CHP SUPPORT SCHEMES

1. Workshop on Combined Heat & Power India, May/June 2007 Procedures for determining and certifying Combined Heat and Power (CHP) systems CHP SUPPORT SCHEMES By R V Nesari

2. Forms of CHP Support • Policy (Legislative) • Regulatory (Implementation) • Infrastructure • Financial: Investment incentives Tariff Structure • Technology & Expertise

3. Before EA-2003… • In India power sector development – a joint responsibility of Central and State Govts. • Before EA-2003, lot of restrictions in setting up power generating station (> 25 MW) for parties other than Govt., PSUs. • Cogeneration (CHP) synonymous to captive power generation

4. Policy Initiatives • In Oct. 1995, GoI asked States to create an institutional mechanism allowing CPP/ CHP an automatic entry through speedy clearance, rational tariff for purchase of surplus power by grid and third party access for direct sale of power to industrial units. • In Nov. 1996, GoI notified resolution on “Promotion of Cogeneration Power Plants.” with objective of policy: “As electricity and heat are fundamental inputs to most industrial activities, the present policy strives to achieve dual objectives of achieving higher efficiency in fuel use as well as availability of surplus electricity to State grid by combining power and heat for industrial use.”

5. Salient Features of Cogen Policy • Recognition to CHP. • Recognition of industrial energy needs in more than one form. With CHP better efficiency can be achieved. • Allowing SEBs to enter into agreement for purchase of surplus power up to 25 MW. For > 25 MW consult CEA. • Identification of two basic CHP cycles viz. Topping cycle and Bottoming cycle

6. CHP Policy- Qualifying Requirements • Topping Cycle: For coal and refinery bottoms sum of useful power output and one half of useful thermal output > 45% of energy input. For liquid fuel, sum of useful power output and useful thermal output > 65% of energy input. Facility to supply at least 5 MW power for min. 250 days per year. • Bottoming Cycle: Total useful power output in any calendar year not less than 50% of total heat input through supplementary firing.

7. Policy Reforms in Power Sector Highlights of Electricity Act 2003- came into force from 10th June 2003: • Provided liberal framework for power sector development by ensuring a competitive environment. • Facilitated in unbundling of power sector. • First major statute providing promotion of non-conventional energy sources including cogeneration.

8. Electricity Act-2003(Provisions related to Cogeneration) Sec.3 (1):Central Govt. to prepare National Electricity Policy and Tariff policy for optimal utilization of resources of power generation including Non-conventional. Sec.8:Captive generation freely permitted. Sec.61 (h):The promotion of cogeneration and generation of electricity from renewable sources of energy.

9. Electricity Act-2003(Provisions related to Cogeneration) contd.. Sec. 86 (1) (e): The state Regulatory commission should promote cogeneration and generation of electricity from renewable sources by providing suitable measures for connectivity with the grid; • Sale of electricity to any person and • Also specify for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee.

10. National Electricity Policy 2005 The policy states: Sec 5.2: CPP and CHP having surplus capacity can supply power to grid; harnessing of sizeable capacity to meet power demand. CPP/ CHP to become Distributed Generators. Sec 5.8: Investment from Pvt. Sector to meet the objectives of rapid economic growth and “power for all.”

11. National Electricity Policy 2005 (contd.) Sec. 5.12: • Industries with need of heat and power are well suited for cogeneration. • Significant potential for cogeneration in the country particularly in Sugar Industry. • SERCs to promote arrangements between the co-generator and the concerned distribution licensee for purchase of surplus power from such plants. • Cogeneration system needs encouragement in the overall interest of energy efficiency and also grid stability.

12. National Electricity Policy 2005Financing Power Sector programmes • To meet the objective of rapid economic growth and ‘power for all”, a sizeable part of investments from private sector required. • The Act provides a conducive environment for investments in all segments of the power industry by removing barrier to entry in different segments. • Participation of suppliers on competitive basis encouraging private investment. • Return on Investment on the capital of private sector should be at par with investment opportunities in other sectors.

13. National Electricity Policy 2005 (contd..) • Central and the State Governments need to develop workable and successful models for public-private partnership. • Mechanism for streamlining procedures for encouraging private participation in power sector.

