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Sweet ȬTalking ȱthe ȱClimate? ȱȱ Evaluating ȱSugar ȱMill ȱCogeneration ȱand ȱClimate ȱChange ȱ Financing ȱin ȱIndia ȱ

Malini ȱRanganathan, ȱBarbara ȱHaya, ȱand ȱSujit ȱKirpekar ȱȱ

ABSTRACT ȱ

International ȱ support ȱ to ȱ help ȱ pay ȱ the ȱ costs ȱ of ȱ climate ȱ change ȱ mitigation ȱin ȱdeveloping ȱcountries ȱis ȱan ȱessential ȱelement ȱof ȱany ȱfuture ȱ international ȱclimate ȱ change ȱ agreement. ȱ Analyses ȱ of ȱ various ȱ funding ȱ options ȱ have ȱ focused ȱ broadly ȱ on ȱ their ȱ relative ȱ ethical ȱ justifications, ȱ ease ȱof ȱimplementation, ȱand ȱcost ȱeffectiveness. ȱYet ȱfor ȱthe ȱmost ȱpart, ȱ these ȱ international ȱ climate ȱ discussions ȱ about ȱ the ȱ nature ȱ of ȱ aȱ future ȱ international ȱ financial ȱ transfer ȱ mechanism ȱ are ȱ occurring ȱ mostly ȱ on ȱ aȱ high ȱpolicy ȱlevel, ȱwithout ȱgrounded ȱanalysis ȱin ȱthe ȱplaces ȱwhere ȱthe ȱ resulting ȱ activities ȱ would ȱ take ȱ place. ȱ Drawing ȱ on ȱ past ȱ experiences, ȱ there ȱis ȱaȱneed ȱfor ȱmore ȱbottom Ȭup ȱanalysis ȱregarding ȱthe ȱefficacy ȱof ȱ various ȱtypes ȱof ȱassistance ȱin ȱreducing ȱgreenhouse ȱgas ȱemissions. ȱȱ In ȱIndia, ȱhigh ȱefficiency ȱcogeneration ȱof ȱelectricity ȱand ȱsteam ȱfrom ȱ sugar ȱcane ȱwaste ȱ(bagasse) ȱhas ȱbeen ȱranked ȱamong ȱthe ȱhighest ȱfor ȱits ȱ potential ȱ for ȱ cost Ȭeffective ȱ emissions ȱ reductions ȱ and ȱ other ȱ development ȱ and ȱ environmental ȱ benefits ȱ (WRI ȱ 2000). ȱ India’s ȱ sugar ȱ industry ȱis ȱthe ȱlargest ȱin ȱthe ȱworld ȱand ȱemploys ȱover ȱ14 ȱmillion ȱpeople ȱ and ȱ45 ȱmillion ȱfarmers ȱand ȱtheir ȱfamilies ȱ(Winrock ȱ2002). ȱDespite ȱits ȱ multiple ȱpurported ȱbenefits, ȱand ȱnumerous ȱdomestic ȱand ȱinternational ȱ programs ȱto ȱsupport ȱthe ȱtechnology, ȱless ȱthan ȱ10% ȱof ȱIndia’s ȱestimated ȱ potential ȱ for ȱ bagasse ȱ cogeneration ȱ has ȱ actually ȱ been ȱ exploited, ȱ while ȱ approximately ȱ 20% ȱ of ȱ the ȱ total ȱ potential ȱ is ȱ in ȱ the ȱ planning ȱ stages ȱ (WADE ȱ2004, ȱMNES ȱ2004). ȱFocusing ȱon ȱMaharashtra ȱand ȱTamil ȱNadu, ȱ two ȱ of ȱ the ȱ largest ȱ sugar ȱ producing ȱ states ȱ in ȱ India, ȱ this ȱ research ȱ examines ȱ the ȱ current ȱ state ȱ of ȱ the ȱ technology, ȱ barriers ȱ to ȱ its ȱ dissemination, ȱ and ȱ the ȱ results ȱ of ȱ past ȱ international ȱ and ȱ domestic ȱ efforts ȱto ȱsupport ȱit. ȱȱ

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BACKGROUND ȱ

Overview ȱof ȱIndia’s ȱEnergy ȱSector ȱ The ȱ potential ȱ benefits ȱ of ȱ increasing ȱ the ȱ implementation ȱ of ȱ bagasse ȱ cogeneration ȱ can ȱ be ȱ seen ȱ in ȱ the ȱ context ȱ of ȱ India’s ȱ rapidly ȱ growing ȱ energy ȱ demand ȱ and ȱ predominantly ȱ coal Ȭbased ȱ power ȱ supply. ȱ The ȱ combined ȱimpacts ȱof ȱurbanization, ȱpopulation ȱgrowth, ȱand ȱeconomic ȱ liberalization ȱin ȱthe ȱ1990s ȱincreased ȱenergy ȱconsumption ȱby ȱ208% ȱfrom ȱ 1980 ȱto ȱ2001 ȱ(EIA ȱ2004). ȱMore ȱthan ȱhalf ȱof ȱIndia’s ȱenergy ȱconsumption ȱ is ȱ from ȱ coal, ȱ the ȱ majority ȱ of ȱ which ȱ is ȱ used ȱ for ȱ thermal ȱ power ȱ generation. ȱThis ȱis ȱone ȱof ȱthe ȱreasons ȱwhy ȱIndia’s ȱcarbon ȱemissions ȱare ȱ likely ȱ to ȱ increase ȱ in ȱ the ȱ coming ȱ decades. ȱ Currently, ȱ it ȱ ranks ȱ fifth ȱ globally ȱbehind ȱthe ȱUS, ȱChina, ȱRussia ȱand ȱJapan ȱat ȱ251 ȱmillion ȱmetric ȱ tons ȱ of ȱ carbon ȱ equivalent ȱ emitted ȱ (EIA ȱ 2004). 1ȱ While ȱ current ȱ power ȱ generation ȱ capacity ȱ stands ȱ at ȱ 112,000 ȱ MW, ȱ there ȱ continues ȱ to ȱ be ȱ aȱ considerable ȱ demand Ȭsupply ȱ gap ȱ as ȱ well ȱ as ȱ poor ȱ quality ȱ of ȱ supply ȱ (low ȱ voltage ȱ and ȱ grid ȱ instability) ȱ and ȱ transmission ȱ and ȱ distribution ȱ losses ȱamounting ȱto ȱ40% ȱ(MoP ȱ2004). ȱȱ In ȱorder ȱto ȱkeep ȱpace ȱwith ȱrapid ȱGDP ȱgrowth ȱ(recorded ȱat ȱ8.2% ȱin ȱ 2003), ȱIndia ȱhas ȱmajor ȱplans ȱto ȱexpand ȱits ȱpower ȱsector ȱinfrastructure. ȱ The ȱgovernment ȱhas ȱtargeted ȱan ȱincrease ȱin ȱcapacity ȱof ȱ100,000 ȱMWȱby ȱ 2012, ȱ of ȱ which ȱ 10% ȱ is ȱ to ȱ come ȱ from ȱ renewable ȱ resources. ȱ However, ȱ India’s ȱ power ȱ sector ȱ is ȱ severely ȱ financially ȱ constrained ȱ due ȱ to ȱ aȱ number ȱof ȱreasons, ȱincluding ȱcross Ȭsubsidies ȱto ȱthe ȱagricultural ȱsector ȱ and ȱ high ȱ transmission ȱ and ȱ distribution ȱ losses. ȱ The ȱ vertically ȱ integrated ȱ state ȱ electricity ȱ boards ȱ (SEBs) ȱ have ȱ been ȱ unable ȱ to ȱ meet ȱ growing ȱ demand ȱ and ȱ provide ȱ quality ȱ service. ȱ To ȱ address ȱ this, ȱ electricity ȱ sector ȱ reforms ȱ have ȱ been ȱ underway ȱ since ȱ the ȱ early ȱ 1990s. ȱ The ȱ reform ȱ agenda ȱ involves ȱ establishing ȱ separate ȱ companies ȱ for ȱ generation, ȱ transmission, ȱ and ȱ distribution, ȱ privatizing ȱ distribution, ȱ and ȱestablishing ȱstate ȱelectricity ȱregulatory ȱcommissions ȱ(SERCs). ȱ In ȱorder ȱto ȱincrease ȱthe ȱdiversity ȱof ȱits ȱenergy ȱportfolio, ȱIndia ȱhas ȱ made ȱsubstantial ȱprogress ȱin ȱincreasing ȱits ȱrenewable ȱpower ȱcapacity. ȱ Total ȱgrid Ȭconnected ȱrenewable ȱenergy ȱcapacity ȱstands ȱat ȱaround ȱ4000 ȱ MW, ȱof ȱwhich ȱwind ȱand ȱsmall ȱhydro ȱdominate. ȱȱ This ȱfigure, ȱhowever, ȱ is ȱ only ȱ aȱ small ȱ proportion ȱ of ȱ India’s ȱ total ȱ resource ȱ potential ȱ in ȱ renewable ȱ energy. ȱ Overseeing ȱ the ȱ various ȱ policy ȱ incentives ȱ for ȱ renewable ȱ energy ȱ is ȱ the ȱ Ministry ȱ for ȱ Non ȬConventional ȱ Energy ȱ Sources ȱ (MNES). ȱ Its ȱ activities ȱ cover ȱ policy Ȭmaking, ȱ coordinating ȱ

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various ȱ demonstration ȱ programs, ȱ and ȱ implementing ȱ fiscal ȱ and ȱ financial ȱincentives ȱ(MNES ȱ2004). ȱȱ Bagasse ȱcogeneration, ȱaȱsubset ȱof ȱrenewable ȱenergy, ȱand ȱthe ȱfocus ȱ of ȱ this ȱ study, ȱ has ȱ aȱ potential ȱ estimated ȱ to ȱ range ȱ between ȱ 3500 ȱ MWȱ (MNES ȱ 2004) ȱ and ȱ 5000 ȱ MWȱ (Winrock ȱ 2002, ȱ WADE ȱ 2004). ȱ The ȱ next ȱ section ȱ first ȱ provides ȱ an ȱ overview ȱ of ȱ the ȱ sugar ȱ sector, ȱ followed ȱ by ȱ aȱ history ȱof ȱbagasse ȱcogeneration. ȱ

