davangere sugar company ltd share price Management discussions

4 Indonesia, Malaysia, Philippines, Singapore, Thailand.

5 Simple average of prices of UK Brent, Dubai Fateh, and West Texas Intermediate crude oil. The average price of oil in US dollars a barrel was $96.36 in 2022; the assumed price, based on futures markets, is $73.13 in 2023 and $68.90 in 2024.

Commodity Market Developments:

Energy prices waver. Crude oil prices retreated by 15.7 percent between August 2022 and February 2023 as the slowing global economy weakened demand. China experienced its first annual decline in oil consumption this century amid repeated shutdowns in response to COVID-19 outbreaks and a faltering real estate market. Recession fears due to higher-than-expected inflation and tighter monetary policy in many major economies and banking woes sparked concerns about flagging demand.

On the supply side, uncertainty over the effects of Western sanctions on Russian crude oil exports whip- sawed expectations about global market balances. As of March, Russian crude oil exports had held steady since implementation of the Group of Seven (G7) price cap and ban on crude oil imports on December 5. Russia rerouted its oil, reportedly sold at a major discount to Brent oil prices, to non-sanctioning countries, primarily India and China. Downside supply risks did not materialize until Russias recent announcement of a modest production reduction. A sizable release of strategic petroleum reserves by Organisation for Economic Cooperation and Development member countries also helped keep oil markets well supplied, in part offset- ting underproduction and reduced targets by OPEC+ (Organization of the Petroleum Exporting Countries plus selected non-member countries).

Agricultural prices continue on a downward trend. Drawdowns of stocks of staple foods in major exporting countries, due to major shocks in the past two years from the pandemic and the war in Ukraine, have stopped as supply and demand have reacted to higher prices. Food and beverage prices peaked in May 2022 and are up 1.3 percent from last August. They remain 22.3 percent above the past-five-year average and 39.1 percent above pre-pandemic levels. The supply outlook improved as Ukrainian wheat and other products entered the global market after the Black Sea corridor initiative was renewed last November. High prices also provided incentives to other regions, such as the European Union and India, to step up wheat production. However, some of the correction has likely come from demand destruction of price-elastic components such as meat and biofuels. Risks remain balanced as spillovers from gas to fertilizer prices and a possible abrupt ending of the Black Sea corridor deal offset possibly reduced consumption and a potentially stronger supply reaction. Prices of raw agricultural materials declined by 9.1 percent from last August amid slowing global demand but, like base metal prices, have partly rebounded in recent months.

Metal prices recover after steep drop. The base metal price index dropped below levels preceding Russias invasion of Ukraine. It surged after the invasion but experienced a broad-based retreat amid slowing Chinese metal demand (accounting for roughly half of global consumption of major metals) and monetary policy tightening. With Chinas reopening and increased infrastructure spending, as well as an expected slower pace of interest rate hikes from the Federal Reserve, base metal prices partially rebounded, increasing by 19.7 percent from August 2022 to February 2023. Recent banking distress presents significant downside risks to prices. The IMFs energy transition metal index increased 14.3 percent. Gold prices rose by 5.1 percent, and central banks net purchases broke a 55-year record. The base metal price index is projected to increase 3.5 percent in 2023 and then decrease 2.6 percent in 2024. Traders seem to price in a potential rebound in demand from China.

A Challenging Outlook

A return of the world economy to the pace of economic growth that prevailed before the bevy of shocks in 2022 and the recent financial sector turmoil is increasingly elusive. More than a year after Russias invasion of Ukraine and the outbreak of more contagious COVID-19 variants, many economies are still absorbing the shocks. The recent tightening in global financial conditions is also hampering the recovery. As a result, many economies are likely to experience slower growth in incomes in 2023, amid rising joblessness. Moreover, even with central banks having driven up interest rates to reduce inflation, the road back to price stability could be long. Over the medium term, the prospects for growth now seem dimmer than in decades. (Source - IMF )

Indian Economy Overview

After reaching 7.2% in FY 2022-23, real GDP growth is expected to slow to 6% in FY 2023-24, before rising to 7% in FY 2024-25. While indicators suggest that Indias growth is stable for now, headwinds from the impact of rapid monetary policy tightening in the advanced economies, heightened global uncertainty and the lagged impact of domestic policy tightening will progressively take effect. With slower growth, inflation expectations, housing prices and wages will progressively moderate, helping headline inflation converge towards 4.5%. This will allow interest rates to be lowered from mid-2024. The trade restrictions (including export bans on various rice varieties) imposed in 2022 to fight inflation are assumed to be withdrawn. The current account deficit will narrow, reflecting abating import price pressures.

