Despite the slow growth in the waste-to-energy (WtE) segment, there has been an overall increase in the grid-interactive as well as the off-grid WtE capacities in the country. In fact, the capacity addition (16 MW) of grid-interactive power in 2017-18 exceeded the 10 MW target for the year. As of February 2018, the grid-connected MSW-based and the industrial waste-to-power installed capacity stands was about 170 MW, which is far behind the 10 GW by 2022 target. The quantum of waste generated in India has been one of the biggest drivers for the development of this segment. The World Bank has estimated that India’s daily waste generation is expected to reach 377,000 tonnes by 2025, thereby offering a huge potential for conversion of waste into energy. Renewable Watch takes a look at the WtE segment in the country, and discusses the learnings from the projects developed so far…
The WtE segment is diverse in terms of the technologies available as these depend upon on the nature of the waste. The following are some of the WtE sub-segments:
- MSW-based power projects: These projects require MSW to be segregated into refuse-derived fuel (RDF). As of April 2018, there were only eight MSW-based power plants in the country, aggregating a capacity of 98.65 MW. These plants are spread across five states, with Delhi accounting for the highest share of capacity as well as the highest number of plants.
- Industrial waste-based power projects: Industrial waste is a broad term that encompasses rejects from a factory, industry or any manufacturing process. As per the estimates of the Central Pollution Control Board, India’s industries generate around 7.46 million metric tonnes of hazardous waste annually, which offers a big opportunity for the development of WtE plants in the country. As of February 2018, there are about 18 grid-connected, industrial waste-based power plants distributed across six states and aggregating a capacity of 71.8 MW. Andhra Pradesh accounted for the highest share in terms of installed capacity and the number of plants, while Karnataka ranked the lowest with a single plant of 1 MW of capacity. The key industries that generate waste and can benefit from such plants are starch, distilleries, oil, paper, dairy and pharmaceuticals.
- Biogas projects: Tamil Nadu has the largest installed capacity of biogas projects in the country, generating about 142,920 m3 of biogas per day. States like Andhra Pradesh, Maharashtra and Uttarakhand also have a significant capacity of biogas installations, totalling over 35 per cent, while Uttar Pradesh and Punjab offer a large untapped potential for the development of this resource. According to the Ministry of New and Renewable Energy, India has a potential to set up 12 million family-type biogas plants based on the estimated availability of cattle dung in the country. To this end, under the National Biogas and Manure Management Programme, 2014, about 4.96 million biogas plants have already been installed (as of March 2018).
- Bio-CNG: With methane content of over 92 per cent, bio-CNG is a cleaner alternative to fuels such as petrol and diesel and caters to an array of segments, which can broadly be classified as commercial, industrial, and automotive. As per Renewable Watch Research, there are 17 bio-CNG plants in the country, aggregating a capacity of 46,178 kg per day. Distillery, sugar and starch industries are the leading consumers of biogas in India, sourcing about 75 per cent of their energy needs from it. Industries such as milk processing, pulp and paper, and slaughterhouses also constitute a potential market base. In the near future, the growth of bio-CNG is expected to be driven by the Galvanising Organic Bio-Agro Resources Dhan (GOBAR-DHAN) scheme, which aims at conversion of cattle dung and solid farm waste into compost, fertiliser, biogas and bio-CNG.
The segment is now focusing on overcoming its challenges and drawbacks through the introduction of new schemes and regulations aimed at promoting waste management and energy generation. Initiatives such as the Swachh Bharat Mission and Smart Cities Mission have served as pivots to revamp interest in the sector by offering grants and raising awareness towards creating healthy competition between districts for better management of waste. This has, in turn, increased the number of new WtE projects significantly.
The Solid Waste Management (SWM) Rules released in 2016 have defined roles, responsibilities and duties of all the stakeholders in the urban and rural waste management segments. Further, the time frames for implementing these rules as well as the environmental emission norms have been decided. Other key initiatives include the National Tariff Policy, 2016, that mandates 100 per cent procurement of power from WtE projects for all discoms. In addition, the GST Council has set a low rate schedule of 5 per cent for WtE plants and equipment. Meanwhile, NITI Aayog, in its Three Year Action Agenda, 2017-18 to 2019-20, has suggested setting up the Waste to Energy Corporation of India (WECI). WECI’s function will be to set up WtE plants in public-private-partnership mode to clean up MSW.
For financing waste-based projects, the government provides subsidies and capital grants to developers under various programmes and schemes. To this end, the Ministry of Housing and Urban Affairs offers a 35 per cent grant/viability gap funding for developing municipal solid and waste management projects, including waste collection, segregation, transportation, disposal and energy recovery. These comprise projects based on municipal solid waste, industrial waste and the installation of biomass co-generation projects.
