A REPORT ON INDIA’S BIOMASS POWER SECTOR SUBMITTED BY RAVI JAIN 1226109240 TO Prof. V.L.RAO IN PARTIAL FULFILLMENT OF THE COURSE BUSINESS ENVIRONMENT POLICY

17th December, 2009

GIIB, Visakhapatnam

EXECUTIVE SUMMARY
The total installed capacity in India is 1,50,000MW but we are facing a power deficit of around 10%. The per capita power consumption is 665 kWh and this figure is steadily increasing. To meet this increasing demand and reduce the current peak shortage, the Government has planned to double the existing capacity to 3,00,000MW over the next decade (2010-20).

BIOMASS POWER SCENARIO India has a biomass availability of 150 million MT per annum which gives us a potential to install 16,000MW of biomass based power plants. But only 600MW is installed and another 600MW is under implementation. To realise this huge potential we need an investment of Rs.1,00,000 crore. Some reasons for lack of investments in Biomass sector are:   It costs around Rs.6cr/MW for a Biomass plant whereas a thermal plant requires only about Rs.4.5cr/MW. Availability of Biomass fuel with high calorific value (> 4000kcal/kg)

PROMOTIONAL INCENTIVES       Accelerated Depreciation 80% in first year (Boiler and Turbine). Income Tax Holiday under Section 80 1A for 10 years. Concessional import duty; excise duty exemptions on equipments & components required for initial setting of the project. Sales tax exemption in some states. IREDA provides loans for biomass power projects. Preferential Tariff in 14 States.

INVESTMENTS   India and Germany have signed a Rs.140 crore deal to install 7 Biomass projects in India. During the 11th Plan period, the Government of India aims to add 500MW capacity through biomass in many states, including Maharashtra, Uttar Pradesh, Tamil Nadu and Karnataka.  AllGreen, a leading renewable energy developer in India, plans to raise US$100 Million to set up ten 6.5MW biomass-to-energy projects across India over three years. The first three, projected to go on-stream by March 2010, will be in Karnataka, Tamil Nadu and Madhya Pradesh.  French nuclear power specialist Areva and US-based Astonfield Renewable Resources are teaming up to invest about €100m ($142bn) in biomass power plants across India.

BIOMASS CULTIVATION    Low productivity of 5 T/Hectare Biomass cultivation over 11 million Hectares of wasteland can generate a total of 12 million direct and indirect jobs and a revenue of over Rs. 20,000 crore. Oil content of Jatropha seeds should be increased from 33% to 50%

MAJOR COMPANIES  PRIVATE SECTOR     Clenergen Power Corporation Limited – 64 MW + 16 MW worth Rs. 1,135 crore Oriental Green Power – 8 X 8 MW worth Rs. 730 crore Astonfield-Areva Power – 100 MW worth Rs. 630 crore

PUBLIC SECTOR  Indian Renewable Energy Development Association (IREDA) – 250 MW

1. INDIA’S POWER SCENARIO – INTRODUCTION

Total Installed Capacity Per-capita Power Consumption Power Generation Power Consumption

1,50,323 MW 704 kWh 2.4% of the World 3.3% of the World

Power Sector Composition
2.9 7.7 Coal Gas 24.7 53.3 Oil Hydro Nuclear Renewa ble 0.9

10.5

2. SUPPLY-DEMAND GAP There appears to be no solution in sight for the prolonged and worsening power crisis facing the country with continuing slippages in capacity addition targets, unacceptably high levels of transmission and distribution (T&D) losses, power thefts and rampant corruption. The power consumption pattern in India is very diverse. With mounting power deficits, many States are facing a crisis situation. While the overall demand-supply gap averages around 12-14%, 10 out of 28 States have a deficit of more than 20%. The peak level power deficits are much higher.

Consumption Pattern

22.9

24.8 Domestic Industrial Commercial

8.1

Agricultural

35.6

2.1 REVENUE LOSS India Inc. lost Rs. 43,205 crore during 2008-09 due to high outages of power, both scheduled and non-scheduled. The opportunity cost of power shortages in the last financial year has amounted to Rs. 2,89,000 crore. Indians are forced to spend around Rs. 30,000 crore every year on inverters and generators because of widespread power shortages and load shedding. Residential and commercial users in India have so far spent about Rs. 1 lakh crore on buying invertors and generators; this amount could have helped build new generating capacity of nearly 30,000 MW.

3. BIOMASS POWER SECTOR The key drivers for Biomass energy in India are the following:       The demand-supply gap, especially as population increases A large untapped potential Concern for the environment The need to strengthen India’s energy security Pressure on high-emission industry sectors from their shareholders A viable solution for rural electrification

Biomass conversion can be done through the following processes:   Co-firing Gasification

Potential biomass fuels include:     Crop residues and Farm wastes Industrial & Forest wastes Residues of wood product industries Animal wastes

The share of energy in biomass sources is shown in the figure below

3.1 TYPICAL COSTS Because of widely varying feedstocks and conversion processes, it is difficult to identify typical costs for biomass energy. The most economical approach is to use local biomass to avoid costly, energy-consuming transportation. The cost of electricity from dedicated solid biomass plants depends on:     Technology Feedstock quality and cost Regional location Size of the plant.

