a huge RE potential-its midterm potential (till 2032) is estimated to be around 2, 22,000 MW; however this potential is not distributed uniformly across the country. The Electricity Act 2003 (EA 2003) mandates State Electricity Regulatory Commissions (SERC) with the function of RE promotion within the State. The SERCs set targets for distribution companies to purchase certain percentage of their total power requirement from renewable energy sources. This target is termed as Renewable Purchase Obligation (RPO).Currently, the regulations governing RPO do not recognize purchase of renewable energy from outside the State for the purpose of fulfillment of RPO target set.

The requirement of scheduling and prohibitive long term open access charges poses major barrier for RE abundant states to undertake inter-State sale of their surplus RE based power to

45

the States which do not have sufficient RE based power. Consequently, the States with lower RE potential have to keep their RPO target at lower level.

Besides the shortcomings of state level approach to renewable development, other inherent disadvantages of energy produced from such resources such as high unit cost of the RE based non-firm power compared to conventional power sources result in lack of motivation to produce RE based power beyond that required to satisfy the RPO mandate within the State in RE abundant States. Also RE scarce States are not able to procure RE generation from other States due to the reasons mentioned above.

To overcome the challenges being faced in overall renewable development, a mechanism to enable and recognize inter- State RE transactions was critically required for further promotion and development of RE sources. The aim of introducing such a mechanism was to enable all the SERCs to raise their States‘ RPO targets even if necessary resources are not available in some States. The Renewable Energy Certificate Mechanism is a mechanism which fits the bill.

Control period, operative period and sunset date

Control period is a period during which the proposed REC Scheme will be in force while operative period is a period in which projects implemented during control period. Sunset date refers to the date on which scheme expires. It is proposed that the Scheme shall come into force on April 1, 2010 and control period shall be five years i.e. March 31, 2015. And the sunset date shall be 25 years from the date on which scheme came into force i.e. March 31, 2035.

Objectives for REC Mechanism in India

While effective implementation of inter-state transactions would be primary objective for the REC mechanism in India, some of the other objectives identified for REC mechanism are:

Effective implementation of RPO regulation in all States in India Increased flexibility for participants to carry out RE transactions Overcoming geographical constraints to harness available RE sources Reduce transaction costs for RE transactions Create competition among different RE technologies Development of all-encompassing incentive mechanism Reduce risks for local distribution licensee.

Operational Framework for RECs

Step-1 Accreditation:

The proposed REC mechanism requires a procedure for accrediting generation plants which are eligible to receive RECs. Accreditation is done to assess and establish eligibility of renewable energy plants to receive RECs. The process of accreditation is largely one time activity where in

46

plants are validated on its renew able nature and other pre-requisites to be eligible for issuance of REC. The State agency appointed by the State Electricity Regulatory Commission (SERC) shall be responsible for Accreditation. Accreditation process involves processing of application, verification of projects, transfer of information, creation and operation of accounts etc. The process of accreditation of eligible renewable energy projects would also involve verification of applications (projects) and sites and hence the accreditation agencies at state level would need to have adequate monitoring capability.

Step-2 Registration

Every eligible entity shall apply for registration at central level. Only one central agency at national level will be authorized to recognize attributes from renewable generation to avoid double counting. Registration will result in creation of an account for all the entities participating in the mechanism.

Step-3 Information of RE generation

Central agency would receive information about injection of RE power by the accredited RE generators through State Load Dispatch Centre (SLDC) via Regional Load Dispatch Centre (RLDC) and local distribution licensee.

Step-4 Issuance of REC by REC registry

The eligible entity shall receive a certificate for a specified quantity of electricity generated and injected into the grid. One REC will be issued for each 1 MWh of electricity generated from renewable energy plants. RECs will be created as electronic records in a register (because electronic documents are easier to track than paper documents). The issued certificates will be credited to the registered account of the plant operator/owner.Step-5 Exchange of REC

RE generators with REC certificates can exchange their certificate at a common platform viz. the power exchange approved by CERC. Obligated entities (as defined by the SERCs in their regulations for RPO obligations) shall buy REC through power exchange. The price discovery of REC will be based on the demand and supply of the RECs in the market, subject to a forbearance price (ceiling price) determined by CERC. REC exchange will be connected to the central agency to keep record of all the transaction in the REC exchange.