Sugar ȱsector ȱand ȱcogeneration ȱtechnology ȱ India ȱhas ȱover ȱ500 ȱsugar ȱmills ȱwith ȱnine ȱstates ȱ(Uttar ȱPradesh, ȱBihar, ȱ Punjab ȱ and ȱ Haryana ȱ in ȱ the ȱ north, ȱ Maharashtra ȱ and ȱ Gujarat ȱ in ȱ the ȱ west, ȱand ȱAndhra ȱPradesh, ȱTamil ȱNadu ȱand ȱKarnataka ȱin ȱthe ȱsouth) ȱ holding ȱ 95% ȱ of ȱ them. ȱ Fifty ȱ six ȱ per ȱ cent ȱ of ȱ mills ȱ are ȱ cooperatively ȱ owned, ȱwhile ȱ33% ȱare ȱprivate ȱand ȱonly ȱ11% ȱare ȱstate Ȭowned ȱ(Winrock ȱ 2002). ȱȱ Sugar ȱmills ȱhave ȱcapacities ȱranging ȱfrom ȱ500 ȱtons ȱcrushed ȱper ȱ day ȱ (TCD) ȱ to ȱ 10,000 ȱ TCD. ȱ The ȱ minimum ȱ capacity ȱ for ȱ new ȱ mills ȱ established ȱby ȱthe ȱgovernment ȱis ȱ2500 ȱTCD. ȱȱ The ȱcrushing ȱseason ȱlasts ȱ around ȱ 100 Ȭ250 ȱ days ȱ depending ȱ on ȱ the ȱ region ȱ and ȱ agro Ȭclimatic ȱ conditions ȱ(WADE ȱ2004). ȱ The ȱ process ȱ of ȱ producing ȱ heat ȱ and ȱ electricity ȱ from ȱ the ȱ fibrous ȱ waste ȱ left ȱ over ȱ after ȱ processing ȱ sugarcane ȱ (bagasse) ȱ is ȱ known ȱ as ȱ bagasse ȱcogeneration. ȱThe ȱsugar ȱmanufacturing ȱprocess ȱis ȱwell ȱknown ȱ and ȱhas ȱbeen ȱrefined ȱfor ȱover ȱaȱcentury. ȱAfter ȱthe ȱsugarcane ȱstock ȱis ȱ harvested, ȱit ȱis ȱcleaned ȱand ȱcrushed. ȱThe ȱcrushing ȱprocess ȱis ȱthe ȱmain ȱ consumer ȱ of ȱ electric ȱ power ȱ or ȱ heat ȱ (depending ȱ on ȱ the ȱ type ȱ of ȱ prime ȱ mover). ȱThis ȱprocess ȱproduces ȱsugarcane ȱjuice ȱwhich ȱis ȱsubsequently ȱ chemically ȱtreated ȱand ȱthen ȱevaporated. ȱThe ȱleft ȱover ȱfibrous ȱmaterial ȱ may ȱbe ȱused ȱas ȱaȱprimary ȱfuel ȱfor ȱthe ȱboilers ȱin ȱthe ȱplant. ȱDue ȱto ȱthe ȱ volume ȱof ȱbagasse ȱinvolved, ȱboilers ȱtypically ȱhave ȱlarge ȱdrop ȱfurnaces ȱ for ȱ combustion. ȱ The ȱ evaporated ȱ sugar ȱ juice ȱ is ȱ then ȱ crystallized ȱ and ȱ centrifuged. ȱThis ȱproduces ȱsugar ȱin ȱaȱform ȱthat ȱis ȱsold ȱto ȱconsumers. ȱȱ Bagasse ȱbased ȱcogeneration ȱwith ȱthe ȱexport ȱof ȱsurplus ȱpower ȱto ȱthe ȱ grid ȱwas ȱpioneered ȱin ȱMauritius ȱand ȱHawaii ȱin ȱthe ȱearly ȱ1960s, ȱand ȱby ȱ 1986 Ȭ87, ȱapproximately ȱ aȱquarter ȱ of ȱ the ȱ total ȱ electricity ȱ generation ȱ in ȱ these ȱregions ȱwas ȱfrom ȱsugar ȱfactories ȱ(Morand ȱ2004, ȱGillett ȱ2001). ȱFor ȱ export ȱ of ȱ electricity ȱ to ȱ the ȱ grid, ȱ higher ȱ pressure ȱ (60 ȱ bar ȱ and ȱ higher) ȱ and ȱ higher ȱ temperature ȱ (450 ȱ degrees ȱ Cȱ and ȱ higher) ȱ boilers, ȱ and ȱ corresponding ȱturbines ȱare ȱneeded. ȱȱ

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In ȱIndia, ȱcogeneration ȱwas ȱintroduced ȱin ȱthe ȱ1920 Ȭ30s ȱin ȱthe ȱtextile ȱ industry, ȱ particularly ȱ in ȱ Mumbai ȱ and ȱ Ahmedabad ȱ (Padmanaban ȱ 2004), ȱ but ȱ without ȱ any ȱ export ȱ of ȱ electricity, ȱ since ȱ the ȱ boilers ȱ were ȱ of ȱ much ȱlower ȱpressure. ȱSince ȱthe ȱ1980’s, ȱsugar ȱmills ȱin ȱIndia ȱhave ȱalso ȱ been ȱ using ȱ bagasse ȱ based ȱ cogeneration ȱ systems. ȱ However, ȱ mills ȱ would ȱtypically ȱonly ȱgenerate ȱsufficient ȱsteam ȱand ȱelectricity ȱfor ȱtheir ȱ own ȱneeds. ȱThis ȱcould ȱbe ȱeasily ȱmet ȱwith ȱlow Ȭpressure ȱboilers ȱin ȱthe ȱ 18 Ȭ20 ȱbar ȱrange ȱoperating ȱat ȱabout ȱ300 ȱdegrees ȱC. ȱThe ȱinterest ȱin ȱthis ȱ technology ȱ came ȱ in ȱ the ȱ 1980s ȱ when ȱ the ȱ supply ȱ of ȱ electricity ȱ started ȱ falling ȱshort ȱof ȱdemand. ȱThis ȱwas ȱmostly ȱdue ȱto ȱeconomic ȱgrowth ȱand ȱ inefficiency ȱin ȱthe ȱgeneration ȱsystem. ȱThe ȱsugar ȱindustry ȱis ȱattractive ȱ for ȱ cogeneration ȱ because ȱ of ȱ the ȱ following ȱ reasons: ȱ i) ȱ the ȱ continuous ȱ manufacturing ȱprocess ȱof ȱsugar ȱ(as ȱopposed ȱto ȱaȱbatch ȱmanufacturing) ȱ is ȱuseful ȱfor ȱcontinuous ȱelectricity ȱgeneration, ȱii) ȱthe ȱload ȱto ȱthe ȱboiler ȱ system ȱ is ȱ typically ȱ constant, ȱ producing ȱ aȱ steady ȱ electric ȱ supply, ȱ and ȱ iii) ȱthe ȱpressure ȱof ȱsteam ȱused ȱin ȱthe ȱprocess ȱis ȱlow, ȱmaking ȱavailable ȱ higher ȱ pressures ȱ in ȱ turbines ȱ for ȱ electricity ȱ generation. ȱ Efficient ȱ technologies ȱ such ȱ as ȱ high ȱ temperature/pressure ȱ boilers ȱ for ȱ cogeneration ȱare ȱmanufactured ȱin ȱIndia. ȱ The ȱ advantages ȱ of ȱ cogenerating ȱ sugarcane ȱ waste ȱ and ȱ exporting ȱ surplus ȱ power ȱ to ȱ the ȱ grid ȱ are ȱ that: ȱ i) ȱ there ȱ is ȱ net ȱ zero ȱ emission ȱ of ȱ carbon ȱ dioxide ȱ since ȱ the ȱ carbon ȱ dioxide ȱ that ȱ is ȱ taken ȱ up ȱ during ȱ photosynthesis ȱ is ȱ released ȱ when ȱ bagasse ȱ is ȱ combusted, ȱ ii) ȱ sale ȱ of ȱ electricity ȱprovides ȱremuneration ȱto ȱthe ȱmills ȱthat ȱare ȱaȱlarge ȱsource ȱof ȱ employment ȱ and ȱ social ȱ services ȱ in ȱ rural ȱ India, ȱ and ȱ iii) ȱ decentralized ȱ sources ȱof ȱelectricity ȱsupply ȱreduce ȱefficiency ȱlosses. ȱ

Current ȱSupport ȱFor ȱRenewable ȱEnergy ȱIn ȱIndia ȱ Favorable ȱ terms ȱ of ȱ financing ȱ for ȱ purchase ȱ of ȱ renewable ȱ energy ȱ technologies ȱ are ȱ provided ȱ through ȱ the ȱ Indian ȱ Renewable ȱ Energy ȱ Development ȱAgency ȱ(IREDA), ȱestablished ȱunder ȱMNES. ȱIREDA ȱand ȱ MNES ȱ also ȱ receiveȱ funds ȱ from ȱ multilateral ȱ and ȱ bilateral ȱ funding ȱ agencies ȱ from ȱ which ȱ it ȱ on Ȭlends ȱ to ȱ renewable ȱ energy ȱ projects. ȱ For ȱ example, ȱto ȱdate ȱIREDA ȱhas ȱreceived ȱaȱ$145 ȱmillion ȱline ȱof ȱcredit ȱfrom ȱ the ȱWorld ȱBank ȬGlobal ȱEnvironmental ȱFacility, ȱ$100 ȱmillion ȱfrom ȱthe ȱ Asian ȱ Development ȱ Bank, ȱ and ȱ $15 ȱ million ȱ from ȱ the ȱ Danish ȱ Government ȱ(IREDA ȱ2004). ȱIn ȱour ȱmethods ȱsection, ȱwe ȱprovide ȱaȱmore ȱ detailed ȱsummary ȱof ȱthe ȱspecific ȱMNES/IREDA ȱprograms ȱthat ȱtarget ȱ

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bagasse ȱcogeneration. ȱMore ȱdetails ȱabout ȱthe ȱexperience ȱto ȱdate ȱwith ȱ these ȱfunds ȱis ȱprovided ȱin ȱour ȱfindings ȱsection. ȱȱ In ȱ our ȱ project, ȱ we ȱ focused ȱ on ȱ the ȱ results ȱ to ȱ date ȱ with ȱ two ȱ mechanisms ȱ established ȱ under ȱ the ȱ international ȱ climate ȱ change ȱ regime: ȱ the ȱ Clean ȱ Development ȱ Mechanism ȱ (CDM) ȱ and ȱ the ȱ Global ȱ Environmental ȱFacility ȱ(GEF). ȱThese ȱmechanisms ȱwere ȱestablished ȱas ȱaȱ result ȱ of ȱ the ȱ United ȱ Nations ȱ Framework ȱ Convention ȱ on ȱ Climate ȱ Change ȱ(1992) ȱand ȱthe ȱKyoto ȱProtocol ȱ(1997). ȱThe ȱmechanisms ȱoffer ȱaȱ way ȱ for ȱ developing ȱ countries ȱ to ȱ access ȱ funds ȱ for ȱ greenhouse ȱ gas ȱ abatement ȱ activities. ȱ However, ȱ after ȱ several ȱ decades ȱ of ȱ mixed ȱ experience ȱwith ȱrenewable ȱenergy ȱprojects ȱin ȱdeveloping ȱcountries, ȱit ȱ is ȱ worrisome ȱ that ȱ researchers ȱ and ȱ policy Ȭmakers ȱ alike ȱ have ȱ raised ȱ concerns ȱabout ȱthe ȱefficacy ȱof ȱthese ȱtwo ȱmechanisms. ȱFurther ȱdetails ȱ about ȱthe ȱworkings ȱof ȱthese ȱmechanisms ȱare ȱprovided ȱin ȱour ȱmethods ȱ section. ȱȱ

