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By Vijay Chander Keesara
Cont : +91-9392 777 444
: +91-9959 777 444
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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


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.

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:

• Interest Subsidy for Bagasse/Biomass Co-generation projects, including

IPP mode projects;
• Interest Subsidy for Biomass Power Projects, including captive power
• 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
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

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 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

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
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

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

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.


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

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



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,
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

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.


5.46 The objectives of the Programme in the 10 th 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.
• 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

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.

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

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

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.

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

• Energy Systems Department at IIT, Mumbai has
developed a
to cashew
unit with

100 KVA Gas Engine developed under an

R&D project to eliminate use of diesel
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
feeder for
feeding of
powder in
the shell.

2,50,000 (100 kW) Thermal Mode

Gasifier System installed at M/s. TVS
Srichakra Ltd., Madurai
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.
• 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

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

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

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 CO 2 and 30 Tonnes of SO2 per steel
mill. This project can be replicated in an estimated 150 units in the Chhatisgarh steel
belt alone.



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
(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


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

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

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

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
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.
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
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


em Size / Unit Total
Specifications Cost Cost
aw paddy 80' x 35' Rs. 840000
odown- RCC 300 /
amed sq. ft
ith 10'' thick
ick walls,
S flooring
ith damp
eatment with
62 kg
PC /sq.m of
oor area and
se of the
de walls,
nsisting of
CC sheets
fixed with J
ooks, bolts
d other
cessories to
eel truss
ade of MS
gle of
eaning Shed 25' x 32' Rs. 240000
Similar to 300 /
e raw paddy sq. ft
illing shed 80' x 35' Rs. 840000
RCC framed 300 /
perstructure sq. ft
ith brick
alls , IPS
ooring and
nsisting of
CC sheets
fixed with J
ooks and
uts to steel
usses made
MS angle
ction and
nished 30' x 35' Rs. 315000
oduct or 300 /
illed rice sq.ft
orage shed
achine shed 40' x25' Rs. 300000
with 300 /
asonry sq. ft
ructure with
CC sheet
ofing on
an truss
ffice unit 10' x 15' Rs. 45000
300 /
sq. ft
abor quarters 30 ' x 15' Rs. 135000
300 /
achine 40' x 15' Rs. 180000
oom for 300 /
xiliary sq.ft
achines like
nerator set
ore well and L.S. 100000
anitary and L.S. 50000
iscellaneous L.S. 50000
otal for 3095000

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

(Amt. Rs.)

S.No. Item and Total Cost
1 Raw paddy 650,000
cleaner cum
consisting of
large aspiration
of desired
suction width
fitted with
double fans
with necessary
controls. The
precleaner is
also provided
with a
separator for
removing iron
particles ( for
damage to
other machines
in the rice mill)
feed hopper
and other
accessories viz.
bearngs, block
shafting pulley,
holding bolt
2 One rubber roll 98,000
paddy sheller
3 Paddy 45,000
Separator for
paddy from
4 Blowers, husk 35,000
and barn
aspirators for
aspiration of
light particles,
husks from
kernels and for
separating bran
from milled

5 3 nos. of cone 600,000
type paddy
polishers of
capacity for
polishing and
whitening rice
grains to the
desired degree
6 Rice grader/ 50,000
aspirator for
and grading of
polished rice
grains and for
separation of
the fine
brokens, coarse
brokens from
whole rice.
7 Bucket 90,000
elevators for
bulk transport
conveyance of
raw paddy,
milled rice
from 1 unit
operation to
another in a
rice milling
8 Electricals 250,000
(AC-3 phase
motors for
each of the
machine, DOL
starters, control
panel, internal
wiring and
9 Subtotal 1,818,000
10 Insurance , 363,600
erection and
charges @20%
of the subtotal
11 Total 2,181,600

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:


S.No. Equipment Electric

1 Paddy 5
2 Rubber 15
Roll Paddy
3 Paddy 5
4 Blowers , 7.5
Husk and
5 Paddy 45
( 3 nos. in
series each
with 15 Hp
6 Rice 5
7 Bucket 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
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.



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 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.


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.


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

Eligibility of borrowers:

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


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.


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





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.
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 Quantity/ ton
No of paddy.
Electricity use
1. 17-23 KWH
for raw rice
2. Electricity use 27-35 KWH
for parboiled
Water used for
3. 11.1 -1.3 m3
parboiled rice
4. Steam use 750 Kg


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 lakhs
Savings = Rs 0.5 lakhs/annum
Pay 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 = Negligible
Reduction in water consumption = 1200 m3/annum
Savings 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
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
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.


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
This information catalysed the units to look at ways and means to reduce
energy consumption through mutual discussions through waste
minimisation circle.



Based on the waste assessment study the unit identified ways and means
to reduce waste. The most significant WM opportunities that are
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 lakhs
Savings = Rs 4.0 lakhs/annum
Pay back period = 2 years.



The overall comparative results achieved due to this cooperative initiative

of sharing know-how and information are given in the following table.
Before After
S CP(per CP((per
No ton of ton of
paddy) paddy )
Production 40 42
capacity Tons/day tons/day
17-23 16-20
2. use for raw
use for 27-35 23-29
parboiled KWH KWH
Water used
for 1.1 -1.3
4. 1.0 m3
parboiled m3
5. 750 Kg 650 Kg
6. Husk used 300 tons 200 tons

Wastewater recovery using membranes for process

Wastewater recovery using membranes
for process
We design, manufacture, supply and service
Waste water recovery systems on turnkey
basis for various process waste
water from different type of Industries and
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2. Sewage water in Commercial,
Residential and Industrial premises
3. Spent wash in Distilleries
4. Textile waste wash water
5. Textile Dye Units
6. Mixed waste water from all type of Industries
7. Blow down water from Cooling Tower and Boilers in Captive Power Unit
8. Vegetable oil complex including refinery and Solvent extraction units
9. Par boiled Rice Mills

All these plants are based on following technologies in combination or separate based on

1. Reverse Osmosis Membrane System

2. Ultra filtration system
3. Nano Filtration System
4. Ion exchange media
5. Media Filtration
6. Bio reactor system

All the components are fabricated using corrosion-resistant materials in our factories or
procured from our international associates. Performance of Wastewater recovery
systems are as per international quality standards. It prevents the release of aggressive
and harmful contaminant into the water and consequently environment. We individually
design Waste water recovery/ treatment systems to optimize particular applications
conditions and achieve maximum recoveries. The recovered water could be used for
following applications-

• Process with TDS<500 PPM

• Cooling water make up with TDS <1000 TDS
• Boiler Feed water as DM water
• Drain to sewer as per pollution norms
• Horticulture or land irrigation
• Toilet flushing/ washing


• Computerized, automatic operation of unit
• Fully assembled at factory
• Installation time minimum
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• Minimum usage of chemicals


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Energy Conservation In A Typical Rice Mill

This 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.

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

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

Parboiled Rice Processing

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

• 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

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.
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

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:

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
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
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

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


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
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.

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

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

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
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-

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 ratio

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

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 system

1. 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. Final Draft Report
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

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%.

Demonstration of Rice Husks-fired
Power Plant
A Pre-Feasibility Study Report

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.........................8
5. 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......................13
6. 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 CO2emission from paddy drying.......................................21
8.5. Total CO2emission reduction..................................................................21
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

10.3. Economic Analysis of the Project .......................................................33
11. Conclusions ...............................................................................................................39


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
Table 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
2 in years of 2002 - 2020 and baseline......................................20
Table 8.6: CO 2emission reduction by AnNalgonda Rice Husk Power Plant in years of 2002
– 2020 (Based on the Whole Andhra Pradesh Electricity System
0.5 MW rice husk – fired cogeneration plant..................................................................23
Table 9.2. Summary of the technical and financial results (adjusted to current price) for a
0.5 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

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
2 reduction taken into account .38

1. Brief description of project
Project "Pre-feasibility study of Demonstration Rice Husk-fired Power Plant in Nalgonda
District" 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 and
in Krishna river delta Districts in general, mainly for meeting the future power and
heat requirements of rice mills;
To evaluate the civil works and investment cost;
To evaluate the economic and financial effectiveness; and
To calculate CO2emission reduction.

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
2 reduction within project lifetime will be 20,194

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 in
Andhra Pradesh aimed at demonstrating, introducing, propagandizing and expanding the
application to
technology of other rice mills or group of mills in Nalgonda District as well as in other
Districts/ areas in Krishna River Delta, and finally contributing to economic development, job
creation, ensuring a reliable power and heat supply, sufficiently meeting the requirement of
mill 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 and
Processing Unit in An Hoa commune, Chau Thanh district, Nalgonda District. The
site of TPP is situated by the Road to Cambodia, 16 km far from Long Xuyen city (see the
attached 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 Tho
District, on the North - East by Dong Thap District, on the northwest by the common frontier
between Andhra Pradesh and Cambodia. With a natural area of 3,406.2 km and average
2,082,838 of (density of 609 persons per km ), Nalgonda has one city (Long Xuyen),
provincial Town (Chau Doc) and 9 districts (Chau Phu, Chau Thanh, Cho Moi, Phu Tan,
Bien, Tri Ton, Tan Chau, Thoai Son and An Phu). In recent years, socio-economic
of the District has been continuously developing (in the period 1996-2000 the average growth
rate of GDP is of 7.4% per year) of which the essential is agriculture development, followed
sea-aquatic product processing. Within the District area, beside two main river branches Tien
Nalgonda and Hau Nalgonda, there are a lot of rivers and canals, evenly distributed. The
of alluvium
amountannually provided by the rivers and canals makes land fertilized, that is an
factor promoting the development of agriculture. With this advantage, Nalgonda is
one of the large rice cultivation areas in Andhra Pradesh. Thus, the investment in building the
systems in isolated communes or in the localities having large rice production area for
preservation of rice and installing advanced facilities for producing and processing export
rice at cost are very important measures to maintain the crucial role of agriculture sector.
more than 200 rice mills with capacity above 100 tons of paddy per day, Nalgonda is one of
potential markets for disseminating cogeneration technology using rice husk as fuel.

Nalgonda 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,the average rainfall is 1,132 mm. During rainy season from August to November, the
in Krishna River rises and causes flood. The water level during flood can reach 1-2.5 meters,
as high as 3.5 m, and always negatively impacts on the socioeconomic activities in the
Hydrology - water resource
There are 280 rivers and canals distributed at a density of 0.72 km/km ,2 the highest river
in Krishna River Delta Districts, which can sufficiently supply water for productive and
domestic activities in plain areas of the District. However, the hydrological regime in
heavily depends on the level of water in Krishna River. Every year, 70% of land area in the
District is flooded less than 1-2.5 meters of water during 2.5 - 4 months. This is a big
affecting socioeconomic development in Nalgonda District.

Power supply system

In recent years, beside the annual financial capital sources coming from the Government, An
Nalgonda Authorities have mobilized other sources and local people to invest in developing
provincial power supply system in order to provide national grid electricity to isolated and
mountainous districts and communes.

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

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 MWh 286,006 334,401 395,371 587,300
+ Agro-forest-aquatic MWh 7,246 7,709 9,135
+ Industry - MWh 64,724 81,387 140,205
+ Commercial - MWh 8,172 8,809 10,864
+ Administration- 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 installed
capacity 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 for
agriculture development, especially rice production. As it was mentioned in the
Master Plan for the period up to 2010, agriculture will remain the key sector in the economic
development of the District, of which rice production is the most important. It is planned to
produce 2.5 - 2.6 million tons of rice in 2010, and to increase white rice export from 460
thousand tons in 2001 to 650 thousand tons in 2010.

To achieve these objectives, beside the activities for improving rice species in terms of
productivity and usable value, improving post-harvest conditions, especially in cases when
weather causes overload of old storage systems and high losses ratio, there is a need to invest
building 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 woody
and diverse
but only
a small
as bagasse,
of bagasse
rice has
as fuel for
generation. Apart from bagasse, rice husk and straws are important biomass sources, which
be also used for biomass - based power generation and cogeneration in Andhra Pradesh.

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

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

Type of Potential* (1000 Use factor Available for Expected power

biomass tons) use (1000 tons) capacity (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
investors in rice husk fired power plant with unit investment cost of 1500-1600 US$/kW,
when electricity tariff is one component (electricity but not capacity). However, since most of
existing rice mills are of small capacity, efficient transportation would be very important in
collecting 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 ofowned rice mills have changed their operation mode in rice production. The mills in
north have only function for rice preservation. In the south, the same situation is observed but
less popular. Also from this survey, the areas with highest potential of power generation from
rice husk are in the Krishna River Delta Districts such as Nalgonda District, the
preliminary survey identified about 200 rice mills having milling capacity of 2.5 tons of
per 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
enough to promote the exploitation and use of renewable energy, especially for power
in the areas where the rural electrification and grid connection is least-cost. Lack of financial
mechanism for establishing and operating the trading enterprises on renewable energy, for
instance, technology market, investment, policy on credit and loan has negatively affected
restricted the renewable energy development in Andhra Pradesh for years. There still exist a
lot of issues and difficulties in selecting the ownership pattern for renewable energy projects
(public or private) as well as providing necessary support when the socioenvironmental
from the investment in renewable energy technologies development were identified.
sources and the way to access the measures encouraging investment in energy technologies
through taxation (e.g. priority, incentive or exemption) are not clearly announced.

There exist some policies, which have positive effects on promoting the development and
application of renewable energy technologies in Andhra Pradesh. Being market oriented, the
rural on will be a good base encouraging the investors in development of
electricity in order to meet the on site energy requirements (own use) or providing to the grid
through private utilities, cooperatives or other owners. These units will invest in small power
stations. Recently, the diverse modes of investment have brought in the encouraging effects.

Since early 2000, the Ministry of Industry has approved the policy on rural electrification and
issued the main principles for diversifying the ownership, providing the incentives to power
trading utilities and encouraging the distributed power source. Rural electrification will be
considered 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

(i) Demonstration for dissemination and expansion of technology application to other rice
mills within Nalgonda or other Districts in Krishna River Delta.
(ii) Focus on exploitation of rice husk available at Annapurna Unit and some surrounding
private rice mills for producing heat and electricity to meet sufficiently the energy need
of 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
Additionally, it has the advantage of superficies and lies beside the National Road 91 and
Hau, 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
the 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 Food
Purchasing 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

On the East by river Musi
On the West by Land

Superficies: Total land area is 5,000 m2of which:

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
supply 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
hired. The product loading and transporting are done manually by porters who are poor
living 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.
general 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 been
designed with an electric motor of 132 kW capacities. Another motor of 37 kW was installed
white rice polishing chain. After the hulling chain, rice is polished in polishing machine
by two electric motors of 75 kW each. In addition, there exists a sorting table with one
motor 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
According to the site audit, power capacity based on the installed capacity of the whole plant
when operating is of 338 kW.

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

Equipment Unit Quantity Total Capacity Total Manufacture.

Design reserved real State
capacity factor capacity
(kW) (%) (kW)
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 Whitening 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
power 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
100 tons of paddy per day located just beside it, that is a good condition for supplementary
husk 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 reserved
area of Annapurna Unit. This area is located next to private rice mill Hoang Son and Hau
convenient for transportation and collection of rice husks from neighboring rice mills by
way. The location in the center of zone supplying raw paddy would ensure the continuous
operation of power station (see the map). Power capacity of rice husk fueled power station
calculated based on the milling capacity of Annapurna Unit. This parameter will be
Expected power capacity of power station is 500 kW. The analysis and calculations of rice
source, fuel characteristics and power balance are presented in following parts.
5.3.1. Technical Analysis

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
1C (%) 31.65
2H (%) 6.12
3O (%) 36.08
4N (%) 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

Heat requirement for paddy drying

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

In this project, the steam exhausted from turbine is proposed to be reused to meet the need for
paddy 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 turbine
and rice husk boiler


Installed capacity of the rice husk fired power station will be 500 kW, of which 320 kW will
used for rice milling process in Annapurna Unit and surplus amount of 180 kW will be
the powertogrid 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) is
based 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
appropriates to small-scale rice mills that are popular in Andhra Pradesh.

