Posted under: Feature Articles

Crank it up
Arnab Pratim Dutta
Sugar mills have doubled up as power generators, with help from sound policies.
But profits are falling now. Can states find a way to sustain cogeneration?
Arnab Pratim Dutta
Sugar mills have doubled up as power generators, with help from sound policies.
But profits are falling now. Can states find a way to sustain cogeneration?
Deoband, western Uttar Pradesh. The fourth floor of a building in a sugar factor
y complex, buzzing with activity. A contraption in the middle of a room humming
loudly like an aircraft engine. A man jotting down steam pressure readings from
a meter attached to the contraption. Mechanical engineer R Sudhakar had a quick
word with the man and moved out into a smaller room, the nerve centre of the uni
t where computer screens displayed colourful diagrams. He spoke to the operator
and proceeded to a narrow bridge connecting the building to a steel structure wi
th slits. Through the slits Sudhakar could see tongues of fire. This is a boiler.
Here we burn the residue of crushed sugarcane called bagasse, he said.
Sudhakar is not well-versed in sugar making, but he knows how to make electricit
y from the bagasse produced in the mill. The waste is burnt to superheat water t
o 515°C to produce high pressure steam. The steam is then sent to a turbo-generator r
emember the contraption in the room? It rotates the generator blades, thereby pr
oducing electric current, he explained. Some of the power is provided to the fact
ory owned by Triveni Engineering and Industries Ltd. The rest is sold to the gri
d. The steam is also used to refine sugar.
The mill and the power plant are connected by a conveyor belt that carries bagas
se. Earlier, we had boilers inside the mill. The system produced enough steam for
refining sugar and generating power to meet the needs of the sugar plant, Sudhak
ar said.
In 2004, Triveni decided to upgrade its facility to produce more steam and more
power. It installed efficient boilers that produce steam at a pressure 87 times
the atmospheric pressure. It added matching turbines. The third largest sugar ma
ker in India, Triveni is now selling power to the state. The Deoband facility su
pplies 16-17 mw to the grid. In 2007-08, Triveni made an operating profit (befor
e interest and tax) of over Rs 47 crore through three such units.
In thing
Producing two forms of energy, electricity and heat, is called cogeneration. In
the past six-seven years it has become the buzzword in the sugar sector. Today 1
07 of the 650-odd sugar mills in the country have cogeneration plants, according
to the Indian Sugar Mills Association. Most of these plants are in five sugarca
ne-growing states, Uttar Pradesh, Andhra Pradesh, Maharashtra, Tamil Nadu and Ka
rnataka. Together they are producing nearly 2,000 mw power, enough to meet the r
equirements of a business centre as big as Gurgaon. Their maximum capacity is 2,
249 mw, according to the Indian Sugar Mills Association.
The sugar industry is going through a rough patch. Had it not been for cogenerat
ion, many mills would have had to close down, said Ramesh Nagar, deputy general
manager of Karnataka Renewable Energy Development Ltd. Unlike sugar, which has h
igh input costs, cogeneration is relatively cheaper since bagasse is produced in
house. For every tonne of sugarcane crushed, mills get 300-350 kg of bagasse. It
keeps mills afloat when sugar prices dip (seeÀ Sugar cycle). The sugar business is
essentially cyclical. Market sentiments change in tandem with the demand-supply
equilibrium, leading to a volatile product pricing. Cogeneration and ethanol re
present the much-desired byproducts providing value addition and helping soften
the inimical impact of sugar cycles, noted India s largest sugar producer Balra- mp
ur Chini Mills Ltd (BCML) in its annual report 2007-06. It has cogeneration plan
ts in eastern Uttar Pradesh.

Sugar cycle
View image
The sugar industry in India goes through a cycle of ups and downs. By 2007, suga
r production in India had touched an all-time high of nearly 28 million tonnes.
The factory price of sugar plummeted from Rs 20,000 per tonne to Rs 13,000 per t
onne. This was lower than the sugarcane price. Companies suffered losses and del
ayed payment to farmers. Sugarcane farmers began switching to other crops. As a
result sugarcane production in the 2008 season declined by about seven per cent.
Indian Sugar Mills Association predicts the decline in 2009 to be more pronounc
ed, 23 per cent.

Bagasse ready to be sent to boilers. Every tonne of sugarcane crushed gives 300-
350 kg bagasse
BCML made losses in the sugar business in the third quarter of 2005-06. But it w
as bailed out by its cogeneration business, which made an operating profit of Rs
19.79 crore.
