Draft Final Report

PROMOTION OF RENEWABLE ENERGY,

ENERGY EFFICIENCY AND GREENHOUSE GAS
ABATEMENT (PREGA)

Bangladesh

Cogeneration in Sugar Industries

A Pre-Feasibility Study Report1

April 2005

1
Prepared by the PREGA National Technical Experts from Bangladesh Centre for Advanced
Studies.
 TABLE OF CONTENTS
Page No.

ABBREVIATIONS vi
1 Executive Summary 1-7
1.1 Introduction 1
1.2 Energy situation and Government Policy 1
1.3 Quantity and quality of bagasse 2
1.4 Choice of technology 2
1.5 Project description 3
1.6 Project cost and emission reduction 4
1.7 Financial and economic analysis 6
1.8 Other socio-economic benefits 7
2 Introduction 8-10
2.1 Background of the project 8
2.2 Assessment of Cogeneration potential 8
2.3 Previous studies on Cogeneration 8
2.4 Potential for new Cogeneration in Bangladesh 9
2.5 Justification of improved Co-generation from bagasse 10
3 Energy Situation and Government Policy 11-16
3.1 Sector description 11
3.2 Present and forecasted energy situation 11
3.3 Constraints and issues 12
3.4 Government policy and strategy 14
3.5 Government policy on renewable energy 15
3.6 Market for electricity 16
4 Availability of Sugarcane 16-21
4.1 Sugar and bagasse in sugar sector 16
4.2 Future trend of production 17
4.3 Utilization of sugarcane 17
4.4 The sugar mills 18
4.5 The sugar juice and sugar production 20
4.6 Demand of sugar 20
4.7 Sugar sale 20
4.8 Profitability of sugar mills 20

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 Page No.
4.9 Reason for loss 20
4.10 Suggestions for improvement 20
4.11 Bagasse management 20
4.12 Advantage of bagasse burning for Co-generation 21
5 Cogeneration Technology 22-25
5.1 Technology options and choice of technology for improved cogeneration in 22
sugar mills
5.2 Present generation system in sugar mills 22
5.3 System in the project 22
6 Project Description 25-31
6.1 Project goal 25
6.2 Project objectives 25
6.3 Poverty reduction through project 26
6.4 Technology transfer 26
6.5 Project location 26
6.6 Project partners 26
6.7 Project outputs 27
6.8 Project implementation plan 27
6.9 Project vis-à-vis organization structure of Bangladesh electricity industry 27
6.10 Possible institutional ways to cover project risks 28
6.11 Likely fiscal incentives for the project 29
6.12 Possible financing arrangements of the project 29
6.13 Facilitating Agencies of the project 29
6.14 Likely basis of tariff structure determination 30
6.15 Possible ways to selection of firm in the project 30
7 Emission Reduction and Monitoring and Verification 31-43
7.1 Emission Reduction 31
7.2 The proposed project 35
7.3 Crediting period 40
7.4 Project boundaries and system boundaries 40
7.5 Indirect emission effects 40
7.6 Additional environmental and social benefit 40
7.7 Monitoring and verification plan of project performance 41
8 Financial Analysis of the Project 44-46
8.1 Project cost (estimated) 44
8.2 Financial Analysis 45
9 Economic Analysis of the Project 46

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 Page No.
10 Stakeholders’ View 47-48
11 Major Findings and Recommendations 49-51
51
References

Annexures: 1, 2, 3a, 3b, 3c, 4a, 4b, 4c, 4a(1), 4a(2), 5a, 5b, 5c

List of Tables
Table - 1: Industrial and commercial Cogeneration potential In Bangladesh 9
Table - 2: Gross peak growth forecast 12
Table - 3: Installed, actual production and firm production capacity, 13
peak demand and shortfall
Table - 4: System loss of electricity organizations 13
Table - 5: Accounts receivable of BPDB and DESA (in billion Tk) 13
Table - 6: Area cultivated and sugarcane produced over the period 17
Table - 7: Location and capacity of sugar mills 18
Table - 8: Performance data of sugar mills in 1993-94 21
Table - 9: Progress of installed capacity of power plant in Bangladesh 31
over the period 1991/92 – 2001/02
Table - 10: Yearly total production of CO2 from the sugar-mill and the 34
11-MW power plant based on natural gas.
Table - 11: The estimated cumulative production of CO2 over the project 34
period (2007-2020) in the absence of the project activity.
Table - 12: Cumulative production of CO2 over the project period with the 36
project activity.
Table - 13: Yearly abatement of CO2 due to the project activities. 38
Table - 14: Cumulative emission (CO2) additionality over the project period. 39
Table - 15: Project benefits 40