STUDY ȱDESIGN ȱAND ȱMETHODS ȱ

Research ȱMethodology ȱ Our ȱstudy ȱinvolved ȱaȱdetailed ȱliterature ȱreview ȱfollowed ȱby ȱinterviews ȱ and ȱ site ȱ visits. ȱ We ȱ first ȱ determined ȱ the ȱ range ȱ of ȱ funding ȱ support ȱ aȱ given ȱ sugar ȱ mill ȱ can ȱ receive ȱ for ȱ implementing ȱ bagasse ȱ cogeneration. ȱ We ȱthen ȱselected ȱmills ȱthat ȱsourced ȱtheir ȱfunding ȱfrom ȱaȱcombination ȱ of ȱ international ȱand ȱdomestic ȱ sources, ȱ those ȱ that ȱ only ȱ used ȱdomestic ȱ financing, ȱand ȱthose ȱthat ȱhave ȱnot ȱas ȱyet ȱimplemented ȱthe ȱtechnology. ȱ We ȱalso ȱinterviewed ȱexperts ȱfrom ȱNGOs, ȱenergy ȱconsulting ȱfirms, ȱand ȱ international ȱand ȱgovernmental ȱorganizations ȱabout ȱperceived ȱbarriers ȱ to ȱfurther ȱpenetration ȱof ȱthis ȱtechnology ȱin ȱNew ȱDelhi, ȱPune, ȱChennai ȱ and ȱBangalore. ȱ While ȱin ȱIndia, ȱwe ȱvisited ȱindividual ȱcooperative ȱand ȱprivate ȱmills ȱ in ȱ order ȱ to ȱ gather ȱ first ȱ hand ȱ information ȱ about ȱ the ȱ barriers ȱ actually ȱ faced ȱduring ȱimplementation ȱif ȱthey ȱhave ȱinstalled ȱcogeneration ȱunits, ȱ and ȱif ȱthey ȱhaven’t, ȱthe ȱreasons ȱfor ȱnot ȱhaving ȱdone ȱso. ȱȱ In ȱthe ȱprocess, ȱ we ȱinterviewed ȱaȱnumber ȱof ȱmills ȱwith ȱvery ȱdifferent ȱcircumstances, ȱ ranging ȱ from ȱ highly ȱ profitable ȱ private ȱ mills, ȱ to ȱ loss Ȭmaking ȱ mills ȱ running ȱ for ȱ very ȱ few ȱ days ȱ in ȱ the ȱ crushing ȱ season. ȱ The ȱ process ȱ by ȱ which ȱwe ȱdetermined ȱthe ȱinformation ȱis ȱdescribed ȱin ȱFigure ȱ1. ȱ ȱ

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ȱ Figure ȱ1. ȱInterview ȱprocess ȱ ȱ ȱ ȱ

Does ȱthe ȱmill ȱhave ȱ cogen? ȱ

Yes No

Where ȱdid ȱit ȱreceive ȱ Does ȱit ȱplan ȱon ȱ funds ȱfrom? ȱ implementing?

Domestic ȱ Domestic/Int’l Yes No

ȬHow ȱdid ȱit ȱfirst ȱlearn ȱ ȬHow ȱdid ȱit ȱfirst ȱ ȬDoes ȱit ȱknow ȱof ȱ about ȱthe ȱtechnology? ȱ learn ȱabout ȱthe ȱ the ȱtechnology? ȱ ȬHow ȱmuch ȱbagasse ȱv/s. ȱ technology? ȱ ȬWhat ȱare ȱ coal ȱdoes ȱit ȱburn? ȱ ȬWhere ȱdoes ȱit ȱ barriers? ȱ ȬWhat ȱinterest ȱrates ȱdid ȱit ȱ plan ȱon ȱgetting ȱ procure ȱfinancing? ȱ financing ȱfrom? ȱ ȬDid ȱit ȱattend ȱtraining ȱ ȬIs ȱit ȱaware ȱof ȱthe ȱ workshops? ȱWere ȱthey ȱ CDM ȱor ȱGEF? ȱȱ useful? ȱ ȬWhat ȱwas ȱthe ȱbenefit ȱof ȱ the ȱvarious ȱsources ȱȱ of ȱ funding? ȱ

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Table ȱ1. ȱCase ȱStudies ȱand ȱtheir ȱSources ȱof ȱFunding ȱ Funding ȱMechanism ȱ Type ȱof ȱsupport ȱ Ministry ȱof ȱNon ȬConventional ȱ Interest ȱsubsidy, ȱcapital ȱsubsidy, ȱworkshops, ȱ Energy ȱSources ȱ/ȱIndian ȱRenewable ȱ pilot ȱprojects, ȱlower ȱcustoms ȱduty ȱfor ȱ Energy ȱDevelopment ȱAgency ȱ importing ȱtechnologies ȱ Local ȱbanks ȱ Low ȱinterest ȱloans ȱ USAID ȱ Up ȱto ȱ10% ȱequity ȱcontribution, ȱworkshops, ȱ newsletters, ȱ“stamp ȱof ȱapproval” ȱ CDM ȱ Creates ȱemissions ȱreduction ȱcredits ȱ GEF ȱ Proposed ȱfinancing ȱschemes ȱfor ȱcooperatives ȱ ȱ

Case ȱStudies ȱ The ȱsources ȱof ȱfunding ȱwe ȱexamined ȱin ȱour ȱcase ȱstudies ȱare ȱlisted ȱin ȱ Table ȱ1. ȱ Some ȱ mills ȱ had ȱ received ȱ funding ȱ from ȱ aȱ mixture ȱ of ȱ sources, ȱ including ȱdomestic ȱand ȱinternational ȱsources. ȱAȱlisting ȱof ȱall ȱmills ȱwe ȱ interviewed, ȱtheir ȱlocation ȱand ȱfunding ȱportfolio ȱ(mixed ȱor ȱdomestic) ȱ are ȱlisted ȱin ȱTable ȱ2. ȱ

Ministry ȱof ȱNon ȬConventional ȱEnergy ȱSources/Indian ȱRenewable ȱEnergy ȱ Development ȱAgency ȱProjects ȱ In ȱ1992, ȱthe ȱnational ȱprogram ȱon ȱPromotion ȱof ȱBiomass ȱPower/Bagasse ȱ based ȱCogeneration ȱwas ȱlaunched, ȱwhich ȱinvolved ȱ12 ȱdemonstration ȱ projects ȱin ȱthe ȱcooperative/state ȱsugar ȱmill ȱsector, ȱas ȱwell ȱas ȱbiomass ȱ resources ȱ assessment ȱ studies, ȱ training, ȱ and ȱ assistance ȱ to ȱ states ȱ in ȱ formulating ȱtheir ȱpower ȱpurchase ȱpolicies. ȱThis ȱprogram ȱwas ȱrevised ȱ subsequently ȱto ȱinclude ȱaȱcapital ȱsubsidy ȱfor ȱcogeneration ȱprojects ȱin ȱ the ȱ cooperative/public ȱ sector ȱ sugar ȱ mills ȱ of ȱ Rs ȱ 3.5 Ȭ4.5 ȱ million/MWȱ depending ȱ upon ȱ the ȱ level ȱ of ȱ pressure ȱ of ȱ the ȱ boiler. ȱ It ȱ also ȱ included ȱ interest ȱsubsidies ȱfor ȱcommercial ȱbiomass ȱpower ȱprojects ȱat ȱ2Ȭ3% ȱor ȱ1Ȭ 3% ȱdepending ȱon ȱthe ȱcategory ȱof ȱbiomass ȱand ȱpressure ȱof ȱthe ȱboiler. ȱ Financial ȱ support ȱ was ȱ also ȱ available ȱ for ȱ research ȱ and ȱ development ȱ projects ȱ (Winrock ȱ 2002). ȱ MNES ȱ also ȱ conducted ȱ aȱ number ȱ of ȱ pilot ȱ projects ȱ in ȱ mills. ȱ We ȱ looked ȱ at ȱ the ȱ impacts ȱ of ȱ these ȱ promotional ȱ strategies ȱwith ȱrespect ȱto ȱJawahar ȱSSK, ȱaȱcooperative ȱsugar ȱfactory ȱin ȱ Maharashtra. ȱȱȱ Aȱ brief ȱ description ȱ of ȱ the ȱ funding ȱ sources ȱ specifically ȱ for ȱ bagasse ȱcogeneration ȱprojects ȱis ȱprovided ȱbelow. ȱ

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Table ȱ2. ȱMills ȱInterviewed ȱ

Amount of Name of mill and cogeneration External funding location Ownership type installed (MW) source Ajinkyatara, Cooperative 0 n/a Maharashtra Jawahar, Cooperative 25.5 MNES Maharashtra Hutatma, Cooperative 0 n/a Maharashtra Pravara, Cooperative 0 n/a Maharashtra Baramati, Cooperative 0 n/a Maharashtra EID Parry’s, Tamil Private 24.5 USAID, Nadu MNES/IREDA TA Sugars, Tamil Private 110 USAID, Nadu MNES/IREDA, proposed CDM Rajshree Sugars, Private 15 None Tamil Nadu Chengalryan, Cooperative 0 n/a Tamil Nadu ȱ

