Gujarat Electricity Regulatory Commission

Discussion Paper DETERMINATION OF TARIFF FOR PROCUREMENT OF POWER BY DISTRIBUTION LICENSEES AND OTHERS FROM BIOMASS BASED POWER PROJECTS AND BAGASSE BASED CO-GENERATION PROJECTS FOR THE STATE OF GUJARAT May 2016 Gujarat Electricity Regulatory Commission 6th Floor, GIFT ONE, Road 5C, Zone 5, GIFT City, Gandhinagar - 382355, Gujarat GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 1

Executive Summary The Gujarat Electricity Regulatory Commission (GERC) has initiated the tariff determination process for determination of tariff for procurement of power by Distribution Licensees and others, from biomass power and bagasse based co-generation projects to be commissioned from the date of issue of order under the powers conferred to the Commission under Sections 61(h), 62(1)(a), and 86(1)(e) of The Electricity Act, 2003, and National Electricity Policy, 2005, and Tariff Policy, 2016. The Commission had issued generic tariff order for procurement of power by distribution licensees and others, from biomass and bagasse based co-generation projects in Gujarat on 8 August 2013. The control period of the GERC biomass and bagasse based cogeneration projects tariff order was up to 31 st March 2016. The Commission also initiated suomotu proceedings for extension of the existing control period beyond 31 st March 2016 till tariff for new control period is decided by the Commission. Hence the Commission presents this discussion paper to initiate the regulatory process for determination of tariff for procurement of power by distribution licensees and others from biomass power and bagasse based cogeneration projects for the next control period starting from the date of issue of order after receiving comments from stakeholders on this discussion paper. While evolving the benchmark operating and financial parameters for determination of generic tariff for biomass power and bagasse based co-generation projects for the next control period starting from the date of issue of order following aspects were taken into consideration.. In order to arrive at a benchmark capital cost for biomass power and bagasse based cogeneration projects to be commissioned in the next control period starting from the date of issue of order, the Commission has examined the biomass power and bagasse based cogeneration projects capital cost trends during the last control period, along with the change in Wholesale Price Index (WPI) of steel and Electrical & Mechanical (E&M) during last control period and corresponding growth rate thereof. The Commission has examined the approach followed by the Central Electricity Regulatory Commission (CERC) as well as State Electricity Regulatory Commissions (SERCs) while fixing benchmark capital cost. The capital cost data was also obtained from Indian Renewable Energy Development Agency (IREDA) and United Nations Framework Convention on Climate Change (UNFCCC). It is noticed that biomass procurement and transportation are handled by a highly unorganized sector and the prices are greatly influenced by the local factors and are at mercy of middlemen. By recognizing the fact that the Goss Calorific Value (GCV) of fuel and cost of the fuel parameters has direct bearing on the variable component of tariff under the two-part tariff structure, this aspect is studied in detail. While proposing the standard normative operational parameters like the station heat rate, auxiliary consumption, plant load factor, O&M expenses etc. the Commission has examined the approach followed by the CERC as well as SERCs in India. The Commission has also studied the recommendation of GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 2

Central Electricity Authority (CEA) under the report on operating norm for biomass based power projects, published during September 2005. In case of financial parameters for tariff determination, the Commission has observed that the current SBI base rate (9.3%) is constant from October 2015. It is proposed to fix the interest on term loan equal to current SBI base rate plus 300 basis point. Further, based on the prevailing market practices, the tenure of term loan is proposed as 10 years. The interest on the working capital is proposed as 200 basis points above current SBI base rate. Based on the above, following normative operating and financial parameters and two-part tariff is proposed for biomass power and bagasse based co-generation projects to be commissioned duringg the next control period starting from the date of issue of order. Parameters Table A: Benchmark parameters for tariff computation of biomass based power projects Total Project Cost (Land + Plant & Machinery + Erection Cost + Evacuation Infrastructure Cost up to Interconnection Point ) (Rs. Lakh/MW) Normative O&M Cost for first year (% of project cost) Escalation in O&M (per annum from 2nd year) CUF Biomass based Power Projects with Water-Cooled Condensers As per existing Tariff order Proposed for next control period Project Cost and O&M Biomass based Power Projects with Air-Cooled Condensers As per existing Tariff order Proposed for next control period 468 477 498 507 5% 5% 5% 5% 5.72% 5.72% 5.72% 5.72% 70% for 1st year & 80% from 2nd year onwards Performance Parameters 70% for 1st year & 80% from 2nd year onwards 70% for 1st year & 80% from 2nd year onwards 70% for 1st year & 80% from 2nd year onwards Auxiliary Consumption 10% 10% 10% 10% Project Life in Years 20 20 20 20 Station Heat Rate kcal/kwh Gross Calorific Value of Fuel kcal/kg Cost of Fuel 3800 3800 3950 3950 Biomass 3400 and Coal - 3632 Rs. 2726 per MT for biomass and Biomass 3396 and Coal 3969 Rs. 2736per MT for biomass and Rs. 3138 per Biomass 3400 and Coal - 3632 Rs. 2726 per MT for biomass and Biomass 3396 and Coal 3969 Rs. 2736 per MT for biomass and GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 3

Parameters Biomass based Power Projects with Water-Cooled Condensers As per existing Tariff order Rs. 2912 per MT for coal Proposed for next control period MT for coal Biomass based Power Projects with Air-Cooled Condensers As per existing Tariff order Rs. 2912 per MT for coal Proposed for next control period Rs. 3138 per MT for coal Fuel Cost Escalation 5% 5% 5% 5% Financial Parameters Debt-Equity ratio 70:30 70:30 70:30 70:30 Term of Loan in Years 10 10 10 10 Interest on Term Loan 12.86% 12.30% 12.86% 12.30% Interest on Working Capital Depreciation 12.86% 11.30% 12.86% 11.30% 6% ( up to 10 years) 3% (11 to 20 years) 6% ( up to 10 years) 3% (11 to 20 years) 6% ( up to 10 years) 3% (11 to 20 years) 6% (up to 10 years) 3% (11 to 20 years) Minimum Alternate Tax 20.008% 21.34% 20.008% 21.34% Corporate Income Tax 32.45% 34.61% 32.45% 34.61% Return on Equity 14% 14% 14% 14% Tariff Fixed Cost a. without AD benefit: Rs. 1.77 /kwh b. with AD benefit: Rs. 1.49 /kwh Variable cost FY 2013-14 - Rs.3.39/kWh, FY 2014-15 Rs. 3.55/kWh, FY 2015-16 - Rs. 3.73/kWh Fixed Cost a. without AD benefit: Rs. 1.78 /kwh b. with AD benefit: Rs. 1.45 /kwh Variable cost FY 2016-17 Rs.3.39/kWh, FY 2017-18 Rs. 3.56/kWh, FY 2018-19 Rs. 3.74/kWh Fixed Cost a. without AD benefit: Rs. 1.89/kWh b. with AD benefit: Rs. 1.58 /kwh Variable cost FY 2013-14 - Rs.3.52/kWh, FY 2014-15 - Rs. 3.69/kWh, FY 2015-16 - Rs. 3.88/kWh Fixed Cost a. without AD benefit: Rs. 1.89/kWh b. with AD benefit: Rs. 1.54 /kwh Variable cost FY 2016-17 Rs.3.52/kWh, FY 2017-18 Rs. 3.70/kWh, FY 2018-19 Rs. 3.89/kWh GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 4

