Analysis and Evaluation of CDM Potential of Biomethanation Sector in India

Transcription

1 Analysis and Evaluation of CDM Potential of Biomethanation Sector in India Srikanth Subbarao 1,* and Butchaiah Gadde 2 1 Energy Engineer, IT Power India Pvt. Ltd, # 6 & 8, Romain Rolland Street, Pondicherry , India 2 The Joint Graduate School of Energy and Environment, King Mongkut s University of Technology Thonburi, Bangkok, Thailand Abstract: In India, large quantities of biodegradable wastes are generated from agricultural, municipal, industrial and food processing activities. These wastes, due to lack of proper treatment facilities and strict enforcement of regulations, undergo degradation naturally resulting in methane and other green house gas emissions into the atmosphere. It is estimated, that the potential energy generation from Biomethanation of wastes from above mentioned sectors in India could be over 2500 MW. Recent developments in Biomethanation processes has made it possible to manage wastes in reduced time with cost reductions and increased methane yield. The Indian industry has been quite active in development CDM project activities. Indian CDM projects have constituted large shares in Annex-I tenders such as the CERUPT tender of the Government of Netherlands and the Small-Scale CDM projects tender of Finland. After considering the baseline and additionality aspects as well as economics and bundling prospects, it was found that the majority of the potential exists in municipal solid waste sector, followed by the municipal liquid waste sector. Assuming that credits will be available during the period when compliance is below 50%, the CDM potential from biomethanation in India is estimated to be million tones CO 2 /year. It can be seen that almost all of the potential exists in the urban waste sector. Of this over 89% of the potential is in solid waste and about 10% of the potential in liquid waste. Keywords: Biomethanation, CDM, CER, Municipal Solid Waste, Greenhouse Gas 1. INTRODUCTION CDM market is dominated by gas capture/removal of biomethanation projects, renewable energy projects and fuel switch projects. Large number of CDM projects from India has entered the CDM project cycle and the public domain of which the major share is occupied by renewable energy projects. Biomethanation projects have made a significant impact in the CDM market in terms of the volume of emission reductions. There are seventeen projects that are submitted from India to CDM Executive Board (EB) and 5 projects are registered, 11 projects are at validation and 1 project is under request review as of date. The methodology approvals so far indicate strict interpretation of additionality, baselines and monitoring methodologies, ensuring environmental integrity. After the fourteen rounds of methodology submissions seven methodologies has been approved by the EB [1]. The simplified modalities and procedures for small-scale CDM projects also contain a sub-category on methane recovery and avoidance. The methodology approval process so far and the simplified modalities and procedures provide a reasonable guidance for biomethanation projects in CDM. In India, The National Master Plan for biomethanation is being prepared by consultants to the National Bio-energy Board 1 under funding from the UNDP/GEF Project on development of high rate biomethanation process as means of reducing greenhouse gas emissions. The National Master Plan envisages achieving about 2700 MW of waste to energy generation projects by The resource requirements the strategic activities to be carried out and the key issues to be resolved were also delineated in the draft national master plan which is currently under public domain. This study was carried out to examine and evaluate the CDM potential of projects being supported under the UNDP/GEF project on biomethanation. The study covered five sectors of waste-to-energy, pulp and paper, leather, slaughterhouse and starch. As a part of the study, Project Idea Notes (PINs) were developed for six projects. The study was carried out by collecting the primary information through questionnaire survey and secondary information available in the public domain. 2. METHODOLOGY 2.1 approach The approach for analysis and evaluation of CDM potential of biomethanation sector in India comprised of collection of data and analysis of the characteristics of Indian biomethanation projects. In all 32 biomethanation projects and an additional project where the location and commercial data is not available managing municipal solid and liquid waste and waste from distilleries, milk processing/diaries, pulp and paper, starch, leather and other industries were analysed. The analysis was carried out using a questionnaire specially developed for the purpose. 2.2 Scientific innovation and rrelevance In India, large quantities of biodegradable wastes are generated from agricultural, municipal, industrial and food processing activities. These wastes, due to lack of proper treatment facilities undergo degradation naturally resulting in methane and other green house gas emissions into the atmosphere. It is estimated, that the potential energy generation from biomethanation of wastes from above mentioned sectors in India could be over 2500 MW [2, 3]. Most of the industrial wastes and municipal sewage are now being subjected to an energy intensive aeration process. Recent developments in biomethanation processes has made it possible to manage wastes in reduced time with cost reductions and increased methane yield. The Indian industry has been quite active in development CDM project activities. Indian CDM projects have constituted large Corresponding author: kanthi_vinu@yahoo.com 1 National Bio-energy Board (NBB) was established in 1995 with the mandate to provide policy guidelines for development of a national bio-energy strategy. 1