FY 2022-23 ended on a positive note, due to higher-than-expected agriculture output and strong government spending. However, high inflation, in particular for energy and food, and the ensuing monetary tightening to anchor expectations are weighing on purchasing power and household consumption, particularly in urban areas. Tighter financial market conditions are reflected in weakening credit-supported demand for capital goods, a good proxy for business investment. Although services export growth remains brisk and the sectoral surplus rose by 35%, it is insufficient to offset the imbalance in goods trade. Low labour productivity is affecting the competitiveness of “Made in India” goods and participation in global value chains. The current account deficit narrowed in the October-December quarter to 2.2% of GDP, from 2.7% in the same period in FY 2021-22. Headline inflation has fallen below 6% (the central banks upper bound of the tolerance band) since March 2023, due to lower food prices, as well as base effects. Employment and wage estimates suggest improving labour market conditions in rural areas, while export-oriented service firms report increasing difficulties filling vacancies.

Domestic growth prospects are strongly influenced by global developments. India has seized the opportunity of discounted Urals oil, which has increased Russias share in its energy imports. The sourcing of fertilisers from Russia has also increased considerably, more than doubling in volume in case of urea. Overall, Indian imports from Russia rose from USD 9.9 billion (1.6% of total imports) in FY 2021-22 to USD 46.2 billion (6.5%) in FY 2022-23. Exports fared remarkably well during the pandemic and aided recovery when all other growth engines were losing steam in terms of their contribution to GDP. Going forward, the contribution of merchandise exports may waver as several of Indias trade partners witness an economic slowdown. Indias current account deficit (CAD) decreased to US$ 1.3 billion (0.2 per cent of GDP) in Q4:2022-23 from US$ 16.8 billion (2.0 per cent of GDP) in Q3:2022-23¹, and US$ 13.4 billion (1.6 per cent of GDP) a year ago [i.e., Q4:2021-22].

The government is also focusing on renewable sources to generate energy and is planning to achieve 40% of its energy from non-fossil sources by 2030. In the Union Budget of 2022-23, the government announced funding for the production linked incentive (PLI) scheme for domestic solar cells and module manufacturing of Rs. 24,000 crore (US$ 3.21 billion). (Source - IBEF )

The economy will not escape the global slowdown

While banks solvency ratios and financial results have improved and the authorities have enhanced loan-loss provisioning and established a ‘bad bank, any deterioration of banks asset quality could threaten macro-financial stability. In the run-up to the 2024 elections, fiscal consolidation may be delayed, and the conclusion of trade agreements may become more difficult. A potentially below-normal monsoon season could also impact growth. Declining geopolitical uncertainty, on the other hand, would boost confidence and benefit all sectors, as would a faster-than-expected conclusion of free-trade agreements with key partners and the incorporation thereinof services. (Source OECD )

Global Sugar Industry Overview

The Food and Agriculture Organization (FAO) of the United Nations estimates a global sugar surplus of 1.4 million metric tonnes in 2022/23 (October/September) due to recovery in Brazils production, according to the FAO Food Outlook released June 15. The estimated sugar surplus is lower than the 4.9 million tonnes surplus expected previously, as FAO reduced its forecast for global production due to lower-than-earlier-anticipated outputs in China, the European Union, India, Mexico and Thailand. FAOs forecast for global sugar production in 2022/23 is seen at 177.5 million tonnes, up 1.1% from 2021/22. Global sugar consumption is forecast to continue increasing for a third successive season in 2022/23, up 1.6 million tonnes from the previous season, to 176.1 million tonnes.

