Vol.

III

Sponsored by MINISTRY OF NON-CONVENTIONAL ENERGY SOURCES, GOVERNMENT OF INDIA

October 2006

Policy Framework for the Development of Captive Power:

A Perspective
By SC Shrivastava, Joint Chief (Engg.), CERC
provided for open access in transmission mandatory, and open access in distribution in a phased manner. The Act also liberalized the generation of power (except hydro generation), laid a special emphasis on the development of captive power generation, including cogeneration. Electricity is one of the key drivers for the socio-economic development of the country. Earlier, the vertically integrated State Electricity Boards (SEBs) and central generating companies dominated the Indian power sector. Setting up captive generating stations was not allowed without prior permission of the SEBs.

Statutory Provisions
The Act thus provided the legal and enabling framework for the development of the power sector with clear emphasis on competition, efficiency and economy, and paved the way for the development of captive and cogeneration plants. Section 9 of the Act 2003 provided that any person, cooperative society, or a group of persons was free to set up a captive generating plant primarily for his/their use meeting the specified criteria (holding of 26% equity stakes and using 51% of power for own use collectively) under the Electricity Rules notified on 8 June 2005. The balance or the surplus power could either be sold to a third party, i.e. to any class of consumer or to distribution licensees subject to the grant of open access in transmission and distribution depending on availability. Sections 38, 39 and 40 of the Act made it mandatory for the Central Transmission Utility (CTU) and the State Transmission Utility (STU) respectively to provide nondiscriminatory open access to the captive generator for the use of the transmission system for his/their own use without any surcharge. In case of supply to any consumer a surcharge shall be payable by the consumer concerned under Section 42 (4) as specified by the SERC during intrastate transmission. Section 42 (2) of the Act provides that the Commission shall allow open access to consumers with a contracted capacity of 1 MW or less in due course, at such time and in such phases as it may be considered feasible, with due regard to operational constraints and other factors. It also provides for the levy of a reasonable surcharge for the
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Policy Initiatives at the Center

The power sector began undergoing changes in 1991 when a shift in the policy framework allowed participation of the private sector in power generation. This was prompted by a widening gap in the demand and supply of power and a resource crunch at the government level. Private sector participation had not materialized due to a host of reasons, including poor financial health of the SEBs. The Central Government in October 1995, for the first time, decided to develop captive power generation as an alternative route where industries themselves would meet their own power demand by pooling resources together. The Center asked all State Governments to create an institutional mechanism allowing captive/cogeneration power plants an easy and automatic entry through quick clearances, rational tariffs for purchase of surplus power by the grid, and third-party access for direct sale of power to other industrial units. In spite of this Central Government initiative, State Governments and SEBs did not take serious or concrete steps to facilitate development of captive power generation.

Power Sector Reforms

This was followed by the creation of regulatory commissions at the Center and the States, reforms involving restructuring of SEBs, and private sector participation in the transmission and distribution sector. All this culminated in a new comprehensive legislation in June 2003, The Electricity Act, 2003, herein called the Act. The Act provided for trading as a distinct activity and also

Editorial
Supported by

Shri Ajit K. Gupta, Adviser, MNES, New Delhi

Ministry of Non-Conventional Energy Sources (MNES), Government of India Co-sponsored by ISGEC John Thompson Thermax Ltd. Editorial Board Mr RC Tiwari, Director, MNES Mr PP Naiknavare, Executive Director, Cogen India Mr SC Natu, Member Secretary, Cogen India Chief Editor Mr Ajit K Gupta, Adviser, MNES Editors Mrs Anita Khuller, Cogen India Mr Sandeep Junjarwad, Cogen India Published by Cogeneration Association of India (Cogen India) c/o MSFCSF Ltd., 1st floor, Sakhar Sankul, Shivajinagar Pune 411 005, India Tel: +91-20-25511404 Fax: +91-20-25511446 Email: cogenindia@dataone.in / cogenindia2005@yahoo.com Web: www.cogenindia.org Printers Innovative Designers & Printers, New Delhi Tel: 66605070, 66408241 Email: idpdelhi@yahoo.com Disclaimer The views expressed in the articles within are those of the authors and do not necessarily reflect those of Cogen India or the newsletter sponsors.

The Indian energy sector has witnessed momentous developments during the last 15 years. The policy, legal and regulatory framework has been continuously evolving since the first policy changes were initiated in 1991 to bring private investments in power generation. Taking a cue from the opening up of the power sector, the Ministry of Non-Conventional Energy Sources (MNES) circulated Policy Guidelines to the States during 1993-94 for promotion of non-conventional energy-based power projects through the introduction of conducive policies for wheeling, banking, third-party sale, and buy-back by utilities. Consequent to the introduction of such policies by a majority of States, development of commercial projects for wind power generation, biomass power and cogeneration, and small hydropower picked up in the country. In addition to policies for grid connectivity, fiscal and financial incentives also spurred commercial development. These include accelerated depreciation, duties and tax relief, and term loans from the Indian Renewable Energy Development Agency (IREDA). Central Financial Assistance was provided in the form of capital or interest subsidy for different types of projects and end-uses. Meanwhile, further initiatives were taken by the Government to promote captive power generation in 1995, and for the creation of a regulatory framework for the power sector in 1998, culminating in a comprehensive legislation the Electricity Act 2003. The Policy Guidelines of the Ministry were recommendatory in nature and were introduced in varying measures by different States. Power development being a concurrent subject, the Central Government could only act as a catalyst and facilitator. The restructuring of the electricity sector and the consequent creation of the State Electricity Regulatory Commissions (SERCs) led to a review of the policies and tariff regimes for non-conventional energy introduced in various States. As a result, investments and capacity additions slowed down to some extent during this period. However, the Electricity Act 2003 has several enabling provisions that are providing a fillip to renewable power development and cogeneration. The Act provides for determination of tariffs by the Regulatory Commissions to be guided by the promotion of cogeneration and generation of electricity from renewable sources of energy. It also requires the State Commissions to promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for grid connectivity 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. The development of a market, including trading, is also to be promoted by Regulatory Commissions. What is more, the Act contains favorable provisions to promote captive generation. It also does away with the requirement of licensing for generation and distribution of electricity in designated rural areas. The National Electricity Policy; the Electricity Rules pertaining to captive generation; the Tariff Policy; and, the recently announced National Rural Electrification Policy are in general conducive to the all-round development of renewable energy and cogeneration in the country through private investments. Under the procurement obligation, Renewable Purchase Obligation (RPO) Orders have been issued in 11 States and are under discussion in other States. Tariff Orders for different renewable energy sectors have been announced by the Regulatory Commissions in several States. There has been a spurt in renewable power generation during the current Plan Period. A capacity of about 4,500 MW has been added during the first four years of the Plan, against an addition of 10,000 MW that was envisaged for the two Plan periods 2002-12. This has taken the cumulative installed capacity through renewables to 8,100 MW, which constitutes around 6% of the total installed capacity. The current momentum is likely to be maintained. By 2012, around 20,000 MW corresponding to 10% of the then installed capacity is likely to be contributed by renewables, with 5% contribution to
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Contents
Accelerating Cogeneration and Captive Power in India: The Role of Central and State Governments Global Captive Power Policy Financing Industrial Cogeneration in India Biomass Use in High-pressure Boilers Bioskrubber: Biological H2s Removal Promoting Cogeneration in the Distillery & Paper Sectors Trade Team Canada Environment

Captive Power Policy at the Center and States

The installed power generation capacity (exclusive of captive power plants) of utilities in India as on 31 August 2006 was 126,994 MW as below:
Installed Capacity (as on 31 August 2006) Sector Hydro Coal State Private Central 25,516.2 1,192.7 6,422.0 38,239.9 4,241.4 26,507.5 Thermal Gas 3,499.8 5,663.0 4,419.0 Diesel 604.6 597.1 0 0 0 3,900.0 2,567.5 3,623.3 0 70,428.0 15,317.5 41,248.5

After the enactment of the Electricity Act 2003 (hereafter called the Act), there is a renewed interest in captive generation. Surplus power, if any, from captive power plants could be fed into the grid (figures in MW) as the Act provides for open access in a nonNuclear Wind/ RES Total discriminatory way.

Electricity Act & National Electricity Policy Provisions

The Act defines a captive generating plant as a power Total 33,130.8 68,988.8 13,581.8 1,201.8 3,900.0 6,190.9 126,994.0 plant set up by any person to generate electricity primarily for his own use, Even with the above installed capacity, India faces an energy and includes a power plant set up by a cooperative society shortage of 8.3% and peaking shortage of 12.8% (April to or association of persons for generating electricity primarily August 2006). To meet the rising demand of power, a target for the use of members of such a cooperative society or th of 41,110 MW capacity additions during the 10 Plan was association. The captive power plant can be set up as set. However the likely capacity addition during the 10th stipulated under Section 9 of the Act, the provisions of Plan is as under: (figures in MW) which are below: Sector Central State Private Total Hydro 5,135 3,659 700 9,494 Thermal 8,840 7,348 4,199 20,387 Nuclear 1,400 0 0 1,400 Total 15,375 11,007 4,899 31,281 2. 1. Notwithstanding anything contained in this Act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines provided that the supply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company, and that Every person, who has constructed a captive generating plant and maintains and operates such a plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use provided that such open access shall be subject to availability of adequate, and that the Central Transmission or the State Transmission Utility shall determine the transmission facility and its availability; and provided further that the Appropriate Commission shall adjudicate upon any dispute regarding the availability of the transmission facility.

To meet the objectives of the National Electricity Policy, i.e. electricity demand to be fully met by 2012, per capita consumption needs to be increased to 1,000 units/annum and a spinning reserve of 5% needs to be made. Capacity addition requirements of 71,160 MW (hydro 17,700, thermal 50,300, coal/lignite 48,200, gas/LNG 2,100, and nuclear 3,160) in the 11th Plan are envisaged.

Captive Power Plants (CPPs)

Several captive plants, including cogeneration power plants of varied type and sizes, exist in India, which are either utilized in process industry or used for in-house power consumption. A number of industries do not want to depend on grid power and have set up captive plants, so that reliable and quality power is available to them. Some plants are also installed as standby units for operation only during emergencies when the grid supply is not available. The installed capacity of CPPs has increased from 588 MW in 1950 to 19,103 MW in March 2005. Captive plants, including cogeneration power plants, could, therefore, play a supplementary role in meeting Indias power demand.
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Industrial Cogeneration India

The electricity rules issued by the Ministry of Power notification dated 8 June 2005 prescribes that: 1. A No power plant shall qualify as a captive generating plant unless: In case of a power plant: Not less than 26% of the ownership is held by the captive user(s), and Not less than 51% of the aggregate electricity generated in such plant, determined on an annual basis, is consumed for the captive use; provided that in the case of power plant set up by registered cooperative society, the conditions mentioned

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above shall be satisfied collectively by the members of the co-operative society; and provided further that in case of association of persons, the captive user(s) shall hold not less than 26% of the ownership of the plant in aggregate and such captive user(s) shall consume not less than 51% of the electricity generated, determined on annual basis, in proportion to their shares in ownership of the power plant within a variation not exceeding 10%; B. In case of a generating station owned by a company formed as special purpose vehicle for such generating station, a unit or units of such generating station identified for captive use and not the entire generating station satisfy(s) the conditions contained in paragraphs above including the following:

conventional energy sources including cogeneration could also play a role. Appropriate commercial arrangements would need to be instituted between licensees and the captive generators for harnessing of spare capacity energy from captive power plants. The appropriate Regulatory Commission shall exercise regulatory oversight on such commercial arrangements between captive generators and licensees and determine tariffs when a licensee is the offtaker of power from captive plant.

