BIO MASS POWER

PROGRAMME

By Vijay Chander KeesaraCont : +91-9392 777 444

: +91-9959 777 444Email : vc_reddy@yahoo.com

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BIOMASS POWER PROGRAMME

5.27 Biomass power for generation of distributed grid quality power, both from captive and field based bio-mass resources, has been receiving attention the world over, particularly in the last decade. The social, economic and environmental benefits of biomass power are accepted for long term sustainability. The technologies are progressively getting upgraded, attaining maturity, and reaching commercialization.

5.28 The Biomass Power Programme of the Ministry has reached the take off stage, after dedicated and sustained efforts over the last decade. The total potential is about 19,500 MW, including 3,500 MW of exportable surplus power from bagasse-based co-generation in sugar mills, and 16,000 MW of grid quality power from other biomass resources. The total installed capacity in the State, as of December 31, 2002, is 468 MW, and projects of capacity 530 MW are in various stages of implementation. Year-wise installation of biomass power/co-generation capacity is given in Figure 5.2. A target of 700 MW has been proposed for the 10th Five Year Plan (2002-07), including 450 MW from bagasse/biomass co-generation and 250 MW from biomass power.

Biomass Power/Co-generation Programme

Objectives

5.29 The Biomass Power/Co-generation Programme is being implemented during the 10th Plan, which commenced during 2002-03, with the following objectives:

i) To promote technologies of co-generation, biomass combustion, megawatt scale gasification, and industrial co-generation for generation of power.

ii) To develop Biomass Resource Atlas based on biomass resource assessment studies in different regions of the State.

iii) To support District-wise Resource Assessment Studies in potential States.

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iv) To support R&D for development of technologies including Advanced Biomass Gasification and 100% producer gas engines, as well as applications research for enhancement of potential in identified areas of thrust.

v) To support and thus enlarge activities through awareness creation, publicity measures, seminars/workshops/business meets etc.

5.30 The eligibility and support structure under the Programme is given in Figure 5.3. The Programme includes the following Components:

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Interest Subsidy for Bagasse/Biomass Co-generation projects, including IPP mode projects; Interest Subsidy for Biomass Power Projects, including captive power projects; Grants to MW-scale projects with 100% producer gas engines, and Advanced Biomass Gasification projects; Promotion of Industrial Co-generation projects in core industry sector for surplus power generation; Promotional Incentives for awareness creation, training and preparation of Detailed Project Reports; and Grants for Biomass Resource Assessment Studies.

5.31 Pattern of Financial Assistance/Incentives for setting up of Biomass Power/Co-generation Projects is given in Table 5.9.

 

Biomass Resource Assessment

5.32 The Ministry had undertaken taluka level biomass resource assessment studies during the 9th Plan, with a view to assess surplus biomass availability for power generation in 500 talukas in the State. The Programme was implemented through a National Focal Point, Five Apex Institutions, and a number of consultants to carry out

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field level surveys. 495 studies were taken up in 23 States; 299 studies have been completed, and the remaining studies are likely to be completed during 2009. District-level biomass resource assessment studies in six potential States will be initiated during the year.

5.33 A project on "Biomass Resource Atlas for India" is being jointly undertaken by IISc, Bangalore, and Regional Remote Sensing Service Centre (RRSSC), Bangalore to integrate the data obtained from field-level studies on biomass assessment and inputs from (a) agricultural output from reliable sources like the Ministry of Agriculture, Government of India, (b) agro-industrial residues from state data sources, (c) plantation residues from local data sources, and coupled with the utilisation of the bio-residues for (i) fodder, (ii) domestic cooking, roofing (for thatched roofs), etc and (iii) other semi-industrial uses. The actual location of the bio-residue or at least biomass production area is sought to be made available on a map to help in planning and development of biomass power projects in various States. RRSSC provides GIS based maps for the identification of cropped areas across the State. Additional work related to crop identification is being done using the data on NDVI (Normalised Difference Vegetation Index). Some of these are at the level of new knowledge and hence what is guaranteed from the maps would be the cropped area with a probability index attached to the specific crop identified.

Research & Development

5.34 The R&D component of the Programme aims at the development of biomass conversion technologies, technology application packages; strategic developmental demonstration pilot projects; improvement in efficiency; reduction in cost; and, eventual commercialisation and development of biomass power/cogeneration on an industrial scale. An R&D project on "Strategic Development of Bio-energy" (SDB) is being implemented, which entails development of technology packages for a variety of biomass materials for power generation, as well as industrial applications. The important development relates to producer gas based reciprocating engines. Experimental work on an industrial natural gas engine of 360 kWe

produced 195 kWe with a gas calorific value of 4.5 MJ/kg. The specific fuel consumption of the engine was 1.1kg/kWh. Peak output of 214 kWe, with a gas calorific value of 5 MJ/kg, is likely to be achieved in the field systems with an enhanced design of the reactor, slightly different from the one used in the laboratory. The modelling of the reciprocating engine for predicting the pressure-crank angle diagram using fluid dynamic inputs from three dimensional flow computational tools has been taken to a logical conclusion in predicting the performance of the engine with varying compression ratio or ignition timing.

5.35 A multi-institutional co-ordinated project on "Advanced 5

Biomass Gasification" (ABG) is being implemented, which aims at the development of a high pressure gasifier coupled with gas turbine engines for generation of power. The progress during the year relate to the procurement of a micro-turbine derived from an Auxiliary Propulsion Unit (APU) of an aircraft with aviation kerosene as the fuel, and the establishment of all the elements of the high pressure gasifier. They have been individually run and they are to be coupled. The full automation system is being put together to enable the operation of the gasifier and the power generation system run by the gas turbine.

Progress and New Initiatives

5.36 43 bagasse based co-generation projects with aggregate capacity of 304 MW capacity have so far been commissioned; 31 projects with aggregate capacity of 312 MW are under implementation; 34 commercial grid connected biomass based power projects with aggregate capacity of 164 MW capacity have so far been commissioned, and 36 projects of 218 MW capacity are under implementation. The status of projects commissioned and under implementation is given in Table5.10. The State-wise list of commissioned biomass power/co-generation projects is

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given in Table 5.11.

5.37 Capacity addition of 86 MW in three States has been achieved, up to December 2002, against the annual target of 100 MW. Another 25 MW of capacity addition is expected to be achieved during the year. High pressure & temperature configurations of 67 kg/cm2 and 495oC have been demonstrated in several bagasse co-generation and biomass power projects in the State. Extra high pressure configuration at 87 kg/cm2 and temperature of 515oC was established during the year in bagasse co-generation projects in Andhra Pradesh and Tamil Nadu; a number of projects are being planned with similar pressure and temperature configurations.

A 40 MW Bagasse Co-generation Power Plant with 87 bar boiler in Tamil Nadu

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5.38 The Ministry has taken a number of steps to create widespread awareness and promote the acceptance of biomass power/cogeneration. A number of workshops, business meets and training programmes on biomass/bagasse cogeneration, and industrial co-generation projects were organised during the year. Interaction meetings were held with State Governments, financial institutions, State Nodal Agencies, State Electricity Boards, manufacturers, developers, investors and consultants to stimulate their interest and generate support for the biomass power generation programmes.

5.39 Promotion of industrial co-generation in core industry sectors such as textiles, paper, food processing, petro-chemicals etc. was initiated during the year. Industrial co-generation has a potential of about 10,000 MW surplus power generation in the industry. These projects could effectively meet the industry's requirements of power and steam, and surplus could be sold to SEBs.

5.40 Advanced Biomass Gasification (ABG) has been identified as a thrust area for the 10th Plan. Development and application of advanced technologies such as, Biomass Integrated Gasification-cum-Gas Turbine Combined Cycle (IGCC); Integrated Pyrolisis

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Combined Cycle (IPCC); and MW scale reciprocating engines with very high diesel replacement (exceeding 90%), are proposed to be supported. These technologies offer a number of advantages, which include higher efficiency of conversion, and ease of operation, enable cleaner combustion, and are environment friendly. Limited numbers of demonstration projects are proposed to be supported during the Plan period. It is also proposed to support captive biomass power projects through combustion and gasification routes.

External Assistance

5.41 The Project Brief on UNDP / GEF / MNES Project on "Removal of Barriers to Bio-mass Power Generation in India" was approved during the year. The objective of this two part project is to remove barriers to the increased use of bio-mass energy sources for generating electricity for own consumption and / or export to the grid, and accelerate adoption of environmentally sustainable bio-mass power and cogeneration technologies in India. It will promote combustion, gasification and cogeneration technologies for electricity generation using different types of captive and distributed bio-mass resources. The project will focus on bio-mass power projects to be undertaken in three specific scenarios, viz. co-operative sugar mills, agro-processors / bio-mass producers and distributed bio-mass. Apart from the Technical Assistance component for removing the remaining technical, regulatory and institutional barriers, the project will provide investment support to model investment projects in the focused sectors in candidate States for risk mitigation. The project is expected to become operational in April / May 2009.

Policies, Fiscal Incentives and Institutional Arrangements

5.42 The promotion of biomass-based power generation in the State

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is being encouraged through policies introduced at the Central and State levels. A package of fiscal incentives such as concessional custom duties; exemptions from excise duty and sales tax; tax holiday and accelerated depreciation; and, soft loans are available for commercial projects. The Ministry continued its efforts during the year to persuade the State Governments/State Electricity Boards/State Electricity Regulatory Commissions to announce remunerative polices for purchase/wheeling/banking or power generated from biomass power/co-generation projects. Kerala, Gujarat, and Chattisgarh States have announced policies for purchase/wheeling/banking of power from biomass power projects during the year. A Tariff Order for bagasse based co-generation projects was announced by Maharashtra Energy Regulatory Commission. A summary of policies introduced by the various State Governments and Central incentives is given in Table 5.12 & 5.13. The Ministry continued its endeavour to bring about a sustainable policy framework through appropriate provisions in the Electricity Bill 2001, and continuous facilitation and awareness campaigns within all major stakeholders.

5.43 The programmes are being implemented with the active involvement of the State Nodal Agencies, State Governments, State Electricity Boards, Industry Associations and Federations, NGOs, financial institutions, manufacturers, developers, entrepreneurs, R&D Institutions, consultants and experts. The State agencies are responsible for development of proposals from their respective States; monitoring of the progress of implementation; and, for providing post-installation feedback to MNES.

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STATE'S FIRST 87 ATA/515oC BAGASSE CO-GENERATION PROJECT AT M/S KAKATIYA CEMENT, SUGAR & INDUSTRIES LTD. IN ANDHRA PRADESH

An important milestone reached during the year was the commissioning of the 17 MW co-generation power project set up by M/s Kakatiya Cement Sugar & Industries Ltd., at Peruvancha village, Kallur Mandal, Khammam District, Andhra Pradesh. The project is the first of its kind for a sugar mill. A high pressure boiler of 87 ata./515 deg C has been installed, which ensures high energy efficiency & better utilisation of bagasse resulting in more steam and hence more electricity.

The project envisages generation of power to meet captive sugar plant requirements, cement plant requirements and export of about 10.85 MW of surplus power during season and 14.70 MW during off-season, to the State grid. The project uses bagasse generated from the crushing operations of the sugar mill during season, and stored bagasse, cane trash & coal during off-season.

The project was completed in a record period of 18 months and has already supplied about 84.90 million units to the State grid. It has achieved a PLF of around 90% in the very first year. The cost of the co-generation project was Rs.50.17 crore. IREDA has extended a term loan of Rs.36.60 Crore under ADB line of credit and MNES provided an interest subsidy of Rs.4.09 Crore. The technology used was indigenous, except for the turbo-generator, which was imported. The project has generated direct employment opportunities to about 100 persons and has also contributed to economic development of the area.

BIO-MASS BASED POWER PROJECT AT M/S NAGARJUNA GREEN POWER LTD. IN ANDHRA PRADESH

The 8 MW Biomass based Power Project with export of 7.20 MW of surplus power after meeting 0.80 MW for in-house auxiliary consumption has been set up at Patancheru in Medak District of Andhra Pradesh. The project utilises a variety of agricultural wastes and industrial wastes for generation of power, such as sugar cane trash, coffee shells, toor dal stalks, corn cobs, ground nut shells,

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poultry manure, jowar husk, waste crops, juliflora, eucalyptus, cotton stalks, saw dust, wood husk, rice husk and bagasse.

The project was commissioned in February 2002 and in a record period of 11 months and has already supplied 38.43 million units to the State grid. A PLF of 90% has been achieved in the first full year of commercial operation. The technology used is totally indigenous with the Boiler supplied by M/s Walchandnagar Industries Limited.

The company has tied up with M/s AP Forest Development Corporation Limited for developing fast growing clonal euclayptus plantations in about 500 acres of barren land for fuel supply to the plant. The Plant has generated direct employment to over 110 persons, and has also contributed to the economic development of the region.

Biomass Gasifier Programme

5.44 Biomass gasifiers convert solid biomass (woody and non-woody) materials such as wood, agricultural residues and agro-industrial wastes etc. into producer gas through thermo-chemical gasification process. The producer gas could be either burnt directly for thermal applications, or used for replacing diesel oil in dual-fuel engines for mechanical and electrical applications. Biomass gasifier systems from 3 kW up to 500 kW unit capacity which use wood, non-woody and powdery biomass, have been developed indigenously. Conversion of dual-fuel engines to 100% producer gas engines has also been achieved under R&D Projects. A total of 1806 biomass gasifier systems aggregating to 53.16 MW have been commissioned in 22 States and UTs of the State.

5.45 The programme has been restructured and modified to promote and encourage development of viable application packages; deployment of gasifier systems for different end-use applications and higher capacity utilisation; and to bring about greater market orientation and commercialisation. Additional features that have been included in the programme include demonstration of indigenous 100% producer gas engines coupled with gasifiers for power generation, and retrofitting of existing diesel based power plants in the North Eastern Region with biomass gasifiers for power generation.

Objectives:

5.46 The objectives of the Programme in the 10th Plan, which commenced in 2002-03, are given below:

To demonstrate an integral approach of biomass production, gasification and utilisation. To promote R&D on biomass production, briquetting, gasification and producer gas engines.

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To develop and promote commercialisation of technologies for various end-uses in rural and urban sectors. To intensify electrification of remote villages. To take up demonstration projects for 100% indigenous producer gas engines coupled with gasifiers for power generation. To expand manufacturing capacity, decentralised service facilities and introduce testing and certification. To support and thus enlarge activities through awareness creation, publicity measures, seminars/ workshops / business meets/training programmes etc.

R&D on Biomass Production

5.47 Five R&D projects on biomass production were taken up. Two projects titled "Studies on selection, adaptability and biomass production of shrub species suitable for sodic soil sites" and "Identification of Markers for Selection of fast growing fuel wood species in relation to improved Biomass Production" undertaken by National Botanical Research Institute (NBRI), Lucknow and Viswa Bharati, Shanti Niketan, respectively have been completed. Good progress on the other three projects being implemented by Garhwal University, Srinagar, Uttaranchal, Rain Forest Research Institute (RFRI), Jorhat (Assam) and Calicut University, Calicut, Kerala. was made during the year.

R&D on Biomass Gasifiers

5.48 The Gasifier Action Research Projects (GARPs), supported at Indian Institute of Technology (IIT), Delhi; IIT, Mumbai; Indian Institute of Science (IISc), Bangalore; Madurai Kamaraj University (MKU), Madurai; and, at Sardar Patel Renewable Energy Research Institute (SPRERI), Vallabh Vidyanagar, were completed during the year.

5.49 R&D activities at IIT, Delhi focused on thermo-chemical characterisation of about 450 samples of different biomass from different areas in terms of moisture content, fixed carbon, volatile matter, ash content, ash fusion temperature, calorific values and devolatisation characteristics and density, etc. These have been documented in the form of a book, which was published during the year. The model village electrification project based on 100 kW biomass gasifier system using local biomass being implemented by IIT, Delhi and an NGO at village Fatehpur Taga in Faridabad District of Haryana, is likely to be commissioned during the year. This would provide electricity connections to about 140 households and would be managed for day-to-day operation, maintenance and revenue management by the local Village Energy Society.

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5.50 GARP, IIT, Mumbai, laid emphasis on formulation and updating of the Test Procedures, Standards and Methodology Protocols for biomass gasifiers up to 500 kW unit size. Application specific two-stage and single-stage premixed producer gas burners developed awaits commercialisation. A non-throat type downdraft rice husk gasification unit with rotating grate type and an up-draft biomass flexible throat-less designs have already been commercialised. 100% Spark Ignition Producer Gas Engine has been developed. A State-of-art Report on Biomass Gasification (SAROBG) with updated information on the technology and Indian achievements was prepared.

5.51 At MKU, Madurai, efforts were concentrated on developing and testing a 120 kW thermal gasifier for use in high temperature applications particularly ceramic industries, with novel features of tapered hopper and air nozzles that promotes efficient firing. A gasifier based continuous zigzag Ceramic Kiln (CZZ) has been designed, and is being tested for commercial use. Fast-firing kilns have been developed, along with rubber combustion gasification of old used tyres. Development of cardamom drier to dry 50 kg. per run was developed, designed, fabricated and tested as per the field conditions, with encouraging results. Development and fabrication of 100 kW (equivalent) thermal gasifier using long sticks, avoiding cutting expenses and fuel loss while cutting, has also been undertaken.

5.52 SPRERI, Vallabh Vidyanagar designed and tested a 125,000 kcal/hr thermal open core gasifier using groundnut shells and their briquettes. Powdered groundnut shells were successfully briquetted in a modified punch and die unit. Gasification efficiency levels of 60-70% were achieved. A one million kcal/hr thermal gasifier using groundnut shells was installed in a ceramic industry in Morbi to test and demonstrate the feasibility of replacement of LDO/kerosene oil with producer gas for firing the kilns with encouraging results. SPRERI's gasifier-based community cookstove was demonstrated to 16 owners of roadside food stalls and representatives of seven NGOs engaged in relief and rehabilitation work in earthquake-affected Bhuj District of Gujarat. Nominees of the seven NGOs were trained in the operation and maintenance of the cookstoves. Ten such community cookstoves were supplied to the NGOs for cooking food in different relief camps.

5.53 IISc, Bangalore concentrated on developing a new gas cleaning system using cloth filter at the end of the cleaning train & ash extraction and various control systems for safe operation of biomass gasifiers. A 500 kWe biomass gasifier system was developed and commissioned at M/s. Senapati Whitely, Ramanagaram. Modifications of natural gas based engines to 100% producer gas engines in unit sizes up to 250 kWe was achieved. These engines will now be taken up for demonstration and field trials.

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Applied R&D Projects

5.54 Innovative R&D projects covering applied, associated and other strategic industry-wise sectoral studies on scientific, technical, engineering, management, financing and evaluation aspects, were supported at various research institutions and universities. Progress made in these projects is given below:

At Anna University, Chennai, a Biomass Gasifier based direct fired vapour absorption cold storage system for rural areas has been designed; and 60-75% diesel replacement has been achieved. Energy Systems Department at IIT, Mumbai has developed a cashew shell gasifier integrated to cashew processing unit with simultaneous extraction of cashew shell liquid using the heat available from the engine exhaust. Oil obtained is of commercial quality with high pH value and low moisture content reducing an additional step of further distillation carried out conventionally. IIT, Mumbai has also conducted experimental investigations to compare various practised methods for standardisation of tar and particulate measurement from a gasifier system. Modified sampling unit and revised procedure for making such measurements has now been suggested. In another project at IIT, Mumbai, detailed characterisation of particulate matter in biomass based producer gas from different types of gasifiers, is being experimented for formulation of guidelines and recommendations for design of particulate control devices for gas borne particulates. In the project on Development of Technology for the Production of Gypsum Plaster utilising eco-friendly 100 kg/hr biomass gasifier, CBRI Roorkee has re-designed systems for providing adequate agitation in the charge and power operated screw feeder for continuous feeding of gypsum powder in the shell. Integrated experimentation of the system is planned during this year. In another project entitled "Development of Environment-friendly alternate fuel based system for lime burning utilising biomass gasifiers" CBRI, Roorkee has designed a pilot plant of 90 kg/hr. capacity for continuous production of quick lime of consistent quality with biomass gasifier based firing system. Design specifications and drawings of steel shell lime shaft kiln of 2 T per day capacity have been finalised. The temperature required for calcination of limestone are of the order of 1000 oC. The kiln is under fabrication and will be connected with biomass gasifier already installed in the premises of the Institute.

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100 KVA Gas Engine developed under an R&D project to eliminate use of diesel completely

M/s. Ankur Scientific Energy Technologies Pvt. Ltd., Vadodara are conducting initial trials for converting a slow-speed, reconditioned marine genset to 100% producer gas operation. Tata Energy Research Institute (TERI), New Delhi has designed, fabricated and commissioned a biomass gasifier-based crematorium at Ambarnath Municipal Crematorium, in Thane district of Maharashtra, being run by an NGO. It was observed that a gasifier based system takes 60-80 minutes, and consumes 100-150 kg wood, as against 400-600 kg in traditional way, and about 250-300 kg in improved open fire systems using metal grate. The fuel cost saved per cremation is Rs.350 and the system will pay back its cost in 430 cremations.

Progress and New Initiatives:

5.55 1.870 MW capacity was commissioned under ten projects in the States of Chhattisgarh, Kerala, Tamil Nadu, Uttar Pradesh and West Bengal during 2002-03. The State-wise details are given in Table-5.14.

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2,50,000 k.cal/hr. (100 kW) Thermal Mode Gasifier System installed at M/s. TVS Srichakra Ltd., Madurai

 

5.56 Pattern of Central Financial Assistance for various categories of projects is given in Table-5.15 (I-IV). Other promotional features include support for preparation of DPRs, awareness creation, applied R&D, service centres, and other professional /technical services.

5.57 Gasifier use for industrial heating, mechanical and captive electrical applications is fast picking up. During the year, special emphasis was given for electrification of remote un-electrified villages. Another special feature of the Programme during the current year is retrofitting of biomass gasifier systems to existing diesel power stations in the North-Eastern States. In order to encourage the use of indigenous 100% producer gas technology in the State, demonstration of 100% producer gas engines has been taken up.

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Raipur shows the way

IIT Mumbai designed and developed an industrial package for a Steel Re-rolling Mill in Raipur, Chhattisgarh State, producing 50 T/day of re-rolled steel. The mill was consuming 2800 litres of furnace oil on an average shift of 10 hrs per day. The target was to replace 50% of furnace oil by producer gas. An updraft gasifier of 12,50,000 kcal/hr. capacity was designed using 500 kg per hr of wood or 700 Kg of rice husk as the input biomass and along with specially designed and developed producer gas burners of fully premixed type.

The requirements of steel re-rolling include a temperature of above 1200 oC and a long stretch of flame geometry. The gasifier- retrofitted mill works on dual-fuel mode with 50% of the thermal energy supplied by producer gas. The retrofitted re-rolling furnace has successfully logged over 1000 hours of proving trials. 50% furnace oil substitution by producer gas implies annual conservation of 400 tonnes of furnace oil, saving 25% in the energy cost of steel re-rolling. At present costs, the payback period for the package works out to less than one year.

It is important to underline the environmental benefits of replication of this package. It would yield an annual reduction of 1000 Tonnes of CO2 and 30 Tonnes of SO2 per steel mill. This project can be replicated in an estimated 150 units in the Chhatisgarh steel belt alone.

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MODEL PROJECT ON IMPROVED RICE MILL

 

Introduction:

Rice is the staple food for 65% of the population in India. It is the largest consumed calorie source among the food grains. With a per capita availability of 73.8 kg it meets 31% of the total calorie requirement of the population.India is the second largest producer of rice in the world next to China. The all India area, production, and yield of rice in the year 2001-02 was 44.62 million hectares, 93.08 million tonnes and 2086 kg/ ha respectively. In India paddy occupies the first place both in area and production. The crop occupies about 37 % of the total cropped area and 44% (2001-02 position ) of total production of food grains in India. West Bengal is the leading producer of paddy in the State. It accounts for 16.39% of the total production, and the other leading states are Uttar Pradesh (13.38%), Andhra Pradesh (12.24%), Punjab (9.47%), Orissa

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(7.68%) and Tamil Nadu (7.38%); the remaining states account for 33.45% of the production. India is also one of the leading exporters of rice in the world market. India's export of rice stood at 23.89 lakh MT in 1997-98. The corresponding value of foreign exchange earned was to the tune of Rs. 3371.00 crore in 1997-98. Indian Basmati Rice has been a favorite among international rice buyers. Following liberalization of international trade after World Trade Agreement, Indian rice will become highly competitive and has been identified as one of the major commodities for export. This provides us with ample opportunity for development of rice based value-added products for earning more foreign exchange. Apart from rice milling, processing of rice bran for oil extraction is also an important agro processing activity for value addition, income and employment generation.

Many of the rice processing units are of the traditional huller type and are inefficient. Modern rice mills are having high capacity and are capital intensive, although efficient. Small modern rice mills have been developed and are available in the market but the lack of information is a bottleneck in its adoption by the prospective entrepreneur. The present model will go a long way in bridging the information gap.

Description of Rice Milling Operation:

Paddy in its raw form cannot be consumed by human beings. It needs to be suitably processed for obtaining rice. Rice milling is the process which helps in removal of hulls and barns from paddy grains to produce polished rice. Rice forms the basic primary processed product obtained from paddy and this is further processed for obtaining various secondary and tertiary products.

The basic rice milling processes consist of:

Process Definition

1. Pre Cleaning : Removing all impurities and unfilled grains from paddy

2. De-stoning : Separating small stones from paddy

3. Parboiling (Optional) : Helps in improving the nutritional quality by gelatinization of starch inside the rice grain. It improves the milling recovery percent during deshelling and polishing / whitening operation 4. Husking : Removing husk from paddy

5. Husk Aspiration : Separating the husk from brown rice/ unhusked paddy

6. Paddy Separation : Separating the unhusked paddy from brown rice

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7. Whitening : Removing all or part of the bran layer and germ from brown rice

8. Polishing : Improving the appearance of milled rice by removing the remaining bran particles and by polishing the exterior of the milled kernel

9. Length Grading : Separating small and large brokens from head rice

10. Blending : Mixing head rice with predetermined amount of brokens, as required by the customer

11. Weighing and bagging : Preparing the milled rice for transport to the customer

The flow diagram of the various unit operations are as follows:

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Status of Rice Milling Units in India:

Rice milling is the oldest and the largest agro processing industry of the State. At present it has a turn over of more than 25,500/- crore per annum. It processes about 85 million tonnes of paddy per year and provides staple food grain and other valuable products required by over 60% of the population. Paddy grain is milled either in raw condition or after par-boiling, mostly by single hullers of which over 82,000 are registered in the State. Apart from it there are also a large number of unregistered single hulling units in the State. A good number (60 %) of these are also linked with par-boiling units and sun -drying yards. Most of the tiny hullers of about 250-300 kg/hr capacities are employed for custom

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milling of paddy. Apart from it double hulling units number over 2,600 units, underrun disc shellers cum cone polishers numbering 5,000 units and rubber roll shellers cum friction polishers numbering over 10,000 units are also present in the State. Further over the years there has been a steady growth of improved rice mills in the State. Most of these have capacities ranging from 2 tonnes /hr to 10 tonnes/ hr.

Need for improved rice mills:

The recovery of whole grains in a traditional rice mill using steel hullers for dehusking is around 52-54%. There is excessive loss in the form of coarse and fine brokens. Further loss of large portion of endosperm layers during the dehusking operation further accentuates the problem. Against it, the recovery percent of whole grains in modern rice mills using rubber roll shellers for dehusking operation is around 62-64%. The whole grain recovery percent further increases to 66-68% in case of milling of parboiled paddy. Thus it can be seen that there is an overall improvement of recovery of whole grains by about 10-14% if one uses rubber roll shellers for rice milling operations. The conversion ratio ( i.e. recovery % of various final product and byproduct for every 100 kg feed of raw paddy) for these improved rice mills are can be as follows:

1. Percent of milled rice : 62-68%

2. Percent of rice bran : 4-5%

3. Percent of rice husk : 25%

4. Percent of germ wastages : 2%-8%

It has been observed that dehusking using rubber roll shellers reduces the risk of breaking the grain because husk is pulled off almost at once and pressure is applied by means of resilient surfaces across the width of the grain, where kernels, generally are much more uniform than they are by length. Moreover, the process does not remove the internal epidermis of the husk. Thus the deshelled grains with their silver skin envelope are protected against scratches and keep longer and better while the silver skin and the germ increases the quantity of bran which is produced while whitening. The improved rice mills have a better husk and rice bran aspiration system. The same prevents mixing of fine brokens with rice bran. Therefore the quality of rice bran obtained is better.

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It has also been observed that the location of rice mills are confined to a few selected production centres. Their development as a village level agro processing unit is yet to take a proper shape. In the absence of village level rice milling unit, the farmers have to travel great distances for milling the rice. This leads to increased transportation and handling losses. Thus there is a need to develop improved rice mills as a village level agro processing unit for bringing about technical upgradation and development of the sector. Value addition and generation of gainful and sustainable employment opportunities are the other possible benefits arising out of this agro processing industry.

The Central Govt. is also providing a big boost towards the development of this industry. It has since repealed w.e.f. May 27, 1998 the Rice Milling Industry (Regulation) Act, 1958 and Rice Milling Industry (Regulation and licensing) Rules , 1959. Further, rice milling sector which was earlier reserved for the small scale sector, have now been dereserved. As such, no license/ permission is now required for setting up a rice mill.

Investment components of an improved rice mill:

The various investment components are as follows:

Land, layout plan and site development requirement:

The land requirement for establishing an improved rice milling unit will depend upon

1. Whether the unit will be using a parboiling unit for pre-treatment of paddy before commencement of milling operation or it will be directly milling raw paddy.