Table B : Benchmark parameters for tariff computation of bagasse based co-generation projects Parameters Bagasse based Co-generation Projects Total Project Cost (Land + Plant & Machinery + Erection Cost + Evacuation Infrastructure Cost up to Interconnection Point ) (Rs. Lakh/MW) Normative O&M Cost for First Year (Rs. Lakh/MW) Escalation in O&M (per annum from 2nd year) As per Existing Tariff order Project Cost and O&M Proposed for next control period 457 466 3% of project cost 3% of project cost 5.72% 5.72% Performance Parameters CUF 60% 60% Auxiliary Consumption 8.5% 8.5% Project Life in Years 20 20 Station Heat Rate kcal/kwh 3600 3600 Gross Calorific Value of Fuel kcal/kg Cost of Fuel Bagasse - 2250 and Coal - 3632 Bagasse - 2250 and Coal 3969 Rs. 1804 per MT for bagasse and Rs. 2912 per MT for coal Rs. 1580 per MT for bagasse and Rs. 3138 per MT for coal Fuel Cost Escalation 5% 5% Financial Parameters Debt-Equity Ratio 70:30 70:30 Term of Loan in Years 10 10 Interest on Term Loan 12.86% 12. 30% Interest on Working Capital 12.86% 11.30% Depreciation 6% ( up to 10 years) 3% ( 11 to 20 years) 6% ( up to 10 years) 3% ( 11 to 20 years) Minimum Alternate Tax 20.008% 21.34% Corporate Income Tax 32.45% 34.61% Return on Equity 14% 14% Tariff Fixed Cost a. without AD benefit: Rs. 1.86 /kwh b. with AD benefit: Rs. 1.54 /kwh Variable cost FY 2013-14 - Rs.3.15/kWh, FY 2014-15 Rs. 3.31/kWh, FY 2015-16 -Rs. 3.48/kWh Fixed Cost a. without AD benefit: Rs. 1.91 /kwh b. with AD benefit: Rs. 1.54/kWh Variable cost FY 2016-17 Rs.2.85/kWh, FY 2017-18 Rs. 2.99/kWh, FY 2018-19 Rs. 3.14/kWh GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 5

Other Commercial issues Transmission and Wheeling Charges Third Party Sale a. Wheeling of Power for third party sale from biomass and bagasse based co-generation projects shall be allowed on payment of transmission charges, transmission losses, wheeling charges and losses of the energy fed into grid, as applicable to normal open access consumer. b. 25% of the cross subsidy surcharge as applicable to normal open access consumer shall be applicable. Wheeling of power for Captive Use a. Wheeling of power to consumption site at 66 kv voltage level and above Wheeling of electricity generated from biomass and bagasse based co-generation projects to the desired location(s) within the State shall be allowed on payment of transmission charges and transmission losses as applicable to normal open access consumer. b. Wheeling of Power to consumption site below 66 kv voltage level In case the injection of power is at 66 kv or above and drawal is at below 66 kv, wheeling of electricity generated from biomass and bagasse based co-generation projects to the desired location(s) within the State, shall be allowed on payment of transmission charges and transmission losses applicable to normal open access consumers and 50% of wheeling charges and 50% of distribution losses of the energy fed into the grid as applicable to normal open access consumers. c. Wheeling of electricity generated by smaller investors having capacity of below 4 MW Wheeling of electricity generated by smaller investors having capacity of below 4 MW, to the desired location(s), shall be allowed on payment of open access charges applicable to normal open access consumers and transmission and wheeling losses at @ 7% of the energy fed to the grid. The above losses shall be shared between the transmission and distribution licensees in the ratio 4:3 d. Wheeling of electricity for injection at 11 kv and drawl at 11 kv and below voltage level within the same distribution area When the point of injection is at 11 kv and drawl at 11 kv or below voltage level lies within the same distribution area, the user shall pay 50% of wheeling charges and 50% of wheeling losses of the energy fed to the grid as applicable to normal open access consumers. Wheeling of power to more than one locations Biomass and bagasse based co-generation power projects owners, who decide to wheel electricity for captive use / third party sale, to more than one location, shall pay 5 Paisa/kWh on energy fed into the grid to the distribution company concerned in whose GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 6

area power is consumed in addition to above mentioned transmission charges and losses, as applicable. State Energy Metering Biomass power and bagasse based co-generation projects shall have to provide availability based tariff (ABT) compliant meters at the interface points and shall conform to the Central Electricity Authority (Installation and Operation of Meters) Regulations, 2006. Metering shall be done at interconnection point of the generator bus-bar with the transmission or distribution system concerned. Pricing of Reactive Power 10 paise/kvarh For the drawl of reactive energy at 10% or less of the net energy exported. 25 paise/kvarh For the drawl of reactive energy at more than 10% of the net active energy exported. Sharing of Clean Development Mechanism (CDM) Benefits Sharing of CDM benefits on net basis, starting from 100% to developers in the first year after commissioning, and thereafter reducing by 10% every year till the sharing becomes equal (50:50) between the developers and the consumers, in the sixth year and equal benefits thereafter. Banking of Surplus Energy and Purchase of Surplus Power No banking facility offered to captive or third party sale of electricity generated from biomass power and bagasse based co-generation projects. Purchase of surplus power from biomass power and bagasse based co-generation projects of 4 MW and above capacity opting for captive use and third party sale will be governed as per the provisions under GERC intra-state ABT Regulations. Renewable Energy Certificates for Third party sale and Captive Use Third party sale and captive use of power generated from biomass power and bagasse based co-generation projects will be eligible for availing RECs as per CERC REC Regulations 2010 and its subsequent amendments. Contract Demand for Commissioning/Start-up Power The energy charges shall be as per HT industrial tariff of similar connected load / category for start-up and standby power for the biomass based power projects with exemption from payment of demand charges. Parallel Operation Charges The biomass and bagasse based co-generation projects set up for captive use, are exempted from the payment of parallel operation charges to be levied by the distribution licensee. Security Deposit Security deposit of Rs. 5 Lakh/MW in the form of bank guarantee shall be paid by the project developer to the GETCO in order to assure the GETCO for timely completion of the project. In case of delay in project commissioning beyond the allowed period of 4 years GETCO will forfeit the security deposit. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 7