Step-6 Monitoring Mechanism

It is proposed that a panel of auditors shall be empanelled by CERC at the central level. The remuneration charges for such panel of auditors will be met out of the funds which Central Agency may collect from eligible entities.

Step-7 Compliance by Obligated Entities

47

Central registry will furnish details of REC purchase and redemption to respective SERCs to enable them to assess compliance by obligated entities and impose penalties on them, if applicable. As evolved by the Forum of Regulators, there is a provision for enforcement mechanism in the draft model regulation for SERCs under section 86 (1) (e) of the Act. As per this provision, in the event of default, obligated entities would be directed to deposit the amount required for purchase shortfall of REC at forbearance price (i.e. maximum price) of REC in a separate fund, which cannot be utilized without approval of the concerned State Commission. In addition to this enforcement mechanism the penalty under Section 142 of the Electricity Act 2003 would also be applicable to the obligated entity. The concerned State Commission can empower an officer of the State Agency to procure required shortfall of REC at the cost and expense of Distribution licensee.

4.2 Salient Features of REC Framework

● Cost of electricity generation from renewable energy sources is classified as cost of electricity generation equivalent to conventional energy sources and the cost for environmental attributes.

● RE generators will have two options: – either to sell the renewable energy at preferential tariff , or – to sell electricity generation and environmental attributes associated with RE generation in the form of REC separately

Grid connected RE Technologies approved by MNRE would be eligible under this scheme

● Existing projects having firm PPA would not be eligible till the end of the contract period or a period of three years from the date of premature termination of the agreement, whichever is earlier.

● Captive Generators (including their self-consumption) shall be eligible for REC if they do not avail promotional / concessional Wheeling Charges, Banking Facility and enjoy Electricity Duty Waiver. However, if they forgo such benefits, they will not be eligible to access the market for 3 years. Provided that the 3 year limit does not apply if the concessions are withdrawn by the state or state commission

● Under REC Mechanism, RE generating company sells the electricity generated either – to the distribution licensee at a price not exceeding the pooled cost of power purchase of such distribution licensee, or – to any other licensee or to an open access consumer at a mutually agreed price, or through power exchange at market determined price.

● Central Agency would issue REC to RE generators

● One REC will be issued to the RE generators for 1 MWh of electricity injected into the grid from renewable energy sources

48

● REC would be issued to RE generators only

● Categories of Certificates: Solar and Non-solar

● CERC may, in consultation with the Central Agency, appoint from time to time compliance auditors to inquire into and report on the compliance of these Regulations by the person applying for registration, or on the compliance by the renewable energy generators in regard to the eligibility of the Certificates and all matters connected thereto.

REC Concept

49

Validity of Certificates

Eligible entity should apply for Certificates within three months after corresponding generation from the eligible RE projects. Also the certificate would be valid for 365 days from the date of issuance of such certificate.

Denomination and issue of Certificates

50

The detailed procedure for issuance of REC would be covered under the detailed procedure to be issued by the Central Agency later. Each certificate would represent one megawatt hour of electricity generated from renewable energy sources and injected into the grid.

Fees and charges

Fees and Charges payable under this mechanism would include onetime registration fee and charges, annual fee and charges, the transaction fee and charges for issue of certificate and charges for dealing in the certificate.