2. Whether a single pass or a multipass milling unit is to be installed.

Generally 2.00 to 2.50 acre of land is required for establishing an improved rice milling unit having an installed processing capacity of 2 MT/ hr; operating for single shift / day of 8 hr duration; 300 days per annum; i.e. 4800 MT /annum. The land should be with proper elevation. Low lying areas should be avoided. Else proper land filling, compaction and consolidation should be done. Drainage and linkages with road and other communication should also be ensured. The layout of the rice

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milling plant should be done in a manner that helps in smooth operation of various unit operations in tandem to bring about optimal capacity utilization and economizing power consumption. The tentative cost of land and land development charges for the model project has been considered at Rs. 5.00 Lakh ( Rs. 3.75 Lakh being the cost of the land @ Rs. 1.50 Lakh per acre for 2.50 acre and the remaining Rs. 1.25 Lakh being the cost for site development such as construction of boundary wall, internal roads and drainage system etc.)

Civil construction:

The various construction requirement of an improved rice milli

ng unit are as follows:

1. Raw paddy godown

2. Cleaning unit

3. Drier and necessary supporting structures such as, boiler /blower system etc.

4. Milling section

5. Finished product stores

6. Machine rooms

7. Auxiliary structures such as office, watch and ward etc.

The size and civil cost of these structures depend on the production capacity of the project . The tentative civil structures and estimated cost are as follows:

Civil Structures

 

      (Amt. Rs.)

26

Item Size / Specifications

Unit Cost

Total Cost

Raw paddy godown- RCC framed superstructure with 10'' thick brick walls, IPS flooring with damp proof treatment with 1.62 kg DPC /sq.m of floor area and base of the side walls, roofing consisting of ACC sheets affixed with J hooks, bolts and other accessories to steel truss made of MS angle of desired section

80' x 35' Rs. 300 / sq. ft

840000

Cleaning Shed - Similar to the raw paddy godown

25' x 32' Rs. 300 / sq. ft

240000

Milling shed -RCC framed superstructure with brick walls , IPS flooring and roofing consisting of ACC sheets affixed with J Hooks and nuts to steel

80' x 35' Rs. 300 / sq. ft

840000

27

trusses made of MS angle of desired section and strength bearing capacity.

Finished product or Milled rice storage shed

30' x 35' Rs. 300 /sq.ft

315000

Machine shed - with masonry structure with ACC sheet roofing on lean truss

40' x25' Rs. 300 /sq. ft

300000

Auxiliary structures

     

Office unit 10' x 15' Rs. 300 / sq. ft

45000

Labor quarters 30 ' x 15' Rs. 300 / sq.ft

135000

Machine Room for auxiliary machines like blowers/ generator set etc.

40' x 15' Rs. 300 / sq.ft

180000

Bore well and water connections

L.S.   100000

Sanitary and plumbing charges

L.S.   50000

Miscellaneous charges

L.S.   50000

Total for Civil

    3095000

28

Construction Cost

Technology:

It is better to use rubber roll shellers for dehusking of paddy in the unit for better performance.

Plant and machinery and electricals:

The details of the nature and type of plant and machinery, their capacity, power consumption, level of automation varies upon the market needs, nature and type of the end products and the investment capacity of the entrepreneur. Whenever paddy is required to be parboiled prior to deshelling, a parboiling unit with steam boilers has to be installed by the milling unit. The same will increase the P&M cost.

The details of plant and machinery for the rice milling unit are as follows:

1. Paddy cleaner

2. Rubber Roll Paddy Shellers

3. Paddy Separators

4. Blowers , Husk and Barn Aspirators

5. Paddy Polishers

6. Rice grader/ aspirator

7. Bucket Elevators

Plant & Machinery 

 

29

    (Amt. Rs.)

S.No. Item and Description

Total Cost

1 Raw paddy cleaner cum aspirator consisting of large aspiration of desired suction width fitted with double fans with necessary damper controls. The precleaner is also provided with a magnetic separator for removing iron particles ( for avoiding damage to other machines in the rice mill) feed hopper and other accessories viz. bearngs, block sockets, shafting pulley, holding bolt etc.

650,000

2 One rubber roll paddy sheller

98,000

3 Paddy Separator for separating undeshelled paddy from deshelled paddy.

45,000

4 Blowers, husk and barn aspirators for aspiration of light particles, separating husks from dehusked kernels and for separating bran

35,000

30

from milled rice.

5 3 nos. of cone type paddy polishers of suitable capacity for polishing and whitening rice grains to the desired degree

600,000

6 Rice grader/ aspirator for purification and grading of polished rice grains and for separation of the fine brokens, coarse brokens from whole rice.

50,000

7 Bucket elevators for bulk transport and conveyance of raw paddy, milled rice from 1 unit operation to another in a rice milling unit

90,000

8 Electricals (AC-3 phase induction motors for each of the machine, DOL starters, control panel, internal wiring and lighting)

250,000

9 Subtotal 1,818,000

10 Insurance , freight, erection and commissioning charges @20% of the subtotal

363,600

11 Total 2,181,600

31

The specifications and capacity of the various equipment has to be judged properly for deciding upon their cost and appropriateness for the rice milling unit.

Electrical and other items:

The tentative power requirement for various equipment for the rice milling unit is as follows:

Electricals

S.No. Equipment Electric Motor (HP)

1 Paddy cleaner

5

2 Rubber Roll Paddy Shellers

15

3 Paddy Separators

5

4 Blowers , Husk and Barn Aspirators

7.5

5 Paddy Polishers ( 3 nos. in series each with 15 Hp motor)

45

6 Rice grader/ aspirator

5

7 Bucket Elevators

7.5

8 Internals 10

9 Subtotal 100

A provision of Rs. 2.50 lakh has been considered towards electricals and internal lighting purpose. Since each of the machine used for undertaking various rice processing operations is provided with it own independent

32

power source (AC-3 phase induction motor), the cost of electrical motors have been included as part of the plant and machinery cost.

Miscellaneous fixed assets:

A provision of Rs. 2.00 Lakh under miscellaneous fixed assets has been considered for meeting the expenses for office furniture, fixtures, steel ladders and platforms for cleaning of machines, fire fighting arrangements etc.

Utilities:

Power:

The total power requirement for the model project will to the tune of 75 KW . The essential power requirement of the unit is about 90 HP and accordingly suitable standby generator provision is made.

Water:

Water is required for parboiling and domestic comsumption purpose. Suitable arrangements for continuos water supply of desired quality and quantity should be ensured while appraising the proposal.

Standby diesel engines, generator sets and other utilities:

Suitable standby D.G. set is required to be installed in the unit. Thus for the project, a DG Set of 100 KVA capacity with a cost of Rs. 3.75 lakh has been considered. However, it is an optional item and the need is to be assessed depending upon the power supply position in the area.

Contingencies:

A 5% contingency provision may be made for the unforseen expenses.

Organizational setup:

The unit may require a plant supervisor, one accountant cum store keeper, three machine operators, one peon and two security staff. Apart from this, three skilled workers and twelve unskilled workers may be required for managing the day to day operation of the unit. Depending upon the size of the unit, the manpower requirement may be modified.

Insurance:

The rice milling units should go in for adequate insurance to cover the fixed assets and stocks.

33

Eligibility of borrowers:

The borrowers can be proprietary and partnership firms, cooperatives, joint stock companies, corporations, APMC board, growers associations, NGOs etc.

Repayment:

The repayment schedule has been calculated considering the tenure of the term loan to be 9 years inclusive of a grace period of 2 years. However, banks are free to decide upon the repayment schedule depending upon the net cash flow assessed.

Interest rate for ultimate borrowers:

Banks are free to decide the rate of interest within the overall RBI Guidelines. However, for working out the financial viability and bankability of the model project we have assumed the rate of interest as 12% p.a.

Interest rate for refinance from NABARD:

As per the circulars of NABARD issued from time to time.

Security:

Banks may take a decision as per RBI Guidelines

Results of financial analysis are as under:

The financial analysis of the investment on an improved rice mill having an installed capacity of 4800 MT/ annum has been attempted and is placed from Annexures I to VII. The project has a margin money component of 25% with the rate of interest on term loan and working capital as 12% p.a. and 13% p.a. respectively. For this project, the financial indicators of the investment are as under:

Net Present Value @ 15% DF (NPW) = Rs. 34.14 lakh

Internal Rate of Return (IRR) = 28.22%

Benefit Cost Ratio (BCR) = 1.03:1

Average Debt Service coverage Ratio (DSCR) = 1.64:1

34

WASTE MINIMISATION CIRCLE CASE STUDY IN RICE MILLS

1.INTRODUCTION TO THE SECTOR:2. ABOUT THE CIRCLE: 3. PROCESS DESCRIPTION4. STUDY FOCUS AREA:5. WASTE MINIMISATION OPPORTUNITIES THAT REDUCED ENVRIONMENTAL LOAD AND ACCRUED ECONOMIC BENEFITS:6. POLLUTION STATUS BEFORE AND AFTER CP IMPLEMENTATION:

1. INTRODUCTION TO THE SECTOR:

Rice is a staple diet for many families in India and major portion of the arable agricultural land is cultivated for growing paddy in two seasons namely Kharif and Rabi. The major paddy cultivating states in India are Andhra Pradesh, Punjab, Karnataka, Tamilnadu Uttar Pradesh Madhya Pradesh etc. Accordingly the majority of rice mills are located in these states.

The use of rice is in the form of Raw rice & Par boiled rice. Accordingly the mills process paddy to produce one or a combination of both.2. ABOUT THE CIRCLE:This case deals with a group of rice mills in Nizamabad district of Andhra Pradesh. The group formed a circle with assistance from M/s Maruti Consultants and guidance from National Productivity Council to adopt waste minimisation (WM) techniques to reduce their energy and water consumption through sharing knowledge and information with each other to improve their productivity.

The average production capacity of the mills is in the range of 40-50 tons per day. The specific consumption of resources like energy, water ,steam are tabulated below:

S No

ParameterQuantity/ ton of paddy.

1. Electricity use 17-23 KWH

35

for raw rice

2.Electricity use for parboiled rice

27-35 KWH

3.Water used for parboiled rice

11.1 -1.3 m3

4. Steam use 750 Kg

3. PROCESS DESCRIPTION

Paddy is procured from farmers and stored in yards. The paddy from storage yards is loaded into bins and conveyed through a bucket elevator to paddy cleaner. Air is blown to remove the dust. The paddy so obtained is screened by vibratory screens to remove heavy particles like stones. The cleaned paddy is conveyed through elevators to storage bins.The cleaned paddy is sent for deshelling or par boiling depending on the product requirement.2. Installing copper finned tubes in heat exchanger (to generate hot air) replacing MS tubes to increase heat transfer efficiency. The benefits are:Investment in copper tubes = Rs 0.7 lakhsSavings = Rs 0.5 lakhs/annumPay back period = 1.5 years. 3. Even steam distribution in paddy soaking tanks and even hot air distribution for paddy drying reduced processing time from 10 hours to 7 hours in a day. The benefits arising of 3 hours increased process time availability and reduced steam consumption are as under:

Additional rice processed =600 T/annum. Profits due to increased production = Rs 3.0 lakhs (@0.50Rs/Kg paddy processed) 4. Marking soaking tanks to indicate water level reduces excess consumption as indicated : Investment for marking tanks = NegligibleReduction in water consumption = 1200 m3/annumSavings in pumping cost etc. = Rs 1200 per annum

5. One of the mills in the Circle which was recently started implemented modern electrical distribution system to overcome Voltage fluctuations in

36

supply line to reduce motor burn outs and mill down time. The results of this option are:Investment = Rs 1.0 lakh (Including MCB's, wiring , panel control s etc.)

Savings due to reduced motor burn outs etc = Rs 0.5 lakh per annum (profits due to increased production due to reduced down time is not considered). Pay back period = 2 years 6. Getting servicing of machinery from suppliers/ authorised dealers to avoid frequent breakdowns. The results of implementing these results are:Investment = Rs 0.2 lakhs/annum Savings = Rs 1.0 lakhs per annum Pay back period = about 3 months

For par boiling the cleaned paddy is soaked in hot water for about six hours and then steam is bubbled into soak tank for 15 minutes. After this the water in the soaking tank is drained out as effluent. The paddy containing 25-30 % moisture is dried by hot air (generated by using steam) to bring down the moisture level to 12-13%. This paddy is taken for deshelling.

The cleaned/par-boiled paddy is deshelled to remove husk in a sheller cum husker. The husk is seperated from rice by blowing air directed towards husk yard. The rice free of husk is sent through elevator to vibratory seperator to separate rice from paddy that is not husked. The rice is then conveyed by elevators to polishing machine. After polishing, bran is seperated from rice (including broken rice) by blowing air over the polished rice. The seperated rice is screened in a vibratory screen to remove broken rice and is then manually packed.

4. STUDY FOCUS AREA:

Experience of M/s Maruti Consultants with Rice mills indicated mills use poorly rewound motors, poorly designed electrical distribution system, using modified versions of lancashire boiler with efficiencies as low as 40%. This information catalysed the units to look at ways and means to reduce energy consumption through mutual discussions through waste minimisation circle.

5. WASTE MINIMISATION OPPORTUNITIES THAT REDUCED ENVRIONMENTAL LOAD AND ACCRUED ECONOMIC BENEFITS:

Based on the waste assessment study the unit identified ways and means to reduce waste. The most significant WM opportunities that are

37

identified and implemented are as follows:1. Some of the mills installed new boilers with higher efficiency saving energy, discharging less specific pollution load to atmosphere. The benefits of this change are given below: Investment in new boiler = Rs 8.0 lakhsSavings = Rs 4.0 lakhs/annumPay back period = 2 years.

6. POLLUTION STATUS BEFORE AND AFTER CP IMPLEMENTATION:

The overall comparative results achieved due to this cooperative initiative of sharing know-how and information are given in the following table.

S No

Parameter

Before CP(per ton of paddy)

After CP((per ton of paddy )

% change

1.

Produ

40 To

42 to

+5

38

ction capacity

ns/day

ns/day

2.

Electricity use for raw rice

17-23 KWH

16-20 KWH

-10

3.

Elec

27-3

23-2

-15

39

tricity use for parboiled rice

5 KWH

9 KWH

4.

Water used for p

1.1 -1.3 m3

1.0 m3

-20

40

arboiled rice

5.

Steam used

750 Kg

650 Kg

-15

6.

Husk used

300 tons

200 tons

-13

Wastewater recovery using membranes for process

41

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42

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Energy Conservation In A Typical Rice MillThis paper presents a case study on detailed Energy Cost Reduction Study in a rice mill. The rice plant concerned is Satnam Overseas Ltd. located at Sonipat, Haryana & the proud manufacturers of world famous Basmati Rice.Introduction

There are around 35000 rice mills in India. Most of the rice mills are small and use very low cost low efficiency equipments. However, for a majority of these Indian Rice mills, the connected load is less than or around 500 KW and steam demand is lower than 3- 4 TPH.

The export-potential, organic farming and diversification into ready to eat food are some of the great potential areas for growth of rice mills. Specially, in northern region (in Punjab and Haryana) there are few large players who are already focused on these opportunities & these offer good scope for energy conservation opportunities. Typically in spite of their large size, the power and steam requirement are lower (around 1 – 1.5 MW power and 10 – 15 TPH steam) but lower level of energy efficiency status offers good potential and opportunity.

Process

Rice needs to be processed in mills for removing their husk before it can be consumed. There are two types of processing- PARBOILED RICE PROCESSING and RAW RICE PROCESSING

Parboiled Rice Processing

43

Partial cooking of grain, to impart required hardness to withstand milling operation, with husk intact, is Parboiling. Thus, it is a process of treatment of paddy by soaking, gelatinizing and drying prior to milling.

There are mainly two systems of parboiling on commercial scale: Once Steamed Paddy: In this system, paddy is soaked in large vessels (handies);

no direct steaming of paddy is done. This system is now being replaced by second system.

Twice Steamed Paddy: Here, paddy is steamed both before & after soaking in handies. This system is most commonly used these days as it has numerous advantages over the previous system.

Par Boiling Process flow in rice mills generally consists of following steps in sequence:

Paddy Procurement Dust Paddy Cleaner Storage Tank Bottles/Handies Direct Steam for 20 Min. Soaking Of Paddy in Hot Water (At 800 C) For 4-6 Hrs. Draining Hot Water From The Bottles Direct Steam for 10 To 15 Min. Drying in Closed Dryers for 6-8 Hrs. De-huskers/Milling Screening Of Rice And Separation Of Husk & Dust, Husk Bagging Rice Grain Screening Polishing Magnetic Separation & Screening, Rice Bran Bagging Grading & Sorting· De-toning White Quality Rice Screening Bagging & Dispatch

44

The typical graphical representation of par-boiling process is as shown above & described as under:

Procured paddy is fed into paddy dust cleaner to remove all dust & stones etc. This cleaned paddy is fed to a storage tank through a conveyor. (Conveyor capacity determines amount of paddy that can be fed into the handies).

Energy Saving Opportunity – Paddy Cleaner blower operates throughout the yr & hence its system efficiency should be analyzed.

Pre-Steaming: Raw paddy is fed into handies where it is steamed for 15-20 minutes. This is done to raise temperature of paddy initially before soaking in hot water at about 800 C. This helps produce high quality rice. In some rice mills (especially mills catering to export market), small handies are specially installed for this purpose above the main handies.

Soaking: After direct steaming, hot water at 800 C is circulated into the handies through pumps for 15 minutes to make temperature uniform throughout the tank. This is followed by soaking the paddy in handies for about 4 hours. Water temperature during the entire period is not allowed to fall below 600 C. If the temperature of water falls, a small amount of water is drained and fresh hot water is circulated to raise the temperature in the handies.

Freshly harvested paddy has a lower rate of water absorption than stored paddy and the rate of moisture absorption increases with increasing temperature. Soaking temperature of 700 C represents the transition point, below which paddy absorbs water at a slow rate and above which the rate increases sharply and progressively.

45

Depending on paddy variety, optimal soaking time varies between 7.5 & 9.5 hours for a soaking temperature of 500 C, from 5 to 6 hrs for a soaking temperature of 600 C and from 2.75 to 4 hours for a soaking temperature of 700 C

Energy Saving Opportunity: The hot water after soaking may be wasted as a drain that represents enthalpy loss.

Steaming: After soaking the paddy, water is drained out through discharge drain. Hot & soaked paddy is steamed in the same handies for 15-20 minutes. In some rice mills (especially mills catering to export market), small handies are specially installed for this purpose below the main handies.

Soaked paddy is normally parboiled either by open steaming or under pressure. The moisture content in grains is 28-31 % after completion of soaking. But on open steaming, moisture content increases by 2-5 % depending on the duration and severity of steaming, whereas in closed heating, moisture content at the close of parboiling is less. Temperature of parboiling is 70-1000 C for closed heating, 110-1200 C for autoclaved heating and 1000 C for open steaming.

Parboiling process is now complete and paddy is ready for discharge to the dryer. Though parboiling heals all pre-existing defects in kernel to resist breakage, mild to normally parboiled paddy requires appropriate drying conditions. Whiteness of parboiled rice is reduced while increasing drying temperature of parboiled paddy. E. g., for parboiled paddy dried at 900 C, whiteness for milled rice is 7.21 while that dried at 500 C, whiteness is 8.64. Among different drying methods, influence of shade drying on parboiled rice quality is least. Retention of parboiled paddy in hot condition decreases its palatability and adversely downgrades quality But in case of pressure parboiled rice, mechanical drying even under adverse conditions (dried at 1100 C for 30 minutes, followed by 800 C for 30 minutes and tempered for 8 hrs before milling) is permissible due to completion of gelatinization during parboiling. Again, palatability of cooked kernels of hot-air dried samples is poorer than that of shade or sun-dried samples.

Drying: A typical graph of drying cycle is as shown below:

46

One of the most important aspects of paddy processing is controlled drying so as to achieve uniform moisture level in order to minimize milling losses.

Rapid drying with hot air leads to heavy breakage during milling as the damage to milling quality starts at 15% moisture level of paddy and increases sharply with further drying. So, most convenient way of drying lightly parboiled paddy would be to dry in two passes with tempering in moisture range of 15-19%, followed by conditioning after final drying.

Tempering also increases drying rate, so that in-dryer drying time can be reduced. Tempering below critical moisture level is advantageous only if it is done at elevated temperatures but not at room temperature. For example, with a drying air temperature of 800 C and dried to a moisture content of 14 %, minimum breakage of 0.9% on milling will occur if the paddy, during drying, is conditioned at 500 C. Again, with a drying air temperature of 60 0C and dried to a moisture content of 13.5 %, minimum breakage of 0.6 % on milling will occur if paddy, during drying, is conditioned at 500 C. In both cases, however, a reduction in mentioned moisture content will require paddy to be conditioned at a higher temperature (not above the drying temp) to achieve minimum breakage on milling.

Energy Saving Opportunity#1: The dryer blowers should be studied & efficiency of the system established & depending upon the site conditions, best remedial action needs to be evaluated.

Energy Saving Opportunity#2: The condensate from the dryers could well be

47

flashing away which represents heat loss that is recoverable.

Dried Paddy is then taken to de-stoner & pre-cleaner for separating out any foreign material, dust, dirt, etc. Associated with the pre-cleaner & de-husker are their individual blowers that blow away the foreign matter.

Energy Saving Opportunity: The system efficiency of the de-husker & pre-cleaner blowers should be studied & depending upon the site conditions, best remedial action needs to be evaluated.

Clean paddy is then taken to de-huskers where milling of paddy is done. Here, husk is removed by blowing compressed air. After de-husking, dust & husk are separated out and screening of rice (using magnetic separators) is done to separate out brown rice and other varieties of rice. Major % of brown rice is again sent for screening and small % is directly sent in brown rice graders (depending upon order booking & demand).

To separate the powder that is generated at the time of de-husking, there is a powder blower. Powder blower is associated with a cyclone that operates on the principle of density difference. The cyclone drains off the powder & the air is vented away by the blower through a silencer.

Energy Saving Opportunity: The efficiency of the powder blower should be studied & depending upon the site conditions, best remedial action needs to be evaluated. Also there may be a huge pressure drop across the silencer & system modification may be required to avoid the same.

After screening, brown rice is taken to polishers, where yellow covering over the rice grain, which is also called Rice Bran, is removed mechanically by grinders. The rice bran is separated, packed in bags and sold off to solvent extraction plants.

Energy saving opportunity: The compressed air Polished (white) rice is sent to graders where grading of rice is done, depending on grain size. After final screening and quality checks, rice is packed in bags and dispatched. Energy Saving Opportunity: The polishers are big rated motors. A motor load survey should be carried out. Also associated with these polishers are their blowers whose system efficiency can be analyzed.

Note: The polishers were found to be grossly under-loaded (40% & less). Consequently, it was decided to run the same amount of material on three in place of four polishers. However, it was found that the breakage of the rice increased. Although the energy efficiency was achieved, it was at the expense of loss in production. Hence, no clear suggestion is recommended here

Raw Rice Processing

48

Mills that process raw rice are termed as Shellers. The process carried out in a sheller is explained in brief. Here, paddy procured either from Government or directly from market, is taken to a dust paddy cleaner where all the dust, mud, stones, etc are removed. The cleaned paddy is then dried by passing hot air. This reduces moisture in the paddy and increases its shelf life. Paddy is then stored in bags to be processed later on.

Pre-dried paddy is again passed through dust paddy cleaner and taken to dryers. These dryers are of open type, which are usually in sets of eight. Hot air at 60-700 C is blown from bottom of dryers. Paddy is kept on a conveyor that keeps on moving at a pre-determined rate, resulting in drying of paddy. Paddy is thus passed successively over next 7 dryers. Finally, it comes out of the total set with final moisture content as per requirement.

An increase in moisture-removal rate of beyond 3-5 % per pass in the continuous flow dryers adversely affects milling yield. Multi-pass removal of wet paddy, with limited moisture removal per pass and a period of tempering between each pass, greatly improves head yields. However, tempering is beneficial only below 20-21% moisture level.

A temperature of 600 C with an air flow rate of 5 cc/min per 1.25 tons of raw paddy is found optimum for drying in re-circulatory batch dryer and the milling breakage is found to be below 13%.

Note: In some small rice mills, paddy is dried in the sun on chattels. This does not reduce moisture level in paddy to desired value and also results in non-uniform heating causing even a greater amount of grain breakage. About 6-8 % of moisture is removed in this process of drying. This is an old & inefficient method of drying where percentage of moisture removal from paddy is not constant. Hence, this method does not produce very good quality rice.

Rest of the processing of rice is the same as that in parboiling.

Apart from the process side, the utilities were also studied.

Utility Section

Process flow vis-à-vis Areas Studied

49

Annexure

Rice is the leading agricultural crop of India, accounting for nearly a 5th of the world produce. It is grown over as much as 23 % of the cropped area. India stands next only to China in the production of rice. Most of the crop is raised in areas with a mean monthly temperature of 230 C and an average annual rainfall of 150 cm. It is mainly an irrigated crop in areas with an annual rainfall of less than 100 cm.

Availability: Rice is chiefly a rain fed Kharif crop, although in some areas of the State, as many as three crops are grown in a year. Paddy is mostly available from October to July.

Removal of husk from paddy to produce consumable rice is still done to a limited extent by hand pounding in rural areas. But rice mills are driven by power. This has an advantage over hand pounding, as machines cause very little

50

breakage of the grain during shelling. Further, some mills produce boiled rice also, having parboiling equipment, mechanical dryers and polishers of improved design with low breakage of grains and higher storage and handling facilities.

By-products of rice milling are rice husk and rice bran. Rice husk is used as fuel for rice mill boilers and rice bran oil is extracted from bran. It is a fatty oil that can be used for the manufacture of soaps. Rice bran oil is also edible. About 20-22 % oil can be extracted from rice bran.

Methods of Par boiling: -

There are 2 methods for par boiling viz. twice steamed & single/once steamed. However, advantages Of Twice-Steamed Over Once-Steamed Paddy are: Less manpower requirement. Less space requirement Less operational losses & chances of pilferage. Increased yield of 2 percent rice because of uniform parboiling. Uniform quality. Less inventory of paddy required due to lesser operation time.

Time taken for parboiling paddy is only 4 hours, compared to 24 hours in traditional system.· Less period of soaking and hence no foul odor in paddy. Moisture content in parboiled paddy is 36-38%, as compared to 42-44% in once steamed. Being lower in moisture content, sun drying is quicker compared to the earlier system and alternatively there is a better efficiency of the dryer plant.· There is increased oil percentage in the rice bran due to uniform parboiling.DRYER TYPES: -

Two types of mechanical dryers are available using hot air as the drying medium:

a) LSU Dryer: In this dryer, it is preferable to dry paddy in two stages with an air temperature of 80-850 C in the first stage and 70-750 C in the second stage and an air flow rate of around 60 m3/min/ton of paddy. Drying rate is constant and temperature rise of exhaust air and paddy is steady till 20% moisture content of paddy. After that, drying rate declines and temperature rises rapidly. Second stage drying at a lower temperature than the first stage reduces the risk of grain damage and tempering stage becomes less critical (15-18% moisture). Efficiency of drying & overall heat utilization is excellent in this dryer. But capacity of dryer is less, as around 4 hours are required to dry a batch in two stages with an additional 1.5 - 2 hours required for filling and emptying dryer twice.

b) Cup-and-Cone Dryer: In this dryer, paddy flows through inner surface of cups and exterior of cones. To divert flow path of paddy from outer surface of cones to inner surface of cups, cylindrical retainers are provided. A quantity of 950 kg of parboiled paddy can be dried to about 14 % moisture in 2 hours by

51

maintaining a hot air temperature of 120-1300 C, airflow rate of 127.5 m3/min and a circulation rate of 4 TPH. RH of exit air is above 80 % up to the stage of 17 % moisture content and then drops considerably. As moisture removal is slow beyond this point, two-stage drying should be adopted.

Why Parboiling Is Recommended???

Raw rice processing results in a great increase in broken rice percentage during milling, generally 25-35% & goes to as high as 50%, resulting in a lot of losses to millers. Parboiled rice, on the other hand, is hard and breakage is as low as 5-15%.

Hence the main reasons for parboiling are:

a) Preventing grain breakage- Parboiling helps in reducing brittleness of rice. This is known as Gelatinization. Hence, percentage of broken rice during milling is very less.

b) Retaining flavor - Parboiling helps in retaining flavor of rice. Rice bran acts as a flavoring agent. After bran is removed from grain, parboiled rice is able to retain the flavor more than raw rice.

c) Greater nutrient status

d) Less susceptible to insect attack during storage

e) Higher oil in bran with better stability - In parboiled rice, there is less removal of starch fraction in milling due to endosperm hardness and the fatty materials get dissociated from starch constituents and move outward. So, parboiled rice bran contains more oil than raw rice bran. In parboiled rice, bran has higher fat and lower starch content than that of raw rice for same degree of milling, but FFA content in bran oil is decreased.

f) More swelling when cooked to the desired softness - In general, optimal cooking time of raw rice is 24 min but it swells 255%, whereas parboiled rice swells 325 % with an optimal cooking time of 40 minutes.

g) Easy digestibility with higher protein efficiency ratioUtility Section

DG set performance assessment: A rice mill may have DG sets for its own power generation in addition to grid power. In such systems it is a worthwhile exercise to carry a small exercise on dg sets. Establish the specific fuel consumption of the DG sets by noting down how much energy units are generated by how much fuel consumption over a period of time say 4 hrs or 6 hrs. It may well be the case that DG set gives a poor ratio that may be possible due to poor maintenance. If ratio is poor then an overhaul of the dg set could be

52

carried out to check the oil pressure settings, nozzle pressure, choked nozzles etc.

DG set waste heat recovery: Another potential area for energy conservation is the possibility of waste heat recovery from the dg set. The flue gases from the dg set may be vented at high temperatures of more than 400 deg. C that can be used as a source of heat energy to generate steam.