The existing six main biomass conversion technologies are: (i) direct combustion; (ii)
gasification; (iii) anaerobic; (iv) pyrolysis; (v) briquetting and (vi) liquefaction. At present,
most common technologies are direct combustion and gasification from rice husk to produce
electricity. An analysis of these two technologies is carried out below in order to select the
appropriate 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
from the field it is not homogeneous. Thus, a careful consideration should be made in
the suitable mode for fuel feeding and combustion technology. The presence of water in
fuel will reduce the portion of combustible substances. Biomass having high moisture content
should be dried naturally under the sun or in a dryer before being used as fuel. On the other
too high moisture content always needs more time for heating biomass up to fire setting

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

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

Homogeneity of fuel: If the homogeneity of fuel in terms of size and type is not ensured, the
combustion process in the furnace could not be stable. It needs to select an appropriate
combustion 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
heat transfer intensity. For biomass fuel, ash content is very low and the ratio between fly ash
and slag depends a lot on the shape and size of fuel as well as selected combustion
size and form of boiler / furnace. For conventional combustion on grate, this ratio is of 60/40
even 80/20. During combustion process, the ash is usually entrained in the smoke stream due
suction effect of the fan. Consequently, in order to keep on the environmental allowable
parameters 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 gasification
Biomass gasification is a process of converting solid biomass into a combustible gas by
combustion with insufficient oxygen supply. There are 3 modes of biomass gasification, they
are: (i) downdraft; (ii) updraft and (iii) gross draft.

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

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

For internal combustion engines, the content of tar in combustible gas should not be more
50 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 higher
temperature so its temperature is rarely high, at 600-800 oC
(ii) In the case of updraft gasifier, producer gas should pass a bed of raw biomass fuel, which
has very low temperature. That's why its outlet temperature is low, ranging from 100 to

When using this type of gasifier for internal combustion engines (also for gas turbine), the
produced gas needs to be cleaned due to higher content of tar. The up-draft gasifiers are
only for fuels having high moisture content. Both types of gasifier are designed with a
form a high
to temperature zone for cracking tar. However, this throat will restrict the biomass
flow, especially for the biomass having very low bulk density (kg/m3).

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

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

(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
the fire box
in is much higher than that on the grate as the volatile matter released from biomass
fuel will burn in the space of combustion chamber. Based on this, FBC would be effected in
furnace with two combustion chambers. In the first chamber, fuel burns at low temperature.
generated volatile and unburned fuel particles are led to the second chamber, to which the
secondary air is supplied sufficiently for complete combustion.

(ii) Circulating Fluidized Bed Combustion

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

Combustion on grates
Combustion chamber
Based on the required capacity, the type of furnace and various fuels feeding mode van is
selected. 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
are in common use. The furnace may be divided into two separate parts: combusting and
(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 technology
Based on the above analysis, a conclusion is made on the possibility of using one of the
following technological schemes for power generation from rice husk:
1. Rice husk → downdraft gasifier → internal combustion engine or small scale gas
turbine → generator
2. Rice husk → Combined cycle (gas - steam) → gas and steam turbines → alternator
3. Rice husk → furnace / boiler → steam turbine → alternator

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

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

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

Conclusions on selection of technology

Cogeneration plant consists of rice husk storehouse, conveying and automatic boiler feeding
systems, furnace/boiler producing 9 tons of steam per hour at 32-bar pressure. The boiler is
equipped with automatic ash removal system, heat exchangers and turbo-generator of 0.5
The turbine used here is a backpressure. Heat provided for paddy drying is of 3,000,000
Rice mill will operate 5,000 hours per year. The milling period will be longer than usual
to 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

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 substitute
capacity 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 in
years of the planned period will be calculated.
(iii) The structure of produced electricity and fuel demands for electricity production
will be calculated.
(iv) Based on the emission coefficients, annual CO 2emission from each fuel type will
be calculated.
(v) Baseline is calculated: amount of CO2per kWh

8.2. Calculation of baseline

1. In Electric Power Development Master Plan for Andhra Pradesh for the period 2001 - 2010
with 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 electricity 26594 53438 96125 201367
production, GWh

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%), coal
thermal - 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 billion
kWh), 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
primary 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

Fuel 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, 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:
En = (Bi x CVi x Ki)
- 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
2 in years of 2009 - 2020 and baseline

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

Generation 34275 53438 96125 201367

Kg of 0.40488 0.39049 0.39248 0.40820 0.40019 0.41805 0.41623 0.42297 0.42201 0.34146
CO 2/kWh

8.3. GHG Abatement Calculation

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

Table 8.6: CO 2emission reduction by Nalgonda Rice Husk Power Plant in years of 2002
– 2020 (Based on the Whole Andhra Pradesh Electricity System Baseline)

Years 2002 2003 2004 2005 2006 2007 2008 2009 2010020 2

Baseline 0.404 0.390 0.392 0.408 0.400 0.418 0.416 0.422 0.422 0.341
Coefficient (Kg
of CO2/kWh

Reduction of 1000 1045 1040 1057 2 1055 85

CO2 (Ton of

From Table 8.6 with assumption that baseline emission coefficient will be unchanged from
to 2025, the total CO 2emission reduction, which will be reduced during project lifetime (2011
2025) can be calculated. The calculation result is 19 800 tons of CO2.

8.4. Reduction of CO emission

2 from paddy drying

As mentioned above, the annual anthracite coal consumption for paddy drying of the rice mill
10 tons. This energy process emits CO and
is 2 other pollutants. The use of steam at low pressure
generated by the project for paddy drying instead of using coal will result in reduction of non-
biogenic CO 2emission, equaled to 19.72 ton of CO /year.2 During project lifetime, the total
reduction amount will be of 394 tons of CO2.

8.5. Total CO emission

2 reduction

From the above calculation, total CO2emission reduction during project lifetime is 20194
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 Nalgonda

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 public
Costs of preparation of procedures for getting land, construction license and land
compensation 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

9.1.2. Breakdown components of investment cost

General techno-economic assumptions

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

Rice mill will operate 5000 hours annually. The milling period will be longer than usual due
the 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.

Rice husk disposal cost saving: consist of savings from not having to dispose rice husk, as it
be used for power generation for the whole year. Since the power plant and rice mill will run
simultaneously, rice husk does not need to be stored, except for very short periods of time.
will 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
to purchase grid electricity during the milling season.

Surplus power sale: revenue from the auto produced electricity in excess of the mill
and 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 the
requirement for paddy drying and the excess amount is used to dry for other mills around the
area of Annapurna Food Purchasing and Processing Unit.

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

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

Capital investment cost: Based on current data, an equipment unit cost of 1570 US$/KW is
for 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 when

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
cooling cells for rice storage) but it also should meet the other electricity requirement of the
and administrative buildings. The technical and financial assumptions used in the analysis are
summarized in Table 9.1

Table 9.1: Summary of technical and financial parameters of the

0.5 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
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
% of equipment
Annual maintenance 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

Table 9.2. Summary of the technical and financial results (adjusted to current price) for a
0.5 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
(project manager), from that to offer forms of capital mobilization, financial mechanisms in
order to ensure balance in financial revenue - cost and efficiency of project.

9.2.2. Financial analysis consists of the following:

Project financial analysis, from the view of investor, is to define ability of capital
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 the
2. Table of Cash Flow: represents revenue flow, cost flow and net present value for the
project during lifetime with discount rate taken into account

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

According to commercial loan conditions, project manager must contribute at least 30% of
investment 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 . It2 is taken into account during first ten

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

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

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

Table 9.3. Components of capital source for project

Sources Weighted Nominal Income tax Tax-adjusted

of Fund cost rate nominal cost

Loan 70%
of which
ADB 30% 6.7% 32% 5.556%
Other 10% 7.5% 32% 5.1%
foreign loan
Domestic 30% 12% 32% 8.16%
Equity 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 2emission reduction Without CO 2 emission

taken into account reduction taken into account

NPV (mil. US$) 0.805 0.586

FIRR 28.56% 22.5%

B/C 1.45 1.35

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

Indicators With CO2 emission Without CO2 emission

reduction taken into reduction taken into
account 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 GHG
emission reduction taken into account the benefits of the projects will be higher. Project is
financially 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 in
benefits 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

FNPV (mil.
Item Base case Change 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 thermal
4.6 US$/MWh 0 US$/MWh 0.76 16.77 0.240 417%
energy sale
O&M costs 0.0534 mil. US$ 10% 1.02 19.7 -0.200 500%

Construction delays One year 0.934 19.38 6.60% NPV 6.6% lower
Combination of variables 0.093 8.28
SI: Sensitivity Indicator
SV: Switching Value Table 9.8. Revenue of project
Unit: mil. US$
Table 9.7. Sensitivity Analysis with indicators from the point of view of investor
Table 9.9. Financial Analysis from the point of view of investor with WACC of 7.325%,
Fiscal Year
CO2 emission reduction taken into 2006 2007 2008 2009 2010 2011 2012 2013 Total
I. Electricity effect FNPV (mil.
Item Base case Change
Unit: mil. US$
Electricity Sales (MWh) 931 931 931 931 931 931 931 93118620
Fiscal case
Year 2005 (mil. 2006 2007 2008 0.8052009 28.562010 2011 2012 2013
Electricity Sales Revenue US$) 0.0053 0.0053 0.0053
Investment 0.935 mil. US$ 10% 0.747 0.0053 0.0053 0.720
25.09 0.0053 0.0053 -139%
1. Net Revenue (excluded VAT) 0.251
No benefit from ash sale saving
US$/ton ash 0 US$/ton
1300 ash 1300 0.179
1300 11.83 1300
1300 0.778
1300 1300 129%
No benefit from thermal
Electricity saving
4.6revenue (mil. US$)
US$/MWh 0 US$/MWh
0.008 0.008 0.557
0.008 21.75
0.008 0.008 0.308
0.008 0.008 325%
energy sale
O&M costs II. Energy mil.
Thermal 0.0534 US$
Effect 10% 0.768 27.53 0.460 -218%

Construction delays One year 0.75 28.49 6.83% NPV 6.83% lower
Sales (MWh) 7883.1 7883.1 7883.1 7883.1 7883.1 7883.1 7883.1 7883.1157662
Combination of variables -0.189 2.09
Net Revenue(mil. US$) 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.040.7252
III Other Benefits 0.0052 0.0054 0.0054 0.0055 0.0055 0.0054 0.0053 0.00520.0051 0.0002
Benefit from not purchase coal for
Above results of sensitivity analysis show that, project still gets financial feasibility with
independent drying (mil.
changes. US$)of combination
In case 0.0002 0.0002 changed,
of variables 0.0002 0.0002 0.0002
from the point 0.0002
of view 0.0002
of 0.00020.0002
investor, project is not
CO2 credit (mil.feasible
US$) due to negative FNPV
0.0050 and FIRR
0.0052 0.0052lower than0.0053
0.0053 WACC. 0.0052 0.0051 0.00500.0049
Total Revenue 0.047 0.047 0.047 0.047 0.047 0.047 0.047 0.0470.9253
9.2.4. Conclusions of project’s financial feasibility
II. Costs (mil. US$)
TheTotal direct cost
project will be feasible 0.116 indicators
and financial 0.116 0.116 0.116
will be higher0.116 0.116 by 0.116
if invested 0.1162.0020
1.1. capital.
O&M cost 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0531.0670
1.2. indicators of the project will
Depreciation 0.062be higher
0.062 if0.062
GHG emission reduction
0.062 0.062 0.062is taken
0.062 0.0620.9350
into account.
2. Interest payment 0.037 0.025 0.012 0.000 0.000 0.000 0.000 0.0000.0746 0.000
If project
3. Total costcan get loan from WB, ADB with incentive interest, the feasibility will
0.153 0.141 0.128 0.116 0.116 0.116 0.116 0.1162.0766be 0.053
4. Income before tax -0.106 -0.094 -0.081 -0.069 -0.069 -0.069 -0.069 -0.069 0.069
- 0-
5. Income tax 0 0 0.000 0.000 0.000 0.000 0.000 0.0000.0000
6. Income after tax -0.106 -0.094 0.000 -0.069 -0.069 -0.069 -0.069 -0.069-0.069

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$


Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 Total
1. Net Revenue (excluded VAT) 0.251 0.251 0.251 0.251 0.251 0.251 0.251 0.251
1.1.Surplus power sales 0.060 0.060 0.060 0.060 0.060 0.060 0.060 0.06
1.2.Surplus thermal sales 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.0036
1.3.Ash sales 0.088 0.088 0.088 0.088 0.088 0.088 0.088 0.088
1.4. CO2 emsission reduction profit 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005
1.5.Benefit from not purchase electricity 0.075 0.075 0.075 0.075 0.075 0.075 0.075 0.075
1.6.Benefit from not purchase coal for heating p 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002
2. Investment cost 0.935 0 0.9
3. O&M cost 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.053
Total cost 0.935 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.053


Investment costs in economic analysis: This is investment cost without labor costs and
taxes (benefits for society, brought jobs for society). This eliminated potion is estimated
of 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 at 6.4 US$/MWh
medium voltage
Thermal Energy Price 4.6 US$/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
from technology and construction option set out for selection of best alternative. Economic
effectiveness is determined through following economic indicators:
Discount rate of 10%

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

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

Indicators With CO emission

2 reduction Without CO emission

taken into account reduction taken into account

EIRR 25.72% 25.09%

NPV (mil. US$) 0.926 0.888

B/C 1.96 1.93

Table 10.3. Economic Analysis with CO emission
2 reduction taken into account
Unit: mil. US$

Fiscal Year 2005 2006 2012 2008 2009 2010 2011 2012 Total
Cost 0.842 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0
Investment cost 0.842 0.000 0.000 0.000 0.000 0.000 0.000 0.842
O&M cost 0.053 0.053 0.053 0.053 0.053 0.053 0.053 1.067
Revenue 0.272 0.272 0.272 0.272 0.272 0.272 0.272 5.429
Surplus power sale 0.060 0.060 0.060 0.060 0.060 0.060 0.060 1.192
Surplus thermal energy sale 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.725
Benefit from not purchase electricity 1.664
0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083
Revenue from selling ash 0.0876 0.088 0.088 0.088 0.088 0.088 0.088 1.752
Environmental benefit 0.005 0.0052 0.0052 0.0053 0.005 0.005 0.005 0.090
Benefit from not purchase coal for
heating rice 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003
Net Income -0.842 0.219 0.219 0.219 0.219 0.219 0.219 0.219 3.521

NPV (mil. US$) 0.926

IRR 25.72%
B/C 1.96

11. Conclusions Table 10.4. Economic Analysis without CO emission
2 reduction taken into account
Unit: mil. US$
There are two general trends characterizing the rice processing industry in the ASEAN
Firstly, rice production has been stabilized at certain levels, except Andhra Pradesh, whose
production still tends to increase. Secondly, agricultural lands for paddy growing have been
decreasing, converting to other purposes for more profitable land use. This is expected to be
Fiscal Year 2005 2006 2012 2008 2009 2010 2011 2012 Total
Cost 0.842 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.0
Investment cost 0.842 0.000 0.000 0.000 0.000 0.000 0.000 0.0000.842
O&M cost 0.053 0.053 0.053 0.053 0.053 0.053 0.053 0.0530.053
Revenue 0.267 0.267 0.267 0.267 0.267 0.267 0.267 0.2670.267
Surplus power sale 0.060 0.060 0.060 0.060 0.060 0.060 0.060 0.0600.060
Surplus thermal energy sale 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.0360.725
Benefit from not purchase electricity 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.0830.083
Revenue from selling ash 0.0876 0.088 0.088 0.088 0.088 0.088 0.088 0.0881.752
Benefit from not purchase coal for
0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003
heating rice
Net Income -0.842 0.214 0.214 0.214 0.214 0.214 0.214 0.214 0.2140.214

NPV (mil. US$) 0.888

IRR 25.09%
B/C 1.93


stabilized in the coming years because the Government has started developing the wastelands
paddy production. With the use of high-yielding rice species, these wastelands are expected
significantly 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
of 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
heat will be very meaningful for the biomass energy markets.

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

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

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

It is attractive for the rice mill operators or the potential investors when considering the
economic 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
barrier to the uptake of cogeneration technologies has been the insufficient information on the
projects carried out in the region or the bad experience from the rice husk energy projects set
in the past. The uncertainties on the use of technologies for the site and specific energy
make appear a bad impression on the potential investors in the rice industry. The interested
equipment and technology suppliers should pay attention on this issue in order to convince
potential 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
husk – fired power plant installation, the plant owner gains energy savings and other
benefits, such as added income from the sale of excess electricity to the power grid and pay-
time of less than four years.

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

Last but not least, the current national programs for energy security in most ASEAN
actively promote the use of indigenous renewable energy sources, particularly biomass, and
governments 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
sectors through environmental regulations and economic incentives. These policies, therefore,
encourage the rice mill owners to venture into cogeneration technology using their rice husks
fuel. Moreover, they are able to solve the following issues: waste disposal management;
compliance with environmental regulations; giving more value to their wastes by turning
into profit; and energy self- sufficiency in their mills.