The details of fees and charges for different procedures of REC are as under: Table 8 : Fee& Charges for REC

Fee and Charges towards Accreditation Amount in RsProcessing Fees (One Time)

Accreditation Charges (One Time)

Annual ChargesRevalidation Charge at the end of five (5) years 15,000

5,000

30,000

10,00015,000

Fee and Charges towards Registration Amount in Rs

Processing Fees (One Time)

Registration Charges (One Time)

Annual Charges

Revalidation Charge at the end of five (5) years

1, 000

5, 000

1,000

5,000

Fee and Charges towards Issuance of REC

Amount in Rs

Fees per Certificate 10

The fees and charges under this mechanism would be collected by the Central Agency and utilized for the purpose of meeting the cost and expense under the mechanism including the remuneration payable to the compliance auditors, the officers, employees, consultants and representatives engaged to perform the functions under these regulations.

Funding for capacity building of State Agency

51

State Agency is an important institution in the process of effective implementation of REC mechanism. Considering the role envisaged for such an agency, it is necessary to build up capacity for the agency. Hence certain percentage of the proceeds from the sale of Certificates would be provided for the purpose of training and capacity building of the State Agency as designated by the concerned State Commission and for other facilitative mechanism required as per the detailed procedure by the Central Agency.

Pricing of Certificates:

The price of REC will be as discovered in the power exchange, subject to a floor and forbearance price determined by CERC. The forbearance price will not only ensure optimum incentive for the RE technologies but also save the obligated entities purchasing RECs at unrealistic high price. It is should be noted that the REC purchase expense for meeting compliance by distribution licensees should be treated as ‗pass through‘ expense in the Annual Revenue Requirement.

CERC, declared the floor and forbearance prices for the solar and non-solar RECs.

Forbearance price

CERC determined RE tariff across RE technologies and the Average Pooled Power Purchase Costs (APPC‘s) of 2010-11 across respective states have been mapped. The highest difference between RE tariff and Average Pooled Power Purchase Costs (APPC‘s) has been taken as the forbearance price

Floor Price1 The detailed calculation of floor and forbearance price can be seen in Annexure C

a) Using the gap between the minimum requirement for project viability of Renewable Energy Technologies and respective state average power pool cost of previous year, an incremental supply curve is plotted with capacity (in MU) on one axis and gap price (Rs/kWh) in ascending order on the other axis.

b) The RPO targets for 2011-2012 have been marked on the supply curve. In the present case using NAPCC targets, a target of 7% for 2011-2012has been taken.

c) The supply (RE supply) and demand (RE target) have been matched to Determine the Market Equilibrium Price (MEP) that shall act as the floor price for RECs.

CERC‘s proposal is shown below for FY(2012-13):

52

Non Solar REC (Rs/MWh)

Solar REC ( Rs/MWh)

Forbearance Price 3900 17000

Floor Price 1500 12000

Average Power Purchase Cost (APPC): The APPC for a state represents the weighted average pooled power purchase by distribution licensees (without transmission charges) in the state during the last financial year

4.3 REC Potential Market Assessment

To analyze the potential REC market in India, Renewable energy generation thus available has been compared with the current scenario (RE capacity addition as planned) to quantify incremental RE generation due to target set out in NAPCC.

Table 9 : NAPCC target implementation

NAPCC Target implementation Scenario

Unit

2010-11

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Energy Requirement BU 848.39 906.32 968.3212.7567 15.8205 19.6201

NAPCC Target % 5% 6% 7% 8% 9% 10%

RE Energy BU 42.4195 54.3792 67.7824 81.3672 96.1146 112.134

Incremental Energy BU - 11.9597 13.4032 13.5848 14.7474 16.0194

Current Scenario

Renewable Installed Capacity

MW 15765.9 19553.124250 30075 37299. 46258

53

CUF% 25% 25%

25% 25%25%

25%

RE Energy Availability

BU 34.5273 42.821353.1075 65.8642

81.6848 101.305

RE Energy Availability %

4.07%4.72% 5.48% 6.48%

7.65%9.0%

Incremental Renewable Energy Availability

BU -8.29397 10.2862

12.7567 15.8205 19.6201

At estimated CUF of 25% on aggregate basis, total renewable energy generation is expected to

increase from 34.53Bn units (2009‐10) to 101.305Bn units (2014‐15), which translate to share of

RE quantum in overall energy mix to increase from 4.07% to 9.03%, which is marginally

lower than the RPO trajectory outlined under NAPCC. Thus, incremental RE generation

varies from 8.29Bn units to 19.6201Bn units. If RECS are proposed to be introduced for new

RE projects, this translates to REC market potential of around 8 to 20Bn units per annum.