Dhampur Sugar Mills, which has the largest cogeneration capacity in the country,
sold about 177 million units (1,000 units=1 mw) to Uttar Pradesh in 2007-08. Co
generation contributed nearly Rs 42 crore to its operating profit that year agai
nst about Rs 11 crore from sugar units. For the quarter ending March 31, 2009, E
ID Parry, a sugar maker in Tamil Nadu, made a profit of Rs 56.22 crore. Its coge
neration facility contributed about Rs 16.72 crore or 30 per cent to it. The pro
fit a company shows through cogeneration depends on the price at which its sugar
unit sells bagasse to the power unit.
Big potential
Cogeneration is happening in other sectors as well, albeit to a limited extent.
A paper maker in Pallipalayam, a town in Erode district of Tamil Nadu, has incre
ased its productivity as well as decreased its dependence on erratic power suppl
y from the grid.
Seshasayee Paper and Board is generating electricity in two of its factories. Po
ni Sugars, Seshasayee s sister concern located close to the paper mill, supplies b
agasse. The bagasse and wood are converted into pulp for making paper. Unlike sug
ar mills, one of our plants uses the waste from the pulp-making process called b
lack liquor for producing electricity, said T G Sundararaman, head of energy at t
he company.
The second cogeneration unit set up in 2005 uses a cleaner variety of coal calle
d envirocoal, sugarcane pith and coconut shell. Together the plants have a capaci
ty of 36.4 mw and take care of 95 per cent of the power requirement of the paper
factory, Sundararaman said. In 2004-05, the company spent Rs 76 crore on buying
and producing power. In 2007-08, its spending came down to Rs 55 crore. Cogenera
tion has also provided flexibility in the company s expansion plans. From the grid
my paper plant gets only power. I still need to set up a boiler for steam for ma
king paper. If I can get both electricity and steam from a single source, it is
economical, he added.
India has the potential of producing 7,500 mw through cogeneration in 10 industr
ial sectors, said a 2008 study of the International Energy Agency (seeÀ Cogenerati
on potential). Sugar is the sweetest bet because it can produce 5,100 mw of powe
r 69 per cent of the total cogeneration basket. If the resources and technology ar
e cranked up to optimal levels the country can produce 10,000 mw, the study says
. This is 40 per cent of India s power deficit in 2008.
In the US and Scandinavian countries trapping heat from thermal power plants is
common. But in India cogeneration is mostly restricted to sugar mills since the
country s policy and subsidies are focused on bagasse-based cogeneration. In other
sectors involved in waste heat recovery (like iron and steel, pulp and paper) o
nly captive generation is happening. No data is available on the amount of energ
y these sectors produce through cogeneration since they are not connected to the
grid.
Among renewable energy sources, bagasse generates nearly as much power as wind i
n India. Wind produces about 2,000 mw of power. Its installed or maximum capacit
y is 10,000 mw, but lies unutilized most of the time. Bagasse has other advantag
es. Burning bagasse produces no sulphur dioxide and very little ash as compared
to lignite, the lowest rank of coal. Most coal available in India is of low grad
e. Bagasse-based cogeneration earns carbon credits since CO2 absorbed by sugarca
ne plants while growing is more than the CO2 produced in burning bagasse.
Today s boilers are more efficient
The cogeneration plant at Deoband earned about 186,000 certified emission reduct
ions worth over Rs 3 crore between March 2004 and December 2007.
Policy push
Given these advantages, in 1993 the Ministry of New and Renewable Energy then kno
wn as the ministry of non-conventional energy sources set up a high-powered commit
tee to formulate a policy on bagasse-based cogeneration. Next year based on its
recommendations, India announced a policy called National Program on Biomass Pow
er/ Bagasse based Cogeneration. The policy lay down standards and prescribed sub
sidies and capital support to sugar mills.
However, the scheme never really took off, said S Gopinath, chief executive offi
cer of NRG Consulting Services in Bengaluru. State electricity boards did not sh
ow interest. Mill owners hesitated to set up power and transmission infrastructu
re without assurance from buyers. There was no agreement on tariff either. Finan
cial institutions were averse to giving loans because mill owners could not give
a guarantee of profitability. Technological challenges kept mill owners from ex
perimenting.
The scenario changed with the entry of multilateral donor USAID in 1995, said Sa
ndeep Tandon, energy specialist at USAID India mission. Along with an Indian fin
ancial institution and an NGO, the donor agency gave grants to nine sugar mill o
wners in south India for upgrading machinery.
The donor agency engaged US Department of Energy s National Energy Technology Labo
ratory to give technical guidance, while Industrial Development Bank of India wa
s to guide the mills on investment. USAID offered a conditional grant of $40,000
(Rs 19 lakh at current rate) per mw of installed power. Backed by the donor age
ncy, lending institutions agreed to provide loan. The project generated a total
of 195 mw and provided the first necessary push to bagasse-based cogeneration in
India, according to Tandon.