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 Current

Situation Pages 10-13

4 Renewable Energy Sources and

Distributed Generation in Rural India Pages 14-27

5 Organisational and Managerial Aspects : Pages 28-42

People’s Participation

6 Financing Schemes of Distributed

Generation Pages 43-57

7 Regulatory Issues Pages 58-60

8. ANNEXURES Pages 61-87

9. List of signatory Page 88



1. The Power Sector is an important part of the infrastructure of the Indian

Economy and power generation has been accorded a high order of priority
in our Five Year Plans. The State Electricity Boards, which are under the
control of the State Governments, are the important instruments for
generation and distribution of power throughout the State. Initially, the
State Electricity Boards were given the responsibility to generate, transmit
and distribute power throughout the State. The Central Government had
to intervene in the seventies, when it became clear that the State
Electricity Boards could not bear the burden of adding new capacities on
account of the high costs of investment and amend The Electricity Supply
Act in 1976.This led to the setting up of the National Hydro-power
Corporation and the National Thermal Power Corporation initially and the
other Central Public Sector Undertaking subsequently.

2. The installed capacity of the power generation in the State as on March

31, 2001 was 101,630 MW as compared to that of 1352 MW in 1947, of
which 72% was thermal, 25% was hydro (including wind) and 3% was
nuclear. The Working Group on Power constituted by the Planning
Commission to formulate the 10 th five year plan estimated a feasible
capacity addition of 47,000 MW, during the 10 th plan, 24,405 MW in the
Central Sector, 12,033 MW in the State Sector and 10,501 MW in the
Private Sector for which investment of the order of Rs.5,66,000 crore
would be required.

3. As the primary resources for electrical power generation are unevenly

disposed in the State, bulk transmission of electrical power over long
distance becomes necessary for supplying the loads. The State was
organised into 5 regional grids each of which is well integrated. Strong
interconnections between the regional grids are planned to create a strong
national grid. This objective is sought to be achieved in a phased manner
by the end of the 11 th five-year plan (2011-12) through the Power Grid
Corporation of India Limited.

4. A number of problems have been plugging the power sector, which needs
to be tackled urgently. Transmission of power over long distances led to
high transmission and distribution losses, which increased, from 24.8% in
1997-98 to 25.6% in 1998-99 (provisional). Inadequate investments in
distribution systems, improper billing and high pilferage are among the
important reasons for the high transmission and distribution losses.

5. The policy of economic liberablisation, adopted in the nineties, to attract

private domestic investment and foreign investment, could not achieve the
desired results owing to the poor financial health of the State Electricity
Boards, their inability to pay the contracted tariff and a lack of mechanism
that could ensure safety of repayment to the foreign
investors. Further, the effort was concentrated on the generation front and
not on the distribution front. The Government of India have, of late,
recognised the strategic

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

6. The electric power industry was built on the principle that large centralized
power plants could achieve economies of scale, which would make them
the least expensive sources of electricity. Conventional boilers and
nuclear reactors reached unit sizes of over 1000 MW in the 1970’s and
80’s. In the 1980’s small highly efficient gas turbines, which used
technologies similar to an airplane engine, opened up the possibilities of
producing inexpensive electricity on a relatively small scale. Since the mid
70’s both the total annual capacity additions and the average unit sizes of
OECD power plants have been dropping.

7. Around 1985 electric utilities started anticipating the possibilities of

competition and concentrating on cost reduction. Large scale power
plants that involved huge investments began to be perceived as
unacceptable risks and demand side management emerged as an
alternative to power plant construction.

8. The emergence of wholesale competition in 1996 in the U. S. A. opened

up possibilities of a complete restructuring of the power industry and
considerably slowed down investment in power plants. Demand side
management, which seemed contrary to their goals, took the backseat
and the restructuring of the power industry was given the pride of place. .

9. The consequent gap in capacity for generation resulted in tight electricity

supplies in many parts of the USA. Distributed generation emerged as the
preferred solution, as it avoids investment in both generation and
transmission and brings the solution nearer the consumers by bypassing
the need for long distance transmission. The concept of distributed
generation, which is now gaining worldwide acceptance, was started in the
USA almost a decade ago. Distributed generation which accounts for only
5% of USA’s electricity is expected to account for 10 to 20% of new
generating capacity over a period of next 15 year in that State.

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

11. In the chapters that follow the concept of distributed power generation
has been discussed in relation to the Indian context especially that of rural
electrification in India.



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 in
the relevant technical literature on the subject.

2. The focus in the case of distributed generation is on small/medium sized

plants ranging from about 10 kW to 50 MW are substantially lower capital
outlay, 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 located

near the point of use. It includes biomass generators, combustion
turbines, micro turbines, engines/generator sets and storage and control
technologies. It can be either grid connected or independent. Distributed
power connected to the grid is the typically interfaced added distribution
system. Distributed power generation systems range typically from less
than a kilowatt (kW) to ten megawatts (MW) in size.

4. Distributed energy resources (distributed power) refers to a variety of

small modular power generating technologies that can be combined with
energy management and storage systems and used to improve the
operations of the electricity delivery systems, whether or not these
technologies are connected to an electric grid. Distributed energy
resources support and strengthen the central-station model of electricity
generation, transmission and distribution. Distributed power can assume
a variety of forms. It can be as simple as installing a small electricity
generator to provide back-up power at an electricity consumer site. On
the other hand it can be a more complex system highly integrated with the
electricity grid and comprising
electricity generation, energy storage and power management systems.

5. Distributed Power Applications

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

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


(ii) Independence from the grid – Power is generated locally to meet all
local energy needs by ensuring reliable and quality power under
two different models.
a. Grid Connected – Grid power is used only as a back up
during failure of maintenance of the onsite generator.
b. Off grid – This is in the nature of stand-alone power
generation. In order to attain self-sufficiency it usually
includes energy saving approaches and an energy storage
device for back-up power. This includes most village power
applications in developing countries.

(iii) Supplemental Power- Under this model, power generated by the

grid is augmented with distributed generation for the following
reasons: -

a. Standby Power- Under this arrangement power availability is

assured during grid outages.

b. Peak shaving – Under this model the power that is locally

generated is used fro reducing the demand for grid electricity
during the peak periods to avoid the peak demand charges
imposed on big electricity users.

(iv) Net energy sales – Individual homeowners and entrepreneurs can

generate more electricity than they need and sell their surplus to
the grid. Co-generation could fall into this category.

(v) Combined heat and power - Under this model waste heat from a
power generator is captured and used in manufacturing process for
space heating, water heating etc. in order to enhance the efficiency
of fuel utilization.

(vi) Grid support – Power companies resort to distributed generation for

a wide variety of reasons. The emphasis is on meeting higher peak
loads without having to invest in infrastructure (line and sub-station

6. Most of the early adopters of distributed power wanted to stay connected

to the grid, which they used either as a backup or for selling their surplus
power to the power companies.

7 The Benefits Of Distributed Power :

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

The major benefits of distributed power to the various stakeholders are as


7.1 Major Potential Benefits of Distributed Generation

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

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

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

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

i. Energy Shortage ±States likes California and New York that

experienced energy shortages decided to encourage businesses and
homeowners to install their own generating capacity and take less
power from the grid. The California Public Utilities Commission for
instance approved a programme of 125 US million $ incentives
programme to encourage businesses and homeowners to install their
own generating capacity and take less power from the grid. In the
long run the factors enumerated below would play a significant part in
the development of distributed generation.

ii. Digital Economy ±Though the power industry in the USA met more
than 99% of the power requirements of the computer based
industries, these industries found that even a momentary fluctuation
in power supply can cause computer crashes. The industries, which
used computer, based manufacturing processes shifted to their own
back-up systems for power generation.


iii. Continued Deregulation of Electricity Markets ± The progressive

deregulation of the electricity markets in the USA led to violent price
fluctuations because the power generators, who were not allowed to
enter into long-term wholesale contracts, had to pass on whatever
loss they suffered only on the spot markets. In a situation like that in
California where prices can fluctuate by the hour, flexibility to switch
onto and off the grid alone gives the buyer the strength to negotiate
with the power supplier on a strong footing. Distributed generation in
fact is regarded as the best means of ensuring competition in the
power sector.

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

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

11. Distributed Generation in India

11.1 We have witnessed two extreme situations of distributed generation in

India. At one end we have the example of individual house-
owners/apartment owners installing their own diesel generating sets in
view of the most unsatisfactory supply of grid power, as was the case in
Calcutta in the 70's and the 80's. At the other extreme we have the
examples of large scale power intensive industries setting up their own
captive power generating plants because of the severe cuts imposed by
the electricity boards, the poor quality of power as well as the extremely
high cost of power supplied by them.

11.2 Though knowledge based industries are emerging as an important engine

of growth, these are not going to provide as strong a motive as the digital
economy in the USA for distributed generation. Similarly, deregulation of
the 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 the
State. In India the push for the programme for distributed generation is
expected to come from the need to tackle the following problems: -

i. Peak Load Shortages ± In India the problem of meeting peak load

demand has to be given the topmost priority. Small-scale power
generation and distribution to supplement the grid seems to be the
most effective solution to the problem.

ii. Transmission and Distribution Losses ± These can be brought

down by distributed generation because of the proximity to the
consumption centres. 97

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

iv. Rural Electrification ± Rural electrification is a declared objective

of the Government, which has a high degree of priority. It is in fact
an integral component of rural development. Transmission and
distribution losses, frequent interruptions in supply of grid power
have necessitated a reorientation in own approach to the process
of rural electrification. A distributed generation matrix for
applications in India is appended Annexure 2.

12. The terms of reference of the committee very clearly emphasis the study
of the problem of distributed generation in the context of rural
electrification. The report therefore highlights the points relating to
Distributed Generation in relation to rural electrification though some of the
other issues are dealt with to the extent necessary, as the subject cannot
be divided into strict watertight compartments. These issues are dealt
with in the succeeding chapters.


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 of

the State. The number of villages electrified as on 31.3.2001 was
5,08,515 out of the total number of 5,87,258 villages. The number of
villages that remain to be electrified is thus 78,240. The number of remote
and inaccessible villages is estimated at 18,000. 31% of the rural
households have been electrified as per 1991 census. There are a
number of villages which have hamlets at a distance of about 1-3
kilometers 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 within
its revenue area for any purpose whatsoever. In Octoberl 1997 the
definition was changed and a village was deemed to be electrified if
electricity was used in the inhabited locality within the revenue boundary
of the village for any purpose whatsoever. While these are the definitions
adopted by the Ministry of Power, the Ministry of Non-conventional Energy
Sources regard a village as electrified if 60% of the household in the
village are provided lights for the purpose of assessing their own
performance. Exact statistics according to the different definitions are not
yet available.

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

Progress Thereafter

2.1 The Rural Electrification Corporation was set up in 1969 with the primary
objective of providing financial assistance for rural electrification in the
State. The Corporation is now one of the prime financial institutions in
the State and extends financial assistance to State Electricity Boards,
State Power Corporations, Electricity Departments of the State
Governments and Rural Electric Cooperatives for various rural
electrification schemes. The corporation was declared by the Reserve
Bank of India as a non-banking finance company. The cumulative
sanctions and disbursements of the loans sanctioned by the rural
electrification 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 and
the paid up capital was Rs. 1780.60 crore as on 31.3.2001.

2.3 The setting up of the Rural Electrification Corporation surely acted as a

catalyst to rural electrification and a total of 1.20 lac villages were
electrified during the 6 th plan period and another 1.0 lac during the 7 th plan

2.4 Rural electrification programmes involve supply of energy for production-

oriented activities like minor irrigation, rural industries etc. and also
electrification of villages. While the emphasis under the programme of
rural electrification is on exploration of ground water potential and
energisitation of pump sets, which have a bearing on agricultural
production, the accent in areas covered by the Revised Minimum Needs
Programme is on electrification. One of the important objectives of the
Corporation was to administer the funds allocated to the central sector for
rural electrification in India and act as a catalyst of integrated rural
development through massive exploitation of ground water resources and
promotion 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 as

important as the quantitative dimension.78,240 villages are
awaiting electrification as already stated. The important point to be
noted is that these are mainly in Bihar, West Bengal, Orissa, U.P.
and Assam, the states that account for 40% of the countries

ii. A similar imbalance is noticed in the pump set energisitation

programme. Most of the pump set energisitation has taken in
Peninsular India where ground water utilization has reached a high
stage of development while pump energisitation programme has
not shown any significant progress in the states located in the
Gangetic plain where the ground water potential is enormous. In
fact, the states of Madhya Pradesh, Uttar Pradesh and Orissa
accounted for a mere 9% of the pump sets during the year 2000-

iii. The overall pace of rural electrification as well as energisation of

pump sets received a set back in the last decade. The number of
villages electrified dropped from one lac in the 7 th Plan Period to a
mere 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 Board
which are increasingly reluctant to move to rural areas because of
high costs and low returns is largely responsible for this trend. The
number of pump sets energized between 1986-87 and 1991-92
ranged between 4.19 lac to 5.52 lac per annum, but the same

decreased to 206071 in the year 2000-01. This is perhaps because

the ground water potential in the Southern States has already been
tapped and the pace of programme in the Indo-Gangetic has not
picked up.

2.6 The following adverse features also plague the programme of rural

i. The cost of transmission lines is very high, Rs.20, 000-30,000 per

kilometer depending on the terrain.

ii. High transmission and distribution losses which were estimated at

22.4% (National mean) especially due to low leads in 1992
increased to 26% in 1998-99.

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

grid system

iv. The eraticity in power supply and maintenance

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

2.8 Another important issue that arises is the use of diesel pump sets in large
numbers on account non-availability of reliable power. Farmers who draw
subsidy on use of grid power make use of diesel engines to meet their
total energy requirements with the obvious implications on outgo of foreign

2.9 The financial problem posed by the programme of rural electrification,

which is subsidized, is enormous. The net subsidy after accounting for
amounts received from state governments was Rs.5024 crores in 1991
and increased to Rs.22876 crores in 1999-2000. The gross subsidy of the
state sector was about 36% in 1999-2000. Efforts to contain the
burdening the subsidy have obviously to be initiated.

2.10 Notwithstanding the enormous amount spent on subsidy, the farmers do

not get quality power. The World Bank has observed in its recent
document “India Power Supply to Agriculture ± Andhra Pradesh Case

Study (Report No.22171-IN) that “------farmers are paying a higher price

for electricity than stated by the utility because poor quality of power
increases their cost on account of various factors including frequent motor
burnouts, interruption due to transformer burnouts, unscheduled power
cuts which impose an additional cost on farmers in terms of the potential
crop loss in crop yields.” According to it “the present tariff in the State
based on the flat rate structure is regressive, penalizing, marginal and
small farmers who are using less electricity for a given connected
capacity.” and discourage the farmer from conserving the ground water
resources as the marginal cost of pumping is zero.

2.11 The Government of India have, in the budget for the year 2001-02, treated
electricity as part of the basic minimum services for the rural poor. The
funds for rural electrification have, therefore been, allocated to the states
under the Minimum Needs Programme and “Pradhan Mantri Gramodyoga

2.12 The Government have recognized the need for new initiatives in rural
electrification in the wake of various problems outlined above. This is
reflected in the Statement of Objects and Reasons of the Electricity Bill,
2001, which views Distributed Generation as a possible alternative to the
current problem. It envisages stand-alone systems for generation and
distribution of power and decentralized management of distribution
through 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 on
rural electrification are discussed later in the Report.


Chapter 4

Renewable Energy Sources

Distributed Generation in Rural India
1. The experiments with models for decentralized systems for power
generation are not of recent origin, though their inclusion as an integral
part of the new legislation is of recent origin. It has been the result of
various developments over a period of time. The realisation that fossil
fuels are not unlimited, the difficulties faced by the developing countries on
account of their dependence on excessive imports marked by high
volatility of prices, and international opinion regarding adoption of eco
friendly sustainable alternatives have been responsible for this
development. India, the petroleum crisis of the late seventies triggered off
the efforts for biomass based systems of power generation.

2. The Government of India set up a Commission for Additional Sources of

Energy in the Department of Science and Technology on the lines of the
Space Commission and the Atomic Energy Commission to promote R & D
activities in the area. In 1982, a separate department of Non Conventional
Energy 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 the
new legislation referred to above.

3. There are a number of technologies for distributed generation, the details

of which are given below:

i. The Internal Combustion Engine.

ii. Biomass
iii. Turbines
iv. Micro-turbines
v. Wind Turbines
vi. Concentrating Solar Power (CSP)
vii. Photovoltaics
viii. Fuel Cells
ix. Small-Hydel.