RE Power Requirement in different states in India to Fulfill RPO As discussed above that 21 states have declared their RPO. It is interesting to see how much electricity these states need to procure from RE sources in order to fulfill their RPO?

Table 10: Demand Potential of RE Power Requirement (in MUs)

State 2010-11 2011-12 2012-13

Andhra Pradesh 4190 4793 5483

Assam 65 139 224

Delhi 227 241 254

Gujarat 2514 2949 3425

Haryana 3787 4557 5484

Himachal Pradesh 662 776 902

Jammu & Kashmir 101 317 554

Jharkhand 287 308 330

Karnataka 4924 5465 6066

54

Madhya Pradesh 2247 2288 2330

Maharashtra 5889 7460 8602

Manipur 15 26 48

Mizoram 18 23 29

Orissa 1098 1222 1418

Punjab 1722 1794 1869

Rajasthan 3688 4161 5159

Tamil Nadu 6609 6518 6934

Tripura 10 22 24

Uttar Pradesh 2497 3201 3800

Uttarakhand 723 845 889

West Bengal 663 1146 2199

As shown above, a large amount of Renewable Energy generation is required by

obligated entities to fulfill their RPO condition as defined by their respective states and but as

shown in Table 10, as per the projection of Renewable Energy generation in future is not going to

be sufficient for obligated entities to fulfill their RPO criteria.

So in order to complete their RPO these obligated entities should have to purchase REC.

The key driving factors for demand and supply of RECs in India are detailed below:

a) Demand for RECs: The demand for the RECs will be mainly driven by the states which

are not able to meet their RPO targets by purchase of RE power. A review of RPO target

and actual achievement shows that very few states have been able to meet their RPO

targets. In long term, factors like RPO targets, total electricity consumption of the states

and the gap between targets & achievement will vary, which will eventually change the

demand for RECs.

b) Supply for RECs: The supply of RECs will depend upon the new renewable energy

capacity addition, RE projects getting eligible for issuance of RECs, players

participating in the REC market etc .

55

4.4 Comparison of REC & Preferential Tariff Sale option for FY 2011-12

Scope: The analysis is done on seven states of India i.e. Andhra Pradesh, Haryana,

Maharashtra, Madhya Pradesh, Punjab, Tamil Nadu, Uttar Pradesh have total potential worth

3900 MW. This along with GoI’s emphasis on clean energy presents a great opportunity for

Renewable Energy power producers.

Assumptions: 1. Project life is 20 years as per CERC guidelines. Different SERCs have different project life

ranging from 20 to 25 years, that’s why for the sake of uniformity CERC’s guidelines have been used here.

2. If the difference between the two options is less than 0.1 Rs/kWh, both the options are considered at par.

Data Gathering: Data related to this analysis has been gathered from CERC and various state

regulatory commissions’ sites. Floor price and forbearance price for REC has been taken as Rs

1.4 and Rs 3.84 per unit respectively as per the latest CERC guidelines. Mean price for REC

comes out to be 2.62 Rs/unit.

Case 1: Considering REC Floor Price

Table 11: REC Floor Price + APCC vs. Preferential Tariff

Sr.No. State APCC

Rs/Unit

REC

Floor

Price

Rs/Unit

APCC +

REC

Preferential

Tariff

Rs/unit

Preferred

Mode

Benefit

Over

other

Mode

1. Andhra Pradesh 2.5 1.4 3.9 3.28 REC 0.62

2. Haryana 2.77 1.4 4.17 4.04 REC 0.13

3. Maharashtra 2.77 1.4 4.17 4.79 FIT 0.54

4. Madhya 1.85 1.4 3.25 3.1 REC 0.15

56

Pradesh

5. Punjab 2.87 1.4 4.27 4.57 FIT 0.3

6. Tamil Nadu 2.69 1.4 4.09 4.19 FIT 0.41

We can see from above Table that for the state of Maharashtra, Punjab, Tamil Nadu Preferential

Tariff is preferable.