USAID ȱProject ȱ The ȱobjective ȱof ȱUSAID’s ȱproject ȱ“Alternative ȱBagasse ȱCogeneration” ȱ (ABC) ȱwas ȱto ȱdemonstrate ȱhigh ȱefficiency ȱcogeneration ȱtechnology ȱin ȱ the ȱIndian ȱsugar ȱsector, ȱand ȱto ȱuse ȱbagasse ȱas ȱaȱfuel ȱto ȱreplace ȱfossil ȱ fuels ȱnormally ȱused ȱby ȱfuels ȱduring ȱthe ȱoff Ȭseason. ȱTo ȱachieve ȱclimate ȱ benefits, ȱUSAID ȱaimed ȱto ȱhave ȱyear Ȭround ȱoperation ȱof ȱsugar ȱmills ȱon ȱ biomass ȱ fuels ȱ alone. ȱ ABC ȱ was ȱ part ȱ of ȱ aȱ 10 ȱ year, ȱ $39 ȱ million ȱ activity ȱ (1995 Ȭ2005) ȱ known ȱ as ȱ the ȱ “Greenhouse ȱ Gas ȱ Pollution ȱ Prevention ȱ Project”. ȱ The ȱ project ȱ selected ȱ nine ȱ mills ȱ that ȱ were ȱ screened ȱ for ȱ financial ȱviability. ȱThe ȱcriteria ȱwere ȱthat ȱthe ȱmills ȱhad ȱto ȱbe ȱabove ȱ2500 ȱ TCD, ȱ and ȱ had ȱ to ȱ install ȱ boilers ȱ that ȱ were ȱ 60 ȱ bar ȱ and ȱ 480 ȱ deg. ȱ Cȱ or ȱ above. ȱThey ȱalso ȱhad ȱto ȱoperate ȱfor ȱ270 ȱdays ȱper ȱyear. ȱOf ȱthe ȱnine ȱmills ȱ that ȱwere ȱselected, ȱwe ȱinterviewed ȱtwo ȱ–ȱEID ȱParry‘s ȱand ȱTA ȱSugars ȱin ȱ Tamil ȱNadu. ȱ

The ȱClean ȱDevelopment ȱMechanism ȱand ȱGlobal ȱEnvironment ȱFacility ȱ The ȱCDM, ȱone ȱof ȱthe ȱflexibility ȱmechanisms ȱof ȱthe ȱKyoto ȱProtocol, ȱis ȱaȱ project Ȭbased ȱemissions ȱtrading ȱmechanism ȱthat ȱallows ȱindustrialized ȱ

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countries ȱto ȱfund ȱemissions ȱreducing ȱprojects ȱin ȱdeveloping ȱcountries ȱ and ȱ use ȱ the ȱ resulting ȱ carbon ȱ credits ȱ towards ȱ their ȱ own ȱ domestic ȱ targets. ȱ At ȱ present ȱ the ȱ CDM ȱ is ȱ transitioning ȱ from ȱ its ȱ pilot ȱ phase ȱ to ȱ registering ȱits ȱfirst ȱofficial ȱprojects. ȱIndia ȱis ȱcurrently ȱleading ȱthe ȱworld ȱ in ȱterms ȱof ȱthe ȱnumbers ȱof ȱCDM ȱprojects ȱbeing ȱproposed. ȱThree ȱof ȱthe ȱ first ȱ CDM ȱ projects ȱ proposed ȱ were ȱ bagasse ȱ cogeneration ȱ projects ȱ in ȱ India. ȱȱ The ȱGEF ȱwas ȱestablished ȱin ȱ1992 ȱto ȱsupport ȱactivities ȱin ȱdeveloping ȱ countries ȱ that ȱ have ȱ positive ȱ benefits ȱ on ȱ global ȱ environmental ȱ problems. ȱThe ȱGEF ȱfunds ȱthe ȱ“incremental ȱcosts” ȱof ȱnew ȱactivities, ȱor ȱ the ȱ additional ȱ costs ȱ of ȱ performing ȱ an ȱ activity ȱ above ȱ what ȱ would ȱ be ȱ paid ȱ otherwise ȱ by ȱ the ȱ developing ȱ country. ȱ For ȱ example, ȱ the ȱ incremental ȱ cost ȱ would ȱ be ȱ the ȱ difference ȱ in ȱ capital ȱ requirements ȱ to ȱ build ȱaȱ20 ȱMWȱwind ȱfarm ȱinstead ȱof ȱaȱ20 ȱMWȱcoal Ȭfired ȱpower ȱplant. ȱ The ȱGEF ȱalso ȱprovides ȱtechnical ȱassistance ȱgrants ȱ(for ȱinstance, ȱit ȱhas ȱ provided ȱ$5 ȱmillion ȱto ȱIREDA ȱ(IREDA ȱ2004)). ȱ Both ȱof ȱthese ȱmechanisms ȱhave ȱbeen ȱcriticized. ȱThe ȱGEF ȱhas ȱbeen ȱ criticized ȱ as ȱ being ȱ bureaucratic ȱ to ȱ work ȱ with, ȱ slow ȱ in ȱ processing ȱ projects, ȱand ȱhaving ȱproject ȱcriteria ȱthat ȱseem ȱfar ȱremoved ȱfrom ȱon ȱthe ȱ ground ȱ realities ȱ (e.g. ȱ Horta ȱ 2002). ȱ The ȱ CDM ȱ has ȱ been ȱ criticized ȱ for ȱ how ȱdifficult ȱit ȱis ȱto ȱestimate ȱthe ȱemissions ȱreduced ȱby ȱCDM ȱprojects. ȱ Critics ȱ describe ȱ the ȱ CDM ȱ as ȱ producing ȱ carbon ȱ credits ȱ when ȱ no ȱ emissions ȱare ȱreduced, ȱor ȱallowing ȱfor ȱthe ȱexaggeration ȱof ȱthe ȱamount ȱ of ȱ reductions ȱ from ȱ aȱ project ȱ (e.g. ȱ Haya ȱ 2002). ȱ We ȱ explore ȱ these ȱ concerns ȱ with ȱ case ȱ studies ȱ of ȱ CDM ȱ and ȱ one ȱ GEF ȱ project ȱ focused ȱ on ȱ bagasse ȱcogeneration ȱin ȱIndia. ȱ

PRINCIPAL ȱFINDINGS ȱ

Barrier ȱAnalysis ȱ Our ȱanalysis ȱin ȱthe ȱfield ȱshows ȱthat ȱthere ȱare ȱmultiple ȱbarriers ȱto ȱthe ȱ implementation ȱ of ȱ bagasse ȱ cogeneration ȱ in ȱ India ȱ as ȱ aȱ source ȱ of ȱ renewable ȱ energy ȱ based ȱ electricity ȱ (as ȱ has ȱ also ȱ been ȱ documented ȱ in ȱ Smouse ȱ(1998)). ȱThe ȱbarriers ȱexist ȱat ȱdifferent ȱlevels, ȱe.g. ȱthe ȱnational, ȱ state ȱand ȱlocal ȱlevel, ȱand ȱare ȱoften ȱinter Ȭrelated. ȱOur ȱinterviews ȱshow, ȱ that ȱ the ȱ initial ȱ barriers ȱ were ȱ due ȱ to ȱ the ȱ lack ȱ of ȱ familiarity ȱ with ȱ the ȱ technology, ȱ but ȱ aȱ decade ȱafter ȱ the ȱUSAID ȱ project ȱ started ȱ (1995), ȱ mill ȱ owners ȱ we ȱ interviewed ȱ were ȱ widely ȱ aware ȱ of ȱ the ȱ practice ȱ of ȱ cogeneration ȱ with ȱ export ȱ to ȱ the ȱ grid. ȱ Clearly, ȱ barriers ȱ to ȱ this ȱ

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technology ȱ will ȱ also ȱ change ȱ in ȱ the ȱ future, ȱ especially ȱ due ȱ to ȱ the ȱ changing ȱ structure ȱ of ȱ the ȱ power ȱ sector ȱ in ȱ India. ȱ We ȱ present ȱ here ȱ an ȱ analysis ȱ that ȱ aims ȱ to ȱ collectively ȱ bring ȱ out ȱ the ȱ fundamental ȱ barriers ȱ and ȱ their ȱ possible ȱ transformation ȱ in ȱ the ȱ future. ȱ The ȱ discussion ȱ that ȱ follows ȱ addresses ȱ how ȱ compatible ȱ current ȱ financial ȱ mechanisms ȱ are ȱ with ȱlocal ȱcircumstances. ȱȱ

Information ȱBarriers ȱ Through ȱ aȱ variety ȱ of ȱ training ȱ programs ȱ and ȱ newsletters, ȱ the ȱ USAID ȱ project ȱ was ȱ able ȱ to ȱ address ȱ the ȱ initial ȱ barriers ȱ arising ȱ from ȱ lack ȱ of ȱ information ȱabout ȱthe ȱtechnology ȱfor ȱaȱmajority ȱof ȱmills. ȱAȱnumber ȱof ȱ mills ȱ that ȱ we ȱ interviewed ȱ mentioned ȱ that ȱ they ȱ were ȱ aware ȱ of ȱ the ȱ USAID ȱ project, ȱ and ȱ had ȱ even ȱ attended ȱ aȱ training ȱ session. ȱ Winrock ȱ India ȱ was ȱ responsible ȱ for ȱ bringing ȱ out ȱ aȱ series ȱ of ȱ newsletters ȱ titled ȱ “Cane ȱ Cogen ȱ India” ȱ which ȱ provided ȱ updates ȱ on ȱ policy ȱ announcements, ȱ and ȱ projects ȱ implemented ȱ by ȱ mills ȱ in ȱ both ȱ the ȱ cooperative ȱ and ȱ private ȱ sectors ȱ (even ȱ though ȱ the ȱ USAID ȱ project ȱ did ȱ not ȱaddress ȱthe ȱcooperative ȱsector.) ȱ

Financial ȱBarriers ȱ In ȱ spite ȱ of ȱ the ȱ fact ȱ that ȱ India ȱ has ȱ made ȱ remarkable ȱ progress ȱ in ȱ the ȱ production ȱof ȱsugar, ȱthe ȱsugar ȱindustry ȱin ȱIndia ȱis ȱin ȱaȱdire ȱsituation. ȱ India ȱhas ȱgone ȱfrom ȱbeing ȱthe ȱworld’s ȱthird ȱlargest ȱproducer ȱof ȱsugar ȱ in ȱ1976 ȱto ȱthe ȱ2nd ȱlargest ȱproducer ȱin ȱ2003. ȱIndia ȱand ȱBrazil ȱcontinue ȱ to ȱswitch ȱoff ȱfor ȱthe ȱfirst ȱposition. ȱThe ȱarea ȱunder ȱcultivation ȱhas ȱalso ȱ increased ȱ more ȱ than ȱ two Ȭfold ȱ (Godbole ȱ 2000). ȱ However, ȱ the ȱ productivity ȱ of ȱ the ȱ industry ȱ has ȱ steadily ȱ been ȱ declining. ȱ The ȱ per Ȭ hectare ȱ yield ȱ of ȱ sugarcane ȱ has ȱ decreased ȱ in ȱ all ȱ states ȱ except ȱ Tamil ȱ Nadu, ȱ and ȱ is ȱ close ȱ to ȱ half ȱ the ȱ international ȱ average. ȱ This ȱ decline ȱ in ȱ productivity ȱ goes ȱ against ȱ Indian ȱ sugar ȱ manufacturers ȱ in ȱ the ȱ international ȱ marketplace, ȱ although ȱ most ȱ sugar ȱ is ȱ currently ȱ domestically ȱ consumed. ȱ Further, ȱ fluctuations ȱ in ȱ the ȱ weather ȱ (especially ȱthe ȱoccurrence ȱof ȱdrought) ȱand ȱfluctuations ȱin ȱthe ȱdemand ȱ for ȱsugar ȱhave ȱbeen ȱresponsible ȱfor ȱthe ȱdifficult ȱfinancial ȱsituation ȱthat ȱ the ȱmills ȱface ȱtoday. ȱȱ Experience ȱ with ȱ bagasse ȱ cogeneration ȱ in ȱ the ȱ USAID ȱ project ȱ has ȱ proved ȱits ȱmerit ȱof ȱbeing ȱaȱprofitable ȱtechnology. ȱOur ȱinterviews ȱwith ȱ EID ȱ Parry ȱ and ȱ TA ȱ Sugars, ȱ two ȱ of ȱ the ȱ nine ȱ mills ȱ that ȱ implemented ȱ