However, the increase in world sugar consumption forecast was limited by the projected deceleration in global economic growth in 2023 and high world sugar prices.” FAO expects the world sugar trade in 2022/23 to reach 60.7 million tonnes, down 1% from the estimated volume for 2021/22. The contraction is the result of an anticipated reduction in exportable supplies in the European Union, India and Mexico, more than offsetting foreseen larger shipments from Brazil.” Chinas imports are forecast to decline for the second consecutive season amid high world sugar prices and adequate domestic availabilities. Sugar imports by the European Union are set to increase sharply from last year due to high domestic prices and lower production. Supply for sugar and alternative sweetener corn syrup has improved and consumption has softened. (Source - ISO )

Performance of Major Sugar Producing Countries U.S.

Production is estimated down slightly at 8.4 million tons. Imports are forecast down 4 percent to 3.0 million tons based on projected quota programs set at minimum levels consistent with World Trade Organization and free-trade agreement obligations, and on projected imports from Mexico, re-exports, and high-tier tariff imports. Consumption is practically unchanged while stocks are reduced with the lower production and imports.

Brazil

Production is forecast up 4.0 million tons to a near-record 42.0 million as favourable weather and increased area are expected to result in additional sugarcane available for crushing. Favourable sugar prices encouraged farmers to use their land for growing sugarcane instead of grains. The sugar/ethanol production mix is expected to favor sugar relative to the previous season going from 45 percent sugar to 48 percent and from 55 percent ethanol to 52 percent. Consumption is flat while stocks and record exports are projected to rise with higher supplies.

European Union

Production is forecast up 576,000 tons to 15.5 million as sugarbeet production rebounds compared to the drought-affected crop the year before. In addition, increased sugarbeet plantings in member states such as Poland, Spain, Romania, Slovakia, and Hungary are expected to more than offset reduced acreage in France. The ruling by the European Court of Justice (ECJ) to not allow Member States to grant temporary emergency authorizations for the use of banned neonicotinoids1 on sugarbeet is forcing many French farmers to opt for alternative crop planting for 2023/24. On the other hand, sugarbeet remains a valid cropping opportunity for Polish farmers facing corn flowing from Ukraine and the low profitability of wheat. Consumption is forecast unchanged. Imports are down with the higher production, while exports are flat, and stocks are expected up.

Thailand

Production is forecast to increase slightly to 11.2 million tons. Consumption is expected up in line with anticipated economic recovery and tourism that will drive the domestic demand for sugar. Both household and industrial uses are expected higher, especially for food and beverage manufacturers that account for around 40 percent of total sugar consumption. Exports are forecast at a record high while stocks are expected to drop sharply following strong domestic and export demand.

Australia

Production is forecast to increase 200,000 tons to 4.4 million due to an expected rise in area harvested, sugarcane crushed, and slightly improved yield. Consumption is expected to increase in line with population growth and higher available supplies. Exports are also forecast up with the higher available supplies. (Source - FAS )

Indian Sugar Industry Overview Sugar

India possesses favorable conditions for cultivating sugarcane at a reduced expense, owing to its tropical climate, abundant and cost-effective labor, and the availability of economical irrigation facilities through subsidized water and power. The primary regions known for sugar cane production in India include Uttar Pradesh, Maharashtra, Andhra Pradesh, Gujarat, Karnataka, and Tamil Nadu. The Central Government has prioritized availability of about 275 Lakh Metric Tonnes (LMT) sugar for domestic consumption, about 50 LMT sugar for diversion to ethanol production and to have closing balance of about 60 LMT by 30^th September, 2023. Balance quantity of sugar produced by sugar mills in the country would be allowed for exports. Since at the beginning of sugar season 2022-23, initial estimates of sugarcane production are available, it has been decided to allow export of 60 LMT sugar. The sugarcane production in the country will be reviewed periodically and based on the latest available estimates, quantity of sugar exports to be allowed could be reconsidered. In FY22, sugar exports stood at US$ 4.60 billion. (Source - PIB )

Projected Sugar Balance 2022-23 Sugar Season

(In Lac tons)

(Source - ISMA )

In the current season, 532 mills started their operations so far across the country, against 518 mills which operated last season, as on 31st March. On the corresponding date, 338 mills have closed their crushing operations in the current season, while 194 sugar mills were still operating in the country. However, in the last season 2021-22, 152 mills had closed their crushing operations and 366 mills were operating as on 31st March2022.