For all the other states REC options is better.

Chart below shows the Comparison of REC Floor Price vs Preferential Tariff.

57

Stat

e PL

F

45 53 53 53 53 60 45

State Andhra Pradesh

Haryana Maharash-tra

Madhya Pradesh

Punjab Tamil Nadu Uttar Pradesh

0

1

2

3

4

5

6

REC Rs/Kwh FIT Rs/KWh

Figure 2: REC Floor price vs Preferential Tariff

Case 2: Considering REC Mean Price

Table 12: REC Mean Price + APCC vs. Preferential tariff

Sr.No. State APCC

Rs/Unit

REC

Mean

Price

Rs/Unit

APCC

+

REC

Preferential

Tariff

Rs/unit

Preferred

Mode

Benefit

Over

other

Mode

1. Andhra Pradesh 2.5 2.62 5.12 3.28 REC 1.84

2. Haryana 2.77 2.62 5.39 4.04 REC 1.35

3. Maharashtra 2.77 2.62 5.39 4.79 REC 0.6

4. Madhya

Pradesh

1.85 2.62 4.47 3.1 REC 1.37

5. Punjab 2.87 2.62 5.49 4.57 REC 0.92

6. Tamil Nadu 2.69 2.62 5.31 4.19 REC 1.12

In this case all the states should opt for REC option.

Chart below shows the comparison of REC Mean price vs Prefertil tariff.

58

Stat

ePLF 45 53 53 53 53 60 65

State Andhra Pradesh

Haryana Maharash-tra

Madhya Pradesh

Punjab Tamil Nadu Uttar Pradesh

0

1

2

3

4

5

6

REC Mean Rs/KWhPref. Tarrif Rs/KWh

Case 3: Considering REC Forbearance Price

Table 13 : REC Forbearance Price vs. Preferential Tariff

Sr.No. State APCC +

REC Rs/Unit

Prferential

Tariff(2011-12)

Rs/Unit

Preferred

Mode

Benefit Over

other Mode

1. Andhra Pradesh 5.98 3.28 REC 2.7

2. Haryana 6.25 4.04 REC 2.21

3. Maharashtra 6.33 4.79 REC 1.54

4. Madhya Pradesh 5.33 3.1 REC 2.23

5. Punjab 6.35 4.57 REC 1.78

6. Tamil Nadu 6.17 4.19 REC 1.98

7. Uttar Pradesh 6.23 REC

In this case again, all states should go for REC option.

Chart below shows the comparison of REC Forbearance Price vs Preferential Tariff.

59

Stat

ePLF 45 53 53 53 53 60 65

State Andhra Pradesh

Haryana Maharash-tra

Madhya Pradesh

Punjab Tamil Nadu Uttar Pradesh

0

1

2

3

4

5

6

REC Mean Rs/KWhPref. Tarrif Rs/KWh

60

Stat

e PL

F

45 53 53 53 53 60 45

State Andhra Pradesh

Haryana Maharash-tra

Madhya Pradesh

Punjab Tamil Nadu

Uttar Pradesh

0

1

2

3

4

5

6

7

REC Forebearance Rs/Unit FIT(2011-12) Rs/Unit

Fig 4 REC Forbearance vs Preferential Tariff

Chapter-4”Conclusion and Recommendations”

4.1 Conclusion

There is a large scope of production of surplus electricity from bagasse- the residue of sugarcane in Haryana. The potential is huge and the return on investment is also very good.

This investment in the sugar factories will not only help these industries but will help the whole nation and more over it is clean mechanism of generating electricity.

REC and CDM are promotional scheme for this.

REC Mechanism in India is playing a major role in compliance to Renewable Purchase Obligation. Selling of Power at APCC and REC component is definitely a better option in Haryana in Comparison to Preferential Tariff option.