List of Figures
Figure-1: Gas turbine topping cycle 23
Figure-2: Steam turbine 23
Figure-3: Gas engine topping cycle 24
Figure-4: Steam turbine topping cycle 24
Figure-5: Steam turbine bottoming cycle 25

iv
 Figure-6: Progress of power plant installation in Bangladesh over 32
91/92-2001/02 and projection up to 2019
Figure-7: CO2 production without (series 1) and with (series 2) the project 35
activity over the project period.
Figure-8: Cumulative emission (CO2) additionality over the project period 39

List of Flow Charts

Flowchart - 1: Flowchart with Calculation for Yearly GHG (CO2) Production 37
From 11 - MW Power Plant Based on Natural Gas without the Project Activity
Flowchart - 2: Flowchart with Calculation for the present Yearly Production of 38
GHG (CO2) from the Sugar mill of daily crushing capacity of 2000 tonnes of
sugarcanes for 150 days

Map-1 19

Exchange Rate:

A constant exchange rate of 58.5 Taka = 1US $ (for 2004) has been used for correct valuation at
a later date.

v
Abbreviations

ADB - Asian Development Bank

BCAS - Bangladesh Centre for Advanced Studies
BOO - Built-Owned-Operated
BOOT - Built-Owned-Operated and Transferred
BPDB - Bangladesh Power Development Board
BSFIC - Bangladesh Sugar and Food Industries Corporation
DCC - Dhaka City Corporation
CDM - Clean Development Mechanism
CLDC - Central Land Dispatch Centre
DESCO - Dhaka Electric Supply Company
DESA - Dhaka Electric Supply Authority
DP - Development Partner
EPA - Bangladesh Environmental Protection Act of 1995
FIRR - Financial Internal Rate of Returns
GEF - Global Environment Facility
GOB - Government of Bangladesh
GWh - Gigawatt hour
IFI - International Financing Institution
IPP - Independent Power Producer
kg - Kilogramme
kWh - Kilowatt Hour
LRMC - Long Run Marginal Cost
m3 - Cubic Metre
MOEF - Ministry of Environment and Forest
MPEMR - Ministry of Power, Energy and Mineral Resources
MSW - Municipal Solid Waste
MW - Megawatt
NG - Natural Gas
NGO - Non-Government Organization
NLDC - National Load Dispatch Centre
O&M - Operation & Maintenance
PBS - Palli Bidyut Samiti
PGCB - Power Grid Company of Bangladesh
PPA - Power Purchase Agreement
PSC - Production Sharing Contract
PSMP - Power System Master Plan
PSRB - Power Sector Reforms in Bangladesh
REB - Rural Electrification Board
RDF - Refuse Derived Fuel
R&D - Research and Development
RFP - Request for Proposal
RPC - Rural Power Company
SBU - Strategic Business Unit

vi
SERF - Shadow Exchange Rate Factor
Tk. - Taka (Bangladesh)
TCD - Tonnes of sugar Canes per day
tpd - Tonnes per day
USA - United States of America
US$ - United States Dollar
VAT - Value Added Tax
WB - World Bank

vii
1. Executive Summary
1.1 Introduction
In Bangladesh at present, there are 15 sugar mills in operation with an annual capacity of 0.21
million tonnes of sugar under the administrator of Bangladesh Sugar and Food Industries
Corporation (BSFIC). The production is near capacity. This requires 2.0–2.5 million tonnes of
sugar cane produced in the vicinity of the mills. The mills generally run for 120-150 days.
Bagasse is the residual product, which is burnt in the low-pressure boilers to generate steam, part
of which goes to generate power. The mills consume steam and power from own source as per
demand. The mills run at a loss.
The boilers and turbines are very old and have completed their economic life and hence need change.
Now a days, sugar industries of the world and the neighbouring countries of Bangladesh use
high-pressure boilers by burning bagasse and the high pressure steam for power generation and
the low pressure steam for process heat. This is improved co-generation. The same technique can
be used in Bangladesh. This will result in more power production to supply to the national grid
and less emission of GHG.