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bagasse ȱ cogeneration ȱ in ȱ the ȱ USAID ȱ project, ȱ indicate ȱ that ȱ the ȱ project ȱ provided ȱaȱsteady ȱflow ȱof ȱrevenue ȱwith ȱpreferred ȱtaxation ȱand ȱinterest ȱ policies. ȱThese ȱmills ȱalso ȱindicate ȱthat ȱaȱmajor ȱsource ȱof ȱits ȱrevenue ȱis ȱ now ȱ from ȱ the ȱ sale ȱ of ȱ electricity, ȱ and ȱ the ȱ production ȱ of ȱ energy ȱ is ȱ not ȱ treated ȱas ȱaȱsecondary ȱbusiness ȱto ȱthe ȱproduction ȱof ȱsugar. ȱ Mills ȱ that ȱ have ȱ not ȱ implemented ȱ bagasse ȱ cogeneration ȱ typically ȱ face ȱdifficulty ȱaccessing ȱthe ȱnecessary ȱcapital ȱ–ȱaȱmajor ȱbarrier ȱto ȱthe ȱ widespread ȱ use ȱ of ȱ this ȱ technology. ȱ Most ȱ financial ȱ institutions ȱ are ȱ hesitant ȱto ȱlend ȱto ȱprivate ȱmills ȱ(we ȱtreat ȱcooperative ȱmills ȱseparately) ȱ because ȱ of ȱ the ȱ high ȱ risk ȱ involved. ȱ Bagasse ȱ cogeneration ȱ projects ȱ conventionally ȱ require ȱ investment ȱ of ȱ 1ȱ billion ȱ Rupees, ȱ while ȱ smaller ȱ allied ȱ projects, ȱ e.g. ȱ alcohol ȱ distilleries, ȱ ethanol ȱ producing ȱ plants, ȱ require ȱ an ȱinvestment ȱ of ȱonly ȱ10 ȱ million ȱ Rupees ȱ(Bhosale ȱ2004). ȱ Our ȱ interview ȱwith ȱaȱmill ȱowner ȱin ȱSatara, ȱMaharahstra ȱindicates ȱthat ȱsuch ȱ smaller ȱprojects ȱare ȱoften ȱsuccessful ȱat ȱattracting ȱthe ȱrequisite ȱfinance, ȱ but ȱbagasse ȱcogeneration ȱrequires ȱan ȱorder ȱof ȱmagnitude ȱinvestment ȱ that ȱbanks ȱare ȱnot ȱwilling ȱto ȱrisk. ȱ

Regulatory ȱBarriers ȱ Aȱsecond ȱmajor ȱbarrier ȱto ȱthe ȱdissemination ȱof ȱbagasse ȱcogeneration ȱis ȱ regulatory ȱ uncertainty. ȱ In ȱ 1994, ȱ MNES ȱ started ȱ programs ȱ for ȱ the ȱ promotion ȱ of ȱ bagasse ȱ cogeneration. ȱ These ȱ programs ȱ offered ȱ capital ȱ and ȱinterest ȱsubsidies, ȱresearch ȱand ȱdevelopment ȱsupport, ȱaccelerated ȱ depreciation ȱof ȱequipment ȱ(e.g. ȱboilers, ȱturbines, ȱwaste ȱheat ȱrecovery ȱ systems), ȱ aȱ five ȱ year ȱ income ȱ tax ȱ holiday, ȱ and ȱ excise ȱ and ȱ sales ȱ tax ȱ exemptions ȱ(MNES, ȱ2004). ȱMNES ȱalso ȱprescribed ȱguidelines ȱ(without ȱ enforcement) ȱto ȱthe ȱState ȱElectricity ȱBoards ȱas ȱto ȱthe ȱtariffs ȱthey ȱshould ȱ offer ȱ for ȱ renewable ȱ energy ȱ power, ȱ based ȱ on ȱ which, ȱ several ȱ states ȱ independently ȱ announced ȱ policies ȱ for ȱ electricity ȱ purchase ȱ from ȱ bagasse ȱcogenerators. ȱ Starting ȱwith ȱthe ȱ1996 ȱOrissa ȱElectricity ȱreform ȱact, ȱthe ȱ1998 ȱCentral ȱ Electricity ȱRegulatory ȱCommissions ȱ(CERC) ȱAct ȱand ȱfinally ȱElectricity ȱ Act ȱof ȱ2003, ȱthe ȱIndian ȱpower ȱsector ȱis ȱseeing ȱwidespread ȱchanges ȱin ȱ its ȱ structure. ȱ State ȱ level ȱ electricity ȱ regulatory ȱ commissions, ȱ setup ȱ under ȱ the ȱ supervision ȱ of ȱ the ȱ CERC, ȱ have ȱ been ȱ successful ȱ in ȱ formulating ȱpolicies ȱfor ȱbuying ȱelectric ȱpower ȱfrom ȱbagasse. ȱHowever, ȱ this ȱreform ȱprocess ȱhas ȱcaused ȱpreviously ȱsigned ȱcontracts ȱto ȱbe ȱover Ȭ ridden, ȱ slowed ȱ down ȱ the ȱ implementation ȱ of ȱ these ȱ contracts ȱ and ȱ several ȱ states ȱ have ȱ reneged ȱ on ȱ their ȱ power ȱ purchase ȱ agreements. ȱ

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Many ȱ sugar ȱ mill ȱ owners ȱ report ȱ that ȱ state ȱ electricity ȱ boards ȱ have ȱ historically ȱ not ȱ been ȱ credit ȱ worthy, ȱ which ȱ makes ȱ project ȱ developers ȱ cautious ȱabout ȱimplementing ȱlarge ȱbagasse ȱcogeneration ȱplants. ȱ The ȱ prospects ȱ of ȱ overcoming ȱ regulatory ȱ barriers ȱ are ȱ certainly ȱ favorable. ȱThe ȱstate ȱof ȱMaharashtra ȱis ȱin ȱthe ȱprocess ȱof ȱunbundling ȱits ȱ state ȱelectricity ȱboard ȱinto ȱgeneration, ȱtransmission ȱand ȱdistribution ȱ(it ȱ has ȱ taken ȱ serious ȱ steps ȱ to ȱ do ȱ so ȱ in ȱ the ȱ last ȱ 5ȱ years). ȱ The ȱ state ȱ regulatory ȱ commission ȱ has ȱ consistently ȱ issued ȱ tariff ȱ orders ȱ through ȱ democratic ȱ public ȱ participation, ȱ and ȱ has ȱ made ȱ the ȱ state ȱ electricity ȱ board ȱmore ȱaccountable. ȱDue ȱto ȱthis, ȱthe ȱSEBs ȱare ȱless ȱlikely ȱto ȱrescind ȱ their ȱ power ȱ purchase ȱ agreements ȱ with ȱ bagasse ȱ cogeneration ȱ mills. ȱ Furthermore, ȱthe ȱElectricity ȱAct ȱallows ȱfor ȱthe ȱcreation ȱof ȱopen ȱaccess ȱ to ȱthe ȱgrid. ȱAt ȱleast ȱone ȱprivate ȱcompany ȱ(Indal ȱLtd.) ȱhas ȱbeen ȱallowed ȱ open ȱaccess ȱto ȱthe ȱgrid ȱowned ȱby ȱthe ȱKarnataka ȱSEB. ȱThis ȱwould ȱgive ȱ sugar ȱmills ȱthe ȱopportunity ȱto ȱsell ȱpower ȱto ȱcustomers ȱdirectly, ȱwhile ȱ they ȱwould ȱonly ȱpay ȱwheeling ȱcharges ȱto ȱthe ȱSEB. ȱ

Cooperative ȱSector ȱȱ Background ȱ In ȱ 1998, ȱ 55% ȱ of ȱ sugar ȱ mills ȱ in ȱ India ȱ were ȱ in ȱ the ȱ cooperative ȱ sector, ȱ with ȱ about ȱ 45% ȱ of ȱ them ȱ in ȱ Maharashtra. ȱ These ȱ mills ȱ accounted ȱ for ȱ 60% ȱof ȱtotal ȱsugar ȱproduction ȱin ȱIndia ȱ(Godbole ȱ2000). ȱThe ȱcooperative ȱ structure ȱ has ȱ aȱ democratic ȱ framework ȱ that ȱ allows ȱ the ȱ election ȱ of ȱ its ȱ governing ȱboard. ȱSince ȱmembers ȱof ȱthe ȱcooperative ȱboards ȱare ȱelected ȱ every ȱfive ȱyears, ȱrival ȱfactions ȱ(often ȱassociated ȱwith ȱnational ȱpolitical ȱ parties) ȱ are ȱ in ȱ pursuit ȱ of ȱ popularity ȱ among ȱ voters. ȱ These ȱ voters ȱ are ȱ mainly ȱthe ȱshareholders ȱof ȱthe ȱcooperatives ȱof ȱwhich ȱcane ȱproducers ȱ in ȱthe ȱvicinity ȱof ȱthe ȱfactory ȱform ȱthe ȱmajority. ȱIn ȱaddition ȱto ȱhaving ȱaȱ local ȱ political ȱ system, ȱ the ȱ cooperative ȱ sugar ȱ sector ȱ is ȱ also ȱ the ȱ most ȱ influential ȱ agricultural ȱ government ȱ lobby ȱ group. ȱ Most ȱ often, ȱ local ȱ cooperative ȱ leaders ȱ are ȱ actively ȱ involved ȱ in ȱ politics ȱ at ȱ the ȱ state ȱ and ȱ national ȱlevels. ȱThey ȱprovide ȱpolitical ȱadvantages ȱto ȱthe ȱregions ȱthey ȱ represent, ȱ hence ȱ some ȱ sugar ȱ producing ȱ regions ȱ in ȱrural ȱ Maharashtra ȱ (e.g. ȱ Baramati, ȱ Satara) ȱ have ȱ seen ȱ rapid ȱ economic ȱ development. ȱ It ȱ is ȱ now ȱ common ȱ for ȱ sugarcane ȱ producing ȱ regions ȱ to ȱ have ȱ primary ȱ schools, ȱ professional ȱ colleges ȱ for ȱ engineering ȱ and ȱ medicine, ȱ modern ȱ hospitals ȱ and ȱ modern ȱ IT ȱ and ȱ communication ȱ infrastructure. ȱ This ȱ