2 shares in Annex-I tenders such as the CERUPT tender of the Government of Netherlands and the Small-Scale CDM projects tender of Finland. Currently there are 94 Indian projects which have entered the CDM project cycle. The estimated amount of CERs from the Indian CDM portfolio is about 87 million CERs which represent 14% share of the global market [1, 4]. 3. RESULTS AND DISCUSSION 3.1 Waste generation Scenario in India and biomethanation potential The urban population in India generate solid as well and liquid wastes in significant quantities. Although regulations are in place, lack of financial and human resources at civic bodies such as municipalities and corporations are severely constraining management of these waste streams. Industries such as diaries/milk processing, distilleries, sugar mills, starch and food processing, pulp and paper etc. does generate waste with high levels of biodegradability. There are environmental regulations in place which mandate treatment of the industrial waste but the compliance levels vary from one industry to another. MLD Total Power Potential 446 MW Total Waste Generation MTD Year MW Quantity (MLD) Power Potential (MW) Fig. 1 Power generation potential from municipal sewerage [2] Total Power Potential 864 MW in % 1% 3% 6% 5% 4% 47% Dairy Distillery Maize Starch Paper Poultry farms Sugar Tapioca Starch Fig. 2 Power generation potential from industrial wastes [2] 3.2 Waste Management Policies and CDM In India there have been a number of pilot projects to manage solid and liquid waste but the impact of these projects at a national level has been quite limited. This is due to lack of financial and human resources and lack of effective motivation and leadership at the local levels. Surveys carried out by Environmental Protection Training and Research Institute (EPTRI) and Central Pollution Control Board (CPCB) indicate that 1.6% of the municipal liquid waste and about 5% of the municipal solid waste gets treated properly [5]. The Municipal Solid Wastes (Management & Handling) Rules, 2000, formulated by Ministry of Environment and Forests, (MoEF) Government of India is the main driver for any improvement in Municipal Solid Waste (MSW) management practices in India. The compliance deadline for these management practices was December 2003, but there has not been any noticeable change in the waste management practices across the cities and municipalities in the country. In the context of poor enforcement of regulations and lack of financial resources with municipalities only a slow incremental improvements can be expected in future. 2

3 3.3 Baseline and Additionality issues in biomethanation sector in India Since there are regulations in place for management of urban and industrial waste in India, the baselines can be the monitored level of actual compliance and baseline emissions could be emissions as a result of low compliance provided the compliance levels are low and less than 50%. In sectors where the compliance levels are high, the GHG emissions from a process which is economically least cost could be the baseline alternative. One of the CDM methodology submissions (NM0032) from India dealing with a Municipal Solid Waste Management project in Uttar Pradesh assumes that due to poor enforcement the current scenario is wholly unmanaged solid waste disposal sites with the gradual change over time in three phases by which the total percentage of waste is estimated to reach 50% in 2012 at the state level [4]. In the industrial sectors where there could be potential for CDM projects involving Biomethanation are distilleries, milk processing/dairies, food processing and pulp and paper. There are also environmental regulations in place for treatment of effluents, but these regulations pertain to the regulation of BOD levels and not for curbing or controlling of GHG emissions, especially methane. Determination of additionality is the centrepiece in ensuring that the environmental integrity of the CDM process is safeguarded and that business-as-usual projects do not qualify under CDM. CDM projects are likely to be additional only in the waste sectors where the common practice of compliance as documented by the regional or national regulatory bodies are at very low levels. Projects in sectors where over 50% compliance exists may not qualify the additionality test. The Biomethanation projects may also have to demonstrate that they would not have occurred on investment grounds and that the internal rates of return (IRR) for such project are lower than accepted hurdle rates. When available in the public domain, the biomethanation national master plan can be used by CDM project proponents to demonstrate additionality through removal of the listed barriers. For small-scale Biomethanation projects that directly emit less than 15 kilo tonnes of CO 2 annually, the demonstration of additionality through barrier removal alone would be sufficient. The additionality for Indian biomethanation CDM projects may be established through a) demonstrating the low levels of compliance with regulations, b) justification on investment grounds and c) barrier removal. For small-scale CDM projects only the barrier removal test as specified in the simplified modalities and procedures for Small-Scale CDM projects would be sufficient. 3.4 Attractiveness of Biomethanation sectors under CDM in India It was seen that economics of projects as CDM projects in certain urban and industrial sectors were found to be attractive and others less attractive. The attractive sectors from a purely financial/economic perspective are municipal solid waste, distilleries, pulp and paper, starch and municipal liquid waste. Bundling of CDM projects within sectors, especially where small projects exist, was also carried out. It was seen that there was only a minor influence as a result of bundling on the sectoral scope. However smaller projects which were otherwise left out due to limited prospects were able to gain. A sensitivity analysis on CER prices and variations in transaction costs was also carried out and the results showed that the Indian biomethanation CDM projects were more sensitive to changes in CER prices than transaction costs. The sensitivity to transaction costs was also less pronounced in the urban waste sector Sectoral Prospects Analysis of the 32 biomethanation projects in six sectors for CER revenues by developing them as CDM projects provided the following key results as shown in table.2. Parameter Table 2 Power generation potential from industrial wastes Milk Municipal Municipal Distilleries Processing/ Liquid waste Solid Waste Diaries Pulp and paper Starch/ Food Processing Number of Projects Analysed Sizes of Projects Analysed , , , % of CDM Transaction costs >5% 15-70% 2-5% 1-5% 5-10% 5-60% to project cost 4 Change in Payback period due to CDM Change in IRR due to CDM Negative Negative Slightly IRR Considering CDM as incremental Very High Negative Moderate High High High investment 5 2 Four additional projects from drugs, chemical and leather industries were also analysed 3 Biogas production 4 Only considering the initial upfront costs. Some extreme values have been eliminated 5 Considering the transaction costs as the investments and CER revenues as returns. 3