1.2 Energy Situation and Government Policy

Bangladesh had a total installed power generation capacity of 4005 MW in 2000/01. Of this,
3,320 MW was in public and 685 MW was in private sector. Available capacity was however,
restricted to 2,900 – 3100 MW due to lack of adequate maintenance and rehabilitation
programme. Routine close down, reduction of generation capacity due to prolonged use beyond
economic life etc. were other contributing factors for low available capacity. Due to shortfall in
generating capacity compared to demand, load shedding became inevitable throughout the
country during the peak hours. The load shedding problem was somewhat eased during the last
few years due to commencement of some new power plants.

Country’s Power System Master Plan (PSMP) formulated in 1995 estimates peak power demand
for 2005 and 2007 at 5,200 MW and 6,100 MW respectively.
Although power generation is increasing every year, it has nevertheless trailed behind growing
demand. Few ramifications of the slow growth in electricity generation and consumption are
illustrated by the following hard facts:
• About 30% of the population now have access to electricity
• Per capita consumption of electricity is only 129 kWh per annum which is one of the
lowest in the world
• System firm capacity was 2900-3100 MW out of an installed capacity of 4005 MW in
2000/01 which constitutes only 72%-77%
• Peak demand is expected to increase to 5,200 MW by the year 2005. Present generation
position indicates a power outage not less than 40% by the year 2005.

1
Government Policy on Renewable Energy

Bangladesh’s fossil energy resources consist primarily of natural gas. Domestic oil supply is
considered negligible. Several small deposits of peat exist in the southeastern region of the
country. However, Bangladesh has substantial bituminous coal deposits in the northwestern
region, but mining of all of them are quite expensive because of their depth. Barapukuria coal is
being mined to feed a planned 300-MW coal-based plant.

Vast majority of the rural population that comprises 76% of the total population are deprived of
energy resources. Larger energy supplies and greater efficiency of energy use are thus of
paramount importance to meet the basic needs of a growing population

It is therefore considered necessary to exploit all sources of renewable energy and to use these in an
efficient form for the benefit of the people. Government has accordingly formulated a renewable
energy policy for the country. The policy mentions necessity of taking up renewable energy
development programmes in the areas where potential renewable energy resources are available,
considering economical and technical performance with minimum environmental effects. Plant site,
size and design are to be considered on the basis of available energy resources of the area and
efficient conversion of energy will be given preference. Policy envisages accomplishment of its
objectives by mobilizing a concerted national effort with the continued co-operation and
commitment of Government, international organizations, bilateral and multilateral funding
institutions, non-government organizations, the private sector, research organizations and
universities, etc. Policy also realizes that innovative new financing opportunities including micro-
financing will be needed to attract private capital to supplement the energy deficiencies in the rural
areas and thus to fulfill the aspiration of the poor people.

1.3 Quantity and Quality of Bagasse

Bagasse is fuel that is fibrous in nature, which contains a non-fibrous material called pith inside,
with moisture content of around 50%. Its calorific value is 2300 kcal/kg.

For production of 0.21 million tonnes of cane sugar, about 2.5 million tonnes of sugarcane is
needed. Bagasse is 30-35% of the sugarcane crushed.

1.4. Choice of Technology

Fifteen sugar mills of the country now in operation use low-pressure boilers whose pressures
range is from 10.54 kg/cm2 to 29.38 kg/cm2. The turbines are fed with this low-pressure steam
and hence the generation of power is less. However, in the improved co-generation the following
is the choice:

Two bagasse-fired boilers rated at 55 tonnes/hr, high-pressure steam conditions being at least 45
kg/cm2 and 400°C and auxiliaries.

One controlled – extraction/ condensing steam turbine generator rated at 11-MW at high pressure
and high temperature steam conditions mentioned above.

2
Accessories include one set of condensate extraction pumps, deaerator and cooling tower and
auxiliaries. The sizing of the steam turbine is dependent on the sugar mill’s maximum demand
steam flow.

