Sugar mills in India are doubling up as power generators by burning crushed sugarcane or bagasse. But with the price of bagasse rising, their profit margins have begun to shrink. Can India keep it going?
Crank it up
Arnab Pratim Dutta
Sugar mills have doubled up as power generators, with help from sound policies. But profits are falling now. Can states find a way to sustain cogeneration?
Deoband, western Uttar Pradesh. The fourth floor of a building in a sugar factory complex, buzzing with activity. A contraption in the middle of a room humming loudly like an aircraft engine. A man jotting down steam pressure readings from a meter attached to the contraption. Mechanical engineer R Sudhakar had a quick word with the man and moved out into a smaller room, the nerve centre of the unit where computer screens displayed colourful diagrams. He spoke to the operator and proceeded to a narrow bridge connecting the building to a steel structure with slits. Through the slits Sudhakar could see tongues of fire. "This is a boiler. Here we burn the residue of crushed sugarcane called bagasse," he said.
Sudhakar is not well-versed in sugar making, but he knows how to make electricity from the bagasse produced in the mill. The waste is burnt to superheat water to 515C to produce high pressure steam. "The steam is then sent to a turbo-generator--remember the contraption in the room? It rotates the generator blades, thereby producing electric current," he explained. Some of the power is provided to the factory owned by Triveni Engineering and Industries Ltd. The rest is sold to the grid. The steam is also used to refine sugar.
The mill and the power plant are connected by a conveyor belt that carries bagasse. "Earlier, we had boilers inside the mill. The system produced enough steam for refining sugar and generating power to meet the needs of the sugar plant," Sudhakar said.
In 2004, Triveni decided to upgrade its facility to produce more steam and more power. It installed efficient boilers that produce steam at a pressure 87 times the atmospheric pressure. It added matching turbines. The third largest sugar maker in India, Triveni is now selling power to the state. The Deoband facility supplies 16-17 mw to the grid. In 2007-08, Triveni made an operating profit (before interest and tax) of over Rs 47 crore through three such units.
Producing two forms of energy, electricity and heat, is called cogeneration. In the past six-seven years it has become the buzzword in the sugar sector. Today 107 of the 650-odd sugar mills in the country have cogeneration plants, according to the Indian Sugar Mills Association. Most of these plants are in five sugarcane-growing states, Uttar Pradesh, Andhra Pradesh, Maharashtra, Tamil Nadu and Karnataka. Together they are producing nearly 2,000 mw power, enough to meet the requirements of a business centre as big as Gurgaon. Their maximum capacity is 2,249 mw, according to the Indian Sugar Mills Association.
The sugar industry is going through a rough patch. Had it not been for cogeneration, many mills would have had to close down, said Ramesh Nagar, deputy general manager of Karnataka Renewable Energy Development Ltd. Unlike sugar, which has high input costs, cogeneration is relatively cheaper since bagasse is produced inhouse. For every tonne of sugarcane crushed, mills get 300-350 kg of bagasse. It keeps mills afloat when sugar prices dip (see Sugar cycle). "The sugar business is essentially cyclical. Market sentiments change in tandem with the demand-supply equilibrium, leading to a volatile product pricing. Cogeneration and ethanol represent the much-desired byproducts providing value addition and helping soften the inimical impact of sugar cycles," noted India's largest sugar producer Balra- mpur Chini Mills Ltd (bcml) in its annual report 2007-06. It has cogeneration plants in eastern Uttar Pradesh.
|Bagasse ready to be sent to boilers. Every tonne of sugarcane crushed gives 300-350 kg bagasse|
bcml made losses in the sugar business in the third quarter of 2005-06. But it was bailed out by its cogeneration business, which made an operating profit of Rs 19.79 crore.
Dhampur Sugar Mills, which has the largest cogeneration capacity in the country, sold about 177 million units (1,000 units=1 mw) to Uttar Pradesh in 2007-08. Cogeneration contributed nearly Rs 42 crore to its operating profit that year against about Rs 11 crore from sugar units. For the quarter ending March 31, 2009, eid Parry, a sugar maker in Tamil Nadu, made a profit of Rs 56.22 crore. Its cogeneration facility contributed about Rs 16.72 crore or 30 per cent to it. The profit a company shows through cogeneration depends on the price at which its sugar unit sells bagasse to the power unit.
