Price Benchmarking of Biomass Pellets for co-firing in Thermal Power Plants for Northern Region (excluding NCR)- reg.

The Ministry of Power (“MoP”) has taken a significant step towards promoting and developing a sustainable supply chain of biomass pellets. In a letter dated June 16, 2023, the MoP announced modifications to the Revised Policy for Biomass Utilization for Power Generation through Co-firing in Coal-based Power Plants.[1] Additionally, with a letter dated November 3, 2023, the MoP announced the recommendations by the Price Benchmarking Committee.[2] This committee carried out the study for the Northern Region (excluding NCR) and submitted its report with the recommended benchmark price for the Northern Region.

Key Policy Modifications

The revised policy by the letter dated June 16, 2023, introduced crucial changes aimed at accelerating the integration of biomass pellets into coal-based thermal power plants. Notably, Clause No.3 of the Biomass Policy was amended to mandate coal-based thermal power plants to use a minimum 5% blend of biomass pellets annually, with the percentage increasing to 7% from the financial year 2025-26. The type of biomass pellets required varies depending on the milling equipment used in the power plants, demonstrating a tailored approach for different technologies.

The addition of Para 5 established a Price Benchmarking Committee, consisting of representatives from various entities, to assess the business viability, impact on electricity tariffs, and efficient pellet procurement by power utilities. This committee is required to conduct region-wise price benchmarking for biomass pellets over five years, with recommendations becoming effective from January 1, 2024. It excluded transportation costs to encourage transparent determination by Thermal Power Plants (“TPPs”).

Price Benchmarking for the Northern Region

Per the letter dated November 3, 2023, a committee specifically focused on the Northern Region conducted a study and proposed a benchmark price of Rs 2.27/7000 kcal for non-torrefied biomass pellets. This benchmark, applicable from November 8, 2023, aims to stabilize prices, addressing the issue of existing volatility in raw biomass prices. The specified pellet requirements include a moisture content below 14% and a Gross Calorific Value (“GCV”) between 2800-4000 kcal/kg.

Analysis

A strategic attempt was made by the MoPs to strike a balance between the rising demand for biomass pellets and sustainability concerns. The policy fosters investment in manufacturing capacity by establishing a constant market for biomass pellets through the implementation of obligatory blending targets. The implementation of region-specific pricing benchmarking is a praiseworthy strategy, given the varied biomass environments around the nation.

By including officials from pertinent ministries, regulators, and utilities, the group guarantees a comprehensive assessment of the various elements that influence the cost of biomass pellets. The inclusion of a mechanism for benchmark price increases on a recurring basis for a period of five years signifies a proactive approach to managing market fluctuations.

Flexibility is maintained while ensuring fairness through the opportunity for power companies to utilise short-term tenders and the emphasis on transparency in establishing transportation costs. A deep comprehension of the intricacies of the sector is evident in the advice to issue tenders based on pellet kinds and the meticulous evaluation of various milling processes.

Conclusion

The MoP’s modified policy marks a significant milestone in advancing biomass co-firing in coal-based power plants. By addressing issues related to pricing, procurement, and utilization, the policy creates a conducive environment for the sustainable growth of the biomass pellet industry. As the nation strives for cleaner energy solutions, this policy paves the way for increased use of biomass, contributing to both environmental goals and energy security.

[1] https://samarth.powermin.gov.in/content/policies/9e10785f-fd9f-412e-a561-4ee18633a63b.pdf.

[2] https://powermin.gov.in/sites/default/files/webform/notices/Price_Benchmarking_of_Biomass_Pellets_for_co_firing_in_Thermal_Power_Plants_for_Northern_Region_excluding_NCR.pdf.