Also DG set operation cost may be a huge part of the plant’s energy bill. Normally the cost of power generation from a DG set will be quite high as compared to the cost of power from grid. A detailed analysis can be carried out so as to find out ways to reduce the DG set usage. The Dg set usage must be discouraged at all times. In case it becomes inevitable to use DG sets, then they must be operated for as little as possible but at a fairly good loading. Also it must be made sure that all those loads that are constantly running, they must be sourced from grid power & provision made for transfer to Dg sets in case of grid failure. In some case there may be a constraint of the maximum possible load that an industry can connect to the grid. It may so happen that the industry may have connected the entire standby load on the grid. When the connected load on the grid (running as well as standby) reaches the allowed limit, the dg set usage is inevitable. But in such cases, shifting of standby loads (as well as those loads which form a major part of connected load but run for a very less period in a day) can well be kept on DG. Also feasibility for increasing the total plant’s connected load on the grid can be found out & in most cases it will be favorable.

Compressor performance assessment: Every rice mill requires compressed air for instrumentation & process. Generally the following may happen as regards the compressed air system1. The compressor may be under loaded continuously in which case we can replace the compressor with a new suitably sized one.2. The compressor may be having too much of pulsations with as much as 30% or even more of the time it being under-loaded. In such a case installation of variable speed drive can be well advised.3. It may be quite possible that the actual air requirement may be at different pressure requirements but the utility may be generating a touch above the max required level (a touch above so as to cater to the line loss). In such a case the application that requires air at less pressure will have a pressure-reducing valve. The high pressure is reduced to low pressure as required & this is nothing but a waste of energy. In such cases, segregation of high and low air compressed air system is worthwhile.

Pumping system: Normally a typical rice mill may not have a huge water requirement as against some other industries; nevertheless, the pumping system also represents an opportunity for energy conservation. Normal audit of various pumps can be carried out & ECM identified based on their performance.

53

Boiler Performance Assessment: Boiler efficiency test can be carried out to ascertain the boiler performance. Boiler feed pumps, FD & ID fans can also be tested upon to arrive at energy savings. Effect of excess air & flue gas temp on boiler efficiency, can be found out, by using the boiler efficiency calculation sheet.

Lighting System: Normally lighting load may not be significant, but in any case, it represents a prospective area. The lighting inventory can be collected & lighting load taken for a full day to ascertain the light load trend. Lighting transformer can be suggested if there is a separate lighting distribution system. A lighting transformer can supply voltage at around 200V that may lower the lighting load by as much as 30%.

54

Final Draft Report

1

1

55

Demonstration of Rice Husks-fired

2

1. Brief description of project........................................................................................5

1. Brief description of project........................................................................................5

2. Location of power station...........................................................................................5

3. General description of project area ..........................................................................5

3.1. Geographical and Socio-Economic features of Nalgonda District ..............5

3.2. Need for building the combinations of rice preservation- mill systems ........7

4. Rationale of building a demonstration rice husk- fired power plant ....................7

4.1. Potential of power generation from rice husk in Andhra Pradesh .............................7

4.2. Government policy on renewable energy and electrification.........................85. General description of project...................................................................................9

5.1. Present situation of infrastructures in the area and power station .............9

5.2. Annapurna Food Purchasing and Processing Unit.......................................9

5.3. Layout area and expected capacity of power station....................................11

5.4. Technological Procedures for rice husk power generation......................136. Project Implementation Plan...................................................................................18

7. Contribution To Sustainable Development............................................................18

8. Project Base Line and GHG Abatement Calculation............................................18

8.1. Methodology for calculation of base line of emission.............................18

8.2. Calculation of baseline.............................................................................18

8.3. GHG Abatement Calculation...................................................................20

8.4. Reduction of CO emission from paddy drying.......................................212

8.5. Total CO emission reduction..................................................................212

9. Financial Analysis.....................................................................................................21

9.1. Total investment cost evaluation .............................................................21

9.2. Financial Analysis....................................................................................24

10. Economic analysis.....................................................................................................33

10.1. Poverty alleviation effect ....................................................................33

10.2. Environmental impacts........................................................................33

Power Plant

56

A Pre-Feasibility Study Report

TABLE OF CONTENTS

57 3

10.3. Economic Analysis of the Project .......................................................3311. Conclusions ...............................................................................................................39

LIST OF TABLES

Table 3.1. Current situation of power supply and consumption in AnNalgonda District 7

Table 4.1: Potential of rice husk for power generation in Andhra Pradesh..............................8Table 5.1. List of equipment at Annapurna Food Purchasing and Processing Unit.......11

Table 5.2. Local fuel availability.......................................................................................12

Table 5.3. Technological characteristics ..........................................................................12

Table 5.4. Chemical composition......................................................................................12

Table 5.5. Energy and power balance ..............................................................................12

Table 5.6. Thermal energy balance ..................................................................................13

Table 5.7. Technical and economic parameters of the project ......................................17

Table 8.1: Electricity production in the period 2000 - 2010 - 2020 (base case)............18

Table 8.2: Fuel demand for electricity production (base case)......................................19

Table 8.3. Coefficients of CO2 emissions (according to IPCC) .....................................19

Table 8.4. Heat value of fuel types....................................................................................19

Table 8.5: CO emissions in years of 2002 - 2020 and baseline......................................202

Table 8.6: CO emission reduction by AnNalgonda Rice Husk Power Plant in years of 20022

– 2020 (Based on the Whole Andhra Pradesh Electricity System Baselin)................................200.5 MW rice husk – fired cogeneration plant..................................................................23

Table 9.2. Summary of the technical and financial results (adjusted to current price) for a0.5 MW rice husk – fired cogeneration plant..................................................................24

Table 9.3. Components of capital source for project......................................................26

Table 9.4. Results of financial analysis with WACC of 7.325 %...................................26

from the point of view of investor.....................................................................................26

Table 9.5. Results of financial analysis with WACC of 7.325%....................................27

from the point of view of project ......................................................................................27

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Table 9.6. Sensitivity Analysis with indicators from the point of view of project......27

Table 9.7. Sensitivity Analysis with indicators from the point of view of investor.....28

Table 9.8. Revenue of project...........................................................................................29

Table 9.9. Financial Analysis from the point of view of investor with WACC of 7.325%,CO2 emission reduction taken into account....................................................................30

Table 9.10. Financial Analysis from the point of view of project with WACC of 7.325%,CO2 emission reduction taken into account....................................................................31

Table 10.1. Data input of Economic analysis...................................................................34

Table 10.2. Economic Analysis results with electricity price of 5 UScent/kWh...........35

Table 10.3. Economic Analysis with CO2 emission reduction taken into account .....37

Table 10.4. Economic Analysis without CO emission reduction taken into account .382

59 5

1. Brief description of project

Project "Pre-feasibility study of Demonstration Rice Husk-fired Power Plant in NalgondaDistrict" was prepared with the following tasks:

To identify the site appropriate for building the power station and its capacity; To select technologies, which are suitable to current specific conditions in rice mills

as well as socioeconomic development trends in Nalgonda District in particular andin Krishna river delta Districts in general, mainly for meeting the future power andheat requirements of rice mills;

To evaluate the civil works and investment cost; To evaluate the economic and financial effectiveness; and To calculate CO emission reduction.2

The results of calculation and analysis of the project can be summarized as follows:(i) Project will be put in operation in 2010 and end in 2024(ii) Total amount of CO emission reduction within project lifetime will be 20,1942

tons.

The financial and economic indicators of project are:

FIRR = 19.5 % FNPV = 1 mil. US$ B/C = 1.74

EIRR = 25.72% ENPV = 0.926mil. US$ B/C = 1.96

The project is considered as one of the first models of power generation from rice husk inAndhra Pradesh aimed at demonstrating, introducing, propagandizing and expanding the application oftechnology to other rice mills or group of mills in Nalgonda District as well as in otherDistricts/ areas in Krishna River Delta, and finally contributing to economic development, jobcreation, ensuring a reliable power and heat supply, sufficiently meeting the requirement of ricemill and providing excess electricity to the grid.

2. Location of power station

The rice husk - fired power station is expected to be built at Annapurna Food Purchasing andProcessing Unit in An Hoa commune, Chau Thanh district, Nalgonda District. The anticipatedsite of TPP is situated by the Road to Cambodia, 16 km far from Long Xuyen city (see theattached map).

3. General description of project area

3.1. Geographical and Socio-Economic features of Nalgonda District

Nalgonda is located at the southwest frontier of Andhra Pradesh, bordered on the Southeast by Can ThoDistrict, on the North - East by Dong Thap District, on the northwest by the common frontierbetween Andhra Pradesh and Cambodia. With a natural area of 3,406.2 km and average population of

2

2,082,838 persons (density of 609 persons per km ), Nalgonda has one city (Long Xuyen), one

2

provincial Town (Chau Doc) and 9 districts (Chau Phu, Chau Thanh, Cho Moi, Phu Tan, Tinh

60 6

Bien, Tri Ton, Tan Chau, Thoai Son and An Phu). In recent years, socio-economic developmentof the District has been continuously developing (in the period 1996-2000 the average growthrate of GDP is of 7.4% per year) of which the essential is agriculture development, followed bysea-aquatic product processing. Within the District area, beside two main river branches TienNalgonda and Hau Nalgonda, there are a lot of rivers and canals, evenly distributed. The grand amountof alluvium annually provided by the rivers and canals makes land fertilized, that is an importantfactor promoting the development of agriculture. With this advantage, Nalgonda is consideredone of the large rice cultivation areas in Andhra Pradesh. Thus, the investment in building the storagesystems in isolated communes or in the localities having large rice production area for temporarypreservation of rice and installing advanced facilities for producing and processing export rice atlower cost are very important measures to maintain the crucial role of agriculture sector. Havingmore than 200 rice mills with capacity above 100 tons of paddy per day, Nalgonda is one ofpotential markets for disseminating cogeneration technology using rice husk as fuel.

ClimateNalgonda is a tropical zone with monsoon and two clearly different seasons, dry and rainy.Average temperature in the year is of 27 C. The number of sunny hours is 2,521 hours per year,

o

and the average rainfall is 1,132 mm. During rainy season from August to November, the waterin Krishna River rises and causes flood. The water level during flood can reach 1-2.5 meters, toas high as 3.5 m, and always negatively impacts on the socioeconomic activities in the District.Hydrology - water resourceThere are 280 rivers and canals distributed at a density of 0.72 km/km , the highest river density

2

in Krishna River Delta Districts, which can sufficiently supply water for productive anddomestic activities in plain areas of the District. However, the hydrological regime in Nalgondaheavily depends on the level of water in Krishna River. Every year, 70% of land area in theDistrict is flooded less than 1-2.5 meters of water during 2.5 - 4 months. This is a big problemaffecting socioeconomic development in Nalgonda District.

Power supply systemIn recent years, beside the annual financial capital sources coming from the Government, AnNalgonda Authorities have mobilized other sources and local people to invest in developingprovincial power supply system in order to provide national grid electricity to isolated andmountainous districts and communes.

Since the end of 2002, 100% of communes have been electrified. The amount of electricity salereached 395 million kilowatt-hours. Up to now, 80% of rural households are connected to thenational power grid. The use of electricity from national power grid by industries and small scaleindustries, especially in rural private rice mills, is still at limited level due to some reasons likethe habit of using diesel motor and the concern about high grid investment cost or unstable andinsufficient power supply. Table 3.1 presents current situation of power supply and consumptionin Nalgonda in the period 2000-2002 and estimated for 2010.

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Table 3.1. Current situation of power supply and consumption

No Items Unit 2000 2001 2002 2010

1 Power generation* MWh 10,403 2,410 1,343

2 + Commercial

electricity

MWh 286,006 334,401 395,371 587,300

+ Agro-forest-aquatic MWh 7,246 7,709 9,135

production

+ Industry -

Construction

MWh 64,724 81,387 140,205

+ Commercial -

Service

MWh 8,172 8,809 10,864

+ Administration-

residential

MWh 193,870 222,394 254,576

+ Others MWh 12,594 14,102 16,591 Note: * The electricity produced by diesel sets with installed capacity is of 7.6 MW installedcapacity is of 7.6 MW, belonged to the Provincial Power Company.

3.2. Need for building the combinations of rice preservation- mill systems

Nalgonda is one of Krishna River delta Districts with good local conditions, favorable foragriculture development, especially rice production. As it was mentioned in the socioeconomicMaster Plan for the period up to 2010, agriculture will remain the key sector in the economicdevelopment of the District, of which rice production is the most important. It is planned toproduce 2.5 - 2.6 million tons of rice in 2010, and to increase white rice export from 460thousand tons in 2001 to 650 thousand tons in 2010.

To achieve these objectives, beside the activities for improving rice species in terms of quality,productivity and usable value, improving post-harvest conditions, especially in cases when badweather causes overload of old storage systems and high losses ratio, there is a need to invest inbuilding and installation of combined preservation systems and modern rice mills.

4. Rationale of building a demonstration rice husk- fired power plant

4.1. Potential of power generation from rice husk in Andhra Pradesh

Andhra Pradesh has abundant and diverse biomass sources such as bagasse, rice husk, coffee husk,coconut and woody residues but only a small portion of bagasse has been used as fuel for powergeneration. Apart from bagasse, rice husk and straws are important biomass sources, which couldbe also used for biomass - based power generation and cogeneration in Andhra Pradesh.

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Andhra Pradesh is rice-exporting State but most of its rice mills are of small capacity. It is estimatedthat 2.5 million tons of rice husk is available and can be used for energy generation. Potential ofrice husk for power generation is presented in Table 4.1.

Table 4.1. Potential of rice husk for power generation in Andhra Pradesh

Type ofbiomass

Potential* (1000tons)

Use factor Available foruse (1000 tons)

Expected powercapacity (MW)

Rice husk 6,400 0.39 2,500 100-200 Note: + According to Yearbook, 2001.

The rice mills having longer hulling period and additional revenue from ash sale could attract theinvestors in rice husk fired power plant with unit investment cost of 1500-1600 US$/kW, evenwhen electricity tariff is one component (electricity but not capacity). However, since most ofexisting rice mills are of small capacity, efficient transportation would be very important incollecting rice husk from rice mills and supplying it to a big power plant.

The results of recent survey on rice husk sources at rice mills in Andhra Pradesh showed that most ofpublic owned rice mills have changed their operation mode in rice production. The mills in thenorth have only function for rice preservation. In the south, the same situation is observed butless popular. Also from this survey, the areas with highest potential of power generation fromrice husk are in the Krishna River Delta Districts such as Nalgonda District, thepreliminary survey identified about 200 rice mills having milling capacity of 2.5 tons of paddyper hour, most of which are operated by diesel engine.

4.2 Government policy on renewable energy and electrification

At present, the major barrier is the absence of energy policy and institutional framework strongenough to promote the exploitation and use of renewable energy, especially for power generationin the areas where the rural electrification and grid connection is least-cost. Lack of financialmechanism for establishing and operating the trading enterprises on renewable energy, forinstance, technology market, investment, policy on credit and loan has negatively affected andrestricted the renewable energy development in Andhra Pradesh for years. There still exist a lot ofcrucial issues and difficulties in selecting the ownership pattern for renewable energy projects(public or private) as well as providing necessary support when the socioenvironmental benefitsfrom the investment in renewable energy technologies development were identified. Financialsources and the way to access the measures encouraging investment in energy technologiesthrough taxation (e.g. priority, incentive or exemption) are not clearly announced.

There exist some policies, which have positive effects on promoting the development andapplication of renewable energy technologies in Andhra Pradesh. Being market oriented, the policy onrural electrification will be a good base encouraging the investors in development of renewableelectricity in order to meet the on site energy requirements (own use) or providing to the gridthrough private utilities, cooperatives or other owners. These units will invest in small powerstations. Recently, the diverse modes of investment have brought in the encouraging effects.

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Since early 2000, the Ministry of Industry has approved the policy on rural electrification andissued the main principles for diversifying the ownership, providing the incentives to powertrading utilities and encouraging the distributed power source. Rural electrification will beconsidered in two options: on-grid or off-grid, based on the least-cost criteria.

5. General description of project

Objectives: Project "Demonstration of rice husk-fired power plant in Nalgonda has the followingobjectives:

(i) Demonstration for dissemination and expansion of technology application to other ricemills within Nalgonda or other Districts in Krishna River Delta.

(ii) Focus on exploitation of rice husk available at Annapurna Unit and some surroundingprivate rice mills for producing heat and electricity to meet sufficiently the energy needof the mill and to supply the excess electricity to grid or neighboring consumers.

Project title: Demonstration of rice husk fired power plant in Nalgonda District

5.1. Present situation of infrastructures in the area and power station

5.1.1. Transportation system

The place for building power station is located in the center of high quality rice cultivation area.Additionally, it has the advantage of superficies and lies beside the National Road 91 and riverHau, convenient for fluvial shipping by high shipload boats.

5.1.2. Power grid

A medium voltage line of 15 kV from Suryapet to Nalgonda district was built; it will facilitatethe grid connection of expected power station.

5.1.3. Water supply

Water from river Musi is sufficiently supplied for production process.

5.2. .

5.2.1. Overview

One part of land area proposed for building power station is in the area of Annapurna FoodPurchasing and Processing Unit, in Suryapet, Nalgonda District.This unit is bordered as follows:

On the SOUTH by private Sponge Factory On the NORTH by National High Way Road 9

64 10

On the East by river Musi On the West by Land

Superficies: Total land area is 5,000 m of which:2

Rice storehouse No.1: 1,300 m2

Rice storehouse No.2: 700 m2

Hulling machine: 500 m2

Administration hall: 70 m2

Rice husk storehouse: 320 m2

At the moment, the mill operates only one shift per day but during crop seasons or when the ricesupply contract is signed, the mill will operate during 24 hours per day.

There are only 9 workers permanently working in the mill. Most of the workers are seasonablyhired. The product loading and transporting are done manually by porters who are poor farmersliving in the vicinity of the mill.

5.2.2. Equipment status

The rice mill was put in operation in 1999. All the initial equipment is locally manufactured. Thegeneral technological scheme of plant is as follows:

Drying plant ⇒ Paddy hulling machine ⇒ Rice whitening machine ⇒ Rice polishing machine⇒ Rice storehouse and rice husk storehouse.

The stevedores deliver Paddy from the boat to the rice mill. The paddy hulling chain has beendesigned with an electric motor of 132 kW capacities. Another motor of 37 kW was installed forwhite rice polishing chain. After the hulling chain, rice is polished in polishing machine drivenby two electric motors of 75 kW each. In addition, there exists a sorting table with one electricmotor of 11 kW and 8 others of 1 kW each.

5.2.3. Power Consumption

List of equipment at Annapurna Food Purchasing and Processing Unit is presented in Table 5.1.According to the site audit, power capacity based on the installed capacity of the whole plantwhen operating is of 338 kW.

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Table 5.1. List of equipment at Annapurna Food Purchasing and Processing Unit

Equipment Unit Quantity TotalDesigncapacity

(kW)

Capacityreserved

factor(%)

Totalreal

capacity(kW)

Manufacture.State

I. Paddy hulling Plant Rice hulling chain Motor 1 132 20 112 Japan Screens Motor 6 6 15 5.1 Andhra Pradesh Grading machine Motor 1 11 20 8.8 Andhra Pradesh Total I

II. Rice whitening system Rice Whiteningsystem

Motor 1 37 20 29.5 Japan (old)

Total II

III. Polishing machine Rotary drum dryer Motor 2 2 10 1.8 Andhra Pradesh Polishing machine Motor 2 150 20 120 Japan (old) Total III 4 152 Total I+II+III 13 338 270

5.2.4. Power supply

Annapurna Food Purchasing and Processing Unit are powered from national grid through the ownpower sub-station of 320 kVA at 15/0.4kV.

5.2.5. Milling capacity

The designed milling capacity of the mill is of 5 T/h. Additionally, there is a private rice mill of100 tons of paddy per day located just beside it, that is a good condition for supplementary ricehusk supply to the power station when needed.

5.3. Layout area and expected capacity of power station

The power station is expected to be built on the area of present husk storehouse and reservedarea of Annapurna Unit. This area is located next to private rice mill Hoang Son and Hau river,convenient for transportation and collection of rice husks from neighboring rice mills by waterway. The location in the center of zone supplying raw paddy would ensure the continuousoperation of power station (see the map). Power capacity of rice husk fueled power station wascalculated based on the milling capacity of Annapurna Unit. This parameter will be unchanged.Expected power capacity of power station is 500 kW. The analysis and calculations of rice husksource, fuel characteristics and power balance are presented in following parts.

5.3.1. Technical Analysis

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Table 5.2. Local fuel availability

Type of residues Actual Designed

Rice husk Rice husk / paddy ratio 20% 20% Rice husk produced 1 T/h 1 T/h Available rice husk 1 T/h 1 T/h

Table 5.3. Technological characteristics

No Characteristics 1 Moisture content % 8.84

2 Volatile matter % 57.95 3 Ash content % 15.24 4 Fixed carbon % 18.64 5 High heating value kcal/kg 3800

Table 5.4. Chemical composition

No Characteristics 1 C (%) 31.65 2 H (%) 6.12 3 O (%) 36.08 4 N (%) 1.87

Table 5.5. Energy and power balance

Load balance

Load of rice mill (kW) Capacity supplied from rice husk power

plant (kW)

Rice milling of 5 T/h 270 Gross output 500

Parasitic load 50 Expected excess capacity (-180)

Total 320 320

Energy balance

Energy demand (MWh/year) Supplied electricity (MWh/year)

Rice milling of 5 T/h 1,300 Generation potential 2,500

Parasitic load 250 Expected excess (-950)

Total 1,550 1,550

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Heat requirement for paddy drying

According to the report of Nalgonda Department of Agriculture and Rural Development, the heatdemand for paddy drying in the District is very big but until now, there exist only 633 dryingmachines of small capacity, 4 ton/shift on average. The total capacity of these systems can meetonly 15% of the demand. In order to meet the need for paddy drying, Nalgonda has planned tobuild the paddy / rice preservation / drying network in the District. However, like most ricemills in Nalgonda, Annapurna Food Purchasing and Processing Unit still has no paddy dryingsystem of big capacity due: (i) power supply from national grid is insufficient and not coveringthe need for milling; and (ii) high price of other fossil fuels such as oil, mine coal resulted fromtransportation cost in long distance.

In this project, the steam exhausted from turbine is proposed to be reused to meet the need forpaddy drying.

Table 5.6. Thermal energy balance

Unit: MWh/year

Use Generation Net export

35 (*) 8333 (**) 8298 Note: (*): -useful energy from burning 10 tons anthracite coal with efficiency of 60%

(**) - thermal energy generation from cogeneration plant with steam back-pressure turbineand rice husk boiler

Conclusions

Installed capacity of the rice husk fired power station will be 500 kW, of which 320 kW will beused for rice milling process in Annapurna Unit and surplus amount of 180 kW will be supplied tothe power grid or neighboring consumers.

5.4. Technological Procedures for rice husk power generation

5.4.1. Base for Selection of technology for cogeneration from rice husk

The selection of rice husk combustion technology for producing energy (heat and power) isbased on the following criteria:

Production cost Recovery of capital and financial benefit Rice husk availability and fuel characteristics Overall efficiency of the cycle (cogeneration plant) Equipment manufacturing and supplying capability Environmental impacts and measures for mitigation.

Some worldwide proven technologies are described below for analyzing and selecting the mostappropriates to small-scale rice mills that are popular in Andhra Pradesh.

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The existing six main biomass conversion technologies are: (i) direct combustion; (ii)gasification; (iii) anaerobic; (iv) pyrolysis; (v) briquetting and (vi) liquefaction. At present, themost common technologies are direct combustion and gasification from rice husk to produceelectricity. An analysis of these two technologies is carried out below in order to select the moreappropriate in terms of capacity and practical application.

Before selecting the technology, an analysis of fuel characteristics is needed.

Moisture content of biomass fuel is one of its important characteristics because after collectionfrom the field it is not homogeneous. Thus, a careful consideration should be made in selectingthe suitable mode for fuel feeding and combustion technology. The presence of water in biomassfuel will reduce the portion of combustible substances. Biomass having high moisture contentshould be dried naturally under the sun or in a dryer before being used as fuel. On the other hand,too high moisture content always needs more time for heating biomass up to fire settingtemperature.

Nowadays, new existing technologies and techniques allow burning the fuels having highmoisture content up to 60%. Thus, we have to consider and choose the moisture content in arange suitable to the technology.

Heating value of fuel is the amount of heat liberated from the complete combustion of 1 unit offuel. This is a basic feature, which will be used for calculating the parameters of combustionchamber like heat volume, surface of grates as well as combustion and mass/heat transferprocesses in the furnace. In the technical documents on combustion of biomass in furnace / boilerfrom abroad, it was proved that the heat value of biomass having moisture content at 50% shouldbe not less than 1,850 kcal/kg.

Homogeneity of fuel: If the homogeneity of fuel in terms of size and type is not ensured, thecombustion process in the furnace could not be stable. It needs to select an appropriatecombustion technology.

Ash content: From the above analysis, ash content has important effects on fuel properties:reducing heating value, causing dust and corroding the material of boiler, leading to decreasedheat transfer intensity. For biomass fuel, ash content is very low and the ratio between fly ashand slag depends a lot on the shape and size of fuel as well as selected combustion technology,size and form of boiler / furnace. For conventional combustion on grate, this ratio is of 60/40 andeven 80/20. During combustion process, the ash is usually entrained in the smoke stream due tosuction effect of the fan. Consequently, in order to keep on the environmental allowableparameters it needs to use the ash traps, flue gas filters (dry, wet or bag).

5.4.2.Analysis and selection of technology biomass gasification

Biomass gasificationBiomass gasification is a process of converting solid biomass into a combustible gas bycombustion with insufficient oxygen supply. There are 3 modes of biomass gasification, theyare: (i) downdraft; (ii) updraft and (iii) gross draft.

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The composition of produced gas (mainly volatile matter) depends on the factors liketemperature, pressure, heat transfer process and type of gasifier. In gaseous mixture, besidecombustible gases, there exist also other substances such as steam, and tar.

This gaseous mixture should be cleaned (for removing tar and particles) and cooled beforecoming to the combusting appliance / furnace.

For internal combustion engines, the content of tar in combustible gas should not be more than50 ppm (part per million) while for gas turbine this feature should be well lower.

(i) In the case of down -draft gasifier, producer gas has to pass a zone with highertemperature so its temperature is rarely high, at 600-800 Co

(ii) In the case of updraft gasifier, producer gas should pass a bed of raw biomass fuel, whichhas very low temperature. That's why its outlet temperature is low, ranging from 100 to300oC.

When using this type of gasifier for internal combustion engines (also for gas turbine), theproduced gas needs to be cleaned due to higher content of tar. The up-draft gasifiers are suitableonly for fuels having high moisture content. Both types of gasifier are designed with a "throat" toform a high temperature zone for cracking tar. However, this throat will restrict the biomassflow, especially for the biomass having very low bulk density (kg/m ).3

Direct combustionIn current development trends, fluidized bed combustion (FBC) technology is used forcombustion of solid fuels, including biomass, and particularly rice husk. FBC combustion ischosen when fuel particle size is less than 6 mm. The bed consists of inert particles, andcommonly, sand is used.

Two types of FBC, which could be used for combustion of rice husk fuel are bubbling fluidizedbed combustion (BFBC) and circulating fluidized bed combustion (CFBC). They are describedbelow:

(i) Advantages of BFBC Reducing NOx emission High heat transfer effect due to the increment of contact surface when the fuel

particles are sunk in the "boiling layer".

It is important to note that biomass fuel has high volatile content (V ~ 70%); the heat liberated inthe fire box is much higher than that on the grate as the volatile matter released from biomassfuel will burn in the space of combustion chamber. Based on this, FBC would be effected in thefurnace with two combustion chambers. In the first chamber, fuel burns at low temperature. Thegenerated volatile and unburned fuel particles are led to the second chamber, to which thesecondary air is supplied sufficiently for complete combustion.

(ii) Circulating Fluidized Bed Combustion

70 16

A typical feature of FBC is the great quantity of fly ash, which contains a considerable amount ofunburned carbon (only volatile matter was burnt out). Fly ash recycle system should be used forimproving the furnace efficiency. Fly ash, after being separated from flue gas precipitators(cyclone type), is returned back to furnace.

Combustion on gratesCombustion chamberBased on the required capacity, the type of furnace and various fuels feeding mode van isselected. The main factors for this selection are:

Fuel characteristics Plant's capacity

For on-grate combustion furnace, there are some types of grate which might be chosen: fixed,flat grate, inclined step grate, moving grate (shocker grate) but only the inclined moving gratesare in common use. The furnace may be divided into two separate parts: combusting and heating(pre - furnace) or direct. Fuel feeding could be done from the bottom or from the top,continuously or in batch. To facilitate the selection, two modes of fuel feeding are analyzed.

Selection of technologyBased on the above analysis, a conclusion is made on the possibility of using one of thefollowing technological schemes for power generation from rice husk:

1. Rice husk → downdraft gasifier → internal combustion engine or small scale gasturbine → generator

2. Rice husk → Combined cycle (gas - steam) → gas and steam turbines → alternator3. Rice husk → furnace / boiler → steam turbine → alternator

First scheme: Cleaned produced gas of biomass is preheated and led to gas turbine/I.C engine forcombustion. Low investment cost and simple operation (few of facilities required) are theadvantages of this scheme. However, it can be used for small scale power generation (up to 1000kW) and it need tar removing process since along with operation, the dust / tar will accumulateon heat exchange surfaces.

Second scheme: Rice husk is gasified in a gasifier. Produced gas is led to gas turbine forcombustion and power generation. The temperature of gas exhausted from gas turbine is stillhigh enough to produce steam. This superheated steam will be led to the steam turbine to drivethe generator producing electricity. This scheme has some advantages like high overallefficiency and high electric capacity.