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economic ȱdevelopment ȱhas ȱbeen ȱpossible ȱdue ȱto ȱthe ȱpolitical ȱrole ȱthese ȱ regions ȱplay ȱin ȱthe ȱstate ȱand ȱnational ȱgovernment. 2ȱȱ The ȱpolitical ȱlink ȱof ȱthe ȱsugar ȱcommunity ȱhas ȱmade ȱit ȱpossible ȱfor ȱ the ȱindustry ȱto ȱgain ȱsome ȱof ȱthe ȱhighest ȱagricultural ȱsubsidies. ȱIn ȱspite ȱ of ȱ this ȱ more ȱ than ȱ one Ȭthird ȱ of ȱ the ȱ co Ȭoperative ȱ sugar ȱ factories ȱ in ȱ the ȱ Maharashtra ȱ have ȱ been ȱ loss Ȭmaking ȱ for ȱ the ȱ past ȱ three ȱ years, ȱ or ȱ are ȱ running ȱ at ȱ less ȱ than ȱ 75% ȱ of ȱ their ȱ capacity. ȱ The ȱ state ȱ government ȱ of ȱ Maharashtra ȱ is ȱ regularly ȱ aȱ guarantor ȱ for ȱ large ȱ loans ȱ from ȱ financial ȱ institutions ȱfor ȱthe ȱcooperatives. ȱIn ȱaddition, ȱthe ȱstate ȱgovernment ȱhas ȱ equity ȱparticipation ȱ(usually ȱ3ȱto ȱ5ȱtimes ȱthe ȱshare ȱof ȱthe ȱcooperative ȱ members), ȱand ȱprovides ȱtax ȱloans ȱand ȱother ȱloans ȱto ȱthe ȱcooperatives. ȱ The ȱ state ȱ government ȱ is ȱ also ȱ lenient ȱ in ȱ prescribing ȱ terms ȱ and ȱ conditions ȱ of ȱ these ȱ loans. ȱ Three ȱ state ȱ government ȱ committees ȱ were ȱ established ȱ over ȱ the ȱ last ȱ 20 ȱ years ȱ to ȱ investigate ȱ possible ȱ solutions ȱ to ȱ the ȱloss Ȭmaking ȱstatus ȱof ȱthe ȱsugar ȱindustry, ȱand ȱall ȱthree ȱcommittees ȱ prescribed ȱgenerous ȱrelief ȱmeasures. ȱȱ The ȱcumulative ȱoutstanding ȱdues ȱfrom ȱthe ȱsugar ȱindustry ȱwere ȱRs. ȱ 2.54 ȱ billion ȱ in ȱ 1998 ȱ (Godbole ȱ 2000). ȱ The ȱ national ȱ government ȱ has ȱ recognized ȱ that ȱ “the ȱ cooperative ȱ sector ȱ is ȱ proving ȱ to ȱ be ȱ against ȱ the ȱ spirit ȱ of ȱ competitiveness ȱ and ȱ professionalism” ȱ and ȱ is ȱ prescribing ȱ stringent ȱrestrictions ȱfor ȱthe ȱstate ȱgovernment’s ȱequity ȱparticipation ȱin ȱ sugar ȱmills. 3ȱȱ Barriers ȱIn ȱThe ȱCooperative ȱSector ȱ From ȱ the ȱ above ȱ analysis, ȱ it ȱ is ȱ evident ȱ that ȱ the ȱ primary ȱ barrier ȱ to ȱ bagasse ȱ cogeneration ȱ in ȱ cooperative ȱ sugar ȱ mills ȱ is ȱ their ȱ financial ȱ weakness. ȱ Sugar ȱ cooperatives ȱ have ȱ been ȱ an ȱ excessive ȱ burden ȱ on ȱ the ȱ state ȱexchequer ȱand ȱhave ȱdefaulted ȱon ȱloans ȱrunning ȱinto ȱmillions ȱof ȱ Rupees. ȱ For ȱ this ȱ reason, ȱ financial ȱ institutions ȱ run ȱ by ȱ the ȱ national ȱ government ȱand ȱother ȱprivate ȱfinancial ȱinstitutions ȱhave ȱdeclined ȱany ȱ further ȱlending ȱto ȱthe ȱcooperatives. ȱAlthough ȱour ȱfield ȱresearch ȱshows ȱ awareness ȱof ȱthe ȱpractice ȱof ȱbagasse ȱcogeneration, ȱthe ȱfinancial ȱhealth ȱ of ȱ the ȱ cooperatives ȱ has ȱ prevented ȱ them ȱ from ȱ seeking ȱ the ȱ necessary ȱ investment ȱ for ȱ such ȱ projects. ȱ Thus ȱ the ȱ institutional ȱ practices ȱ of ȱ the ȱ cooperatives ȱand ȱtheir ȱpoor ȱfinancial ȱhealth ȱhave ȱprevented ȱthem ȱfrom ȱ making ȱ the ȱ investment ȱ in ȱ technology ȱ upgrade ȱ that ȱ some ȱ of ȱ their ȱ private ȱcounterparts ȱhave ȱbeen ȱable ȱto ȱmake. ȱȱ Our ȱinterviews ȱcalled ȱour ȱattention ȱto ȱthe ȱlack ȱof ȱcompetitiveness ȱ and ȱrisk ȱtaking ȱattitude ȱin ȱthe ȱmanagement ȱof ȱsome ȱsugar ȱmills. ȱThere ȱ

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are ȱ also ȱ procedural ȱ difficulties, ȱ i.e. ȱ only ȱ businesses ȱ that ȱ are ȱ shareholders ȱ of ȱ the ȱ cooperatives ȱ can ȱ engage ȱ in ȱ certain ȱ business ȱ transactions ȱ with ȱ the ȱ mills. ȱ This ȱ restricts ȱ which ȱ businesses ȱ can, ȱ for ȱ example, ȱ provide ȱ machinery, ȱ maintenance, ȱ warehousing, ȱ etc., ȱ to ȱ the ȱ mills. ȱPrivate ȱcompanies ȱare ȱalso ȱnot ȱwilling ȱto ȱtake ȱinvestment ȱrisks ȱ with ȱ sugar ȱ cooperatives ȱ because ȱ there ȱ is ȱ aȱ high ȱ chance ȱ of ȱ policy ȱ change ȱif ȱaȱnew ȱmanagement ȱboard ȱis ȱelected ȱin ȱthe ȱnext ȱelections. ȱ However, ȱ we ȱ also ȱ interviewed ȱ two ȱ cooperative ȱ mills ȱ that ȱ show ȱ promise ȱof ȱfuture ȱinvestment ȱin ȱbagasse ȱcogeneration. ȱOne ȱexample ȱis ȱ the ȱJawahar ȱCooperative ȱFactory ȱin ȱMaharashtra ȱthat ȱhas ȱinstalled ȱ24 ȱ MWȱ of ȱ high ȱ efficiency ȱ cogeneration. ȱ They ȱ attributed ȱ their ȱ move ȱ to ȱ install ȱthe ȱtechnology ȱto ȱan ȱinitial ȱpilot ȱproject ȱfunded ȱby ȱthe ȱMNES ȱin ȱ the ȱ early ȱ 90s. ȱ Although ȱ they ȱ cited ȱ initial ȱ problems ȱ with ȱ evacuating ȱ power ȱto ȱthe ȱgrid, ȱthey ȱare ȱnow ȱquite ȱsatisfied ȱwith ȱtheir ȱcontract ȱwith ȱ the ȱMaharashtra ȱSEB. ȱȱ Another ȱmill ȱwe ȱinterviewed ȱwas ȱthe ȱHutatma ȱCooperative ȱSugar ȱ Factory. ȱ Hutatma ȱ is ȱ aȱ Ȉ model Ȉȱ cooperative, ȱ combining ȱ aspects ȱ of ȱ democratic ȱ governance, ȱ transparency, ȱ environmental ȱ soundness, ȱ and ȱ high ȱ efficiency ȱ in ȱ terms ȱ of ȱ sugar ȱ recovery. ȱ Hutatma ȱ does ȱ not ȱ have ȱ cogeneration ȱ installed ȱ as ȱ yet, ȱ but ȱ is ȱ aware ȱ of ȱ the ȱ technology ȱ and ȱ expressed ȱ desire ȱ to ȱ install ȱ it ȱ once ȱ it ȱ was ȱ more ȱ financially ȱ secure ȱ (Hutatma, ȱlike ȱJawahar ȱis ȱnot ȱloss Ȭmaking, ȱbut ȱstill ȱdoes ȱnot ȱfeel ȱit ȱhas ȱ enough ȱ capital ȱ to ȱ invest ȱ in ȱ the ȱ technology). ȱ Interestingly, ȱ we ȱ discovered ȱthat ȱHutatma ȇsȱsuccess ȱcan ȱbe ȱattributed ȱto ȱthe ȱleadership ȱ of ȱ aȱ visionary ȱ freedom ȱ fighter ȱ and ȱ social ȱ activist, ȱ by ȱ the ȱ name ȱ of ȱ Nagnath ȱNaikodi. ȱ Essentially, ȱ cooperatives ȱ act ȱ in ȱ the ȱ best ȱ interests ȱ of ȱ their ȱ shareholders. ȱ Although ȱ the ȱ international ȱ financial ȱ mechanisms ȱ we ȱ have ȱdiscussed ȱprovide ȱequal ȱopportunities ȱto ȱprivate ȱand ȱcooperative ȱ mills, ȱthere ȱis ȱaȱhigher ȱtendency ȱfor ȱprivate ȱmills ȱto ȱseek ȱsuch ȱfunds, ȱ and ȱconversely ȱan ȱinclination ȱfor ȱthe ȱfunding ȱagency ȱto ȱselect ȱprivate ȱ mills ȱ in ȱ favor ȱ of ȱ cooperatives. ȱ As ȱ is ȱ the ȱ case ȱ with ȱ any ȱ bagasse ȱ cogeneration ȱ project ȱ in ȱ India, ȱ use ȱ of ȱ bagasse ȱ as ȱ aȱ renewable ȱ energy ȱ source ȱis ȱnot ȱaȱmotivating ȱfactor ȱin ȱselection ȱof ȱprojects. ȱ Another ȱpromising ȱapproach ȱto ȱimplementing ȱsuch ȱprojects ȱis ȱthe ȱ Build ȬOwn ȬOperate ȬTransfer ȱ(BOOT) ȱmethod, ȱe.g. ȱimplemented ȱat ȱthe ȱ Pravara ȱ Sugar ȱ Factory ȱ in ȱ Maharashtra. ȱ While ȱ such ȱ approaches ȱ have ȱ been ȱ successful ȱ only ȱ in ȱ aȱ few ȱ specific ȱ projects, ȱ they ȱ are ȱ promising ȱ candidates ȱfor ȱfuture ȱcogeneration ȱprojects. ȱ