4.2 Recommendation

The project should be made fast track in order to gain the benefits to both the sugar industry and to the overall electricity requirement of the nation.

Financials and Legal Hurdles should be cleared as early as possible to avoid delays in these projects.

Trained and efficient manpower is also needed in completion of these projects.

4.3 Limitations of Project

Financial Constraints is a huge problem.

61

Trained and Efficient manpower. Legal Hurdles. Fuel (sugarcane) shortage. Land acquisition problems. Water availability constraints

4.4 Future Scope of Project

The project is not feasible due to the several constraints listed above. In Panipat, land acquisition and its availability is a huge problem.

Moreover, this concept of project can be applied to other sugar industries of several different states of India.

Return on investment is good from these projects and will play a major role to fulfill Renewable Purchase Obligations of different states.

These projects will definitely play a major role in decreasing the energy deficit percentage of the Indian Power Sector.

Less AT&C losses are there because of local distribution of power generated from these projects to small towns and villages.

62

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63

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[38] http://www.wberc.net/ dated 15.072012

[39] http://jserc.org/ dated 17.07.2012

[40] http://cserc.gov.in/ dated 18.07.2012

[41] http://www.aes.com/ dated 19.07.2012

[42] http://tripura.nic.in/terc/ dated 20.07.2012

[43] http://www.herc.nic.in/ dated 22.07.2012

[44] http://www.nldc.in/ dated 22.07.2012

[45] http://www.wrpc.gov.in/ dated 22.07.2012

[46] http://reconnectenergy.com/ dated 23.07.2012

65

ANNEXURES

Annexure A

66

Annexure B

67

INTEGRATED PROJECT COST SHEET

Fuel Price Escalation 5%O&M Escalation 6%

YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25Total Project Cost Rs Lakhs 3360ULB contribution Rs Lakhs 2352Private sector contribution Rs Lakhs 100870% Loan @ 12.5% Int. Rs Lakhs 706 635 564 494 423 353 282 212 141 71 0 0 0 0 0 0 0 0 0 0 0 0 0 0 030% Equity with ROE of 14% Rs Lakhs 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 302 [email protected]% Rs Lakhs/Yr 88 79 71 62 53 44 35 26 18 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Pr. Repayment - 10 Yrs Rs Lakhs/Yr 71 71 71 71 71 71 71 71 71 71Profit Margin- ROE - 15% Rs Lakhs/Yr 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45Manpower Cost Rs Lakhs/Yr 600 634 671 709 750 792 838 886 936 990 1046 1106 1170 1237 1307 1382 1461 1545 1633 1726 1825 1930 2040 2157 2280Operation & Maintenance Costs/year Rs Lakhs/Yr 512 541 572 605 640 676 715 756 799 845 893 944 998 1055 1116 1179 1247 1318 1393 1473 1557 1647 1741 1840 1946

Total Funds Reqt. Rs Lakhs/Yr 1316 1371 1429 1492 1558 1629 1704 1784 1869 1959 1985 2096 2213 2337 2468 2607 2753 2908 3072 3245 3428 3621 3826 4042 4271

Units Generation Unit Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Installed Capacity MW 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8Gross Generation MU 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14 37.14Internal Consumption MU 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28 9.28Auxiliary Consumption MU 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97 2.97Net Generation MU 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89 24.89

Annexure C

NON SOLAR FORBEAREANCE PRICE

68

STATE/RET APCC FOR 2011-12

(Rs/Kwh)

Tariff as per Tariff

Regulation (Rs/Kwh)

