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Cost concerns: Major bottleneck in the Biomass Power Development

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Bottleneck in Biomass Power Development

India is predominantly an agricultural economy. The estimated food grain production in India in 2011-12 is estimated as a little over 250 MT (Source: PIB). Since biomass energy is primarily derived from the agricultural waste, this sanctify India with huge potential for Biomass power generation. However reality eludes this. The growing O&M costs and stagnant tariffs have made biomass power development financially unviable for the developers. As a result, despite the country having a biomass potential of 8,000 MW; the current installed capacity for the same stands way below – only 1050 MW.

Factors Affecting the Cost of Production Of Biomass

Before we analyze the major bottleneck in the development of biomass based power plant, we need to look at the factors on which the cost of production of biomass power depends. The various financial and operational factors affecting the same are:

  • Capital cost (the cost of plant /machinery/civil works/erection/commissioning etc.)
  • Loan tenor for the project
  • Interest on the loan taken
  • O & M expenses
  • Plant load factor
  •  Interest on working capital
  • Return on Equity
  • Cost of fuel and its gross calorific value (GCV)
  • Plant’s auxiliary power consumption
  • Depreciation

The debt equity ratio for a biomass based power plant has been taken as 70:30 and the average life span of a biomass based power plant being 20 years.

While initiating the upward tariff revision for the biomass power generation CERC considered the above factors as well as inputs from IREDA and developers submitting application for Clean development Mechanism (CDM). The lowest tariff is being offered in Madhya Pradesh at Rs. 3.87/unit and the highest being at Punjab at Rs. 4.95/unit.

CERC claims the capital cost for Biomass power plant as Rs. 44.5 million per MW. However, developers believe that this cost is far from the realistic feasibility cost for the same. On an estimate the actual capital cost that comes out for the same is between Rs. 57.5 Million/MW to Rs. 60 Million/MW.

Similarly, Inflation has been recorded as 9% but CERC assumes it to be 5%. Also, the estimate by CERC doesn’t include the evacuation cost for the generated power. No provision for the cost used in collection and storage of biomass, which happens to be a labor intensive process has been taken into account.

Calculation of Cost

i) Fuel cost for biomass varies between Rs 2,000 per ton to Rs 2,800 per ton depending upon the type of fuel used. Thus for a Unit of power generated, the cost comes out to be between Rs 3.60/unit to Rs 3.90/unit.

ii) The O&M cost depending upon the age of the plant comes out to be Re 0.60 to 0.80 per unit.

iii) Interest charges of  Re. 0.70 to 0.80 depending upon the type and amount of borrowing

iv) Depreciation cost as Re 0.50 to Re 0.80.

Hence, the total cost comes as Rs 6 per unit. (Source: Renewable Watch May, 2012). Thus, the calculated cost comes out to be substantially higher than the revised cost proposed by CERC.

Another major issue lies in the financing of biomass projects. Majorly the financing is done through domestic banks as the International banks have been reluctant in financing biomass project. The developers have been pushing the Government to treat it as a priority sector, since the fuel availability and procurement for biomass hugely depends on agriculture sector and involves direct procurement from the farmers on a cash basis. The fuel price depends on crop which varies from year to year.

Thus we see increasing Project cost and uncertainty in fuel supply has led to stagnation in the biomass power development. Only 5-6 projects have been commissioned in the last two years and not a single project has been able to receive its financial closure in the last year.

Studies suggest if the financing and tariff issues are resolved, close to 3,000 MW of projects can come up in the 12th five year plan, majority of them being from the state of Maharashtra, Punjab and Bihar.

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This article is written by Rishi Srivastava, who is currently a Student of Power Management from National Power Training Institute with interest in Renewable Energy generation , Off-grid and Rural Electrification.



Rishi Srivastava

Rishi is a student of MBA in Power Management from Centre of Advance Management in Power Studies ,NPTI. He has over 3 years of experience in IT-consulting domain. His areas of interest include Renewable Energy, CDM, Demand- side management and rural electrification through off-grid/micro-grid.

2 Responses so far | Have Your Say!

  1. Abhinav Chandra

    Dear Sir,
    The microscopic analysis of cost economics of biomass was very to the point in your article. I remember similar issue arised while I was attending a seminar of biomass plant developers. The calculated tarrif comes well above the CERC guidelines. But, I would also like to add that the plight of biomass developer in India doesn’t end here.

    The absence of suitable centralise mechanism for procurement & evaluation of biomass fuel is another nightmare for biomass developers. This aggravate the risk of continues supply of fuel. This again acts as a major obstacle for biomass power development in India.

    It would have been nice if you would have highlighted these concerns too through your article. Otherwise, the analysis was exemplary.


  2. Rishi

    Thanks Mr.Chandra for your encouraging words .Good to know that you liked the article. The scope of this article was to exclusively highlight the mismatch of CERC tarrif guidelines and actual cost of production. I understand there are Fuel Supply issues too crippling the growth of biomass and waste to energy sector in India. Wil be carrying out the said analysis soon :)

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