Intra-State ABT Biomass and bagasse based co-generation projects shall be covered under the ambit of intrastate ABT order. However, smaller capacity biomass based power projects having installed capacities up to 4 MW will be exempted from provision of Intra-state ABT mechanism. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 8

Contents List of Figures 11 List of Tables 11 Abbreviations 12 1 Introduction 14 2 Biomass Power and Bagasse based Co-generation Technology 28 2.1 Biomass to Power Conversion Technology 28 2.2 Bagasse Based Co-generation Technology 30 3 Computation of Tariff for Biomass Power and Bagasse based Cogeneration 33 Projects 3.1 Approach and Methodology 33 3.2 General Principles 33 3.3 Benchmarking of Capital Cost and Other Performance Parameters 35 3.4 Financial Parameters 45 3.5 Computation of Tariff for Biomass based Power Projects 48 3.6 Computation of Tariff for Bagasse based Co-generation Projects 50 4 Other Commercial Issues 52 4.1 Transmission and Wheeling Charges 52 4.2 State Energy Metering 53 4.3 Pricing of Reactive Power 54 4.4 Sharing of Clean Development Mechanism (CDM) Benefits 54 4.5 Banking of Surplus Energy 54 4.6 Purchase of Surplus Power from Biomass Power and Bagasse based Cogeneration 55 Projects Opting for Captive Use and Third Party Sale under Open Access 4.7 Renewable Energy Certificates for Third Party Sale and Captive Use of 55 Electricity generated from Biomass Power and Bagasse based Co-generation Project 4.8 Contract Demand for Commissioning/Start-up Power 55 4.9 Parallel Operation Charges 56 4.10 Security Deposit 56 4.11 Applicability of Intra-State ABT 56 4.12 Monitoring Mechanism for the Use of Fossil and Non-fossil Fuel 56 4.13 Information System for Creation of Database 57 4.14 Applicability of the Order 58 Annexure-I - Tariff for biomass based power project with water-cooled 59 condenser Annexure-II - Tariff for biomass based power project with air-cooled 60 condenser Annexure-III - Tariff for bagasse based co-generation projects 61 GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 9

List of Figures 2.1 Rankine cycle 29 2.2 Biomass gasification process 30 2.3 Extraction-cum-condensing steam turbine arrangements in sugar factory 31 List of Tables 1.1 Renewable purchase obligation in Gujarat for FY 2010-11 to 2012-13 18 1.2 Renewable purchase obligation in Gujarat for FY 2013-14 to 2016-17 19 1.3 Comparison of biomass power tariff 21 1.4 Comparison of bagasse based co-generation tariff 24 1.5 Tariff for biomass based power projects with water-cooled condensers 25 1.6 Tariff for biomass based power projects with air-cooled condensers 25 1.7 Tariff for bagasse based co-generation projects 26 1.8 Biomass based power projects commissioned in Gujarat as on March 2016 26 1.9 Bagasse based co-generation projects registered in REC in Gujarat 27 3.1 Station heat rate considered by SERCs in biomass tariff orders 41 3.2 GCV of representative surplus biomass available in Gujarat 41 3.3 Data of GCV of biomass reported by commissioned biomass based power 42 projects 3.4 GCV of representative Biomass used in combination 42 3.5 Cost of landed cost of coal in Gujarat 43 3.6 SBI base rates from February 2013 to February 2016 45 3.7 Comparison of the proposed parameters with those in the biomass tariff order 48 dated 08 August 2013 3.8 Comparison of the proposed parameters with those in the bagasse based cogeneration tariff order dated 08 August 2013 50 GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 10

Abbreviations % Percentage ABT Availability-Based Tariff AC Alternating Current AD Accelerated Depreciation APERC Andhra Pradesh Electricity Regulatory Commission APPC Average Pooled Purchase Cost CDM Clean Development Mechanism CEA Central Electricity Authority CERC Central Electricity Regulatory Commission CFA Central Financial Assistance CPP Captive Power Producer CSS Cross-Subsidy Surcharge EA Electricity Act 2003 FY Financial Year GBI Generation-Based Incentives GCV Gross Calorific Value GEDA Gujarat Energy Development Agency GERC Gujarat Electricity Regulatory Commission GETCO Gujarat Energy Transmission Corporation Ltd. GoG Government of Gujarat GoI Government of India IREDA Indian Renewable Energy Development Agency IRENA International Renewable Energy Agency IRR Internal Rate of Returns KERC Karnataka Electricity Regulatory Commission Kg Kilogram kg/m 3 Kilogram per cubic meter kw Kilo Watt kwh Kilo Watt hours m Meter MAT Minimum Alternate Tax MERC Maharashtra Electricity Regulatory Commission MNRE Ministry of New and Renewable Energy MPERC Madhya Pradesh Electricity Regulatory Commission MT Metric Tonne MW Mega Watt MWh Mega Watt hour MYT Multi Year Tariff NAPCC National Action Plan for Climate Change NEP National Electricity Policy NTP National Tariff Policy O&M Operation and Maintenance PDD Project Design Document GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 11

PLR PPA PSERC PU RBI RE REC RERC RoE RPO RPS RRF Rs. SBI SERC SHR SLDC STU TNERC UNFCCC V WACC WDV WPI Prime Lending Rate Power Purchase Agreement Punjab State Electricity Regulatory Commission Per Unit (kwh) Reserve Bank of India Renewable Energy Renewable Energy Certificate Rajasthan Electricity Regulatory Commission Return on Equity Renewable Purchase Obligation Renewable Purchase Standards Renewable Regulatory Fund Rupees State Bank of India State Electricity Regulatory Commission Station Heat Rate State Load Dispatch Centre State Transmission Utility Tamil Nadu Electricity Regulatory Commission United Nations Framework Convention on Climate Change Volt Weighted Average Cost of Capital Written-down Value Wholesale Price Index GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 12