Difference between

RE Tariff & APCC

( Rs/Kwh)Uttaranchal SHP 2.46 3.5 1.04Tamil Nadu Wind 2.69 3.95 1.26AP Biomass 2.5 3.78 1.28Karnataka SHP 2.78 4.17 1.39Uttar Pradesh Biomass 2.75 4.06 1.31Punjab SHP 2.87 4.17 1.3Maharashtra SHP 2.85 4.17 1.32Maharashtra Biomass 2.85 4.31 1.46Gujarat SHP 2.7 4.17 1.47TN SHP 2.69 4.17 1.48Maharashtra Bagasse 2.85 4.34 1.49Rajasthan SHP 2.6 4.17 1.57Karnataka Biomass 2.78 4.41 1.63AP SHP 2.5 4.17 1.67Rajasthan Biomass 2.6 4.28 1.68Gujarat Biomass 2.7 4.41 1.71Maharashtra Wind 2.85 4.63 1.78HP SHP 1.7 3.5 1.8TN Biomass 2.69 4.58 1.89Karnataka Bagasse 2.78 4.68 1.9TN Bagasse 2.69 4.6 1.91Gujarat Wind 2.7 4.63 1.93Uttar Pradesh Bagasse 2.75 4.76 2.01AP Bagasse 2.5 4.51 2.01Haryana Biomass 2.77 4.94 2.17Andhra Pradesh Wind 2.5 4.63 2.13WB SHP 1.98 4.17 2.19Punjab Biomass 2.87 4.97 2.1Kerala SHP 1.91 4.17 2.26Chhatisgarh Biomass 2.15 4.41 2.26MP SHP 1.85 4.17 2.32West Bengal Biomass 1.98 4.41 2.43Kerela Wind 1.91 4.63 2.72Rajasthan Wind 2.6 5.33 2.73WB Wind 1.98 5.33 3.35Madhya Pradesh Wind 1.85 5.33 3.48

NON ‐SOLAR FLOOR PRICE

69

STATE/RET RE required in 2013

APCC for 2011-12 (Rs/Kwh)

Viability required ( Rs/Kwh)

Difference between Project viability required & APCC (Rs/Kwh)

Karnataka Wind 61692 2.78 2.94 0.15Tamil Nadu Wind 63720 2.69 2.94 0.25Punjab SHP 63738 2.87 3.27 0.4Maharashtra SHP 63771 2.85 3.27 0.41Karnataka SHP 63963 2.78 3.27 0.48Gujarat SHP 63968 2.7 3.27 0.57TN SHP 63970 2.69 3.27 0.58Maharashtra Wind 64629 2.85 3.46 0.6Rajasthan SHP 64629 2.6 3.27 0.66Gujarat Wind 66092 2.7 3.46 0.76AP SHP 66098 2.5 3.27 0.77Uttaranchal SHP 66157 2.46 3.31 0.85AP Biomass 66364 2.5 3.43 0.94Uttar Pradesh Biomass

66379 2.75 3.71 0.95

Andhra Pradesh Wind

66424 2.5 3.46 0.96

Maharashtra Bagasse

66749 2.85 3.9 1.05

Maharashtra Biomass

66873 2.85 3.96 1.11

Karnataka Biomass 66954 2.78 4.06 1.27WB SHP 66954 1.98 3.27 1.28Rajasthan Biomass 67024 2.6 3.93 1.33Kerala SHP 67050 1.91 3.27 1.36Gujarat Biomass 67050 2.7 4.06 1.36Rajasthan Wind 67943 2.6 3.97 1.37Karnataka Bagssse 68237 2.78 4.18 1.4MP SHP 68264 1.85 3.27 1.41Uttarpradesh Bagasse

68774 2.75 4.17 1.41

AP Bagasse 68909 2.5 3.92 1.42TN Bagasse 69273 2.69 4.16 1.47TN Biomass 69449 2.69 4.23 1.54Kerela Wind 69460 1.91 3.46 1.55HP SHP 69828 1.7 3.31 1.61Punjab Biomass 69878 2.87 4.59 1.72Haryana Biomass 69882 2.77 4.62 1.85

70

Chhatisgarh Biomass

70104 2.15 4.06 1.91

WB Wind 70104 1.98 3.97 1.99West Bengal Biomass

70120 1.98 4.06 2.07

Madhya Pradesh Wind

70371 1.85 3.97 2.12

71