During the crushing season one unit would be required to be in service to supply the sugar mill’s
steam demand. A second boiler would be available as standby.

The proposed technology with higher efficiency steam turbine to generate extra electricity for
export and with the low temperature steam to process sugar production is a well-known
technology being used in other countries.

1.5 Project Description

1.5.1 Project Objectives

The project has twin development objectives of generating more electricity from a renewable
source namely, bagasse and reduction of greenhouse gas. Electricity generation from renewable
source is considered very important in the context of Bangladesh given the level of energy use
and available source of fossil energy. Also reduction of greenhouse gas will call forth investment
benefit under Clean Development Mechanism (CDM). Saving of natural gas would also allow
utilization of this resource for other development purposes.

1.5.2 Project Location

The first project will be in one of the 15 sugar mills whose map has been given in this study
(Page 27, map shows 17 mills out of which 15 are in operation). However, a 2000 TCD unit will
be preferred which is of higher capacity. In that case, Rajshahi sugar Mill or Joypurhat Sugar
Mill will be a good choice.

1.5.3 Project Outputs

The project is likely to produce 39.6 GWh of electricity annually. The net reduction of CO2 is
expected to be 18,696 tonnes from one mill annually. The total net reduction for all the sugar
mills is estimated at = 155,800 tonnes.
18696 × 2.5 × 10
6

2000 × 150

1.5.4 Project Implementation

Pre-feasibility study of the project has been completed. Next, feasibility study will commence
and other formalities shall have to be completed. The implementation plan would include
specific date line for consultancy services, design, supply, erection, testing and commissioning of
the power plant. There will be also training period for the local staff.

3
1.5.5 Likely fiscal incentives for the project
Different fiscal incentives currently allowable to foreign investors in accordance with the
country’s Industrial Policy and Foreign Investment Policy would also be available to the
sponsors for the proposed project. The private investors would generally expect the following
incentives:

• Guaranteed rate of return on equity

• Reduction/waiver of customs duty on import of machinery
• Tax holiday
• Guarantee of Payment for Power Purchased by utility
• Guarantee of foreign exchange remittance
• Guarantee of convertibility of foreign exchange

1.6 Project Cost and Emission Reduction

1.6.1 Baseline Scenario

The baseline is the most probable future development in the absence of the project activity.
Currently, in all the sugar mills, bagasse is burnt in low-pressure boilers for producing steam.
The steam is fed to the process and also to the turbines for power generation. Requirement of
steam and power (2MW) for the mill is met from such operation. No power is transmitted for
outside use. Currently, 2.5 million tonnes of sugarcane are crushed annually producing some
875,000 tonnes of bagasse.

The current situations which, will continue in future without the project activity are:
i) Old boilers
ii) Old steam turbines
iii) No export of electricity to the grid
iv) High maintenance and operating costs
v) High pollution in the surrounding areas due to inefficient burning

In the project Scenario –

i) A sugar mill having a capacity of crushing 2000 tonnes of sugarcane/day producing 700
tonnes of bagasse is chosen
ii) High-temperature and high-pressure boilers and steam turbines generator are installed to
generate 11-MW of electricity and low-pressure and low-temperature steam extracted is
supplied for process heat.
iii) Out of 11-MW, 2 MW will be supplied to the mill to meet its demand and the remaining
9 MW to the national grid.

In the absence of the project activity, 700 tonnes/day x 150 days/year = 105,000 tonnes/year of
bagasse containing 20% carbon is burnt to produce 77,000 tonnes of CO2. Moreover, 11-MW power
plant based on natural gas planned by BPDB will produce 22,850 tonnes of CO2 annually. But with

4
the project activity using improved cogeneration, 11MW generator can be run by the bagasse alone
produced in the sugar mill displacing the 11-MW power plant based on natural gas. Thus the yearly
abatement of CO2 is (77,000 + 22,850) – 77,000 = 22,850 tonnes.

Since, out of 11-MW, 2 MW will be consumed by the mill, 11 – 2 = 9 MW will be supplied to

the grid. Emission additionality is thus calculated based on 9 MW and is equal to 18,696 tonnes
of CO2.

