Concept paper for Full Project
1.
Project Title: Removal of Barriers to Biomass Power Generation in India
2.
GEF Implementing Agency:
United Nations Development Programme
3.
Country in which the project is being implemented: India
4.
GEF Focal Area: Climate Change
5.
Operational Programme: No. 6, Promoting the Adoption of Renewable Energy
by Removing Barriers and Reducing Implementation Costs
6.
Country Drivenness (Project linkage to national priorities, action plans and
programs):
India was one of the first countries to recognize the importance of promoting renewable
energy technologies. The national development plans or the Five Year Plans of the
Government of India allocates budgetary resources for achieving the potential of
renewable energy in promoting sustainable development. The Ministry of Non
Conventional Energy Sources (MNES) is the nodal Ministry promoting renewable energy
technologies and programs in India. A number of promotional policies are in place and,
financial and fiscal incentives are being provided to this sector. The Ministry is also
currently formulating a comprehensive renewable energy policy to bring about a smooth
transition from fossil fuel based economy to sustainable economy based on renewable
energy. The Ninth Five Year Plan (1997-2002) emphasizes a major shift to decentralized
and renewable energy power for meeting the growing energy needs. Further, a major
thrust to the biomass power development for increasing supply of power, through the
MNES is envisaged. The proposed project forms a part of the overall programme of the
MNES.
7.
Context:
 Global:
India’s power sector is characterized by demand in excess of supply, continued
dependence on depleting conventional sources of energy and low pace of energy
efficiency improvement. CO2 from coal combustion is a dominant GHG contributing to
global warming in India. More than 70 % of the current installed generation capacity, of
about 95000 MW, is based on fossil fuels, mainly coal. CO2 emissions from power
generation is estimated at 328 Million tonnes in 1990 and has increased to 428 Million
tonnes in 1998. The emissions are further likely to increase at much faster rate due to the
increasing share of coal based generation. By 2020, CO2 emissions are projected to be
2014 Million tonnes. An estimate based on the total biomass power potential in India
shows the possibility of at least 40 Mt of CO2 abatement per year.
The proposed project is consistent with internationally agreed programmes for
sustainable development, through increased use of commercially viable renewable energy
technologies. The biomass power technologies are environmentally sound and offer
multiple benefits leading to sustainable development. Power generation from both captive
and distributed biomass materials have wider applications and multiplication potential.
 Local
Since 1993, a number of policy initiatives have been introduced for commercial
exploitation of biomass powe.. This led to initial industry-wide awareness but only about
105 MW of surplus power emerged by the end of March 1997. In spite of sustained
efforts from the government, the outcome is quite below the expectation levels. The
installed capacity of biomass power projects in the country was 146 MW as of March
1999, with additional 250 MW equivalent projects in various stages of completion. The
progress with respect to distributed biomass was still slower, with only about 35 MW of
capacity being installed during the same period. This has been mainly due to a number of
barriers that are briefly discussed below.
The barriers being addressed under this project would build upon the efforts being made
by the Ministry under the National Programme on biomass power and biomass / bagasse
based co-generation.
Absence of Effective Institutional and Policy Framework: Lack of sufficient capacity of
the stakeholders and inadequate institutional as well as policy framework at the national,
regional and local levels, the main factors for biomass power development, act as key
barriers. The lack of institutional support in dealing biomass power projects such as
distribution and sale of electricity acts as another set of barriers. Absence of commercial
and service networks (biomass depots or collection, transportation, and delivery of
biomass fuels) at the national, regional and local levels impede the growth of biomass
power projects. Lack of interest on part of the SEBs in promoting biomass power
generation on a level playing field is yet another policy barrier.
The earlier experiences of project developers (both Indian and International), indicate
very high transaction costs mainly on account of delays in signing of the project
development agreements (PDA) with host sugar mills and power purchase agreement
(PPAs) with the State Electricity Boards (SEBs), constitution of the co-operative sector,
establishing fuel linkages and obtaining necessary loans. The project developers also
perceived high risk due to low confidence in the technologies (resistance to switch over
to alternative processes and businesses), lack of guaranteed fuel linkages, limited
experience with power distribution and sale, high transaction costs, non-standardized
power purchase and project development agreements, lack of credit facilities and
financing mechanisms and inadequate institutional infrastructure and policy framework
(non-uniform state policies on wheeling, banking, third party sales). Hence, commercial
demonstration of pilot projects in sugar sector (project developer and host sugar mill
2
combination in the co-operative sector), captive biomass sector other than rice husk and a
number of projects in distributed biomass sector are necessary. Such model investment
projects along with barrier removal activities including equity sharing or financing equity
partly will facilitate removal of the key perceived barriers and reduce transaction costs
for multiplication of similar projects to a great extent.