Large-size plants require biomass transportation over long distances. Small size means higher investment cost per kW and lower electrical efficiency relative to coal plants.

3.2 BIOMASS POWER SECTOR STATUS

As of Oct 30, 2009 another 600 MW capacity projects are under implementation.

3.3 POTENTIAL India has a biomass availability of 150 million MT per annum. This gives us a potential to install 16,000 MW of biomass based plants. To realise this potential we need an additional investment of Rs.1,00,000 crore. The Table gives a clear picture of the utilized and unutilized potential of biomass power in India. Area (kha) 2540.2 2633.1 5833.1 3815.5 156.3 6512.9 4890.2 710.3 368.7 1299.8 7277.3 2041.7 9937.0 15278.3 72.6 0.8 27.1 2436.6 6693.5 12537.5 2454.0 12628.2 66.4 5575.6 105787 Crop Biomass Biomass Power Production Generation Surplus Potential (kT/Yr) kT/Yr (kT/Yr) (MWe) 3232.0 6075.7 13817.8 6142.8 554.7 20627.0 13520.0 1329.2 648.7 1509.0 38638.5 9749.7 14166.9 51343.3 159.4 14.0 87.6 3633.3 27813.7 93654.8 24544.6 46800.8 135.8 21062.8 399262.1 8301.7 6896.3 20441.8 10123.7 827.2 24164.4 26160.9 2668.2 1198.7 2191.2 23766.8 9420.5 26499.6 36804.4 318.8 42.0 149.2 5350.4 46339.8 204887.6 15976.6 50416.7 159.9 23316.0 546422.6 1172.8 1398.4 4286.2 1907.8 129.9 7505.5 9796.1 988.3 237.7 567.7 6400.6 5702.6 8033.3 11803.9 31.9 8.4 27.2 1163.4 21267.0 35531.1 6658.7 11725.9 51.6 2959.7 139356 150.2 165.5 530.3 220.9 15.6 1014.1 1261.0 128.0 31.8 66.8 843.4 762.3 1065.4 1585.0 4.1 1.1 3.1 147.3 2674.6 4595.0 863.7 1477.9 6.6 368.3 17981.8

State Andhra Pradesh Assam Bihar Chattisgarh Goa Gujarat Haryana Himachal P Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Nagaland Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttaranchal West Bengal Total

4. BARRIERS TO ACCELERATED BIOMASS POWER DEVELOPMENT In India, the deployment of biomass power generation technologies has been slow. The difficulties facing the implementation of biomass power projects may differ slightly depending upon whether the projects are drawing their biomass resources from a captive (sugar, rice mills, etc.) as opposed to a distributed source (cotton stalks, mustard or rape seed stalks; etc.). The development of biomass power projects involves broadly three categories of sponsors:    Sugar Mills and Cooperatives Private Sector/Small Entrepreneurs (largely biomass processors) and Independent Power Producers (IPP, power generation companies)

Based on the trial and error of past experiences, the following specific barriers to development of biomass power projects and replication of identified models have been recognized.

4.1 ABSENCE OF EFFECTIVE INSTITUTIONAL AND FINANCING MECHANISMS The common barriers constitute:    Insufficient capacity of the stakeholders and inadequate institutional and policy framework at the national, regional and local levels; Lack of institutional support in dealing biomass power projects such as distribution and sale of electricity; Absence of commercial and service networks (e.g. biomass depots for collection, transportation and delivery of biomass fuels) at the national, regional and local levels; and  Limited access to financing and lack of interest on part of the SEBs in promoting biomass power generation.

4.2 LACK OF ADEQUATE POLICY FRAMEWORK Non-uniform policies - different states have different policies on wheeling, banking, and third party sales that impede the growth of biomass power projects, because of uncertainty in power purchase rates and insufficient security mechanisms for financial institutions. The present tariff policies of the government for conventional supply do not consider all the

benefits of biomass projects, such as minimal transmission and distribution (T&D) losses, substantial overall environment and social benefits to local people. Likewise, the benefits to SEBs due to additional reactive power generation, improved quality and availability of local power are overlooked. The result is a non-level playing field for renewables.

4.3 LACK OF EFFECTIVE REGULATORY FRAMEWORK Lack of capacity amongst the regulators to adequately take into account the various economic, social and environmental costs of conventional energy sources as well as the benefits of renewable generation.

4.4 LACK OF TECHNICAL CAPACITY The technologies for biomass power development, both for combustion and gasification technologies have not yet been fully standardized, packaged, documented and validated as they are still in the early stages of commercialization.

4.5 ABSENCE OF EFFECTIVE INFORMATION DISSEMINATION The information generally available on viable biomass resources and biomass power technological configurations and project parameters at national and international levels is limited. There is no documentation of earlier experience of projects, such as information on project performance. Furthermore, the mode of information dissemination largely remains ineffective due to lack of capacity among the stakeholders (farmers, project developers or promoters) in this sector. With these two integral elements not being adequately integrated to the existing information dissemination strategy, the potential is not fully realized.

