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World Bank Document Public Disclosure Authorized Public Disclosure Authorized Mah sarhtraBagasse Energ Efficiency Poject Public Disclosure Authorized Report No. 120/91 Public Disclosure Authorized JOINTUNDPIWORLD BANK ENERGYSECTOR. MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector ManagementAssistance Programme (ESMAP) was launched in 1983 to complementthe Energy AssessmentProgamme which had been established three years earlier. An international Comnmissionwas convened in 1990 to address the creation of ESMAP's role in the Nineties. It concluded that the Programme had a crucial part to play over the next decade in assisting the developing countries to better manage their energy sectors given that the supply of energy at reasonableprices is a critical determinant of the pace and magnitude of the growth process. The Commission's recommendations received broad endorsement at the November 1990 ESMAP Annual Meeting. Today, ESMAP is carrying out energy assessments, preinvestmentand prefeasibilityactivities and is providing institutionaland policy advice. The program aims to strengthen the impact of bilateral and multilateral resources and private sector investmentthrough providing technical assistance to the energy sector of developingcountries. The findingsand recommendationsemerging from ESMAP activitiesprovide governments, donors, and potential investors with the information needed to identify economically and environmentallysound energy projects and to accelerate their preparation and implementation. ESMAP's operational activities are managed by two Divisionswithin the Industry and Energy Department at the World Bank and an ESMAP Secretariat. * The Programme's activities are governed by the ESMAP Consultative Group which consists of its co- sponsors, the UNDP and the World Bank, the governmentswhich provide financial support and representativesof the recipients of its assistance. The Chairman of the Group is the World Bank's Vice President, Sector Policy and Research. He is assisted by a Secretariat headed by the Group's Executive Secretary who is also responsible for relations with the donors and securing funding for the Programmne'sactivities. The Secretariatalso gives support and advice to a Technical Advisory Group of independentenergy experts which meets periodically to review and scrutinize the Programme's strategic agenda, its work program and other issues related to ESMAP's functioning. * The ESMAP Strategy and Programs Divisionis responsiblefor advising on which countries should receive ESMAPassistance, preparing relevant ESMAP programs of technical assistance to these countries and supports the Secretariat on funding issues. It also carries out broadly based studies such as energy assessments. * The ESMAP Operations Division is responsible for the detailed design and implementationof tasks consistingmainly of sub-sectoralstrategy formulation,preinvestment work, institutionalstudies, technicalassistance and training within the framework of overall ESMAP country assistance programs. FUNDING The ESMAP represents a cooperative international effort supported by the World Bank, the United Nations DevelopmentProgramme and other United Nationsagencies, the EuropeanCommunity, Organizationof American States (OAS), Latin American Energy Organization (OLADE), and a number of countries including Australia, Belgium, Canada, Denmark, Germany, Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland, the United Kingdom and the United States. FURTHERINFORMATION For further information or copies of completed ESMAP reports, contact: Office of the Director OR The Executive Secretary Industry and Energy Department ESMAP Consultative Group The World Bank The World Bank 1818 H Street N.W. 1818 H Street, N.W. Washington, D.C. 20433 Washington, D.C. 20433 U.S.A. U.S.A. CURRENCYEOUIVALENTS Currency Unit Rupees (Rs) Rs. 1.00 Paise 100 US$1.00 Rs. 17.00 Rs. 1,000,000 - US$58,824 MEASURESAND EOUIVALENTS 1 Kilometer (km) - 1,000 meters (m) - 0.6214 miles (mi) L Meter (m) 39.37 inches (in) 3 1 Cubic Meter (m ) - 1.31 cubic yard (cu yd) 35.35 cu.ft. 1 ThousandCubic Meter (MCM) - 1,000 cubic meters 1 Barrel (Bbl) - 0.159 cubic meter 1 Normal Cubic Meter - 37.32 StandardCubic Feet (SCF) of NaturalGas (Nm3) 1 Ton (t) - 1,000 kilograms (kg) 2,200 lbs 1 Metric Ton of Oil (390 API) - 7.60 barrels 1 Kilocalorie(kcal) 3.97 BritishThermal Units (BTU) 1 Kilovolt(kV) - 1,000 volts (V) 1 Kilovoltampere (kVA) 1,000volt-amperes (VA) 1 Megawatt (MW) - 1,000kilowatts (kW) -1 million watts 1 Kilowatt-hour(kWh) - 1,000 watt-hours 1 Megawatt-hour(MWh) - 1,000 kilowatt-hours 1 Gigawatt-hour(GWh) - 1,000,000kilowatt-hours 1 Ton of Oil Equivalent(toe) 10 millionkilocalories ABBREVIATIONS AND ACRONYMS BICP - Bureau