Lack of Technical Capacity: The technologies for biomass power development, both for
captive and distributed biomass resources, have not yet been fully standardized,
packaged, documented and validated due to their learning phase. Lack of the technical
capacity to address these issues also acts as a major barrier. Further, the reliability of
biomass power technologies has not been established for biomass power technologies
using multiple feedstocks (especially, other than rice husks).
Absence of Effective Information Dissemination: The information generally available on
viable biomass resources and biomass power technological configurations and project
parameters at national and international levels is inadequate. Further the mode of
information dissemination by and large remains ineffective due to lack of capacity among
the stakeholders (farmers, project developers or promoters) in this sector. With these two
elements being integral to the existing information dissemination strategy, the potential is
not fully realized. This barrier needs to be addressed for effective and efficient flow of
information.
Limited Successful Commercial Demonstration Model Experience: The commercial
viability of the Biomass power projects is yet to be demonstrated in India on a visible
scale. Efforts have been made so far to demonstrate the technology but viable business
model needs to be established to improve the confidence levels of investors. This poses
high risks and given the nature of investors (especially in the cooperative sector) high
upfront capital costs and raising the prescribed equity for the same acts as a barrier.
8.
Project Rationale and Objectives
Problem statement: The rate of spread of biomass power technologies in general is low,
despite the efforts made by the Ministry since 1993. There are a number of barriers that
constrain the large-scale deployment of these technologies
GEF perspective:
The overall objective of the project is to improve the electricity supply using renewable
energy sources without increasing the GHG emissions. The immediate objective of this
project is to facilitate the acceleration of adoption of environmentally sustainable biomass
power technologies, leading to large-scale commercialization of these technologies for
meeting the growing demands of power. This would be achieved through removal of the
key barriers identified as above, and currently not being addressed effectively by the
programmes and policies of MNES. This would further reduce the GHG emissions from
the power sector.
3
The specific objectives include demonstration of techno-commercial viability of biomass
power technologies for captive and distributed biomass materials in the niche areas. The
emphasis will be on demonstration of different project development models and
establishment of sustainable business and support service networks, for large-scale
multiplication across the country. The proposed project aims at achieving these objectives
through a variety of initiatives, which include mainly technical assistance and project
investment model components.
The removal of barriers will lead to reduced transaction costs of these technologies and
processes and will make them cost effective compared to conventional fossil fuels power
generation. In view of the continued demand supply gap in the power sector, any
additional capacity of power generation from biomass materials displaces the fossil fuel
generation. This further leads to reduction in CO2 emissions for the displaced coal based
power generation capacity and thereby helps in mitigating the climate change and GHG
emissions. Finally, the objectives of the proposed project are consistent with the
objectives of the GEF Operational Programme No. 6 on “Removal of Barriers to Biomass
Power Generation in India”.
Baseline Scenario:
The policy initiatives would continue to promote the biomass power development in
India but without paying attention to a number other issues that constrain the spread of
these technologies. If any change or likely intervention in the existing policies is to
happen to address some of the issues would further delay the adoption of these
technologies on a large scale due to procedural inflexibilities. Since the current policies
cannot bring about the change that is envisaged in the proposed project on one side, the
negative impacts of the current policies is likely to affect the future biomass power
development. This is not to undermine the viability of the technologies but in the absence
of the needed institutional mechanisms to support biomass power development, the rate
of spread of these technologies would be very slow, further eroding the confidence levels
of the investors. As mentioned earlier, the slow progress has been mainly due to a
number of key barriers that would have to be addressed in order to accelerate the
momentum of spread of these technologies and thereby improve the promoters’
confidence. The barriers being addressed under this project would build upon the efforts
being made by the Ministry under the National Programme on biomass power and
biomass / bagasse based co-generation and other bilateral agency initiatives.
Alternate Scenario:
The following would be comprehensively attempted to address the above barriers:
The commercial viability of the Biomass power projects investment models will be
demonstrated in India on a visible scale, which could trigger the large-scale
commercialization of the biomass power projects. Further, pilot projects in sugar sector
(project developer and host sugar mill combination in the co-operative sector), captive
biomass sector other than rice husk and a number of projects in distributed biomass sector
will be commercially demonstrated through model investment projects. Simultaneously,
barrier removal activities will include risk sharing with investors having low equity base.