4 Without applying the additionality and baseline tests, the economics of CDM projects in sectors such as distilleries, food processing, pulp and paper and municipal solid waste projects appear attractive. Municipal liquid waste projects are less attractive and milk processing/diary biomethanation projects as CDM projects are not attractive Bundling Bundling of projects during the project cycle baseline studies, PDD development, validation, registration, monitoring, verification, certification and issuance is considered to be one way of reducing the transaction costs. An analysis of bundling of the biomethanation projects analysed were carried out for the sectors where small size biomethanation projects exists and where transaction costs were large when compared with project investment costs. It was assumed that transaction costs increase in steps of 50% and 30% for the first and second project and thereafter 10% for each additional project in the bundle. The results of the bundling analysis are presented in table.3. Parameter Number of projects in the bundle Table 3 Analyses of bundles of biomethanation CDM projects Milk Processing/ Municipal Pulp and paper Starch/ Food Processing Diaries Liquid waste Size of bundle ,080 33,004 5,315 % of CDM Transaction costs to project cost Change in Payback period due to CDM Change in IRR due to CDM 15% 2% 2% 10% Negative Negative Slightly Slightly IRR Considering CDM as incremental investment 5 Negative Moderate Very High High As can be seen from the results, the project bundling has had only minor influence on the sectoral scopes and the natures of the results have not changed compared to table 2. However it may be noted that several of the small projects that are now part of the bundle have benefited significantly as they had a very negative prospect as single projects and as part of the bundle are able to have moderate to very high prospects. It may also be noted that it would be possible to bundle biomethanation projects across technologies, for example in a particular geographic region. However this was not attempted under the present study due to the subjective nature of the possible results and the limited scope to generalise them. However bundling of projects across technologies is indeed feasible and could yield transaction cost reductions Sensitivity Analysis A sensitivity analysis was also carried out for all the projects analysed to see the impact of some of the parameters on the attractiveness of biomethanation projects as CDM projects. The sensitivity of following two CDM parameters to the IRR of the total project was analysed for each of the projects, Transaction Costs: The costs of baseline study, developing the PDD, validation, registration, monitoring, verification and issuance was varied in five steps of 5% in both directions to assess the sensitivity; CER Prices: The prices at which the CERs can be marketed were also varied from 5 US$/ton to 3 US$/ton and 7 US$/ton by 50 US steps in both directions to assess the sensitivity; The results of the sensitivity analysis are given in table.4. Table 4 Results of sensitivity analysis of biomethanation CDM projects 6 Sectors Transaction Costs CER Prices Distilleries Small High Milk processing/diaries Small Moderate Municipal Solid waste Small Moderate Municipal Liquid Waste Small Moderate Pulp and Paper Small High Starch and food products Small High 6 Small- less than 1%, Moderate %, high 2.5-4%, very high- above 4% 4