Third scheme: Biomass is burnt in a furnace (fluidized bed / grate type) for preheating water andproducing steam, which will be used in a steam turbine for driving the generator. This schemehas higher efficiency compared to the first one and easy to apply for cogeneration. It requires,therefore, higher investment cost and skilled operators.

71 17

Conclusions on selection of technology

Cogeneration plant consists of rice husk storehouse, conveying and automatic boiler feedingsystems, furnace/boiler producing 9 tons of steam per hour at 32-bar pressure. The boiler isequipped with automatic ash removal system, heat exchangers and turbo-generator of 0.5 MW.The turbine used here is a backpressure. Heat provided for paddy drying is of 3,000,000 kcal/h.Rice mill will operate 5,000 hours per year. The milling period will be longer than usual thanksto the installation of power station, which will operate for the same period of time.

Table 5.7. Technical and economic parameters of the project

Parameter Unit Data

I. Data on rice mill

Input capacity T. paddy/hour 5 Rice husk /paddy ratio % 20 Mill power requirement KW 270 Milling duration Hours/year 5,000 Ash /rice husk ratio % 20

II. Data of rice husk–fired energy plant Biomass consumption Kg/kWh 2.0 Installed capacity kW 500 Load factor % 100 Parasitic load % 10 Operating time hours/year 5,000

Number of shift per day Shifts/day 3

Number of hours per shift Hours/shift 8 Electricity generation kWh/year 2,500,000 Investment cost

Equipment unit cost US$/KW 1570 Civil works US$ 90,000 Other costs (transmission etc.) US$ 60,000

Annual maintenance cost % of equipment cost 3 Manpower requirements

Plant supervisor person/shift 1

Skilled worker person/shift 1

Unskilled worker person/shift 2

Labor cost US$/year 28,000 Other annual operating costs US$/year 1.000

72 18

6. Project Implementation Plan

Preparation of PFS report, approval: 2009 Survey, investigation, preparation of FS report, approval: 5/2009 Preparation Technical Design: 2009 Construction of plant: 2010 Starting operation: 2011 Ending operation: 2025

7. Contribution To Sustainable Development(i) Supply electricity and thermal energy for own use of rice mill, reduce cost price

of rice processing and preservation;(ii) Supply more power resource, meet electricity demand of Chau Thanh district, An

Nalgonda District;(iii) Create new jobs for laborers; and(iv) Introduction of new electricity generation technology.

8. Project Base Line and GHG Abatement Calculation

8.1. Methodology for calculation of base line of emission

(i) Since capacity of anticipated rice husk thermal power plant will substitutecapacity of one coal-fired power plant, the baseline emission (without this project)will be calculated for the whole Andhra Pradesh power system.

(ii) Based on long-term power system development plan, electricity production inyears of the planned period will be calculated.

(iii) The structure of produced electricity and fuel demands for electricity productionwill be calculated.

(iv) Based on the emission coefficients, annual CO emission from each fuel type will2

be calculated.(v) Baseline is calculated: amount of CO per kWh2

8.2. Calculation of baseline

1. In Electric Power Development Master Plan for Andhra Pradesh for the period 2001 - 2010with outlook to 2020, calculated annual electricity production are as follows:

Table 8.1: Electricity production in the period 2000 - 2010 - 2020 (base case)

Year 2000 2010 2010 2020

Total electricityproduction, GWh

26594 53438 96125 201367

73 19

2. Total capacity of power plants in Andhra Pradesh in 2020 is estimated to about 41400 MW,of which hydro - 15000 MW (36.1%), gas thermal - about 14000 MW (33.0%), coalthermal - 6700 MW (16.2%), and imported fuel - 4000 MW (9.6 %).

In the structure of electricity production in 2020, hydro accounts for 28% (about 56 billionkWh), gas thermal, 39.1% (about 79 billion kWh), coal thermal, 17.9% (36 billion kWh),imported, 8.2% (about 16 billion kWh). With this structure of electricity production, demand ofprimary fuels for electricity generation in the period 2002 - 2020 is as follows:

Table 8.2: Fuel demand for electricity production (base case)

Unit: thousand tons, mil. m3

Fuelstructure

2007 2008 2009 2010 2011 2012 2013 2014 2015 2020

Coal 3101 3542 3415 4254 4129 5494 6947 8302 9959 15859

Gas 1966 3262 4963 5644 6418 6666 7935 8173 9278 16897

Oil, FO,DO

1048 473 187 319 568 826 81 73 73 -

3. Calculation of emissions and baseline

Table 8.3. Coefficients of CO2 emissions (according to IPCC)

Fuel type Emission coefficient (K), kg CO2/ GJ

Anthracite coal 98.3

Oil 74.1

Gas 56.1

Table 8.4. Heat value of fuel types

Fuel type Heat value (CV)

Coal, GJ/1000 tons 21000

Oil, GJ/1000ton 42300

Gas, GJ/tr.m3 38000

Emission amount is calculated by the following formula:

74 20

En = (Bi x CVi x Ki)

Where:- En: Total CO2 emission in year n- Bi: Fuel amount consumed in year n by type (i = coal, oil, gas taken from table 2).- Ki: Emission coefficients (table 8.3)- CVi: Heat value (table 8.4)

The results of calculation are showed in table 8.5

Table 8.5: CO emissions in years of 2009 - 2020 and baseline2

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020

Coal 6401394 7311751 7049585 8781532 8523495 11341264 14340692 17137819 20558364 32737734

Gas 4191119 6953932 10580123 12031879 13681892 14210579 16915833 17423201 19778840 36021025

Oil 3284883 1482585 586138.4 999883.2 1780356 2589039 253888.8 228813.4 228813.4 --------

CO (ton)2 13877396 15748268 18215846 21813295 23985743 28140882 31510414 34789833 40566017 68758758

Generation(GWh)

34275 53438 96125 201367

Kg ofCO /kWh2

0.40488 0.39049 0.39248 0.40820 0.40019 0.41805 0.41623 0.42297 0.42201 0.34146

8.3. GHG Abatement Calculation

Based on the results presented in Table 8.5, the GHG emission reduction if the Rice Husk PowerProject of 500 KW (2500 MWh annually) is implemented, compared to Whole Andhra PradeshElectricity System Baseline can be calculated and showed in following table:

Table 8.6: CO emission reduction by Nalgonda Rice Husk Power Plant in years of 20022

– 2020 (Based on the Whole Andhra Pradesh Electricity System Baseline)

Years 2002 2003 2004 2005 2006 2007 2008 2009 2010 2020

Baseline

Emission

Coefficient (Kg

of CO /kWh2

0.404 0.390 0.392 0.408 0.400 0.418 0.416 0.422 0.422 0.341

Reduction of

non-biogenic

CO2 (Ton of

CO2)

1000 1045 1040 1057 1055 852

75 21

From Table 8.6 with assumption that baseline emission coefficient will be unchanged from 2020to 2025, the total CO emission reduction, which will be reduced during project lifetime (2011 -

2

2025) can be calculated. The calculation result is 19 800 tons of CO .2

8.4. Reduction of CO emission from paddy drying2

As mentioned above, the annual anthracite coal consumption for paddy drying of the rice mill is10 tons. This energy process emits CO and other pollutants. The use of steam at low pressure2

generated by the project for paddy drying instead of using coal will result in reduction of non-biogenic CO emission, equaled to 19.72 ton of CO /year. During project lifetime, the total2 2

reduction amount will be of 394 tons of CO .2

8.5. Total CO emission reduction2

From the above calculation, total CO emission reduction during project lifetime is 20194 tons.

2

9. Financial Analysis

9.1. Total investment cost evaluation

9.1.1. Legal backgrounds

Works to be done and some unit costs based on results of survey at NalgondaDistrict.

Project design costs according to the Norms

Unit costs of equipment and electric materials of foreign and domestic manufacturers. Guideline on preparation of cost estimates, total cost estimate for basic construction

power projects of Andhra Pradesh. Government Decree No. 22/1998 /ND-CP dated 24/4/1998 on compensation when

the government uses land for purposes of defense, security, national and publicbenefits.

Costs of preparation of procedures for getting land, construction license and landcompensation according to Local Scenarios.

Format of Pre-Feasibility Study report prepared by PREGA team of ADB. Related papers in force. Exchange rate: US$ 1 =INR 46

76 22

9.1.2. Breakdown components of investment cost

General techno-economic assumptionsRice milling capacity is 120 ton of paddy per day, major part of which is for domestic usage orexport. Cogeneration plant consists of a rice husk storehouse, conveying and automatic boilerfeeding system, a furnace/boiler producing 9 tons of steam per hour at 32-bar pressure. Theboiler is equipped with automatic ash removal system, heat exchangers and turbo-generator of0.5 MW. The turbine used here is a backpressure.

Rice mill will operate 5000 hours annually. The milling period will be longer than usual due tothe installation of power station, which will operate for the same period of time.

Total investment cost of the project: 935 000 US$Main costs of investment are:

Equipment: 785 000 US$Installation, construction: 90 000 US$Other costs: 60 000 US$

The following economic parameters will be taken into account in the analysis.

Revenue:Rice husk disposal cost saving: consist of savings from not having to dispose rice husk, as it willbe used for power generation for the whole year. Since the power plant and rice mill will runsimultaneously, rice husk does not need to be stored, except for very short periods of time. Thiswill lead to lessening rice husk storage and handling costs.

Electricity cost savings: gained due to: (a) not use mined coal for paddy drying and (b) not haveto purchase grid electricity during the milling season.

Surplus power sale: revenue from the auto produced electricity in excess of the mill requirementand the excess amount is sold to the power grid or neighboring consumers.

Surplus thermal sale: revenue from the auto produced thermal energy in excess of therequirement for paddy drying and the excess amount is used to dry for other mills around thearea of Annapurna Food Purchasing and Processing Unit.

Ash sale: ash is a by-product from rice husk combustion in the boiler. At present, Europeanboiler manufacturers are able to develop incineration systems to produce rice husk ash ofconsistent quality. Rice husk of such quality can be considered as a valuable additional materialin some industries such as glass and brick manufacturing, in the steel industry, and morerecently, in semi-conductor industry. Thus, investment in equipment, which could produce goodquality ash, will increase the additional revenue for end-users through the sale of ash. Wheneverthe equipment can produce ash of good quality, the additional income from ash sale is possible.This attractiveness, therefore, should be taken into account in the evaluation. A modest estimateof the profit from ash sale is about 50 US$ per ton.

77 23

It is assumed that the above revenues will be generated only from the second year and the firstyear is the construction period. The depreciation cost of the equipment is calculated for 15 years.Possible income from sale of old equipment is not taken into account.

CostsCapital investment cost: Based on current data, an equipment unit cost of 1570 US$/KW is usedfor the rice husk -fired power plant. This cost consists of investment cost of a boiler, a turbo-generator and other costs. Civil works and equipment import duties are also considered whenanalyzing.

Annual operating costs of the cogeneration plant consist of maintenance costs and labor costs.Annual maintenance costs are assumed at 3% of the total equipment cost.

In this study, the production should not only cover the need of rice mill itself (paddy drying andcooling cells for rice storage) but it also should meet the other electricity requirement of the milland administrative buildings. The technical and financial assumptions used in the analysis aresummarized in Table 9.1

Table 9.1: Summary of technical and financial parameters of the0.5 MW rice husk – fired cogeneration plant

Parameter Unit Indicator

I. Data on rice mill

Mill Input capacity T. paddy/hour 5 Rice husk /paddy ratio % 20 Mill power requirement kW 270 Milling duration Hours/year 5,000

shift 3 Ash /rice husk ratio % 20 Consumption of anthracite coal Kg/year 10,000

Financial assumptions Exchange rate* VND/US$ 15,200 Electricity purchase price out -of -pick load hours US$/kWh 0.0589 Electricity buy-back rate US$/kWh 0.0566 Market Price of anthracite coal US$/kg 0.022 Ash selling price US$/ton 50 CO2 Credit US$/ton 5 Labor rate

- Plant supervisor US$/month/shift 300 - Skilled worker US$/month/shift 200 - Unskilled worker US$/month/shift 150

II. Data of rice husk–fired energy plant Biomass consumption Kg/kWh 2.0 Installed capacity kW 500 Load factor % 100

78 24

Parameter Unit Indicator Parasitic load % 10

Operating time hours/year 5,000

Number of shift per day Shift/day 3

Number of hours per shift hours/ship 8 Power generation MWh/year 2,500 Power Sales MWh/year 950 Thermal Generation MWh/year 8333 Thermal Sales MWh/year 9298 Investment cost

Equipment unit cost US$/KW 1570 Civil works US$ 90,000 Other costs (transmission etc.) US$ 60,000

Annual maintenance cost% of equipment

cost3

Manpower requirements Plant supervisor person/shift 1 Skilled worker person/shift 1 Unskilled worker person/shift 2

Labor cost US$/year 28,000 Other annual operating costs US$/year 1,000

Table 9.2. Summary of the technical and financial results (adjusted to current price) for a0.5 MW rice husk – fired cogeneration plant

Parameters Unit Value Installed capacity kW 500 Capital investment US$ 785,000

Annual operating costs of rice husk – fired power plant Labor costs US$/year 28,800 Maintenance costs US$/year 23,550 Other costs US$/year 1,000 Annual total costs US$/year 53,350

9.2. Financial Analysis

9.2.1. Objectives

Financial analysis is to evaluate the feasibility of the project at the point of view of the investor(project manager), from that to offer forms of capital mobilization, financial mechanisms inorder to ensure balance in financial revenue - cost and efficiency of project.

79 25

9.2.2. Financial analysis consists of the following:

Project financial analysis, from the view of investor, is to define ability of capital mobilization,loan conditions (interest, payback time, grace period…), to reach the financial efficiency.

9.2.3. Financial Analysis includes following reports:

1. Report of Revenue: represents annual revenue, costs and net income of project during thelifetime.

2. Table of Cash Flow: represents revenue flow, cost flow and net present value for theproject during lifetime with discount rate taken into account

Table of cash flow evaluates financial effect, defines financial indicators of project and investor,includes:

Financial Internal Rate of Return: FIRR Financial Net Present Value: FNPV Ratio of Benefit and Cost: B/C

Borrowing capital: Nalgonda Food and Agriculture Product Import & Exporting Company is theinvestor.

According to commercial loan conditions, project manager must contribute at least 30% of totalinvestment capital (including interest during construction period), maybe stock or own fund,70% capital remaining will be credit loan.

It is anticipated to borrow loan with the terms and conditions as follows: Payback time: 3 years Grace period: 1 year Lifetime of project: 20 years

GHG credit of rice husk power plant: 5 US$/ ton CO . It is taken into account during first ten2

years.

Average electricity price is set up so that financial rate of return is at least equal or higher thanWACC to ensure the feasibility of the project.

The results of financial indicators of project investor (Nalgonda Food and Agriculture ProductImport & Exporting Company) are as follows:

Average interest rate of 7% and equity participation with expected interest rate of 10%, it isanticipated to have capital resources of project as in the table below:

80 26

Table 9.3. Components of capital source for project

Sources

of Fund

Weighted Nominal Income tax

cost rate

Tax-adjusted

nominal cost

Loan 70%

of which

ADBLoan

30% 6.7% 32% 5.556%

Otherforeign loan

10% 7.5% 32% 5.1%

Domesticloan

30% 12% 32% 8.16%

Equityparticipation

30% 10% 10%

From the above sources of fund and interest rates with income tax rate of 32%

WACC =0.3*5.556%+0.1*5.1%+0.3*8.16%+0.3*10%= 7.325%

The results of financial indicators are in the tables below:

Table 9.4. Results of financial analysis with WACC of 7.325 %from the point of view of investor

Indicators With CO emission reduction Without CO2

taken into account 2 emission

reduction taken into account

NPV (mil. US$) 0.805 0.586

FIRR 28.56% 22.5%

B/C 1.45 1.35

81 27

Table 9.5. Results of financial analysis with WACC of 7.325%from the point of view of project

Indicators With CO2 emission

reduction taken into

account

Without CO2 emission

reduction taken into

account

NPV (mil. US$) 1 0.79

FIRR 19.5% 17.07%

B/C 1.74 1.53

The analysis results show that FIRR of project would be higher than WACC. In case of GHGemission reduction taken into account the benefits of the projects will be higher. Project isfinancially feasible.

9.2.3. Sensitivity Analysis

This Study carried out sensitivity analysis based on the most likely changes.

(i) An increase in investment cost by 10 percent

Decreases in benefits: No benefit from ash sale No benefit from thermal energy sale

(ii) An increase in costs of operation and maintenance by 10%

(iii) A delay in the period of construction, causing a delay in revenue generation by one year.

(iv) Combinations of variables: the effects on FNPV and FIRR of a simultaneous decline inbenefits and an increase in investment cost and O&M costs can be computed.

The effects of above changes are summarized in the following table.

Table 9.6. Sensitivity Analysis with indicators from the point of view of project

ItemFNPV (mil.

US$)FIRR (%) SI (FNPV) SV (FNPV)

Base case 1 19.5

Investment 0.935 mil. US$ 10% 0.91 17.52 0.900 -111%

No benefit from ash sale 50 US$/ton ash 0 US$/ton ash 0.42 12.74 0.580 172%

No benefit from thermalenergy sale

4.6 US$/MWh 0 US$/MWh 0.76 16.77 0.240 417%

O&M costs 0.0534 mil. US$ 10% 1.02 19.7 -0.200 500%

Construction delays 0.934 19.38 6.60% NPV 6.6% lower

Combination of variables 0.093 8.28

Base case Change

One year

82 28

SI: Sensitivity IndicatorSV: Switching Value

Table 9.7. Sensitivity Analysis with indicators from the point of view of investor

Above results of sensitivity analysis show that, project still gets financial feasibility withindependent changes. In case of combination of variables changed, from the point of view ofinvestor, project is not feasible due to negative FNPV and FIRR lower than WACC.

9.2.4. Conclusions of project’s financial feasibility

The project will be feasible and financial indicators will be higher if invested byborrowing capital.

Financial indicators of the project will be higher if GHG emission reduction is takeninto account.

If project can get loan from WB, ADB with incentive interest, the feasibility will bebetter.

ItemFNPV (mil.

US$)FIRR (%) SI (FNPV) SV (FNPV)

Base case 0.805 28.56

Investment 0.935 mil. US$ 10% 0.747 25.09 0.720 -139%

No benefit from ash sale 50 US$/ton ash 0 US$/ton ash 0.179 11.83 0.778 129%

No benefit from thermalenergy sale

4.6 US$/MWh 0 US$/MWh 0.557 21.75 0.308 325%

O&M costs 0.0534 mil. US$ 10% 0.768 27.53 0.460 -218%

Construction delays 0.75 28.49 6.83% NPV 6.83% lower

Combination of variables -0.189 2.09

Base case Change

One year

29

Table 9.8. Revenue of project

Unit: mil. US$

Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014201520202025Total

I. Electricity effect

Electricity Sales (MWh) 931 931 931 931 931 931 931 931 93193193193118620

Electricity Sales Revenue (mil. US$) 0.0053 0.0053 0.0053 0.0053 0.0053 0.0053 0.0053 0.00530.00530.00530.00530.00530.1054

Electricity saving (MWh) 1300 1300 1300 1300 1300 1300 1300 1300 130013001300130026000

Electricity saving revenue (mil. US$) 0.008 0.008 0.008 0.008 0.008 0.008 0.008 0.008 0.0080.0080.0080.0080.1508

II. Thermal Energy Effect

Sales (MWh) 7883.1 7883.1 7883.1 7883.1 7883.1 7883.1 7883.1 7883.17883.17883.17883.17883.1157662

Net Revenue(mil. US$) 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.040.040.040.040.7252

III Other Benefits 0.0052 0.0054 0.0054 0.0055 0.0055 0.0054 0.0053 0.00520.00510.00500.00450.00020.0946

Benefit from not purchase coal forpaddy drying (mil. US$) 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.00020.00020.00020.00020.00020.0044

CO2 credit (mil. US$) 0.0050 0.0052 0.0052 0.0053 0.0053 0.0052 0.0051 0.00500.00490.00480.00430.00000.0902

Total Revenue 0.047 0.047 0.047 0.047 0.047 0.047 0.047 0.047 0.0470.0470.0460.0420.9253

II. Costs (mil. US$)

1. Total direct cost 0.116 0.116 0.116 0.116 0.116 0.116 0.116 0.116 0.1160.1160.1160.0532.0020

1.1. O&M cost 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0530.0530.0531.0670

1.2. Depreciation 0.062 0.062 0.062 0.062 0.062 0.062 0.062 0.062 0.0620.0620.0620.9350

2. Interest payment 0.037 0.025 0.012 0.000 0.000 0.000 0.000 0.000 0.0000.0000.0000.0000.0746

3. Total cost 0.153 0.141 0.128 0.116 0.116 0.116 0.116 0.116 0.1160.1160.1160.0532.0766

4. Income before tax -0.106 -0.094 -0.081 -0.069 -0.069 -0.069 -0.069 -0.069 -0.069-0.069-0.070-0.012-1.1514

5. Income tax 0 0 0.000 0.000 0.000 0.000 0.000 0.000 0.0000.0000.0000.0000.0000

6. Income after tax -0.106 -0.094 0.000 -0.069 -0.069 -0.069 -0.069 -0.069-0.069-0.069-0.070-0.012-1.0702

83

30

Table 9.9. Financial Analysis from the point of view of investor with WACC of 7.325%, CO2 emission reduction taken into account

Unit: mil. US$

Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 20132014201520202025Total1. Net Revenue (excluded VAT) 0.251 0.251 0.251 0.251 0.251 0.251 0.251 0.2510.2510.2510.2500.2465.0081.1.Surplus power sales 0.060 0.060 0.060 0.060 0.060 0.060 0.060 0.0600.0600.0600.0600.0601.1921.2.Surplus thermal sales 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.0360.0360.0360.0360.0360.7251.3.Ash sales 0.088 0.088 0.088 0.088 0.088 0.088 0.088 0.0880.0880.0880.0880.0881.7521.4. CO2 emsission reduction profit 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.0050.0050.0050.0040.0000.0901.5.Benefit from not purchase electricity 0.075 0.075 0.075 0.075 0.075 0.075 0.075 0.0750.0750.0750.0750.0751.5081.6.Benefit from not purchase coal for heating p 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.00020.00020.00020.00020.0042. Total income 0.00 0.251 0.251 0.251 0.251 0.251 0.251 0.251 0.2510.2510.2510.2500.2465.0123. Investment 0.2805 0.2814. Total costs before tax 0 0.095 0.234 0.220 0.206 0.053 0.053 0.053 0.0530.0530.0530.0530.0531.6084.1. O&M cost 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0530.0530.0530.0531.0674.2. Interest payment 0.042 0.028 0.014 0.000 0.000 0.000 0.000 0.0000.0000.000000.0834.3. Loan payment 0 0.15272 0.1527 0.1527 0 0 0 0 00000.4585. Income tax 0.00 0.050 0 0 0 0.063 0.063 0.063 0.0630.0630.0630.0630.0621.0886. Total cost 0.28 0.14 0.24 0.23 0.22 0.12 0.12 0.12 0.120.120.120.120.122.9777. Net income -0.28 0.11 0.01 0 0 0 0.13 0.13 0.130.130.130.130.132.036NPV 0.805IRR 28.56%B/C 1.45

84

31

Table 9.10. Financial Analysis from the point of view of project with WACC of 7.325%, CO2 emission reduction taken into account

Unit: mil. US$

85

32

Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 20132014201520202025Total

1. Net Revenue (excluded VAT) 0.251 0.251 0.251 0.251 0.251 0.251 0.251 0.2510.2510.2510.2500.2465.008

1.1.Surplus power sales 0.060 0.060 0.060 0.060 0.060 0.060 0.060 0.0600.0600.0600.0600.0601.192

1.2.Surplus thermal sales 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.0360.0360.0360.0360.0360.725

1.3.Ash sales 0.088 0.088 0.088 0.088 0.088 0.088 0.088 0.0880.0880.0880.0880.0881.752

1.4. CO2 emsission reduction profit 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.0050.0050.0050.0040.0000.090

1.5.Benefit from not purchase electricity 0.075 0.075 0.075 0.075 0.075 0.075 0.075 0.0750.0750.0750.0750.0751.508

1.6.Benefit from not purchase coal for heating p 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.00020.00020.00020.00020.00020.004

2. Investment cost 0.935 0 0.935

3. O&M cost 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0530.0530.0530.0531.067

Total cost 0.935 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0530.0530.0530.0532.002

4. Income tax 0.063 0.063 0.063 0.063 0.063 0.063 0.063 0.0630.0630.0630.0630.0621.261

5. Net Income -0.935 0.188 0.188 0.188 0.188 0.188 0.188 0.188 0.1880.1880.1880.1870.1842.812

NPV 1.00IRR 19.50%B/C 1.74

10. Economic Analysis

10.1. Poverty alleviation effect

The economic features bringing in the social profit like labor involvement, job opportunitycreation and other benefits gained by the various sectors from the project will contribute inincreasing the economy and create good conditions for agricultural and rural developmenttowards direction of modernization and industrialization. Realization of this project will promotethe development of rice industry with a competitive advantage through reducing the post-harvestlosses and improving quality of goods, mainly rice for export.

10.2. Environmental impacts

The expected impacts of the power plant are as follows:

Bran dusts emitted during operation of rice mill. In this case, the mill will be located in aconvenient place, far from the center of inhabitants.

Additionally, surrounding the mill, the trees have been planted for collecting dust. Insidethe mill, vacuum cleaners and draft fans are also installed to improve the air in workingarea.

The mill and polishing machine are located far from the road and inhabitant center so thatthe noise does not disturb the people living in surrounding.

Impact on land use is not considerable The issue of resettlement is not impacted.

10.3. Economic Analysis of the Project

Economic Analysis is aimed to evaluate feasibility of the project to national economy, tocalculate and compare economic indicators for selecting solution and the best way ofimplementation.

Economic analysis is to analyze social efficiency of the project to national economy. Economicindicators bring social benefits such as creating new jobs, making the development of othereconomic sectors, contributing to development of State. Therefore, it is necessary to considersocial- economic benefits when defining economic electricity selling price and reduce labor costand taxes in initial investment cost.

Economic analysis also considers costs of damages by project impacts to other sectors, toenvironment and to national economy. Contents in economic analysis include cash flow tableand economic indicators with each of technology and construction plans.

Expenditure flow:

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Investment costs in economic analysis: This is investment cost without labor costs andtaxes (benefits for society, brought jobs for society). This eliminated potion is estimatedof about 10% of total investment cost of the project.

Operation and maintenance cost (O&M cost) and other costs as in financial analysis.

Income flow: Turnover from electricity sales Turnover from thermal energy sales (using for drying rice for other customers around

plant area) Turnover from selling ash Other benefits gained from the project: reduction of negative impacts on economy,

environmental protection, benefit from not purchase coal for drying rice.

Table 10.1. Data input of Economic analysis

Export price of anthracite coal 30 US$/ton

Electricity price at LRMC atmedium voltage

6.4 US$/MWh

Thermal Energy Price 4.6 US$/MWh

Amount of coal saving 10 000 ton/year

Amount of electricity saving 1300 MWh/ years

Amount of surplus electricity 950 MWh/year

Amount of surplus heat 8298 MWh

Output of economic analysis is a statement of economic cash flow and economic indicators gotfrom technology and construction option set out for selection of best alternative. Economiceffectiveness is determined through following economic indicators:

EIRR ENPV B/C Discount rate of 10%

The standard model developed by EC-ASIAN COGEN Program is used here for economicanalysis of utilizing biomass residues to produce energy.

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Table 10.2. Economic Analysis results with electricity price of 5 UScent/kWh

Indicators With CO emission reduction2

taken into account

Without CO emission2

reduction taken into account

EIRR 25.72% 25.09%

NPV (mil. US$) 0.926 0.888

B/C 1.96 1.93

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Table 10.3. Economic Analysis with CO emission reduction taken into account2

Unit: mil. US$

Fiscal Year 2005 2006 2012 2008 2009 2010 2011 2012 20132014201520202025Total

Cost 0.842 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0530.0530.0530.0531.909

Investment cost 0.842 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.0000.0000.0000.0000.842

O&M cost 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0530.0530.0531.067

Revenue 0.272 0.272 0.272 0.272 0.272 0.272 0.272 0.272 0.2720.2720.2710.2675.429

Surplus power sale 0.060 0.060 0.060 0.060 0.060 0.060 0.060 0.060 0.0600.0600.0600.0601.192

Surplus thermal energy sale 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.0360.0360.0360.0360.725

Benefit from not purchase electricity 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.0830.0830.0830.0831.664

Revenue from selling ash 0.0876 0.088 0.088 0.088 0.088 0.088 0.088 0.088 0.0880.0880.0880.0881.752

Environmental benefit 0.005 0.0052 0.0052 0.0053 0.005 0.005 0.005 0.005 0.0050.0050.0040.0000.090

Benefit from not purchase coal forheating rice 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.00030.00030.00030.00030.0003

0.006

Net Income -0.842 0.219 0.219 0.219 0.219 0.219 0.219 0.219 0.219 0.2180.2180.2180.2143.521

NPV (mil. US$) 0.926IRR 25.72%B/C 1.96

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Table 10.4. Economic Analysis without CO emission reduction taken into account2

Unit: mil. US$

Fiscal Year 2005 2006 2012 2008 2009 2010 2011 2012 20132014201520202025Total

Cost 0.842 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0530.0530.0530.0531.909

Investment cost 0.842 0.000 0.000 0.000 0.000 0.000 0.000 0.0000.0000.0000.0000.0000.842

O&M cost 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0530.0530.0530.0531.067

Revenue 0.267 0.267 0.267 0.267 0.267 0.267 0.267 0.2670.2670.2670.2670.2675.339

Surplus power sale 0.060 0.060 0.060 0.060 0.060 0.060 0.060 0.0600.0600.0600.0600.0601.192

Surplus thermal energy sale 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.0360.0360.0360.0360.0360.725

Benefit from not purchase electricity 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.0830.0830.0830.0830.0831.664

Revenue from selling ash 0.0876 0.088 0.088 0.088 0.088 0.088 0.088 0.0880.0880.0880.0880.0881.752

Benefit from not purchase coal forheating rice

0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.00030.00030.00030.00030.00030.006

Net Income -0.842 0.214 0.214 0.214 0.214 0.214 0.214 0.214 0.2140.2140.2140.2140.2143.430

NPV (mil. US$) 0.888IRR 25.09%B/C 1.93

11. Conclusions

There are two general trends characterizing the rice processing industry in the ASEAN countries:Firstly, rice production has been stabilized at certain levels, except Andhra Pradesh, whose paddyproduction still tends to increase. Secondly, agricultural lands for paddy growing have beendecreasing, converting to other purposes for more profitable land use. This is expected to be

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stabilized in the coming years because the Government has started developing the wastelands forpaddy production. With the use of high-yielding rice species, these wastelands are expected tosignificantly contribute to the total paddy production in the future.