Non-banking financial institutions also play a vital role in providing investments for projects in the WtE segment. The Indian Renewable Energy Development Agency (IREDA) provides a financial assistance of up to 50 per cent of the total project cost at an interest rate of 10.10-11.25 per cent, with a repayment period of approximately 15 years and a moratorium of one year. Moreover, IREDA permits a reduction of 0.15-0.25 per cent in the interest rate based on project grading.
For MSW-based power projects, the average tariff set by the central electricity regulatory commission (CERC) is around Rs 7.04 per kWh and for biogas-based generation, it is Rs 7.6 per kWh. According to an analysis by Renewable Watch Research, of all WtE technologies, biomass-based plants have the highest internal rates of return (IRRs) of 17-27 per cent owing to low capital costs and moderate tariffs. On the other hand, MSW-based projects have a relatively low IRR of around 9 per cent due to high capital costs. However, these projects are financially viable and can obtain central financial assistance from the government to enhance their returns. According to the Climate Policy Initiative, about $3.3 billion is required to meet the country’s 2022 WtE targets. Thus, there is a strong need to modify the existing project development and operation structure to enhance investor interest.
WtE projects are unique in terms of their scope, timeline, waste, characterisation, technology, etc. Therefore, one tariff cannot be applicable to all projects of various technologies. Since these projects are yet to prove their commercial viability, keeping them out of the ambit of the competitive bidding regime so far has been a step in the right direction. On the flip side, the WtE technology in India is mature, and competitive bidding can lead to a number of benefits for the WtE sector. It is likely to result in lower tariffs, which will encourage discoms to offtake the power generated from these plants, thereby preventing curtailment. Moreover, increased competition will cause project developers and operators to focus more on increasing efficiencies to control cost and maximise returns. Further, it may lead to the development of new and innovative business models, targeting the existing pain points in the market such as high costs of waste collection, segregation and processing. Since all WtE projects are different in some respect, a separate auction needs to be conducted for individual projects, on a case-to-case basis with relevant parameters and guidelines, so that appropriate tariffs specific to the technology can be set.
Several business models are also emerging in the country for the development of WtE plants. The fixed costs plus operations and maintenance (O&M) model is based on the tonnage of waste processed. Under this, a WtE plant is set up by a private developer (usually selected through competitive bidding) and the O&M costs of the plant are borne by the local body. On the other hand, the royalty model is based on public-private-partnership and essentially functions on the concept of a royalty fee. In this, a major part of the investment is borne by the municipal corporation while the plant is operated and maintained by the private player. In return, the private player has to pay a royalty fee to the corporation which may either be fixed or vary with revenue collection. Another new business model known as the product sales model, bases its cost recovery on the sale of plant products such as compost, bio- CNG, biogas, RDF, gas, and steam.
Key risks and concerns
While the biggest challenges for WtE projects pertain to generation, collection, segregation, treatment and disposal of waste, there are several other issues plaguing the segment as well. Key challenges restricting sector growth include high capital and upfront costs, unviable generic tariffs, uncertainty in plant performance, lack of long-term contracts, and inconsistent calorific value. Meanwhile, lack of awareness has continued to plague the segment. WtE power plants face considerable opposition from residents of localities near the proposed sites. A model example is yet to be set by urban local bodies where the plants function at full capacity and waste is processed simultaneously. Most residents are bothered by the stench of municipal waste left untreated for days and the emissions caused due to incineration. Many a times, this leads to petitions in courts by resident welfare associations against municipal corporations, resulting in project delays. The recent backlash from residents of Sector 121, Noida, Uttar Pradesh, against the upcoming WtE plant planned in their vicinity is a prime example of this. A major barrier to the financing of WtE projects is the issue of marketing the end product such as power, biogas or bio-CNG. These projects suffer from poor fund flow in the initial years due to a challenging market as well as existing competition for products and co-products. This impacts cost recovery and subsequently, project profitability.
As the Indian economy grows, the country will face an insurmountable waste crisis unless the government puts waste management on high priority. The government will have to analyse the entire value chain of WtE projects to overcome the current challenges. Initiatives such as waste segregation at the source, greater stakeholder participation, improved policy and regulatory measures, empowering urban local bodies and resident welfare associations, improving flow of finance into projects, as well as promoting sale of rejects such as manure to improve returns, will go a long way in advancing the segment.
A comprehensive yet creative policy mix for effective waste management and energy generation is required, which will not be possible without political will and strong public demand for cleaner, healthier living environments.