As cogeneration caught on the boiler design began to change (seeÀ Boiler s come a lo
ng way). Until 1995 most sugar mills used low-pressure (11 to 21 bar) boilers, a
nd three-fourths of the bagasse would go waste. In the past three years boilers
producing steam at 87 bar have become common. They cut down fuel consumption by
more than half when compared to the pre-1995 boilers, according to G Su- bramani
um, chief engineer of the Tamil Nadu Sugar Corporation Ltd.
Boiler s come a long way
View image
The technology for high pressure boilers was available in India. What was needed
was redesigning the boilers so that bagasse could be fired inside them instead
of coal.
Till the mid-90s most sugar mills used a generation system called back pressure
turbines. These turbines were fitted on low pressure boilers. The steam would be
sent for sugar processing and then for electricity generation; it was not conde
nsed and recycled. The electricity produced would just about meet the captive re
quirement of the mills.
Around 2000 boilers producing steam at the pressure of 67 atmosphere came into p
lay. They popularized a more efficient system called extraction and condensing t
urbines. It could save enough bagasse for the non-crushing crushing season. Unli
ke the previous technology, the new turbines took steam for sugar processing fro
m the middle, not rear, of the turbine. A part of the steam was cooled and sent
back to the boiler for reuse. With this technology one could adjust heat and pow
er generation according to the requirement.
Cogeneration plants with higher pressure (87 bar) boilers are now using an advan
ced version called double extraction-cum-condensing turbines. These turbines wor
k with superheated steam (500°C). The boiler gives more flexibility in moderating
heating and power requirements and give more electricity per tonne of bagasse.

The policy too has undergone changes. The funding pattern was revised in 2006. I
t is a mixture of tax breaks and subsidies (see tablesÀ Capital subsidy, ...And fi
scal incentives). Help in capital investment can go up to Rs 8 crore.

To regulate electricity trading between the producer and the distributor legisla
tion were introduced. The Electricity Regulatory Commissions Act of 1998 led to
the creation of the Central Electricity Regulatory Commission that acts as an ar
biter of disputes between producers and distributors, and between states. The El
ectricity Act of 2003 mandated states to set up their own state electricity regu
latory commissions (SERCs) that would regulate supply and generation, and handle
disputes.
The 2003 Act recommended states buy a minimum of 10 per cent power from renewabl
e energy sources. It put the onus of fixing tariffs for renewable energy on stat
e commissions. Appropriate Commission shall, subject to the provisions of this Ac
t, specify the terms and conditions for the determination of tariff, and in doin
g so, shall be guided by...the promotion of cogeneration and generation of elect
ricity from renewable sources of energy, the Act states.
This opened the door for private players to enter the field of electricity trans
mission and distribution. It allowed open access, under which a producer can sel
l power to any customer provided there is adequate transmission facility. This m
eant that independent power producers like cogeneration plants were not bound to
sell electricity only to states; they could sell it to any private party like l
icensed power traders.
Farmers bringing sugarcane to the Deoband factory
Challenges
But there is a huge difference in tariffs SERCs announced for cogeneration plant
s, said a market analyst. While in some states the tariff is as high as Rs 7 per
unit, in others it is a paltry Rs 3 per unit. Certain parameters like the calori
fic value of the fuel, duration of the sugar season and sugarcane availability a
nd price are bound to be different. But auxiliary consumption, depreciation cost
, overheads and maintenance are more or less same, he said.
Every state has its own way of calculating the tariff. While Andhra Pradesh calc
ulates the capital cost of setting up a cogeneration plant as Rs 3.25 crore per
mw, Tamil Nadu assesses it to be Rs 4 crore per mw. All we are asking for is a le
vel playing field, said Nikhil Sawhney, director of Triveni Engineering.
The Uttar Pradesh Sugar Mills Cogeneration Association has filed an affidavit be
fore SERC for revising the price of electricity. The cost of fuel, auxiliary con
sumption, operation and maintenance are much more than assumed while determining
the tariff, Rs 3.05 per unit, in 2005-06, the affidavit said. Besides, the aver
age running period of cogeneration plants is much less than estimated. Cogenerat
ion plants are unable to recover the cost of electricity in a reasonable manner , i
t added.