2.10 The Internal Combustion Engine: The most important instrument

of the D. G systems around the world has been the Internal Combustion
Engine. Hotels, tall buildings, hospitals, all over the world use diesels as a
back up. Though the diesel engine is efficient, starts up relatively quickly,
it is not environment friendly and has high O & M costs. Consequently its
use in the developed world is limited. In India, the diesel engine is used
very widely on account of the immediate need for power,
especially in rural

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


3.2 Biomass: Biomass refers to renewable energy resources derived from

organic matter, such as forest residues, agricultural crops and wastes,
wood, wood wastes that are capable of being converted to energy. This
was the only form of energy that was usefully exploited till recently. The
extraction of energy from biomass is split into three distinct categories,
solid biomass, biogas, and liquid biofuels. Solid biomass includes the use
of trees, crop residues, household or industrial residues for direct
combustion to provide heat. Animal and human waste is also included in
the definition for the sakes of convenience. It undergoes physical
processing such as cutting and chipping, but retains its solid form. Biogas
is obtained by anaerobically digesting organic material to produce the
combustible gas methane There are two common technologies, one of
fermentation of human and animal waste in specially designed digesters,
the other of capturing methane from municipal waste landfill sites. Liquid
biofuels, which are used in place of petroleum derived liquid fuels, are
obtained by processing plants seeds or fruits of different types like
sugarcane, oilseeds or nuts using various chemical or physical processes
to produce a combustible liquid fuel. Pressing or fermentation is used to
produce oils or ethanol from industrial or commercial residues such as
bagasse or from energy crops grown specifically for this purpose.

3.3 Turbines: Turbines are a commercialized power technology with sizes

ranging between hundreds of kilowatts to several hundred megawatts.
These are designed to burn a wide range of liquid and gaseous fuels and
are capable of duel fuel operation. Turbines used in distributed generation
vary in size between 1-30 MW and their operating efficiency is in the
range of 24-35%. Their ability to adjust output to demand and produce
high quality waste heat makes them a popular choice in combined heat
and power applications.

3.4 Micro-turbines: Microturbines are installed commercially in many

applications, especially in landfills where the quality of natural gas is low.
These are rugged and long lasting and hold promise for Distributed
Generation in India.

3.5 Wind-turbines: Wind turbines extract energy from moving air and enable
an 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 solar
or other technologies. Research on adaptation of wind turbines for remote
and stand-alone applications is receiving increasingly greater attention
and hybrid power systems using 1-50-kilowatt (kW) wind turbines are
being developed for generating electricity off the grid system. Wind
turbines are also being used as grid connected distributed resources.

Wind turbines are commercially available in a variety of sizes and power

ratings ranging from one kW to over one MW. These typically require a
Smallmum 9-mph average wind speed sites.

3.6 Concentrating Solar Power: Various mirror configurations are used to

concentrate the heat of the sun to generate electricity for a variety of
market applications that range from remote power applications of up to 1-
2kW to grid connected applications of 200MW or more. R & D efforts in
the area of distributed generation applications are focused on small,
modular, and dish/ design systems.

3.7 Photovoltaics: Photovoltaic power cells are solid state semi conductor
devices that convert sunlight into direct current electrical power and the
amount of power generated is directly related to the intensity of the light
PV systems are most commonly used for stand alone applications and
are commercially available with capacities ranging between one kW to one
MW. The systems are commonly used in India and can contribute a great
deal for rural areas, especially remote and inaccessible areas. It can be of
great help in grid connected applications where the quality of power
provided by the grid is low. This is yet to be proved. High initial cost is a
major constraint to large-scale application of SPV systems. R&D work has
been undertaken for cost reduction in SPV cells, modules, and systems
besides 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 and
the associated environmental side effects are avoided. Natural gas or coal
gas is cleaned in a fuel cell and converted to a hydrogen rich fuel by a
processor or internal catalyst. The gas and the air then flow over an anode
and a cathode separated by an electrolyte and thereby produces a
constant supply of DC electricity, which is converted to high quality AC
power by a power conditioner. Fuel cells are combined into stacks whose
sizes can be varied (from one kW for mobile applications to 100MW plants
to add to base load capacity to utility plants) to meet customer needs.
However, the technology is not yet ripe for being considered for DG
application in India, as it is very expensive, and has not yet been
commercially tried on a large scale even in the U. S. A.

4. The technologies referred to above are applied under various schemes for
generation 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 status
of Distributed Generation based on renewable sources of energy.

5. Biomass Based Schemes: This can be considered under three
distinct heads, National Project on Biogas Development, National
Programme on Bio-Mass Power/Cogeneration and Bio-Mass Gasifier

5.1 Biogas. The gas is piped for use as cooking and lighting fuel in especially
designed stoves and lamps respectively and can also be used for
replacing diesel oil in fuel engines for generation of motive power and
electricity. The Floating Gas Holder Type, that is India or KVIC model and
Fixed 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 for
remote and hilly areas, is being promoted. The recently developed
methodology of on sight construction of Deenabandhu model with Ferro-
cement, which costs about 10 to 15% less as compared to the model
constructed with bricks and cement, is getting popular in the Southern

5.2. The National Project on Biogas Development was started in 1981-82.

About 33.68 lac families have been benefited upto March 2002. The
Community and Institutional Biogas Plants Programme was initiated in
1992-93. In order to achieve recycling the cattle dung available in the
villages and institutions for the benefit of the weaker sections as well.
Biogas is generally used for motive power and generation of electricity
under the programme in addition to meet the cooking fuel requirement. A
total of 3,901 plants, including 600 night soil based Biogas plants had
been 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 effective
design of bio gas plants, development of designs and methodologies for
utilization of biomass, other than cattle dung for biogas production,
reduction in the cost of biogas plants by using alternative building material
and construction methodology and diversified use of digested slurry for
value added products.

6. National Programme on Biomass Power/Cogeneration: The

Government of India has initiated a National Programme on Biomass
Power/Cogeneration. It aims at optimum utilization of a variety of biomass
materials such as agro-residues, agro-industrial residues, and forestry
based residues and dedicated energy plantations for power generation
through the adoption of latest conversion technologies. These include
combustion, incineration, pyrolysis, gasification etc. using gas turbine,
steam turbine, dual fuel engine, gas engine or a combination thereof either
for power generation alone or 106
cogeneration of more than one energy
forms viz steam and power of Smallmum 1 MW capacity connected
to the grid. The technologies for exploiting the vast biomass resources for
power generation are attaining maturity and reaching stage of

6.1. 41 bagasse based cogeneration projects with aggregate capacity of 280

MW have been commissioned and 30 projects with aggregate capacity of
298 MW are under implementation. 30 commercial grid connected
biomass based power projects with aggregate capacity of 140 MW have
been successfully commissioned and 31 projects with aggregate of 181
MW are under implementation. The bulk of the capacity installed/under
implementation is in Andhra Pradesh, Karnataka, Tamil Nadu and U. P.

6.2. Biomass Resource Assessment Programme: Availability of biomass is

of great relevance to The National Programme on Bio-Mass
Power/Cogeneration. According to an estimate made by some experts,
only 16 million hectares of land are required, if there is a need to grow
wood separately for power generation, i.e. lighting and meeting stationary
power needs of villages, as compared to 100 million hectares of degraded
land available for planting. The results of an analysis at the macro level,
however, may not correspond to ground realities. The Programme was
launched covering all the States and Union Territories in order to provide
inputs for preparing a Biomass Resource Atlas for India, which seeks to
integrate the data obtained from field level studies under National Biomass
Resource Assessment Programme and provide specific information, which
would be useful to the user in preparing a feasibility study of a biomass
based power generation project. The Project utilizes a stand alone G. I. S.
package with satellite data identifying different agricultural crops, along
with modeled information on biomass utilisation, to arrive at estimates of
availability of surplus bio-mass.

6.3. National Biomass Gasifier Programme: Biomass gasification is the

process by which solid biomass materials are broken down using heat to
produce a combustible gas, known as the producer gas. Common
feedstocks for combustion include wood, charcoal, rice husks and coconut
shells. The producer gas can be used directly in a burner to provide
process heat or it can be used in IC engines, but it requires cleaning and
cooling for the latter application. It can also be used as a substitute for
diesel oil in duel fuel engines for mechanical and electrical applications
Encouragement to technologies such as biomass briquetting and
gasification for various applications in rural and urban areas, and R and D
on Biomass Production and Gasification, are the important objectives of
the programme.

6.4 Biomass gasifier systems of up to 500 kW capacity based on fuel wood

have been indigenously developed and being manufactured in the
State. Technology for producing biomass briquettes from agricultural
residues and forest litter at both household and industry levels has been
developed. A total capacity of 51.3 MW has so far been installed, mainly
for stand-alone applications. 107

6.5 Research and Development on Biomass Gasifiers: Five Gasifiers action

research projects have been supported at IIT Delhi and Bombay, Indian
Institute of Science, Bangalore, Madurai Kamaraj University, Madurai and

Sardar Patel Renewable Institute in Vallab Vidhyanagar. Gasifier systems

have been defined for a variety of biomass and integrated for different
application packages for rice mills, plywood, tea etc. Gasifiers of different
ratings from 20 kW to 100 kW and for different modes of application have
been tested under field conditions and are being promoted under the
National Biomass Gasifier Programme. Biomass gasifiers capable of
producing power from a few kW up to 500 kW have been developed
indigenously and have passed stringent tests abroad and are now
exported not only to developing countries of Asia and Latin America, but
also to Europe and U. S. A. The main focus of work done under the
gasification action research project in IIT is maximization of diesel
replacement in duel fuel engines.

6.6 R&D on Biomass Production: Five R&D projects on biomass production

have been taken up with the objective of selecting high yielding and short
rotation fuel-wood tree species and developing and promoting suitable
packages of practices for better survival and improve productivity of
selected tree species for different agro-climatic zones in the State.

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

6.8 The Smallstry of Non-conventional Energy Sources has taken up the task
of electrifying the 18,000 unelectrified remote and inaccessible villages
based on the renewable energy technologies in a phased manner by
2012. During the 9 th plan the village electrification projects with an
aggregate capacity of 5 MW equivalent which cover 84 remote villages
and hamlets in West Bengal, Orissa, Tripura, Mizoram and Nagaland were
initiated out of which an aggregated capacity of 2.14 MW has already
been installed in West Bengal, Orrisa and Karnataka.The remaining
projects, which are in the pipeline, would be commissioned by the end of
the financial year 2001-02.

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


7.1 The Indian Institute of Science, Bangalore is implementing a project in the

Tumkur District of Karnataka on bio--energy for sustainable transformation
of rural areas. In fact, the Indian Institute of Science has worked on a
number of projects on rural electrification with the help of renewable
resources. The experiments conducted by the Indian Institute of Science
were initially confined to cattle dung for biogas production (Pura village).

7.2 The 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 the
experts of the Institute,

the scale of power generation using a biomass gasifier should preferably

be limited to a village or a cluster of villages, because large systems would
require transportation over a long distance and might lead to depletion of
forests, unless forest resources are carefully managed. The ideal system
might be in the range of 10-100 kW, thus meeting the needs of a cluster of

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

7.4 It is noticed that the cost of generation per unit of electricity is 4.50 in the
case of Honge oil, Rs. 7.25 and Rs.9.50 in the case of wood gasifier and
biogas, respectively, both operated on a duel fuel mode. The difference is
mainly on account of the lower capital cost in the case of honge oil as
compared 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 at

7.5 Diesel based electricity supply is cheaper, Rs.4.66 per unit, as compared
to 4.89 per unit in the case of honge oil, if the price of diesel is Rs.12.39
per liter at Bangalore. The difference between the two is purely on
account of the higher capital cost of the former, which is due to honge oil
seed expellers. However, this is a most unlikely scenario, as the price of
diesel 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 is
environment friendly, is renewable, locally available, and involves
Smallmal transportation. Further, if used extensively, it would lead to self-
reliance. Extensive use of diesel oil, would lead to loss of foreign

7.7 The success of the biomass-based schemes is crucial as the international

prices of crude oil are very volatile, and the mechanism of the
AdSmallstered Pricing Mechanism, which insulated the economy from
their volatility, has been dismantled. The government are trying to
Smallmise the hardship to the people by suitably adjusting the excise
duties on petrol and diesel .The109
social and economic gains on account of
decentralized schemes will have to be taken into account, while the
policies, especially the tariff policies are adopted in their respect.

8. Wind Energy: The programme was initiated in the year 1983-84. A

market-oriented strategy has been adopted right from the beginning and
hence commercial development of the technology has been successfully

achieved. Scientific assessment of wind resources throughout the State

and a series of other systematic steps have facilitated the emergence of a
cost effective technology.

8.1 The wind power potential of the State was initially assessed at 20000 MW
and reassessed at 45000 MW subsequently assuming 1% of land
availability for wind power generation in potential areas. The technical
potential 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 under
demonstration projects and 1565 MW under private sector projects, which
represents just 13% of the technical potential. Tamil Nadu alone accounts
for nearly 50% of the installed capacity (857.5 MW) and the States of
Tamil Nadu Maharashtra and Gujarat account for 1423.6 MW of the total
installed capacity.

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

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

9. Solar Power Programme: The solar power programme comprises Solar

Photovoltaic Power Programme and Solar Thermal Power Programmes.

9.1 Under the Solar Photovoltaic Programme:, 27 grid interactive SPV

projects have been installed, with an aggregate capacity of 2.0 MW in
Andhra Pradesh, Chandigarh, Karnataka, Punjab, Kerala, Lakshadweep,
Madhya Pradesh, Maharashtra, Rajasthan,Tamil Nadu, and Uttar
Pradesh. These are meant for voltage support applications in remote
sections of weak grids, peak shaving applications in public buildings in
urban centers and for saving diesel use in islands. These are expected to
generate and feed over 2.6 million units of electricity annually to the
respective grids. In addition, ten projects of 900 kW capacity, are under
different 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 railway
signalling which are non subsidized. Only 3 MW out of the total aggregate
capacity of 96 MW (9,80,000 systems)
110 is used by the power plants. In so
far as rural areas are concerned, the SPV systems can be
useful for the following:

i. Village electrification through SPVs: A five KW PV plant can serve

a village of 50 to 80 households for street lighting, lighting homes/radio
TV, and community requirements like post office school primary health
center and drinking water supply. More than 2500 villages, mainly in U.
P, Rajasthan, West Bengal and Islands and also in Nyoma town in
Ladakh. Ninety villages in Bastar district of Madhya Pradesh and
fourteen villages in Meghalaya have also been electrified through

ii. SPV seem to be one of the best solutions on for the 18000 remote
and inaccessible villages. Solar electrification is more economical in
tribal areas and the North Eastern Region compared to grid extension
beyond three kilometers.

iii. In Gujarat, SPV systems have been applied at ten rural milk
collection centers of Panchamahal District Dairy Cooperative during
2000-2001, ten more were sanctioned in 2001-02. The deployment of
solar PV systems for this application has a large potential for

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

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

10 Small Hydel Projects: Small hydel projects have become very popular
since the last decade on account of many problems, especially those
relating to environment, which are associated with major irrigation projects
.New technologies also make facilitate small sized projects to operate
either in grid connected or decentralized mode and thus make them
economically viable. The classification of hydro-power by size is given in
Annexure 4.

10.1 A number of steps have been taken in the last decade by giving suitable
incentives to attract private investment in commercial projects. The
capacity in Small hydel projects (upto 3 MW) has increased from 63 MW to
240 MW in the last twelve years as a result of the positive steps taken so
far. Capacity of over 200MW has been offered/allotted by the State
Governments to the private sector. The current emphasis is on
completing the projects offered to 111the private sector by the State
Governments and also making simultaneous efforts to identify
potential sites, conduct detailed surveys and prepare detailed project reports
for a shelf of projects.