Paddy production increases and at the end of rice milling process there will be a greater volumeof rice husk produced, which in most cases is simply considered as wastes to be disposed off,commonly by dumping, open-burning or incineration. Use of rice husk for generating power andheat will be very meaningful for the biomass energy markets.

However, the first important thing is to recognize the following factors that would make ricehusk – fired plant more viable: (i) firstly, at the special level, the geographic concentration ofpaddy production and the geographic location of rice mills, the distance to the power plant; (ii)secondly, on the technical level, the milling capacity and milling duration of rice mill and thebest available technology; and (iii) thirdly, the economic viability of investing in the powerplant; and finally, the institutional policies.

The important thing for the power plant is that it should be built close to the rice husk sources inorder to minimize transport cost of rice husk from the rice mill and it needs also to consider thesize of the rice mill as well. Milling capacity will determine the rice husk output from the paddymilling process.

In actual conditions, the existence of old backward milling technologies, the abundance of ricehusk residue and the problems of its disposal lead to the necessity to apply the paddy drying andmilling process at the mills. In some cases the mills meet their heat need for own process byusing rice husk as fuel burnt in very inefficient manner, while the electricity was purchased fromthe power grid or self-generated using diesel gensets.

It is attractive for the rice mill operators or the potential investors when considering theeconomic effect from making the existing systems into the more efficient ones.

However, despite the big potential of power generation from rice husk in Andhra Pradesh, the majorbarrier to the uptake of cogeneration technologies has been the insufficient information on theprojects carried out in the region or the bad experience from the rice husk energy projects set upin the past. The uncertainties on the use of technologies for the site and specific energy systemsmake appear a bad impression on the potential investors in the rice industry. The interestedequipment and technology suppliers should pay attention on this issue in order to convince thepotential investor of the benefit of cogeneration utilizing rice husk as fuel.

The experience of COGEN in the field of energy from biomass showed that for a 2.5 MW ricehusk – fired power plant installation, the plant owner gains energy savings and other economic

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benefits, such as added income from the sale of excess electricity to the power grid and pay-backtime of less than four years.

The well-proven technologies for biomass energy are currently available in the ASEAN market.COGEN promotes the European technologies, which are proven, energy efficient andenvironment friendly. The rice mill owners who are uptake of the technology and interested inthe application can take advantages of the available technical services.

Last but not least, the current national programs for energy security in most ASEAN countriesactively promote the use of indigenous renewable energy sources, particularly biomass, and thegovernments encourage the private sector to participate in power generation. On the other hand environment measures are being taken for all sectors, especially in the industries and energysectors through environmental regulations and economic incentives. These policies, therefore,encourage the rice mill owners to venture into cogeneration technology using their rice husks asfuel. Moreover, they are able to solve the following issues: waste disposal management;compliance with environmental regulations; giving more value to their wastes by turning theminto profit; and energy self- sufficiency in their mills.,

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Table of Contents

Chapter Title Page No.

1 Introduction Pages 2-4

2 Concept of Distributed Power: Its Definition,Scope and Relevance in the Indian Context Pages 5-9

3 Rural Electrification in India – The CurrentSituation Pages 10-13

4 Renewable Energy Sources andDistributed Generation in Rural India Pages 14-27

5 Organisational and Managerial Aspects :People’s Participation

Pages 28-42

6 Financing Schemes of DistributedGeneration Pages 43-57

7 Regulatory Issues Pages 58-60

8. ANNEXURES Pages 61-87

9. List of signatory Page 88

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CHAPTER 1 : INTRODUCTION

1. The Power Sector is an important part of the infrastructure of the IndianEconomy and power generation has been accorded a high order of priorityin our Five Year Plans. The State Electricity Boards, which are under thecontrol of the State Governments, are the important instruments forgeneration and distribution of power throughout the State. Initially, theState Electricity Boards were given the responsibility to generate, transmitand distribute power throughout the State. The Central Government hadto intervene in the seventies, when it became clear that the StateElectricity Boards could not bear the burden of adding new capacities onaccount of the high costs of investment and amend The Electricity SupplyAct in 1976.This led to the setting up of the National Hydro-powerCorporation and the National Thermal Power Corporation initially and theother Central Public Sector Undertaking subsequently.

2. The installed capacity of the power generation in the State as on March31, 2001 was 101,630 MW as compared to that of 1352 MW in 1947, ofwhich 72% was thermal, 25% was hydro (including wind) and 3% wasnuclear. The Working Group on Power constituted by the PlanningCommission to formulate the 10 th five year plan estimated a feasiblecapacity addition of 47,000 MW, during the 10 th plan, 24,405 MW in theCentral Sector, 12,033 MW in the State Sector and 10,501 MW in thePrivate Sector for which investment of the order of Rs.5,66,000 crorewould be required.

3. As the primary resources for electrical power generation are unevenlydisposed in the State, bulk transmission of electrical power over longdistance becomes necessary for supplying the loads. The State wasorganised into 5 regional grids each of which is well integrated. Stronginterconnections between the regional grids are planned to create a strongnational grid. This objective is sought to be achieved in a phased mannerby the end of the 11 th five-year plan (2011-12) through the Power GridCorporation of India Limited.

4. A number of problems have been plugging the power sector, which needsto be tackled urgently. Transmission of power over long distances led tohigh transmission and distribution losses, which increased, from 24.8% in1997-98 to 25.6% in 1998-99 (provisional). Inadequate investments indistribution systems, improper billing and high pilferage are among theimportant reasons for the high transmission and distribution losses.

5. The policy of economic liberablisation, adopted in the nineties, to attractprivate domestic investment and foreign investment, could not achieve thedesired results owing to the poor financial health of the State ElectricityBoards, their inability to pay the contracted tariff and a lack of mechanism

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3that could ensure safety of repayment to the foreigninvestors. Further, the effort was concentrated on the generation front andnot on the distribution front. The Government of India have, of late,recognised the strategic

mistake, which was committed in the initial stage, and are nowconcentrating on reforms at the distribution end.

6. The electric power industry was built on the principle that large centralizedpower plants could achieve economies of scale, which would make themthe least expensive sources of electricity. Conventional boilers andnuclear reactors reached unit sizes of over 1000 MW in the 1970’s and80’s. In the 1980’s small highly efficient gas turbines, which usedtechnologies similar to an airplane engine, opened up the possibilities ofproducing inexpensive electricity on a relatively small scale. Since the mid70’s both the total annual capacity additions and the average unit sizes ofOECD power plants have been dropping.

7. Around 1985 electric utilities started anticipating the possibilities ofcompetition and concentrating on cost reduction. Large scale powerplants that involved huge investments began to be perceived asunacceptable risks and demand side management emerged as analternative to power plant construction.

8. The emergence of wholesale competition in 1996 in the U. S. A. openedup possibilities of a complete restructuring of the power industry andconsiderably slowed down investment in power plants. Demand sidemanagement, which seemed contrary to their goals, took the backseatand the restructuring of the power industry was given the pride of place. .

9. The consequent gap in capacity for generation resulted in tight electricitysupplies in many parts of the USA. Distributed generation emerged as thepreferred solution, as it avoids investment in both generation andtransmission and brings the solution nearer the consumers by bypassingthe need for long distance transmission. The concept of distributedgeneration, which is now gaining worldwide acceptance, was started in theUSA almost a decade ago. Distributed generation which accounts for only5% of USA’s electricity is expected to account for 10 to 20% of newgenerating capacity over a period of next 15 year in that State.

10. Taking cognisance of the new trends, the Government of India thought ofinitiating steps towards Distributed Generation with special reference torural electrification keeping in mind the overall objectives of providingpower for all by 2012 and appointed a committee to examine the matterand make suitable recommendations. A copy of Government of India,Ministry of Power OM No.12/4/2002-APDP dated 8 th March 2002 isenclosed as Annexure 1.

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411. In the chapters that follow the concept of distributed power generation

has been discussed in relation to the Indian context especially that of ruralelectrification in India.

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CHAPTER - 2

The Concept of Distributed Power:It’s definition, scope and relevance in the Indian Context

1. The Ministry of Power OM dated 6.3.2002 refers to distributive generation.However, the expression distributed generation is also used very widely inthe relevant technical literature on the subject.

2. The focus in the case of distributed generation is on small/medium sizedplants ranging from about 10 kW to 50 MW are substantially lower capitaloutlay, lower risks, shorter gestation periods and proximity to load centres.The main objective is to assure reliable and quality power.

3. Distributed power means modular electric generation or storage locatednear the point of use. It includes biomass generators, combustionturbines, micro turbines, engines/generator sets and storage and controltechnologies. It can be either grid connected or independent. Distributedpower connected to the grid is the typically interfaced added distributionsystem. Distributed power generation systems range typically from lessthan a kilowatt (kW) to ten megawatts (MW) in size.

4. Distributed energy resources (distributed power) refers to a variety ofsmall modular power generating technologies that can be combined withenergy management and storage systems and used to improve theoperations of the electricity delivery systems, whether or not thesetechnologies are connected to an electric grid. Distributed energyresources support and strengthen the central-station model of electricitygeneration, transmission and distribution. Distributed power can assumea variety of forms. It can be as simple as installing a small electricitygenerator to provide back-up power at an electricity consumer site. Onthe other hand it can be a more complex system highly integrated with theelectricity grid and comprisingelectricity generation, energy storage and power management systems.

5. Distributed Power Applications

5.1. Distributed power technologies are typically installed for one or more ofthe following purposes: -

(i) Overall load reduction – Use of energy efficiency and other energysaving measures for reducing total consumption of electricity,sometimes with supplemental power generation.

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(ii) Independence from the grid – Power is generated locally to meet alllocal energy needs by ensuring reliable and quality power undertwo different models.

a. Grid Connected – Grid power is used only as a back upduring failure of maintenance of the onsite generator.

b. Off grid – This is in the nature of stand-alone powergeneration. In order to attain self-sufficiency it usuallyincludes energy saving approaches and an energy storagedevice for back-up power. This includes most village powerapplications in developing countries.

(iii) Supplemental Power- Under this model, power generated by thegrid is augmented with distributed generation for the followingreasons: -

a. Standby Power- Under this arrangement power availability isassured during grid outages.

b. Peak shaving – Under this model the power that is locallygenerated is used fro reducing the demand for grid electricityduring the peak periods to avoid the peak demand chargesimposed on big electricity users.

(iv) Net energy sales – Individual homeowners and entrepreneurs cangenerate more electricity than they need and sell their surplus tothe grid. Co-generation could fall into this category.

(v) Combined heat and power - Under this model waste heat from apower generator is captured and used in manufacturing process forspace heating, water heating etc. in order to enhance the efficiencyof fuel utilization.

(vi) Grid support – Power companies resort to distributed generation fora wide variety of reasons. The emphasis is on meeting higher peakloads without having to invest in infrastructure (line and sub-stationupgrades).

6. Most of the early adopters of distributed power wanted to stay connectedto the grid, which they used either as a backup or for selling their surpluspower to the power companies.

7 The Benefits Of Distributed Power :

Energy consumers, power providers and all other state holders arebenefited in their own ways by the adoption of distributed power. The mostimportant benefit of distributed power stems from its flexibility, it can providepower where it is needed and when it is needed.

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The major benefits of distributed power to the various stakeholders are asfollows:

7.1 Major Potential Benefits of Distributed Generation

7.2 Consumer-Side Benefits: Better power reliability and quality, lower energycost, wider choice in energy supply options, better energy and loadmanagement and faster response to new power demands are among themajor potential benefits that can accrue to the consumers.

7.3 Grid –Side Benefits : The grid benefits by way of reduced transmission anddistribution losses, reduction in upstream congestion on transmission lines,optimal use of existing grid assets, higher energy conversion efficiency thanin central generation and improved grid reliability. Capacity additions andreductions can be made in small increments closely matching the demandsinstead of constructing Central Power Plants which are sized to meet aestimated future rather than current demand under distributed generation.

7.4 Benefits To Other Stake Holders: Energy Service Companies get newopportunities for selling, financing and managing distributed generation andload reduction technologies and approaches. Technology developers,manufacturers and vendors of distributed power equipment seeopportunities for new business in an expanded market for their products.Regulators and policy maker's support distributed power as it benefitsconsumers and promotes competition.

8. The following are among the more important factors that contributed to theemergence of distributed generation as a new alternative to the energycrisis that surfaced in the USA.

i. Energy Shortage ±States likes California and New York thatexperienced energy shortages decided to encourage businesses andhomeowners to install their own generating capacity and take lesspower from the grid. The California Public Utilities Commission forinstance approved a programme of 125 US million $ incentivesprogramme to encourage businesses and homeowners to install theirown generating capacity and take less power from the grid. In thelong run the factors enumerated below would play a significant part inthe development of distributed generation.

ii. Digital Economy ±Though the power industry in the USA met morethan 99% of the power requirements of the computer basedindustries, these industries found that even a momentary fluctuationin power supply can cause computer crashes. The industries, whichused computer, based manufacturing processes shifted to their ownback-up systems for power generation.

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iii. Continued Deregulation of Electricity Markets ± The progressivederegulation of the electricity markets in the USA led to violent pricefluctuations because the power generators, who were not allowed toenter into long-term wholesale contracts, had to pass on whateverloss they suffered only on the spot markets. In a situation like that inCalifornia where prices can fluctuate by the hour, flexibility to switchonto and off the grid alone gives the buyer the strength to negotiatewith the power supplier on a strong footing. Distributed generation infact is regarded as the best means of ensuring competition in thepower sector.

9. Both in the USA and UK the process of de-regulation did not make smoothprogress on account of the difficulties created by the regulated structure ofthe power market and a monopoly enjoyed the dominant utilities.

10. In fact, the current situation in the United States in the power sector iscompared to the situation that arose in the Telecom Sector on account ofthe break up of AT&T Corporation's monopoly 20 years ago. In otherwords distributed generation is a revolution that is caused by profoundregulatory change as well as profound technical change.

11. Distributed Generation in India

11.1 We have witnessed two extreme situations of distributed generation inIndia. At one end we have the example of individual house-owners/apartment owners installing their own diesel generating sets inview of the most unsatisfactory supply of grid power, as was the case inCalcutta in the 70's and the 80's. At the other extreme we have theexamples of large scale power intensive industries setting up their owncaptive power generating plants because of the severe cuts imposed bythe electricity boards, the poor quality of power as well as the extremelyhigh cost of power supplied by them.

11.2 Though knowledge based industries are emerging as an important engineof growth, these are not going to provide as strong a motive as the digitaleconomy in the USA for distributed generation. Similarly, deregulation ofthe power sector in India has not made any significant progress. In fact,reforms at the distribution end in the power sector have just begun in theState. In India the push for the programme for distributed generation isexpected to come from the need to tackle the following problems: -

i. Peak Load Shortages ± In India the problem of meeting peak loaddemand has to be given the topmost priority. Small-scale powergeneration and distribution to supplement the grid seems to be themost effective solution to the problem.

ii. Transmission and Distribution Losses ± These can be broughtdown by distributed generation because of the proximity to theconsumption centres.

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iii. Remote and Inaccessible Areas ± There are many parts of theState where it would be well neigh impossible to take grid power.These are the hilly and inaccessible region like the Northeasternregion or Islands that are inaccessible on account of their distancefrom the main land such as Andaman and Nicobar Islands andLakshwadeep Islands.

iv. Rural Electrification ± Rural electrification is a declared objectiveof the Government, which has a high degree of priority. It is in factan integral component of rural development. Transmission anddistribution losses, frequent interruptions in supply of grid powerhave necessitated a reorientation in own approach to the processof rural electrification. A distributed generation matrix forapplications in India is appended Annexure 2.

12. The terms of reference of the committee very clearly emphasis the studyof the problem of distributed generation in the context of ruralelectrification. The report therefore highlights the points relating toDistributed Generation in relation to rural electrification though some of theother issues are dealt with to the extent necessary, as the subject cannotbe divided into strict watertight compartments. These issues are dealtwith in the succeeding chapters.

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Chapter - 3

Rural Electrification In India – The Current Situation

1. Definition of Rural Electrification

1.1 Rural electrification is an important facet of the economic development ofthe State. The number of villages electrified as on 31.3.2001 was5,08,515 out of the total number of 5,87,258 villages. The number ofvillages that remain to be electrified is thus 78,240. The number of remoteand inaccessible villages is estimated at 18,000. 31% of the ruralhouseholds have been electrified as per 1991 census. There are anumber of villages which have hamlets at a distance of about 1-3kilometers from the main villages with populations ranging between 50-200 which are often not officially listed as villages and are not electrified.

1.2. The definition of rural electrification has been changing from time to time.Initially a village was deemed to be electrified if electricity was used withinits revenue area for any purpose whatsoever. In Octoberl 1997 thedefinition was changed and a village was deemed to be electrified ifelectricity was used in the inhabited locality within the revenue boundaryof the village for any purpose whatsoever. While these are the definitionsadopted by the Ministry of Power, the Ministry of Non-conventional EnergySources regard a village as electrified if 60% of the household in thevillage are provided lights for the purpose of assessing their ownperformance. Exact statistics according to the different definitions are notyet available.

2. The Setting-up Of The Rural Electrification Corporation And TheProgress Thereafter

2.1 The Rural Electrification Corporation was set up in 1969 with the primaryobjective of providing financial assistance for rural electrification in theState. The Corporation is now one of the prime financial institutions inthe State and extends financial assistance to State Electricity Boards,State Power Corporations, Electricity Departments of the StateGovernments and Rural Electric Cooperatives for various ruralelectrification schemes. The corporation was declared by the ReserveBank of India as a non-banking finance company. The cumulativesanctions and disbursements of the loans sanctioned by the ruralelectrification department amount to Rs. 35353 crore and Rs.24687 crore.respectively as on 31.3.2002.

2.2 The authorized share capital of the Corporation was Rs.1200 crore andthe paid up capital was Rs. 1780.60 crore as on 31.3.2001.

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2.3 The setting up of the Rural Electrification Corporation surely acted as acatalyst to rural electrification and a total of 1.20 lac villages wereelectrified during the 6 th plan period and another 1.0 lac during the 7 th planperiod.

2.4 Rural electrification programmes involve supply of energy for production-oriented activities like minor irrigation, rural industries etc. and alsoelectrification of villages. While the emphasis under the programme ofrural electrification is on exploration of ground water potential andenergisitation of pump sets, which have a bearing on agriculturalproduction, the accent in areas covered by the Revised Minimum NeedsProgramme is on electrification. One of the important objectives of theCorporation was to administer the funds allocated to the central sector forrural electrification in India and act as a catalyst of integrated ruraldevelopment through massive exploitation of ground water resources andpromotion of rural industries.

2.5 The performance of the Rural Electrification Corporation has, no doubt,contributed to the spread of rural electrification in the State. However,there are certain disturbing trends, which need to be corrected urgently.

i. The qualitative dimension of the problem of rural electrification is asimportant as the quantitative dimension.78,240 villages areawaiting electrification as already stated. The important point to benoted is that these are mainly in Bihar, West Bengal, Orissa, U.P.and Assam, the states that account for 40% of the countriespopulation.

ii. A similar imbalance is noticed in the pump set energisitationprogramme. Most of the pump set energisitation has taken inPeninsular India where ground water utilization has reached a highstage of development while pump energisitation programme hasnot shown any significant progress in the states located in theGangetic plain where the ground water potential is enormous. Infact, the states of Madhya Pradesh, Uttar Pradesh and Orissaaccounted for a mere 9% of the pump sets during the year 2000-01.

iii. The overall pace of rural electrification as well as energisation ofpump sets received a set back in the last decade. The number ofvillages electrified dropped from one lac in the 7 th Plan Period to amere 18,500 in the 8 th Plan Period and less than 10,000 in the 9 th

Plan Period. The poor financial health of the State Electricity Boardwhich are increasingly reluctant to move to rural areas because ofhigh costs and low returns is largely responsible for this trend. Thenumber of pump sets energized between 1986-87 and 1991-92ranged between 4.19 lac to 5.52 lac per annum, but the same

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decreased to 206071 in the year 2000-01. This is perhaps becausethe ground water potential in the Southern States has already beentapped and the pace of programme in the Indo-Gangetic has notpicked up.

2.6 The following adverse features also plague the programme of ruralelectrification:

i. The cost of transmission lines is very high, Rs.20, 000-30,000 perkilometer depending on the terrain.

ii. High transmission and distribution losses which were estimated at22.4% (National mean) especially due to low leads in 1992increased to 26% in 1998-99.

iii. Low and fluctuation voltage on account of the overloading of thegrid system

iv. The eraticity in power supply and maintenance

2.7 This apart, the programme of rural electrification has created a veryserious problem of depleting ground water tables due to the faulty tariffpolicies adopted so far. As the tariff is levied at a flat rate, irrespective ofthe number of units consumed, the farmers drew very heavily on the underground water resources, there by leading to lowering of the water table.Declining levels of water table have caused a great deal of anxiety amongthe State Governments, some of which have enacted legislation to bandigging of new wells. The problem was accentuated as simultaneoussteps for recharging ground water sources through appropriate measureslike soil conservation and watershed development were not initiated.

2.8 Another important issue that arises is the use of diesel pump sets in largenumbers on account non-availability of reliable power. Farmers who drawsubsidy on use of grid power make use of diesel engines to meet theirtotal energy requirements with the obvious implications on outgo of foreignexchange.

2.9 The financial problem posed by the programme of rural electrification,which is subsidized, is enormous. The net subsidy after accounting foramounts received from state governments was Rs.5024 crores in 1991and increased to Rs.22876 crores in 1999-2000. The gross subsidy of thestate sector was about 36% in 1999-2000. Efforts to contain theburdening the subsidy have obviously to be initiated.

2.10 Notwithstanding the enormous amount spent on subsidy, the farmers donot get quality power. The World Bank has observed in its recentdocument “India Power Supply to Agriculture ± Andhra Pradesh Case

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13

Study (Report No.22171-IN) that “------farmers are paying a higher pricefor electricity than stated by the utility because poor quality of powerincreases their cost on account of various factors including frequent motorburnouts, interruption due to transformer burnouts, unscheduled powercuts which impose an additional cost on farmers in terms of the potentialcrop loss in crop yields.” According to it “the present tariff in the Statebased on the flat rate structure is regressive, penalizing, marginal andsmall farmers who are using less electricity for a given connectedcapacity.” and discourage the farmer from conserving the ground waterresources as the marginal cost of pumping is zero.

2.11 The Government of India have, in the budget for the year 2001-02, treatedelectricity as part of the basic minimum services for the rural poor. Thefunds for rural electrification have, therefore been, allocated to the statesunder the Minimum Needs Programme and “Pradhan Mantri GramodyogaYojana.”

2.12 The Government have recognized the need for new initiatives in ruralelectrification in the wake of various problems outlined above. This isreflected in the Statement of Objects and Reasons of the Electricity Bill,2001, which views Distributed Generation as a possible alternative to thecurrent problem. It envisages stand-alone systems for generation anddistribution of power and decentralized management of distributionthrough Panchayats, Users Associations, Cooperatives or Franchisees.for rural and remote areas.

2.13 The concrete steps that could be taken to implement the new thoughts onrural electrification are discussed later in the Report.

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Chapter 4

Renewable Energy Sourcesand

Distributed Generation in Rural India

1. The experiments with models for decentralized systems for powergeneration are not of recent origin, though their inclusion as an integralpart of the new legislation is of recent origin. It has been the result ofvarious developments over a period of time. The realisation that fossilfuels are not unlimited, the difficulties faced by the developing countries onaccount of their dependence on excessive imports marked by highvolatility of prices, and international opinion regarding adoption of ecofriendly sustainable alternatives have been responsible for thisdevelopment. India, the petroleum crisis of the late seventies triggered offthe efforts for biomass based systems of power generation.

2. The Government of India set up a Commission for Additional Sources ofEnergy in the Department of Science and Technology on the lines of theSpace Commission and the Atomic Energy Commission to promote R & Dactivities in the area. In 1982, a separate department of Non ConventionalEnergy Sources was created in the Smallstry of Energy. After a decade,the department was elevated and converted into a full-fledged Smallstry.The mounting burden of subsidy has also lead to the introduction of thenew legislation referred to above.

3. There are a number of technologies for distributed generation, the detailsof which are given below:

i. The Internal Combustion Engine.ii. Biomassiii. Turbinesiv. Micro-turbinesv. Wind Turbinesvi. Concentrating Solar Power (CSP)vii. Photovoltaicsviii. Fuel Cellsix. Small-Hydel.

2.10 The Internal Combustion Engine: The most important instrumentof the D. G systems around the world has been the Internal CombustionEngine. Hotels, tall buildings, hospitals, all over the world use diesels as aback up. Though the diesel engine is efficient, starts up relatively quickly,it is not environment friendly and has high O & M costs. Consequently itsuse in the developed world is limited. In India, the diesel engine is used

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15very widely on account of the immediate need for power,especially in rural

areas, without much concern either for long-term economics or forenvironment.

3.2 Biomass: Biomass refers to renewable energy resources derived fromorganic matter, such as forest residues, agricultural crops and wastes,wood, wood wastes that are capable of being converted to energy. Thiswas the only form of energy that was usefully exploited till recently. Theextraction of energy from biomass is split into three distinct categories,solid biomass, biogas, and liquid biofuels. Solid biomass includes the useof trees, crop residues, household or industrial residues for directcombustion to provide heat. Animal and human waste is also included inthe definition for the sakes of convenience. It undergoes physicalprocessing such as cutting and chipping, but retains its solid form. Biogasis obtained by anaerobically digesting organic material to produce thecombustible gas methane There are two common technologies, one offermentation of human and animal waste in specially designed digesters,the other of capturing methane from municipal waste landfill sites. Liquidbiofuels, which are used in place of petroleum derived liquid fuels, areobtained by processing plants seeds or fruits of different types likesugarcane, oilseeds or nuts using various chemical or physical processesto produce a combustible liquid fuel. Pressing or fermentation is used toproduce oils or ethanol from industrial or commercial residues such asbagasse or from energy crops grown specifically for this purpose.

3.3 Turbines: Turbines are a commercialized power technology with sizesranging between hundreds of kilowatts to several hundred megawatts.These are designed to burn a wide range of liquid and gaseous fuels andare capable of duel fuel operation. Turbines used in distributed generationvary in size between 1-30 MW and their operating efficiency is in therange of 24-35%. Their ability to adjust output to demand and producehigh quality waste heat makes them a popular choice in combined heatand power applications.

3.4 Micro-turbines: Microturbines are installed commercially in manyapplications, especially in landfills where the quality of natural gas is low.These are rugged and long lasting and hold promise for DistributedGeneration in India.

3.5 Wind-turbines: Wind turbines extract energy from moving air and enablean electric generator to produce electricity. These comprise the rotor(blade), the electrical generator, a speed control system and a tower.These can be used in a distributed generation in a hybrid mode with solaror other technologies. Research on adaptation of wind turbines for remoteand stand-alone applications is receiving increasingly greater attentionand hybrid power systems using 1-50-kilowatt (kW) wind turbines are

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16being developed for generating electricity off the grid system. Windturbines are also being used as grid connected distributed resources.

Wind turbines are commercially available in a variety of sizes and powerratings ranging from one kW to over one MW. These typically require aSmallmum 9-mph average wind speed sites.

3.6 Concentrating Solar Power: Various mirror configurations are used toconcentrate the heat of the sun to generate electricity for a variety ofmarket applications that range from remote power applications of up to 1-2kW to grid connected applications of 200MW or more. R & D efforts inthe area of distributed generation applications are focused on small,modular, and dish/ design systems.

3.7 Photovoltaics: Photovoltaic power cells are solid state semi conductordevices that convert sunlight into direct current electrical power and theamount of power generated is directly related to the intensity of the lightPV systems are most commonly used for stand alone applications andare commercially available with capacities ranging between one kW to oneMW. The systems are commonly used in India and can contribute a greatdeal for rural areas, especially remote and inaccessible areas. It can be ofgreat help in grid connected applications where the quality of powerprovided by the grid is low. This is yet to be proved. High initial cost is amajor constraint to large-scale application of SPV systems. R&D work hasbeen undertaken for cost reduction in SPV cells, modules, and systemsbesides improvements in operational efficiency.

3.8 Fuel Cells: Fuel cells produce direct current electricity using an electro-mechanical process similar to battery as a result of which combustion andthe associated environmental side effects are avoided. Natural gas or coalgas is cleaned in a fuel cell and converted to a hydrogen rich fuel by aprocessor or internal catalyst. The gas and the air then flow over an anodeand a cathode separated by an electrolyte and thereby produces aconstant supply of DC electricity, which is converted to high quality ACpower by a power conditioner. Fuel cells are combined into stacks whosesizes can be varied (from one kW for mobile applications to 100MW plantsto add to base load capacity to utility plants) to meet customer needs.However, the technology is not yet ripe for being considered for DGapplication in India, as it is very expensive, and has not yet beencommercially tried on a large scale even in the U. S. A.