1. Introduction 1.1 Background In exercise of the powers conferred under Sections 3 (1), 61 (h), 62 (1) (a), and 86 (1) (e) of the Electricity Act, 2003 the National Electricity Policy (NEP) 2005 and Tariff Policy (TP) 2015 and all other powers enabling it in this behalf, the Gujarat Electricity Regulatory Commission (GERC) presents this Discussion Paper for determination of tariff for procurement of power by Distribution Licensees and others from biomass power and bagasse based co-generation projects to be commissioned in the control period starting from the date of order.. The biomass power and bagasse based co-generation tariff proposed under this discussion paper is based on the broad principles contained under the (i) GERC (Multi Year Tariff) Regulations, 2016, (ii) GERC (Procurement of Energy from Renewable Sources) Regulations, 2010 and (iii) CERC (Terms and Conditions for Tariff Determination from Renewable Energy Sources) Regulations, 2012 and amendments made thereto. The Commission earlier had issued generic tariff order for procurement of power by distribution licensees and others from biomass power and bagasse based co-generation projects in Gujarat on 8 August 2013. The control period of the present GERC biomass and bagasse based co-generation tariff order is expired on 31 March 2016. The Commission also initiated suomotu proceedings for extension of the existing control period beyond 31.03.2016 till the order for tariff determination for new control period is issued by the Commission. The Commission has decided to initiate the tariff determination process for procurement of power by Distribution licensees and others from biomass based power projects and bagasse based cogeneration projects to be commissioned during the new control period to be specified in the new tariff order. Since the techno-commercial issues of biomass power and bagasse based cogeneration projects are similar, the Commission has decided to initiate the regulatory process and deal with these technologies together through this discussion paper. 1.2 The Electricity Act, 2003 The following provisions of the Act provide the enabling legal framework for promotion of renewable sources of energy by the State Electricity Regulatory Commissions (SERCs): 1.2.1 The Section 86(1)(e) of the Electricity Act, 2003 mandates promotion of co-generation and generation of electricity from renewable sources of energy which reads as under: Promote co-generation 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, 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; GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 13

1.2.2 Section 61(h) of the Act provides that, while specifying the terms and conditions of determination of tariff, the Commission shall be guided by the objective of promotion of cogeneration and generation of electricity from renewable sources of energy. 1.2.3 The Section 62(1)(a) of the Act provides for determination of tariff for supply of electricity by a generating company to a distribution licensee as under: Supply of electricity by a generating company to a distribution licensee: Provided that the Appropriate Commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement, entered into between a generating company and a licensee or between licensees, for a period not exceeding one year to ensure reasonable prices of electricity 1.2.4 Section 3 (1) of the Electricity Act 2003 requires the Central Government to formulate, inter alia, the National Electricity Policy in consultation with the Central Electricity Authority (CEA) and State Governments. The provision is quoted below: "The Central Government shall, from time to time, prepare the National Electricity Policy and tariff policy, in consultation with the State Governments and the Authority for development of the power system based on optimal utilization of resources such as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy." 1.3 National Electricity Policy (NEP) Clause 5.12 of the NEP stipulates several conditions for promotion and harnessing of renewable energy sources. The salient features of the said provisions of NEP are reproduced below. 5.12.1: Non-conventional sources of energy being the most environment friendly, there is an urgent need to promote generation of electricity based on such sources of energy. For this purpose, efforts need to be made to reduce the capital cost of projects based on non-conventional and renewable sources of energy. Cost of energy can also be reduced by promoting competition within such projects. At the same time, adequate promotional measures would also have to be taken for development of technologies and a sustained growth of these sources. 5.12.2: The Electricity Act, 2003 provides that co-generation and generation of electricity from non-conventional sources would be promoted by the SERCs by providing suitable measures for connectivity with the grid and sale of electricity to any person and also by specifying, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee. Such percentage for purchase of power from non-conventional sources should be made applicable for the tariffs to be determined by the SERCs at the earliest. Progressively, the share of electricity from non-conventional sources would need to be increased as prescribed by State Electricity Regulatory Commissions. Such purchase by distribution companies shall be GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 14

through competitive bidding process. Considering the fact that it will take some time before nonconventional technologies compete, in terms of cost, with conventional sources, the Commission may determine an appropriate differential in prices to promote these technologies. 1.4 Tariff Policy (TP), 2016 In compliance with the Section (3) of the Act, the Central Government has notified the revised tariff policy on 28 January 2016. The tariff policy elaborates the role of regulatory commissions, the mechanism for promoting renewable energy, the time-frame for implementation, etc. Clause 6.4 of the tariff policy addresses various aspects associated with promoting and harnessing renewable sources of energy generation including Co-generation from renewable energy sources. The provisions stated under Clause 6.4 of TP are given below. (1) Pursuant to provisions of section 86(1)(e) of the Act, the Appropriate Commission shall fix a minimum percentage of the total consumption of electricity in the area of a distribution licensee for purchase of energy from renewable energy sources, taking into account availability of such resources and its impact on retail tariffs. Cost of purchase of renewable energy shall be taken into account while determining tariff by SERCs. Long term growth trajectory of Renewable Purchase Obligations (RPOs) will be prescribed by the Ministry of Power in consultation with MNRE. Provided that,cogeneration from sources other than renewable sources shall not be excluded from the applicability of RPOs. (i) Within the percentage so made applicable, to start with, the SERCs shall also reserve a minimum percentage for purchase of solar energy from the date of notification of this policy which shall be such that it reaches 8% of total consumption of energy, excluding Hydro Power, by March 2022 or as notified by the Central Government from time to time. (ii) Distribution Licensee(s) shall compulsorily procure 100% power produced from all the Wasteto-Energy plants in the State, in the ratio of their procurement of power from all sources including their own, at the tariff determined by the Appropriate Commission under Section 62 of the Act. (iii) It is desirable that purchase of energy from renewable sources of energy takes place more or less in the same proportion in different States. To achieve this objective in the current scenario of large availability of such resources only in certain parts of the country, an appropriate mechanism such as Renewable Energy Certificate (REC) would need to be promoted. Through such a mechanism, the renewable energy based generation companies can sell the electricity to local distribution licensee at the rates for conventional power and can recover the balance cost by selling certificates to other distribution companies and obligated entities enabling the latter to meet their renewable power purchase obligations. The REC mechanism should also have a solar specific REC. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 15

(iv) Appropriate Commission may also provide for a suitable regulatory framework for encouraging such other emerging renewable energy technologies by prescribing separate technology based REC multiplier (i.e. granting higher or lower number of RECs to such emerging technologies for the same level of generation). Similarly, considering the change in prices of renewable energy technologies with passage of time, the Appropriate Commission may prescribe vintage based REC multiplier (i.e. granting higher or lower number of RECs for the same level of generation based on year of commissioning of plant). (2) States shall endeavor to procure power from renewable energy sources through competitive bidding to keep the tariff low, except from the waste to energy plants. Procurement of power by Distribution Licensee from renewable energy sources from projects above the notified capacity, shall be done through competitive bidding process, from the date to be notified by the Central Government. However, till such notification, any such procurement of power from renewable energy sources projects, may be done under Section 62 of the Electricity Act, 2003. While determining the tariff from such sources, the Appropriate Commission shall take into account the solar radiation and wind intensity which may differ from area to area to ensure that the benefits are passed on to the consumers. (3) The Central Commission should lay down guidelines for pricing intermittent power, especially from renewable energy sources, where such procurement is not through competitive bidding. The tariff stipulated by CERC shall act as a ceiling for that category. (4) In order to incentivize the Distribution Companies to procure power from renewable sources of energy, the Central Government may notify, from time to time, an appropriate bid-based tariff framework for renewable energy, allowing the tariff to be increased progressively in a back-loaded or any other manner in the public interest during the period of PPA, over the life cycle of such a generating plant. Correspondingly, the procurer of such bid-based renewable energy shall comply with the obligations for payment of tariff so determined. (5) In order to promote renewable energy sources, any generating company proposing to establish a coal/lignite based thermal generating station after a specified date shall be required to establish such renewable energy generating capacity or procure and supply renewable energy equivalent to such capacity, as may be prescribed by the Central Government from time to time after due consultation with stakeholders. The renewable energy produced by each generator may be bundled with its thermal generation for the purpose of sale. In case an obligated entity procures this renewable power, then the SERCs will consider the obligated entity to have met the Renewable Purchase Obligation (RPO) to the extent of power bought from such renewable energy generating stations. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 16