Following table gives a comparison of working factories and actual sugar production net of diversion towards production of ethanol, as of end of March, this year versus last year.

Sugar Production as on 31st March (In lac tons)

*Others include -Tamil N du, Gujarat, A.P., Telangana, Bihar, Punjab, Haryana, Rajasthan, M.P., Chhattisgarh, Uttarakhand & Odisha (Source - ISMA )

Crushing season in Maharashtra have ended at around 105 lac tons, lower than our earlier estimate, due to unexpectedly lower cane yields owing to higher ration crop share and uneven distribution of rainfall. Main season in Karnataka is on the verge of closure and have produced around 55 lac tons so far. However, special season will operate in Karnataka from June / July2023. The Committee also discussed the sugar recovery, cane yield, remaining harvestable area / sugarcane and expected dates of closure of factories in other states where crushing season is still operational and noted that cane yield in Uttar Pradesh is slightly better than expected and therefore the state is expected to produce around 105 lac tons of sugar after diversion towards production of ethanol. Estimated sugar diversion towards ethanol was also discussed and based on feed stock wise allocations upto Cycle-6 and estimated for the rest of season, it is estimated that around 40 lac tons of sugar will be diverted.

Accordingly, ISMA has revised its all-India sugar production estimate for 2022-23 SS (after diversion into ethanol) as 328 lac tons, after considering diversion of about 40 lac tons of sugar equivalent into ethanol.

(Source - ISMA )

Factors Impacting the Sugar Industry

More than two-thirds of the sugar demand primarily originates from end-use industries like ice-creams, confectioneries, bakeries, and soft drinks, making the consumption growth closely tied to the expansion of these sectors.

Population growth also plays a significant role in influencing the demand for sugar.

Consumer preferences for sugar over alternative sweeteners like gur/khandsari are partly determined by the relative prices of these commodities. The supply of sugar is influenced by various factors, including climatic conditions, technical aspects of sugarcane production, drawal rate, season duration, and recovery rates.

Additionally, the political scenario can have an impact on sugar distribution, pricing, as well as imports and exports.

Key risks and regulations pertaining to sugar sector Risks:

Fluctuation in foreign exchange rates: When domestic sugar production is low, India may need to import sugar from other countries, exposing the sector to exchange rate risk.

Change in fair and remunerative prices of sugarcane: Government hikes in the Fair and Remunerative Price (F&RP) of sugarcane to support farmers can lead to reduced margins for sugar mills when sugar prices fall.

Availability of raw materials: Sugarcane production heavily relies on monsoons, and a deficient monsoon year can significantly impact sugar production.

Regional concentration of raw materials: Over 80% of Indias sugarcane is grown in Uttar Pradesh, Maharashtra, Karnataka, and Tamil Nadu, making the sector vulnerable to adverse weather conditions in these regions.

Change in refining spread: Drastic fluctuations in raw sugar prices may lead to arbitrage opportunities, affecting the supply and pricing of white sugar.

Regulations:

Regulations to protect farmers and consumers: The Indian government controls the sugar industry to safeguard the interests of both sugarcane farmers and sugar consumers, although some controls have been relaxed over the past decade.

Regulations on sugarcane pricing: The government decides the minimum price (Fair and Remunerative Price) at which sugar mills purchase sugarcane from farmers to ensure fair payment for the crop.

State government authorized to fix cane prices - Supreme Court (2004): A Supreme Court ruling allowed state governments to set sugarcane prices above the central governments declared price, leading to potential disputes between mills and governments.

Karnataka Sugarcane (Regulation of Purchase and Supply) Act, 2013: Karnataka enacted this act to implement a revenue-sharing model for determining cane prices.

Regulation on sugar sales: The government used to control domestic and export sales, but certain regulations were abolished in 2013, providing more freedom to mills. Other regulations: Private sugar producers cannot own cane fields, and new sugar mills have distance restrictions from existing units. Sugar producers must purchase all sugarcane sold to them, and they have limitations on the types of sugar they can produce.