Captive Power Plants (1 MW and above)

As per the details available in CEA, the total installed capacity of captive power plants having 1 MW and above capacity was 18,740 MW as on 31.3.04. This has further increased to 19,103MW as on 31 March 2005. The energy produced by captive generating units of 1 MW and above is about 71,417 GWh in the year 2004-05. Installed Capacity/PLF of Captive Power Plants Item Installed capacity Generation Average plant load factor (PLF) 2003-04 18740 MW 68173 MU 41.5% 2004-05 19103 MW 71417 MU 42.7%

The electricity required to be consumed by captive users shall be determined with reference to such generating unit or units in aggregate identified for captive use and not with reference to generating station as a whole; and The equity shares to be held by the captive user(s) in the generating station shall not be less than twenty six per cent of the proportionate of the equity of the company related to the generating unit or units identified as the captive generating plant. It shall be the obligation of the captive users to ensure that the consumption by the captive users at the percentages mentioned in sub-clauses (a) and (b) of subrule (1) above is maintained and in case the minimum percentage of captive use is not complied with in any year, the entire electricity generated shall be treated as if it is a supply of electricity by a generating company. On captive power generation the National Electricity Policy stipulates as under: Para 5.2.24 : The liberal provision in the Electricity Act, 2003 with respect to setting up of captive power plant has been made with a view to not only securing reliable, quality and cost effective power but also to facilitate creation of employment opportunities through speedy and efficient growth of industry. Para 5.2.25 : The provision relating to captive power plants to be set up by group of consumers is primarily aimed at enabling small and medium industries or other consumers that may not individually be in a position to set up plant of optimal size in a cost effective manner. It needs to be noted that efficient expansion of small and medium industries across the country would lead to creation of enormous employment opportunities. Para 5.2.26 : A large number of captive and standby generating stations in India have surplus capacity that could be supplied to the grid continuously or during certain time periods. These plants offer a sizeable and potentially competitive capacity that could be harnessed for meeting demand for power. Under the Act, captive generators have access to licensees and would get access to consumers who are, allowed open access. Grid inter-connections for captive generators shall be facilitated as per section 30 of the Act. This should be done on priority basis to enable captive generation to become available as distributed generation along the grid. Towards this end, non-

Captive Power Plants (Installed Capacity > or = 1 MW) IC Range (MW to MW) Nos. Installed Capacity (as on 31 March 2005) MW 01 to < 10 10 to < 20 20 to < 30 30 to < 40 40 to < 50 50 to < 100 100 & Above Total Prime Mover 1,749 157 79 37 17 39 20 2,098 5,389 2,197 1,882 1,224 752 2,567 5,092 19,103 % 28 12 10 6 4 13 27 100

Installed Capacity (as on 31 March 2005) MW % of total 47 37 15 1

Hydro Steam Diesel (HFO/diesel) Gas Wind Total

59 8,903 7,127 2,867 147 19,103

Status
MoP/CEA have taken a number of initiatives to address various issues being faced by captive power plants to
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Industrial Cogeneration India

Accelerating Cogeneration and Captive Power in India:

The Role of Central and State Governments
India currently faces an energy shortfall of around 8% and a peak capacity shortfall of 12%, even though significant rural consumer base is yet to be provided with electricity connections. With the Electricity to All by 2012 program of the Government of India, the demand for electricity is going to increase significantly. At the same time, with growing demand for fossil fuels worldwide, 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, it uses significantly less fuel than 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. 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 Cogenerators

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 cogeneration using fossil fuels. The primary reason for this being the fact that the EA 03 does not explicitly distinguish between cogeneration using fossil fuels 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 cogenerators and addressing concerns of utilities and consumers who procure power from such cogenerators. 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 backing-down periods. The Maharashtra Electricity Regulatory Commission (MERC) had undertaken such an exercise for allocation of fuel cost to power and steam while determining tariffs for bagassebased cogeneration projects. Further, to ensure that cogeneration plants operate at efficiencies above threshold level (above qualification criteria), MERC put in place a detailed monitoring mechanism.

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 and notified a Policy on 6 November 1996, which specified various forms of cogeneration 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 ERCs 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
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Industrial Cogeneration India

Harnessing Surplus Captive Generation

According to CEA statistics, captive generation capacity of 20,000 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 lying idle and should be utilized during the current phase of extreme shortage of power. It may be necessary to develop innovative schemes to tap such idle capacity.

MERC recently instituted a mechanism in the city of Pune to tap about 90 MW of liquid fuel-based captive capacity. Under this scheme, during peak hours, consumers with captive generation plants will run their plants, thereby reducing drawal from the grid. This would release grid energy, which is supplied to other consumers, thereby eliminating load shedding in the city of Pune. The captive generating plant is being compensated for additional generation costs, which is being collected from consumers in Pune city in the form of a Reliability Surcharge. MERC developed this scheme through a transparent regulatory process.

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.

The Role of State Governments

The levy of electricity duty on generation from captive and cogeneration projects has been a major bone of contention for industrial investors. In the past, as a promotional measure, certain State Governments had exempted captive power plants (CPPs) and cogeneration facilities from levy of electricity duty on generation from their plants. However, subsequently some States such as Andhra Pradesh introduced additional electricity duty on captive power plants thereby putting industrial consumers, who had invested significant funds and incurred huge capital expenditure on captive/cogeneration facilities, at great risk. In this regard, the National Tariff Policy (NTP) notified by the Central Government on 6 January 2006 has rightly advised State Governments against excessive usage of the right to levy taxes and cess on sale or consumption of electricity. The NTP warns that such taxes and cess could potentially distort competition and optimal use of resources especially if such levies are used selectively and on a nonuniform basis. It has further been observed that in some cases, the duties on consumption of electricity is linked to sources of generation (like captive generation) and the level of duty levied is much higher when compared to that being levied on the same category of consumers who draw power from the grid. Such a distinction is invidious and unjust. In order to encourage generation from cogeneration sources, the State Governments need to play a proactive role and to begin with, should exempt at least generation from cogeneration sources from levy of electricity duty.

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/regulations in these matters and to facilitate procurement of power from cogenerators, the Regulators 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 process 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 co-generation facilities could be harnessed for supply to grid.

Conclusion
The urgent need for optimal utilization of various fuel sources cannot be overemphasized, under the current scenario of spiraling fossil fuel prices as well as constrained availability of these resources. It is even more critical considering environmental implications of fossil fuel usage for power generation purposes. Under the circumstances, generation from cogeneration presents a better alternative, to extract maximum out of each unit of fuel burned. Hence, the same needs to be encouraged to the extent feasible. All stakeholders such as SERCs, Central Government, State Governments, industrial consumers and utilities have a role to play to speed up the process of harnessing generation from existing captive and cogeneration facilities as well as encouraging capacity addition in cogeneration facilities.

The Central Governments 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 and ultramega 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 equipment. This not only increases the capital cost of the cogeneration facility but also discourages competition amongst suppliers of power plant equipment. As a limited number of power plant equipment manufacturers 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/incentives offered to mega power projects are concerned. Further, fuel cost forms a significant component of the cost of generation for cogeneration 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 facilites with higher efficiencies use

Courtesy: Dr Pramod Deo, Chairman, Maharashtra Electricity Regulatory Commission, World Trade Center Center # 1, 13th floor, Cuffe Parade, Mumbai 400 005; Tel: (022) 22163964/65; Fax 22163976; Email: mercindia@mercindia.com; Web site: www.mercindia.com
Industrial Cogeneration India

contd from pg 1

S = T [C (1+ L / 100) + D] Where, S is the surcharge, T is the tariff payable by the relevant category of consumers, C is the weighted average cost of power purchased of the top 5% at the margin, excluding liquid fuel-based generation and renewable power, D is the wheeling charge, and L is the system loss for the applicable voltage level, expressed as a percentage The tariff policy further provides that the cross-subsidy surcharge should be brought down progressively and as far as possible at a linear rate to a maximum of 20% of its opening level by the year 2010-11. With regard to additional surcharge, it says that it should become applicable only if it is conclusively demonstrated that the obligation of a licensee, in terms of existing power purchase commitments, has been and continues to be stranded, or if there is an unavoidable obligation and incidence to bear the fixed cost consequent to such a contract. The fixed cost related to network assets would be recovered through wheeling charges.

loss of the cross-subsidy element and an additional surcharge under Section 42(4) for meeting its fixed cost for supply to the consumer granted open access. Section 79(4) and 86(4) of the Act provides that the National Electricity Policy, the National Electricity Plan, and Tariff Policy guide the Central Commission and the State Commissions. Section 86(1) (e) of the Act provides that 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. It also makes it obligatory for distribution licensees to purchase a specified percentage of power requirements from such sources.

National Electricity Policy

The National Electricity Policy announced by the Central Government in February 2005 provided the necessary policy framework for the development of captive power plants. Apart form emphasizing the setting up of new captive generating stations of optimum size in a cost-effective manner, it also laid emphasis on harnessing surplus power from existing captive power plants and cogeneration plants using non-conventional energy sources. It also called for an institution of an appropriate commercial arrangement under regulatory over-right of the appropriate commission. The Electricity Policy also advised SERCs to introduce Availability-based Tariff (ABT) at the State level within one year. It also provides for permitting captive generating plants to sell electricity to licensees and consumers with open access (as mentioned above).