4.6 LIMITED SUCCESSFUL COMMERCIAL DEMONSTRATION MODEL EXPERIENCE The commercial viability of the biomass power projects is yet to be demonstrated in India on a visible scale. Viable business models need to be established to improve the confidence levels of investors and regulators. Given the nature of the investors in the cooperative and small entrepreneur sectors, this limited confidence poses high-perceived risk, which leads to larger up-front capital requirements.

5. GOVERNMENT REGULATIONS

India is one of the countries that is most involved in developing the use of renewable energies and is trying to make the opportunity for investors more attractive than costly.

5.1 FINANCING SOURCES AND INCENTIVES To promote biomass energy in the country, the Government has put in place some subsidies & fiscal incentives. The Indian Renewable Energy Development Agency has been set up under Ministry for Non-Conventional Energy Sources and is a specialized financing agency to promote and finance renewable energy projects. Following is a short list of new measures: • 100 percent income tax exemption for any continuous block of power for 10 years in the first 15 years of operations • Providers of finance to such projects are exempt from tax on any income by way of dividends, interest or long-term capital gains from investment made in such projects on or after June 1, 1998 by way of shares or long-term finance • Accelerated 100-percent depreciation on specified renewable energy-based devices or projects • • • • Accelerated depreciation of 80 percent in the first year of operations Interest rate subsidies to promote commercialization of new technology Lower customs and excise duties for specified equipment Exemption or reduced rates of central and state taxes.

6. INVESTMENTS IN BIOMASS POWER PLANTS

6.1 DOMESTIC • Green Planet Energy Private Limited has invested a sum of 9.6 billion rupees (US$228/€145 million) on setting up 14 biomass power projects in the state of Punjab. This has added 147MW of renewable energy to the state's portfolio. • AllGreen, a leading renewable energy developer in India, plans to raise US$100 Million to set up ten 6.5MW biomass-to-energy projects across India over three years. The first three, projected to go on-stream by March 2010, will be in Karnataka, Tamil Nadu and Madhya Pradesh. • Oriental Green Power, a renewable energy generation company promoted by Shriram EPC, Chennai, is planning to set up eight biomass-based power plants across the country with an investment of Rs 1,000-Rs 1,100 crore. The proposed eight plants - each having a power generation capacity of up to 8 mega watts (MW) - would come up in Tamil Nadu, Andhra Pradesh, Maharashtra, Punjab and Rajasthan over the next two years. • Ind-Barath Energy Utkal (IBEUL) has put forward plans to set up a 20MW biomass power plant at Chiplima near Sambalpur in Orissa. IBEUL's biomass plant is to be built on a 40 acre site and the company has already lodged the plans with the state government owned Industrial Promotion and Investment Corporation of Orissa (Ipicol) and the Orissa Renewable Energy Development Agency (OREDA). 6.2 FDI • Clenergen Corporation India Pvt. Ltd, a wholly owned subsidiary of Clenergen Corporation USA, will install two new biomass power projects, a 16MW plant in Tamil Nadu and a 64MW plant in Karnataka. The company has estimated an expenditure of around $236 million for the proposed plants, and plans to raise $83 million in equity from the Indian stock markets. Clenergen expects the Tuticorin plant in Tamil Nadu to be commercially operational in the last quarter of 2010. • French nuclear power specialist Areva and US-based Astonfield Renewable Resources are teaming up to invest about €100m ($142bn) in biomass power plants across India. Under the terms of the deal, announced by the companies last week, 10 biomass facilities with a capacity of about 10MW each will be built. Areva will cover 40 per cent of project costs, with Astonfield funding 60 per cent.

7. CONCLUSION

The very high potential of biomass, India’s capacity to add 16,000 MW through biomass, biomass generation becoming financially viable, an established institutional framework with industrial base, increased awareness of environmental issues and energy security issues are the factors that will help the penetration of biomass power generation. However, this depends on how the challenge of adapting to the changing face of the power sector in India is handled.

REFERENCES
1) ITALIA, Italian Trade Commission Wind & Biomass Power in India – Profile, 2009 2) Energy Independence – Indian Institute of Petroleum Shailendra Tripathi & L.D.Sharma, 10/12/2005 3) Renewable Energy Policy, 2009 Ministry of Non-conventional Energy Sources 4) Indian Power Sector – An Overview of Recent Developments (2009) Infrastructure Leasing & Financial Services 5) http://www.eai.in/blog/2009/01/india-biomass-power-plants.html 12/11/2009 by Renewable Energy Consulting 6) http://www.thehindu.com/2009/02/14/stories/2009021452830300.htm 14/02/2009 by Mythili G. Nirvan 7) http://www.biofuelsdigest.com/blog2/2009/01/13/india-launches-review-tostimulate-investment-in-biomass-to-power/ 13/01/2009 8) Indian Biomass Power Sector: A Potential Destination For North American Investors FROST & SULLIVAN, 22/09/2009 9) http://www.scribd.com/doc/16930431/2009-Power-Scenario-in-India Indian Power Scenario, 2009 Rahul Vikram, National Power Training Institute (NPTI)