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From ȱthe ȱabove ȱanalysis ȱof ȱthe ȱinstitutional ȱand ȱpolitical ȱnature ȱof ȱ the ȱ cooperatives ȱ and ȱ the ȱ subsequent ȱ financial ȱ barriers ȱ they ȱ face, ȱ it ȱ is ȱ clear ȱ why ȱ international ȱ agencies ȱ have ȱ not ȱ been ȱ more ȱ forthcoming ȱ in ȱ engaging ȱ this ȱ sector. ȱ The ȱ Ȉ un Ȭcorporate Ȉȱ culture ȱ of ȱ cooperatives ȱ is ȱ something ȱ international ȱ agencies ȱ are ȱ not ȱ used ȱ to, ȱ which ȱ is ȱ why ȱ they ȱ have ȱ focussed ȱ on ȱ the ȱ more ȱ profitable ȱ private ȱ mills. ȱ However, ȱ if ȱ any ȱ substantial ȱprogress ȱis ȱto ȱbe ȱmade ȱin ȱthis ȱtechnology, ȱthe ȱcooperative ȱ sector ȱ will ȱ have ȱ to ȱ be ȱ tapped. ȱ For ȱ instance, ȱ out ȱ of ȱ the ȱ 5000 ȱ MWȱ estimated ȱpotential, ȱ1250 ȱMWȱlies ȱin ȱMaharashtra, ȱof ȱwhich ȱ99% ȱis ȱin ȱ the ȱcooperative ȱsector. ȱThere ȱis ȱaȱhence ȱaȱsubstantial ȱgap ȱbetween ȱthe ȱ physical ȱpotential ȱof ȱbagasse ȱcogeneration ȱand ȱthe ȱrealizable ȱpotential. ȱ There ȱis ȱmuch ȱwork ȱto ȱbe ȱdone ȱto ȱbridge ȱthis ȱgap. ȱȱ From ȱ our ȱ personal ȱ interviews, ȱ we ȱ learned ȱ that ȱ GEF ȇsȱ new ȱ project ȱ ȈRemoval ȱ of ȱ Barriers ȱ to ȱ Biomass ȱ Power Ȉȱ aims ȱ to ȱ provide ȱ innovative ȱ financing ȱ for ȱ cooperatives. ȱ However, ȱ there ȱ appears ȱ to ȱ be ȱ substantial ȱ delay ȱin ȱthe ȱimplementation ȱof ȱthis ȱproject ȱ(Natu ȱ2004). ȱȱ

Chief ȱCriticisms ȱof ȱProjects ȱ Criticisms ȱof ȱthe ȱCDM ȱ As ȱ described, ȱ under ȱ the ȱ Kyoto ȱ Protocol ȱ the ȱ primary ȱ mechanism ȱ involving ȱdeveloping ȱcountries ȱin ȱemissions ȱreducing ȱactivities ȱis ȱthe ȱ Clean ȱ Development ȱ Mechanism ȱ (CDM). ȱ The ȱ CDM ȱ allows ȱ industrialized ȱcountries ȱto ȱhelp ȱfund ȱprojects ȱin ȱdeveloping ȱcountries ȱ that ȱreduce ȱemissions, ȱand ȱapply ȱthe ȱresulting ȱcarbon ȱcredits ȱtowards ȱ their ȱown ȱdomestic ȱtargets. ȱCalculating ȱGHG ȱemissions ȱreduced ȱby ȱaȱ project ȱ requires ȱ estimating ȱ what ȱ would ȱ have ȱ happened, ȱ and ȱ what ȱ additional ȱemissions ȱwould ȱhave ȱbeen ȱproduced, ȱin ȱthe ȱabsence ȱof ȱthat ȱ project. ȱOne ȱof ȱthe ȱmain ȱconcerns ȱabout ȱthe ȱCDM ȱis ȱthe ȱability ȱto ȱtest ȱif ȱ aȱ project ȱ is ȱ “additional,” ȱ that ȱ is, ȱ if ȱ the ȱ generation ȱ of ȱ carbon ȱ credits ȱ enables ȱ aȱ project ȱ to ȱ happen ȱ which ȱ would ȱ not ȱ have ȱ gone ȱ ahead ȱ otherwise ȱand ȱtherefore ȱrepresent ȱreal ȱemissions ȱreductions. ȱThrough ȱ discussions ȱ with ȱ project ȱ developers ȱ in ȱ India ȱ and ȱ elsewhere ȱ we ȱ have ȱ witnessed ȱ numerous ȱ examples ȱ where ȱ CDM ȱ project ȱ developers ȱ view ȱ the ȱCDM ȱas ȱaȱpotential ȱadditional ȱsource ȱof ȱprofits ȱfor ȱprojects ȱthey ȱare ȱ already ȱplanning ȱto ȱbuild. ȱIn ȱtesting ȱcommon ȱadditionality ȱarguments ȱ used, ȱwe ȱfind ȱthat ȱmany ȱare ȱnot ȱverifiable. ȱWhat ȱthis ȱmeans ȱis ȱthat ȱthe ȱ CDM ȱis ȱlikely ȱproducing ȱfake ȱcarbon ȱcredits, ȱallowing ȱindustrialized ȱ countries ȱ to ȱ increase ȱ the ȱ amount ȱ of ȱ emissions ȱ while ȱ not ȱ reducing ȱ

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developing ȱ country ȱ emissions. ȱ Because ȱ of ȱ the ȱ difficulty ȱ in ȱ assessing ȱ project ȱadditionality, ȱthe ȱCDM ȱcan ȱbe ȱunderstood ȱmore ȱas ȱaȱsubsidy ȱ for ȱ the ȱ activities ȱ allowed ȱ under ȱ it, ȱ rather ȱ than ȱ an ȱ emissions ȱ trading ȱ mechanism. ȱ Thus ȱ we ȱ have ȱ not ȱ found ȱ evidence ȱ from ȱ the ȱ bagasse ȱ cogeneration ȱcase ȱor ȱothers ȱthat ȱthe ȱCDM ȱwill ȱmake ȱaȱreal ȱdent ȱin ȱthe ȱ levels ȱof ȱemissions ȱunless ȱit ȱis ȱable ȱto ȱreach ȱout ȱto ȱprojects ȱthat ȱwould ȱ not ȱhave ȱoccurred ȱin ȱthe ȱabsence ȱCDM ȱfunds. ȱȱ Criticisms ȱof ȱmultilateral ȱlines ȱof ȱcredit ȱ One ȱof ȱthe ȱmain ȱproblems ȱcited ȱwith ȱmultilateral ȱlines ȱof ȱcredit ȱare ȱthe ȱ high ȱlending ȱrates ȱwhich ȱIREDA ȱreceives ȱloans ȱfrom ȱADB, ȱthe ȱWorld ȱ Bank ȱand ȱother ȱagencies. ȱThese ȱhigh ȱrates ȱthen ȱtranslate ȱinto ȱhigh ȱon Ȭ lending ȱ rates ȱ by ȱ IREDA ȱ for ȱ renewable ȱ energy ȱ projects ȱ (Reddy ȱ 2004). ȱ We ȱ were ȱ told ȱ that ȱ this ȱ is ȱ the ȱ major ȱ reason ȱ why ȱ projects ȱ originally ȱ appraised ȱand ȱ financed ȱ by ȱ IREDA ȱ with ȱ interest ȱ rates ȱ of ȱ around ȱ 13% ȱ are ȱnow ȱbeing ȱrefinanced ȱby ȱlocal ȱfinancial ȱinstitutions ȱat ȱmuch ȱlower ȱ interest ȱrates. ȱȱ Mismatched ȱgoals ȱ One ȱ debate ȱ in ȱ discussions ȱ about ȱ the ȱ future ȱ financial ȱ transfer ȱ under ȱ international ȱ climate ȱ agreements ȱ is ȱ how ȱ climate ȱ and ȱ development ȱ benefits ȱ are ȱ to ȱ be ȱ weighed ȱ against ȱ one ȱ another. ȱ Within ȱ the ȱ climate ȱ policy ȱliterature, ȱsome ȱargue ȱthat ȱclimate ȱprojects ȱhave ȱthe ȱpotential ȱto ȱ have ȱ significant ȱ synergies ȱ with ȱ other ȱ domestic ȱ development ȱ goals ȱ (Davidson ȱ 2003), ȱ and ȱ are ȱ more ȱ likely ȱ to ȱ be ȱ successful ȱ if ȱ they ȱ also ȱ address ȱthese ȱother ȱgoals ȱ(Swart ȱ2003). ȱOthers ȱargue ȱthat ȱthe ȱclimate ȱ regime ȱ would ȱ collapse ȱ under ȱ its ȱ own ȱ weight ȱ if ȱ designed ȱ to ȱ address ȱ climate ȱand ȱdevelopment ȱneeds ȱsimultaneously. ȱȱ One ȱconclusion ȱof ȱour ȱstudy ȱis ȱthat ȱif ȱdomestic ȱdevelopment ȱgoals ȱ are ȱ not ȱ taken ȱ into ȱ account ȱ in ȱ project ȱ choice ȱ and ȱ design, ȱ projects ȱ that ȱ bring ȱ about ȱ climate ȱ benefits ȱ may ȱ run ȱ into ȱ conflicts ȱ with ȱ other ȱ more ȱ pressing ȱ domestic ȱ goals. ȱ We ȱ see ȱ two ȱ examples ȱ of ȱ this ȱ with ȱ our ȱ case ȱ study ȱbagasse ȱcogeneration ȱprojects. ȱȱ In ȱ areas ȱ of ȱ Tamil ȱ Nadu, ȱ due ȱ to ȱ drought ȱ and ȱ the ȱ high ȱ price ȱ of ȱ biomass, ȱpaper ȱmills ȱare ȱpaying ȱhigh ȱprices ȱfor ȱsugar ȱcane ȱwaste. ȱAs ȱaȱ result, ȱ some ȱ sugar ȱ mills ȱ including ȱ some ȱ supported ȱ by ȱ the ȱ USAID ȱ project, ȱ are ȱ selling ȱ all ȱ of ȱ their ȱ bagasse ȱ to ȱ the ȱ paper ȱ factories ȱ and ȱ burning ȱcoal ȱinstead. ȱThey ȱchoose ȱto ȱdo ȱthis ȱbecause ȱthe ȱprofits ȱfrom ȱ the ȱsale ȱof ȱbagasse ȱto ȱpaper ȱmills ȱare ȱhigher ȱthan ȱthe ȱprofits ȱfrom ȱthe ȱ sale ȱof ȱelectricity ȱto ȱthe ȱgrid. ȱWhat ȱthis ȱmeans ȱis ȱthat ȱthe ȱUSAID ȱproject ȱ