Government Initiatives:

Keeping in view interest of sugarcane farmers (Ganna Kisan), the Cabinet Committee on Economic Affairs chaired by the Prime Minister Shri Narendra Modi has 350 approved Fair and Remunerative Price (FRP) of 300 sugarcane for sugar season 2023-24 (October - September) at Rs.315/qtl for a basic recovery rate of 250 10.25%. It has also been approved to provide a premium 200 of Rs.3.07/qtl for each 0.1% increase in recovery over 150 and above 10.25%, & reduction in FRP by Rs.3.07/qtl for 100 every 0.1% decrease in recovery. The FRP approved shall be applicable for purchase of sugarcane from the 50 farmers in the sugar season 2023-24 (starting w.e.f. 0 1^st October, 2023) by sugar mills. The sugar sector is an important agro-based sector that impacts the livelihood of about 5 crore sugarcane farmers and their dependents and around 5 lakh workers directly employed in sugar mills, apart from those employed in various ancillary activities including farm labour and transportation. (Source - MOPNG )

The FRP has been determined on the basis of recommendations of Commission for Agricultural Costs and Prices (CACP) and after consultation with State Governments and other stake-holders. Details of FRP announced by the Government since sugar season 2013-14 are as under: (Source - PIB )

Ethanol

Ethanol is an agro-based product which is naturally obtained from the fermentation of sugarcane molasses, a by-product of sugar production. Ethanol is an important eco-friendly, renewable fuel. When mixed with gasoline, different blends of fuel are created and when used to run machines, emit lesser environmental pollution. As sugarcane production and stock grows, the excess can be diverted for the production of ethanol benefitting both the sugar industry and the economy.

Cane tops, bagasse, filter muds and molasses form the four main by-products of the sugarcane industry. Optimal utilisation of by-products, such as molasses and bagasse, is another key differentiating factor. Integrated sugar mills (mills that produce not only sugar, but also ethanol and industrial alcohol from molasses and power from bagasse) are more likely to be successful than standalone sugar companies. An integrated business model is the key to de-risking revenues. By opting for such a model, mills can earn higher margins, and also partly protect themselves from the cyclical downturns in the core sugar business. By-products of the sugarcane industry fetch varied market prices in different countries, depending on cyclical increases or decreases.

Currently, bagasse is used as fuel for steam generation in sugar factories and a small portion of it for production of pulp and board, furfural and methane. Molasses is exported as animal feed or transformed into rum, potable alcohol or industrial alcohol.

Cane tops and filter muds are currently not significantly put to any other use. However, filter muds could be put to use as low-grade fertilisers in cane fields.

Domestic production of ethanol has been encouraged by the government using various measures including but not limited to amendments to the Industries (Development and Regulation) Act, 1951, to legislate exclusive central control over denatured alcohol, reduction of Goods and Services Tax (GST) levied on ethanol for Ethanol Blending Programme to 5%, reintroduction of the administered price mechanism, expansion of the programme and opening up alternate production routes. Different pricing methods have also been adopted by the government to boost the supplies of ethanol for the EBP.

Growth of ethanol as biofuel sector in last 5 years has amply supported the sugar sector as diversion of sugar to ethanol has led to better financial positions of sugar mills due to faster payments, reduced working capital requirements and less blockage of funds due to less surplus sugar with mills. During 2021-22, revenue of more than 20,000 crores has been made by sugar mills/distilleries from sale of ethanol which has also played its role in early clearance of cane dues of farmers. Ethanol production capacity of molasses/sugar-based distilleries has increased to 700 crores litres per annum and the progress is still continuing to meet targets of 20% blending by 2025 under Ethanol Blending with Petrol (EBP) Programme. In new season, the diversion of sugar to ethanol is expected to increase from 36 LMT to 50 LMT which would generate revenue for sugar mills amounting to about 25,000 crores.

Ethanol Blending Programme

The Ethanol Blending Programme (EBP) seeks to achieve blending of ethanol with motor sprit in order to reduce pollution, conserve foreign exchange and increase value addition in the sugar industry enabling them to clear cane price arrears of farmers.