Development of CPPs till Date

The aggregated installed capacity of captive generating stations in the country by end-March 2005 was estimated to be around 19,103 MW with capacities of 1 MW and above, and constitutes about 16% of the installed capacity. The growth of the installed capacity of captive power plant and utilities is shown below:

Tariff Policy
The Tariff Policy notified by the Central Government in January 2006 provided the institutional arrangement and tariff guidelines for the development of captive power. It provided for procurement of all future requirements of power by distribution licensees through a competitive bidding route. The tariff policy also provided for introduction of ABT at the state level by April 2006, and extending it to grid-connected captive plants in a phased manner as determined by SERCs. It also obligated the appropriate Commission to create an enabling environment to harness captive generation into the grid. This policy also fixed a minimum percentage for purchase of energy from non-conventional energy sources, including cogeneration, taking into account availability of such resources in the region and its impact on retail tariffs. It also provided for procurement by distribution licensees at preferential tariffs determined by the appropriate Commission. The tariff policy also cast a duty on the Central Commission to lay down guidelines for pricing non-firm power from renewable energy sources within three months. The tariff policy has also addressed issues related to cross subsidy/additional surcharge for open access. The surcharge formula given in the tariff policy is as under:
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Industrial Cogeneration India

Source: Workshop on captive power on 20 March 2006

The development of CPP was generally guided by the internal process requirement. Most of this capacity is for their own use and does not feed the grid due to lack of proper incentives and general reluctance of SEBs/ distribution licensees so far in this regard. Development of Captive Power : Key Issues The key issues affecting the development of captive power generation in the country are as follows:

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Open access in intra-state transmission & distribution Availability of fuel

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Cross-subsidy and additional surcharge Wheeling charges Demand charges and other charges

Open access in intra-state transmission & distribution: As regards open access in transmission for inter-state transfer of power by the captive power plant is concerned, the same was mandatory under the Electricity Act, 2003 and has been made effective through Open Access Regulations for Inter-State Transmission issued by CERC. Under the provisions of the Act, most SERCs, namely Andhra Pradesh, Assam, Chhatisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Orissa, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, and Uttaranchal have allowed open access for a contracted capacity of 5MW or above. The open access for contracted capacity for 1 MW and above is scheduled to be made effective by April 2008 by most SERCs. It would however, be subject to operational constraints and availability of the transmission/distribution system. Further, there is a need to simplify procedures for the grant of open access and specification of clear terms in advance. Availability of Fuel: There is a set procedure in place for obtaining long-term coal linkages from the Ministry of Coal. A captive generator is required to apply to the Chairman, Standing Linkage Committee, Ministry of Coal, after paying the prescribed fee of Rs 2,000 per MW. The SLC grants linkage on the recommendation of CEA and the Ministry of Power. Captive power plants of capacity 5 MW and below are not considered for long-term linkage, while plants of capacity between 5-10 MW are accorded low priority for grant of long-term linkage. Captive mine blocks are also being allocated to captive generators by the Ministry of Coal. Cross subsidy and additional surcharge: This has also been addressed in the tariff policy as discussed above. Wheeling and transmission charges: This issue has been deliberated at regulator forums and there was a consensus that these should be reasonable to allow enough incentive to a consumer to opt for open access, and should be applied to the relevant voltage level after providing for technical losses. Demand charges and other charges: Captive power plants are required to pay several charges contract demand charges, parallel operation charges/grid support charges, minimum demand guarantee charges, back-up charges, reactive power charges, SLDC charges, etc. These charges were deliberated at the forum of regulators and it emerged that the State Commissions should endeavor to rationalize various charges and club them into a single charge. The reactive energy and SLDC charges should be at par with other users.

ABT in the State, or supply power to any class of consumer subject to getting open access in distribution. The tariff for sale of power can be negotiated with consumers. Captive generators may also supply power to distribution licensees at competitive bid rates. CEA has identified a surplus capacity of 1,100 MW, which could be supplied to the grid from existing captive generating stations. Out of this, about 735.5 MW is in the capacity range of 15 MW and above. Open access in transmission and distribution has become a reality. Captive plants have availed open access opportunities and the potential to transfer surplus capacity in the captive plant located in one region/state to group industries located in another region/state. Few are selling their surplus captive through traders or directly by availing open access. Prominent companies are SAIL, JINDAL, HEG, Bhushan Ltd, Nava Bharat Alloys Ltd, etc., and they have transacted the approved volume of 1,250 MUs in 2005-06. The details are as under: Captive Power Plants Jindal SAIL Nava Bharat Alloys Bhushan HEG Hindustan Zinc Kanoria Chemicals Total MUs 897.0 123.3 87.2 80.2 42.1 9.9 10.6 1,250

Merchant plants like Malana HEP (2 x 43 MW) are able to sell their total generation through short-term open access, and captive generators should also be able to do so. There appears to be no constraint on obtaining long-term linkages and setting up medium to large capacity coalbased captive stations, which may offer optimization of resources and better efficiencies. These assume further significance with the onset of Special Economic Zones (SEZs) in the country. Captive generators may also opt for cogeneration and nonconventional energy sources such as wind, small hydro, and bagasse and rice husk-based captive generation. The Central Commission is in the process of laying down guidelines for pricing non-firm power from nonconventional energy sources. Therefore, the environment is very congenial and bright for the development of captive power in India. With open access in transmission and distribution, regulatory intervention is limited to determination of transmission, wheeling, and cross-subsidy surcharges only.

Environment for the Development of Captive Power

It can be seen that there exists a legal, policy and regulatory framework in place creating an investor-friendly environment with several alternatives to captive generators to pool their resources to set up plants to get cost-effective reliable and quality power. Captive generators can now supply surplus power to the grid after implementation of

For details, please contact: Central Electricity Regulatory Commission (CERC), Core 3, 5th floor, SCOPE Complex, 7 Institutional Area Lodi Road New Delhi 110003; Tel: 011-436 4895; Fax: 436 0010/0058 Web: .
Industrial Cogeneration India

Global Captive Power Policy

Recently increasing fossil fuel prices, the realisation of the importance of reducing greenhouse gas (GHG) emissions from power generation, and concerns over reliability and security of electricity networks have acted as powerful drivers for decentralized energy DE) 1. The drivers are common throughout the world but the potential varies from region to region. Examples of the rising interest in DE include technological innovation in markets such as residential scale combined heat and power (CHP) units that generate electricity and heat simultaneously in ones home; and improved economics for more established technologies, such as solar PV. This trend is expected to continue, as rising fuel prices will force electricity users to consider investing in their own on-site generating system for their homes and businesses or at the very least to consider efficiency. Despite this general trend many obstacles remain which are slowing its trajectory and preventing DE from realizing its great potential for economic development and environmental sustainability. The major obstacles include lack of access to financing (mostly because DE is an unfamiliar technology to lending institutions); a reluctance to permit DE to interconnect to the grid; and a lack of rules for fairly rewarding those that do decide to invest in DE for the benefits they deliver to the system. Like in any economic sector, there are two main forces at work in shaping investment climate for DE: market forces and regulatory forces. This article will focus on the regulation side, and compare different strategies and mechanisms that have been implemented in different countries. Despite differences between countries in local circumstances and conditions for DE, such a comparison is valuable, because it can provide new ideas to policy makers, and suggest best practices for stimulating the development of DE. and a 5,000 kW CHP machine have in common: the fact that both applications generate power in the same place it is used. Policy makers have therefore tended to create mechanisms that stimulate different DE technologies separately. To date there have been no policy initiatives that promote DE in general, just initiatives that apply to a subset only, such as CHP or on-site renewables. As interest in DE rises, though, we may soon see examples of single policies to promote all DE technologies. In some cases it will remain better to have technology-specific regulations, but general support mechanisms for DE could make a valuable contribution to energy policy.

Types of Decentralized Energy Regulations

Regulation can be focused specifically on certain technologies, or apply to the energy sector as a whole, as below: Types of Regulations
Laws and legislation Renewable portfolio standards (RPS), cap and trade schemes, certificate trading schemes, emissions rules, disclosure labelling, feed-in laws, delegated accountability, legislated directives, etc. Standards Interconnection standards, procedural standards, building standards, product quality standards, etc. Voluntary guidelines Financial Quality guidelines, DE targets, etc. Tax schemes, accelerated depreciation, grant programs, system benefits charges, financing schemes, etc. Pricing mechanisms Locational pricing, dynamic pricing, etc.

Laws & Legislation

Arguably the most effective form of regulation, legal intervention, is also often criticized for interfering in markets. Nevertheless various regions from around the world have demonstrated that making laws to promote DE can be successful. Examples of legislation that has proved effective in stimulating DE include: l Renewable portfolio standards these require electricity producers to generate certain percentage of their production from renewable sources. Some legislatures, like the State of Pennsylvania, have made CHP eligible to be included in this too. l Cap and trade system cap the total admissible GHG emissions of an area, and distribute tradable quota among the major emitters. The EU Emission Trading

Decentralized Energy Policy

Creating policy to promote DE is a particular challenge for policy makers because the term is relatively new and means different things to different individuals. Technologies that have not been traditionally associated with one another have now been put into the same category. For example policy makers have not typically seen what a 0.5kW PV cell
1

DE technologies consist of the following forms of power generation systems that produce electricity at or close to the point of consumption: -High efficiency cogeneration/combined heat and power -On-site renewable energy systems -Energy recycling systems, including the use of waste gases, waste heat and pressure drops to generate electricity on-site Such systems are DE regardless of project size, fuel or technology, or whether the system is on-grid or off-grid. Industrial Cogeneration India

10

Scheme is the main example of this, though the United States has had an effective sulfur dioxide emission market since 1995. Certificate trading schemes these are similar to cap and trade systems, with the difference that there is no cap on the number of certificates available. The Walloon region of Belgium has introduced an interesting certificate scheme aimed at promoting clean energy including CHP, based on trading of green energy credits for electricity from renewable sources. For developing countries the market the market for tradable Certified Emission Reductions from CDM projects provides major opportunities for DE installations. Emission rules linking emission rules to energy output rather than fuel input encourages development of efficient generation technologies, thereby stimulating DE compared to centralised generation. The State of California has done this for NOx emissions, but the system could be replicated for other types of emissions. Disclosure labeling requiring electricity utilities to specify the energy sources used on each consumers bill can act as a driver for DE, as it makes consumers aware of the environmental impacts. DE technologies that can provide electricity at a similar price as centralized generation then become more attractive to consumers, encouraging investment in these. Feed-in laws this common legislative tool requires utilities to purchase electricity from clean sources at a certain minimum price. Often this applies to renewables only, such as the feed-in tariffs for wind and PV in Spain and Italy, but feed-in laws for DE in general are also possible. For instance, in the Czech Republic two different guaranteed tariffs are set for electricity from CHP, depending on the size of the installation. Other examples include the 2004 law in Brazil requiring that distribution companies must buy at least 10% of the electricity they need to meet demand from renewables and CHP plants with an efficiency of over 75% 5, and the introduction of attractive buyback rates for any surplus electricity produced by businesses that have invested in cogeneration in a growing list of Indian States, for example Maharashtra. Delegated responsibility Japans Rational Energy Law requires large industrial energy users to appoint energy managers to optimize energy efficiency of the production process through waste heat recovery and power generation from heat output streams, etc. Legislated directives the EU has passed several directives applicable to DE. In particular, the EU CHP Directive, for example, declares that each member state must work to address the key barriers to CHP and provide regular reports outlining the progress.

legislation. But they form an important element of an effective DE policy, because they streamline the installation process for DE technologies, and facilitate the integration in buildings and networks. l Interconnection standards standardizing the rules for DE technologies to connect to the grid-network promotes safe practice on-site, and ensures the quality and reliability of the network as a whole. Jurisdictions, where DE is common have established such standards, including the UK and Germany. In the US IEEE 1547 provides voluntary standards for interconnection. In other places the lack of such standards still poses a major barrier to DE. l Procedural standards in addition to interconnection standards, licensing and permitting procedures still are a major obstacle to DE facilities. Standardizing these procedures facilitates DE development, like for PV in the US States of Arizona and California. l Building standards incorporating the consideration of on-site generation in building standards can be very effective for promoting DE development, as most energy use takes place in constructing and operating buildings. The EU Green Buildings Directive requires all new buildings over 1,000m3 in area to consider onsite generation at the design stage, and in the UK, Merton Council has made 10% DE compulsory in all new public buildings. l Product quality standards standards for electricity requiring a certain generating efficiency are well established in most OECD countries, and have proved effective in driving DE investment. The Collaborating Label and Appliance Standards Program (CLASP), a voluntary energy efficiency standards and labeling program, tries to establish product quality standards in non-OECD countries, including China, India, Brazil, and South Africa.