4. The technologies referred to above are applied under various schemes forgeneration of electricity from renewable sources of energy in the State.A bird's eye view of the schemes would give a good insight into the statusof Distributed Generation based on renewable sources of energy.

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175. Biomass Based Schemes: This can be considered under three

distinct heads, National Project on Biogas Development, NationalProgramme on Bio-Mass Power/Cogeneration and Bio-Mass GasifierProgramme.

5.1 Biogas. The gas is piped for use as cooking and lighting fuel in especiallydesigned stoves and lamps respectively and can also be used forreplacing diesel oil in fuel engines for generation of motive power andelectricity. The Floating Gas Holder Type, that is India or KVIC model andFixed Dome Type which is made of brick masonry structure i.e.Deenabandhu model are among the indigenous designs of biogas plants.A Bag Type Portable Digester made of rubberized nylon fabric, suitable forremote and hilly areas, is being promoted. The recently developedmethodology of on sight construction of Deenabandhu model with Ferro-cement, which costs about 10 to 15% less as compared to the modelconstructed with bricks and cement, is getting popular in the SouthernStates.

5.2. The National Project on Biogas Development was started in 1981-82.About 33.68 lac families have been benefited upto March 2002. TheCommunity and Institutional Biogas Plants Programme was initiated in1992-93. In order to achieve recycling the cattle dung available in thevillages and institutions for the benefit of the weaker sections as well.Biogas is generally used for motive power and generation of electricityunder the programme in addition to meet the cooking fuel requirement. Atotal of 3,901 plants, including 600 night soil based Biogas plants hadbeen installed up to March 2002.

5.3 R & D in Biogas:

The thrust of the R&D efforts is on increasing the yield of biogas,especially at low and high temperatures, development of cost effectivedesign of bio gas plants, development of designs and methodologies forutilization of biomass, other than cattle dung for biogas production,reduction in the cost of biogas plants by using alternative building materialand construction methodology and diversified use of digested slurry forvalue added products.

6. National Programme on Biomass Power/Cogeneration: TheGovernment of India has initiated a National Programme on BiomassPower/Cogeneration. It aims at optimum utilization of a variety of biomassmaterials such as agro-residues, agro-industrial residues, and forestrybased residues and dedicated energy plantations for power generationthrough the adoption of latest conversion technologies. These includecombustion, incineration, pyrolysis, gasification etc. using gas turbine,steam turbine, dual fuel engine, gas engine or a combination thereof eitherfor power generation alone or cogeneration of more than one energy

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18forms viz steam and power of Smallmum 1 MW capacity connectedto the grid. The technologies for exploiting the vast biomass resources forpower generation are attaining maturity and reaching stage ofcommercialisation.

6.1. 41 bagasse based cogeneration projects with aggregate capacity of 280MW have been commissioned and 30 projects with aggregate capacity of298 MW are under implementation. 30 commercial grid connectedbiomass based power projects with aggregate capacity of 140 MW havebeen successfully commissioned and 31 projects with aggregate of 181MW are under implementation. The bulk of the capacity installed/underimplementation is in Andhra Pradesh, Karnataka, Tamil Nadu and U. P.

6.2. Biomass Resource Assessment Programme: Availability of biomass isof great relevance to The National Programme on Bio-MassPower/Cogeneration. According to an estimate made by some experts,only 16 million hectares of land are required, if there is a need to growwood separately for power generation, i.e. lighting and meeting stationarypower needs of villages, as compared to 100 million hectares of degradedland available for planting. The results of an analysis at the macro level,however, may not correspond to ground realities. The Programme waslaunched covering all the States and Union Territories in order to provideinputs for preparing a Biomass Resource Atlas for India, which seeks tointegrate the data obtained from field level studies under National BiomassResource Assessment Programme and provide specific information, whichwould be useful to the user in preparing a feasibility study of a biomassbased power generation project. The Project utilizes a stand alone G. I. S.package with satellite data identifying different agricultural crops, alongwith modeled information on biomass utilisation, to arrive at estimates ofavailability of surplus bio-mass.

6.3. National Biomass Gasifier Programme: Biomass gasification is theprocess by which solid biomass materials are broken down using heat toproduce a combustible gas, known as the producer gas. Commonfeedstocks for combustion include wood, charcoal, rice husks and coconutshells. The producer gas can be used directly in a burner to provideprocess heat or it can be used in IC engines, but it requires cleaning andcooling for the latter application. It can also be used as a substitute fordiesel oil in duel fuel engines for mechanical and electrical applicationsEncouragement to technologies such as biomass briquetting andgasification for various applications in rural and urban areas, and R and Don Biomass Production and Gasification, are the important objectives ofthe programme.

6.4 Biomass gasifier systems of up to 500 kW capacity based on fuel woodhave been indigenously developed and being manufactured in theState. Technology for producing biomass briquettes from agriculturalresidues and forest litter at both household and industry levels has beendeveloped. A total capacity of 51.3 MW has so far been installed, mainlyfor stand-alone applications.

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6.5 Research and Development on Biomass Gasifiers: Five Gasifiers actionresearch projects have been supported at IIT Delhi and Bombay, IndianInstitute of Science, Bangalore, Madurai Kamaraj University, Madurai and

Sardar Patel Renewable Institute in Vallab Vidhyanagar. Gasifier systemshave been defined for a variety of biomass and integrated for differentapplication packages for rice mills, plywood, tea etc. Gasifiers of differentratings from 20 kW to 100 kW and for different modes of application havebeen tested under field conditions and are being promoted under theNational Biomass Gasifier Programme. Biomass gasifiers capable ofproducing power from a few kW up to 500 kW have been developedindigenously and have passed stringent tests abroad and are nowexported not only to developing countries of Asia and Latin America, butalso to Europe and U. S. A. The main focus of work done under thegasification action research project in IIT is maximization of dieselreplacement in duel fuel engines.

6.6 R&D on Biomass Production: Five R&D projects on biomass productionhave been taken up with the objective of selecting high yielding and shortrotation fuel-wood tree species and developing and promoting suitablepackages of practices for better survival and improve productivity ofselected tree species for different agro-climatic zones in the State.

6.7. 1796 gasifier systems with an aggregate capacity of 51.3 MW have beeninstalled in various states.

6.8 The Smallstry of Non-conventional Energy Sources has taken up the taskof electrifying the 18,000 unelectrified remote and inaccessible villagesbased on the renewable energy technologies in a phased manner by2012. During the 9 th plan the village electrification projects with anaggregate capacity of 5 MW equivalent which cover 84 remote villagesand hamlets in West Bengal, Orissa, Tripura, Mizoram and Nagaland wereinitiated out of which an aggregated capacity of 2.14 MW has alreadybeen installed in West Bengal, Orrisa and Karnataka.The remainingprojects, which are in the pipeline, would be commissioned by the end ofthe financial year 2001-02.

7. Initiatives taken at the Indian Institute of Science including SuTRAProject

7.1 The Indian Institute of Science, Bangalore is implementing a project in theTumkur District of Karnataka on bio--energy for sustainable transformationof rural areas. In fact, the Indian Institute of Science has worked on anumber of projects on rural electrification with the help of renewableresources. The experiments conducted by the Indian Institute of Sciencewere initially confined to cattle dung for biogas production (Pura village).

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207.2The Institute later on developed biogas plants and wood

gasifiers that used other biomass such as agro residues, forest litter,weeds etc. (Ungra and Hosahalli villages). According to some of theexperts of the Institute,

the scale of power generation using a biomass gasifier should preferablybe limited to a village or a cluster of villages, because large systems wouldrequire transportation over a long distance and might lead to depletion offorests, unless forest resources are carefully managed. The ideal systemmight be in the range of 10-100 kW, thus meeting the needs of a cluster ofvillages.

7.3 Later on, the Institute developed another model in order to reduce thecapital costs. The possibility of exploiting one of the oil seed bearing treesin India, viz. Pongamia Pinnota, which is known as Karanj in Hindi, Hongein Kannada, Kanuga in Telugu and Pongam in Tamil, gave a goldenopportunity for cost reduction. The indigenous tree grows all over India isdrought resistance and its seeds have non-edible oil to the extend 30-35%. The new model has been experimented with some success in thevillages of Kaggenahalli and Suggenahalli.

7.4 It is noticed that the cost of generation per unit of electricity is 4.50 in thecase of Honge oil, Rs. 7.25 and Rs.9.50 in the case of wood gasifier andbiogas, respectively, both operated on a duel fuel mode. The difference ismainly on account of the lower capital cost in the case of honge oil ascompared to that in the case of wood gasifier and biogas based plants.This is the scenario when the cost of diesel per liter is Rs.19.00 atBangalore.

7.5 Diesel based electricity supply is cheaper, Rs.4.66 per unit, as comparedto 4.89 per unit in the case of honge oil, if the price of diesel is Rs.12.39per liter at Bangalore. The difference between the two is purely onaccount of the higher capital cost of the former, which is due to honge oilseed expellers. However, this is a most unlikely scenario, as the price ofdiesel can be expected to remain at levels higher than Rs.12.39 per liter,on account of the dismantling of the AdSmallstered Pricing Mechanism.Annexure 3 may please be seen in this context.

7.6 The inherent advantage of honge oil Vis a Vis diesel is that honge oil isenvironment friendly, is renewable, locally available, and involvesSmallmal transportation. Further, if used extensively, it would lead to self-reliance. Extensive use of diesel oil, would lead to loss of foreignexchange.

7.7 The success of the biomass-based schemes is crucial as the internationalprices of crude oil are very volatile, and the mechanism of theAdSmallstered Pricing Mechanism, which insulated the economy fromtheir volatility, has been dismantled. The government are trying toSmallmise the hardship to the people by suitably adjusting the exciseduties on petrol and diesel .The social and economic gains on account of

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21decentralized schemes will have to be taken into account, while thepolicies, especially the tariff policies are adopted in their respect.

8. Wind Energy: The programme was initiated in the year 1983-84. Amarket-oriented strategy has been adopted right from the beginning andhence commercial development of the technology has been successfully

achieved. Scientific assessment of wind resources throughout the Stateand a series of other systematic steps have facilitated the emergence of acost effective technology.

8.1The wind power potential of the State was initially assessed at 20000 MWand reassessed at 45000 MW subsequently assuming 1% of landavailability for wind power generation in potential areas. The technicalpotential has been assessed at 13000MW assuming 20% grid penetration,which will go up with the augmentation of grid capacity in potential States.The installed capacity in the State is 1628 MW, 63 MW underdemonstration projects and 1565 MW under private sector projects, whichrepresents just 13% of the technical potential. Tamil Nadu alone accountsfor nearly 50% of the installed capacity (857.5 MW) and the States ofTamil Nadu Maharashtra and Gujarat account for 1423.6 MW of the totalinstalled capacity.

8.2. The Centre for wind energy technology (C- WET) is coordinating the WindResource Assessment Programme with the States and Nodal Agencies.

8.3 Wind diesel projects are being taken up in Island regions and remoteareas which are dependent on costly diesel for power generation .Twomachines of 50 kW capacity each have been installed in the first phase ofthe project at Sagar Islands in West Bengal. Similar projects are beingconsidered for Lakshadweep and Andaman and Nicobar Islands.

9. Solar Power Programme: The solar power programme comprises SolarPhotovoltaic Power Programme and Solar Thermal Power Programmes.

9.1 Under the Solar Photovoltaic Programme:, 27 grid interactive SPVprojects have been installed, with an aggregate capacity of 2.0 MW inAndhra Pradesh, Chandigarh, Karnataka, Punjab, Kerala, Lakshadweep,Madhya Pradesh, Maharashtra, Rajasthan,Tamil Nadu, and UttarPradesh. These are meant for voltage support applications in remotesections of weak grids, peak shaving applications in public buildings inurban centers and for saving diesel use in islands. These are expected togenerate and feed over 2.6 million units of electricity annually to therespective grids. In addition, ten projects of 900 kW capacity, are underdifferent stages of implementation,

9.2 The solar photovoltaic systems can be used for a variety of applications,such as rural telecommunications, battery charging, road and railwaysignalling which are non subsidized. Only 3 MW out of the total aggregatecapacity of 96 MW (9,80,000 systems) is used by the power plants. In so

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22far as rural areas are concerned, the SPV systems can beuseful for the following:

i. Village electrification through SPVs: A five KW PV plant can servea village of 50 to 80 households for street lighting, lighting homes/radioTV, and community requirements like post office school primary healthcenter and drinking water supply. More than 2500 villages, mainly in U.P, Rajasthan, West Bengal and Islands and also in Nyoma town inLadakh. Ninety villages in Bastar district of Madhya Pradesh andfourteen villages in Meghalaya have also been electrified throughSPVs.

ii. SPV seem to be one of the best solutions on for the 18000 remoteand inaccessible villages. Solar electrification is more economical intribal areas and the North Eastern Region compared to grid extensionbeyond three kilometers.

iii. In Gujarat, SPV systems have been applied at ten rural milkcollection centers of Panchamahal District Dairy Cooperative during2000-2001, ten more were sanctioned in 2001-02. The deployment ofsolar PV systems for this application has a large potential forreplication.

iv. SPV water pumping systems for agriculture and related are alsobeing used by farmers. A cumulative total of 4500 SPV water systemshave been installed by March 31, 2002

9.3 R & D: High initial cost (Rs.ten to twelve per kWh as compared to Rs oneto Rs two and paise seventy five from small hydro, biomass and windenergy) is a major constraint to large-scale application of SPV systems. R& D work has been undertaken for cost reduction in SPV cells andmodules and systems, besides improvement in operational efficiency

10 Small Hydel Projects: Small hydel projects have become very popularsince the last decade on account of many problems, especially thoserelating to environment, which are associated with major irrigation projects.New technologies also make facilitate small sized projects to operateeither in grid connected or decentralized mode and thus make themeconomically viable. The classification of hydro-power by size is given inAnnexure 4.

10.1 A number of steps have been taken in the last decade by giving suitableincentives to attract private investment in commercial projects. The

capacity in Small hydel projects (upto 3 MW) has increased from 63 MW to240 MW in the last twelve years as a result of the positive steps taken sofar. Capacity of over 200MW has been offered/allotted by the StateGovernments to the private sector. The current emphasis is oncompleting the projects offered to the private sector by the State

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23Governments and also making simultaneous efforts to identifypotential sites, conduct detailed surveys and prepare detailed project reportsfor a shelf of projects.

10.2 The Small hydel potential in the State is about 15000 MW. Four hundredforty one projects (of up to 25 MW capacity each) with an aggregatecapacity of 1438.43 MW have been installed upto 3782 March 2001 tillnow. Two hundred eighty seven projects with an aggregate capacity of563.04 MW are under implementation. Fifty portable micro hydel sets of 5-15 kW capacity have been provided to local bodies and localcommunities in seven States through the State Government Agencies.Forty-one out of these have been installed and the response from the localcommunities has been quite encouraging. Small hydel projects areparticularly suited for remote and hilly regions, Ladakh and the NorthEastern States.

11. It would be obvious from the above that a great deal of effort has beenmade to generate power from renewable energy sources.

12. India, in fact, has great deal of potential in this regard and alreadyemerged as a world leader in exploitation of renewable energy sources.India ranks first in biomass gasifiers (35 MW), fourth in biomass basedpower generation (400 MW), fifth in installed wind power capacity (1507MW) and tenth in small hydel power capacity (1438MW) and fourth insolar photovoltaic. (50MW).

13. Though India has attained an eminent position in the world in theexploitation of renewable energy there is a tremendous gap between thepotential and actual achievement as would be seen from the followingstatement.

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S.no. Source/System ApproximatePotential

Achievement (ason 31-03-02)

A.Power from Renewables 1. Solar Photovoltaic

Power- 1.99

7. Battery OperatedVehicles

- 247 Nos.

18. Energy Parks - 278 Nos. 19 IREP Blocks - 860 Nos.

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25Sq. Km.= Square Kilometer Sq.m.= Square meter MW= Mega-watt KW=Kilo watt kWp-kilo watt peak * including Biomass Gasifier

14. The emphasis in the North Eastern region and other inaccessible areasthat comprise 18000 difficult villages will be on decentralised generationusing locally available energy options like biomass, Small hydel,photovoltaics, solar cookers and lanterns, etc. The overall position inrespect of the North Eastern Region of the State is as follows:

Item All India potentialIdentified

North EastPotential

All Indiacapacityset up

Capacity set upin N. East

Small hydel 10071.81 2028.34(20.14)

» 1438.43(14.28)

153.02 (1.52)

Biomass/cogeneration 19500 N. A.separately.

381.3 Nil

Biomass gasification 51.3 Nil;j

Wind Energy 12835 (technical) 1628.3 Nilœ.

Solar Energy SPVs 20MW/sq. km 96 MWš ¬

shows MW; 43biomass resource assessment studies awarded; R &D onsustained production of biogas at low temperatures is onj

Research on biomass production survey and evaluation of selected speciesfor energy plantation in N. E region is onœ27 probable windy sites identified;

»figures in brackets indicate percentages.š

Of this 40 SPV products have been exported¬.4 power plants of 25kWp capacity each in Mizoram, 3 power plants of

aggregate 4.5kWp SPV capacity IN Assam, 3 power plants of aggregate 9.2kWp capacity in Arunachal Pradesh are under implementation66 solar homelighting systems sanctioned for a village in East Kamang District of Arunachalpradesh170 special solar street lighting systems sanctioned in Manipur

15. It would be seen from the statement that it is only in Small hydel that abeginning has been made in the North Eastern region. It may be notedthat out of a total capacity of 563.04 MW under implementation, 165.42MW capacity, which is 29.38 % of the total capacity is in the North EasternRegion.

16. At present out of a total installed capacity 0f 100000 MW about 3500 MWis generated by

jusing various renewable resources, i. e. almost 3.3%of

the total installed capacity from all resources.

17. The Government have taken cognizance of the gap between the potentialand the actual installed capacity/achievement under various items underRenewable Energy Sources. In keeping with the world wide trend ofencouraging distributed generation and having a green environment,the New Renewable Energy Policy stipulates that by the year 2012,

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2610% of the total addition to generation capacity will be fromrenewable sources. Assuming that another 100,000 MW will beadded by the year 2012,the contribution by renewable energy fuelswould be between 10-12000 MW, about 13-15,000 MW in all. Thiswould be 6- 7.5% of total power generated in the State.

18. The new thrust of the Government of India is enshrined in clauses 4, 5,and 6 of the Electricity Bill, 2001,Section 4 stipulates that the CentralGovernment after consultation with the State Governments prepare andnotify a national policy permitting stand systems (including those based onrenewable sources of energy and other non conventional sources ofenergy) for rural areas. Clause 5 stipulates consultation with the StateGovernments and the State Electricity Regulatory Commissions for anational policy for rural electrification and for bulk purchase of power andmanagement of local distribution in rural areas through PanchayatInstitutions, users' associations, cooperative societies, non-governmentalorganizations and franchisees.

19. Clause 13 of the Bill exempts a local authority, Panchayat Institution,User's Association, Cooperative Societies, Non governmentalorganizations and franchisees from obtaining a licence to transmit,distribute and trade in electricity.

20. The increasingly greater importance being attached to non conventionalsources of energy becomes clear from the fact that the financial allocationfor them, as a per centage of the total plan allocation, increased from 0.1% in the Sixth Plan to 0.2 % in the Eighth Plan and 0.44% in the NinthPlan (1997-2002. Progressive power generation from renewables has, infact, shown a rapid increase only in the last two to three years. Itincreased from 1185.50 MW from March 1997 to 1698.50 MW in March2000 and from 1698.50 MW in march 2000 to 3500 MW in March 2002.The details may please be seen in Annexure 5.

21. Concerted action would be required to achieve the above mentionedobjectives. It is, however, not easy to bridge the gap between thepotential and installed capacity because of certain constraints inrenewable energy development, which have got to be taken note of. Someof the important constraints are listed below:

Product/Technology Related:Many products and technologies are not yet mature.Smallmum economic sizes are under evaluation.

Raw Materials Related:œResource availability assessments are based on rough estimates,

especially in biomass power and hilly hydro projects.Land Related:

; Govt/forest land /irrigation land are not mortgageable.Climate Related:

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27Photovoltaic cells do not work on a cloudy day and windmills do not

mill the wind without a breeze.

Policy RelatedFrequent changes in policy.Market Related:

Distortions in energy market on account of subsidized conventionalelectricity

22. The committee is of the view that despite the constraints mentionedabove, the programme will have to be carried forward with vigour,especially in the case of the 18000 villages where no other solution seemsto be feasible. In the case of other villages, whether connected by grid ornot, decisions will have to be taken on a location specific basis.

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CHAPTER - 5

Organisational and Managerial Aspects : People’sParticipation

1. The programmes and schemes of the power sector in the State do notenlist the involvement and support of the beneficiaries. The policymakers had however, envisaged a cooperative and participatory model forrural electrification in the State. One of the directives which was issuedto the Rural Electrification Corporation by the Government of India was asfollows:-

2. ª….The Corporation will consider providing loans on suitable terms tothese cooperatives with a view to encouraging the cooperative type oforganizations for distribution of electricity in the rural areasº. The realityhowever is far removed from the ideal contained in the Government ofIndia's Directive.

3. The following alternatives can be thought of in the context of ensuringpeople's participation in the programmes of rural electrification includingthose relating to Distributed Generation.

i. Local bodies and communities

ii. Cooperatives

iii. Users Associations

iv. NGOs

v. Electric Service Company working in conjunction withentrepreneurs/contractor and Local Bodies/Communities, NGOs

4. Local Bodies

4.1. Article 243 G of The Constitution Seventy Third Amendment Act, 1992empowers the legislatures of States to enact suitable legislation andendow the panchayats with such powers and authority as may benecessary to function as institutions of self government and prepare andimplement plans for economic development and social justice. TheEleventh Schedule, which lists out the items in respect of which suchpowers can be conferred, includes rural electrification and distribution ofelectricity and non conventional energy sources.The State Governments,however, have not enacted such legislation, The Panchayat Raj

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29institutions, again, are not well equipped to take up such schemes asof now.

4.2. The participation of the Local Bodies in relation to rural electrificationprogramme is seen in different forms.

i. The National Project on Biogas Development is being implementedwith active support and association of local bodies in several states.In Gujrat Taluka Panchayats and Gram Panchayats are involved inimplementing and monitoring. Gram Sabhas motivates theindividual beneficiaries in Andhra Pradesh and Maharashtra. ThePanchayat functionaries through their respective Sthayee Smithiesare involved in identifying induvidual beneficiaries in West Bengal.

ii. 50 portable micro hydel projects have been taken up under ademonstration project. Micro hydel sets of 5-15(kW) capacity havebeen provided to local bodies and local communities in 7 statesthrough the state agencies in the North-Eastern region of theState and 41 sets have been installed and the response from thelocal communities is reported to be satisfactory. The Ministry ofNon-conventional Energy Sources in encouraging the local bodiesand NGOs to take up such mini hydel projects.

iii. The Local Bodies are also involved in the distribution of solarlantern among the households in the villages.

4.3. There are only very rare examples in which the Zila Parishads, PanchayatSmithies and village Panchayats have directly participated in generationand distribution of electricity. For instance the Biomass Gasifier plant atGosaba in Sunderban Islands is managed by a local cooperative andChairman of the Panchayat Smithi is the Chairman of the Cooperative.

5. Cooperatives

5.1 Rural Electric Cooperation were set up with the help of RuralElectrification Cooperative, the State Electricity Boards and the StateGovernments. 5 pilot cooperatives were formed initially. Hukkeri inBelgaum district of Karnataka Sirilla Taluka in Karimnagar District inAndhra Pradesh, Kodinar Taluka in Amerali District in Gujrat and Rahuriand Srirampur Talukas in Ahmednagar District of Maharashtra and a partof Lucknow District in UP. The number had increased to 37 in the year1994-95. The Committee on Rural Electric Cooperatives under theChairmanship of Shri N.S. Mathur which was constituted to examine allaspects of the working of the existing cooperative societies and evaluatetheir performance, made the following important observations:

i. Overall performance ± The overall physical performance of the ruralelectric cooperatives, except in a few cases, where there weremanagement and other problems, was quite encouraging .

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30ii. Load growth ± As a cooperative society is

more responsive to the local needs of distribution, it can ensureload growth quicker than a State Electricity Board.

iii. Operational Procedures - Cooperatives being organisers of theconsumers, whom they serve try to make their operationalprocedures more tuned to the convenience of their respectivecustomers.

iv. Transmission and Distribution Losses ± With the emergence ofrural electric cooperatives specific quantities of energy purchasedby the cooperatives and sold to the consumers could beascertained and the losses quantified. The problem of T&D lossesgot focussed more prominently on account of them though thedesired watch dog effect on identifying inadequacies ofmanagement such as defective meters and theft of energy did nottake place.

v. Diversion of Funds ± There was no diversion of funds for purposesother than rural electrification. Some of the cooperatives generatedtheir own resources for being ploughed back for furtherintensification of electrification in their respective areas.

5.2 Many of the cooperative societies are now being run by administratorsbecause their management has been taken over by the concerned StateGovernments. It may however be noted that the rural electriccooperatives did have some genuine problems and were not allowed tofunction properly. The following deficiencies were noticed :

i. The staff of the cooperative societies were on deputation either fromthe State Government or the State Electricity Boards. The societiesdid not perform well in cases where the staff deputed by the StateGovernments/State Electricity Boards were incompetent.

ii. Most of the States took to a system of flat rate tariff for agriculturalconsumers under which the farmers, consume much more units thanare actually paid for. The societies faced an anomalous situation in asmuch as the energy purchased by them was on a metered basis, butthe supply thereof to consumers was made on an unmetered basis andnaturally incurred losses.

5.3 The fact, that many of the cooperative societies did not succeed becauseof the various reasons cited above, need not deter us from trying out thatmodel once again, especially in the States where the cooperativemovement has been quite strong.

5.4 Initiatives by cooperative societies are not wanting even now. Forinstance Bantwal Rural Electricity Cooperative Society has been verykeen on taking over distribution of electricity within the Bantwal Taluk ofMangalore District. Its efforts were frustrated mainly because the

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31erstwhile Karnataka Electricity Board did not agree to part with itsdistribution rights over the area to the society. The society proposes toconvert 750 km of low tension lines into high tension lines, replace 145 outof the 773 distribution transformers that have failed and replace all theinefficient 13,143 irrigation pump sets. All the improvements areestimated to save about 10 lac units per month.

5.5 The Rural Electrification Corporation has in the Annual Report for the year1996-97, expressed the view that the most feasible and effective optionappears to be to promote more and more Rural Electric Cooperative withactive participation and involvement of local people and Panchayat Rajbodies.

6. Users Associations

6.1 The village panchayats are perceived as being controlled by the villagestrong men with considerable influence which is used to the detriment ofweaker sections . It is this perception which is responsible for theformation of groups of beneficiaries for implementing programme ofpoverty alleviation. These are implemented through associations ofbeneficiaries or Users Associations. The Self Help groups which havebeen set up of late, under the poverty alleviation programmes, must betake cognisance of in this context, as many of them have been successfulin achieving their objectives. Village level committees are anothermanifestation of Users Associations.

7. Village Level Committees

7.1 In so far as the power sector is concerned, the concept of villagecommittees which has been successfully tried out by WESCO andNESCO the two subsidiaries of BSES, needs a special mention. Underthis novel project, the villagers are involved as partners in a programmethat aims at ensuring better quality of supply and service in rural areas.They undertook pilot projects in Burger and Anandpur respectively, andthe projects were executed by the Xavier Institute of Management.

7.2 The objective of the two projects was to form village committees (VidyutSangha) in order to ensure that the consumer got the bills regularly andnot burdened with payment of bills for six months at a time and improvethe quality and stability of power. The committees were accorded formalrecognition and functioned as a Customer Care Centre in villages. Thecommittees appoint persons from the villages, designated as VillageContact Persons for taking meter readings and distributing of bills in thevillages. The committees function as a one point collection centre forWESCO and NESCO. WESCO and NESCO contact the village levelcommittee on dates fixed for collection.

7.3 The Committee exercises its judgment on matters pertaining to sanction ofnew connections, installment agreements, disconnections, regularizationof unauthorized consumers etc. The number of villages covered by the

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32scheme is 4900. The Village Level Committees have succeeded inachieving a breakthrough in certain important areas.

7.4 Achievements of Village Level Committees

i. The consumers have started demanding meters and consequently,consumers have stopped using heaters in many villages. Voltagehas therefore, shown a dramatic improvement.

ii. Since the villagers are educated about issues relating to tariff, theyare able to plan their consumption of electricity in a much morerational manner and have been able to bring down the bills to Rs.50to Rs.85 from Rs.226 p.m.

iii. A sense of ownership has developed among the members of thecommittee and the villagers and the villagers themselves arecurbing unauthorized usage of electricity.

iv. In some committees, all members are ladies, which is a veryencouraging sign as problems of power and water supply have amajor impact on the quality of life of women in the rural areas.

v. Specific instructions were issued stipulating that disconnectionswould take place only if recommended by the village committees.The collections increased by more than 60-85% as all paymentswere made voluntarily and not under duress.

vi. In villages where the distribution transformer was metered theVillage Level Committee became a partner in identifying losses dueto theft. In a cluster of 17 villages, it was observed that the inputenergy supplied to the village was reduced by more than 23percent over a 4 month period.

8. Unresolved Issues

8.1 There are still two areas where considerable improvement is yet to beachieved. These are as follows:-

i. Though the collections have improved, the cost of supplyingelectricity to villages continues to be very high on account oftechnical and non-technical losses and the effective cost of deliveryworks out to almost Rs.4 per unit. There is real temptation to cutsupply to cut losses.

ii. Though the quality of service has improved, there has been noimprovement in terms of the access of electricity to consumers, invillages which still remain unelectrified.