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meant ȱto ȱsupport ȱemissions ȱreductions ȱthrough ȱthe ȱimplementation ȱof ȱ bagasse ȱ cogeneration, ȱ may ȱ have ȱ instead ȱ enabled ȱ the ȱ mills ȱ to ȱ burn ȱ more ȱ coal ȱ (the ȱ old ȱ boilers ȱ could ȱ not ȱ burn ȱ coal ȱ cost Ȭeffectively) ȱ therefore ȱ leading ȱ to ȱ an ȱ increase ȱ in ȱ emissions. ȱ This ȱ situation ȱ is ȱ most ȱ likely ȱtemporary, ȱlasting ȱonly ȱas ȱlong ȱas ȱthe ȱprice ȱof ȱbiomass ȱremains ȱ high. ȱȱ Aȱsecond ȱexample ȱof ȱaȱconflict ȱbetween ȱgoals ȱis ȱthe ȱinterest ȱof ȱSEBs ȱ to ȱremain ȱsolvent ȱon ȱthe ȱone ȱhand, ȱand ȱthe ȱnational ȱgoal ȱof ȱincreasing ȱ the ȱ renewable ȱ energy ȱ share ȱ on ȱ the ȱ other ȱ by ȱ issuing ȱ guidelines ȱ for ȱ providing ȱhigher ȱtariffs ȱto ȱelectricity ȱgenerated ȱby ȱrenewable ȱenergy. ȱ In ȱboth ȱTamil ȱNadu ȱand ȱMaharashtra ȱthe ȱstate ȱelectricity ȱboards ȱwent ȱ back ȱ on ȱ their ȱ contracts ȱ with ȱ bagasse ȱ cogeneration ȱ and ȱ wind ȱ power ȱ plants ȱ because ȱ they ȱ are ȱ in ȱ financial ȱ difficulty ȱ and ȱ resent ȱ the ȱ higher ȱ prices ȱthey ȱare ȱcontracted ȱto ȱpay ȱfor ȱrenewable ȱenergy. ȱThis ȱproduces ȱ aȱ regulatory ȱ climate ȱ that ȱ is ȱ less ȱ certain ȱ for ȱ new ȱ renewable ȱ energy ȱ plants. ȱ In ȱsummary, ȱour ȱfindings ȱare: ȱ 1. ȱ The ȱUSAID ȱproject ȱincreased ȱconfidence ȱin ȱthe ȱtechnology ȱby ȱ providing ȱ aȱ Ȉ stamp ȱ of ȱ approval Ȉ.ȱ However, ȱ some ȱ of ȱ the ȱ private ȱ mills ȱ claimed ȱ that ȱ they ȱ would ȱ have ȱ installed ȱ the ȱ technology ȱ regardless ȱ of ȱ any ȱ foreign ȱ support. ȱ Moreover, ȱ no ȱ cooperative ȱmills ȱwere ȱfunded ȱunder ȱthe ȱUSAID ȱproject. ȱThe ȱ difference ȱ in ȱ working ȱ culture ȱ between ȱ international ȱ and ȱ domestic ȱ organizations, ȱ coupled ȱ with ȱ the ȱ low ȱ financial ȱ viability ȱ of ȱ the ȱ cooperative ȱ sector ȱ make ȱ them ȱ aȱ difficult ȱ candidate ȱfor ȱoutside ȱsupport. ȱYet, ȱaȱsubstantial ȱportion ȱof ȱthe ȱ total ȱcapacity ȱfor ȱcogeneration ȱlies ȱwith ȱthe ȱcooperative ȱsector ȱ (Maharashtra ȱalone ȱaccounts ȱfor ȱaȱfifth ȱof ȱthe ȱtotal ȱpotential.) ȱȱ 2. ȱ Within ȱ the ȱ cooperative ȱ sector, ȱ strong ȱ and ȱ transparent ȱ leadership ȱ seemed ȱ to ȱ be ȱ key ȱ in ȱ making ȱ the ȱ mill ȱ successful. ȱ Such ȱmills ȱare ȱlikely ȱcandidates ȱfor ȱfuture ȱprojects. ȱȱ 3. ȱ The ȱCDM ȱis ȱan ȱinherently ȱflawed ȱmechanism. ȱWhile ȱit ȱis ȱtrue ȱ that ȱ some ȱ mills ȱ may ȱ take ȱ advantage ȱ of ȱ the ȱ funding, ȱ these ȱ projects ȱmay ȱnot ȱbe ȱadditional ȱto ȱwhat ȱwould ȱhave ȱhappened ȱ anyway, ȱdefeating ȱthe ȱpurpose ȱof ȱthe ȱmechanism. ȱȱ 4. ȱ Multilateral ȱlines ȱof ȱcredit ȱare ȱexpensive. ȱIREDA ȱreceives ȱthese ȱ loans ȱat ȱhigh ȱinterest ȱrates ȱand ȱhence ȱhas ȱhigher ȱinterest ȱrates ȱ than ȱ local ȱ banks, ȱ leading ȱ to ȱ many ȱ projects ȱ being ȱ refinanced. ȱ

ȱ ȱ

However, ȱ aȱ positive ȱ outcome ȱ is ȱ that ȱ the ȱ availability ȱ of ȱ these ȱ funds ȱallowed ȱIREDA ȱto ȱappraise ȱcertain ȱprojects ȱand ȱprovide ȱ aȱ nurturing ȱ role. ȱ Perhaps ȱ it ȱ is ȱ apt ȱ now ȱ that ȱ local ȱ banks ȱ take ȱ over. ȱȱ 5. ȱ There ȱ has ȱ been ȱ notable ȱ success ȱ in ȱ implementing ȱ bagasse ȱ cogeneration ȱprojects ȱthrough ȱthe ȱinitiative ȱof ȱlocal ȱconsulting ȱ firms ȱ such ȱ as, ȱ Maharashtra ȱ Energy ȱ Development ȱ Agency ȱ (MEDA) ȱand ȱMITCON. ȱ

CONCLUSIONS ȱ

We ȱ conclude ȱ that ȱ the ȱ success ȱ of ȱ projects ȱ to ȱ support ȱ bagasse ȱ cogeneration ȱ is ȱ affected ȱ by ȱ the ȱ specific ȱ context ȱ in ȱ which ȱ they ȱ are ȱ implemented. ȱ We ȱ found ȱ layers ȱ of ȱ financial, ȱ regulatory, ȱ and ȱ informational ȱ barriers ȱ to ȱ the ȱ dissemination ȱ of ȱ bagasse ȱ cogeneration. ȱ Also ȱthe ȱbarriers ȱchanged ȱover ȱtime, ȱwere ȱdifferent ȱbetween ȱthe ȱ two ȱ states, ȱand ȱdiffered ȱsignificantly ȱbetween ȱthe ȱprivate ȱand ȱcooperative ȱ sectors. ȱAny ȱproject ȱaimed ȱat ȱaȱsingle ȱbarrier ȱhad ȱlimited ȱsuccess ȱon ȱits ȱ own. ȱAlso, ȱenergy ȱinterventions ȱin ȱlarge ȱindustrial, ȱor ȱagro Ȭindustrial ȱ sectors ȱin ȱaȱdeveloping ȱcountry ȱface ȱobstacles ȱdue ȱto ȱinstitutional ȱand ȱ political ȱconditions ȱand ȱlinkages ȱwith ȱother ȱimportant ȱfactors, ȱsuch ȱas ȱ labor, ȱagriculture, ȱtrade, ȱelectricity. ȱWhere ȱinternational ȱand ȱdomestic ȱ priorities ȱ differ, ȱ such ȱ as ȱ in ȱ the ȱ context ȱ of ȱ international ȱ efforts ȱ to ȱ support ȱ climate ȱ change ȱ mitigation ȱ in ȱ India, ȱ projects ȱ that ȱ bring ȱ about ȱ international ȱ goals ȱ may ȱ run ȱ into ȱ conflicts ȱ with ȱ other ȱ more ȱ pressing ȱ domestic ȱ goals. ȱ Any ȱ effort ȱ to ȱ exploit ȱ the ȱ remaining ȱ 90% ȱ of ȱ the ȱ estimated ȱnational ȱpotential ȱwill ȱneed ȱto ȱaddress ȱthe ȱspecial ȱfinancial ȱ and ȱpolitical ȱcircumstances ȱof ȱcooperative ȱmills. ȱOur ȱresearch ȱindicates ȱ that ȱ barriers ȱto ȱ the ȱ adoption ȱ of ȱ cogeneration ȱin ȱ cooperative ȱ mills ȱ are ȱ largely ȱfinancial ȱand ȱinstitutional. ȱȱ ȱ Mȱ Ranganathan ȱ and ȱ Bȱ Haya ȱ are ȱ PhD ȱ students ȱ in ȱ the ȱ Energy ȱ and ȱ Resources ȱ Group, ȱ University ȱ of ȱ California, ȱ Berkeley. ȱ Sȱ Kirpekar ȱ is ȱ aȱ PhD ȱ student ȱ Mechanical ȱ Engineering, ȱ University ȱ of ȱ California, ȱ Berkeley. ȱ

ȱ ȱ

ȱ

NOTES ȱ

1ȱHowever, ȱIndia’s ȱper ȱcapita ȱcarbon ȱemissions ȱare ȱ22 ȱtimes ȱlower ȱthan ȱthat ȱ of ȱthe ȱUS ȱand ȱless ȱthan ȱone ȱquarter ȱof ȱthe ȱworld ȱaverage ȱ(EIA ȱ2004).ȱȱ 2ȱFor ȱaȱdetailed ȱaccount ȱof ȱthe ȱpolitical ȱeconomy ȱof ȱMaharashtra ȱwe ȱrefer ȱ the ȱreader ȱto ȱ(Baviskar ȱ1980)ȱand ȱ(Attwood ȱ1992). ȱ 3ȱ For ȱ further ȱ data ȱ about ȱ the ȱ financial ȱ condition ȱ of ȱ sugar ȱ mills ȱ in ȱ Maharashtra, ȱwe ȱrefer ȱthe ȱreader ȱto ȱ(Godbole ȱ2000).ȱ

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