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

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

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

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

24 Source/System Approximate Achievement (as

Potential on 31-03-02)
Power from Renewables
1. Solar Photovoltaic - 1.99 MW
2. Wind Power 45,000 MW 1628.2 MW
3. Small Hydro Power 15,000 MW 143.47 MW
(up to 25MW)
4. Biomass Cogeneration 19,500 MW* 381.3 MW
5. Biomass Gasifier - 51.3 MW
6. Energy Recovery from 1,700 MW 21.98 MW
Power From Renewables 81,200 MW 3522.24 MW
Decentralised Energy
7. Family-size Biogas 120 lakh 33.68 lakh
8. CBP/IBP/NBP Plants - 3901 Nos.
9. Improved Chulha 12 crores 3.52 crores
10. Solar Photovoltaic 20MW/sq. km.
i) Solar Street Lighting - 41776 Nos.
ii) Home Lighting - 206732 Nos.
iii) Solar Lanterns - 427687 Nos.
iv) SPV Power Plants - 1188 kWp
11. Solar Water Heating 140 million sq.m 0.60 million sq.m
Systems collector area collector area
12. Solar cooking System
i) Box-type Solar - 5,18,000 Nos.
ii) Concentrating-type - 175 Nos.
community cookers
13. Solar PV pumps - 4500 Nos.
14. Wind Pumps - 793 Nos.
15. Hybrid Systems - 127.5 KW
Others Programme
16. Aditya Solar Shops - 29 Nos.
17. Battery Operated - 247 Nos.
18. Energy Parks - 278 Nos.
19. IREP Blocks 113 - 860 Nos.
Sq. 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 areas
that comprise 18000 difficult villages will be on decentralised generation
using locally available energy options like biomass, Small hydel,
photovoltaics, solar cookers and lanterns, etc. The overall position in
respect of the North Eastern Region of the State is as follows:

Item All India potential North East All India Capacity set up
Identified Potential capacity in N. East
マ マ set up マ マ
Small hydel 10071.81 2028.34» 1438.43 153.02 (1.52)
マ (20.14) (14.28)マ ヘ
Biomass/cogeneration 19500 N. A. 381.3 Nil
separately. マ j
Biomass gasification マ 51.3 マ Nil;
Wind Energy 12835 (technical) 1628.3 š Nil
¬ .
マ Energy SPVs
ヘ 20MW/sq. km 96 MW
shows MW; 43biomass resource assessment studies awarded; R &D on
j production of biogas at low temperatures is on
Research on biomass production survey and evaluation of selected species
œ energy plantation in N. E region is » on
š 27 probable windy sites identified; figures in brackets indicate percentages.
¬ 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 9.2
kWp capacity in Arunachal Pradesh are under implementation66 solar home
lighting systems sanctioned for a village in East Kamang District of Arunachal
pradesh170 special solar street lighting systems sanctioned in Manipur

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

16. At present out of ja total installed capacity 0f 100000 MW about 3500 MW

is generated by using 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 potential
and the actual installed capacity/achievement under various items under
Renewable Energy Sources. In keeping with the world wide trend of
encouraging distributed generation and having a green environment,
the New Renewable Energy Policy 114 stipulates that by the year 2012,
10% of the total addition to generation capacity will be from
renewable sources. Assuming that another 100,000 MW will be
added by the year 2012,the contribution by renewable energy fuels
would be between 10-12000 MW, about 13-15,000 MW in all. This
would 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 Central
Government after consultation with the State Governments prepare and
notify a national policy permitting stand systems (including those based on
renewable sources of energy and other non conventional sources of
energy) for rural areas. Clause 5 stipulates consultation with the State
Governments and the State Electricity Regulatory Commissions for a
national policy for rural electrification and for bulk purchase of power and
management of local distribution in rural areas through Panchayat
Institutions, users' associations, cooperative societies, non-governmental
organizations and franchisees.

19. Clause 13 of the Bill exempts a local authority, Panchayat Institution,

User's Association, Cooperative Societies, Non governmental
organizations and franchisees from obtaining a licence to transmit,
distribute and trade in electricity.

20. The increasingly greater importance being attached to non conventional

sources of energy becomes clear from the fact that the financial allocation
for 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 Ninth
Plan (1997-2002. Progressive power generation from renewables has, in
fact, shown a rapid increase only in the last two to three years. It
increased from 1185.50 MW from March 1997 to 1698.50 MW in March
2000 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 mentioned

objectives. It is, however, not easy to bridge the gap between the
potential and installed capacity because of certain constraints in
renewable energy development, which have got to be taken note of. Some
of the important constraints are listed below:

ヘProduct/Technology Related:
ヘMany products and technologies are not yet mature.
Smallmum economic sizes are under evaluation.
œ Materials Related:
Resource availability assessments are based on rough estimates,
especially in biomass power and hilly hydro projects.
マ Related:
; Govt/forest land /irrigation land are not mortgageable.
Climate Related:

ヘ 27
Photovoltaic cells do not work on a cloudy day and windmills do not
mill the wind without a breeze.

Policy Related
Frequent changes in policy.
マ Related:
Distortions in energy market on account of subsidized conventional

22. The committee is of the view that despite the constraints mentioned
above, the programme will have to be carried forward with vigour,
especially in the case of the 18000 villages where no other solution seems
to be feasible. In the case of other villages, whether connected by grid or
not, decisions will have to be taken on a location specific basis.



Organisational and Managerial Aspects : People’s


1. The programmes and schemes of the power sector in the State do not
enlist the involvement and support of the beneficiaries. The policy
makers had however, envisaged a cooperative and participatory model for
rural electrification in the State. One of the directives which was issued
to the Rural Electrification Corporation by the Government of India was as

2. ª….The Corporation will consider providing loans on suitable terms to

these cooperatives with a view to encouraging the cooperative type of
organizations for distribution of electricity in the rural areasº. The reality
however is far removed from the ideal contained in the Government of
India's Directive.

3. The following alternatives can be thought of in the context of ensuring

people's participation in the programmes of rural electrification including
those relating to Distributed Generation.

i. Local bodies and communities

ii. Cooperatives

iii. Users Associations

iv. NGOs

v. Electric Service Company working in conjunction with

entrepreneurs/contractor and Local Bodies/Communities, NGOs

4. Local Bodies

4.1. Article 243 G of The Constitution Seventy Third Amendment Act, 1992
empowers the legislatures of States to enact suitable legislation and
endow the panchayats with such powers and authority as may be
necessary to function as institutions of self government and prepare and
implement plans for economic development and social justice. The
Eleventh Schedule, which lists out the items in respect of which such
powers can be conferred, includes rural electrification and distribution of
electricity and non conventional energy sources.The State Governments,
however, have not enacted such legislation, The Panchayat Raj
institutions, again, are not well equipped to take up such schemes as
of now.

4.2. The participation of the Local Bodies in relation to rural electrification

programme is seen in different forms.

i. The National Project on Biogas Development is being implemented

with active support and association of local bodies in several states.
In Gujrat Taluka Panchayats and Gram Panchayats are involved in
implementing and monitoring. Gram Sabhas motivates the
individual beneficiaries in Andhra Pradesh and Maharashtra. The
Panchayat functionaries through their respective Sthayee Smithies
are involved in identifying induvidual beneficiaries in West Bengal.

ii. 50 portable micro hydel projects have been taken up under a

demonstration project. Micro hydel sets of 5-15(kW) capacity have
been provided to local bodies and local communities in 7 states
through the state agencies in the North-Eastern region of the
State and 41 sets have been installed and the response from the
local communities is reported to be satisfactory. The Ministry of
Non-conventional Energy Sources in encouraging the local bodies
and NGOs to take up such mini hydel projects.

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

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

5. Cooperatives

5.1 Rural Electric Cooperation were set up with the help of Rural
Electrification Cooperative, the State Electricity Boards and the State
Governments. 5 pilot cooperatives were formed initially. Hukkeri in
Belgaum district of Karnataka Sirilla Taluka in Karimnagar District in
Andhra Pradesh, Kodinar Taluka in Amerali District in Gujrat and Rahuri
and Srirampur Talukas in Ahmednagar District of Maharashtra and a part
of Lucknow District in UP. The number had increased to 37 in the year
1994-95. The Committee on Rural Electric Cooperatives under the
Chairmanship of Shri N.S. Mathur which was constituted to examine all
aspects of the working of the existing cooperative societies and evaluate
their performance, made the following important observations:

i. Overall performance ± The overall physical performance of the rural

electric cooperatives, except in a few cases, where there were
management and other problems, was quite encouraging .
ii. Load growth ± As a cooperative society is
more responsive to the local needs of distribution, it can ensure
load growth quicker than a State Electricity Board.

iii. Operational Procedures - Cooperatives being organisers of the

consumers, whom they serve try to make their operational
procedures more tuned to the convenience of their respective

iv. Transmission and Distribution Losses ± With the emergence of

rural electric cooperatives specific quantities of energy purchased
by the cooperatives and sold to the consumers could be
ascertained and the losses quantified. The problem of T&D losses
got focussed more prominently on account of them though the
desired watch dog effect on identifying inadequacies of
management such as defective meters and theft of energy did not
take place.

v. Diversion of Funds ± There was no diversion of funds for purposes

other than rural electrification. Some of the cooperatives generated
their own resources for being ploughed back for further
intensification of electrification in their respective areas.

5.2 Many of the cooperative societies are now being run by administrators
because their management has been taken over by the concerned State
Governments. It may however be noted that the rural electric
cooperatives did have some genuine problems and were not allowed to
function properly. The following deficiencies were noticed :

i. The staff of the cooperative societies were on deputation either from

the State Government or the State Electricity Boards. The societies
did not perform well in cases where the staff deputed by the State
Governments/State Electricity Boards were incompetent.

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

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

5.4 Initiatives by cooperative societies are not wanting even now. For
instance Bantwal Rural Electricity Cooperative Society has been very
keen on taking over distribution of electricity within the Bantwal Taluk of
Mangalore District. Its efforts
119 were frustrated mainly because the
erstwhile Karnataka Electricity Board did not agree to part with its
distribution rights over the area to the society. The society proposes to
convert 750 km of low tension lines into high tension lines, replace 145 out
of the 773 distribution transformers that have failed and replace all the
inefficient 13,143 irrigation pump sets. All the improvements are
estimated to save about 10 lac units per month.

5.5 The Rural Electrification Corporation has in the Annual Report for the year
1996-97, expressed the view that the most feasible and effective option
appears to be to promote more and more Rural Electric Cooperative with
active participation and involvement of local people and Panchayat Raj

6. Users Associations

6.1 The village panchayats are perceived as being controlled by the village
strong men with considerable influence which is used to the detriment of
weaker sections . It is this perception which is responsible for the
formation of groups of beneficiaries for implementing programme of
poverty alleviation. These are implemented through associations of
beneficiaries or Users Associations. The Self Help groups which have
been set up of late, under the poverty alleviation programmes, must be
take cognisance of in this context, as many of them have been successful
in achieving their objectives. Village level committees are another
manifestation of Users Associations.

7. Village Level Committees

7.1 In so far as the power sector is concerned, the concept of village

committees which has been successfully tried out by WESCO and
NESCO the two subsidiaries of BSES, needs a special mention. Under
this novel project, the villagers are involved as partners in a programme
that aims at ensuring better quality of supply and service in rural areas.
They undertook pilot projects in Burger and Anandpur respectively, and
the projects were executed by the Xavier Institute of Management.

7.2 The objective of the two projects was to form village committees (Vidyut
Sangha) in order to ensure that the consumer got the bills regularly and
not burdened with payment of bills for six months at a time and improve
the quality and stability of power. The committees were accorded formal
recognition and functioned as a Customer Care Centre in villages. The
committees appoint persons from the villages, designated as Village
Contact Persons for taking meter readings and distributing of bills in the
villages. The committees function as a one point collection centre for
WESCO and NESCO. WESCO and NESCO contact the village level
committee on dates fixed for collection.

7.3 The Committee exercises its judgment on matters pertaining to sanction of

new connections, installment agreements, disconnections, regularization
of unauthorized consumers etc.120
The number of villages covered by the
scheme is 4900. The Village Level Committees have succeeded in
achieving 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. Voltage
has therefore, shown a dramatic improvement.

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

iii. A sense of ownership has developed among the members of the

committee and the villagers and the villagers themselves are
curbing unauthorized usage of electricity.

iv. In some committees, all members are ladies, which is a very

encouraging sign as problems of power and water supply have a
major impact on the quality of life of women in the rural areas.

v. Specific instructions were issued stipulating that disconnections

would take place only if recommended by the village committees.
The collections increased by more than 60-85% as all payments
were made voluntarily and not under duress.

vi. In villages where the distribution transformer was metered the

Village Level Committee became a partner in identifying losses due
to theft. In a cluster of 17 villages, it was observed that the input
energy supplied to the village was reduced by more than 23
percent over a 4 month period.

8. Unresolved Issues

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

i. Though the collections have improved, the cost of supplying

electricity to villages continues to be very high on account of
technical and non-technical losses and the effective cost of delivery
works out to almost Rs.4 per unit. There is real temptation to cut
supply to cut losses.

ii. Though the quality of service has improved, there has been no
improvement in terms of the access of electricity to consumers, in
villages which still remain unelectrified.

8.2 The Xavier Institute of Management has expressed the view that the two
concerns listed above could be121
addressed by Distributed Generation and
has proposed that a pilot project may be taken using distributed
generation to improve access of electricity in villages. It is proposed to
have one such project in village nahalla in Orissa.

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


9.1 TERI implemented schemes of improved chula, biomass gasifier and solar
and other technologies and also of reclaiming degraded land through
energy plantation for nearly 10 years at Dhanawas in Haryana. The
Institute has documented the results of its field study, which would be very
useful .

9.2 Four Stages of Interaction

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

9.2.2 In the first stage, there is rapport building with the villagers so that all the
issues connected with the village are understood. The people are
associated with the village surveys, which ensures the involvement right
from the beginning.

9.2.3 At the second stage, there is technology development and demonstration

and the Village Energy Development Committee is constituted to motivate
the 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 building
among the villagers. The success of a newly developed technology
evokes a better response from the individuals who become increasingly
more receptive to its adoption, largely due to its demonstration and
dissemination. People were trained in maintenance and management of
new devices. Masons for construction of biogas plants were also trained.

9.3 Dissemination of new technologies for which there was still a demand
characterised the next stage which was that of withdrawal. Bulk of the
work was carried out by the persons trained in the village with TERI
assistance in terms of providing technical guidance. The technologies that
were used for community use such as the solar water pump and the
plantation 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 experience

which are very important from the point of view of people's participation,
are listed below:-
i. People are not likely to take interest in any
activity, unless it meets some of their demands or brings about an
improvement of the quality of life in some way. An energy
programme that benefits the people in some way in a shorter time
is likely to succeed better. For instance, the people of Dhanawas
regarded reclamation of degraded land and plantation on it, only as
a research project. It was only when fodder from plantation was
used extensively in the year of drought in 1989, that they began to
see its potential benefits.

ii. Any technological innovation has to be brought to a threshold level

till the people recognize the benefit. In the case of improved chulas
it took considerable time to design the model that suited the needs
of the villagers.

iii. Though the Village Energy Development Committees had been

constituted to avoid village politics, the Panchayat always played an
important role in planning and implementation of the scheme.
Committee. A written approval was obtained from the
Panchayat regarding the formation of such a committee and its
members and charter of duties. A change in village leadership was
always accompanied by reelection with the Village Energy
Development Committee. The Sarpanch was made a member of
the 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 is
more likely to materialize, if these pressing problems are integrated
with the other developmental needs of the people.

v. A village panchayat could ignore the interests of certain groups

either because their members are not numerous or because they
belong to the poorer strata of society without much influence. In a
situation like this, mechanisms must be set up which rectify the
imbalance. The interests of groups/individuals should be identified
and taken into account, while planning for the nature of benefits
and their distribution.

vi. During the demonstration phase, there has to be a strong and

reliable maintenance backup system. TERI's staff rectified all
problems of biogas plants. In Jaisalmer, a person from within the
village was trained with repair and maintenance of solar lanterns
which was of considerable help to the villagers.

vii. Energy technology that does not necessitate any major alterations
in peoples practices has better prospects of success. Though there
was good potential for biogas plant in Dhanawas village, many
villagers were unwilling on account of constraint of space for
viii Continuous monitoring and evaluation helped in identifying
problems with plant design in which necessary modifications were
made wherever these were required.

9.5 TERI’s experience at Dhanawas showed that rural energy problems are
extremely location specific in nature, and that in view of the vide variations
that exist in the socio cultural environments in the rural areas, energy
planning at a decentralized level will give better results as compared to a
target oriented programme based on uniform technology specific

9.6 The village level committee at Dhanawas was different from the
committees established by WESCO and NESCO as it was very closely
associated with the village panchayat. The relationship between the
villagers, the village panchayat, TERI and the Village Energy Development
Committee is illustrated by the diagram at Annexure 6.

9.7 The Institution of Village Level Committees has been used in other
countries as well as in the case of Chalan Micro Hydro Scheme in Peru
and Dhandruk Micro Hydro Power Scheme in Nepal.

10 People’s Participation in Distributed Generation Schemes And

Village Committees

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

10.2 The Institute similarly established a Gram Vikas Sabha to oversee

maintenance and operation of the system with the participation of the
villagers in Pura village. The Gram Sabhas collection was in the order of
93% between 1988-1991.