Public Sector Oil Marketing Companies (OMCs) have achieved over 10% ethanol blending in petrol during Ethanol Supply Year (ESY) 2021-22. Government has amended the National Policy on Biofuels 2018 which has advanced the target of 20% blending of ethanol in petrol to ESY 2025-26 from 2030. The required ethanol quantity from sugarcane and grain based feedstocks for blending under this Programme is accordingly procured by OMCs from registered bidders/suppliers.

The Ethanol Blending Programme has saved foreign exchange as well as strengthen energy security of the country. By 2025, it is targeted to divert more than 60 LMT of excess sugar to ethanol, which would solve the problem of high inventories of sugar, improve liquidity of mills thereby help in timely payment of cane dues of farmers and will also generate employment opportunities in rural areas.

To achieve blending targets, Government is encouraging sugar mills and distilleries to enhance their distillation capacities for which Government is facilitating them to avail loans from banks for which interest subvention @ 6% or 50% of the interest charged by the banks whichever is lower is being borne by Government. This will bring an investment of about 41,000 crores. In past 4 years, loans of about 20,343 crores have been sanctioned to 243 project proponents out of which loans of about 11,093 cr have been disbursed to 210 project proponents. (Source - PIB )

Key applications of ethanol and trends going forward

Industrial Solvent: Ethanol is widely used as a solvent in various industries, including paints, cosmetics, pharmaceuticals, and detergents. Its ability to dissolve both polar and non-polar compounds makes it versatile for different applications.

Beverages: Ethanol is a primary component in alcoholic beverages such as beer and wine. It is produced through the fermentation of fruits or grains, and the concentration of ethanol varies across different beverages.

Disinfectant: Ethanol is utilized as an active ingredient in alcohol-based hand sanitizers, as it has the ability to effectively kill bacteria and viruses at certain concentrations. It is also used as an antiseptic for minor injuries. Flavoring and Fragrance: In the food industry, ethanol is used for flavor extraction and preservation of various food products, extending their shelf life. It is also employed in the fragrance industry as a carrier for perfume or fragrance oils found in perfumes and colognes.

Personal Care Industry: Ethanol is commonly found in cosmetics and personal care products due to its cleansing properties and ability to act as a preservative. It is used in body lotions to prevent ingredient separation and in hairspray to help it adhere to the hair.

Trends Going Forward:

Increasing Demand for Sanitizers and Disinfectants: The COVID-19 pandemic has significantly increased the demand for hand sanitizers and disinfectants, driving the use of ethanol in these products. Sustainable and Bio-based Ethanol: There is a growing emphasis on using sustainable and bio-based ethanol derived from renewable sources, such as sugarcane, corn, or cellulosic materials, to reduce environmental impact and dependency on fossil fuels.

Ethanol as a Cleaner and Greener Fuel: Ethanol is increasingly being used as an alternative, cleaner, and greener fuel additive in gasoline blends. Ethanol-blended fuels, such as E10 (10% ethanol and 90% gasoline), are becoming more prevalent in several countries to reduce greenhouse gas emissions and promote energy security. Rising Demand in the Flavor and Fragrance Industry: The demand for natural flavors and fragrances is increasing, and ethanols ability to extract and preserve these natural compounds makes it a valuable ingredient in this industry.

Innovations in Personal Care Products: Ethanol will continue to be a key ingredient in personal care products as innovations in formulations and delivery methods improve the overall effectiveness and user experience. Regulatory Environment: The regulatory environment surrounding ethanol production, blending, and usage will play a crucial role in shaping its future applications and market growth.

Focus on Sustainable Ethanol Production: Efforts to reduce the carbon footprint and environmental impact of ethanol production are likely to gain traction, leading to greater adoption of sustainable practices in the industry.

Recent Developments

In February 2023, Prime Minister launched E20 fuel at 84 retail outlets of oil marketing companies in 11 States/UTs along the lines of the ethanol blending roadmap.

In May 2022, the government approved changes in the National Biofuel Policy 2018 to bring forward the target for 20% ethanol blending with petroleum to 2025-26 from 2030.