Guidelines
Guidelines are voluntary policy measures, and therefore less forceful than legislation. However, they can be effective, if there is sufficient support from the electricity producers and users to achieve the aims set out in the guidelines. Quality guidelines these are important as they define what technologies are included in categories such as renewable energy or CHP, and which regulation applies to it. For cogeneration, the best example is the UK CHP Quality Assurance Scheme, a voluntary methodology for determining what constitutes a CHP project of high quality. Targets - many countries have set targets for DE/renewable technologies. These are often not legally binding, but indicate a governments commitment to certain technologies, and can therefore encourage investment. Targets for renewables range for hugely ambitious (e.g. Prince Edward Island (100% by 2015)), Iceland, Hawaii to more modest, like the EU target of 22% by 2010, the Chinese target of 10% by 2010 or the Egyptian target of 14% by 2020.
Industrial Cogeneration India

Standards
As policy measures standards for DE are less direct than

11

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Industrial Cogeneration India

Financial Measures
Financial policy initiatives have been popular with policy makers, as they can be highly effective in promoting DE, while avoiding the potential market distortion that legislative measures can have. However, their effectiveness and applicability depends on market conditions. Tax schemes tax exemptions or reductions for DE technologies make investing in on-site generation more economically attractive for energy users. In the UK renewable energy technologies incur 5% VAT, rather than the usual 17.5%. Many developing countries, like China and India, reduced custom duty rates apply to renewables. Carbon taxes, like existing in Sweden and planned for New Zealand, can also stimulate DE, as it is less carbon intensive than centralized generation. Accelerated depreciation - in various countries, including Canada the UK, commercial installations benefit from accelerated depreciation of investments in renewable or DE investment. Grant programs the most direct financial support for DE is through grant programs. Grants can alleviate the problem of potentially prohibitive upfront costs, and thereby drive DE development. Canada has grants available for cogeneration plants with efficiencies over 72% or using biomass, and in Portugal a number of DE technologies are eligible for 50% capital grants through the PRIME programme. Municipal governments and utility companies in the US have also offered capital grants for installing DE. A unique grant system in Thailand allows project developers to specify the grant in the application process, and the lowest bids are rewards with the grant they requested. System benefit charges DE investment can also be stimulated using funds collected from energy users. Many jurisdictions charge electricity users a small surcharge on every kWh bought from the network, and reinvest the revenues in sustainable energy sources for public benefit. New York State uses such funds to promote DE and energy efficiency. Financing schemes in many places project developers still face problems with obtaining funding for installing DE, as most of the costs are up-front capital costs, and small businesses or individuals often do not have access to the amounts of money required. Many governments therefore have schemes in place to assist developers with financing. The Japanese government has offered low interested loans to households and businesses for PV systems, and similar schemes exist in European countries and the US. In developing countries micro-financing for renewable energy is becoming more common too. The Sri Lankan government provides financing to third parties, who administrate loans for project developers.

network. A fair buy-back rate would include the direct value of the electricity generated, as well as recognition of the benefits on-site generation delivers to the network in terms of avoided losses and network investment. Locational pricing pricing electricity according to the distance between the generation site and place of demand is an alternative approach to the postage stamp approach which is widely used today. This benefits DE investors because by their nature DE resources are situated close to load centres. In Argentina a locational pricing scheme rewards generators that are sited in areas of high transmission congestion. Dynamic pricing real-time pricing by adjusting electricity prices according to the demand for electricity can benefit DE in several ways. Higher prices at peak times encourage DE facilities to provide electricity to the network when demand is high, mitigating capacity and congestion problems. Even where feeding electricity into the grid is impossible, dynamic pricing encourages energy users to invest in on-site generation to avoid high charges for grid electricity use at peak times. For instance, the Chinese government has recently adopted peak power pricing across China in an attempt to reduce transmission constraints, and Shanghai airport has installed CCHP units to avoid excessive electricity bills. In Canada the Province of Ontario requires all users to install smart meter by 2008, which would facilitate real-time pricing and promote energy efficiency.

From Regulation to Practice

This article has discussed various types of policy and regulations that can promoted DE development by addressing existing barriers. The challenge for all these initiatives is to put theory into practice. The effectiveness of different approaches has varied between countries and regions, depending on the local circumstances and market conditions. It is often hard to draw a definitive link between the implementation of a policy and increased investment in DE, but in general countries with a strong policy framework have also seen the strongest uptake of DE, and many specific cases also provide compelling examples. Japan has long had one of the least energy intensive industrial sectors per unit GNP. Certainly the governments strong commitment to clean energy generation and their unique approach to industrial energy efficiency mentioned above contributes to some extent to their success. Spain and Germany are world leaders in renewable energy, and their success is often attributed to strong feed-in policies. In the Netherlands the government established an extensive scheme to promote cogeneration to reduce dependence on fossil fuels after the oil crises of the 70s. Now the share of CHP of total electricity generation is among the highest in the world. New York State has emerged as a leader in the USA arguably because of their strong policy. As a result of measures to ensure products live up to advertised quality standards, Kenya leads the
contd on pg 17
Industrial Cogeneration India

Pricing Mechanisms
A major problem for DE developers in many places is securing a fair price for the electricity they supply to the

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Cogenerators as Power Producers:

Policy Perspectives
Cogeneration offers an innovative way of generating power at a cost often lower than alternative forms of power. Often a byproduct of some other process becomes the fuel for cogeneration, and therefore is available almost at zero cost, and sometimes even at negative cost, if one has to spend money to dispose of the byproduct. Cogeneration, using bagasse from sugar mills or Korex gas from steel mills, is an example of the former, and generation of electricity from waste is an example of the latter. The viability of cogeneration is, of course, not a settled affair, since the byproduct may have alternative uses of higher value. For example, if bagasse is produced close to paper mills, or if the product of the main productand therefore the byproduct as wellis seasonal, as in the case of sugar and bagasse, and you need to arrange for alternative supply of fuel like coal if the power plant has to run throughout the year. The financial viability of cogeneration depends upon the price the producer receives, and herein the policy aspect occurs. The Electricity Act 2003 does not have any specific provisions governing cogeneration, and leaves the pricing of that power to the Regulator. The Regulator has to adopt a Cost of Service Regulation (COSR) approach, unless the power comes through a competitively bid route, in which case s/he is obliged to adopt the price that emanates from the winning bid. Since competitive bidding is not made mandatory, and is not always followed, Independent Power Producers (IPPs) have to subject themselves to COSR regulations for determination of the price of their power; i.e. their Power Purchase Agreements (PPAs) with the licensees are subject to Regulatory scrutiny and approval. Cogenerators face a rather unappetizing situation here. The following example from a steel company illustrates the point. A byproduct of steel manufacture is a gas called Korex gas, which, with its heat energy can heat water in a boiler and produce steam, which in turn can run a turbine to produce electricity. In the absence of electricity production, the gas would, by and large, go waste. Arriving at the cost of generated power involves first arriving at the cost of gas. Gas being a byproduct, one has to do some allocation, using cost accounting principles. Basically, all allocations involve some arbitrariness. The boiler is capable of operating with Korex gas as well as coal. In fact, some time ago in 2003, when the steel industry was in recession, enough gas was not produced, and the power plant was operating for most of the time with coal. The Central Electricity Authority carries the techno economic clearance of these projects; i.e. basically checks equipment and fuel costs and ensures that the total costs, which form the basis for price determination, are reasonable. In this case, CEA ruled that the maximum allowable value of cost of the byproduct gas should not exceed 90% of the equivalent calorific value obtained from coal, taking its delivered cost to the plant. There was a bit of opportunity cost reasoning here; in the absence of Korex gas, electricity would have been produced from coal brought to the plant site. The 10% discount was to allow for the fact that Korex gas was after all a by-product, which, in the absence of production of electricity, had no opportunity value. However, the opportunity cost argument can cut both ways. To the producer of steel, the opportunity cost of the Korex gas can be valued at zero since it was a byproduct, which did not have any alternative value to the producer other than in the power application. But for the purchaser, viz. the Electricity Transmission Company (ETC), the opportunity cost of electricity from Korex gas, is the cost of electricity it will have to purchase from the next best vendor. The steel company offered a Power Purchase Agreement to the local Electricity Board (EB) to sell electricity at Rs 2.60 per kWh at 75% plant load factor (PLF)1 of its 100 MW plant. Beyond 75% PLF the electricity was priced at Rs 2.20. The price was arrived at whereby the fixed costs (capacity costs) and variable costs (energy costs) were clubbed together to get one average total cost. One implication is that full capacity cost would have been recovered at 75% PLF, but this is not passed on to the buyer fully; only a nominal reduction of 40 paise is offered for units beyond 75% PLF. The ETC had signed a PPA to buy power at around Rs 3.00 per kWh from the private sector, and another PPA with the local state public sector power corporation from its coalbased power plant at Rs 3.00 per kWh. In view of these PPAs, the state government considered the steel companys power an attractive offer. But the state electricity regulatory commission (ERC) was of the opinion that it was an illegal contract, since it was not sent to the Commission for approval, but only for consultation, therefore violating the ERC Act, and that the steel company was using the byproduct gas and yet nearly charging the full alternative coal-based price, by arriving at the cost of Korex gas. Besides the Commission was taking a dim view of the price at which the power in excess of 75% PLF was sold. The Auditor General of the local state government also took a similar view that the price of Rs 2.60 was unsatisfactory, considering that Korex gas is a byproduct coming free to the steel company and that the price of power was to be determined based on the cost in the

1. Plant load factor is the ratio of electricity generated in a year to the electricity that can be generated in a year. At 75% PLF electricity generated amounts to 0.75 x 8,760 hrs in a year x 100,000 kW = 657 million kWh in one year. 14
Industrial Cogeneration India

absence of competitive bidding. In this context, the following questions arose: 1. Should the buyer (ETC) go by the cost of the steel companys power or by the prices available from alternative private power producers and the stateowned power corporation? What should be the price of power beyond 75% PLF? What is the economic profit to the steel company in a year if it sells power to the extent of 75% PLF? What kind of economies are behind the steel companys relative attractiveness?

3.

Economic profit to the steel company at 75% PLF?

2. 3. 4.

In the price of Rs 2.60, Rs 1.30 accounted for plant capacity costs and Rs 1.30 accounted for variable energy costs. While plant costs need to be recovered, this second Rs 1.30 for energy costs is really not there for the steel company, since its Korex gas was got at zero economic cost. Remember that the variable cost of Rs 1.30 was one corresponding to operation with coal as fuel! Thus, while other coal plants in similar circumstances would have made zero economic profits, the steel company made an economic profit of Rs 1.30 for every kWh it sold, totaling Rs 1.3 x 657 million units = Rs 8.541 crore. 4. This it was able to do because of its economies of scope, viz. generate a useful byproduct of Korex gas at virtually no extra cost.