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

11. Self-Help Groups

11.1 Self-help groups have emerged as a force to reckon with, especially
after they were given role in poverty elevation programmes. The following
are some of the examples of the role played by them in rural

i. The self-help groups played an important role in the villages of

Karimnagar and Khammam districts of Andhra Pradesh where
Project Chandrakanti was implemented. Nearly 10,000 lanterns
have been distributed under the World Bank programme of SPV
market development routed through IREDA.

ii. The Non-conventional Energy and Rural Development Society, a

NGO, has established about 450 self-help groups and installed
about 6,500 biogas plants, 2,400 smokeless chulas and a few solar
cookers and water heaters to self-help groups. It conducted
motivation camps, training programmes for masons on construction
of biogas plants, potters on fabrication of improved chulas and
women beneficiaries on operation and maintenance of biogas
plants and smokeless chulas. Training of the potters in Kenya and
stove makers in Sri Lanka also go to show the importance of

iii. The model of the Indian Institute of Science, Bangalore, was

replicated in Chalpadi village, Adilabad District of Andhra Pradesh
where electrification took place with the help of honge oil. It was
joy at the jovial account of the children getting extra hours for their
studies, that acted as a motivating factor. The unique feature here
was that it was the women's self-help groups who took the initiative
for such a project. Their savings were used for financing the

12. Non-Governmental Organisations

12.1 Reputed non-government organizations are implementing the programme

of solar photovoltaics for various applications. NGO's like Ramakrishna
Mission, Narendrapur, West Bengal, All India Women's Conference, New
Delhi, The Rajgiri College of Social Science, Kochi, The Social Work and
Research Centre, Tilania, Rajasthan, The World Renewal Spiritual Trust,
Mount Abu and The Ladakh Ecological Development Group etc. are
participating 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 and

organizations like TERI gives some valuable inputs regarding the process
of people's participation The important trends that were noticed are as

i. Lighting is not the most important thing the villagers want. Drinking
water followed by irrigation
125 water occupies the pride of place in the
lives of villagers. It was the success in these
fronts that brought about the desired attitudinal change among the

ii. The schemes at Sugganahalli and Kagganahalli led to a qualitative

improvement in the lives of the villagers. Assured supply of water
enabled cultivation of cucumber and watermelon and collection of
honge oil seeds generated additional employment opportunities.
Installation of water taps at homes removed the drudgery of women
in walking long distances to fetch water and also solved problems
of matrimonial alliance as such drudgery was a major reason for
the people in the neighbouring villages not marrying their daughters
to the youth in these two villages. Men could get honge oil to run
their tractors and did not have to go to Kunigel to buy diesel for
tractors. 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 connected
to the grid the role of the push and pull factors would have to be critically
studied before any scheme of distributed generation is introduced in the
rural areas.

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

i. Both the villages were depended 100% on the new system

because of the unreliability of the grid power which was the push
factor. The factors enumerated above were treated as the pull

ii. When the quality of grid power improved in Sugganahalli on

account of installation of a sub station and transformer near
Sugganahalli the people switched back to grid power for domestic
lighting requirements. The scheme for water supply for irrigation
however continued under the new system despite the improvement
in the quality of grid power.

iii. TERI's experience in Orissa shows that the high rates of failure of
school children in the examinations provoked some villagers who
found that lack of electricity was an important reason for the same.It
was this realization which provoked the villagers to think of
distributed generation scheme.

iv. In a village in Haryana the pollution of river water caused by

industrial effluence provoked the villagers to have their own
schemes for meeting their water requirements

v. As people in many of the electrified villages are very much

dissatisfied with the quality
126 of grid power, such villages should
also be encouraged to go ahead with the
Distributed Generation Schemes. These should also be the
responsibility of the State Governments.

vi. The question whether Distributed Generation Schemes in rural

areas should be on a stand alone basis or interconnected to the
grid, should be decided on the merits of each case. As most of the
villages are connected to the grid, and DG schemes may help the
grid in meeting peak load requirements, it may be advisable to
interconnect them to the grid .Further, as the working hours in the
initial stages may not be adequate, it may be necessary to wheel
the surplus power for third party sales. The type of DG scheme may
be selected by the community itself after getting technical inputs
from 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 distributed
generation within the State.

15.2 The Sunderban Model

15.2.1 The institutional models of Sunderbans is an important model to be

studied. The remote villages and hamlets of the delta suffer on account of
chronic shortage of electricity on account of non availability of grid power.
Kerosene and diesel generator are the alternate fuel sources for lighting
and other requirements of electricity respectively. As it would be very
costly to take grid power to the islands, village level mini grids based on
biomass gasifiers, solar photovoltaics, wind diesel hybrids and tidal power
technologies are used for supplying electricity for domestic and
commercial applications. Solar home lighting systems and portable
lanterns are also used in many households.

15.2.2 The project was set-up by the West Bengal Renewable Energy
Development Agency with the assistance of the Ministry of Non-
Conventional Energy Sources. West Bengal Renewable Energy
Development Agency, which owns all assets associated with the power
plant and guarantees reliable generation and supply of electricity to its
consumers 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 the
Panchayat Samithi is also the Chairman of the Cooperative. Other
members of the cooperative are from West Bengal Renewable Energy
Development Authority and local political bodies.

15.2.5 The total number of members in the cooperative is 12-13. A person from
the cooperative takes the monthly
127 meter reading. The bill is sent by 2
/3 of every month which has to be paid within 10 days at the office of
the 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, the
connection is cut in a month's time and recollection requires payment of
Rs.1000/-. All the revenue goes to West Bengal Renewable Energy
Development Authority.

15.2.6 The tariff for domestic connections is fixed at Rs.3.25 per unit while
commercial tariff is fixed at Rs.3.75 per unit. Tariff for grid electricity for
Kolkata 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 the
equipment, Ankur Limited. The contract has now been given to another
company which is a manufacturer and supplier of the diesel engines in the
plant. The relationship between the village committee, the local enterprise
that operates and maintains the plant and the West Bengal Renewable
Energy Development Authority, in this model is indicated diagrammatically
at Annexure 7.

15.3 TERI’s Model

15.3.1 The Sunderban model is the product of the initiative taken by Central
Government and the Government of West Bengal. Private initiative in this
respect is not wanting as can be seen from TERI's model. TERI acts in
close cooperation with the manufacturers, financial intermediaries and
entrepreneurs and other NGOs. Suitable entrepreneurs are identified to
act as Independent Energy Service Units Network.

15.3.2 The Energy Service Unit facilitates rural credit and guided by the spirit of
service for the people also undertakes tasks such as promoting
awareness, demonstrations etc. The Energy Service Company is a part of
The Energy Service Network and markets the renewable energy
technology devices and provides the back-up services in the form of
spare-parts and repair and maintenance services. The details of this
model may please be seen in Annexure 8. Uttam Urja project of TERI in
Rajasthan is an example of this project.

15.3.3 Another model which is being conceived by Wartsila a NGO in

collaboration with BHEL for a cluster of villages in Madhya Pradesh, by
organizing a village cooperative in Annexure 9.

15.3.4 The models referred to above can be considered for operating Distributed
Generation and Distribution Systems. It is doubtful whether the local
bodies 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 big
stage in the initial stages and thereafter wherever conditions are found to
be suitable full fledged systems can be developed.

15.4 Bangladesh Model 128


15.4.1 As conditions for establishment of totally independent models for local

bodies is not ripe now the model of Bangladesh could also be considered
for adoption. The Rural Electrification Board a semi autonomous body in
Bangladesh is responsible for generation, transmission and distribution of
electricity to the rural areas through the rural electric societies i.e. Palli
Bidyut Samity. Each PBS has a local board constituted by elected area

15.4.2 The Palli Bidyut Samithies have a special division for Member Education
to appraise beneficiaries of the rights and obligations of cooperative
members. The Samithi appoints a Village Advisor for each village. They
hold an honorary post and have to provide information to the people on
operational status and policy of the Samithi, give basic education such as
how to use electricity, and report to the Samithi on village needs and
promote early construction of distribution lines . The General Manager
communicates the customers via Villager Advisers.

15.4.3 The members of the PBS elect a Board of Directors which are a maximum
of 15 members. 3 women nominees are nominated by the Board to
ensure representation of women. The Board of Directors gives policy
instructions to the management and ensures that the management
implements them. The General Manager who is appointed by the Board is
accountable to both the Board of Directors and the Rural Electrification
Board. The Board of Directors cannot remove the General Manager
without the prior approval of the Rural Electrification Board. However,
incase of necessity the Rural Electrification Board can remove the General
Manager without the concurrence of the Board of Directors.

15.4.4 In order to ensure that the system is financially viable, lines are given on
the basis of established criteria and the lines that do not fulfill the revenue
requirements are not included in the programme. The Palli Vidyut Samity
avoid 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 called
Institution Development Team, visits a Thana, a Rural Administrative Unit
and explains the plans of electrification to the representatives of a Union,
a smaller village unit that forms a Thana. The team provides a information
and educates the potential beneficiaries about the importance and
convenience of electricity. The teams obtains the consent of residents
from the Union after its representatives reach an agreement to introduce
electrification. Those who want power have to pay a small sum for the
right to have power supply and obtain membership of the cooperative.
The Institutional Development Team chooses a representative of the
area, who is to be the first Director of the Electrification Cooperative.
The Director should be politically neutral and is forbidden to belong
to any political party. After 3 years of establishment of PBS a new
Director is elected by direct votes by residents in the region.

15.4.6 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 small
load of domestic consumers, the difficulty in reaching remote areas are
some of the constraints being experienced there. Further, the general
approach towards tariff determination is one of a cross subsidy between
industrial and commercial clients and residential or agricultural PBS
members which
has given rise to problems as the growth in industrial load has not been
fast enough to compensate the shortfall in recovery from residential

15.4.7 The Bangladesh model is relevant to India because the National Rural
Electrification Cooperative Association, a central organization of rural
electric cooperatives in the USA was entrusted by US Agency For
International Development to extend technical assistance to the Rural
Electricity Board. Further, the conscious effort made by the government of
Bangladesh to keep the scheme free from all politics is a matter of
significance for India where elected representatives of the people, political
parties etc. have worked to the detriment of dedicated work being done by
the 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 as
94% due to the emphasis placed on promptness in the payment of bills by
the consumers. Despite these positive features the scheme has to face
challenges. The need for capital is also felt as it is a capital intensive
project. The poor consumer mix, the limited revenue per kilometer of line
due to small load of domestic consumer are some of the constrains the
Board is trying to tackle. The pace of progress is slow though the
collection rate is as high as 26%. However, the Bangladesh model has
ensured people's participation in the process of distribution of power right
from the initial stages of development.

15.5 To sum up

i. Village level committees, self-help groups, users associations may

be set up all over the State initially, as the Zilla Parishads, the
Panchayat Samithies and the Village Panchayats are not as of now
capable of implementing Distributed Generation projects. These
may be gradually converted into bodies for generation and
distribution of electricity over a period of time.
In areas where cooperative movement is strong, as in Hukkeri and
Bantwal Taluk or the Rural Electric Cooperative Societies may be
constituted and they may be asked to take over responsibility for
distribution within their respective areas.

iii. Full-fledged models of local generation and distribution can also be

tried wherever it is feasible, either with the effort of government
through the cooperative model as in Sunderbans
in West Bengal or private initiative TERI's in Rajasthan.

iv. Bangladesh model may also be considered for adoption with

suitable modifications, if need be so that it acts as a precursor to
people's participation on a larger scale in future.

v. The rebalancing of the tariff structure must be initiated quickly so as

to make the working of the decentralized generation schemes

vi. Systematic efforts will have to be made to create awareness among

the people on the relevance of Distributed Generation schemes.

vii. The efforts will also have to be made to keep the entire process
free from politics. The depoliticised model of Bangladesh may be
kept in mind.

viii. Very few of the local bodies are likely to reach the final stage, of
local generation and distribution, However, in order to give an
impetus to the new concept, some demonstration projects should
be taken up either by the Government or private agencies to give a
lead to and motivate others into replicating such models .The
demonstration projects should be taken up very carefully after
assessing the potential of a village/cluster of villages for
development, the degree of cohesion among the villagers, the
attitudes of the elected representatives of the people in the area
concerned, and the ability of the Panchayat Raj institutions.
Success of the demonstration projects is a must, as people go
back to the traditional systems with a vengeance, if such nprojects

15.6 A study may be commissioned to evaluate the effectiveness as well as the

shortcomings of the efforts made so far to secure people's participation in
the process by organization like the Administrative Staff College,
Hyderabad or the Institute of Social and Economic Change, Bangalore. It
would be useful to pool the experience gained by NGOs, cooperatives etc.
in distributed generation so that a proper strategy for the future may be
devised. An All India Conference at which all the voluntary groups, NGOs
etc. who have made attempts to enlist people's participation in the Rural
Electrification may be called at which the above mentioned options may
be discussed.


Chapter – 6
Financing Schemes of Distributed Generation

1. Distributed Generation is a new concept in the State and has not been
tried on a large scale as yet. Needless to mention, a clear and well
established l framework for financing D. G. schemes is yet to emerge.

2. There are many barriers to financing DG schemes because of lack of

familiarity with them due to a dearth of already existing projects. The
following are the most important barriers to financing DG schemes.

i. Project Risk - Many DG technologies(wind turbines, fuel cells, micro

turbines and the like) are perceived by the lenders to have high
resource and technology risks, especially risks associated with
transfer of technologies to the rural communities. Most of the
financial institutions in the State have not had sufficient exposure to
DG schemes and, therefore, do not have sufficient experience in
evaluating risks associated with DG schemes. As many DG
technologies are perceived as unproven, it is not easy to get lenders
for financing DG schemes.

ii. Small Project Size - Technological and resource constraints limit the
size of DG projects. Further, transaction costs of small projects are
proportionately high as compared to those of conventional projects.
Since DG schemes are site specific, a lot of time and money has to
be spent with regard to the investigation of the sites. It has also been
observed in some projects that optimum capacity utilization cannot
be attained on account of limited working hours or inadequacy of
demand. Many financial institutions are, therefore, unwilling to invest
in DG schemes.

iii. Uncertainty In Policies - The economics of many DG

projects/enterprises is heavily dependent on government policies
towards interest rates, accelerated depreciation, tax credits etc.
Uncertainty with regard to them affects the economics of DG projects
and adds to the hesitation on the part of the financial institutions to
finance DG schemes.

ix. Cost Of Innovation And Being a Trailblazer - As DG schemes,

especially in the rural areas, these are almost in the nature of
innovations or new experiments which necessitate time consuming
negotiations with all the stake holders which include the local bodies,
protracted interaction with the local communities, manufacturers, the
State Governments, State Electricity Boards etc. Site specific models


have to be evolved by the entrepreneurs to suit local needs and

conditions. The financiers do not give due consideration to the time
and resources that the borrowers are expected to devote to these

3. The Government of India as well as the State Governments have adopted

certain policies and given some incentives to encourage the DG schemes
based on renewable sources of energy. A number of concessions are
given to manufacturers of equipment under import duties and sales tax
and excise duties. The producers who invest their funds in a grid
connected DG systems, are assured a certain price by the State Electricity
Boards/State Governments. The details regarding the concessions are
spelt out in Annexures 10 (a) to 10 ( c). .

4. The institutional frame for financing schemes in the power sector in the
State comprises the Rural Electrification Corporation, the Power
Finance Corporation, the State Finance Corporations and the Indian
Renewable Energy Development Authority(IREDA). An understanding of
the role played by each of these financing agencies is essential to
understand the gaps in the present framework and the manner in which
the same should be made good.

5. The Role Played By The Power Finance Corporation

5.1 The Corporation can finance micro, mini and small hydro generation
projects as well as projects based on non-conventional energy sources.
The emphasis of the corporation, however, has been on financing medium
and large hydro and thermal power projects. This would be clear from the
fact that out of the cumulative sanctions ( as on 31-3-01) worth Rs.30674
crore, Rs.24709 crore were for thermal generation, hydro generation, and
renovation of hydro power projects and transmission. . Renovation and
modernization and life extension of old thermal and hydro plants is a
priority area of financing by the Corporation The Corporation has also
successfully implemented the Accelerated Generation and Supply
Programme of the Government of India during the 9 th Five Year Plan.