4
9.
Expected outcomes and activities:
Outcome #1: Development of institutional framework
Activity 1- Development of business, commercial and support service networks: A
number of sub-activities will be required to accomplish the objectives indicated above. A
critical review of the kind of business, commercial and support service networks /
institutions / professionals required for this sector and assessment of the capability of
existing institutional framework will be taken up. This would involve an in-depth study
of equipment procurement mechanisms, sourcing different biomass resources,
institutional mechanism for delivery of biomass fuels, feasibility of biomass depots,
financing of such support services and relevant policy interventions. Generation of a
long-term plan for the purpose and accomplishing defined milestones within the project
life will be attempted under the activity.
Outcome # 2: Enhanced technical and institutional capacity
Activity 2- Technology package bench marking and validation, including development of
energy plantation on wasteland as potential biomass resource: This activity will
primarily focus on the evaluation of the techno-commercial status of each technology in
terms of specifications, inputs and outputs, capital and operating costs, minimum viable
project sizes and ranges of economic viability indicators. The capabilities of Indian
technology and equipment providers will be assessed for ensured long-term performance
parameters and efficiencies in comparison with international suppliers and the specific
improvements will be identified. The action plan will be recommended for such
improvements. The benchmarks for performance and evaluation for each type of
technology will also be developed and documented for wider publication through
workshops. The tasks would encompass a long-term vision for energy plantation on
wastelands in India. Studies on the assessment of wasteland, evaluation of energy
plantation technology, assessment of the potential of energy plantation for power
generation will be commissioned. A review of biomass combustion and gasification
technologies using feedstock other than rice husks will be carried out. Further
assessments will be made on the required policy, regulatory and institutional framework
for the establishment of energy plantation demonstration projects, development of short,
mid, long-term plans for energy plantation on wasteland and their usage for power
generation.
Outcome #3: Improved access to quality information
Activity 3- Effective information dissemination, including capacity building: The
information dissemination activity will mainly complement the efforts of the Ministry
and other agencies. A review of biomass resource mapping exercise of the Ministry will
be taken up to generate location and specific investors profile for different capacity and
types of biomass based projects for market penetration. Other sub activities will include
5
creation of up-to-date information, database on biomass power project commissioned,
under construction in pipeline, technology update, newsletter on biomass power,
development of data bank on biomass power technologies, preparation of biomass power
directory hand book, preparation of model pre-feasibility, techno-economic feasibility
and detailed project reports; model energy purchase agreements, MoUs, project
development agreements, fuel supply agreement, package or EPC bid documents.
Appraisal guidelines for different types of biomass power projects will also be prepared.
Capacity building of the major stakeholders including R & D institutions, State
Electricity Boards (SEBs), State & Central Government Agencies, financing institutions
and banks, engineers and consultants, NGOs (local / regional / national agencies), service
entrepreneurs, technology and equipment suppliers, project developer, sugar mill / rice
mill owners, micro entrepreneurs and project promoters will be undertaken. This activity
will focus on identifying specific capacity building needs, devising a time bound capacity
building programmes, implementing and executing them, documenting such programmes
and lessons learned.
Outcome # 4 Establishment of MIP models and selection criteria
Activity 4-Identification and Selection of MIP Models: This activity is a prerequisite for
implementing optimum number of MIP models. A detailed review of existing project
development models keeping in view the interests of the promoters and project developer
institutions will be carried out to define the project development models for MIPs for
biomass power technologies, both for captive and distributed biomass materials. The
lessons of existing models and assessment of existing barriers arising out of them will
prove to be of a great significance for defining the project models for MIPs. The biomass
types, distribution, local environment, and available institutional framework will be used
to define optimum number of project models and MIPs.
An attempt will be made to develop model Detailed Project Reports (DPRs), Project
Development Agreements (PDAs) and Power Purchase Agreements (PPAs) and any
other relevant aspect to facilitate reduced transaction costs. The extent of barriers,
biomass resources, technologies and status, and defined project development models will
be crucial factors in deciding selection criteria for MIP projects, their locations and
ownership.
Activity 5- Implementation of Model Investment Projects: Based on the criteria
established through Activity 1, the promoters, sites and development models of optimum
number of MIPs in terms of size, technology, financing mechanism, implementation
arrangements in captive and distributed biomass sectors will be finalized.
The project will identify a bagasse based co-generation model project, to demonstrate
project developer to host sugar mill model with combination of extra high pressure and
latest technology, year round operation on mill bagasse / procured bagasse and biomass.
