India has tremendous potential for producing energy from municipal solid waste (MSW) and the residue obtained from agriculture, and the processing and cement industries. According to industry estimates, the country produces over 150,000 tonnes per day (tpd) of smart waste, which has the potential to generate over 1,100 MW of power. The potential is growing by the day as the quantum of waste generated is increasing. However, the installed capacity of waste-to-energy (WtE) projects based on MSW is only 114.08 MW across five plants, which were set up with assistance from the Ministry of New and Renewable Energy (MNRE). Of these, only three are operational, all in Delhi. For the longest time, the sector has remained deprived of the necessary support with respect to regulatory clarity on performance parameters and costs, among others.
However, the scenario is changing. The Ministry of Urban Development (MoUD) has been receiving a number of proposals from the states with a potential to generate about 415 MW of power from waste. New WtE capacities are coming up in places like Nalgonda district and Hyderabad in Telangana, Bawana and Kidwai Nagar in Delhi, Jabalpur and Indore in Madhya Pradesh, Pune and Kolhapur in Maharashtra, Pallavaram in Chennai, Allahabad and Agra in Uttar Pradesh, and Bathinda and Jalandhar in Punjab. Hyderabad, Pune, Indore and Rajkot have also floated tenders for new projects, which are to be completed in 2018.
With the revival in project allocation activity, a number of domestic and international firms looking for guaranteed returns from micro-power plants have set their sights on projects to generate power from municipal refuse.
The trend reversal in a segment that had been deemed a failure for the longest time has been led by the strong policy push by the MoUD, the Ministry of Power (MoP) and the MNRE, supported by a conducive regulatory environment.
A noteworthy step by the government was propelling sanitation to the top of the policy agenda under the flagship Swachh Bharat Mission. Under the mission, MSW management (MSWM) is an important admissible component comprising primary waste collection, secondary storage, transportation, processing and final disposal in engineered landfills. According to the Clean India Dashboard set up under the programme, out of 82,607 wards, 51,734 now have 100 per cent door-to-door waste collection, up from 33,278 in November 2015. Further, the Swachchata Sarvekshyan initiative under the mission has triggered mass awareness in solid waste management (SWM). Smart cities like Jabalpur have already deployed large-scale WtE projects to process MSW.
The Swachh Bharat Mission is complemented well by the Smart Cities Mission, which lays major emphasis on waste management and treatment.
In yet another important development, the government revised the MSW rule in 2016. As per the revised MSW Rules 2016, the waste generated should be processed and only un-usable waste should go to landfills.
The central government’s recently revised tariff policy mandating power distributors to buy all their electricity from WtE plants in a state. Moreover, the remunerative tariffs set for by the Central Electricity Regulatory Commission (CERC) has helped increase investor interest in this segment. The CERC has set a tariff of Rs 7.90 per kWh for electricity sold by WtE plants, compared to about Rs 2.50 per kWh applicable for many thermal power plants. The tariff policy has mandated distribution utilities to purchase power from WtE projects. This has done away with developer concerns regarding lack of power offtake from their plants by discoms, which have several cheaper options such as from coal and gas-based power to solar and wind power.
The MNRE has also made an exception for WtE projects in its recently released guidelines for competitive bidding-based allocation for renewable energy projects. WtE projects have been kept outside the purview of these norms, given that each WtE project is unique in terms of its scope, timeline, waste characterisation, technology, etc. Hence, one tariff cannot suit all projects. These projects are yet to prove their commercial viability and the technology is yet to mature. Thus, keeping them out of the competitive bidding regime prescribed for the other renewable energy sources is a step in the right direction.
Greater attention to the waste management sector was also given in the deliberations of the Finance Commission of India, as the Twelfth Finance Commission directed that 50 per cent of the $167 million annual grant-in-aid for urban local bodies (ULBs) be allocated for the development of SWM schemes through public-private partnerships. The provision of funds for the SWM sector has been increased by the finance commissions in the last three terms. The Twelfth Finance Commission provided $416.7 million, while the Thirteenth Finance Commission has provided $1,550 million. Apart from these, relief in income tax has been provided for waste management agencies and tax-free municipal bonds have been permitted by the government.