The Govt. announced with fanfare that it had signed a PPA with the steel company at Rs 2.60 when the previous Power Purchase Agreements (PPAs) it had signed were all above this price, thereby telling the people that it had got a good deal. But the ERC (regulator) as well as the Auditor General were quite unhappy, because the ERC felt that the Government had bypassed them in signing the PPA without its approval. They felt that compared to their costs the steel companys prices were too high. Both perceptions turn out to be true, viz. Rs 2.60 is a good deal for the ETC, compared to Rs 3.0 from the state power corporation and Rs 2 + variable cost for fuel from another energy company; and at Rs 2.60 the steel company could really make huge profits, since its financial and economic cost of Korex gas is zero. Now to answer question 1, you should ask yourself what is the benchmark the ETC should keep in negotiating price with the steel company? Though it could use the low cost for negotiating purposes, it had to turn to the market prices if the steel company refuses to sell power to it. Hence market prices of the state power corporation and other energy companies are the relevant figures for the ETC to look at. At a deeper level of analysis, the ETC could also explore what alternatives the steel company has if the ETC does not buy power from it. Cost becomes relevant in this line of argument. Should it be full cost or variable cost plus some incentive? That depends on whether the steel company constructed its power plant with the contract to sell power to the ETC or took the demand risk completely itself, and constructed the plant without any PPA from the ETC. 2. What should be the price of power beyond 75% PLF? At 75% PLF the fixed cost is completely recovered. So, the Accountant General was wondering why it should charge Rs 2.20 per kWh when its variable cost component is only Rs 1.30. But if you superimpose the fact that the economic value of Korex gas is zero, and that constituted the major component of the variable cost, you arrive at the situation that (1) the fixed cost component of charge should be zero, because it has already been recovered at 75% PLF (2) So only the variable cost should be charged, and (3) because the economic cost of Korex gas is zero, variable cost is close to zero. Hence any small incentive above zero should suffice to induce the steel company to supply beyond 75% PLF. The assumption of economic rationality suggests that if the non-fuel variable cost is say 2 paise per kWh, even 3 paise per kWh should be acceptable and the steel company will produce power and sell the extra units, for 1 paise is greater than zero!

Recently another ERC decided to treat cogeneration power as captive power, viz. it was exempt from paying the crosssubsidy surcharge that was being levied from normal independent power producers (IPPs) if there were to sell to third parties, who broke away from the SEB supply. But it did not provide concessional rates for wheeling and banking. There sould be no problem in having a uniformly low wheeling and banking charge, for all open access sales, to promote competition and blunt the effect of cross subsidy surcharge, which is anti-competitive. The principle here is that competition should be promoted, even if it hurts incumbent SEBs in terms of loss of cross subsidy, but there should not be discrimination between one form of power and another form of power. In other words, treat power as a commodity, and do not bother how it is produced. True competition would only brook the law of one price. Changing the rules on case-to-case basis for projects will send wrong signals, enabling inefficient projects to pass the muster of financial viability, when it is not economically viable. The Commissions should ensure that licensees purchase power at the most economical price so that consumers are protected from avoidable price increases. Of course, it is open to producers of cogeneration power to claim carbon credits from the Clean Development Mechanism.

Conclusion
Thus, the absence of a Policy as to how to price cogeneration power may indeed stand in the way of development of cogeneration power. The cost of service regulation (COSR) approach is also a strong disincentive for development of cogeneration power, as it does not account for the opportunity cost of power to the buyer. Pure competition recognizes the law of one price, and that price would be the market-clearing price; in this case the price that any ETC would buy from the marginal producer or the price at which the Power Trading Corporation (PTC) would buy from any potential buyer. In the absence of policy, the PTC does provide benchmarks, and other buyers can use this benchmarks. Alternatively, maybe, the PTC itself can buy the power. Courtesy: V Ranganathan, Professor of Economics & Energy, RBI Chair Professor on Infrastructure Indian Institute of Management, Bangalore; Tel: 91-80-2699 3155; Fax: 91-80-2658 4050; Email: ranga@IIMB.ERNET.in
Industrial Cogeneration India

15

Financing Industrial Cogeneration in India:

IREDAs Views
The Indian Renewable Energy Development Agency (IREDA) is a public sector undertaking established in 1987 to promote, develop and extend financial assistance for renewable energy and energy efficiency/conservation projects. IREDAs mission is to Be a pioneering, participant-friendly and competitive institution for financing and promoting self-sustaining investment in energy generation from renewable sources, energy efficiency and environment technologies for sustainable development. The various sectors that are being financed by IREDA include wind energy, small hydro, biomass, cogeneration, waste to energy, biofuels, and solar. IREDA has so far sanctioned 1,783 projects with a committed loan amount of Rs 7,450.99 crore till 31 March 2006. The highlights of IREDAs lending operations as on 31 March 2006 are furnished below: In the sugar industry, where there is a built-in arrangement for steam generation by burning bagasse the residue remaining after the juice has been extracted from cane stalks has by far the most potential for cogeneration of power. The estimated potential for industrial cogeneration in India is about 20,000 MW, which includes major industries like sugar, distilleries, rice mills, paper and pulp industries, fertilizer, textiles, etc. The potential for cogeneration in sugar industries alone is about 3,500 MW Issues concerning the installation of industrial cogeneration plants in India are mainly inadequate tariff structure for sale of power to State Utilities, restriction of third-party sales in many states, and inadequate wheeling and banking arrangements in many states, despite the fact that there is a very good demand-supply gap for power in all those states.

A uniform and favorable tariff policy is the need of the hour for exploiting the industrial cogeneration potential in India.
IREDAS experience in financing biomass-based cogeneration in India shows that financing is restricted to States with favorable policies for selling of power, which in turn leads to financial viability of the projects. By adopting a uniform favorable policy throughout India the potential available in the remaining states can be tapped as well. IREDA has been in the forefront to promote, support and accelerate the development of power generation through renewable energy sources in India by providing financial and technical assistances to prospective developers to set up commercially-viable renewable energy projects, including utilization of biomass energy. IREDA is financing biomass-based cogeneration projects and has proposed to fund industrial cogeneration based on other fossil fuels also under the same terms and conditions.

Highlights of Cumulative Lending Operations

No. of Projects Approved IREDAs Loan Commitment Loan Disbursements Power Generation Capacity Capacity Commissioned 1,783 Rs 7,450.99 crore Rs 4,018.59 crore 2,707 MW 1,025.89 MW

Conventional Fuel Replacement 12.80 lakh MTCR/year

Cumulative Lending Operations under the Cogeneration Sector

No. of Projects Sanctions (Rs in crore) Disbursements (Rs in crore) Capacity, MW Commissioned, MW 33 711 687 445 377

Cogeneration projects have improved energy efficiency and the viability of sugar plants by additional revenue generation without incurring major input costs of buying raw material, i.e. biomass fuel. Moreover, industrial cogeneration plants can use various cheap fuels like biomass, coal char, lignite, gas, un/semi-utilized wastes, coal, refinery muds, fuel oils, and other low cost fuels. It supplies both steam and power for selfconsumption as well as for export thereby improving the energy efficiency of the integrated plants.
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Industrial Cogeneration India

Lending Norms for Present Biomass Cogeneration Projects

Sector (Project Financing) Biomass Cogeneration (small-scale cogeneration except the sugar industry) up to 7.5 MW installed capacity Above 7.5 MW installed capacity (both for sugar and non-sugar industry) Interest Rate(%) p.a. 11.0 Maximum Repayment Period (years) 10 + 4 (4 years grace period) Minimum Promoters Contribution(%) 30 Term Loan from IREDA Up to 70% of the total project cost

Apart from the improved viability of industrial cogeneration projects, the financing pattern of IREDA also helps in easier repayment of loans over a period of 14 years, including a maximum moratorium period of 4 years. Further, there are concessions and incentives available from the Ministry of Non Conventional Energy Sources (MNES), which includes meeting the cost of preparation of Detailed Project Reports (DPRs)/subsidy, etc. Hence, the prospects of financing industrial cogeneration in India are very high, and there is scope for exploiting the available potential and increasing the installed capacity of industrial cogeneration once a uniform and favorable power policy is in place.

Conclusions A long-term policy and its effective implementation by the Central and State Governments is the need of the hour. The Government of India should take larger steps towards coverage of initial technology introduction risk so that the industry develops and matures. Various financing models should be encouraged. Equal access to investment capital by providing a level-playing ground for fiscal and financial incentives is required. All financial institutions and banks should be involved through more awareness creation initiatives. Favorable tariffs and concessions for improved viability and to level the market with other conventional power producers are necessary. Standardization of infrastructural facilities such as grid connectivity, power evacuation facilities, etc. is required. Regularization of payment by State Electricity Boards/Utilities is essential. Major industrial and other players should be involved. In conclusion, priority sector lending status should be given to cogeneration.

Barriers & Issues

The following are some barriers and issues in the implementation of industrial cogeneration projects:

Policy Issues:

l l l l l l l

Lack of appropriate policy support Lack of a level-playing ground for fiscal and financial incentives Lack of appropriate legislative mechanisms No proper institutional and implementation arrangements Frequent changes in policies/no consistent long-term policies A tariff that is not conducive Third-party sales being withdrawn or discouraged in most states Rationalization of grid connectivity charges levied by different states Standardization of sub-station power evacuation facilities (11 kV / 33 kV / 66 kV) Upgradation of sub-station facilities to higher voltages for effective power evacuation Lack of adequate awareness in financial institutions Lack of consumer financing routes/options Lack of financing through various sectors Lack of motivation of financial institutions Non-payment by SEBs Adjustment of revenues by SEBs Adjustment by working capital bankers Many products and technologies are not yet matured Minimum economic sizes are under evaluation Risks involved in the transformation of technologies High capital investment and marginal commercial viability Distortions in energy markets Stiff competition from subsidized conventional energy Less major players in the industrial segment

For details, please contact: By D Majumdar, Managing Director, IREDA IREDA, India Habitat Center, Core 4A, East Court, 1st floor, New Delhi 110 003 Tel: 24682214-21; Fax: 24682202; Email: contact@iredaltd.com; Web: www.iredaltd.com
contd from pg 13

Grid-related Issues

l l l l l l l l l l l l l l l l l

way in per capita renewable energy sales for residential systems. A wide diversity of policies to promote various DE technologies are being employed all over the globe today. Cleary there is no one right way of promoting DE via regulatory measures. Rather, legislators and policy makers considering the most effective ways of fostering investment in DE should look at a cross section of precedents before deciding on the best approach for their jurisdiction. In these decisions it is vital to take into account local circumstances and prevailing market conditions, to assess which measures are most appropriate, and how they can be customised to the specific situation on the ground. In many cases this will mean a combination of different approaches that reinforce and complement each other, rather than suggesting a single solution. A pick-and-mix from precedent regulation is likely to be highly effective in creating the right strategies to enable DE to achieve its promise and potential. Courtesy: Jeff Bell and Sytze Dijkstra, Research Executive World Alliance for Decentralized Energy 15 Great Stuart Street, Edinburg, EH3 7TP, Scotland, UK Tel : +44 131 625 3333; Fax : +44 131 625 3334 Email : sytze.dijkstra@localpower.org
References have been made to an original article from the Cogeneration and Onsite Power Production magazine.
Industrial Cogeneration India