8.2 The Xavier Institute of Management has expressed the view that the twoconcerns listed above could be addressed by Distributed Generation and

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33has proposed that a pilot project may be taken using distributedgeneration to improve access of electricity in villages. It is proposed tohave one such project in village nahalla in Orissa.

9. The Experiment of Tata Energy Research Institute (TERI) atDhanawas

9.1 TERI implemented schemes of improved chula, biomass gasifier and solarand other technologies and also of reclaiming degraded land throughenergy plantation for nearly 10 years at Dhanawas in Haryana. TheInstitute has documented the results of its field study, which would be veryuseful .

9.2 Four Stages of Interaction

9.2.1 TERI found that there were 4 stages of interaction between itsrepresentatives and the villagers.

9.2.2 In the first stage, there is rapport building with the villagers so that all theissues connected with the village are understood. The people areassociated with the village surveys, which ensures the involvement rightfrom the beginning.

9.2.3 At the second stage, there is technology development and demonstrationand the Village Energy Development Committee is constituted to motivatethe villagers to participate in the process of induction of a new technology.

9.2.4 At the third stage, there was technology acceptance and capacity buildingamong the villagers. The success of a newly developed technologyevokes a better response from the individuals who become increasinglymore receptive to its adoption, largely due to its demonstration anddissemination. People were trained in maintenance and management ofnew devices. Masons for construction of biogas plants were also trained.

9.3 Dissemination of new technologies for which there was still a demandcharacterised the next stage which was that of withdrawal. Bulk of thework was carried out by the persons trained in the village with TERIassistance in terms of providing technical guidance. The technologies thatwere used for community use such as the solar water pump and theplantation were handed over to the village panchayats.

9.4 Lessons of Dhanawas Experience

9.4.1 The important lessons learnt by TERI as a result of Dhanawas experiencewhich are very important from the point of view of people's participation,are listed below:-

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34i. People are not likely to take interest in any

activity, unless it meets some of their demands or brings about animprovement of the quality of life in some way. An energyprogramme that benefits the people in some way in a shorter timeis likely to succeed better. For instance, the people of Dhanawasregarded reclamation of degraded land and plantation on it, only asa research project. It was only when fodder from plantation wasused extensively in the year of drought in 1989, that they began tosee its potential benefits.

ii. Any technological innovation has to be brought to a threshold leveltill the people recognize the benefit. In the case of improved chulasit took considerable time to design the model that suited the needsof the villagers.

iii. Though the Village Energy Development Committees had beenconstituted to avoid village politics, the Panchayat always played animportant role in planning and implementation of the scheme.Committee. A written approval was obtained from thePanchayat regarding the formation of such a committee and itsmembers and charter of duties. A change in village leadership wasalways accompanied by reelection with the Village EnergyDevelopment Committee. The Sarpanch was made a member ofthe committee to ensure coordination with the village panchayat.

iv. Though people in villages are inconvenienced by energy shortages,they face more pressing problems and hence their participation ismore likely to materialize, if these pressing problems are integratedwith the other developmental needs of the people.

v. A village panchayat could ignore the interests of certain groupseither because their members are not numerous or because theybelong to the poorer strata of society without much influence. In asituation like this, mechanisms must be set up which rectify theimbalance. The interests of groups/individuals should be identifiedand taken into account, while planning for the nature of benefitsand their distribution.

vi. During the demonstration phase, there has to be a strong andreliable maintenance backup system. TERI's staff rectified allproblems of biogas plants. In Jaisalmer, a person from within thevillage was trained with repair and maintenance of solar lanternswhich was of considerable help to the villagers.

vii. Energy technology that does not necessitate any major alterationsin peoples practices has better prospects of success. Though therewas good potential for biogas plant in Dhanawas village, manyvillagers were unwilling on account of constraint of space forconstruction.

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35viii Continuous monitoring and evaluation helped in identifying

problems with plant design in which necessary modifications weremade wherever these were required.

9.5 TERI’s experience at Dhanawas showed that rural energy problems areextremely location specific in nature, and that in view of the vide variationsthat exist in the socio cultural environments in the rural areas, energyplanning at a decentralized level will give better results as compared to atarget oriented programme based on uniform technology specificprogrammes.

9.6 The village level committee at Dhanawas was different from thecommittees established by WESCO and NESCO as it was very closelyassociated with the village panchayat. The relationship between thevillagers, the village panchayat, TERI and the Village Energy DevelopmentCommittee is illustrated by the diagram at Annexure 6.

9.7 The Institution of Village Level Committees has been used in othercountries as well as in the case of Chalan Micro Hydro Scheme in Peruand Dhandruk Micro Hydro Power Scheme in Nepal.

10 People’s Participation in Distributed Generation Schemes AndVillage Committees

10.1 In all the examples that were cited above, there was no local generationand distribution of electricity in the form either of a grid or mini grid. TheIndian Institute of Science, Bangalore which implemented some projectsof Distributed Generation, also made use of the village level committees.A village management committee comprising of 8 villages including 2women was constituted in village Hosahalli which assisted in protection offorests, supervision of operations and collection of electricity charges atRs.6/- per month.

10.2 The Institute similarly established a Gram Vikas Sabha to overseemaintenance and operation of the system with the participation of thevillagers in Pura village. The Gram Sabhas collection was in the order of93% between 1988-1991.

10.3 The models of the Institute do indicate, like the BSES's model, that peoplecan behave responsibly and manage a system, unlike the general belief tothe contrary, if they are properly motivated. The constitution of the VillageLevel Committees led to a reduction in the consumption of electricity inmany villages. In Pura village for instance, the villagers restricted accessto water supply 3 times a day after they took over the management of thebiogas plant and the consumption came down from 26 liters per head to22 liters between October 1998 and August 1999.

11. Self-Help Groups

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3611.1 Self-help groups have emerged as a force to reckon with, especially

after they were given role in poverty elevation programmes. The followingare some of the examples of the role played by them in ruralelectrification.

i. The self-help groups played an important role in the villages ofKarimnagar and Khammam districts of Andhra Pradesh whereProject Chandrakanti was implemented. Nearly 10,000 lanternshave been distributed under the World Bank programme of SPVmarket development routed through IREDA.

ii. The Non-conventional Energy and Rural Development Society, aNGO, has established about 450 self-help groups and installedabout 6,500 biogas plants, 2,400 smokeless chulas and a few solarcookers and water heaters to self-help groups. It conductedmotivation camps, training programmes for masons on constructionof biogas plants, potters on fabrication of improved chulas andwomen beneficiaries on operation and maintenance of biogasplants and smokeless chulas. Training of the potters in Kenya andstove makers in Sri Lanka also go to show the importance oftraining.

iii. The model of the Indian Institute of Science, Bangalore, wasreplicated in Chalpadi village, Adilabad District of Andhra Pradeshwhere electrification took place with the help of honge oil. It wasjoy at the jovial account of the children getting extra hours for theirstudies, that acted as a motivating factor. The unique feature herewas that it was the women's self-help groups who took the initiativefor such a project. Their savings were used for financing theproject.

12. Non-Governmental Organisations

12.1 Reputed non-government organizations are implementing the programmeof solar photovoltaics for various applications. NGO's like RamakrishnaMission, Narendrapur, West Bengal, All India Women's Conference, NewDelhi, The Rajgiri College of Social Science, Kochi, The Social Work andResearch Centre, Tilania, Rajasthan, The World Renewal Spiritual Trust,Mount Abu and The Ladakh Ecological Development Group etc. areparticipating in the programme in a meaningful way.

13 Valuable Experiences Gained Regarding People’s Participation

13.1 The experience gained by the Indian Institute of Science andorganizations like TERI gives some valuable inputs regarding the processof people's participation The important trends that were noticed are asfollows:-

i. Lighting is not the most important thing the villagers want. Drinkingwater followed by irrigation water occupies the pride of place in the

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37lives of villagers. It was the success in thesefronts that brought about the desired attitudinal change among thevillagers.

ii. The schemes at Sugganahalli and Kagganahalli led to a qualitativeimprovement in the lives of the villagers. Assured supply of waterenabled cultivation of cucumber and watermelon and collection ofhonge oil seeds generated additional employment opportunities.Installation of water taps at homes removed the drudgery of womenin walking long distances to fetch water and also solved problemsof matrimonial alliance as such drudgery was a major reason forthe people in the neighbouring villages not marrying their daughtersto the youth in these two villages. Men could get honge oil to runtheir tractors and did not have to go to Kunigel to buy diesel fortractors. The benefits strengthen their faith in the new schemes.

14. Push And Pull Factors

14.1 In a State in which nearly 90% of the villages are technically connectedto the grid the role of the push and pull factors would have to be criticallystudied before any scheme of distributed generation is introduced in therural areas.

14.2 In the cases relating to Sugganahalli and Kagganahalli and other projectsof distributed generation the push and pull factors operated as follows:

i. Both the villages were depended 100% on the new systembecause of the unreliability of the grid power which was the pushfactor. The factors enumerated above were treated as the pullfactors.

ii. When the quality of grid power improved in Sugganahalli onaccount of installation of a sub station and transformer nearSugganahalli the people switched back to grid power for domesticlighting requirements. The scheme for water supply for irrigationhowever continued under the new system despite the improvementin the quality of grid power.

iii. TERI's experience in Orissa shows that the high rates of failure ofschool children in the examinations provoked some villagers whofound that lack of electricity was an important reason for the same.Itwas this realization which provoked the villagers to think ofdistributed generation scheme.

iv. In a village in Haryana the pollution of river water caused byindustrial effluence provoked the villagers to have their ownschemes for meeting their water requirements

v. As people in many of the electrified villages are very muchdissatisfied with the quality of grid power, such villages should

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38also be encouraged to go ahead with theDistributed Generation Schemes. These should also be theresponsibility of the State Governments.

vi. The question whether Distributed Generation Schemes in ruralareas should be on a stand alone basis or interconnected to thegrid, should be decided on the merits of each case. As most of thevillages are connected to the grid, and DG schemes may help thegrid in meeting peak load requirements, it may be advisable tointerconnect them to the grid .Further, as the working hours in theinitial stages may not be adequate, it may be necessary to wheelthe surplus power for third party sales. The type of DG scheme maybe selected by the community itself after getting technical inputsfrom experts and taking into account its ability to pay.

15. The Institutional Models for Distributed Generation Systems

15.1 The following are the important institutional models for distributedgeneration within the State.

15.2 The Sunderban Model

15.2.1 The institutional models of Sunderbans is an important model to bestudied. The remote villages and hamlets of the delta suffer on account ofchronic shortage of electricity on account of non availability of grid power.Kerosene and diesel generator are the alternate fuel sources for lightingand other requirements of electricity respectively. As it would be verycostly to take grid power to the islands, village level mini grids based onbiomass gasifiers, solar photovoltaics, wind diesel hybrids and tidal powertechnologies are used for supplying electricity for domestic andcommercial applications. Solar home lighting systems and portablelanterns are also used in many households.

15.2.2 The project was set-up by the West Bengal Renewable EnergyDevelopment Agency with the assistance of the Ministry of Non-Conventional Energy Sources. West Bengal Renewable EnergyDevelopment Agency, which owns all assets associated with the powerplant and guarantees reliable generation and supply of electricity to itsconsumers in Sunderbans.

15.2.3 The biomass gasifier plant at Gosaba was commissioned in June 1997.Its membership has increased from 25 in 1997 to more than 600 now.

15.2.4 The plant is managed by a local cooperative and the Chairman of thePanchayat Samithi is also the Chairman of the Cooperative. Othermembers of the cooperative are from West Bengal Renewable EnergyDevelopment Authority and local political bodies.

15.2.5 The total number of members in the cooperative is 12-13. A person fromthe cooperative takes the monthly meter reading. The bill is sent by 2 nd

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39/3rd of every month which has to be paid within 10 days at the office ofthe cooperative. If the payment is not received within the stipulated time,a notice of 7 days is given . If the payment is still not made, theconnection is cut in a month's time and recollection requires payment ofRs.1000/-. All the revenue goes to West Bengal Renewable EnergyDevelopment Authority.

15.2.6 The tariff for domestic connections is fixed at Rs.3.25 per unit whilecommercial tariff is fixed at Rs.3.75 per unit. Tariff for grid electricity forKolkata is Rs.2.50 per unit ± domestic and Rs.3.00 per unit ± commercial.

15.2.7 Initially, the maintenance of the plant rested with the supplier of theequipment, Ankur Limited. The contract has now been given to anothercompany which is a manufacturer and supplier of the diesel engines in theplant. The relationship between the village committee, the local enterprisethat operates and maintains the plant and the West Bengal RenewableEnergy Development Authority, in this model is indicated diagrammaticallyat Annexure 7.

15.3 TERI’s Model

15.3.1 The Sunderban model is the product of the initiative taken by CentralGovernment and the Government of West Bengal. Private initiative in thisrespect is not wanting as can be seen from TERI's model. TERI acts inclose cooperation with the manufacturers, financial intermediaries andentrepreneurs and other NGOs. Suitable entrepreneurs are identified toact as Independent Energy Service Units Network.

15.3.2 The Energy Service Unit facilitates rural credit and guided by the spirit ofservice for the people also undertakes tasks such as promotingawareness, demonstrations etc. The Energy Service Company is a part ofThe Energy Service Network and markets the renewable energytechnology devices and provides the back-up services in the form ofspare-parts and repair and maintenance services. The details of thismodel may please be seen in Annexure 8. Uttam Urja project of TERI inRajasthan is an example of this project.

15.3.3 Another model which is being conceived by Wartsila a NGO incollaboration with BHEL for a cluster of villages in Madhya Pradesh, byorganizing a village cooperative in Annexure 9.

15.3.4 The models referred to above can be considered for operating DistributedGeneration and Distribution Systems. It is doubtful whether the localbodies will be able to own operate and maintain such systems as of now.The Village Level Committees will have to be established on a very bigstage in the initial stages and thereafter wherever conditions are found tobe suitable full fledged systems can be developed.

15.4 Bangladesh Model

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15.4.1 As conditions for establishment of totally independent models for localbodies is not ripe now the model of Bangladesh could also be consideredfor adoption. The Rural Electrification Board a semi autonomous body inBangladesh is responsible for generation, transmission and distribution ofelectricity to the rural areas through the rural electric societies i.e. PalliBidyut Samity. Each PBS has a local board constituted by elected arearepresentative.

15.4.2 The Palli Bidyut Samithies have a special division for Member Educationto appraise beneficiaries of the rights and obligations of cooperativemembers. The Samithi appoints a Village Advisor for each village. Theyhold an honorary post and have to provide information to the people onoperational status and policy of the Samithi, give basic education such ashow to use electricity, and report to the Samithi on village needs andpromote early construction of distribution lines . The General Managercommunicates the customers via Villager Advisers.

15.4.3 The members of the PBS elect a Board of Directors which are a maximumof 15 members. 3 women nominees are nominated by the Board toensure representation of women. The Board of Directors gives policyinstructions to the management and ensures that the managementimplements them. The General Manager who is appointed by the Board isaccountable to both the Board of Directors and the Rural ElectrificationBoard. The Board of Directors cannot remove the General Managerwithout the prior approval of the Rural Electrification Board. However,incase of necessity the Rural Electrification Board can remove the GeneralManager without the concurrence of the Board of Directors.

15.4.4 In order to ensure that the system is financially viable, lines are given onthe basis of established criteria and the lines that do not fulfill the revenuerequirements are not included in the programme. The Palli Vidyut Samityavoid unnecessary staff and average employee consumer ratio is 1: 2.50.

15.4.5 Before the Samithi is established in a village, an adhoc project team calledInstitution Development Team, visits a Thana, a Rural Administrative Unitand explains the plans of electrification to the representatives of a Union,a smaller village unit that forms a Thana. The team provides a informationand educates the potential beneficiaries about the importance andconvenience of electricity. The teams obtains the consent of residentsfrom the Union after its representatives reach an agreement to introduceelectrification. Those who want power have to pay a small sum for theright to have power supply and obtain membership of the cooperative.The Institutional Development Team chooses a representative of thearea, who is to be the first Director of the Electrification Cooperative.The Director should be politically neutral and is forbidden to belongto any political party. After 3 years of establishment of PBS a newDirector is elected by direct votes by residents in the region.

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4115.4.6 The Bangladesh model is not without its problems. As the

project is capital intensive the need for additional capital is always felt.The poor consumer mix, the limited revenue per km of line due to smallload of domestic consumers, the difficulty in reaching remote areas aresome of the constraints being experienced there. Further, the generalapproach towards tariff determination is one of a cross subsidy betweenindustrial and commercial clients and residential or agricultural PBSmembers whichhas given rise to problems as the growth in industrial load has not beenfast enough to compensate the shortfall in recovery from residentialconsumers.

15.4.7 The Bangladesh model is relevant to India because the National RuralElectrification Cooperative Association, a central organization of ruralelectric cooperatives in the USA was entrusted by US Agency ForInternational Development to extend technical assistance to the RuralElectricity Board. Further, the conscious effort made by the government ofBangladesh to keep the scheme free from all politics is a matter ofsignificance for India where elected representatives of the people, politicalparties etc. have worked to the detriment of dedicated work being done bythe NGOs by promising subsidized or even free supply of power.

15.4.8 The scheme has been a success and the collection rate was as high as94% due to the emphasis placed on promptness in the payment of bills bythe consumers. Despite these positive features the scheme has to facechallenges. The need for capital is also felt as it is a capital intensiveproject. The poor consumer mix, the limited revenue per kilometer of linedue to small load of domestic consumer are some of the constrains theBoard is trying to tackle. The pace of progress is slow though thecollection rate is as high as 26%. However, the Bangladesh model hasensured people's participation in the process of distribution of power rightfrom the initial stages of development.

15.5 To sum up

i. Village level committees, self-help groups, users associations maybe set up all over the State initially, as the Zilla Parishads, thePanchayat Samithies and the Village Panchayats are not as of nowcapable of implementing Distributed Generation projects. Thesemay be gradually converted into bodies for generation anddistribution of electricity over a period of time.

ii.In areas where cooperative movement is strong, as in Hukkeri andBantwal Taluk or the Rural Electric Cooperative Societies may beconstituted and they may be asked to take over responsibility fordistribution within their respective areas.

iii. Full-fledged models of local generation and distribution can also betried wherever it is feasible, either with the effort of government

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42through the cooperative model as in Sunderbansin West Bengal or private initiative TERI's in Rajasthan.

iv. Bangladesh model may also be considered for adoption withsuitable modifications, if need be so that it acts as a precursor topeople's participation on a larger scale in future.

v. The rebalancing of the tariff structure must be initiated quickly so asto make the working of the decentralized generation schemesviable.

vi. Systematic efforts will have to be made to create awareness amongthe people on the relevance of Distributed Generation schemes.

vii. The efforts will also have to be made to keep the entire processfree from politics. The depoliticised model of Bangladesh may bekept in mind.

viii. Very few of the local bodies are likely to reach the final stage, oflocal generation and distribution, However, in order to give animpetus to the new concept, some demonstration projects shouldbe taken up either by the Government or private agencies to give alead to and motivate others into replicating such models .Thedemonstration projects should be taken up very carefully afterassessing the potential of a village/cluster of villages fordevelopment, the degree of cohesion among the villagers, theattitudes of the elected representatives of the people in the areaconcerned, and the ability of the Panchayat Raj institutions.Success of the demonstration projects is a must, as people goback to the traditional systems with a vengeance, if such nprojectsfail.

15.6 A study may be commissioned to evaluate the effectiveness as well as theshortcomings of the efforts made so far to secure people's participation inthe process by organization like the Administrative Staff College,Hyderabad or the Institute of Social and Economic Change, Bangalore. Itwould be useful to pool the experience gained by NGOs, cooperatives etc.in distributed generation so that a proper strategy for the future may bedevised. An All India Conference at which all the voluntary groups, NGOsetc. who have made attempts to enlist people's participation in the RuralElectrification may be called at which the above mentioned options maybe discussed.

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Chapter – 6

Financing Schemes of Distributed Generation

1. Distributed Generation is a new concept in the State and has not beentried on a large scale as yet. Needless to mention, a clear and wellestablished l framework for financing D. G. schemes is yet to emerge.

2. There are many barriers to financing DG schemes because of lack offamiliarity with them due to a dearth of already existing projects. Thefollowing are the most important barriers to financing DG schemes.

i. Project Risk - Many DG technologies(wind turbines, fuel cells, microturbines and the like) are perceived by the lenders to have highresource and technology risks, especially risks associated withtransfer of technologies to the rural communities. Most of thefinancial institutions in the State have not had sufficient exposure toDG schemes and, therefore, do not have sufficient experience inevaluating risks associated with DG schemes. As many DGtechnologies are perceived as unproven, it is not easy to get lendersfor financing DG schemes.

ii. Small Project Size - Technological and resource constraints limit thesize of DG projects. Further, transaction costs of small projects areproportionately high as compared to those of conventional projects.Since DG schemes are site specific, a lot of time and money has tobe spent with regard to the investigation of the sites. It has also beenobserved in some projects that optimum capacity utilization cannotbe attained on account of limited working hours or inadequacy ofdemand. Many financial institutions are, therefore, unwilling to investin DG schemes.

iii. Uncertainty In Policies - The economics of many DGprojects/enterprises is heavily dependent on government policiestowards interest rates, accelerated depreciation, tax credits etc.Uncertainty with regard to them affects the economics of DG projectsand adds to the hesitation on the part of the financial institutions tofinance DG schemes.

ix. Cost Of Innovation And Being a Trailblazer - As DG schemes,especially in the rural areas, these are almost in the nature ofinnovations or new experiments which necessitate time consumingnegotiations with all the stake holders which include the local bodies,protracted interaction with the local communities, manufacturers, theState Governments, State Electricity Boards etc. Site specific models

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have to be evolved by the entrepreneurs to suit local needs andconditions. The financiers do not give due consideration to the timeand resources that the borrowers are expected to devote to theseprocesses.

3. The Government of India as well as the State Governments have adoptedcertain policies and given some incentives to encourage the DG schemesbased on renewable sources of energy. A number of concessions aregiven to manufacturers of equipment under import duties and sales taxand excise duties. The producers who invest their funds in a gridconnected DG systems, are assured a certain price by the State ElectricityBoards/State Governments. The details regarding the concessions arespelt out in Annexures 10 (a) to 10 ( c). .

4. The institutional frame for financing schemes in the power sector in theState comprises the Rural Electrification Corporation, the PowerFinance Corporation, the State Finance Corporations and the IndianRenewable Energy Development Authority(IREDA). An understanding ofthe role played by each of these financing agencies is essential tounderstand the gaps in the present framework and the manner in whichthe same should be made good.

5. The Role Played By The Power Finance Corporation

5.1The Corporation can finance micro, mini and small hydro generationprojects as well as projects based on non-conventional energy sources.The emphasis of the corporation, however, has been on financing mediumand large hydro and thermal power projects. This would be clear from thefact that out of the cumulative sanctions ( as on 31-3-01) worth Rs.30674crore, Rs.24709 crore were for thermal generation, hydro generation, andrenovation of hydro power projects and transmission. . Renovation andmodernization and life extension of old thermal and hydro plants is apriority area of financing by the Corporation The Corporation has alsosuccessfully implemented the Accelerated Generation and SupplyProgramme of the Government of India during the 9 th Five Year Plan.

5.2The Corporation has played the role of a catalyst in carrying forward thestructural reforms in the power sector since the early 90's by adopting thethree fold strategy of a proactive engagement with the States by providinggrants/concessional loans for studies required for developing reformpackages, formulation of special packages of incentives for reformingstates including relaxation in conditionalities and exposure limits and grantof large scale financial assistance to power utilities in the power reformingstates to take care of their investment needs during the next 5-7 years.

5.3 As of June 2002, the Corporation releases credit to the extent of 70% ofthe project cost for medium and large hydro generation and thermalgeneration in case of Central and State utilities and municipal run bodies,the corresponding the corresponding limits for private utility companies

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45being 25 and 20% respectively of the project cost. The termsand conditions of the assistance given by it are indicated in Annexure 11.

5.4 Most of the loans have been released in the favour of the Central andState Utilities. After the entry of the private sector in generation of powerthe corporation has supported 6307 MW of generation capacity throughvarious types of thermal plants including coal, gas/naptha, furnace oil andDG based or hydro plants etc.

5.5 Financial assistance to small scale decentralized power projects has beena peripheral activity for the Corporation. In a number of projects based onbio-mass /cogeneration which it took up for consideration between 1995and 2002, it found that difficulties arose on account non availability of longterm arrangement for fuel as well as non availability of fuel, mattersrelating to quality and pricing of fuel, absence of a proper power purchaseagreement, and weak promoters.

5.6 The Committee is of the view that the Corporation should concentrate onthe area of its specialization and upgrade its skills and capabilities to facethe emerging challenges in the power sector.

6. Rural Electrification Corporation:

6.1 The Corporation, premier development financial institution for promotinganfd f9inancing rural electrification in the State, supplements theresources of the State Electricity Boards/State Utilities/State PowerDepartments by way of loan assistance for their investments in ruralelectrification programmes which includes their investment in upgradationand improvement of their sub-transmission and and distribution systemfor supply in rural areas. It has, for this purpose devised specific portfolioof loan schemes that include financing their investment in installation andreplacement of meters and any other related equipment such astransformers , conductors , capacitors etc. It was given the status of a miniratna category I in October 1997.The budgetary support from thegovernment has been considerably reduced over the years and from theyear 2002-03, it is totally self reliant without any budgetary support fromthe government.. The Corporation has been mobilising resources throughits market borrowing programmes including those through Capital GainsExemption Bonds under section 54 EC and Infrastructure Bonds undersection 88 of the Income Tax Act.The Reserve Bank of India agreed totreat subscriptions to the Corporation's bonds by banks as indirect financefor agriculture for computation of their priority sector lending. The scopefor utilization of money so raised was extended to include systemimprovement programmes These measures enabled the corporation toraise money from the domestic capital market through issue of prioritysector bonds.

6.2 The tempo of rural electrification which was very high during the 6 th and7th five year plans during which 2.20 lac villages were electrified, hascome down drastically on account of the reluctance of the State Electricity

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46Board to take interest bearing loans for electrification ofunelectrified villages and hamlets. The State Governments have beenreluctant to avail themselves even of the assistance of the 100% grantunder the Kutir Jyoti programmes on account of their apprehension ofrecurring revenue loss through such connections. States like Haryana,Goa did not lift grant even for a single connection and states like Bihar,Gujrat, Rajasthan, Punjab, UP and West Bengal utilized the grantsonly partly under the programme in the year 1999-2000. The samereluctance was noticed even among the North-Eastern states.

6.3 The Rural Electrification Corporation started giving greater emphasis afterthe rural network had expanded sufficiently on system improvement to cutdown transmission and distribution losses, increase revenues andimprove the quality of supply of power to the consumers. The Corporationsanctioned 300 SI schemes for a loan outlay of Rs. 2989 crore in theyear 2001-02 for the purpose to State Electricity Boards/ State PowerUtilities /State Power Departments. This included special category of loanschemes for procurement and installation of energy meters, replacementof transformers, capacitors and other equipment to improve the qualityof supply of power and to conserve energy. The response to theseschemes from the borrowing State Electricity Boards/State Power Utilitieshas been very good.

6.4 While the steps outlined above are welcome, the Corporation has to domuch more to reorient itself, taking into account the following qualitativechanges that have taken place in the power sector in the last few yearsand meet the new challenges..

i. Entry Of The Private Sector ± The corporation had been dealingmainly with state government and state government entities like theState Electricity Boards. With the entry of the private sectorcompanies in the area of distribution and generation especially inurban and semi-urban areas it has to reorient its approach.

ii. Reorientation Of The Traditional Schemes ± As the need forimproving the quality of power supplied to the consumers is gettingmore and more important the corporation will have to allocatehigher allocations for improvements in the distribution systems. Infact in states where the scope for traditional activities like villageelectrification and pump set energisitation is not much today it willhave to release more and more funds for improvement in the ruraldistribution system.

iii. Decentralised Generation Of Power ± The concept of distributedgeneration has acquired a new dimension and energy in the last 2to 3 years. The corporation's involvement in such projects has sofar been modest. It hads so far sanctioned 23 small /mini/microhydel generation projects of 69 MW capacity. To StaeGovernments/Stae Power Utilities involving a loan outlay of rs. 284crore. B.esides, it has sanctioned 6wind energy projects to private

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47parties 2 diesel generation projects of 4MW capacity to JKPDC for supply in Leh and Kargil areas in wintermonths when hydro generation is zero. And one gas based projectof 3 MW capacity to Rajastan State Electricity Board.TheCorporation will now have to take a far more important role in suchprojects in view of the new challenges that it has to face.

6.5 The Rural Electrification Corporation is thus on the cross roads as thetempo of traditional activities has slowed down and new programmes arenot yet being taken up on a large scale The Corporation, which hasdeveloped expertise over a period of time and has its network of officesthroughout the State, needs to be utilized for financing DistributedGeneration programmes, especially those based on renewable resources.The committee considers that this important point should be pursued inthe time bound manner by the government There does not appear to beany difficulty in doing so as the executive order of the Government of Indiawhich permitted it do take up only schemes below 25 MW and restrictitself to towns with a population of 1.5 lakh has been withdrawn It cantherefore function like any other power finance corporation .Theredefinition of its role in the changed context needs to be brought outquickly.

6.6 Another observation needs to be made about the composition of theBoard of Directors of the Corporation. The Board comprises the CMD,Director Finance and two joint secretaries from the Ministry of Power. Thiscomposition of the Board may have been relevant to the functionsentrusted to the Corporation so far. In view of the new role envisaged forit, it is suggested that the Board may have in addition to its existingmembers, a representative of the Ministry of Rural Development and theMinistry of Non Conventional Sources of Energy.