Promoted advanced biofuels through a viability gap funding scheme of Rs. 5,000 crore (US$ 745.82 million) in six years for 2G ethanol bio refineries along with additional tax incentive

Overall, ethanols diverse range of applications and its potential as a renewable and eco-friendly resource make it a significant player in various industries, with continued growth and innovation expected in the coming years.

Power Generation

Sugar industry has been traditionally practicing cogeneration by using bagasse as a fuel. With the advancement in the technology for generation and utilization of steam at high temperature and pressure, sugar industry can produce electricity and steam for their own requirements. It can also produce significant surplus electricity for sale to the grid using same quantity of bagasse. For example, if steam generation temperature/pressure is raised from 400^oC/33 bar to 485^oC/66 bar, more than 80 KWh of additional electricity can be produced for each ton of cane crushed. The sale of surplus power generated through optimum cogeneration would help a sugar mill to improve its viability, apart from adding to the power generation capacity of the country.

The Ministry has been implementing biomass power/co-generation programme since mid-nineties. Over 800 biomass power and bagasse/Non-bagasse cogeneration projects aggregating to 10205.61 MW capacity have been installed in the country for feeding power to the grid. States which have taken leadership position in implementation of bagasse cogeneration projects are Maharashtra, Karnataka, Uttar Pradesh, Tamil Nadu and Andhra Pradesh. The leading States for biomass power projects are Chhattisgarh, Madhya Pradesh, Gujarat, Rajasthan and Tamil Nadu.

In India, sugar mills utilize their own bagasse as a renewable energy source to generate power during the season. Bagasse, the fibrous residue left after crushing and extracting sugarcane juice, is used to produce steam that runs boilers and turbines, generating electricity to power the mills operations. Any surplus energy produced beyond the mills requirements can be exported to the grid of distribution licensees, contributing to the overall electricity supply in the region.

The regulatory framework for the power sector in India is overseen by two main bodies:

Central Electricity Regulatory Commission (CERC): CERC is the central authority responsible for regulating various aspects of electricity generation and supply at the national level. It plays a crucial role in setting policies, determining tariffs, and ensuring the fair and efficient functioning of the power market across the country.

State Regulatory Commissions: Each state in India has its own State Regulatory Commission, responsible for dealing with the aspects of tariff determination and regulation of energy generation, supply, and distribution within that particular state. These State Regulatory Commissions work in tandem with the CERC to ensure that the power sector operates smoothly at both national and regional levels.

The collaboration between the Central Electricity Regulatory Commission and State Regulatory Commissions is vital in maintaining a well-regulated and balanced power sector in India. This regulatory framework ensures that the interests of both consumers and stakeholders in the power industry are protected, while also promoting the efficient utilization of renewable energy sources like bagasse in the sugar mills to contribute to the nations energy needs.

Assessment of domestic power industry

Between fiscal years 2022 and 2026, the power demand in India is projected to experience a compound annual growth rate (CAGR) of approximately 4-5%. This growth will be fueled by the countrys economic recovery and improvements in the reach and quality of power supply. Both the central and state sectors are expected to drive capacity additions during this period, with a major focus on investments in the transmission & distribution (T&D) segment.

According to a study, there is an estimated surplus biomass availability of about 230 million metric tonnes per annum in India. This surplus biomass mainly consists of agricultural residues, which have the potential to generate approximately 28 GW of power. Additionally, Indias 550 sugar mills have the capability to generate about 14 GW of additional power through bagasse-based cogeneration, provided they adopt technically and economically optimal levels of cogeneration to extract power from the bagasse produced during the sugar milling process.

These estimates highlight the significant potential for biomass-based power generation in India, particularly from agricultural residues and bagasse. Utilizing these renewable sources efficiently can play a crucial role in meeting the increasing power demand, promoting sustainability, and reducing reliance on conventional fossil fuels for electricity generation.

As on 31.10.2022, a total capacity of 10205.61 MW has been installed in Biomass Power and Cogeneration Sector.