5.2 The Corporation has played the role of a catalyst in carrying forward the
structural reforms in the power sector since the early 90's by adopting the
three fold strategy of a proactive engagement with the States by providing
grants/concessional loans for studies required for developing reform
packages, formulation of special packages of incentives for reforming
states including relaxation in conditionalities and exposure limits and grant
of large scale financial assistance to power utilities in the power reforming
states 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% of
the project cost for medium and large hydro generation and thermal
generation in case of Central and State utilities and municipal run bodies,
the corresponding the corresponding
133 limits for private utility companies
being 25 and 20% respectively of the project cost. The terms
and 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 and
State Utilities. After the entry of the private sector in generation of power
the corporation has supported 6307 MW of generation capacity through
various types of thermal plants including coal, gas/naptha, furnace oil and
DG based or hydro plants etc.

5.5 Financial assistance to small scale decentralized power projects has been
a peripheral activity for the Corporation. In a number of projects based on
bio-mass /cogeneration which it took up for consideration between 1995
and 2002, it found that difficulties arose on account non availability of long
term arrangement for fuel as well as non availability of fuel, matters
relating to quality and pricing of fuel, absence of a proper power purchase
agreement, and weak promoters.

5.6 The Committee is of the view that the Corporation should concentrate on
the area of its specialization and upgrade its skills and capabilities to face
the emerging challenges in the power sector.

6. Rural Electrification Corporation:

6.1 The Corporation, premier development financial institution for promoting

anfd f9inancing rural electrification in the State, supplements the
resources of the State Electricity Boards/State Utilities/State Power
Departments by way of loan assistance for their investments in rural
electrification programmes which includes their investment in upgradation
and improvement of their sub-transmission and and distribution system
for supply in rural areas. It has, for this purpose devised specific portfolio
of loan schemes that include financing their investment in installation and
replacement of meters and any other related equipment such as
transformers , conductors , capacitors etc. It was given the status of a mini
ratna category I in October 1997.The budgetary support from the
government has been considerably reduced over the years and from the
year 2002-03, it is totally self reliant without any budgetary support from
the government.. The Corporation has been mobilising resources through
its market borrowing programmes including those through Capital Gains
Exemption Bonds under section 54 EC and Infrastructure Bonds under
section 88 of the Income Tax Act.The Reserve Bank of India agreed to
treat subscriptions to the Corporation's bonds by banks as indirect finance
for agriculture for computation of their priority sector lending. The scope
for utilization of money so raised was extended to include system
improvement programmes These measures enabled the corporation to
raise money from the domestic capital market through issue of priority
sector bonds.

6.2 The tempo of rural electrification which was very high during the 6 th and
7th five year plans during which 2.20 lac villages were electrified, has
come down drastically on account 134 of the reluctance of the State Electricity
Board to take interest bearing loans for electrification of
unelectrified villages and hamlets. The State Governments have been
reluctant to avail themselves even of the assistance of the 100% grant
under the Kutir Jyoti programmes on account of their apprehension of
recurring 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 grants
only partly under the programme in the year 1999-2000. The same
reluctance was noticed even among the North-Eastern states.

6.3 The Rural Electrification Corporation started giving greater emphasis after
the rural network had expanded sufficiently on system improvement to cut
down transmission and distribution losses, increase revenues and
improve the quality of supply of power to the consumers. The Corporation
sanctioned 300 SI schemes for a loan outlay of Rs. 2989 crore in the
year 2001-02 for the purpose to State Electricity Boards/ State Power
Utilities /State Power Departments. This included special category of loan
schemes for procurement and installation of energy meters, replacement
of transformers, capacitors and other equipment to improve the quality
of supply of power and to conserve energy. The response to these
schemes from the borrowing State Electricity Boards/State Power Utilities
has been very good.

6.4 While the steps outlined above are welcome, the Corporation has to do
much more to reorient itself, taking into account the following qualitative
changes that have taken place in the power sector in the last few years
and meet the new challenges..

i. Entry Of The Private Sector ± The corporation had been dealing

mainly with state government and state government entities like the
State Electricity Boards. With the entry of the private sector
companies in the area of distribution and generation especially in
urban and semi-urban areas it has to reorient its approach.

ii. Reorientation Of The Traditional Schemes ± As the need for

improving the quality of power supplied to the consumers is getting
more and more important the corporation will have to allocate
higher allocations for improvements in the distribution systems. In
fact in states where the scope for traditional activities like village
electrification and pump set energisitation is not much today it will
have to release more and more funds for improvement in the rural
distribution system.

iii. Decentralised Generation Of Power ± The concept of distributed

generation has acquired a new dimension and energy in the last 2
to 3 years. The corporation's involvement in such projects has so
far been modest. It hads so far sanctioned 23 small /mini/micro
hydel generation projects of 69 MW capacity. To Stae
Governments/Stae Power Utilities involving a loan outlay of rs. 284
crore. B.esides, it has sanctioned
135 6wind energy projects to private
parties 2 diesel generation projects of 4
MW capacity to JKPDC for supply in Leh and Kargil areas in winter
months when hydro generation is zero. And one gas based project
of 3 MW capacity to Rajastan State Electricity Board.The
Corporation will now have to take a far more important role in such
projects in view of the new challenges that it has to face.

6.5 The Rural Electrification Corporation is thus on the cross roads as the
tempo of traditional activities has slowed down and new programmes are
not yet being taken up on a large scale The Corporation, which has
developed expertise over a period of time and has its network of offices
throughout the State, needs to be utilized for financing Distributed
Generation programmes, especially those based on renewable resources.
The committee considers that this important point should be pursued in
the time bound manner by the government There does not appear to be
any difficulty in doing so as the executive order of the Government of India
which permitted it do take up only schemes below 25 MW and restrict
itself to towns with a population of 1.5 lakh has been withdrawn It can
therefore function like any other power finance corporation .The
redefinition of its role in the changed context needs to be brought out

6.6 Another observation needs to be made about the composition of the

Board of Directors of the Corporation. The Board comprises the CMD,
Director Finance and two joint secretaries from the Ministry of Power. This
composition of the Board may have been relevant to the functions
entrusted to the Corporation so far. In view of the new role envisaged for
it, it is suggested that the Board may have in addition to its existing
members, a representative of the Ministry of Rural Development and the
Ministry 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. India
Renewable Energy Development Authority, which was incorporated as a
Public Limited Company in 1987. Its mission is to be a pioneering and
competitive institution for financing and promoting self sustaining
improvement in energy generation from renewable sources, and energy
efficiency for sustainable development. Rapid commercialization of new
and renewable sources of energy and upgradation of their technologies
are among its important objectives It gives project and equipment finance.
It can also operate through financial intermediaries and business
development associates.

7.2 The authorized share capital of IREDA was Rs.300 crores and its paid up
capital was Rs.250.35 crores as on 31.3.2002. It has mobilized
considerable assistance especially from World Bank/GEF/SDC.

7.3. The terms and conditions of the assistance given by it may please be
seen in Annexure 12 .It gives special
136 concessions for North-Eastern

regions and Sikkim as per the details given in Annexure 13.The targets for
the 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 to
Rs.5285.26 crores against which loans worth Rs.2732.29 crores have
been disbursed. The power generation capacity of the projects assisted
by IREDA is 1892.94 MW. The commissioned capacity under the IREDA
schemes is 904 MW.The sector wise cumulative details of the capacities
sanctioned by IREDA as on 31.3.2002 are given in Annexure 15. It would
be seen there from that out of the total capacity of 1892.94 MW
sanctioned by IREDA 614.54 MW, 428.90 MW, 537.50 MW and 205.11
MW are on account of wind energy, small hydro, cogeneration and
biomass power respectively.

8. IREDA And The Solar Thermal Energy Programme

8.1 The Government of India promoted a subsidy based Solar Thermal

Extension Programme in 1984, which continued up to 1993. The
programme did help in disseminating the solar thermal products in
different parts of the State and developed a manufacturing base as well.

8.2 After the discontinuance of the subsidy based extension schemes a soft
loan programme was introduced under an interest subsidy scheme, which
is implemented through IREDA and public sector banks to promote solar
thermal products. The interest charged under the scheme ranges between
5%to 8%. IREDA provides loans directly and through its financial
intermediaries for deployment of solar thermal products of any capacity
.The banks provide loans for solar water heaters up to a maximum
capacity of 2000 liters per day. Most of the banks and manufacturers
associations have stressed the need to raise the capacity limit to 4000
liters, so that hotels, hostels, canteens etc can avail the facility of the loans
directly 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 SPV
system as per the details given in Annexure 17. IREDA gives soft loans
for installation of SPV systems and power plants.. The subsidy is given by
the government as the cost of generation of Solar PV is Rs.10/- to 12/- per
kWh as compared to that of Rs.1.00 to Rs.2.75 per kW from other
renewable energy sources. The details may please be seen in Annexure

9.2 Recent trends such as improvements in technologies, reduction in custom

duties and expansion in market, have resulted in a decline in price level of
SPV systems. In view of this trend, the government decided to reduce the
subsidy levels for distribution/installation of SPV systems and power

plants during the year 2001-02 except in the North-Eastern region and

9.3 There are at present 20 companies that manufacture PV models.

Samples of solar lanterns of more than 60 manufacturers and suppliers
and samples of solar home lighting system of more than 35 manufacturers
and suppliers were tested and certified for supply under the Government's
SPV programme. The industry is thus quite competitive.

9.4 The programme is implemented by State Renewable Energy Development

Agencies, reputed NGOs and selected Public Sector Undertakings. Some
of the implementing agencies procure the SPV systems through tenders
and organize their installation with the help of their district offices or
through recognized Aditya shops. In contrast, some of the implementing
agencies have adopted the market mechanism, which permits direct
marketing of products by qualified manufacturers under the subsidy
programme, so as to facilitate direct interphase between the users and
manufacturers. The government encourages the use of soft loan facility
offered by IREDA for this purpose.

9.5 There is need for change of strategy adopted by IREDA for implementing
the scheme as costs are coming down on account of various reasons. The
elimination of capital subsidy under the Solar Thermal Programme, after
sufficient dissemination of solar devices, did not hamper either their
growth or popularity.

9.6 As a matter of fact we have a successful example of a company which has

sold SPV's without any capital subsidy in Karnataka viz. SELCO. It has
installed about 10,000 SPV's in the rural areas so far. The success of the
company could be attributed to the contribution, to the extent of more than
70% of its equity, made by a number of green investors from abroad, an
efficient network of service centres set up by it, which ensures that all non
functional systems are made functional within 24 hours, the assistance
given by the Grameen Banks to the company and the decision of the
Government of Karnataka not to extend capital subsidy to the scheme.
The company made keept a substantial amount as deposit in the
Grameen Banks, and used the interest earned from the Grameen Banks
to subsidise the interest rates with the result that the borrower interest @
9.3% per annum on the loans taken from the Grameen Banks.

9.7 The Government of Karnataka have not implemented the scheme of capital
subsidy for the SPV's and hence the company is not facing unequal
competition from subsidized products. It is strongly felt in certain quarters
that the present system of tendering is a major hindrance to the direct
interphase between the users and manufacturers . It is suggested that the
effectiveness of the present capital subsidy schemes which had relevance
some time back in SPV may be reviewed. The scheme may be discontinued
based on the findings of the review and the government may


switch over to an interest subsidy scheme. The subsidy scheme may be

confined to the North-Eastern region and other hilly and inaccessible

9.8 It may be mentioned in this connection that, the Government of Indonesia

have implemented a major scheme for installation of lighting and other
electricity devices to approximately two lac households with assistance
from the World bank and the Global Environmental facility. The
Government provides subsidy to the extent of only one percent and the
rest of the funds are obtained from the commercial banks loans are
provided to the distributors. Similarly, Energi Surya, a private company,
provides household systems for rural households by providing a network
of service centres , which take care of service ,sales and credit. The
company manufactures some key components and apart from the solar
panels which are imported. It follows guarantee clauses for the
components provided by the other suppliers. There is no reason why
market forces cannot be allowed to have a free play in India subject the
conditions mentioned above.

10. Other suggestions regarding IREDA

i The committee is of the view that there is a perceptible gap

between IREDA loan sanctions(Rs.5285.26 crores) and
disbursement Rs.2732.29 crores. It should be ascertained whether
the gap is on account of the procedures and systems in vogue

ii Some of the international agencies has been lending funds to

IREDA with a repayment period of 30 years. The question whether
the benefit of the longer repayment period should be passed on to
the borrowers or not and if so to what extent would have to be

iii. The interest rates charged by IREDA range between 0-14%. In the
regime of falling interest rates a downward revision of the interest
rates charged by IREDA could be considered.

10.1 IREDA should be regarded as a repository of all wisdom and expertise

with regards to renewable energy sources. A new pattern of relationship
between IREDA and the Rural Electrification Corporation would be
necessary in view of what has been stated above.

11. Financing & Technological Issues:

11.1 The decision between grid connection and decentralized generation has to
be made on the basis of technical, managerial and economic issues .The


important ones among them are:-

(a) Distance from existing grid: There is often a cut off point beyond
which grid extension is not viable. The terrain between the grid and
the village must be considered to see if there are difficulties which
can make line extension very difficult. It has been estimated that in
the tribal and the North Eastern region, grid extension beyond three
kilometers is not viable. In such situations stand alone systems are

(b) Load density: If there is a high demand for electricity in a small

area, there would be a strong justification for a grid connection in
that area. Most local communities will require small quantities to be
supplied to dispersed households leading to low load density s
which affects the viability of some of the stand alone power plants.

(c) System losses: Significant power loss in the transmission and

distribution system is the feature of any rural eletrification
programme, especially where lower voltage transmission and
distribution say 11 kVA or 33 kVA are extended over long
distances. There comes a point .at which a decision has to be
made whether a power line should be extended with the risks of
higher system losses or whether a decentralized scheme can better
serve the remote community.

(d) Load Management: Many rural communities use electricity mostly

for lighting in the evening. and so the revenue collected by the
power companies will be very low. Use of the available power for
income generating activity as well as lighting makes grid extension
economically viable. Stand alone systems with the low load factor
will not be economically viable. A community owned stand alone
power system is advantageous as it would enablee to plan
productive end use for the generated power, in a much better
manner. All the issues listed above have to be carefully taken into
account 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 not
be economically viable. Subsidy will have to be given in some form or the
other, especially in the initial stages for electrifying villages in rural areas
and remote and inaccessible areas. The Government of India have
decided to treat electricity as a basic service and released funds under
the Minimum Needs Programme and The Prime Minister's Grameen
Rozgar Yojana. Under these two schemes, the funds are released to the
States in the form of 90% grant and 10% loan for Special Category States
and 30% grant and 70% loan to other States. Rs 175 crore have been

earmarked for the year 2001-2 under the Minimum Needs programme and
Rs. 600 crore for the year 2002-3.

12.2 Under the PMGRY, Rs. 418 crore were earmarked for the year 2001-2
and Rs 2800 crore have been earmarked for the year 2002-3 for all
components of the PMGRY with greater flexibility to the States to allocate the
funds among the various components.