Financial Issues

Product-/Technology-related Issues

Market-related Issues

17

Biomass Use in High-pressure Traveling Grate Boilers

With rapid industrial growth over the last few decades, the demand for electrical energy has grown at a tremendous pace. Depletion of fossil fuels and environmental concerns has led to increased importance of green power using biomass fuels. The application of the Clean Development Mechanism (CDM) of the Kyoto Protocol, which gives a monetary value to CO2 emission reduction, has become an important financial driver for biomass-based cogeneration. This article discusses characteristics of biomass fuels and boiler technology best suited for combustion of these fuels. Biomass fuels, including bagasse, are renewable fuels, and well recognized as potential fuel for the future. Studies reveal that in India alone the exploitable power generation potential from biomass fuels is around 10,000 MW. A wide range of processes and routes are available for electric power generation from biomass. The conventional route, which is most popular worldwide, is direct combustion of biomass to generate steam in a boiler that runs a steam turbine to produce power. Due to the steady decline of non-renewable energy resources, the widening gap between power generation/ demand and environmental concerns, and the need to harness the potential of biomass fuels to generate electricity has increased. Expectations of a user of biomass-fired boilers include high availability and reliability, fuel flexibility, environmentfriendliness. So the boiler technology selected should address these issues. increasing operating efficiency and power output from cogeneration plants. The choice of pressure and temperature levels for the steam cycle depends on several factors including fuel properties, quality of feed water, water treatment systems available, cost of boiler and turbine systems, and the level of confidence of the plant operators. Thermodynamically, the energy recovery from the Rankine cycle depends more on steam temperature than pressure. The cycle efficiency will increase with higher steam inlet temperatures. Steam pressure also plays a role in ensuring optimum extraction of useful energy as the enthalpy changes with pressure. Hence an increase in steam temperature should be accompanied by a matching increase in steam pressure. Metallurgy of the boiler tubing, piping, turbine components, and the creep-fatigue behavior of materials at higher temperatures, decide the temperature selection. A number of cogeneration units with 87 kg/cm2 pressure and 5150C temperature are in successful operation in India using bagasse during the season and combination of other biomass fuels such as rice husk, wood chips and fossil fuels such as coal during the off-season. Units with 105 kg/ cm 2 and 540 0 C are currently under supply for cogeneration plants in the sugar industry, which will go into production in 2007. Several technology options are available for combustion of biomass fuels, including bagasse. The advantages of traveling grate technology over other available options have been discussed below: Dumping Grate Boilers: These boilers are not suitable for multi-fuels and fossil fuels such as coal and lignite that have high bulk density and high ash content. The capacity of these boilers is generally restricted to around 100 tph with steam pressure up to 66 kg/ cm2 in order to optimize the number of dumping sections and to minimize drops in pressure due to dumping operations that lead to fuel loss. These boilers have low thermal efficiency. Due to the above limitations, this technology has not been used for yearround cogeneration. Pin Hole Grate Boilers: These boilers are suitable for firing bagasse and low ash fuels such as wood chips, in combination with bagasse. In a few installations low ash (3 to 4%) coal, in combination with bagasse, has also been fired. However, the percentage of coal has been limited to
120 TPH, 87 kg/cm2(a), 515 0 C Travelling Grate ISGEC John Thompson Boiler under installation at Triveni Engineering & Industries Limited, India. Boiler is designed for firing Bagasse, wood chips and rice husk. ISGEC John Thomson has experience of supplying over 500 boilers in India and overseas markets which include over 250 bagasse, rice husk, wood chips and coal fired Travelling Grate Boilers.

Technologies Available for Biomass Combustion

Selection of appropriate boiler technology requires a thorough understanding of the fuel characteristics and emission requirements. The amount of energy that can be extracted from biomass fuels is largely dependent on:

l l l

Moisture content Gross calorific value Combustion technology

Due to concerns related to cost, and to bring about reductions in emissions of air pollutants and greenhouse gases, owners of industrial and commercial facilities are actively looking for ways to produce energy more efficiently. The incentive of trading carbon credits has become a motivation for considering the cogeneration route. India has no doubt emerged as one of the leaders in cogeneration. The sugar industry in India and several other countries have made phenomenal progress in cogeneration, particularly since bagasse, a waste product from sugar mills, is available at almost no cost as fuel. However, bagasse being a seasonal fuel, there is a need to find other biomass fuels for year-round generation of power. High-pressure and high-temperature cycles are crucial for
20
Industrial Cogeneration India

10% MCR. As the de-ashing in these boilers is done by steam blowing, these boilers are not suitable for fuels with high bulk density and high ash content. Atmospheric Fluidized Bed Combustion (AFBC) boilers: AFBC boilers are good for burning coal and washery rejects. Rice husk and saw dust with low moisture content can also be fired in AFBC boilers. Biomass fuels such as bagasse having high moisture content cannot be fired in these boilers due to bed clinkerization and non-uniform bed temperature. These boilers have high auxiliary power consumption when compared to the traveling grate, pin hole grate and dumping grate boilers. Circulating Fluidized Bed Combustion (CFBC) Boilers: These boilers are popular where stringent emission norms for SOx and NOx are to be met. CFBC boilers have not been successful for burning fibrous fuels such as bagasse. These boilers also have high power consumption. Also the capital investment for CFBC boilers is higher than other options. Traveling Grate Boilers: Multi-fuel firing capability makes traveling grate boilers suitable for firing a wide variety of biomass fuels and agro wastes. The biomass fuels fired in these boilers include bagasse, sugarcane trash, rice husk, empty fruit bunches of palm, tomato, cotton and mustard stalks, wood chips, bark, mustard husk, groundnut and coconut shells, among others. Fossil fuels such as coal and lignite have also been successfully burned in these boilers. For efficient combustion, using hydraulic drives or variable frequency drives varies the speed of the grate. Traveling grate boilers up to 250 tph capacity are in operation worldwide, including high pressure (87 kg/cm2 and high temperature (515 0 C) boilers at several cogeneration plants at sugar factories in India firing bagasse, biomass, and fossil fuels such as coal and lignite. ISGEC John Thompson (IJT) is currently supplying a 170tph, 105 kg/cm2 and 5400C bagasse, rice husk and coalfired boiler for a sugar mill in India.

90 TPH 45 kg/cm2(a), 480 C Bagasse Fired Travelling Grate Boiler under construction at TPC, Tanzania (a CIEL Agro, Mauritius Group company). This is a turnkey project and commissionning is scheduled for July 2006. ISGEC John Thompson is currently executing Boiler projects in Uganda, Sudan, Kenya, Philippines and Bangladesh.

In many biomass fuels such as mustard, tomato and cotton stalks, and wood chips, the chlorine content varies from 0.01 to 0.9% by weight. Chlorine in biomass is of great concern, due to its tendency to compound the problem of sintering and deposit formation. It causes high temperature corrosion particularly in superheater zones. Corrosion due to chlorine becomes serious when the metal temperature is greater than 450C and the flue gas temperature greater than 650C. Chlorine reacts with sodium and potassium forming low melting point eutectic salts that form deposits on tubes. These deposits form a bonded dense matrix through the sintering process and sometimes these deposits may also be partially fused. A small amount of chlorine, even 0.1%, is sufficient to initiate corrosion if other constituents such as sulphates, chlorides and silicates are present. The corrosion rate is very fast when the temperature of the scale is high and alkali chlorides are partially fused on the metal surface. Corrosion due to alkali and chloride results in frequent tube failures.

Effect of Fuel Properties on Boiler Performance

l l l l l

Properties of Performance

Biomass

Affecting

Boiler

The properties of biomass fuels affecting boiler performance are volatile matter, moisture and alkali content, and chlorides. Typically the volatile matter in most biomass fuels is high (30 to 40%). This makes combustion easy. Moisture in fuel has significant influence on the combustion process as well as on the calorific value of the fuel. Bagasse has high moisture content (46 to 54%). Paper mill wastes such as wood bark, wood chips and sawdust also have high moisture content (25 to 45%). Many biomass fuels have high organic alkali content, mainly the oxides of sodium and potassium. Fuels such as cotton, tomato and mustard stalks, sugarcane trash, and wood chips have high alkali constituents. Generally the potassium content in the above fuels is quite high (15 to 30%). The organic alkalis in the fuel vaporize at furnace temperatures and react with other ash and fuel constituents, especially silica and phosphorous, to produce low melting point compounds which cause sintering and agglomeration in the convective heating surface in the furnace and the back pass. High potassium content is specially associated with back pass fouling while sodium oxide is more often associated with sinter formation in the high temperature superheater zones.

l l l

Fouling of heating surface due to sodium oxide and potassium oxide; Corrosion of superheater coils due to the presence of chloride in ash; Agglomeration or bridging of convective heat transfer surface caused by low ash fusion temperature due to presence of alkalis; Secondary combustion or combustion in the upper regions of the furnace due to carry over of fines and low-density fibrous particles; High superheater steam temperature picks up due to secondary combustion resulting in higher flue gas temperature and leading to increased spray water quantity in desuperheater; High back end flue gas temperature due to secondary combustion resulting in loss of boiler efficiency; High unburned carbon carry over, hence loss in boiler efficiency; and Increased frequency of soot blowing due to deposition and agglomeration.

Boiler Design Philosophy for Biomass Fuels

To take care of the above issues, IJTs boiler design philosophy for biomass fuels covers the following: l Generous volumetric loading of furnace: A tall furnace to ensure lower furnace exit gas temperature hence reduce the chances of fouling due to presence of alkali contents in fuel ash and also corrosion of superheater tubes due to the presence of chlorides in fuel ash. Depending on ash fusion temperatures, the furnace exit gas temperature is kept in the range of
contd on pg 30
Industrial Cogeneration India

21

Bioskrubber : Biological H2s Removal

Bioskrubber: Biological H2s Removal Biogas generation is becoming more attractive as the energy cost rises. Typically Biogas is fired in the boilers as an alternate fuel and it saves conventional fossil fuels like coal and oil. But, nowadays, power generation from biogas by firing directly into gas engines is becoming more profitable due to the encouragement by Government of India for producing power especially from any renewable source of energy Innovative offers a biological solution to remove H2 S through its state-of-the-art Bioskrubber technology. Clean biogas (H 2S free) can be used for generation of power by biogas engines. H2S Removal Bioskrubber Technology The removal of H2S from biogas or waste gases and air is essential for both economic & technical reasons. Now with Bioskrubber technology, there is an option of producing clean gas to generate their own captive power . From the technique & technology point of view Bioskrubber is economically attractive technology to remove H2S from biogas & sour air stream. The burning of biogas without removal of H2S is wastage of sulpher which has number of applications in sugar industry, fertilizers and pharmaceutical. results in formation of sulphide in the washing water stream. H2S + OH Step II :The liquid containing sulphide is led into the bioreactor where the bacteria oxides the sulphide ions into sulphur during this conversion process the bacteria forms hydroxide ions, which are led back to scrubber for washing. HS- + 1/2 O2 So + OH(2) HS- + H2O (1)

From the equation 1 & 2 it becomes clear that the hydroxide ions used in the scrubber step are regenerated in the biological step. The liquid entering the scrubber at the top is sulphide free, which results in a high concentration difference between the gas & liquid phase. Thus very high removal efficiencies in excess of 99 % can be easily obtained. A part of the washing liquid is circulated over a settling tank to recover elementary sulphur, from the settling tank the sulphur sludge is dewatered to produce elementary sulphur having purity more than 95 %.