14. Tariff Policy (notified in Jan. 2006) Objectives: • Availability of electricity to consumers at reasonable and competitive rates. • Financial viability of sector and attract investment. • Promote transparency, consistency and predictability in regulatory approaches. • Promote competition, efficiency in operation and improvement in quality of supply.

15. Tariff Policy (Contd.) Return on Investment: Itshouldattract investment at par with other sectors. It should generate reasonable surplus for growth of sector. Equity Norms: Debt: Equity ratio of 70:30. Depreciation rates: CERC to notify rates Cost of Debt: Structuring of debt including its tenure to be encouraged to reduce tariff. Operating norms: Performance norms of operations with incentives and disincentives; Norms should be efficient, relatable to past performance, capable of achieving and reflecting progressive efficiencies and technological advancements, fuel, vintage equipment etc. CERC to notify norms in consultation with CEA.

16. Tariff Policy (Contd.) Benefits under CDM: to be considered to provide adequate incentives to project developers. Duties and taxes: Nodistinction linked to sources of generation particularly with respect to CPP. Duties should be at reasonable level.

17. Financing CHP Projects • IREDA- a GoI enterprise providing promotional and development finance for bagasse and biomass based CHP for last 10-12 years; important contribution in development and commercialization of bagasse cogen projects. In biomass CHP IREDA financial support of Rs. 822 crore for 37 projects of total installed capacity of 521 MW (March 2005)

18. IREDA Financing(as on 31.03.2006) • No. of projects approved : 1783 • IREDA’s Loan Commitment : Rs 7450.99 Cr. • Loan Disbursements : Rs 4018.59 Cr • Power Generation Capacity : 2707 MW • Conventional Fuel Replacement : 12.80 Lakhs MTCR / Year • Capacity Commissioned : 1025.89 MW

19. Financing CHP Projects IREDA: • Term loan assistance up to 70% of project cost- repayment period 10 years. • Interest rate 10.50% (for biomass CHP) 11% (Bagasse CHP) • Eligible projects- techno-economically viable, PPA signed with SEB or State utilities or third party, captive power projects, min boiler pressure 63 kg/cm2, sugar plant with 2500 TCD capacity, new equipment installation. • CHP capacity: 370 MW, Loan sanctioned: Rs. 935 crore. Other FIs like HUDCO, REC, PFC, ICICI bank, SBI also provide term loan finance.

20. Fiscal and Financial Incentives by Govt. Financial Incentives: offered by Central and some State Govts and UT. Interest Subsidy for Bagasse CHP

21. Fiscal and Financial Incentives by Govt. • Biomass CHP-Commercial projects: Interest subsidy

22. Financial Assistance • Biomasss Gasifiers for Thermal and Electrical Applications in Industries Rs. 2.0 lakh / 300 KWth for thermal applications. Rs. 2.5 lakh / 100 KWe for power through dual fuel engines. Rs. 10 .00 lakh /100 KWe for 100% producer gas engine with gasifiers • Biomasss Gasifiers for Electrical Applications in Institutions Rs. 15 .00 lakh / 100 KWe for 100% producer gas engine with gasifier Rs. 10 .00 lakh / 100 KWe for 100% producer gas engine. • Biomasss Co-generation (non - bagasse) in industry Rs. 20.00 lakhs / MWe for installation of biomass Co-generation projects, including captive projects based on direct combustion

23. Fiscal Incentives

24. State Government Policy • A set of guidelines issued by MNES for consideration of States. • A number of States announced policy packages including wheeling, banking, Third Party Sale and Buy-back. • Some states provide concession/ exemption in State Sales Tax and Octroi duty etc. • Some states provide capital subsidy for Bagasse and Biomass CHP projects.

25. Investment Policy • Foreign Investors (FI) can enter into a JV with an Indian partner for financial and /or technical collaboration and setting up of NCES based power generation projects. • Liberalized foreign investment approval regime to facilitate foreign investment and transfer of technology through joint ventures. • The proposals for up to 74% foreign equity participation in a JV qualifies automatic approval. • 100% foreign investment as equity is permissible with approval of Foreign Investment Promotion Board (FIPB).