Provided further that in case any existing coal and lignite based thermal power generating station, with the concurrence of power procurers under the existing Power Purchase Agreements, chooses to set up additional renewable energy generating capacity, the power from such plant shall be allowed to be bundled and tariff of such renewable energy shall be allowed to be pass through by the Appropriate Commission. The Obligated Entities who finally buy such power shall account towards their renewable purchase obligations. Provided also that scheduling and despatch of such conventional and renewable generating plants shall be done separately. (6) In order to further encourage renewable sources of energy, no inter-state transmission charges and losses may be levied till such period as may be notified by the Central Government on transmission of the electricity generated from solar and wind sources of energy through the interstate transmission system for sale. (7) Appropriate Commission may provide regulatory framework to facilitate generation and sale of electricity from renewable energy sources particularly from roof-top solar system by any entity including local authority, Panchayat Institution, user institution, cooperative society, Non- Governmental Organization, franchisee or by Renewable Energy Service Company. The Appropriate Government may also provide complementary policy support for this purpose. 1.5 Renewable Purchase Obligation in Gujarat The Gujarat Electricity Regulatory Commission (Procurement of Energy from Renewable Sources) Regulations, 2010, (Notification No. 3 of 2010) dated 17 April, 2010 has specified the minimum renewable power purchase by the obligated entities for the financial year (FY) 2010-11 to 2012-13 as shown in Table No. 1.1 below. Table No. 1.1 Renewable purchase obligation in Gujarat for FY 2010-11 to 2012-13 Year Total RPO Non Solar RPO Solar RPO Wind Biomass Solar bagasse and other 2010-11 5% 4.5% 0.25% 0.25% 2011-12 6% 5% 0.5% 0.5% 2012-13 7% 5.5% 0.5% 1% (Note: RPO specified for FY 2012-13 shall be continued beyond 2012-13 till any revision) As per this regulation, the obligated entities have the obligation to purchase electricity (in kwh) from specified RE sources. The said purchase shall be at a defined minimum percentage of the total consumption of its consumers including T&D losses during a year. This renewable purchase obligation applies to: GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 17

distribution licensees; and any other captive and open-access users consuming electricity (i) generated from conventional captive generating plant having capacity of 5 MW and above for their own use and/or (ii) procured from conventional generation through open access and third party sale. The Regulations recognise the certificates issued within the scope of Central Electricity Regulatory Commission s (CERC) Notification No. L-1/12/2010-CERC dated 14 January 2010 as the valid instruments for the discharge of the mandatory obligations set out in these regulations for the obligated entities to purchase electricity from renewable energy sources termed as Renewable Energy Certificates (RECs). Subsequently, the Commission has amended the Principal GERC (Procurement of Energy from Renewable Sources) Regulations, 2010 on 4 March 2014 as GERC (Procurement of Energy from Renewable Sources) (First Amendment) Regulations, 2014 (Notification No. 2 of 2014) and specified the RPO targets for FY 2013-14 to FY 2016-17. The RPO targets specified under the regulations are given in the Table No. 1.2 below. Table No. 1.2 Renewable purchase obligation in Gujarat for FY 2013-14 to 2016-17 Year Total RPO Non Solar RPO Solar RPO Wind Biomass Solar bagasse and other 2013-14 7% 5.5% 0.5% 1.00% 2014-15 8% 6.25% 0.5% 1.25% 2015-16 9% 7.00% 0.5% 1.50% 2016-17 10% 7.75% 0.5% 1.75% Applicability of RPO on Captive power users: Fossil fuel based CPPs Gujarat have approached the Hon ble High Court of Gujarat and filed petition on the issue of applicability of RPO on the CPP and Open Access consumers in Gujarat. Hon ble High court of Gujarat in its judgement (Special Civil Application No. 171 of 2011) dated 13 March 2015 ruled in favour of the GERC and upheld the applicability of RPO on CPPs as well as open access consumers and cogeneration plants with fossil fuel as proposed by the Commission under its RPO Regulations. Subsequently, the Commission vide notification No. 2 of 2015 dated 1 July 2015 notified that Renewable Purchase Obligation as per GERC (Procurement of Energy from Renewable Sources) Regulations, 2010 (Notification No.3 of 2010) and amendments shall become applicable to Captive and Open Access User(s)/Consumer(s) from the date of notification i.e. 1 July 2015, subject to final orders by the Hon ble High Court.. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 18

1.6 Biomass Power Tariffs in Other States The comparison of biomass tariffs in other states with the GERC biomass tariff order 2013 is tabulated in Table No. 1.3. The Central Electricity Regulatory Commission (CERC) under its RE Tariff Regulations 2012 has adopted a two-part tariff for biomass-based power projects. CERC in its tariff order has calculated a two-part tariff for different states by considering the statespecific biomass prices. The Maharashtra Electricity Regulatory Commission (MERC) also provides two part tariff for biomass based power projects set up in the state of Maharashtra. The Rajasthan Electricity Regulatory Commission (RERC), considering the geographical area of the state and water scarcity in some of the regions has specified separate tariffs for biomass based power projects using water-cooled condensers and air-cooled condensers. In case of the biomass based power projects using air-cooled condensers, the RERC has made distinction while benchmarking tariff parameters like project costs, auxiliary consumptions and PLF. The GERC specified generic tariff for biomass based power projects using water-cooled and aircooled condensers vide order dated 8 August 2013. It has been noticed that, while determining the two-part tariff for biomass power and bagasse based co-generation projects the SERCs have adopted different approaches. Some SERCs have specified levellized fixed cost component of tariff considering the life of plant; whereas some SERCs have determined year-wise fixed cost component of tariff linked to the year of operation. In case of variable cost component of tariff, some SERCs have preferred to specify the same on yearly basis during the control period by considering appropriate escalation factor on the fuel price of the base year of the control period; whereas some SERCs have determined the year wise variable cost component over the life of the plant by considering appropriate fuel cost escalation factor and such variable component of tariff is linked with the financial year in progress. The GERC after careful study of the tariff setting practices adopted by the CERC and the SERCs had chosen to specify fixed cost on levellized basis over life of the project; whereas to protect the generators from the fuel price escalation risk due to market dynamics, the Commission has specified the variable cost component of tariff for three years of the control period subject to revision after completion of the control period. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 19