of Industrial Costs and Prices BSES - Bombay Suburban Electricity Supply CEA - Central Electricity Authority DCC - District Central Cooperative Bank DNES - Department of Non-conventionalEnergy Sources DSI - Deccan Sugar Institute EIRR - Economic Internal Rate of Return ESMAP - Energy Sector Management Assistance Program EUE Expected Unserved Energy FIRR - Finaacial Internal Rate of Return GOI Government of India COM - Governmentof Maharashtra IBRD - International Bank for Reconstruction and Development ICICI - Industrial Credit and Invetment Corporation of India Ltd. IDBI - Industrial Development Bank of India IFCI - Industrial Finance Corporation of India ISMA - Indian Sugar Mills Association LRAIC - Long Run Average Incremental Cost LRMC - Long Run Marginal Cost MECC - Marginal Expected Curtailment Cost MEDA - Maharashtra Energy Development Agency MSCB - Maharashtra State Cooperative Bank MSEB - Maharashcra State Electricity Board NCDC - National CooperativesDevelopment Corporation NFCSF - National Federation of Cooperative Sugar Factories Ltd. NPC - National ProductivityCouncil NTPC - National Thermal Power Corporation PACS - Primary Agricultural Credit Societies PFC - Power Finance Corporation PURPA - Public Utilities Regulatory Policies Act (U.S.) RBI - Reserve Bank of India REC - Rural Electrification Corporation ROI - Return of Investment ROR - Rate of Return SCF - Standard Conversion Factor SDF - Sugar Development Fund SEB - State Electricity Board SOM - State of Maharashtra SRMC - Short Run Marginal Cost TCD - Tonnes Cane per Day TEC - Tata Electric Companies TNPL - Tamil Nadu Newsprint and Papers Ltd. UNDP - United Nations Development Program Fiscal Year April 1 - March 31 TABLEOF CONTENTS EXECUTIVE SUMMARY .. 1. INTRODUCTION . 1 Background . Major Constraints . 2 Objectives . 2 II. SECTORALCONTEXT: THE POWER SECTOR . 4 Overview . 4 India'sCommercial Energy Resources . 4 Organizationof the Power Sector . 5 Tariffs ...... .. .. .. .. 6 Electricity Supply and Demand in the WesternRegion . 6 Power Situationin Maharashtra . 7 PrivatePower Generation .... 9 III. SECTORALCONTEXT: THE SUGAR SECTOR . 11 Overview ...... 11 The Demand for SugarcaneProducts . 11 The Supply of SugarcaneProducts . 12 The ConversionIndustry .... 13 Supply/DemandProspects .... 15 InstitutionalAspects . 15 FinancialAspects . I . 16 Pricingand TaxationPolicies .... 16 The FinancialFramework of the Sugar Sector in Maharashtra ..... 18 IV. BAGASSEUTILIZATION AND VALUATIONIN MAHARASHTRA . 26 Overview ...... .. .. .. 26 BagasseProduction . 26 PresentProduction . 26 EstimatingFuture Availability . 27 BagasseUtilization . 30 PresentPractices ..... 30 PotentialImprovements . 31 OptimalBagasse Utilization . 33 Valuationof Bagasseas a Fuel . 33 Principles . 34 EconomicEfficiency . 34 Marginalvs. AverageCost Pricing .... 34 Cost-PlusPricing ..... 35 Estimationof MSEB AvoidedEnergy Costs . 35 Estimationof MSEB AvoidedCapacity Costs . 37 Toward a WorkablePower PurchaseTariff ... 39 Valuationof Bagasseas a Feedstock . 41 V. THE PROPOSEDPROJECT .............. ..... 45 ProjectObjectives . 45 ProjectDescription . 45 FinarncingPlan . 47 Sub-projec.ts . 48 ProjectImplementation . 49 ProjectOperation . 5s MSEB BagasseCogenerator Contract . 50 Grid InterconnectionStandards . 51 Project Justification . .. 52 FinancialAnalysis . 53 EconomicAnalysis . 59 ProjectRisks . 63 EnvironmentalImpacts . 65 Conclusions . 66 ANNEXES 1 Power Sector . 67 2 Sugar Sector . 81 3 MaharashtraSugar Mill SurveyResults . 89 4 EfficiencyStandards and StandardSpecifications for New or ExpandingSugar Mills . 121 5 Case Studiesof BagasseCogeneration Schemes . 130 6 Design of a Power PurchaseTariff in MaharashtraState.. ............ 195 7 Power Loss ReductionCredit . 228 8 ContractModel for MSEB Power Purchase . 236 9 Sugar Mill to UtilityInterconnection Standards . 260 Appendix1 . 270 10 Off-SeasonFuel Alternatives . 298 TABLES 2.1 Total InstalledCapacity for RegionalPower Systems . 7 3.1 Productionand Use of Sugarcane,1987/88 . .13 3.2 Performanceof Sugar Factoriesin the Main States,1987/88 .. 14 3.3 Key Financial Parameters . 17 3.4 FinancingPlan for New Mill . 20 3.5 LendingTerms for New Mills . 22 3.6 LendingTerms for Expansionand Modernization of Mills . 22 4.1 CrushingSeason DurationAnalysis . 29 4.2 MaharashtraBagasse Utilization, 1987-88 . .30 4.3 MSEB Avoided EnergyCosts .. 37 4.4 MSEB AvoidedCapacity Costs . 39 4.5 Two Part, Three PeriodTariff for Bagasse CogeneratedPower . 40 4.6 Two Part, Two PeriodTariff for Bagasse CogeneratedPower. .. 40 4.7 SinglePart Tariff for BagasseCogenerated Power . 40 4.8 RecommendedMSEB CommercialPower PurchaseTariff for BagasseCogenerated Power . 41 4.9 EstimatedFinancial and EconomicBagasse Values . 43 5.1
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