1.6.2 Project Cost and Revenue

A. Investment Cost.

(i) Storage facility for bagasse = 15 million Taka

(ii) Cost of 11-MW generation system, boilers,
turbines and Auxiliaries = 11 × 30 million Taka
= 330 million Taka
(iii) Land and development = 10 million Taka
(iv) Other equipment cost = 5 million Taka
(iii) Contingency (5%) = 18 million Taka
---------------------------------------------------------------------------------
Total = 378 million Taka
Working Capital = 6.35 million Taka
---------------------------------------------------------------------------------
Total = 384.35 million Taka

B. Operation and maintenance

(i) Bagasse cost (105,000 tonnes @Tk. 220/tonne) = 23.10 million Taka
(ii) Other O & M cost (10% of bagasse) = 2.31 million Taka
(iii) Repair and maintenance = 1.00 million Taka

(iv) Fixed cost, 50 employees at

7000 Taka/month = 4.2 million Taka
--------------------------------------------------------------
Total = 30.61 million Taka
C. Revenue
Gross generation of electricity at 11-MW
for 150 crushing days. = 39.6 GWh
Sale (95%) = 37.62 GWh
Revenue (Taka 2 million/GWh) = 75.24 million Taka

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D. Gross profit per year = Revenue (O&M Cost)
= 75.24 – 30.61
= 44.63 million Taka/year

1.6.3 Indirect Emission Effect

If the emissions are caused by the project outside the baseline and the project boundaries, these
are indirect emissions. In the case of the present project no such leakage is identified. Some
emissions may occur during civil work and maintenance of engines but these emissions will be
insignificant.

1.6.4 Additional Environment and Social Benefit

The Kyoto Protocol requires that a CDM project activity contribute to the sustainable
development to the host country. In the monitoring plan necessary arrangement has been made to
maximize local benefits. The project will improve the local environment by eliminating smoke
and harmful gases through complete combustion of bagasse.

The project will also increase local employment for maintenance and operation of the plants.

1.7 Financial and Economic Analysis

The total investment cost of the project using 700 tonnes of bagasse/day has been estimated at
378 million Taka (US $ 6.46 million) with additional 30.61 million Taka/year as operation and
maintenance cost. The project is likely to produce 39.6 GWh (gross) of electricity annually. Net
saleable electricity is estimated at 37.62 GWh annually and revenue is 75.24 million Taka at the
rate of Taka 2 million per GWh. The net reduction of CO2 is expected to be 18,696 tonnes
annually.

Financial results show that FIRR is 5.59%, NPV is – 22.51 million Taka at 10% interest and B/C
ration is 0.77 (Annex-3a). Therefore the project in the base case is not financially viable and
could not be developed under the given scenario.

Sensitivity analysis scenarios have been depicted on two risks that might face the project. Results
of sensitivity tests are shown below:

FIRR drops to –32.61 for a decline in project benefit by 15% (Annex 3b).
FIRR drops to –4.01 for an increase in project cost by 15% (Annexure 3c).

The above sensitivity tests indicate that the financial viability of the project is more sensitive to
revenue changes than similar proportion changes in project costs.

Financial analysis was recast by incorporating carbon dioxide credit as per CDM project as
outlined in the ADB guidelines supplied to the consultants. CO2 credit price was assumed US $
10.00 i.e. Taka 585 per ton of CO2. The results show that FIRR increases compared to base
conditions. Results of sensitivity tests are also shown.

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(i) FIRR increases to 18.66% (Annex 4a).
(ii) FIRR drops to 5.11% for a decline in revenue by 15% (Annex 4b).
(iii) FIRR drop to 10.40% for an increase in project cost by 15% (Annex 4c).

The breakeven credit price of CO2 is US$ 3.10.

Economic analysis shows that EIRR is 9.58% (Annex 5a)

Results of sensitivity tests are as under:

(i) EIRR drops to –11.67% for a decline in project benefits by 15% (Annex 5b).
(ii) EIRR drops to 0.82% for an increase in project costs by 15% (Annex 5c)

The above sensitivity tests indicate that the economic viability of the project is drastically
affected by change in the risk factors that have been tested. As in the case of financial analyses,
here also lowering of project benefits has the more damaging effect than investment cost
enhancement.