Table No 1.3 Comparison of biomass power tariff CERC (31.03.2015) for FY 2015-16 Fixed cost tariff I. Project [other than rice straw and juliflora (plantation) based project] with water cooled condenser and travelling grate boiler: Rs 3.09 / kwh. II. Project [other than rice straw and Juliflora(plantation)b ased project] with air cooled condenser and travelling grate boiler: Rs 3.27 / kwh. III. For rice straw and juliflora (plantation) based project with water cooled condenser and travelling grate boiler: Rs 3.23 / kwh. IV. For rice straw and juliflora (plantation) based project with air cooled condenser and travelling grate boiler: Rs 3.41 / kwh MERC (25.01.2016) for FY 2015-16 Levellised Fixed Tariff Rs 2.35 / kwh MPERC (03.05.2013) RERC (08.07.2015 ) Levellized Fixed Cost 3.00 Rs/kWh TNERC (31.07.2012) Fixed cost component of tariff (Year wise) in the range of Rs. 1.658/kWh to Rs. 1.580/kWh (from Yr 1 to Yr 20 of Project Life) GERC (Existing Order) Levellized fixed component for 20 years Biomass based Power Projects with Water- Cooled Condensers a. without AD benefit: Rs. 1.77 /kwh b. with AD benefit: Rs. 1.49 /kwh Biomass based Power Projects with Air- Cooled Condensers a. without AD benefit: Rs. 1.89/kWh b. with AD benefit: Rs. 1.58 /kwh Variable cost component of tariff I. Project [other than rice straw and juliflora (plantation) based project] with water cooled condenser and travelling grate boiler: Rs 4.79 / kwh. II. Project [other than rice straw and Juliflora(plantation)b ased project] with air Variable cost component Rs 5.15 / kwh Variable cost component of tariff For plants commissioned during FY 2015-16 : Rs 3.91 /kwh Variable cost component of tariff Rs. 3.036 and Rs 3.188/kWh for FY 12-13 and FY 13-14 respectively Variable cost component: Biomass based Power Projects with Water- Cooled Condensers FY 2013-14 - Rs.3.39/kWh, FY 2014-15 -Rs. 3.55/kWh, FY 2015-16 - Rs. 3.73/kWh Biomass based Power Projects with Air- GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 20

CERC (31.03.2015) for FY 2015-16 cooled condenser and travelling grate boiler: Rs 4.90 / kwh. III. For rice straw and juliflora (plantation) based project with water cooled condenser and travelling grate boiler: Rs 4.79 / kwh. IV. For rice straw and juliflora (plantation) based project with air cooled condenser and travelling grate boiler: Rs 4.90 / kwh Gross tariff (Net tariff) I. Project [other than rice straw and juliflora (plantation) based project] with water cooled condenser and travelling grate boiler: Rs 7.88 (7.70) / kwh. II. Project [other than rice straw and Juliflora(plantation)b ased project] with air cooled condenser and travelling grate boiler: Rs 8.17 (7.97) / kwh. III. For rice straw and juliflora (plantation) based project with water cooled condenser and travelling grate boiler: Rs 8.01 (7.87) / kwh. IV. For rice straw and juliflora (plantation) based project with air cooled condenser and travelling grate MERC (25.01.2016) for FY 2015-16 Gross Tariff Rs. 7.50/kWh AD Benefit Rs. 0.16/kWh Net tariff Rs. 7.34/kWh MPERC (03.05.2013) Total tariff (fixed + variable) single part a. Projects commissione d during FY 2012-13: Rs 5.32 to 9.26 / kwh b. Projects commissione d during /FY 2013-14: Rs 5.64 to 9.88 / kwh RERC (08.07.2015 ) TNERC (31.07.2012) GERC (Existing Order) Cooled Condensers FY 2013-14 - Rs.3.52/kWh, FY 2014-15 -Rs. 3.69/kWh, FY 2015-16 - Rs. 3.88/kWh Applicable Tariff: Biomass based Power Projects with Water- Cooled Condensers a. Without AD benefit FY 2013-14 - Rs.5.16/kWh, FY 2014-15 -Rs. 5.32/kWh, FY 2015-16 - Rs. 5.50/kWh b. With AD benefit FY 2013-14 - Rs.4.88/kWh, FY 2014-15 -Rs. 5.04/kWh, FY 2015-16 - Rs. 5.22/kWh Biomass based Power Projects with Air- Cooled Condensers a. Without AD benefit FY 2013-14 - Rs.5.41/kWh, FY 2014-15 -Rs. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 21

CERC (31.03.2015) for FY 2015-16 boiler: Rs 8.31 (8.10) / kwh MERC (25.01.2016) for FY 2015-16 MPERC (03.05.2013) RERC (08.07.2015 ) TNERC (31.07.2012) GERC (Existing Order) 5.58/kWh, FY 2015-16 - Rs. 5.77/kWh b. With AD benefit FY 2013-14 - Rs.5.10/kWh, FY 2014-15 -Rs. 5.27/kWh, FY 2015-16 - Rs. 5.46/kWh 1.7 Bagasse based Co-generation Projects Tariff in Other States The comparison of tariffs of bagasse based co-generation projects in other states with the GERC bagasse based co-generation tariff order 2013 is tabulated in Table No. 1.4. The CERC under its RE Tariff Regulations 2012 has adopted two-part tariff for bagasse based co-generation projects. The CERC in its tariff order has calculated two-part tariff for different states by considering the state-specific bagasse prices. The Maharashtra Electricity Regulatory Commission (MERC) also provides two part tariff for bagasse based co-generation projects set up in the state of Maharashtra. The SERCs of Madhya Pradesh and Uttar Pradesh have specified a single part levellized tariff applicable for 20 years for bagasse based co-generation projects in their states. Like biomass based power projects, the SERCs in case of bagasse based co-generation projects also preferred to specify the year-wise variable component of tariff during the control period by considering appropriate escalation factor on the fuel price of the base year of the control period. Whereas, some SERCs have determined the year-wise variable cost component over the life of the plant by considering appropriate fuel cost escalation factor. As such, there is no scope for further revision of variable component of tariff. The GERC had offered two-part tariff with levellized fixed cost considering life of the project as 20 years and specified variable cost for three years of the control period with a scope for revision after the control period. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 22