Cogeneration is happening in other sectors as well, albeit to a limited extent. A paper maker in Pallipalayam, a town in Erode district of Tamil Nadu, has increased its productivity as well as decreased its dependence on erratic power supply from the grid.
Seshasayee Paper and Board is generating electricity in two of its factories. Poni Sugars, Seshasayee's sister concern located close to the paper mill, supplies bagasse. The bagasse and wood are converted into pulp for making paper. "Unlike sugar mills, one of our plants uses the waste from the pulp-making process called black liquor for producing electricity," said T G Sundararaman, head of energy at the company.
The second cogeneration unit set up in 2005 uses a cleaner variety of coal called envirocoal, sugarcane pith and coconut shell. "Together the plants have a capacity of 36.4 mw and take care of 95 per cent of the power requirement of the paper factory," Sundararaman said. In 2004-05, the company spent Rs 76 crore on buying and producing power. In 2007-08, its spending came down to Rs 55 crore. Cogeneration has also provided flexibility in the company's expansion plans. "From the grid my paper plant gets only power. I still need to set up a boiler for steam for making paper. If I can get both electricity and steam from a single source, it is economical," he added.
India has the potential of producing 7,500 mw through cogeneration in 10 industrial sectors, said a 2008 study of the International Energy Agency (see Cogeneration potential). Sugar is the sweetest bet because it can produce 5,100 mw of power--69 per cent of the total cogeneration basket. If the resources and technology are cranked up to optimal levels the country can produce 10,000 mw, the study says. This is 40 per cent of India's power deficit in 2008.
In the US and Scandinavian countries trapping heat from thermal power plants is common. But in India cogeneration is mostly restricted to sugar mills since the country's policy and subsidies are focused on bagasse-based cogeneration. In other sectors involved in waste heat recovery (like iron and steel, pulp and paper) only captive generation is happening. No data is available on the amount of energy these sectors produce through cogeneration since they are not connected to the grid.
Among renewable energy sources, bagasse generates nearly as much power as wind in India. Wind produces about 2,000 mw of power. Its installed or maximum capacity is 10,000 mw, but lies unutilized most of the time. Bagasse has other advantages. Burning bagasse produces no sulphur dioxide and very little ash as compared to lignite, the lowest rank of coal. Most coal available in India is of low grade. Bagasse-based cogeneration earns carbon credits since CO2 absorbed by sugarcane plants while growing is more than the CO2 produced in burning bagasse.
|Today's boilers are more efficient|
The cogeneration plant at Deoband earned about 186,000 certified emission reductions worth over Rs 3 crore between March 2004 and December 2007.
Given these advantages, in 1993 the Ministry of New and Renewable Energy --then known as the ministry of non-conventional energy sources--set up a high-powered committee to formulate a policy on bagasse-based cogeneration. Next year based on its recommendations, India announced a policy called National Program on Biomass Power/ Bagasse based Cogeneration. The policy lay down standards and prescribed subsidies and capital support to sugar mills.
However, the scheme never really took off, said S Gopinath, chief executive officer of nrg Consulting Services in Bengaluru. State electricity boards did not show interest. Mill owners hesitated to set up power and transmission infrastructure without assurance from buyers. There was no agreement on tariff either. Financial institutions were averse to giving loans because mill owners could not give a guarantee of profitability. Technological challenges kept mill owners from experimenting.
The scenario changed with the entry of multilateral donor usaid in 1995, said Sandeep Tandon, energy specialist at usaid India mission. Along with an Indian financial institution and an ngo, the donor agency gave grants to nine sugar mill owners in south India for upgrading machinery.
The donor agency engaged US Department of Energy's National Energy Technology Laboratory to give technical guidance, while Industrial Development Bank of India was to guide the mills on investment. usaid offered a conditional grant of $40,000 (Rs 19 lakh at current rate) per mw of installed power. Backed by the donor agency, lending institutions agreed to provide loan. The project generated a total of 195 mw and provided the first necessary push to bagasse-based cogeneration in India, according to Tandon.
