Banking on Bioenergy
Strategies and solutions to tap segment potential
Despite the sector having already achieved its target of installing 10 GW of bioenergy projects by 2022, the potential of this segment remains largely untapped. According to the Ministry of New and Renewable Energy, India has the potential to generate around 18 GW of renewable energy using biomass and another 7-8 GW from bagasse cogeneration. However, the segment faces many hurdles with respect to tariff viability, cost and availability of financing, policy stability, sale of power through open access, supply chain management of biomass, etc. In the third edition of the “Biomass Power in India” conference organised by Renewable Watch, Pankaj Patel, president and member, Abellon Clean Energy; G.N. Agrawal, adviser, operations, Mawana Sugars; and Colonel Rohit Dev (Retired), chief operating officer, Punjab Renewable Energy Systems Private Limited (PRESPL), discussed these challenges in detail. They also shared their experience, strategies and business models to address the key challenges, and suggestions for policymakers and regulators…
Developer concerns and solutions
Abellon Clean Energy is operating four biomass projects in Gujarat with a cumulative capacity of 9.9 MW. Of this, three projects are under a power purchase agreement (PPA) with the Gujarat government, and one is operating under the open access route. A big positive with the open access route is that Abellon Clean Energy is able to work directly with corporates, providing solutions to meet their sustainability targets. In Gujarat, the company also has a 30 tonne per hour pelletisation capacity and is now planning to enter the bio-CNG segment.
The key challenge faced by bioenergy developers is financing of capital-intensive projects. Moreover, as sustaining cash flows for the entire duration of a project is challenging, bankers are hesitant to provide debt. Cash flows are adversely impacted whenever tariffs fall. According to Patel, “It is not fair to calculate the tariffs for biomass projects by comparing the steep decline in tariffs for solar and wind projects. In the same way, it is not prudent to compare a biomass project with a coal-based thermal power plant, as sourcing of biomass (the raw material) is not predictable.” Further, Patel believes that the promotion of the bioenergy segment can help in curbing the menace of stubble burning by providing economic incentives to farmers for not burning agricultural waste.
As for the future outlook, Patel believes that there will be a transition from biomass-based projects (which are, in general, dominated by state-discom PPAs) to bio-CNG and co-firing projects (which are driven mostly by the central government). “In the future, potential opportunities will lie in better utilisation of biomass by producing pellets and selling them to industries or utilities,” he notes.
The key suggestion that developers have for policymakers to give a fillip to the bioenergy segment is to promote the sale of bioenergy through the open access route. This will help reduce transmission and distribution losses as most bioenergy projects are decentralised. In addition, bioenergy projects that are under PPAs with discoms should have easier exit options, without any penalties.
According to Patel, the policies and regulations in the bioenergy segment are not in sync with the ground realities of rural India. “Going forward, there should be a calculation for the cost of protecting the environment assigned to this segment. In addition, the value of the renewable energy certificates (RECs) for bioenergy projects should be around Rs 2 higher than those for solar and wind projects,” he says.
Bagasse-based cogeneration in the sugar industry
Mawana Sugars operates two sugar plants and processes around 20,000 tonnes of cane per day. The company also has 30 MW of cogeneration capacity. Such cogeneration projects are witnessing an interesting trend. With increasing competition and the entry of international players into the industry, the focus has shifted to the quality and efficiency of the plants. For instance, the earlier norm of steam consumption of 55 per cent per tonne of cane has now been reduced to 40 per cent per tonne of cane. To achieve this, many factories across India are installing, or planning to install, steam-saving devices. With the use of such technologies, power export to the grid has increased, while the use of bagasse has decreased significantly. In addition, various initiatives and incentives from the government have encouraged the sugar industry to set up distilleries for the production of ethanol from molasses. The spent wash generated from these distilleries as waste is being incinerated along with bagasse to generate power.
Despite the policy initiatives taken by the government, cogenerators in the sugar industry are facing four key challenges. One, there has been a 30-35 per cent drop in the price of bagasse due to the surplus availability of bagasse in the market owing to the reduction in steam consumption in sugar plants. With time, the consumption of bagasse has also been reduced in incineration boilers. In fact, many boiler manufacturers are claiming that in the future, new boiler technologies will come up that will not need bagasse at all. The demand for bagasse has fallen in the paper industry as well. This leaves cogenerators with excess bagasse. And as cogenerators’ willingness to use this excess bagasse for power generation is falling due to a lack of incentives, it is being sold in the market at a low price. “To resolve this challenge, it is necessary to explore new technologies for bagasse use. The industry is already shifting from condensing turbines to back pressure turbines in a bid to make power more commercially viable. Meanwhile, the state electricity regulatory commissions can provide regulatory support to encourage industries to generate power from surplus bagasse,” says Agrawal.
Two, there has been a drop of almost 50 per cent in the power tariff, making generation unviable. The promotion of the open access route for exporting power to neighbouring states or supplying it directly to power-intensive plants is being touted as the solution to this challenge, but it comes with many riders. “Unfortunately, we are bound by a 20-year PPA with the discoms. The discoms are not flexible in allowing us to take the open access route. In addition, the discoms place a lot of restrictions such as surcharges, cross-subsidy surcharges and wheeling charges in a bid to discourage open access sale of power,” Agrawal adds.
Three, clean development mechanism benefits are no longer available, which has discouraged cogenerators in the industry from generating green energy (for which the companies received credits).
Four, REC benefits have also been withdrawn for captive generating plants commissioned before September 29, 2010 or after March 31, 2016, adding to the woes of cogenerators. Moreover, policies, regulations, open access charges, etc. keep changing, and often the suggestions made by the Central Electricity Regulatory Commission are not binding on the state electricity regulatory commissions. “A key suggestion to the government is to avoid frequent changes in policy, which ultimately shakes investor confidence, and to have better coordination between the central and the state governments,” Agrawal says.
Supply chain management of biomass
The success of a bioenergy project depends on the efficient supply chain management of biomass. PRESPL works in this space, and is involved in the entire supply chain of biomass – from the farms to the factories – while also providing storage facilities. Its key aim is to facilitate the replacement of fossil fuels in low- and mid-sized boilers with biomass. The company provides raw or briquetted biomass and O&M services, and plans to operate biogas and bio-CNG projects in the future. “Over 700 million metric tonnes of fossil fuel is burned in furnaces in India. According to different estimates, the availability of biomass is 500-650 million metric tonnes. However, its utilisation currently stands at just around 5 million tonnes,” says Dev.
There is another pressing reason for efficient supply chain management of biomass – curbing air pollution in northern India, which is largely caused by the burning of leftover agricultural waste or stubble. Various business models have been tried to address this problem, with limited or no results. “To curb the menace of stubble burning, it is important for farmers to become stakeholders in the entire business model. So, developers, out of their margins, must pay the farmers a small amount initially, which the farmers can use to aggregate biomass. At the end, the profit should be shared in some proportion, with all the stakeholders including the farmers,” suggests Dev.
According to him, the key policy developments in the bioenergy space have been the inclusion of steam, heating and cooling applications under renewables. However, a lot more needs to be achieved to tap the potential of the sector. His key suggestions for policymakers are to reduce the cost of financing to help the segment scale up and place it in the zero GST slab rate, and gradually limit the import of coal. Inter-ministerial policymaking for the bioenergy segment will go a long way in facilitating collective planning, according to Dev.
Despite the challenges, the future outlook remains positive for the bioenergy sector. “It is expected that ethanol plants will undergo a tendering process. Technology upgradations and increased investments in research and development will lead to the setting up of a number of biogas and bio-CNG projects in the next five to seven years,” notes Dev.