Tariffs are usually revised every five years. It has not happened in Maharashtra
. S C Natu, vice-president of the green power division of Mitcon consultancy fir
m, noted in a paper in 2005 that Maharashtra came out with the best tariff polic
y in 2002. The state announced a tariff of Rs 3.05 per unit with an annual compo
unded escalation of 2 per cent. Today it has become unviable for sugar mills, he
said. The price was calculated taking the capital expenditure of Rs 3-3.50 cror
e per mw and bagasse cost of Rs 559 per tonne. Today the capital expenditure has
increased to over Rs 4.5 crore per mw. The average cost of procured bagasse has
increased to Rs 1,500 per tonne, added Natu, who is also secretary general of Cog
en India, an association of cogenerators. According to him, the tariff should be
at least Rs 5 per unit.
The Maharashtra Electricity Regulatory Commission is forced to act on consumer in
terests, hence tariff is kept low, said B T Badhan, joint director (by products)
at the commissionerate of sugar that is promoting cogeneration in Maharashtra.
Karnataka increased the tariff for cogeneration plants from Rs 2.85 per unit to
Rs 7.24 per unit in January this year. At the same time it has barred sugar mill
s from selling power to private companies. This is because the state is facing a
shortfall of about 1,000 mw.
In 2005-06, sugar mills sold 820 million units of electricity to the grid. Since
then the electricity supplied to the grid kept decreasing, although the cogener
ation capacity is increasing in Karnataka. At the same time, the share of power
sold to private transmission companies went up until sale to private companies w
as stopped in November last year.
Tata Power Trading Company paid a rate ranging from Rs 4.25 per unit to Rs 8.10
per unit. The state government is buying power from other states and independent
power producers at Rs 8 per unit and above. Vijayanarasimha, managing director
of Power Corporation of Karnataka, the price for cogeneration plants was revised
because of a fall in generation by hydropower projects in the state. A senior o
fficial of Karnataka s power department, however, said the reason was general elec
tions.
Low tariffs have begun to hurt cogeneration in other states as well, say industr
y sources. According to T Sankaranarayan, director of Avant-Garde, India s biggest
 cogeneration consultant, the cost of setting up a cogeneration plant is Rs 5-6
crore per mw. This does not include the cost of land, he said.
C N Narayanan, general manager (investor relation) of Triveni, cites another rea
son for raising the tariff. With bagasse demand increasing in sectors like paper
and pulp, its price has risen sharply in recent years. A cogeneration plant need
s about 1.8 kg of bagasse to produce a unit of power. At the current rate of bag
asse (Rs 1,500 per unit), the cost of production works out to about Rs 2.70 per
unit of electricity, compared Rs 3.05 per unit Uttar Pradesh pays to sugar mills
, he said.
Selling to the government is, however, not that unattractive. The government gen
erally signs a power purchase agreement for 10 to 20 years. On the basis of thes
e agreements cogenerators are able to get loans from financial institutions. A pr
ivate power company cannot provide a long-term assurance, hence only government
agreements are accepted by lenders, said an official of Mawana Sugars. Some cogen
erators, especially in Maharashtra and Karnataka, have signed contracts with sta
te governments but have broken them for a higher price from private companies.
According to V Raghuraman, energy adviser to the Confederation of Indian Industr
y, the biggest problem cogeneration is facing is denial of the third party acces
s. While the electricity act of 2003 mandated open access be given, it is not hap
pening, he said.
Maharashtra does not allow interstate transmission of power. Karnataka has disal
lowed open access. Most state governments use section 11 of the Electricity Act t
o bar open access, said Raghuraman. This section allows states to restrict third-
party sale during extraordinary situations and in public interest.
Denied open access, Reliance Energy Trading complained against the Karnataka loa
d despatch centre, that regulates electricity distribution, and Karnataka Power
Transmission Company to the Central Electricity Regulatory Commission. Reliance
had applied for permission to transfer power from a bagasse-based cogeneration p
lant in Karnataka to Mumbai. Karnataka told the commission it denied permission
because of power shortage. In January, the commission ordered Karnataka to give
Reliance open access. The state government challenged the decision in the Karnat
aka High Court.
Bureaucracy, said Amulya Charan, managing director of Tata Power Trading Company
, is another hurdle in open access. He complained that load dispatch centres dis
criminate while granting open access. Charan demanded they be free of government
control.
Despite these challenges, bagasse-based cogeneration is picking up in India. As
of March 2009, 125 such projects were under way. They will easily cross the 11th
five year plan s target of adding 1,200 mw through bagasse-based cogeneration by
2012.
Date: Jun 2009
Source: Down to Earth Vol: 18 Issue: 20090615 pp: 2
Tags Energy, Agriculture, Andhra Pradesh, Boilers, Energy Policy, Karnataka, Mah
arashtra, Ministry of New and Renewable Energy, Paper and Pulp Industry, Subsidi
es, Sugar Industry, Sugar Residues, Sugarcane, Tamil Nadu, Uttar Pradesh, Waste
To Energy, India