5 The sensitivity analysis indicated that sensitivity of the biomethanation CDM projects to fluctuations in transaction costs are not significant. All the biomethanation CDM projects showed significant levels of sensitivity to changes in CER prices and the sensitivity was more pronounced in the industrial sectors than the urban sectors CDM Potential After considering baseline and project boundary issues, monitoring methodologies additionality aspects, economics and bundling, it appears that the potential for CDM projects in biomethanation exists mainly in the urban waste sector. The potential for biomethanation in the industrial sectors could only be seen in sectors such as pulp and paper and starch which offer limited scope. Within the urban waste sector the solid waste management is an attractive sector and the liquid wastes in comparison, less attractive. Assuming that credits will be available before the period when 50% compliance is reached nationally, the CDM potential from biomethanation in India is estimated to be billion tonnes CO 2 /year 7. The sectoral potentials are illustrated in table.5. Sector Table 5 Potential for Biomethanation CDM Projects Potential (million tonnes CO 2 /year) Municipal Solid Waste Municipal Liquid Waste Pulp and paper 6.37 Starch and Food products 2.88 Total It can be seen that almost all of the potential exists in the urban waste management sector. Of this over 89% of the potential is in solid waste and over 10% of the potential in liquid waste. 4. CONCLUSION The conclusions that can be drawn from the efforts to analyse and evaluate the CDM prospects for Biomethanation projects are: The current level of generation of urban and industrial waste and the projected rate of annual increase pose an environmental challenge. This challenge has the potential to be translated into over 2500 MW of power generation; The urban population in India generate solid as well and liquid wastes in significant quantities. Although regulations are in place, lack of financial and human resources at municipalities and corporations is severely constraining management of these waste streams and results in low compliance with existing laws; Industries such as diaries/milk processing, distilleries, sugar mills, starch and food processing and pulp and paper does generate waste with high levels of biodegradability. There are environmental regulations in place which mandate treatment of the industrial waste but the compliance levels vary from one industry to another; After fourteen rounds of methodology approvals by the CDM methodology panel and the CDM executive board, seven methodologies involving Biomethanation project activities have been approved. The approvals and the process involved has provided enough guidance for future Biomethanation projects in terms of baseline, monitoring, boundary/leakage and additionality aspects; Analysis of 32 projects from a host of industrial sectors and the urban liquid and solid waste sectors were carried out to evaluate the CDM prospects of Biomethanation sector in India. A pre-feasibility analysis tool was developed for this purpose; The additionality for Indian biomethanation CDM projects may be established through demonstrating the low levels of compliance with regulations, justification on investment grounds and barrier removal. For small-scale CDM projects only the barrier removal test would be sufficient; Since there are regulations in place for management of urban and industrial waste in India, the baselines that are likely to be approved would be the monitored level of actual compliance and baseline emissions could be the emissions as a result of low compliance provided, the compliance levels are low. In sectors where the compliance levels are high, the GHG emissions from a process which is economically least cost could be the baseline; It was seen that the financial and economic attractiveness of projects as CDM projects in certain urban and industrial waste sectors were found to be widely divergent. The attractive sectors from a purely financial/economic perspective are municipal solid waste, distilleries, pulp and paper, starch and municipal liquid waste; An analysis of bundling of CDM projects across sectors, especially where small projects exist, it was seen that there is only a minor influence as a result of bundling on the sectoral scope however smaller projects which were otherwise uneconomical were able to gain; 7 Average emission reductions possible 5

6 A sensitivity analysis on CER prices and variations in transaction costs was also carried out and the results showed that the Indian biomethanation CDM projects were more sensitive to changes in CER prices than transaction costs. The sensitivity to transaction costs was also less in the urban waste sector. After considering the baseline and additionality aspects as well as economics and bundling prospects, it was found that the majority of the potential exists in the municipal solid waste sector, followed by the municipal liquid waste sector. The opportunities in the industrial sector are limited. CDM could therefore hold the potential to help Indian cities manage their waste ensuring environmental compliance providing local benefits as well as providing significant global environmental benefits. 5. ACKNOWLEDGMENTS The authors gratefully acknowledge the contribution of Mr. Binu Parthan, Mr. Nishant Bhardwaj and Mr. Paul Fred Gebbon. 6. REFERENCES [1] Capacity development for the CDM CDMpipeline [online]. Available from [accessed on 26 September 2006] [2] National master plan for development of Waste-to-Energy in India under Ministry of Non-conventional energy Web Site for National Master Plan for Waste to Energy in India [online]. Available from [accessed in May 2006] [3] Kusum Lata, Arun Kansal, Malini Balakrishnan, Rajeshwari K.V Kishore VVN, Assessment of biomethanation potential of selected industrial organic effluents in India, Journal of Resources, Conservation and Recycling, 2002; 35: [4] UNFCCC CDM website link Information on CDM [online]. Available from [accessed on 20 September 2006] [5] Central Pollution Control Board Database [online]. Available from [accessed in May 2006] 6