As cogeneration caught on the boiler design began to change (see Boiler's come a long way). Until 1995 most sugar mills used low-pressure (11 to 21 bar) boilers, and three-fourths of the bagasse would go waste. In the past three years boilers producing steam at 87 bar have become common. They cut down fuel consumption by more than half when compared to the pre-1995 boilers, according to G Su- bramanium, chief engineer of the Tamil Nadu Sugar Corporation Ltd.
|Boiler's come a long way|
Till the mid-90s most sugar mills used a generation system called back pressure turbines. These turbines were fitted on low pressure boilers. The steam would be sent for sugar processing and then for electricity generation; it was not condensed and recycled. The electricity produced would just about meet the captive requirement of the mills.
Around 2000 boilers producing steam at the pressure of 67 atmosphere came into play. They popularized a more efficient system called extraction and condensing turbines. It could save enough bagasse for the non-crushing crushing season. Unlike the previous technology, the new turbines took steam for sugar processing from the middle, not rear, of the turbine. A part of the steam was cooled and sent back to the boiler for reuse. With this technology one could adjust heat and power generation according to the requirement.
Cogeneration plants with higher pressure (87 bar) boilers are now using an advanced version called double extraction-cum-condensing turbines. These turbines work with superheated steam (500C). The boiler gives more flexibility in moderating heating and power requirements and give more electricity per tonne of bagasse.
The policy too has undergone changes. The funding pattern was revised in 2006. It is a mixture of tax breaks and subsidies (see tables Capital subsidy, ...And fiscal incentives). Help in capital investment can go up to Rs 8 crore.
To regulate electricity trading between the producer and the distributor legislation were introduced. The Electricity Regulatory Commissions Act of 1998 led to the creation of the Central Electricity Regulatory Commission that acts as an arbiter of disputes between producers and distributors, and between states. The Electricity Act of 2003 mandated states to set up their own state electricity regulatory commissions (sercs) that would regulate supply and generation, and handle disputes.
The 2003 Act recommended states buy a minimum of 10 per cent power from renewable energy sources. It put the onus of fixing tariffs for renewable energy on state commissions. "Appropriate Commission shall, subject to the provisions of this Act, specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by...the promotion of cogeneration and generation of electricity from renewable sources of energy," the Act states.
This opened the door for private players to enter the field of electricity transmission and distribution. It allowed open access, under which a producer can sell power to any customer provided there is adequate transmission facility. This meant that independent power producers like cogeneration plants were not bound to sell electricity only to states; they could sell it to any private party like licensed power traders.
|Farmers bringing sugarcane to the Deoband factory|
But there is a huge difference in tariffs sercs announced for cogeneration plants, said a market analyst. While in some states the tariff is as high as Rs 7 per unit, in others it is a paltry Rs 3 per unit. "Certain parameters like the calorific value of the fuel, duration of the sugar season and sugarcane availability and price are bound to be different. But auxiliary consumption, depreciation cost, overheads and maintenance are more or less same," he said.
Every state has its own way of calculating the tariff. While Andhra Pradesh calculates the capital cost of setting up a cogeneration plant as Rs 3.25 crore per mw, Tamil Nadu assesses it to be Rs 4 crore per mw. "All we are asking for is a level playing field," said Nikhil Sawhney, director of Triveni Engineering.
The Uttar Pradesh Sugar Mills Cogeneration Association has filed an affidavit before serc for revising the price of electricity. The cost of fuel, auxiliary consumption, operation and maintenance are much more than assumed while determining the tariff, Rs 3.05 per unit, in 2005-06, the affidavit said. Besides, the average running period of cogeneration plants is much less than estimated. Cogeneration plants are "unable to recover the cost of electricity in a reasonable manner", it added.
Tariffs are usually revised every five years. It has not happened in Maharashtra. S C Natu, vice-president of the green power division of Mitcon consultancy firm, noted in a paper in 2005 that Maharashtra came out with the best tariff policy in 2002. The state announced a tariff of Rs 3.05 per unit with an annual compounded escalation of 2 per cent. Today it has become unviable for sugar mills, he said. The price was calculated taking the capital expenditure of Rs 3-3.50 crore per mw and bagasse cost of Rs 559 per tonne. "Today the capital expenditure has increased to over Rs 4.5 crore per mw. The average cost of procured bagasse has increased to Rs 1,500 per tonne," added Natu, who is also secretary general of Cogen India, an association of cogenerators. According to him, the tariff should be at least Rs 5 per unit.