In view of the results above the proposed project could be established if this could be combined
with CDM project as per the provisions of Kyoto protocol.

1.8 Other Socioeconomic benefits

Project has important health and environment benefits and these occur in the following manner:

Around the surrounding area of the sugar mill

• Improved co-generation in sugar mill would reduce smoke-flow to the neighbouring
villages and reduce incidence of diseases like headache, migraine, cough, bronchitis, skin
disease, etc.
• Project would improve cleanliness of the surrounding area including clothing, households
and backyards.
• Project would stop spillage of bagasse in the surrounding area and reduce ugly smoke –
flow and air pollution.
• Project would check destruction of greenery of the plants and vegetation.

Within the premise of sugar mill

• Improved co-generation would check smoke and heat flow to the workplace and reduce
incidence of diseases like headache, migraine, cough, bronchitis, skin diseases, etc.
affecting workers and staff.
• Project would improve work-environment by reducing smoke, dust and elimination of
ugly site, smell.
• Project would stop over-spilling of bagasse and reduce congestion in the mill premise.
• Project would contribute to cleanliness of the workers physique, office and open spaces.

7
2. Introduction and Background of the Project
2.1 Assessment of Cogeneration Potential

This section provides a brief overview of an assessment of the potential for cogeneration in
Bangladesh. The results presented are based on desk studies and a summary survey of the
principal industries.

2.2 Previous Studies on Cogeneration

Several studies have been carried out on co-generation providing some assessment of the
cogeneration potential in the country. The first study to address the cogeneration potential was
carried out by Arthur D. Little in its “National Industrial Conservation Substitution Program”,
IDA credit No. 1357 – BD (EAC, 1986). In that study it was mentioned that in Bangladesh
cogeneration provides the bulk of the energy needs for the fertilizer, paper and sugar industries.
The study also estimated the potential for cogeneration in six other industries. An estimate for
the additional potential for energy savings due to cogeneration in the six industries amounted to
5.15 Peta joules per year.

Cogeneration was also addressed under an ADB TA loan entitled “Energy Conservation in the
Industrial Sector 1973-BAN”(ADB, 1996) and in that study reference was made to the use of
cogeneration in the textile industry where in most cases the enterprises had installed gas engines
without waste heat recovery. The principal reason for doing this was identified as the
achievement of independence from the grid supply (very poor reliability and quality of service),
the justifications and associated penalty costs.

In 1997, the Bangladesh Centre for Advanced Studies (BCAS, 1997) carried out a study on the
potential of cogeneration in the sugar sector and concluded that, with the bagasse available,
generation in excess of 100 MW for all the sugar mills could be achieved. This would be done at
individual sugar mills; capacity will depend on the crashing capacity of the plant.

In 1998, the Centre for Energy Studies & Mechanical Engineering Department of BUET in
association with EMCC, Bangladesh and UN-ESCAP Bangkok produced a report entitled “Pre-
Feasibility of Cogeneration in Industrial and Commercial Sectors of Bangladesh” (BUET, 1998).

The report identified several types of enterprises in the industrial and commercial sectors where
cogeneration would be possible. A survey was carried out in different manufacturing and
commercial facilities and a preliminary estimate of the technical cogeneration potential in the
country obtained. The report identified a potential of close to 1,000 MW. The potential for
cogeneration in Bangladesh identified in the BUET report for some 19 different activities
excluding fertilizer industries.

Most of the assumed average installation potentials for the cogeneration plants are relatively
small and it is questionable whether private investors would express interest in such small
applications. However, this may look attractive to the owners of these industries as has been
demonstrated in other studies.

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 Table - 1: Industrial and Commercial Cogeneration Potential In Bangladesh

Type of Industry No. of mills Average Installation Total (MW)

potential (MW)
Textile Spinning Mills 50 2.0 100
Textile Processing Mills 50 1.0 50
Knitting & Hosiery Plants 50 0.6 30
Jute Mills 70 1.5 105
Paper Recycling Mills 14 3.0 42
Soup & Chemicals 20 0.8 16
Tanneries 50 0.6 30
Cement Factories 10 0.8 8
Ceramic Industries 20 1.5 30
Tea Gardens 180 0.9 162
Food Industries 15 1.0 15
Distilleries 10 0.6 6
Sugar Mills 15 10.0 150
Industrial Estates 5 5.0 25
Hotels 50 0.5 25
Hospitals 150 0.5 75
Housing Complexes 10 1.0 10
Office Complexes 150 0.5 75
Export processing Zone 5 5.0 25
Total 979
Source: A Study Report on “Pre-feasibility of Cogeneration in Industrial and Commercial Sectors of Bangladesh”
by Centre for Energy Studies & Mechanical Engineering Department of BUET in association with EMCC,
Bangladesh and UN-ESCAP, Bangkok, November 1998.

