A Sweet Choice for Power

Sweet‐Talking the Climate? Evaluating Sugar Mill Cogeneration and Climate Change Financing in India Malini Ranganathan, Barbara Haya, and Sujit Kirpekar ABSTRACT International support to help pay the costs of climate change mitigation in developing countries is an essential element of any future international climate change agreement. Analyses of various funding options have focused broadly on their relative ethical justifications, ease of implementation, and cost effectiveness. Yet for the most part, these international climate discussions about the nature of a future international financial transfer mechanism are occurring mostly on a high policy level, without grounded analysis in the places where the resulting activities would take place. Drawing on past experiences, there is a need for more bottom‐up analysis regarding the efficacy of various types of assistance in reducing greenhouse gas emissions. In India, high efficiency cogeneration of electricity and steam from sugar cane waste (bagasse) has been ranked among the highest for its potential for cost‐effective emissions reductions and other development and environmental benefits (WRI 2000). India’s sugar industry is the largest in the world and employs over 14 million people and 45 million farmers and their families (Winrock 2002). Despite its multiple purported benefits, and numerous domestic and international programs to support the technology, less than 10% of India’s estimated potential for bagasse cogeneration has actually been exploited, while approximately 20% of the total potential is in the planning stages (WADE 2004, MNES 2004). Focusing on Maharashtra and Tamil Nadu, two of the largest sugar producing states in India, this research examines the current state of the technology, barriers to its dissemination, and the results of past international and domestic efforts to support it. BACKGROUND Overview of India’s Energy Sector The potential benefits of increasing the implementation of bagasse cogeneration can be seen in the context of India’s rapidly growing energy demand and predominantly coal‐based power supply. The combined impacts of urbanization, population growth, and economic liberalization in the 1990s increased energy consumption by 208% from 1980 to 2001 (EIA 2004). More than half of India’s energy consumption is from coal, the majority of which is used for thermal power generation. This is one of the reasons why India’s carbon emissions are likely to increase in the coming decades. Currently, it ranks fifth globally behind the US, China, Russia and Japan at 251 million metric tons of carbon equivalent emitted (EIA 2004).1 While current power generation capacity stands at 112,000 MW, there continues to be a considerable demand‐supply gap as well as poor quality of supply (low voltage and grid instability) and transmission and distribution losses amounting to 40% (MoP 2004). In order to keep pace with rapid GDP growth (recorded at 8.2% in 2003), India has major plans to expand its power sector infrastructure. The government has targeted an increase in capacity of 100,000 MW by 2012, of which 10% is to come from renewable resources. However, India’s power sector is severely financially constrained due to a number of reasons, including cross‐subsidies to the agricultural sector and high transmission and distribution losses. The vertically integrated state electricity boards (SEBs) have been unable to meet growing demand and provide quality service. To address this, electricity sector reforms have been underway since the early 1990s. The reform agenda involves establishing separate companies for generation, transmission, and distribution, privatizing distribution, and establishing state electricity regulatory commissions (SERCs). In order to increase the diversity of its energy portfolio, India has made substantial progress in increasing its renewable power capacity. Total grid‐connected renewable energy capacity stands at around 4000 MW, of which wind and small hydro dominate. This figure, however, is only a small proportion of India’s total resource potential in renewable energy. Overseeing the various policy incentives for renewable energy is the Ministry for Non‐Conventional Energy Sources (MNES). Its activities cover policy‐making, coordinating various demonstration programs, and implementing fiscal and financial incentives (MNES 2004). Bagasse cogeneration, a subset of renewable energy, and the focus of this study, has a potential estimated to range between 3500 MW (MNES 2004) and 5000 MW (Winrock 2002, WADE 2004). The next section first provides an overview of the sugar sector, followed by a history of bagasse cogeneration. Sugar sector and cogeneration technology India has over 500 sugar mills with nine states (Uttar Pradesh, Bihar, Punjab and