Cogeneration, or combined heat and power (CHP), is the simultaneous generation of electrical or mechanical energy and thermal energy from a single primary energy source. Cogeneration systems can achieve efficiencies of up to 85 per cent and even more in some cases. Cogeneration technology has a wide range of applications across industries.
Apart from saving fossil fuel, cogeneration helps reduce the emission of greenhouse gases, particularly CO2 emissions. Further, the production of electricity is on-site, which reduces the burden on the utility network and eliminates transmission line losses. Cogeneration provides benefits both at the macro and micro levels. At the macro level, it reduces the financial burden on the national power utility, and conserves indigenous energy sources by improving fuel efficiency. At the micro level, it reduces the overall energy bill of users, particularly when there is a need for both power and heat at the site.
While captive power plants in general have been set up in several industries across the country, the uptake of cogeneration has been limited due to several challenges. A look at the key trends and challenges in the sector, with focus on renewable energy sources…
Biomass cogeneration
The Ministry of New and Renewable Energy (MNRE) has been promoting biomass power and bagasse cogeneration in the country for several decades. The objective is to utilise the available biomass resources like bagasse, rice husk, straw, cotton stalk and coconut shells. However, only 1.5 GW of the 37.84 GW grid-connected renewable capacity, installed in the country during 2014-15 to 2018-19 comes from biopower, as compared to over 21 GW from solar and 13 GW from wind.
The country achieved a total grid-connected biopower capacity of 9.54 GW as of end-2018, against a target of 10 GW biopower by 2022. This includes 8.73 GW from bagasse cogeneration, 0.68 GW from non-bagasse cogeneration and 0.13 GW from waste-to-energy generation.
Policy updates
In its Scheme for the Promotion of Biomass-based Cogeneration in Sugar Mills and Other Industries in India (up to March 2020) announced on May 11, 2018, the MNRE provides central financial assistance (CFA) for projects utilising biomass like bagasse, agriculture-based industrial residue, crop residues, wood produced through energy plantations, weeds, and wood waste produced in industrial operations. Under the scheme, CFA will be provided at a rate of Rs 2.5 million per MW for bagasse-based cogeneration projects and Rs 5 million per MW for non-bagasse cogeneration projects. In another positive development, the government has extended the timeline of the scheme till 2020.
However, in late 2018, the MNRE amended two clauses in the scheme to promote biomass-based cogeneration projects in sugar mills and other industries. In Clause 5, regarding the existing projects involving capacity addition, the MNRE has inserted a new provision that states, “Applications already received for capacity addition (expansion) projects before notification of this programme will not be eligible for CFA.” In Clause 6, regarding the sanction of proposals, the MNRE has inserted two new provisions. One, all applications received by June 30, September 30, December 31 and March 31 will be considered in the next quarter. Two, applications received and sanctioned before the notification of this programme will be processed as per the existing guidelines, while projects that have been set up prior to the grant of the MNRE sanction will not be eligible for CFA.
Recently, the MNRE also issued a memorandum to continue the issue of concessional customs duty certificates to set up power projects based on non-conventional materials such as agricultural, forest, agri-industrial, industrial, municipal and urban, bio and poultry waste.
Tariff issues
Cogeneration tariffs vary across states. Maharashtra has specified an upper ceiling tariff of Rs 3.50 per kWh for competitive bidding to procure power from fossil fuel-based cogeneration projects in the state. The Maharashtra Electricity Regulatory Commission (MERC) stated that Maharashtra State Electricity Distribution Company Limited (MSEDCL) will be the nodal agency to conduct competitive bidding on behalf of all discoms in the state when it comes to procurement from fossil fuel-based cogeneration projects.
MERC’s order came while it was examining a petition filed by Lloyds Metals & Energy Limited. The firm had requested MERC to direct the discoms to procure 100 per cent power produced from all waste-to-energy plants in the state at the tariff determined by the commission, and in the ratio of their procurement of power from all sources, including their own.
After examining the petition and submissions, MERC stated that the power will be apportioned among the discoms in proportion to their transmission capacity. The commission also clarified that the power procured from fossil fuel-based cogeneration projects will not be deducted from the total consumption of the obligated entities for their renewable purchase obligation. MERC also did not provide any concession on wheeling charges or any other open access charges for the procurement of power from fossil fuel-based cogeneration projects, but has now ordered MSEDCL to prepare standard bidding documents for the same.
On a positive note, in October 2018, MERC approved MSEDCL’s proposal to procure long-term bagasse-based cogeneration power through competitive bidding. This has led to signing of a power purchase agreement (PPA) for 200 MW of bagasse-based cogeneration projects in the state. It has also enabled grid connectivity.
Further, the Telangana State Electricity Regulatory Commission (TSERC) has passed a tariff order for bagasse-based power plants in the state for the control period 2018-20, setting the levellised fixed cost at Rs 2.23 per unit.
Challenges ahead
One key issue is the long-pending CFA/ capital subsidies for bagasse cogeneration power projects at some sugar mills in India. As per Sanjay Khatal, executive director, and Sunil Natu, member secretary, Cogeneration Association of India (Cogen India), 28 sugar factories in Maharashtra, Karnataka and Uttar Pradesh had applied for capital subsidies for their cogeneration power projects to the MNRE during the period 2014-16 (following the government notification dated June 20, 2014), under a prevailing scheme. The cogeneration power projects at these sugar factories were at the planning or implementation stage when they submitted their applications. The cumulative installed capacity of these projects was 648 MW (exportable surplus of 420 MW).
However, the decision to grant capital subsidies to these projects was kept pending. Finally, the ministry’s Project Appraisal Committee (PAC) reviewed the 28 projects during the months of June and August 2018. The PAC then cleared all the projects for the sanction of capital subsidies. These projects were commissioned by this time as the sugar factories could not delay implementation due to delays in the sanction of capital subsidies.
The MNRE then issued a corrigendum to the scheme on December 4, 2018, withdrawing CFA/capital subsidies of Rs 500 million-Rs 600 million from as many as 25 out of the 28 projects, as they have been set up without prior sanction from the MNRE.
Prior to the above corrigendum, all three project categories, under implementation, already commissioned and in the pipeline, were entitled to financial assistance. The corrigendum will create banking problems now. Projects had factored in the CFA/capital subsidy provisions while working out the bankability, and banks had released loans accordingly.
According to Cogen India, the MNRE issued written sanctions granting the CFA/capital subsidy to some projects in as late as August 2018 and then suddenly withdrew it in October 2018, because they were expansion projects. In its plea, it stated that the crushing season has already begun in sugar factories, and they need capital subsidies given their precarious financial condition.
Cogen India has been fighting another battle in Maharashtra for the past three years, against non-signing of PPAs by MSEDCL, the ambiguous competitive bidding process followed by MSEDCL for these projects despite completion of the notified capacity and approval by MERC, unjustifiable reduction in the floor price for competitive bidding and approval by MERC, as well as renewal of PPAs for projects that have completed a term of 13 years.
Outlook and the way forward
India is also exploring natural gas-based cogeneration. At the International Symposium to Promote Innovation & Research in Energy Efficiency (INSPIRE 2018) in November 2018, Energy Efficiency Services Limited and GAIL Gas Limited signed an MoU to develop natural gas-based cogeneration and trigeneration projects in the commercial and industrial sectors, using CHP technology.
Further, in August 2018, the MNRE invited expressions of interest to assess the potential of biomass power and bagasse cogeneration in India. It is hoped that this study will correctly assess the huge biomass potential in the country, and lead to positive policy and investment decisions.
Anita Khuller