Table No 1.4 Comparison of bagasse based co-generation tariff CERC (31.03.2015) for FY 2015-16 Levellised Fixed Tariff Rs 2.78 /kwh Variable Cost Rs 3.52/kWh Gross tariff Rs. 6.29/kWh AD benefit Rs. 0.21/kWh Net tariff Rs. 6.08/kWh MERC (25.01.2016) for FY 2015-16 Levellised Fixed Tariff Rs 2.52 /kwh Variable cost component Rs 4.07 /kwh Gross tariff Rs. 6.59/kWh AD benefit Rs. 0.21/kWh Net tariff Rs. 6.38/kWh MPERC (01.04.2013) Levellised total tariff for 20 years (fixed + variable cost): Rs 6.28 / kwh UPERC (20.01.2015) Year wise fixed tariff (given upto FY 2018-19) depending on year of commissioning: Rs 2.59 / kwh to Rs 3.16 / kwh FY 2014-15: Rs 2.86 /kwh FY 2015-16: Rs 3.00 / kwh FY 2016-17: Rs 3.15 / kwh FY 2017-18: Rs 3.31 / kwh FY 2018-19: Rs 3.48 / kwh Total tariff (given upto FY 2018-19) depending on year of commissioning: Rs 5.67 / kwh to Rs 6.64 / kwh TNERC (31.07.2012) Fixed cost component of tariff Rs. 1.90/kWh to Rs. 1.61/kWh (from Yr 1 to Yr 20 of project life) Variable cost component of tariff Rs. 1.86/kWh for FY 2012-13 and 5% escalation there after GERC (Existing Order ) Levellised fixed component of tariff for 20 years a. without AD benefit: Rs. 1.86/kWh b. with AD benefit: Rs. 1.54 / kwh Variable cost component of FY 2013-14 - Rs.3.15/ kwh, FY 2014-15 - Rs. 3.31/kWh, FY 2015-16 - Rs. 3.48/kWh Applicable Tariff: a. Without AD benefit: FY 2013-14 - Rs.5.01/ kwh, FY 2014-15 - Rs. 5.17/kWh, FY 2015-16 - Rs. 5.34 /kwh b. With AD benefit: FY 2013-14 - Rs.4.69/ kwh, FY 2014-15 - Rs. 4.85/kWh, FY 2015-16 - Rs. 5.02 /kwh GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 23

1.8 GERC Biomass Tariff Order 2013 The GERC, in its Order No. 4 of 2013 dated 08 August 2013, determined generic tariff for procurement of power by Distribution Licensees and others from biomass based power projects with water-cooled condensers and air cooled condensers for the state of Gujarat. The fixed cost component of the tariff was levellized over the life of the plant. Whereas, the variable cost component of tariff was worked out for three years of the control period by considering annual escalation of 5% on fuel cost. As the biomass projects were allowed to account for the accelerated depreciation (AD) benefits, the GERC has worked out two separate tariffs with and without AD. The generic tariff specified by the Commission for Biomass based power projects using water-cooled condensers are tabulated in Table No. 1.5. Table No. 1.5 Tariff for biomass based power projects with water-cooled condensers Two-Part tariff for: Fixed levellized tariff without AD benefit Rs 1.77/kWh for 20 yrs Fixed tariff levellized with AD benefit Rs. 1.49 /kwh for 20 years Variable cost tariff FY 2013-14 -Rs.3.39/kWh, FY 2014-15 -Rs. 3.55/kWh, FY 2015-16 - Rs. 3.73/kWh The tariff for biomass based power projects using air-cooled condensers is tabulated in Table No. 1.6. Table No. 1.6 Tariff for biomass based power projects with air-cooled condensers Two-Part tariff for: Fixed levellized tariff Fixed levellized Variable cost tariff without AD benefit tariff with AD Rs 1.89/kWh for 20 yrs benefit Rs. 1.58 /kwh for 20 years FY 2013-14 - Rs.3.52/kWh, FY 2014-15 - Rs.3.69/kWh, FY 2015-16 - Rs. 3.88/kWh 1.9 GERC Bagasse based Co-generation Tariff Order 2013 The GERC, in its Order No. 4 of 2013 dated 08 August 2013, determined the tariff for procurement of power by the Distribution Licensees and others from bagasse based cogeneration projects for the state of Gujarat. After due public consultation and regulatory process, GERC determined two-part tariff for bagasse based co-generation projects to be commissioned during the control period of the order dated 08 August 2013. The fixed cost component of the tariff was levellized over the life of the plants, whereas the variable cost component of tariff was worked out for three years of the control period by considering an annual escalation of 5% on fuel cost. As the bagasse based co-generation projects were allowed to account for the AD benefits, the GERC has worked out two separate tariff with and without GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 24

AD, for the projects commissioned between FY 2013-14 (after 01 August 2013) to FY 2015-16 as tabulated in Table No. 1.7. The control period of the order is up to 31 March 2016. Table No. 1.7 Tariff for bagasse based co-generation projects Two-Part tariff for: Fixed levellizedtariff without AD benefit Rs. 1.86 /kwh for 20 years Fixed levellized tariff with AD benefit Rs. 1.54 /kwh for 20 years Variable cost tariff FY 2013-14 - Rs.3.15/kWh, FY 2014-15 - Rs. 3.31/kWh, FY 2015-16 - Rs. 3.48/kWh 1.10 Biomass Power and Bagasse based Co-generation Project Developments in Gujarat The installed capacity of biomass based power projects in Gujarat is 41.10 MW as on March 2016. The first four biomass based power projects aggregating 31.2 MW capacities as given in Table No 1.8 below were commissioned during the control period of tariff order dated 17 May 2010. Only one biomass based project was established by M/s Abellon Clean Energy Ltd during the control period of last tariff order dated 8 August 2013 FY 2013-14 (after 01 August 2013) to FY 2015-16. Sr. No. Table No. 1.8 Biomass based power projects commissioned in Gujarat as on March 2016 Name of biomass power project 1 M/s. Amreli Power Projects Ltd. 2 M/s Junagadh Power Projects (P) Limited. 3 M/s. Bhavnagar Biomass Power Projects Pvt. Ltd. 4 M/s. Ankur Scientific Energy Technologies Pvt. Limited. 5 Abellon Clean Energy Limited. Location Village: Savarsampadar Taluka: Savarkundla Dist.: Amreli Village: Khokharda Taluka: Vanthali Dist.: Junagadh Village: Vavadi (Gajabhai) Taluka: Shihor Dist.: Bhavnagar Village: Sankheda Taluka: Sankheda Dist.: Vadodara Village: Khas, Taluka: Ranpur, Dist: Ahmedabad Type of biomass used Cotton stalk, Groundnut shell & prosopis juliflora. Cotton stalk, Groundnut shell & prosopis juliflora. Cotton Stalk, Groundnut shell & prosopis juliflora. Prosopis juliflora & Woody biomass. Installed capacity in MW Total 41.10 (Source: Gujarat Energy Development Agency) Date of commissioning 10 01.03.2011 10 22.05.2011 10 19.03.2012 1.2 20.10.2011 (Gasification Route using 100% Producer Gas) 9.90 24.04.2014 GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 25