12.3 It is necessary that the amounts given as grant/loan is tilized in the best
possible manner. The Committee would make the following suggestions in
this regard.

i. In the case of decentralized electricity generation, concessions for the

supply of electricity to a particular region may be given by inviting
competitive bids. The contract should be awarded on the basis of
lowest cost to provide a particular level of service. The maximum
amount which the government is prepared to give as subsidy should
be indicated in the notice for inviting tenders and the party that claims
the lowest subsidy should be held eligible for the award of the
contract. However, if the local body such as the village panchayat
participates in the bid, and meets the technical criteria, it may be given
a preference to the extent of 10% of the lowest offer. This is a policy
decision which the Government may like to take to involve local bodies
and communities in rural electrification. Such an approach is adopted
in Argentine.

ii. Adoption of a cluster approach may make the schemes more viable as
it would ensure adequate load for the power that would be generated.
Experience has shown that the low load is responsible for the losses
to be incurred by the schemes. The proposals should be preceded by
a survey of the potential for development of the villages in the cluster
and adequate awareness programmes

iii. The release of subsidy should not be made mechanically but on the
basis of compliance of the terms and conditions of the contract.
Evaluation of the performance by the scheme operator should be the
main basis for release of subsidy.

iv. Where loads are very dispersed, it would be advisable consider

supplying electricity to individual households, rather than installing
community 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 held
eligible for subsidy.

v. The pattern for financing rural energy schemes that involves various
types of funding such as grants subsidies, loans , contributions in kind
by the local population, etc are getting increasingly common and may

be tried in India too. The 25 kW micro hydel plant located in the village
Muktinath was funded by USAID and Intermediate Technology, a loan
from the Agricultural Development Bank of Nepal and a contribution
from the village. The share of grants, loans and the people's
contribution was 52%, 31% and 16% respectively. The government's
budgeted grants may be used for making a contribution of schemes of
this type, subject to some eligibility criteria.

vi. The important principle should be that the recurring costs on account
of maintenance, etc. .should not be a burden on the government. If the
tariff levels are such that the people cannot afford them, the schemes
will run into losses. It is, therefore, suggested that a one time capital
subsidy may be given to schemes of Distributed Generation that fulfill
the desired criteria in the manner outlined above, so that the tariffs are
determined at levels the people can afford. For instance, in a mini grid
comprising a group of villages, the capital expenditure on the
transmission line connecting the villages could be subsidized.

vii. Where Distributed Generation Scheme connects a cluster of villages

through a grid or a mini grid the capital expenditure on account the
transmission lines linking the villages may be subsidized by the

viii. In order to ensure that only energy efficient pumpsets are installed,
subsidy may be routed through the approved manucturers to the
farmers. Such schemes may be given the benefit of subsidy, only if a
group of small and marginal farmers comes forward, forma a
cooperative, and agrees to use the water made available by the solar
pump 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 local
community on account of a Distributed Generation Scheme are evaluated
while appraising it. It is necessary to do so, because the benefit accruing
to a single stakeholder may not justify the project cost, though the totality
of the benefits accruing to the various stakeholders may more than justify
the same. The avoided costs of transmission and distribution losses can
form a part of the evaluation of such schemes for instance. The positive
distributed benefits like increased incomes, removal of drudgery, etc
should also be a part of project evaluation. In the U. S. A,. some
companies have made an effort to determine the financial value of the
benefits of distributed power systems .and shown how the distributed
benefits are substantially exceed the avoided cost resulting from the
installation . Unless the benefits are assigned to the scheme, and then
quantified, the same would appear to be financially unattractive. An
example of the effort made by an American company in the case of a PV
array in California, is given in Annexure 19. .
14. Need For Innovative Financing For DG Schemes:

14.1 The norms for financing schemes will not work for D.G. schemes and the
need for an innovative approach is paramount. The following could be
important 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 a
particular DG project. The donors can supply the initial capital as a
grant, long term loan or equity. In order to obtain maximum results
such assistance should be provided as a match through capital
already invested in the company. Such assistance in the form of
equity would be extremely useful because DG enterprises are
extremely site specific in nature and their success it intimately
linked to factors like site specific, resource information and design
and installation of the systems. Entrepreneurs in India would find it
extremely difficult to initiate the first steps and obtain complimentary
debt financing which is necessary to spread the cost over time.
The question of using the amount provided for in the budget for the
MNP and PMGRY can be used for providing equity in such
schemes may be considered.

i. (a) The return on equity could be in the form of capital and credits for
public goods like reduction in pollution levels. The investment
could also be in the form of redeemable preferred shares that are
sold to the firm or new investors at an agreed time and with an
agreed yield. When the assisted companies mature they will seek
a new equity investment from both active partners and financial

i. (b) Equity can also be used as loan reserves by the financial

institutions and function in a manner similar to guarantee loss
reserves. The capital could be put on deposit with the partner
financial institution in such a fashion so as to meet bank system
reserve requirements. The reserve monies can be leveraged
through the fractional reserve system to leverage financial
institutions, dead financing directed to a target firm.

ii. Debt Co-financing Facility ± The resources are utilized in order

to give loans at below market rates to the DG enterprises. The
interest rate reduction is achieved by blending the donor finances
with the resources of financial institutions which deals to a
blended rate which is below the market rate. In the alternative the
amount given by the donor as debt can be used as a bargaining
point in order to bring down the rate of interest when the financial
institution lends money from their own resources. Such a system
need not distort the credit market as long as the subsidy keeps
the interest rate close to commercial terms.
ii. (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 the
resources of the financial institutions more secure as a means to
stimulate lending by them. This technique is useful where
developers require loans for periods longer than financial
institutions are willing to provide with their own funds. The only
drawback with this method is that it is relatively resource incentive
and its effectiveness would depend on the percentage share of
co-financing from the donor.

iii. Guarantee Facility -Guarantees facility address the credit risk

barriers and can be used appropriately when financial resources
are available in the market but need an incentive to be deployed.
There is always a gap between the perceived credit list as
reflected in the credit underwriting practices and actual lists,
which can be made good by guarantees. There are two types of
guarantees, partial party guarantees and loss reserve. In each
case the donor's funds are utilized as reserves against guarantee
liabilities. Partial guarantees support a financial institution by
sharing the credit risk of a DG loan made by the financial
institution with its own resources. The amount of the guarantee
will have to be precisely defined and a expressed as a percentage
of the Financial Institutions remaining balance at past due interest
at the time of due loss or default. When a default occurs the
payment the guarantee claim would be made to the financial
institution for the agreed portion of the loss. When the arrears are
recovered, they would be distributed in the same proportion as
the loss was distributed.

iii. (a) Donor funds can also be used to create loss reserves at the
project or financial institutional level. The level of the loss reserve
could be determined in terms of a percentage of overall portfolio
of the value which is generally between 5-20%. The loss
reserves should be sized at or even slightly greater reasonable
worst case scenario of the default rate estimated for the portfolio.
The loss reserves could be jointly funded by a donor and partner
financial institution. The loss reserve works best when a portfolio
consists of a large number of smaller loan transactions where a
statistical approach can be given to the credit structure of the
portfolio as a whole. Loan loss reserves achieve the highest level
of leverage and often be contributed by the manufacturer or the
financial institutions or even the donor.

15. The Committee is of the view that the special dispensation proposed with
regard to equity contribution, debt co-financing and guarantees should be
confined to projects of the size of between 1 MW and 5 MW.
Entrepreneurs who go in for projects above 5 MW do possess some
financial strength and have enough schemes to which support them
financially. 144
Financial intermediaries can also play an important in innovative
financing. The Infrastructure Development Finance Corporation and the
Infrastructure Lease Finance Corporation can be requested to assist in the
development in the new an innovative models.

17. A major handicap which the committee faces was on account of lack of
necessary data regarding the functioning of mini-hydel biomass/gas
projects and SPV projects. The Ministry of Non-conventional Energy
Sources and IREDA were enable to give the full picture regarding the
details of the physical and financial performance of the projects managed
by them. The committee is therefore unable to make detailed and more
specific suggestions about the financing mechanism based on actual
performance of the relevant projects. It is suggested that a detailed
evaluation of the projects of mini hydel, wind energy, biomass, biogas,
SPV models which have already been commissioned. In the light of the
actual experience gained new models may be developed. A task force
comprising of the representative of Ministries of Power and Non-
Conventional Energy Sources, IREDA, REC, ICICI and IDFS and ILFC be
constituted to make detailed recommendations on innovative financing.

18. Tax Incentives And Import Duty Concessions - A system of import

duty concessions and tax concession may have to be devised for making
DG schemes viable. The following could be the important components of
a suitable tax package.

i. Depreciation - If entrepreneurs are allowed to accelerate the

depreciation of rural electricity equipment they get relief under the
upfront cost which they have to incur in the schemes of rural
electrification. High depreciation rates are an investment
incentives. In India the benefit of 100% depreciation was misused
by the parties that borrowed funds for setting up wind energy
projects. These were mostly corporate entities which were more
interested in augmenting their projects rather than implementing
their projects. However, the technology with regard to wind storm
projects has improved over the years and monitoring has also been
tighter. The question whether benefit of depreciation should be
restored or not would have to be restored in the light of this
background. The committee is of the view the government may
take such decisions as it deems appropriate in the matter.
However a reasonable ate which is sufficiently attractive will have
to be retained.

ii. Tax Holidays- Tax holidays on income generated by rural

electrification schemes are used world wide as an investment
incentive offset capital intensive nature of Rural Electrification
schemes. Such instruments can also be used where rural
entrepreneurs install rural energy supply schemes.

iii. Favourable taxing structures can be evolved
for rural electrification schemes after taking into account that
electricity generation from these schemes has lower environmental
impact than generation from fossil fuels.

19 Assistance to the individual customers in financing the initial cost of

connection can also be part of innovative financing. This can be
done either through provision of specific subsidies or through
support for credit schemes. In South Africa, where consumers in
rural areas were given the choice of either paying for the
connections themselves and then paying the normal tariff or having
a free connection and paying a higher tariff, the majority chose the
higher tariff. The use of load limiting devices, prefabricated wiring
systems and prepayment meters can also be thought of as part of
an innovative package as these may help the persons belonging to
rural 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 rural
communities and their education have got to be tackled with tact
and imagination to ensure smooth induction of systemic changes
This is indeed a venture into new and uncharted waters. The
approach has, therefore , got to be innovative and the process
of trial and error has to be necessarily gone through. The
proposed scheme has a vital role to play in the economic
development of the State. It is therefore, suggested that the
entire exercise including that of demonstration projects be
given the status of a Technology Mission. This would ensure
that the scheme gets the priority it deserves in the national
agenda for economic growth and reform


Chapter – 7
Regulatory Issues

1. The Electricity Regulatory Commissions have started functioning both at

the central and the state levels and are exercising their regulatory powers,
which include, inter area, important issues such as tariff determination and
interconnectivity. As has been already emphasized Distributed
Generation Schemes are perceived as a risky propositions by Financial
Institutions. Since these are mostly in the initial stages the regulatory
framework 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 regulators

with regard to such schemes. The Government of India have therefore
initiated a dialogue the Central Electricity Regulatory Commission and the
concerned State Electricity Regulatory Commissions to evolve uniform
policies 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 location

specific in nature cannot be subjected to rigid and uniform rules
atleast till such time as we gain sufficient experience with regard to
them. The rigidity of uniform may dampen the spirit of enterprise and
innovation on the part of the entrepreneurs concerned. The
committee therefore suggests that such projects should not be
subjected to the discipline of the regulators in the initial phase i.e.
next two to three years. DG schemes are also not going to be
implemented on a very large scale in the next 2 to 3 years as a
number of constraints have to be overcome. Only a few projects are
likely to commence on a trial basis in the light of the dialogue which
the government may initiate with the NGOs in view of its recent thrust
on DG schemes. The committee therefore feels that there need be
no difficulty in agreeing to the suggestion.

ii An important point while determining the tariff should be the

comparison between the tariff of the DG schemes and the tariff of the
grid power at the specific location. In other words the cost of
transmission and distribution losses in the grid system at the specific
location will have to be taken into account while drawing the
comparison. Secondly, allowance will have to be made for the fact
that the plant load factor of a DG system would be much lower
especially in the initial stages as compared to that of a central power
station which is already stabilized. It will have to be assumed that the
plant load factor of a DG system will increase over a period of time
and the economics of the DG schemes will have to be based on such
an assumption.

iii Include an assured price for buy back power generated by biomass
projects and wind power projects by the State Electricity Boards.
The details are given in Annexure 20. It would be seen from the
Annexures that the buy back prices range between Rs.2.25 per unit
with escalation at 5% for a period of 5 years in the case of biomass
projects. In the case of wind power projects the buy back price
ranges between Rs.2.25/kwh and Rs.2.89/kwh at 5% escalation. In
the states of Madhya Pradesh and Tamil Nadu no escalation is
allowed and in the state of West Bengal it is allowed on a case to
case basis.

The incentive no doubt acted as a catalyst and helped in the

installation of a number of biomass based and wind based projects.
Some of the State Electricity Boards are now complaining that the
buy back prices have reached unreasonably high levels and
eroding the profitability. While it will not be correct to attribute the
losses incurred by the State Electricity Boards entirely to the buy
back prices as the energy bought from such projects constitutes
only a small percentage of the turn over of respective grid systems,
the matter no doubt needs to be reviewed. While the escalation
clause may be retained for the present its implications over a period
of time would have to be examined, the committee would suggest
that the escalation clause may be reviewed at the end of every
three years. A distinction will have to be made between fuel based
and biomass based DG schemes while the matter is examined.

iv. An important risk to be borne by the DG systems rises on account

of uncertainty of demand which is detrimental to scale economies.
If the local demand does not pick up the surplus power will have to
be wheeled into the system for sales to third parties. Third party
sales are allowed only in the states of Maharashtra, Haryana and
Rajasthan for biomass projects and Karnataka, Maharashtra in the
case of wind power projects. It is necessary that third party sales
are permitted especially in the case of DG schemes such measures
would ensure that genuine competition emerges in the power
sector. The third party sales the committee recommends should be
permitted liberally as true competition can be introduced only then.

i. It is noticed that the wheeling charges which were as low as 2% in

some states initially are being revised upwards(to even 28% in
some cases) and that to with the approval of the State Electricity
Regulatory Commissions. The committee recommends that the
wheeling charges should be related to reasonable levels of
transmission and distribution losses of the State Electricity Boards.
This would ensure that State Electricity Boards do not mechanically
ask for wheeling charges which are higher than necessary and also
made responsible for controlling transmission and distribution
losses. In any case it should be ensured that the State Electricity
Boards do not suffer a financial
148 loss on account of the policy

directives given by the state government in such matters by the

State Electricity Boards.

3. It is most important that the question of interconnectivity between the state

grids 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 been
a major obstacle all the world over for the development of the DG

4. Some of the Regulatory Commissions have tried to achieve demand

management through tariffs by announcing concessions in tariffs to
consumers to switch over to solar systems and devices. The State
Electricity Boards of Rajasthan and Karnataka have done so.

5. As the entrepreneurs that operate the DG schemes are extremely

venerable to discriminatory behaviour by the incumbent operators in
connecting to the transmission and distribution grid the Central Electricity
Regulatory Commission would have to establish technical interconnection
rules so that DG schemes can be implemented before resolving the
broader competition issues that arise on account of their implementation.
Considering the overall benefits that accrue to the economy on account of
DG schemes, it is imperative that the terms and conditions for the
interconnectivity are finalized with the utmost expedition and DG schemes
are allowed to commence their operations without a final resolution of all
competition issues. This in fact was the approach adopted by the Federal
Trade Commission before the Public Utilities Commission of the State of

5. While the regulatory issues need to be resolved the National Policy on

DG schemes based on the Renewable Energy Sources needs to be
urgently spelt out as the regulators are bound by the policy directives
given by the appropriate government. The Government of Rajasthan are
reported to have issued a policy directive to the State Electricity
Regulatory Commission to regulate power purchase in such a manner
that procurement of power from non-conventional sources reaches a
level equivalent to 10% by 2010. The articulation of a clear policy in the
matter in terms of Clauses 4 and 5 of the Electricity Bill 2001 at the
National Level will a long way in giving a legal and conceptual framework
within which the regulators can exercise their powers.

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 in
is one of various renewable energy activities of IDCOL. IDCOL provided concessionary loans
and grants, sourced from IDA and Global Environmental Facility to this project. The plant uses locally
available agricultural residues i.e. rice husk as fuel for power generation. The project started commercial
operation in October 2012.

Rice Husk fired 250 kW Gasifier power plant

The project started commercial operation in

October 2012.

1. Gasifier
Parameter Description
Gasifier Type Downdraft
Capacity Total 250 kW
Rated Gas Flow 625 Nm3/hr (up to total 250 kW capacity)
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 400oC
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 2-10.62%, CO -13.61%,
2 CH - 4Up to
4%, N2-52.62%

2. Gas purification unit

Following gas purification stages and filter element have been used in each stage of this rice husk based
power 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 Engine

A 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 lower
heating value and needs to be supplemented by diesel to get the necessary power output. That’s why the IC
engine has been converted into duel fuel mode, i.e. it can run both on producer gas and diesel. Here, the
Producer gas to diesel ratio is. 70:30. During start up of the plant, main generator is started first on diesel
and then changed over to duel fuel mode when the producer gas is available for charging to the engine.

4. Power distribution Network

A mini grid has been constructed to sell the power to the adjacent area. The plant is able to deliver power to
at least 200 households and over 100 commercial entities of that area.

5. Environmental impact
Generally 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 the
gasifier contains 10 to 15% carbon by weight. The ash-laden water can be used as organic fertilizer or land
filling purpose. The plant has on site storage facility for ash. Char can be transformed into charcoal which
is used as a domestic fuel for cooking and heating. Tar can be either recycled or burnt in the gasifier or
used as black paint for the wooden materials like boat, wooden structures and construction of roads. The
plant has onsite storage facility to deposit waste water which needs to be changed in every three month.

6. Project Cost
Total cost of the project was around Tk. 2.5 crore. Financed by grant from World Bank (60%), IDCOL –
20% and DPPL 20%.

Biomass Technologies – Biomass Briquetting Technology

Improved Biomass Briquetting System (Moral, 2000).