Haryana in the north, Maharashtra and Gujarat in the west, and Andhra Pradesh, Tamil Nadu and Karnataka in the south) holding 95% of them. Fifty six per cent of mills are cooperatively owned, while 33% are private and only 11% are state‐owned (Winrock 2002). Sugar mills have capacities ranging from 500 tons crushed per day (TCD) to 10,000 TCD. The minimum capacity for new mills established by the government is 2500 TCD. The crushing season lasts around 100‐250 days depending on the region and agro‐climatic conditions (WADE 2004). The process of producing heat and electricity from the fibrous waste left over after processing sugarcane (bagasse) is known as bagasse cogeneration. The sugar manufacturing process is well known and has been refined for over a century. After the sugarcane stock is harvested, it is cleaned and crushed. The crushing process is the main consumer of electric power or heat (depending on the type of prime mover). This process produces sugarcane juice which is subsequently chemically treated and then evaporated. The left over fibrous material may be used as a primary fuel for the boilers in the plant. Due to the volume of bagasse involved, boilers typically have large drop furnaces for combustion. The evaporated sugar juice is then crystallized and centrifuged. This produces sugar in a form that is sold to consumers. Bagasse based cogeneration with the export of surplus power to the grid was pioneered in Mauritius and Hawaii in the early 1960s, and by 1986‐87, approximately a quarter of the total electricity generation in these regions was from sugar factories (Morand 2004, Gillett 2001). For export of electricity to the grid, higher pressure (60 bar and higher) and higher temperature (450 degrees C and higher) boilers, and corresponding turbines are needed. In India, cogeneration was introduced in the 1920‐30s in the textile industry, particularly in Mumbai and Ahmedabad (Padmanaban 2004), but without any export of electricity, since the boilers were of much lower pressure. Since the 1980’s, sugar mills in India have also been using bagasse based cogeneration systems. However, mills would typically only generate sufficient steam and electricity for their own needs. This could be easily met with low‐pressure boilers in the 18‐20 bar range operating at about 300 degrees C. The interest in this technology came in the 1980s when the supply of electricity started falling short of demand. This was mostly due to economic growth and inefficiency in the generation system. The sugar industry is attractive for cogeneration because of the following reasons: i) the continuous manufacturing process of sugar (as opposed to a batch manufacturing) is useful for continuous electricity generation, ii) the load to the boiler system is typically constant, producing a steady electric supply, and iii) the pressure of steam used in the process is low, making available higher pressures in turbines for electricity generation. Efficient technologies such as high temperature/pressure boilers for cogeneration are manufactured in India. The advantages of cogenerating sugarcane waste and exporting surplus power to the grid are that: i) there is net zero emission of carbon dioxide since the carbon dioxide that is taken up during photosynthesis is released when bagasse is combusted, ii) sale of electricity provides remuneration to the mills that are a large source of employment and social services in rural India, and iii) decentralized sources of electricity supply reduce efficiency losses. Current Support For Renewable Energy In India Favorable terms of financing for purchase of renewable energy technologies are provided through the Indian Renewable Energy Development Agency (IREDA), established under MNES. IREDA and MNES also receive funds from multilateral and bilateral funding agencies from which it on‐lends to renewable energy projects. For example, to date IREDA has received a $145 million line of credit from the World Bank‐Global Environmental Facility, $100 million from the Asian Development Bank, and $15 million from the Danish Government (IREDA 2004). In our methods section, we provide a more detailed summary of the specific MNES/IREDA programs that target bagasse cogeneration. More details about the experience to date with these funds is provided in our findings section. In our project, we focused on the results to date with two mechanisms established under the international climate change regime: the Clean Development Mechanism (CDM) and the Global Environmental Facility (GEF). These mechanisms were established as a result of the United Nations Framework Convention on Climate Change (1992) and the Kyoto Protocol (1997). The mechanisms offer a way for developing countries to access funds for greenhouse

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