Technology Description
The Bioskrubber can be viewed as a caustic scrubber in which the spent caustic solution is continuously regenerated in a bioreactor. The principle of Bioskrubber is based on the biological oxidation of sulphide in to elementary sulphur, the process is even more distinguishing since the sulphur is not form in the scrubber itself but out side the scrubber. This increase the operational safety of the scrubber (practically no risk of blockage) a clear advantage compare to other conventional methods. The block diagram shows the two process steps that form the essence of Bioskrubber

Advantages

l l l l l l l l

Clean bio-technology for H2S cleaning. Low cleaning cost of biogas as upto 92 % caustic recycled. Successful commercially operating plants for the last 5 years. Very high H2S removal efficiency over 99 %. H2S reduction to less than 500 ppm guaranteed No expensive catalyst and chemical required Operation at ambient temperature and pressure Elemental sulpher as bi-product with more than 93 % purity.

This scrubber has been installed at Kanoria Chemicals, Som Distilleries, Degremont India, BMSS, India Glycols, VA Tech Wabag, Luna Chemicals, Riddhi Sidhi Gluco Biols, among others using biogas, and MMS Steel and Power using natural gas. Step I :In the scrubber the washing liquid absorb the hydrogen sulphide from the gas phase in to the liquid phase. Chemical reaction with hydroxide ions takes place which
22
Industrial Cogeneration India H 2S removal plant at BMSS, Akluj, Maharashtra

contd on pg 24

Promoting Cogeneration in the Distillery and Paper Sectors

In order to promote decentralized energy generation/ cogeneration in various industrial sectors, the Cogeneration Association of India (Cogen India) took up the task to provide a platform whereby all the stakeholders involved policy, financial, technical and industry could get together and find solutions to tap the maximum potential in their respective sectors. were held for the distillery sector. Similarly, one national awareness workshop was held at New Delhi (August 2006) for pulp and paper mills. The theme of the workshops was Accelerated Development of Cogeneration/Captive Power Plants. These events were partially supported by the Ministry of Non-Conventional Energy (MNES), New Delhi, and co-sponsored by IREDA, Power Finance Corporation, Clarke Energy, Pentagon Turbines, Thermax Ltd, PTC India Ltd, Sitson India, Kessels Engg, Kirloskar Ebara Ltd, and Turbomach. The policy session included presentations from MNES, State Energy Development Agencies and financing institutions, followed by case studies from major technology suppliers on multifuel-fired boilers, steam turbines, energy efficiency improvement, alternative fuels and linkages, in the technology session. Participants (numbering a total of around 350) at the workshops included representatives from MNES, State Energy Development Agencies, and distilleries/pulp and paper mills, equipment suppliers, financial institutions, and other stakeholders.

The Distillery Sector

There are about 330 distilleries today in India. Around 185 are stand-alone while the rest are connected with sugar mills. The total installed capacity is about 3,500 million liters of alcohol with individual plant capacity ranging from 1,000 100,000 klpd (kiloliter per day). The estimated decentralized energy generation/cogeneration potential is about 2,000 MW.

The chief guest, Dr BS Shivalingiah, MD, KREDL, Karnataka, at the Regional Awareness Workshop for Distilleries at Bangalore, 9 Dec 2005

The Pulp & Paper Sector

The pulp and paper industry is one of Indias core sector industries and is about a hundred years old. India, with an installed capacity of around 7 million tons and production of 5.4 million tons, ranks among the fifteen largest producers of paper in the world. At present, there are more than 500 pulp and paper mills in the organized and unorganized sectors India. An estimated potential of about 850 MW for cogeneration exists in this sector alone.

Key Issues
Some key issues emerged at the end of the above workshops:

l l l l l l l l

Moving Ahead
MoUs were signed between Cogen India and the All India Distillers Association (AIDA) and Indian Agro and Recycled Paper Mills Association (IARPMA) to undertake promotional efforts in the distillery and pulp and paper sectors respectively. Detailed action plans were drawn up and mutually agreed to. The activities planned included capacity building workshops, information dissemination, conceiving, developing and implementing cogeneration/captive power plants at member units, energy audits/ implementation assistance, advising on fuel linkages and financing, lobbying for conducive policy/ regulatory frameworks, developing demonstration projects with different technologies and models (such as the Special Purpose Vehicle or SPV).

Environment pollution from waste and effluents Poor energy efficiency and awareness High cost of purchased electricity and steam produced for process use Frequent use of DG sets to offset fluctuations from grid supply High-pressure, high-efficiency rankine cycle technology for captive generation of steam and power yet to be adopted across the sectors Serious attempts for year-round captive/cogeneration power not made across the sectors Poor capacity for conceiving, designing, implementing and operating energy efficiency improvement, captive cogeneration and biogas projects Lack of adequate finance for implementing these projects l Lack of availability of total solution providers

Awareness Workshops
Two regional awareness workshops (one at Bangalore in December 2005 and another in Mumbai in January 2006) and a national-level workshop at New Delhi (March 2006)
Shri Subramanian, Secretary, MNES, at New Delhi, 6 Mar 2006 Industrial Cogeneration India

23

Potential & Opportunities

Everyone agreed that the Electricity Bill 2003 provisions were conducive to the promotion of captive power/ cogeneration projects. It was also agreed that biogas, biomass and fossil fuel combinations are possible.

Similar efforts and review meetings will be held with paper industries for promotion and faster implementation of cogeneration/captive power projects at their plants. However, several distilleries and pulp/paper mills have yet to come forward with their requests or Shri Sandeep Junjarwad, Business proposals to implement projects. Manager, Cogen India, felicitating MNES, Cogen India and the the Union Minister Hon. Shri. Vilas Muttemwar. respective Associations will readily provide any assistance that may be required. Cogen India and its members can also provide other services such as preparation of pre-feasibility reports, DPRs, loan syndication, CDM services, energy audits, etc.. Cogen India is an association formed in 2001 for the promotion of decentralized cogeneration/captive power plants in all industrial and commercial sectors. Further details are available at www.cogenindia.org. For copies of the proceedings of the above workshops, please contact Sandeep Junjarwad, Business Manager, Cogen India, Pune.

Key Results
These workshops and follow-up actions are expected to trigger off implementation of cogeneration/captive power projects in distilleries/pulp and paper mills, and provide long-term business opportunities to various stakeholders. After the workshops for the distilleries, about 18 distilleries contacted Cogen India and AIDA seeking further details and assistance in implementing cogeneration projects. A review meeting was held at MNES on 7 July 2006 with the interested distilleries (UB Group, SVP Ind Ltd, Riga Sugar, Trichy Distilleries, Sir Shadilal Distillery, Agribiotech Industries and Birla Group of Sugar Industries), after which some members (like Trichy Distilleries and Hira Sugars) have requested for the preparation of pre-feasibility reports, Detailed Project Reports (DPRs) & loan syndication. Pilkhani Distilleries, Shamli Distilleries, and Agribiotech Industries have submitted their proposals and are under various stages of project implementation.
contd from pg 22

Case Study Innovative supplied an H 2 S removal Bioskrubber plant to Brihan Maharashtra Sugar Sydicate Ltd.(BMSS), Shreepur, Dist. Solapur, Maharashtra. The capacity of the distillery is 25 klpd and the raw material used is molasses. The distillery wastewater treatment facility is based on anaerobic digestion, where the level of organic pollutants is reduced Biological Sulphur and methane-containing biogas is produced. BMSS uses this biogas to produce power. They have installed a 1-MW power generation plant. To remove the H2S from biogas they have put up an H2S removal plant based on the bioskrubber technology, with a biogas-based engine. Their captive requirement is 500 kW, while they use around 500 kW of grid power. Raw Biogas Parameters (at the inlet of the bioskrubber) Parameters Flow, nm3/hr CH4 % CO2 % H2S % Area required for plant
24
Industrial Cogeneration India

Performance Parameters Inlet H2S % Outlet H2S ppm Sulphur generated kg/day Plant availability per year, days Value 3.5 Less than 500 300 350

Cost of H2S cleaning per unit generated, 0.30 Rs/unit Innovative Environmental Technologies Pvt. Ltd. (Innovative), is dedicated to promoting new technologies in non-conventional energy. Innovative is ready to embark into the business of pollution control. A commitment to continuous innovation and upgradation of process technology permits Innovative to carry out bench and pilot scale studies, thus helping application engineering immensely.

Value 500 max. 50 - 55 40 - 45 2.0 max. 400 sq. m.

Courtesy: Chandan Gadgil, CEO, Innovative Environmental Technologies Pvt Ltd, Flat No. 5, Tungai Apts, 781/4, Shivajinagar, Lane, Opp. Kamala Nehru Park, Erandawane, Pune 411 004, India Tel: 020 25675423; Telefax: 020 - 25653748 Email: ietl@vsnl.net

Industrial Cogeneration India

25

Trade Team Canada Environment:

Linkages with Indian Industry
Trade Team Canada Environment (TTCE) has successfully participated and facilitated numerous Canadian Environment and Energy Business Development Missions to India in an effort to promote Canadas capabilities in clean energy, environment and climate change. Canadian industry in this field provides cutting-edge technologies and innovative environmental solutions. Technologies in the areas of clean coal, renewable energy such as biomass, cogeneration, SPV, small hydro, waste-to-energy and environmental products and services offer immense opportunities for Indian industry to achieve technological improvement and to develop new business prospects. Canadas diverse variety of environmental and renewable energy technologies and services has both a mix of well proven sales and pre-commercial R&D stage and offer a solution to meet Indias ever growing energy and environment market needs in a sustainable manner. India offers huge environment business potential, which is estimated at more than US$ 3 billion specifically in the areas of wastewater treatment, solid waste management and hazardous waste management. Fossil fuel based clean energy, renewable energy and opportunities under CDM are also part of an overall profound growth pattern of the Indian energy sector attracting higher private sector investments. Technologies under clean coal, energy efficiency and bio-fuels provide abundant opportunities for technology transfer, JVs to meet cost effectiveness and environmental solutions, which is also true for other technological areas. Canadian energy and environment companies are well placed to benefit from these opportunities. More about the companies can be found in Canadas Clean Energy Technology Portal at www.cleanenergy.gc.ca. This year, TTCE has added some exciting seminars and events as part of our 2006 Business Development Mission with visits to facilitate targeted market partnerships. Programs will be held in 2006 in Delhi, Chennai, Pune and Mumbai. The visit coincides with two prominent conferences and exhibitions in Mumbai including the Energy Technology Forum and Power India. The delegation will include government representatives from Industry Canada, International Trade Canada, Canadas CDM/JI Office, Natural Resources Canada and Export Development Canada. Below is a list of companies that attended the fall mission: developed a unique, low temperature technology called CarbonSaverTM that dissociates natural gas to form gaseous hydrogen and solid carbon without generating carbon dioxide.