In January 2001, the Chemical Engineering department of the Bangladesh University of

Engineering and Technology issued a report entitled “Clean Development Mechanism Project –
Opportunities in Bangladesh” (BUET, 2001). The report identified cogeneration as a technology
that could have significant impact in the reduction of carbon dioxide emissions and presented
several case studies of the overall benefits of either increasing cogeneration at specific plants or
starting this process.

2.3 Potential for new Cogeneration in Bangladesh

As can be seen from above, the potential for new cogeneration in Bangladesh is estimated to be
close to 1,000 MW. So, the electrical grid to supply to other consumers whose requirements are
not being met could use additional electric power produced in cogeneration facilities.

Cogeneration could also assist in alleviating transmission and distribution congestion as some of
the plants could be located at strategic points of the network and their connection to the grid
would be at the distribution voltage level or slightly higher. In addition, the cogeneration plants
could also assist in increasing power quality and network reliability. Cogeneration can thus assist
in reducing greenhouse gas (GHG) emissions through system management.

9
Cogeneration is already used in Bangladesh in several industries. However, most of the existing
equipment used to produce steam and power is, on the average, quite old and has crossed their
economic life. In order to continue reliable, efficient and safe operation, much of the
cogeneration equipment will have to be replaced/refurbished in the near future.

The fertilizer industry already has close to 140 MW being generated from cogeneration and this
could be increased in the future as DAPs plants are added. The pulp and paper industry has about
35 MW being generated from cogeneration and this is expected to increase by another 8 MW in
the near future. The total generating capacity from cogeneration at the jute mills is not known
since not all the mills were surveyed.

Most sugar mills surveyed already have some form of cogeneration. Extrapolating from the data
received it is estimated that 15 mills have some 40 MW of power from cogeneration to meet
their own power requirements during the cane crushing season. By replacing the equipment, in
order to make full use of all the bagasse available for power generation, it is estimated that an
additional 100 MW could be generated and sold directly to the grid.

The total potential for cogeneration, existing and new, in Bangladesh could thus be
conservatively estimated at 1,200 MW to 1,500 MW. However, many of these applications
would require relatively small installations.

2.4 Justification of Improved Cogeneration from Bagasse

• Bagasse has good calorific value of 2300 Kcal/Kg. Present heat utilization is rather small
and power required only by the mill is produced. In the off-season, power for utility and
colony is purchased from the national grid. Utilizing high-pressure technology more
power can be generated and excess supplied to the grid. In the absence of any cheaper
fuel, bagasse utilization is of prime importance.

• During winter more power is needed in the northern part of the country for agriculture
National grid can’t meet the demand and hence any additional power will reduce the
shortage and improved bagasse cogeneration for more power is justified.

• As national grid in the region supplies power generated from gas and since the quantity
will be reduced, so CO2 emission will be less and hence reduction in emission and
consideration of CDM.

• Moreover, boilers and turbines of the sugar mills are very old and their economic life is
already over, whereas the process of sugar production will continue. This will need
change of boilers and turbines. When change is needed, the unit should go for better
technology and earn from more power generation.

• Discussion with the personnel of BSFIC and survey at the mill premises and surrounding
areas reveal that introduction of improved co-generation is a necessity for making the
sugar mills profitable and improving the environment in and around the sugar mills.