7. India Renewable Energy Development Authority:

7.1 There is another important financing agency in the power sector viz. IndiaRenewable Energy Development Authority, which was incorporated as aPublic Limited Company in 1987. Its mission is to be a pioneering andcompetitive institution for financing and promoting self sustainingimprovement in energy generation from renewable sources, and energyefficiency for sustainable development. Rapid commercialization of newand renewable sources of energy and upgradation of their technologiesare among its important objectives It gives project and equipment finance.It can also operate through financial intermediaries and businessdevelopment associates.

7.2 The authorized share capital of IREDA was Rs.300 crores and its paid upcapital was Rs.250.35 crores as on 31.3.2002. It has mobilizedconsiderable assistance especially from World Bank/GEF/SDC.

7.3. The terms and conditions of the assistance given by it may please beseen in Annexure 12 .It gives special concessions for North-Eastern

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regions and Sikkim as per the details given in Annexure 13.The targets forthe tenth Plan given to IREDA may please be seen in Annexure 14.

7.4 IREDA's loan commitment to the 1569 projects it has approved comes toRs.5285.26 crores against which loans worth Rs.2732.29 crores havebeen disbursed. The power generation capacity of the projects assistedby IREDA is 1892.94 MW. The commissioned capacity under the IREDAschemes is 904 MW.The sector wise cumulative details of the capacitiessanctioned by IREDA as on 31.3.2002 are given in Annexure 15. It wouldbe seen there from that out of the total capacity of 1892.94 MWsanctioned by IREDA 614.54 MW, 428.90 MW, 537.50 MW and 205.11MW are on account of wind energy, small hydro, cogeneration andbiomass power respectively.

8. IREDA And The Solar Thermal Energy Programme

8.1 The Government of India promoted a subsidy based Solar ThermalExtension Programme in 1984, which continued up to 1993. Theprogramme did help in disseminating the solar thermal products indifferent parts of the State and developed a manufacturing base as well.

8.2 After the discontinuance of the subsidy based extension schemes a softloan programme was introduced under an interest subsidy scheme, whichis implemented through IREDA and public sector banks to promote solarthermal products. The interest charged under the scheme ranges between5%to 8%. IREDA provides loans directly and through its financialintermediaries for deployment of solar thermal products of any capacity.The banks provide loans for solar water heaters up to a maximumcapacity of 2000 liters per day. Most of the banks and manufacturersassociations have stressed the need to raise the capacity limit to 4000liters, so that hotels, hostels, canteens etc can avail the facility of the loansdirectly from the banks. The necessary details are given in Annexure 16.

9. IREDA And Solar PV Programmes

9.1 The Government of India continued to give capital subsidy for SPVsystem as per the details given in Annexure 17. IREDA gives soft loansfor installation of SPV systems and power plants.. The subsidy is given bythe government as the cost of generation of Solar PV is Rs.10/- to 12/- perkWh as compared to that of Rs.1.00 to Rs.2.75 per kW from otherrenewable energy sources. The details may please be seen in Annexure18.

9.2 Recent trends such as improvements in technologies, reduction in customduties and expansion in market, have resulted in a decline in price level ofSPV systems. In view of this trend, the government decided to reduce thesubsidy levels for distribution/installation of SPV systems and power

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49plants during the year 2001-02 except in the North-Eastern region andSikkim.

9.3 There are at present 20 companies that manufacture PV models.Samples of solar lanterns of more than 60 manufacturers and suppliersand samples of solar home lighting system of more than 35 manufacturersand suppliers were tested and certified for supply under the Government'sSPV programme. The industry is thus quite competitive.

9.4 The programme is implemented by State Renewable Energy DevelopmentAgencies, reputed NGOs and selected Public Sector Undertakings. Someof the implementing agencies procure the SPV systems through tendersand organize their installation with the help of their district offices orthrough recognized Aditya shops. In contrast, some of the implementingagencies have adopted the market mechanism, which permits directmarketing of products by qualified manufacturers under the subsidyprogramme, so as to facilitate direct interphase between the users andmanufacturers. The government encourages the use of soft loan facilityoffered by IREDA for this purpose.

9.5 There is need for change of strategy adopted by IREDA for implementingthe scheme as costs are coming down on account of various reasons. Theelimination of capital subsidy under the Solar Thermal Programme, aftersufficient dissemination of solar devices, did not hamper either theirgrowth or popularity.

9.6 As a matter of fact we have a successful example of a company which hassold SPV's without any capital subsidy in Karnataka viz. SELCO. It hasinstalled about 10,000 SPV's in the rural areas so far. The success of thecompany could be attributed to the contribution, to the extent of more than70% of its equity, made by a number of green investors from abroad, anefficient network of service centres set up by it, which ensures that all nonfunctional systems are made functional within 24 hours, the assistancegiven by the Grameen Banks to the company and the decision of theGovernment of Karnataka not to extend capital subsidy to the scheme.The company made keept a substantial amount as deposit in theGrameen Banks, and used the interest earned from the Grameen Banksto subsidise the interest rates with the result that the borrower interest @9.3% per annum on the loans taken from the Grameen Banks.

9.7The Government of Karnataka have not implemented the scheme of capitalsubsidy for the SPV's and hence the company is not facing unequalcompetition from subsidized products. It is strongly felt in certain quartersthat the present system of tendering is a major hindrance to the directinterphase between the users and manufacturers . It is suggested that theeffectiveness of the present capital subsidy schemes which had relevancesome time back in SPV may be reviewed. The scheme may be discontinuedbased on the findings of the review and the government may

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switch over to an interest subsidy scheme. The subsidy scheme may beconfined to the North-Eastern region and other hilly and inaccessibleregions.

9.8 It may be mentioned in this connection that, the Government of Indonesiahave implemented a major scheme for installation of lighting and otherelectricity devices to approximately two lac households with assistancefrom the World bank and the Global Environmental facility. TheGovernment provides subsidy to the extent of only one percent and therest of the funds are obtained from the commercial banks loans areprovided to the distributors. Similarly, Energi Surya, a private company,provides household systems for rural households by providing a networkof service centres , which take care of service ,sales and credit. Thecompany manufactures some key components and apart from the solarpanels which are imported. It follows guarantee clauses for thecomponents provided by the other suppliers. There is no reason whymarket forces cannot be allowed to have a free play in India subject theconditions mentioned above.

10. Other suggestions regarding IREDA

i The committee is of the view that there is a perceptible gapbetween IREDA loan sanctions(Rs.5285.26 crores) anddisbursement Rs.2732.29 crores. It should be ascertained whetherthe gap is on account of the procedures and systems in vogue

ii Some of the international agencies has been lending funds toIREDA with a repayment period of 30 years. The question whetherthe benefit of the longer repayment period should be passed on tothe borrowers or not and if so to what extent would have to beexamined.

iii. The interest rates charged by IREDA range between 0-14%. In theregime of falling interest rates a downward revision of the interestrates charged by IREDA could be considered.

10.1 IREDA should be regarded as a repository of all wisdom and expertisewith regards to renewable energy sources. A new pattern of relationshipbetween IREDA and the Rural Electrification Corporation would benecessary in view of what has been stated above.

11. Financing & Technological Issues:

11.1 The decision between grid connection and decentralized generation has tobe made on the basis of technical, managerial and economic issues .The

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important ones among them are:-

(a) Distance from existing grid: There is often a cut off point beyondwhich grid extension is not viable. The terrain between the grid andthe village must be considered to see if there are difficulties whichcan make line extension very difficult. It has been estimated that inthe tribal and the North Eastern region, grid extension beyond threekilometers is not viable. In such situations stand alone systems areuseful.

(b) Load density: If there is a high demand for electricity in a smallarea, there would be a strong justification for a grid connection inthat area. Most local communities will require small quantities to besupplied to dispersed households leading to low load density swhich affects the viability of some of the stand alone power plants.

(c) System losses: Significant power loss in the transmission anddistribution system is the feature of any rural eletrificationprogramme, especially where lower voltage transmission anddistribution say 11 kVA or 33 kVA are extended over longdistances. There comes a point .at which a decision has to bemade whether a power line should be extended with the risks ofhigher system losses or whether a decentralized scheme can betterserve the remote community.

(d) Load Management: Many rural communities use electricity mostlyfor lighting in the evening. and so the revenue collected by thepower companies will be very low. Use of the available power forincome generating activity as well as lighting makes grid extensioneconomically viable. Stand alone systems with the low load factorwill not be economically viable. A community owned stand alonepower system is advantageous as it would enablee to planproductive end use for the generated power, in a much bettermanner. All the issues listed above have to be carefully taken intoaccount while financing a Distributed Generation Project

12. Subsidy For Distributed Generation Schemes:

12.1 It is obvious that in many cases, Distributed Generation schemes will notbe economically viable. Subsidy will have to be given in some form or theother, especially in the initial stages for electrifying villages in rural areasand remote and inaccessible areas. The Government of India havedecided to treat electricity as a basic service and released funds underthe Minimum Needs Programme and The Prime Minister's GrameenRozgar Yojana. Under these two schemes, the funds are released to theStates in the form of 90% grant and 10% loan for Special Category Statesand 30% grant and 70% loan to other States. Rs 175 crore have been

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earmarked for the year 2001-2 under the Minimum Needs programme andRs. 600 crore for the year 2002-3.

12.2 Under the PMGRY, Rs. 418 crore were earmarked for the year 2001-2and Rs 2800 crore have been earmarked for the year 2002-3 for allcomponents of the PMGRY with greater flexibility to the States to allocate thefunds among the various components.

12.3 It is necessary that the amounts given as grant/loan is tilized in the bestpossible manner. The Committee would make the following suggestions inthis regard.

i. In the case of decentralized electricity generation, concessions for thesupply of electricity to a particular region may be given by invitingcompetitive bids. The contract should be awarded on the basis oflowest cost to provide a particular level of service. The maximumamount which the government is prepared to give as subsidy shouldbe indicated in the notice for inviting tenders and the party that claimsthe lowest subsidy should be held eligible for the award of thecontract. However, if the local body such as the village panchayatparticipates in the bid, and meets the technical criteria, it may be givena preference to the extent of 10% of the lowest offer. This is a policydecision which the Government may like to take to involve local bodiesand communities in rural electrification. Such an approach is adoptedin Argentine.

ii. Adoption of a cluster approach may make the schemes more viable asit would ensure adequate load for the power that would be generated.Experience has shown that the low load is responsible for the lossesto be incurred by the schemes. The proposals should be preceded bya survey of the potential for development of the villages in the clusterand adequate awareness programmes

iii. The release of subsidy should not be made mechanically but on thebasis of compliance of the terms and conditions of the contract.Evaluation of the performance by the scheme operator should be themain basis for release of subsidy.

iv. Where loads are very dispersed, it would be advisable considersupplying electricity to individual households, rather than installingcommunity systems that may require an elaborate distribution network.In the alternative, a central battery charging system may be installed.There need be no rigid notions about the models that can be heldeligible for subsidy.

v. The pattern for financing rural energy schemes that involves varioustypes of funding such as grants subsidies, loans , contributions in kindby the local population, etc are getting increasingly common and may

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be tried in India too. The 25 kW micro hydel plant located in the villageMuktinath was funded by USAID and Intermediate Technology, a loanfrom the Agricultural Development Bank of Nepal and a contributionfrom the village. The share of grants, loans and the people'scontribution was 52%, 31% and 16% respectively. The government'sbudgeted grants may be used for making a contribution of schemes ofthis type, subject to some eligibility criteria.

vi. The important principle should be that the recurring costs on accountof maintenance, etc. .should not be a burden on the government. If thetariff levels are such that the people cannot afford them, the schemeswill run into losses. It is, therefore, suggested that a one time capitalsubsidy may be given to schemes of Distributed Generation that fulfillthe desired criteria in the manner outlined above, so that the tariffs aredetermined at levels the people can afford. For instance, in a mini gridcomprising a group of villages, the capital expenditure on thetransmission line connecting the villages could be subsidized.

vii. Where Distributed Generation Scheme connects a cluster of villagesthrough a grid or a mini grid the capital expenditure on account thetransmission lines linking the villages may be subsidized by thegovernment.

viii. In order to ensure that only energy efficient pumpsets are installed,subsidy may be routed through the approved manucturers to thefarmers. Such schemes may be given the benefit of subsidy, only if agroup of small and marginal farmers comes forward, forma acooperative, and agrees to use the water made available by the solarpump jointly and optimally.

13. The Concept of Viability of A Distributed Generation Scheme.:

13.1 It is necessary that the socio economic benefits that accrue to a localcommunity on account of a Distributed Generation Scheme are evaluatedwhile appraising it. It is necessary to do so, because the benefit accruingto a single stakeholder may not justify the project cost, though the totalityof the benefits accruing to the various stakeholders may more than justifythe same. The avoided costs of transmission and distribution losses canform a part of the evaluation of such schemes for instance. The positivedistributed benefits like increased incomes, removal of drudgery, etcshould also be a part of project evaluation. In the U. S. A,. somecompanies have made an effort to determine the financial value of thebenefits of distributed power systems .and shown how the distributedbenefits are substantially exceed the avoided cost resulting from theinstallation . Unless the benefits are assigned to the scheme, and thenquantified, the same would appear to be financially unattractive. Anexample of the effort made by an American company in the case of a PVarray in California, is given in Annexure 19. .

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5414. Need For Innovative Financing For DG Schemes:

14.1 The norms for financing schemes will not work for D.G. schemes and theneed for an innovative approach is paramount. The following could beimportant components of innovative financing.

i. Equity Facility ± Equity may be provided on a concessional basis,which can be used to help defray the high start up costs of aparticular DG project. The donors can supply the initial capital as agrant, long term loan or equity. In order to obtain maximum resultssuch assistance should be provided as a match through capitalalready invested in the company. Such assistance in the form ofequity would be extremely useful because DG enterprises areextremely site specific in nature and their success it intimatelylinked to factors like site specific, resource information and designand installation of the systems. Entrepreneurs in India would find itextremely difficult to initiate the first steps and obtain complimentarydebt financing which is necessary to spread the cost over time.The question of using the amount provided for in the budget for theMNP and PMGRY can be used for providing equity in suchschemes may be considered.

i. (a) The return on equity could be in the form of capital and credits forpublic goods like reduction in pollution levels. The investmentcould also be in the form of redeemable preferred shares that aresold to the firm or new investors at an agreed time and with anagreed yield. When the assisted companies mature they will seeka new equity investment from both active partners and financialinstitutions.

i. (b) Equity can also be used as loan reserves by the financialinstitutions and function in a manner similar to guarantee lossreserves. The capital could be put on deposit with the partnerfinancial institution in such a fashion so as to meet bank systemreserve requirements. The reserve monies can be leveragedthrough the fractional reserve system to leverage financialinstitutions, dead financing directed to a target firm.

ii. Debt Co-financing Facility ± The resources are utilized in orderto give loans at below market rates to the DG enterprises. Theinterest rate reduction is achieved by blending the donor financeswith the resources of financial institutions which deals to ablended rate which is below the market rate. In the alternative theamount given by the donor as debt can be used as a bargainingpoint in order to bring down the rate of interest when the financialinstitution lends money from their own resources. Such a systemneed not distort the credit market as long as the subsidy keepsthe interest rate close to commercial terms.

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55ii. (a) Donor funds could be provided on a subordinate basis i.e. the

donor accepts a lower order of priority for repayment of the debt.The objective behind dead co financing facility is to meet theresources of the financial institutions more secure as a means tostimulate lending by them. This technique is useful wheredevelopers require loans for periods longer than financialinstitutions are willing to provide with their own funds. The onlydrawback with this method is that it is relatively resource incentiveand its effectiveness would depend on the percentage share ofco-financing from the donor.

iii. Guarantee Facility -Guarantees facility address the credit riskbarriers and can be used appropriately when financial resourcesare available in the market but need an incentive to be deployed.There is always a gap between the perceived credit list asreflected in the credit underwriting practices and actual lists,which can be made good by guarantees. There are two types ofguarantees, partial party guarantees and loss reserve. In eachcase the donor's funds are utilized as reserves against guaranteeliabilities. Partial guarantees support a financial institution bysharing the credit risk of a DG loan made by the financialinstitution with its own resources. The amount of the guaranteewill have to be precisely defined and a expressed as a percentageof the Financial Institutions remaining balance at past due interestat the time of due loss or default. When a default occurs thepayment the guarantee claim would be made to the financialinstitution for the agreed portion of the loss. When the arrears arerecovered, they would be distributed in the same proportion asthe loss was distributed.

iii. (a) Donor funds can also be used to create loss reserves at theproject or financial institutional level. The level of the loss reservecould be determined in terms of a percentage of overall portfolioof the value which is generally between 5-20%. The lossreserves should be sized at or even slightly greater reasonableworst case scenario of the default rate estimated for the portfolio.The loss reserves could be jointly funded by a donor and partnerfinancial institution. The loss reserve works best when a portfolioconsists of a large number of smaller loan transactions where astatistical approach can be given to the credit structure of theportfolio as a whole. Loan loss reserves achieve the highest levelof leverage and often be contributed by the manufacturer or thefinancial institutions or even the donor.

15. The Committee is of the view that the special dispensation proposed withregard to equity contribution, debt co-financing and guarantees should beconfined to projects of the size of between 1 MW and 5 MW.Entrepreneurs who go in for projects above 5 MW do possess somefinancial strength and have enough schemes to which support themfinancially.

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56Financial intermediaries can also play an important in innovativefinancing. The Infrastructure Development Finance Corporation and theInfrastructure Lease Finance Corporation can be requested to assist in thedevelopment in the new an innovative models.

17. A major handicap which the committee faces was on account of lack ofnecessary data regarding the functioning of mini-hydel biomass/gasprojects and SPV projects. The Ministry of Non-conventional EnergySources and IREDA were enable to give the full picture regarding thedetails of the physical and financial performance of the projects managedby them. The committee is therefore unable to make detailed and morespecific suggestions about the financing mechanism based on actualperformance of the relevant projects. It is suggested that a detailedevaluation of the projects of mini hydel, wind energy, biomass, biogas,SPV models which have already been commissioned. In the light of theactual experience gained new models may be developed. A task forcecomprising of the representative of Ministries of Power and Non-Conventional Energy Sources, IREDA, REC, ICICI and IDFS and ILFC beconstituted to make detailed recommendations on innovative financing.

18. Tax Incentives And Import Duty Concessions - A system of importduty concessions and tax concession may have to be devised for makingDG schemes viable. The following could be the important components ofa suitable tax package.

i. Depreciation - If entrepreneurs are allowed to accelerate thedepreciation of rural electricity equipment they get relief under theupfront cost which they have to incur in the schemes of ruralelectrification. High depreciation rates are an investmentincentives. In India the benefit of 100% depreciation was misusedby the parties that borrowed funds for setting up wind energyprojects. These were mostly corporate entities which were moreinterested in augmenting their projects rather than implementingtheir projects. However, the technology with regard to wind stormprojects has improved over the years and monitoring has also beentighter. The question whether benefit of depreciation should berestored or not would have to be restored in the light of thisbackground. The committee is of the view the government maytake such decisions as it deems appropriate in the matter.However a reasonable ate which is sufficiently attractive will haveto be retained.

ii. Tax Holidays- Tax holidays on income generated by ruralelectrification schemes are used world wide as an investmentincentive offset capital intensive nature of Rural Electrificationschemes. Such instruments can also be used where ruralentrepreneurs install rural energy supply schemes.

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57iii. Favourable taxing structures can be evolved

for rural electrification schemes after taking into account thatelectricity generation from these schemes has lower environmentalimpact than generation from fossil fuels.

19 Assistance to the individual customers in financing the initial cost ofconnection can also be part of innovative financing. This can bedone either through provision of specific subsidies or throughsupport for credit schemes. In South Africa, where consumers inrural areas were given the choice of either paying for theconnections themselves and then paying the normal tariff or havinga free connection and paying a higher tariff, the majority chose thehigher tariff. The use of load limiting devices, prefabricated wiringsystems and prepayment meters can also be thought of as part ofan innovative package as these may help the persons belonging torural strata of society in rural areas.

20 It would thus be seen that the problem is not merely a financial one.Intricate problems relating to transfer of technologies to ruralcommunities and their education have got to be tackled with tactand imagination to ensure smooth induction of systemic changesThis is indeed a venture into new and uncharted waters. Theapproach has, therefore , got to be innovative and the processof trial and error has to be necessarily gone through. Theproposed scheme has a vital role to play in the economicdevelopment of the State. It is therefore, suggested that theentire exercise including that of demonstration projects begiven the status of a Technology Mission. This would ensurethat the scheme gets the priority it deserves in the nationalagenda for economic growth and reform

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Chapter – 7

Regulatory Issues

1. The Electricity Regulatory Commissions have started functioning both atthe central and the state levels and are exercising their regulatory powers,which include, inter area, important issues such as tariff determination andinterconnectivity. As has been already emphasized DistributedGeneration Schemes are perceived as a risky propositions by FinancialInstitutions. Since these are mostly in the initial stages the regulatoryframework for them will have to be evolved in a very careful manner.

2. It was noticed that there is no uniform policy or approach of the regulatorswith regard to such schemes. The Government of India have thereforeinitiated a dialogue the Central Electricity Regulatory Commission and theconcerned State Electricity Regulatory Commissions to evolve uniformpolicies for power from renewable sources including preferential tariff.Some of the important issues are discussed under this chapter.

i. The Distributed Generation Schemes being extremely locationspecific in nature cannot be subjected to rigid and uniform rulesatleast till such time as we gain sufficient experience with regard tothem. The rigidity of uniform may dampen the spirit of enterprise andinnovation on the part of the entrepreneurs concerned. Thecommittee therefore suggests that such projects should not besubjected to the discipline of the regulators in the initial phase i.e.next two to three years. DG schemes are also not going to beimplemented on a very large scale in the next 2 to 3 years as anumber of constraints have to be overcome. Only a few projects arelikely to commence on a trial basis in the light of the dialogue whichthe government may initiate with the NGOs in view of its recent thruston DG schemes. The committee therefore feels that there need beno difficulty in agreeing to the suggestion.

ii An important point while determining the tariff should be thecomparison between the tariff of the DG schemes and the tariff of thegrid power at the specific location. In other words the cost oftransmission and distribution losses in the grid system at the specificlocation will have to be taken into account while drawing thecomparison. Secondly, allowance will have to be made for the factthat the plant load factor of a DG system would be much lowerespecially in the initial stages as compared to that of a central powerstation which is already stabilized. It will have to be assumed that theplant load factor of a DG system will increase over a period of timeand the economics of the DG schemes will have to be based on suchan assumption.

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iii Include an assured price for buy back power generated by biomassprojects and wind power projects by the State Electricity Boards.The details are given in Annexure 20. It would be seen from theAnnexures that the buy back prices range between Rs.2.25 per unitwith escalation at 5% for a period of 5 years in the case of biomassprojects. In the case of wind power projects the buy back priceranges between Rs.2.25/kwh and Rs.2.89/kwh at 5% escalation. Inthe states of Madhya Pradesh and Tamil Nadu no escalation isallowed and in the state of West Bengal it is allowed on a case tocase basis.

The incentive no doubt acted as a catalyst and helped in theinstallation of a number of biomass based and wind based projects.Some of the State Electricity Boards are now complaining that thebuy back prices have reached unreasonably high levels anderoding the profitability. While it will not be correct to attribute thelosses incurred by the State Electricity Boards entirely to the buyback prices as the energy bought from such projects constitutesonly a small percentage of the turn over of respective grid systems,the matter no doubt needs to be reviewed. While the escalationclause may be retained for the present its implications over a periodof time would have to be examined, the committee would suggestthat the escalation clause may be reviewed at the end of everythree years. A distinction will have to be made between fuel basedand biomass based DG schemes while the matter is examined.

iv. An important risk to be borne by the DG systems rises on accountof uncertainty of demand which is detrimental to scale economies.If the local demand does not pick up the surplus power will have tobe wheeled into the system for sales to third parties. Third partysales are allowed only in the states of Maharashtra, Haryana andRajasthan for biomass projects and Karnataka, Maharashtra in thecase of wind power projects. It is necessary that third party salesare permitted especially in the case of DG schemes such measureswould ensure that genuine competition emerges in the powersector. The third party sales the committee recommends should bepermitted liberally as true competition can be introduced only then.

i. It is noticed that the wheeling charges which were as low as 2% insome states initially are being revised upwards(to even 28% insome cases) and that to with the approval of the State ElectricityRegulatory Commissions. The committee recommends that thewheeling charges should be related to reasonable levels oftransmission and distribution losses of the State Electricity Boards.This would ensure that State Electricity Boards do not mechanicallyask for wheeling charges which are higher than necessary and alsomade responsible for controlling transmission and distributionlosses. In any case it should be ensured that the State ElectricityBoards do not suffer a financial loss on account of the policy

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directives given by the state government in such matters by theState Electricity Boards.

3. It is most important that the question of interconnectivity between the stategrids and the grids of the DG schemes is resolved on a most urgent basis.The rigidity and reluctance on the part of the incumbent operator has beena major obstacle all the world over for the development of the DGschemes.

4. Some of the Regulatory Commissions have tried to achieve demandmanagement through tariffs by announcing concessions in tariffs toconsumers to switch over to solar systems and devices. The StateElectricity Boards of Rajasthan and Karnataka have done so.

5. As the entrepreneurs that operate the DG schemes are extremelyvenerable to discriminatory behaviour by the incumbent operators inconnecting to the transmission and distribution grid the Central ElectricityRegulatory Commission would have to establish technical interconnectionrules so that DG schemes can be implemented before resolving thebroader competition issues that arise on account of their implementation.Considering the overall benefits that accrue to the economy on account ofDG schemes, it is imperative that the terms and conditions for theinterconnectivity are finalized with the utmost expedition and DG schemesare allowed to commence their operations without a final resolution of allcompetition issues. This in fact was the approach adopted by the FederalTrade Commission before the Public Utilities Commission of the State ofCalifornia.

5. While the regulatory issues need to be resolved the National Policy onDG schemes based on the Renewable Energy Sources needs to beurgently spelt out as the regulators are bound by the policy directivesgiven by the appropriate government. The Government of Rajasthan arereported to have issued a policy directive to the State ElectricityRegulatory Commission to regulate power purchase in such a mannerthat procurement of power from non-conventional sources reaches alevel equivalent to 10% by 2010. The articulation of a clear policy in thematter in terms of Clauses 4 and 5 of the Electricity Bill 2001 at theNational Level will a long way in giving a legal and conceptual frameworkwithin which the regulators can exercise their powers.

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Biomass Technologies - Biogas Gasification

IDCOL financed a 250 kW biomass gasification based Power Plant a local sponsor has developed this project. The Plant, the first ever its kind inis one of various renewable energy activities of IDCOL. IDCOL provided concessionary loansand grants, sourced from IDA and Global Environmental Facility to this project. The plant uses locallyavailable agricultural residues i.e. rice husk as fuel for power generation. The project started commercialoperation in October 2012.

Rice Husk fired 250 kW Gasifier power plant

The project started commercial operation inOctober 2012.

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1. Gasifier UnitParameter Description

Gasifier Type Downdraft Capacity Total 250 kW Rated Gas Flow 625 Nm /hr (up to total 250 kW capacity)3

Average Gas calorific value > 1,050 (Kcal/Nm )3

Rated Biomass consumption Up to 300 kg/hr (for total 250 kW capacity) Gasification Temperature 1050oC-1100oC

Gasification Efficiency Up to 75% Temperature of Gas at Gasifier Outlet 250 to 400 Co

Biomass Feeding Manual Desired Operation Continuous (minimum 300 days/yr) Typical Auxiliary Power Consumption Up to 11 kW Typical Gas composition CO-20.62%, H -10.62%, CO -13.61%, CH - Up to2 2 4

4%, N -52.62%2

2. Gas purification unitFollowing gas purification stages and filter element have been used in each stage of this rice husk basedpower plant:Stage 1: Coarse Filter: uses rice husk char as filter element to partly clean the gas.Stage 2: Fine Filters: sawdust is used as filter element to trap all the particulate and ash particles.Stage 3: Safety Filter (‘SF’): a special fabric (5 micron particulate size) is used as filter element.

3. Internal Combustion (IC) Engine: Duel-fuel EngineA 300 kW capacity duel-fuel generator is used to generate electricity. In this rice husk based power plant,to run the generator certain amount of diesel is required. Because, the producer gas has relatively lowerheating value and needs to be supplemented by diesel to get the necessary power output. That’s why the ICengine has been converted into duel fuel mode, i.e. it can run both on producer gas and diesel. Here, theProducer gas to diesel ratio is. 70:30. During start up of the plant, main generator is started first on dieseland then changed over to duel fuel mode when the producer gas is available for charging to the engine.

4. Power distribution NetworkA mini grid has been constructed to sell the power to the adjacent area. The plant is able to deliver power toat least 200 households and over 100 commercial entities of that area.

5. Environmental impactGenerally 4 types of effluent are generated from the gasification process; ash, char, tar, and waste water.Ash is collected in wet condition. Around 20% of rice husk is made up of ash and the ash coming from thegasifier contains 10 to 15% carbon by weight. The ash-laden water can be used as organic fertilizer or landfilling purpose. The plant has on site storage facility for ash. Char can be transformed into charcoal whichis used as a domestic fuel for cooking and heating. Tar can be either recycled or burnt in the gasifier orused as black paint for the wooden materials like boat, wooden structures and construction of roads. Theplant has onsite storage facility to deposit waste water which needs to be changed in every three month.

6. Project CostTotal cost of the project was around Tk. 2.5 crore. Financed by grant from World Bank (60%), IDCOL –20% and DPPL 20%.

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Biomass Technologies – Biomass Briquetting Technology

Improved Biomass Briquetting System (Moral, 2000).