Installed Capacity of Biomass IPP 1871.11 MW Installed Capacity of Bagasse Cogeneration 7562.45 MW Installed Capacity of Non-Bagasse Cogeneration - 772.05 MW (Source-MNRE)

Key Drivers for Growth in Industry

The T&D network is expected to undergo robust growth to support increasing power demand. Approximately 330-350 GVA transformation capacity (above 220 kV level) is projected to be added during fiscals 2022-2026, reaching a cumulative capacity of 1,350-1,400 GVA by fiscal year 2026.

Long-term reforms in the distribution segment are anticipated to improve the quality of power supply. Weak financial positions of state utilities, particularly in the distribution sector, have been a historical challenge. The Ujjwal DISCOM Assurance Yojana (UDAY) provided temporary relief by reducing interest burdens for discoms, but fiscal debt accumulation remains an issue as of 2021.

The Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA scheme) aims to enhance household connectivity, potentially boosting residential power demand. With monthly household consumption averaging around 100 kWh/month, this program could add 40-50 billion units to overall power demand. However, the increase in demand from recently electrified households would depend on discoms ability to provide reliable and uninterrupted supply to these subsidised consumers.

Electric vehicles (EVs) are expected to contribute to demand growth in the longer term. The governments focus on building charging infrastructure and creating a conducive policy environment aims to increase the share of electric vehicles to 30% by 2030, reducing reliance on fossil fuels for transportation. Off-grid, rooftop, and captive solar projects are anticipated to reduce power demand from the grid. With the boost in rooftop solar and declining costs of renewable energy generation, 8-9 GW of rooftop solar capacities are expected by fiscal year 2026, resulting in a 0.5-1% reduction of the base demand.

Overall, power demand growth will be fueled by gradual economic improvement and increased demand from key infrastructure and manufacturing sectors. The successful implementation of rural electrification programs will also contribute to demand growth. However, increasing energy efficiency, reducing technical losses over the long term, and promoting captive and off-grid renewable energy generation will constrain the overall growth in power demand.

Recent Developments & Initiatives

The Ministry of New and Renewable Energy (MNRE), Government of India has notified the National Bioenergy Program on November 2, 2022. MNRE has continued the National Bioenergy Program for the period from FY 2021-22 to 2025-26. The Program has been recommended for implementation in two Phases. The Phase-I of the Program has been approved with a budget outlay of 858 Crores. The National Bioenergy Program will comprise the following sub-schemes:

1. Waste to Energy Program (Program on Energy from Urban, Industrial and Agricultural Wastes /Residues) to support setting up of large Biogas, BioCNG and Power plants (excluding MSWto Power projects).

2. Biomass Program (Scheme to support manufacturing of Briquettes & Pellets and promotion of Biomass {nonbagasse} based cogeneration in Industries) to support setting up of pellets and briquettes for use in power generation and non-bagasse-based power generation projects.

Biogas Program to support setting up of family and medium size Biogas in rural areas.

Investment in renewable energy in India reached a record US$ 14.5 billion in FY22, an increase of 125% over FY21. Rising foreign investment in the renewable sector (such as US$ 75 billion investment from the UAE) is expected to promote further investments in the country. In order to meet Indias 500 GW renewable energy target and tackle the annual issue of coal demand supply mismatch, the Ministry of Power has identified 81 thermal units which will replace coal with renewable energy generation by 2026. About 5,000 compressed bio-gas plants will be set up across India by 2023. In February 2022, a parliamentary standing committee recommended the government to take steps to increase the loan limit for renewable energy sector under priority sector lending. The current limit stands at Rs. 30 crore (U$ 3.93 million).

Mumbai headquartered Essar Group has formed the Essar Energy Transition (EET) with the objective to invest a total of US$ 3.6 billion in developing a range of low carbon energy transition projects over the next five years. In July 2021, Mitsui & Co. announced an investment of Rs. 30 crore (US$ 4.1 million) in Punjab Renewable Energy Systems Pvt. Ltd. (PRESPL), Indias biomass supply chain management company India is estimated to have renewable energy potential of 900 GW from commercially exploitable sources - Solar energy: 750 GW; Wind power1 : 102 GW; Bio-energy: 25 GW; and Small Hydro: 20 GW (Source - IBEG )