As per the information gathered from the Gujarat Energy Development Agency (GEDA), there are 6 numbers of bagasse based co-generation projects totalling 20.80 MW capacity exist in six numbers of sugar mills in Gujarat as given under Table No. 1.9 below. However, all above mentioned projects are designed to meet the captive power consumption requirement only without any injection into the grid. All these projects are registered under REC mechanism and the national Agency has allowed them to claim RECs equivalent to their captive consumption. Table No. 1.9 Bagasse based co-generation projects registered in REC in Gujarat Sr. No. Name of bagasse based cogeneration project Installed capacity in MW 1 Shree Narmada Khand Udyog Sahakari Mandli Limited 3.8 2 Shree Chalthan Vibhag Khand Udyog Sahakari Mandli Limited 4.0 3 Shree Khedut Sahakari Khand Udyog Manadli Ltd,Pandvai 3.0 4 Shree Maroli Vibhag Khand Udyog Sahakari Mandli Limited 3.0 5 Sahakari Khand Udhyog Mandal Limited Gandevi 4.0 6 Shree Ganesh Khand Udyog Sahkari Mandli Limited 3.0 Total 20.8 :: End of Chapter 1:: GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 26

2. Biomass Power and Bagasse based Co-generation Technology 2.1 Biomass to Power Conversion Technology Biomass based power projects are those that use biomass as basic source of fuel. Biomass is the waste produced during agricultural and forestry operations (for example straws and stalks) or produced as a by-product of processing operations of agricultural produce (e.g., husks, shells, de-oiled cakes, etc); wood produced in dedicated energy plantations or recovered from wild bushes/weeds; and wood waste produced in some industrial operations. As per the guidelines of MNRE, these projects are allowed to use 15% fossil fuel on annual basis for meeting biomass shortfalls and for extended days of operation. Energy available in biomass is converted for power generation through two basic conversion process as follows: 1) Thermo-chemical conversion process: through direct combustion technology or gasification technology or pyrolysis technology. 2) Bio-chemical conversion process: through bio-degradation of biomass/anaerobic digestion of biomass. Thermo-Chemical Process Combustion The cycle used is the conventional rankine cycle with biomass being burned (oxidised) in a high pressure boiler to generate steam. The net power cycle efficiencies that can be achieved are about 23% to 25%. The exhaust of the steam turbine can be fully condensed to produce power. Gasification Gasification is achieved by the partial combustion of the biomass in a low oxygen environment, leading to the release of a gaseous product (producer gas or syngas). The gasifier can either be of a fixed bed, fluidised bed or entrained flow configuration. The resulting gas is a mixture of carbon monoxide, water, CO 2, char, tar and hydrogen, and it can be used in combustion engines, micro-turbines, or gas turbines. Pyrolysis Pyrolysis is a subset of gasification systems. In pyrolysis, the partial combustion is stopped at a lower temperature (450 C to 600 C), resulting in the creation of a liquid bio-oil, as well as gaseous and solid products. The pyrolysis oil can then be used as a fuel to generate electricity. Bio-Chemical Process Anaerobic Anaerobic digestion is a process which takes place in almost any biological material digestion that is decomposing and is favoured by warm, wet and airless conditions. The resulting gas consists mainly of methane and carbon dioxide and is referred to as biogas. The biogas can be used, after clean-up, in internal combustion engines, microturbines, gas turbines, fuel cells and sterling engines or it can be upgraded to bio methane for distribution. The biomass based power projects based on rankine cycle are well established in India. In the combustion process, biomass is directly combusted by using rankine cycle technology where as in the gasification process, partial combustion of biomass takes place in the absence of air. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 27

Rankine Cycle Technology: In this process, thermal decomposition of organic matter is carried out in the presence of excess air, liberating heat and leaving behind incombustible ash. Fuel + Air Heat + Ash + Inert Gases (Source: website www.unfccc.int) Figure 2.1 Rankine cycle Direct combustion of biomass uses conventional rankine cycle technology. This technology is well proven, indigenised and used in conventional coal-based power plants. The power plant will have one condensing steam turbine-generator unit with a matching boiler of stoker grate/travelling grate/fluidised bed type design capable of firing multi-fuel with one of the largely available agriculture waste as a primary fuel. Fluidized bed combustion (FBC) type boiler has the advantages of high thermal and combustion efficiency reducing quantity of agro waste needed for power production which also reduces need for manpower. The process flow diagram of rankine cycle technology based biomass power project is as shown in the Figure 2.1. Such power projects are generally set up in the range of 5 MW to 20 MW capacities depending on the availability of surplus biomass in the catchment area of power project. Such projects are further bifurcated as per the condenser used in the project. The air-cooled condensers are comparatively expensive as compared to water-cooled condensers. However, the air-cooled condenser requires less recurring water for cooling purpose than the water-cooled condenser. GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 28

Figure 2.2 Biomass gasification process (Source: website www.unfccc.int) Gasification Technology: Biomass gasification means a process of incomplete combustion of biomass resulting in production of combustible gases consisting of a mixture of Carbon monoxide (CO), Hydrogen (H2) and traces of Methane (CH4), which is called producer gas. In gasification the thermo-chemical conversion of agro waste/solid fuels (wood/wood-waste, agricultural residues etc.) is done to obtain producer gas. In principle, the process is a thermal decomposition of organic matter in the presence of limited supply of air or oxygen to produce combustible gases thus converting calorific value of organic material into a gaseous energy carrier. The schematic diagram of gasification process is shown in Figure No.2.2. 2.2 Bagasse Based Co-generation Technology In sugar mills, the waste or leftover after cane crushing is called bagasse and it is used as a main source of fuel for direct combustion in boiler for generation of process steam as well for generation of power from high pressure steam. In a traditional sugar factory, with backpressure steam turbine, bagasse (fuel) is burned in the boiler furnace to produce steam, which is further supplied to the turbine. The turbine drives an electrical generator and the steam leaving the turbine exhaust flows to the heating equipment for sugar manufacturing. However, using traditional equipment such as low pressure boilers and counter pressure turbo alternators, the level and reliability of electricity production is not sufficient to change the energy balance and to permit exports to the grid. In typical conditions the steam circuit of the plant is generally balanced, i.e. the steam supply sufficiently meets the plant s own requirements. Typically, the processing of one tonne of cane yields about 250-280 kg of bagasse (with moisture level of 50%), which can generate 500-600 kg of steam, close to the 400-600 kg of steam consumed in the processing. On the other hand, the use of more efficient high pressure boilers together with condensing extraction steam turbines can substantially increase the level GERC Discussion Paper on Biomass and Bagasse based Co-gen. Projects Tariff Determination 29