The recently notified goods and services tax (GST) rates have also brought cheer to the WtE segment. While GST is defined at 5 per cent for key equipment for WtE projects, services provided for waste management are exempt from the tax. All these initiatives augur well for the development of WtE projects in India.
The developed economies of the world generate 1-2.5 kg MSW per capita per day. However, the major cities in India generate only one-fourth of it. The United Nations has estimated a 250 per cent rise in the per capita generation of MSW in Indian cities over the next 15 years. Industrialisation, urbanisation and lifestyle changes would add 100 million tonnes of MSW annually. Based on a conservative assumption that the volume of uncollected waste does not increase from the present level and about 95 per cent of the collected waste is processed, the WtE segment will witness a phenomenal 16 per cent compound annual growth rate over the next 15 years.
However, despite the potential and ongoing initiatives, there are a number of challenges plaguing the development of WtE projects. Not surprisingly, most of these challenges relate to the generation, collection, segregation, treatment and disposal of waste.
According to industry estimates, of the total MSW generated, only 28 per cent is collected and less than 19 per cent is treated through mitigation options like composting or vermi-composting or setting up WtE plants. According to the World Bank, India’s daily waste generation will reach 377,000 tonnes by 2025. Blame urbanisation and industrialisation, but the consequences of India’s megacities producing tonnes of waste are tangible and troubling.
As per the 2011 Census, 31.16 per cent of the population (377 million people) of India live in 4,041 municipal areas. It is estimated that by 2050, 50 per cent of the population will be living in urban areas and the volume of waste generation will grow by 5 per cent per year. Accordingly, the expected quantity of waste for 2021, 2031 and 2050 is 101 million metric tonnes per year, 164 million metric tonnes, and 436 million metric tonnes per year respectively. This will require significant land area to be put under landfilling. If the present waste management scenario is considered, where most of the waste is dumped without treatment, the country is actually looking at an estimated 100 square km of precious land being brought under waste disposal through landfilling, which will eventually render the land unfit for any other use for as long as half a century before it can be stabilised for other uses.
Besides, there are issues pertaining to technology maturity and application, tariff determination, policy gaps, business models and financing, which along with the action being taken and suggestions for further improvement are as follows:
Policy and regulatory gaps
The policy framework does not have the necessary clauses for effective implementation of the Swachh Bharat Mission, like financial implications for non-compliance of the rules by a ULB. Such clauses are also missing from the MSWM Rules, 2016. However, the recent updates are encouraging, with clauses to support the sale of compost and refuse-derived fuel (RDF), and purchase of power from WtE plants. The MSWM Rules, 2016 provide clear guidance on the biological treatment of waste using technologies like composting; however, they fail to provide a clear course of action on some of the latest technologies such as pyrolysis, gasification, and waste-to-fuel oil. Directives relating to the implementation of mass burning or incineration are also limited. Challenges in terms of collection of revenue including user charges are also faced as several ULBs do not have by-laws to execute them.
While the CERC’s tariff guidelines entail project-specific tariffs for WtE plants, the regulatory process for determining project-specific tariffs is time-consuming and cumbersome. For electricity regulators, WtE is a completely new aspect. At times, they assume project parameters without studying the operating metrics and determine unviable generic tariffs.
Moreover, there is limited long-term tariff visibility. Currently, regulators don’t notify tariffs for more than a three-year period, which makes it difficult to assess project returns. In most cases, there are negotiations even after determining the tariff. Some states only define provisional tariffs stating that the final tariff will be determined after the project is commissioned. Banks usually do not fund such projects, thereby making financial closure almost impossible.
Business models and economic viability
WtE projects can be set up through various modes but so far, not a single viable option has emerged. These projects are awarded under the design, build, finance, operate and transfer model at times, with an inappropriate scope of work. For example, the scope of closure of sanitary landfill sites demands capex and opex beyond the useful life of the asset, which is very difficult to finance and operate in the absence of revenues. Several projects are contracted with either nil tipping fees (the charge a ULB pays to the project developer for processing MSW) or royalty fees. (If tipping fees are in the negative, they are termed as royalty fees. The local authority earns it for supplying MSW.) This is in complete contrast to the “polluter pays” philosophy. The Gujarat government has asked its ULBs to waive off royalties to make electricity tariffs cheaper, but ULBs are not willing to let it go. Such administrative gaps severely delay WtE projects.