This MIP will demonstrate the commercial feasibility to a large number of co-operative
and joint sector sugar mills.
6
Similarly, projects on different types and combinations of biomass materials, equivalent
to 10 MW, other than rice husk (as rice husk based power plants have already been
demonstrated) and at different geographical locations have been proposed. These two
MIPs will help demonstrate commercial viability of different types of biomass materials.
A total of 40 MIPs in the distributed biomass material sector with capacity up to 1000
kW configurations have been planned to cover different geographic locations, different
types and combinations of biomass materials, different modes of project development and
promoters. In all, 43 MIPs would be required to demonstrate different model types
covering geographical spread of the country.
A break-up of number of projects, indicative size, and location will be provided in the
project brief.
Outcome #5: Important lessons for replication strategy
Activity-6: Project Management and Monitoring: This activity will develop adequate
project management structure and systems to monitor every MIP, as it is the most
important element for the success of the proposed project. Further, documenting and
post-project evaluation at various stages will be key input for replication for MIP.
Formats for project activity, sub-activity, task based monitoring, evaluation and lessons
learned will be prepared, discussed and finalized. These will be tested for specific tasks
and activities and applied for the entire project during the project period. Transparent
evaluations of project activities on short, mid and long term basis become available for
project donors, bi-lateral agencies, stakeholders, project promoters, implementing and
executing agencies
Project Duration: 5 years
10.
Sustainability (financial, social, environmental) and replicability of the full
project:
So far, the initiatives through the government programmes have been towards
demonstrating biomass technologies. Unlike some other sectors in renewable energy,
such as wind and PV, biomass sector is largely unorganized. This project would present
an unique opportunity to build a strong partnership among the government authorities,
the private sector, NGO’s local communities, entrepreneurs, consultants and experts,
equipment and technology providers, etc. The successful demonstration of model
investment projects will ensure sustainability after the GEF project has ended. These
models will become units for replicablility and since the techno commercial viability of
these technologies has already been demonstrated, this project will basically enable
implementation of new projects in cost and time effective manner. The project activities
are mainly designed to facilitate institutional mechanisms for long-term sustainability and
would lead to reduced transaction costs, provide information kit to different categories of
biomass power investors.
7
11.
Country Eligibility
India ratified the Framework Convention on Climate Change on November 1, 1993
12.
Stakeholders involved in the project:
In order to minimize the project risks and to ensure sustainability of the project, the
following stakeholders were consulted at the project inception stage and will continue to
be part of the project design and implementation phase.














Sugar mills and related industry associations
Private industrial representatives
Rice mills and other captive biomass industries
Independent Power Producers/ Project developers
State Electricity Boards (SEB’s)
Control & State Regulatory Commissions
Government & Related agencies like MNES, MoP, MoF, MoEF, State Nodal
Agencies, State Governments, etc.
Consulting Firms
Academic and research institutions
Financial Institutions like ICICI, IDBI, IFCI, HUDCO, NCDC, REC, PFC
and IREDA
Multilateral & bilateral banks / donor agencies
Domestic manufacturers
Farmers and NGO’s
Foreign Investment Promotion Board
13.
Information on Project Proposer:
Name: Ministry of Non Conventional Energy Sources (Government of India). The former
Department of New Energy Sources was established in 1991 as the full-fledged Ministry.
It is primarily involved in: planning, policy-making, programme formulation and
implementation, promotion of demonstration, pilot projects and extension programmes,
encourage industrial and manufacturing capacity, providing fiscal and financial
incentives, capacity building, international cooperation, etc. for the development of the
renewable energy sector.
14.
Financing Plan of Full project
GEF financing
Co-financing
US $ 9.88 million
MNES
US $ 10.37 million
Others (Bi-laterals / promoter contributions) US $ 44.50 million
Total Project Cost
US $ 64.75 million
8
15.
IA Coordination and Linkages to GEF and IA programs and activities
Please refer to the enclosed Annex. which gives a matrix on the uniqeness of the
proposed biomass power project when compared to other GEF initiatives in India. This
project will complement the efforts of the ongoing government and other programs of the
bilateral agencies such as USAID. While drawing upon the lessons learned for the earlier
experiences, the project would exclusively focus on the sectors not comprehensively
covered in the earlier initiatives.
16.
Proposed project development strategy
Full Project will be submitted in the January/February, 2001 Intersessional
17.
Response to Reviews: provided in the cover letter
9