"The Maharashtra Electricity Regulatory Commission is forced to act on consumer interests, hence tariff is kept low," said B T Badhan, joint director (by products) at the commissionerate of sugar that is promoting cogeneration in Maharashtra.
Karnataka increased the tariff for cogeneration plants from Rs 2.85 per unit to Rs 7.24 per unit in January this year. At the same time it has barred sugar mills from selling power to private companies. This is because the state is facing a shortfall of about 1,000 mw.
In 2005-06, sugar mills sold 820 million units of electricity to the grid. Since then the electricity supplied to the grid kept decreasing, although the cogeneration capacity is increasing in Karnataka. At the same time, the share of power sold to private transmission companies went up until sale to private companies was stopped in November last year.
Tata Power Trading Company paid a rate ranging from Rs 4.25 per unit to Rs 8.10 per unit. The state government is buying power from other states and independent power producers at Rs 8 per unit and above. Vijayanarasimha, managing director of Power Corporation of Karnataka, the price for cogeneration plants was revised because of a fall in generation by hydropower projects in the state. A senior official of Karnataka's power department, however, said the reason was general elections.
Low tariffs have begun to hurt cogeneration in other states as well, say industry sources. According to T Sankaranarayan, director of Avant-Garde, India's biggest cogeneration consultant, the cost of setting up a cogeneration plant is Rs 5-6 crore per mw. "This does not include the cost of land," he said.
C N Narayanan, general manager (investor relation) of Triveni, cites another reason for raising the tariff. With bagasse demand increasing in sectors like paper and pulp, its price has risen sharply in recent years. "A cogeneration plant needs about 1.8 kg of bagasse to produce a unit of power. At the current rate of bagasse (Rs 1,500 per unit), the cost of production works out to about Rs 2.70 per unit of electricity, compared Rs 3.05 per unit Uttar Pradesh pays to sugar mills," he said.
Selling to the government is, however, not that unattractive. The government generally signs a power purchase agreement for 10 to 20 years. On the basis of these agreements cogenerators are able to get loans from financial institutions. "A private power company cannot provide a long-term assurance, hence only government agreements are accepted by lenders," said an official of Mawana Sugars. Some cogenerators, especially in Maharashtra and Karnataka, have signed contracts with state governments but have broken them for a higher price from private companies.
According to V Raghuraman, energy adviser to the Confederation of Indian Industry, the biggest problem cogeneration is facing is denial of the third party access. "While the electricity act of 2003 mandated open access be given, it is not happening," he said.
Maharashtra does not allow interstate transmission of power. Karnataka has disallowed open access. "Most state governments use section 11 of the Electricity Act to bar open access," said Raghuraman. This section allows states to restrict third-party sale during extraordinary situations and in public interest.
Denied open access, Reliance Energy Trading complained against the Karnataka load despatch centre, that regulates electricity distribution, and Karnataka Power Transmission Company to the Central Electricity Regulatory Commission. Reliance had applied for permission to transfer power from a bagasse-based cogeneration plant in Karnataka to Mumbai. Karnataka told the commission it denied permission because of power shortage. In January, the commission ordered Karnataka to give Reliance open access. The state government challenged the decision in the Karnataka High Court.
Bureaucracy, said Amulya Charan, managing director of Tata Power Trading Company, is another hurdle in open access. He complained that load dispatch centres discriminate while granting open access. Charan demanded they be free of government control.
Despite these challenges, bagasse-based cogeneration is picking up in India. As of March 2009, 125 such projects were under way. They will easily cross the 11th five year plan's target of adding 1,200 mw through bagasse-based cogeneration by 2012.
We are a voice to you; you have been a support to us. Together we build journalism that is independent, credible and fearless. You can further help us by making a donation. This will mean a lot for our ability to bring you news, perspectives and analysis from the ground so that we can make change together.
Comments are moderated and will be published only after the site moderator’s approval. Please use a genuine email ID and provide your name. Selected comments may also be used in the ‘Letters’ section of the Down To Earth print edition.