A number of new business models are emerging. One option being considered by some states is that the entire revenue from the project goes to the discoms. In this case, there is no tipping fee, no user charge and no viability gap funding. It is like Case-I bidding wherein the developer has to plan and arrange everything. While this works well for coal-based projects, it might not work well in the case of WtE projects. Another option is that the revenue be shared by the ULB and the discom. This is the most prevalent mode wherein there are no user charges.
This model has been adopted by cities like Nagpur. Gurugram is following another model wherein it has a user fee and user charges to be collected by the developer, but no tipping fee. A new model being considered is self-funded engineering, procurement and construction (EPC) by ULBs. It is like an EPC contract wherein the contractor gets the technical solution implemented and is paid for project performance. On the same lines, some ULBs are also considering opting for an EPC model funded by a third party. However, a successful combination is yet to be seen.
ULBs should structure a WtE project taking into consideration the risk allocation for various stakeholders and operational-financial efficiencies. Industry experts believe that for collection (primary and secondary transport) of MSW, the build, own and operate model with annual tipping fees would optimise capex and opex while developing a supply chain for segregated MSW. For setting up transfer stations, the build, operate and transfer model funded by the government will reduce financing costs, and for MSW processing, the design, build, finance and operate model with electricity tariff as revenues would address operational risks.
Assessments of MSW characteristics and quantity forecasts are key parameters to be considered at the planning stage. However, this usually does not happen. In most cases, the quantity mentioned in the detailed project report (DPR) issued by a ULB varies beyond 50 per cent and the gross calorific value varies from 800 kCal to 2,200 kCal per kg. This has made it difficult to design an efficient treatment facility. Further, in most cases, construction debris in MSW is found to be at a worrisome level. It requires a great deal of mechanical or manual separation, which alters the project economics by a significant level. Preparation of DPRs should, therefore, be taken more seriously.
All these challenges have made investors wary of funding WtE projects. It needs to be acknowledged that most of the value creation in wind or solar projects occurs during the construction phase by optimising capex, and with speedy development. The operating risks and expenses for these projects are low and they can be re-financed during their operating life to further enhance value for investors. However, WtE projects are completely different. Unless the project structuring and tariff visibility issues are resolved, financing will remain a challenge.
The way forward
As the economy grows faster and further, the country will face an insurmountable waste crisis unless the government puts waste management on high priority.
The municipal authorities will have a key role to play. Currently, the civic bodies are under-resourced, underpowered and subject to political manipulations. Municipalities would need to be supported by skilled staff and appropriate technology so as to ensure that local recycling and composting systems work. The experience and expertise of waste workers needs to be drawn on. Failure lies in attempts to apply single technical and organisational solutions that are supposed to work everywhere. Thus, innovative and localised business models and technologies need to be devised for different cities.
The aforementioned initiatives by policymakers and efforts on the part of the industry in technology adaptation will go a long way in setting the waste management trajectory on the right path. A number of new developments are also on the radar, which, if implemented, will make the WtE segment more promising for various stakeholders. Key among these is NITI Aayog, which is planning to set up a WtE authority, called Waste-to-Energy Corporation of India (WECI). If this comes up, it may ease problems pertaining to clearances, departmental coordination, etc.
The MNRE is also promoting this segment actively. It has decided to continue the WtE programme with higher central financial assistance (CFA). Earlier, it was providing about Rs 20 million per MW of CFA, equivalent to the generation of 2,000 cubic metres of biogas per day. The CFA level is likely to be revised soon.
Other positive moves by the government include co-marketing of compost by fertiliser companies, using water from sewage treatment plants for coal-based projects in the plant’s periphery, and consuming RDF by industries located near WtE projects.
However, a comprehensive yet creative policy mix for effective waste management will not be possible without political will and strong public demand for cleaner, healthier living environments.
As far as the WtE segment is concerned, if the issues faced during the initial cycle of waste management – collection, segregation and treatment – are sorted, energy generation from waste will become viable. The revival of interest in WtE projects has the potential to change the size and scale of this segment, considering that 10 GW of generation capacity, out of the 175 GW by 2022 renewable energy target, is to come from bio-power.