Balance CO2 www.balanceco2.com

Specializes in services related to energy saving projects. Services include consulting, project management, technology transfer and community development with projects focused on renewable energy implementation, landfill management and cogeneration from industrial waste.

The Canadian Consortium of Clean Energy (Canadian CCEETI) www.chemisar.com

Comprised of organizations that specialize in environmental assessment, process efficiency evaluation and process implementation. Canadian CCEETI has special expertise in biomass (bagasse), waste-to-energy conversion processes, process improvements, and environmental monitoring and verification.

Conestaga Roves Associates Limited (CRA)

www.craworld.com With over 60 offices worldwide, CRA works in the field of environmental and engineering consulting including expertise in wind energy, water and wastewater, solid waste, GHG reduction technology, environmental assessment and site remediation.

Global Engineering Services Ltd.

www.globalengineering.ca Global Engineering provides consulting engineering services for waste to power projects, and offers expertise in environmental engineering, waste management, soil remediation, water and wastewater treatment and conservation, environmental testing, and waste to energy.

Golder Associates www.golder.com Areas of expertise include geotechnical engineering, mine engineering, contaminant hydrogeology, environmental and social assessment, financial risk management, biosciences and toxicology, information management, sustainable development and carbon management. Nuworld Research & Development
www.nuworldresearch.com Specialize in leads-flow and engineering services associated with efficient energy conversion of hydrocarbon based fuels and heat into electric power. Their current focus in India includes solar power supply for rural and village electrification, manure to electricity and coal-bed methane gas as a clean energy source.

AirScience www.airscience.ca AirScience is the exclusive developer of the Terragas process that produces pure hydrogen from landfill gas. Areas of expertise include Volatile Organic Compound Control Systems, Greenhouse Gas Reduction, Process Gas Separation, Desulphurization with Acid Production, Gasification Systems/ Waste Gas Valorization, and Hydrogen production. Atlantic Hydrogen (AHI) www.atlantichydrogen.com AHI provides energy and environmental solutions. AHI has
26
Industrial Cogeneration India

Sandwell Engineering

Sandwell has been providing Engineered Solutions in India for 50 years. Areas of expertise include renewable & alternative energy, energy efficiency, water and wastewater treatment, resource conservation, and bulk material handling systems and port and marine facilities.

Industrial Cogeneration India

27

Saskatchewan Research Council (SRC) www.src.sk.ca

SRC specializes in R&D and technology commercialization on alternative energy sources for transportation, reduction of GHGs and urban smog, increase in energy supply, and lower fuel costs. Meshes cleaner fuels with smart technology for vehicles.

remediation, solid waste management, water and wastewater, auditing, EMS, chemicals, petroleum and power.
TTCE (http://ttc-environment.ic.gc.ca) is a public-private partnership aimed at increasing Canadas export of environmental products and services, as well as promoting the industry to make their presence in key global markets. As part of the Team Canada Inc network and managed by the federal department Industry Canada, TTCEs services provided in both domestic activities and business development missions abroad include market intelligence, onsite briefings, tailored business programs, technical seminars and showcasing opportunities, networking events and site visits both abroad and for incoming delegations. India has been a priority market for TTCE since 2002.

SENES Consultants Ltd. www.senes.ca The resources provided by SENES span many technical disciplines including engineering, physical and natural sciences, geography and planning, economics, mathematics, statistics and computer sciences. With three offices in India they are interested in projects in the area of air quality, site remediation, solid and hazardous waste management and strategic environmental assessments. SNC Lavalin Environment www.snclavalin.com SNC-Lavalin areas of expertise include construction engineering, project financing, site decontamination and
contd from pg 5

For more information please contact: Amanda Kramer, TTCE at: kramer.amanda@ic.gc.ca or Saroj Mishra, Trade Advisor (Energy & Climate Change), Canadian High Commission at: saroj.mishra@international.gc.ca

facilitate flow of surplus power to the grid. These include regional level meetings at different locations across the country, creation of specific sub-group to consider industry specific issues, taking up of the matter with forum of regulator (FOR). FOR set up a sub-committee to look into the matter. CEAs initiatives culminated in workshop on CPPs on 20th March 2006, which provided a platform to CPPs to interact with senior ministry officials & regulators. The present status of various issues raised during above inter actions/meetings etc. is as below:
Issue: Definition of a captive plant In case of a captive plant or a group of Industries setting up a captive plant, at least the group of industries or individual industry should use 51% of the power generated. The balance can be exported. Status: Electricity Rules issued by MoP vide Notification dated 8 June 2005 Issue: Open access, which is the key provision to attract investment in new generation/ transmission/distribution projects, should be made effective as per the provisions of the Electricity Act, 2003 and National Electricity Policy Status: Most SERCs have already issued regulations. Issue: Surcharge/cross-subsidy surcharge in some states is very high Status: Tariff policy notified by GoI on 6 January 2006 Issues: a) Very high/discriminate electricity duty imposed on captive power generation by some states, and b) Imposition of cess on captive power generation by some State Govts Status: CEA has recommended that it may be re-considered by the State Government. Issues: l Reduction in contract demand by CPPs not allowed by state DISCOMs, resulting in higher demand charges l Demand charges levied on connected load irrespective of actual drawal from DISCOM l Exorbitant wheeling charges for intra-state transmission system for transfer of surplus power from captive plants l Other charges levied on CPPs by Regulatory Commissions*: Additional surcharge Parallel operation charge 28
Industrial Cogeneration India

Contract demand charge/annual minimum guarantee Charge Transmission charge Fixed charge for electricity connection SLDC charge Reactive energy charge Banking charge Status: Already considered in FOR subgroup meetings and recommended for action (* under consideration) # FOR = Forum of Regulators

* Commission shall allow open access to consumers with contracted capacity of 1 MW or less in due course at such time and in such phases as it may consider feasible having due regard to operational constraints and other factors. Conclusion State Government, CERC, and SERCs are making efforts to implement the Government policy to ensure that all impediments for the development of captive power plants are resolved. However, there are still certain issues such as cross-subsidy and additional surcharges for open access. Also, some states/SERCs have levied high wheeling and other charges, and electricity duty and cess, which are required to be sorted out. Efforts should also be made by the industry to install larger captive power plants using the group captive facility provided under the Act so that there should be optimal use of national resources.

For the plan wise growth of installed generating capacity and generation (utilities and non-utilities), please contact CEA or Cogen India. Courtesy: VS Verma, Member (Planning), CEA, RK Puram, New Delhi 1 : Tel: Fax: Web

Industrial Cogeneration India

29

contd on pg 21

l l l

750 to 900 C. Tall furnace also ensures adequate residence time (2.5 to 3 seconds) for efficient fuel combustion, hence lower unburned carbon loss. Generous grate area loading to ensure efficient combustion of fuel. Typically the grate area loading is in the range of 1.4 x 106 to 2.5 x 106 kcals/hr/ m2 depending on the type of fuel. Convective superheater design is preferred over superheaters placed in radiant zone as due to high temperature there is fouling of ash in superheater zone when fuel has high alkali content . Overheating of radiant superheater under low steam flow has been reported . Placing the superheater in the convective zone eliminates these problems. The superheater sections are shielded by nose portion (Figure 4) which helps avoid direct radiation from furnace thereby eliminating overheating of tubes. Parallel flow secondary superheater coils to minimize metal temperature. For high alkali fuels the primary superheater is also provided with parallel flow arrangement. For high alkali fuels the secondary superheater is to be placed downstream of primary superheater coils in the flue gas path. This will eliminate deposition and corrosion due to chlorine attack. Also tube metal temperature will be lower.

l l l l l

Overfire air (secondary air) with high secondary air pressure (650 to 675 mmwc) to provide better air penetration across furnace cross section to ensure better combustion of particles burning in suspension, there by minimizing unburned carbon loss and hence high boiler efficiency. This also provides an air curtain to prevent the unburned particles carry over to superheater zone and evaporator surfaces thereby avoiding secondary combustion. Pre-dust collection system at the outlet of economizer with reinjection facility of grit collected back to the furnace. This will minimize carbon loss and also eliminate fire hazard in Electrostatic Precipitator. Single pass boiler bank arrangement without baffles to reduce flue gas velocity and eliminate tube erosion. Wide pitching of primary and secondary superheater coils to eliminate bridging of ash. Location of soot blowers at strategic zones for efficient on-load cleaning of the heating surfaces. Use of corten steel tubes at the cold end of air heater to avoid corrosion. Airheater air bypass arrangement to be provided to maintain higher flue gas temperature leaving airheater at part load operation of the boiler and also when the ambient temperature is low.

Conclusion The foregoing discussions establish the superiority of traveling grate technology for firing bagasse and other biomass fuels, as well as fossil fuels, for year-round cogeneration of power. This is critical in the case of the sugar industry which depends on alternate/opportunity fuels during the off-season for cogeneration of power. It is also an extremely robust and proven technology, capable of firing a variety of fuels.

View of the complete sugar plant supplied by ISGEC (a sister division of ISGEC John Thompson) to Consolidated Farming Ltd., Zambia for producing plantation white sugar. This plant has a 40 TPH, 45 kg/cm2(a), 440 C bagasse, wood chip and coal fired Travelling Grate boiler, supplied by ISGEC John Thompson. ISGEC is currently supplying a similar plant being set up in Kisumu, Kenya.

Courtesy: AK Subramanian, ISGEC John Thompson A4 Sector 24, Noida 201301, Uttar Pradesh, India Email: ijtsales@isgec.com; Web site: www.isgec.com

Editorial ... contd from pg 3

the electricity mix. By 2032, renewable power capacity is likely to reach 100,000 MW, corresponding to 15% of the then installed capacity, with 10% contribution to the electricity mix. In order to facilitate renewable power and cogeneration to reach their full potential, further reforms in the electricity sector and removal of market distortions are necessary. Pricing structures that do not reflect the full cost of conventional energy continue to be a major constraint. Distortions exist in the form of direct and indirect subsidies, subsidized electricity supply for various end users, and the exclusion of environmental and social costs, and other externalities in cost calculations. A rational energy pricing structure, which removes distortions and internalizes
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Industrial Cogeneration India

various hidden costs, could in future reduce the need for preferential tariffs for renewables and cogeneration. In the Foreword to the last Issue (June 2006), I had drawn attention to the captive power scenario in the country and the role of non-conventional energy, in particular biomass and cogeneration, in captive generation. This Special Issue focuses on Policy and provides perspectives from eminent experts, regulators and senior representatives of financial institutions, project developers, utilities and industry. We hope that their contributions will help to focus attention on the present and emerging policy landscape and identification of further reforms needed for a major scale up of commercial and industrial activity in renewables, captive power and cogeneration in the country.

Woodward Governor India Ltd. 23/6 Mathura Road Ballabgarh 121004, Haryana, India Tel: 91 129-2307111 (12 lines); Fax: 91 129-2307123 Email: vnanda@woodward.com / srajot@woodward.com Web: www.woodward.com

Industrial Cogeneration India

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Industrial Cogeneration India