10
3. Energy Situation and Government Policy
3.1 Sector Description
Bangladesh has a total installed power generation capacity of 4005 MW in 2000/01. Of this,
3,320 MW was in public and 685 MW was in private sector. Available capacity was however,
restricted to 2,900 – 3100 MW due to lack of adequate maintenance and rehabilitation
programme. Routine close down, reduction of generation capacity due to prolonged use beyond
economic life etc. were other contributing factors for low available capacity. Due to shortfall in
generating capacity compared to demand, load shedding became inevitable throughout the
country during peak hours. The load shedding problem was somewhat eased during the last few
years due to commencement of new power plants as described below:

Plant Capacity (MW

Commencement of Generation
Public Sector
1. Rauzan Steam Plant (2nd unit) 210 September 1997
2. Ghorasal Steam Plant (6th unit) 210 January 1999
3. Shahjibazar Gas Turbine (1st unit) 35 March 2000
4. Shahjibazar Gas Turbine (sub unit) 35 October 2000
5. Baghabari Gas Turbine 100 February 2002

Sub Total 590

Private Sector
6. Haripur Barge Mounted 110 June 1999
7. Khulna Barge Mounted 110 October 1998
8. Baghabari Barge Mounted 90 June 1999
8. AES-Haripur 125 February 2002

Sub Total 435

Public –Private Sector
9. Mymensingh Gas Turbine (1st phase) 70 November 1999
10. Mymensingh Gas Turbine (2nd phase) 70 December 2000

Sub Total 140

Source: Ministry of Finance and Planning (2002).

3.2 Present and Forecasted Energy Situation

The gross electricity generation in 2000/01 was 17,023 GWh, out of which gas based generation
constituted 87%, hydro generation 6 % and liquid fuel based generation 7%. During 2001/02, a
total of 18,656 GWh was consumed under the overall management of Power Development
Board, Dhaka Electric Supply Authority, Dhaka Electric Supply Company and Rural
Electrification Board. Of the total energy consumption, residential sector, industry, commercial
sector, agriculture and others, accounted for 41%, 44%, 8%and 7% respectively. 13.49% of
electricity has been purchased from the private sector. Per capita consumption was 99 kWh in
1996/97 that stood at 106 kWh in 1997/98, 120 kWh in 1999/00 and 129 kWh in 2000/01.

11
Country’s Power System Master Plan (PSMP, 1995) formulated in 1995 estimates peak power
demand for 2005 and 2007 at 5,200 MW and 6,100 MW respectively.

Table 2: Gross Peak Growth Forecast

Fiscal Year Gross Peak Growth, MW

1995/96 2200
1999/00 3150
2005/06 5,200
2007/08 6,100
Source: PSMP, 1995
Although power generation is increasing every year, it has nevertheless trailed behind growing
demand. Few ramifications of the slow growth in electricity generation and consumption are
illustrated by the following hard facts:

• About 30% of the population now has access to electricity.

• Per capita consumption of electricity is only 129 kWh per annum, which is one of the
lowest in the world.
• System firm capacity was 2900-3100 MW out of an installed capacity of 4005 MW in
2000/01.
• Forecasted peak demand in FY 2002 was around 4000 MW, showing a power or outages
of 25%.
• Peak demand is expected to increase to 5,200 MW by the year 2005. Present generation
position indicates a power outage not less than 40% by the year 2005.

3.3 Constraints and Issues

Power shortage is the result of accumulated problems of many years. Some of the reasons that
are responsible for the present situations are discussed below:
• Inefficiency of the parastatal management of the sector and a tariff structure unfavorable
to efficient usage of power. Economic and Financial Indicators of the electricity utilities
are shown in Annex 1
• Reserve margin defined as actual production capacity minus maximum demand served
has been continuously declining since 1989/90 to reach zero margins in 1993/94. Power
generation and power supply became precarious due to lack of reserve margin. Added are
the problems of accounts receivables of the electricity utilities (Annex 2).
• As shown in Table 3, load shedding during the period 1990/01 – 2001/02 varied from 340
MW to 774 MW.
• Investment by Government on Bangladesh (GOB) in power generation plants and
transmission and distribution has not been sufficient in the past years due to resource
constraints

12
 Table 3: Installed, Actual Production and Firm Production Capacity,
Peak Demand and Shortfall

Year Installed Generation Demand Demand Load Reserve

Capacity Capacity Forecast Served Shedding Margin
(MW) (MW) (MW) (MW) (MW)
1990/91 2350 1719 - 1640 340 5
1991/92 2398 1724 - 1672 550 3
1992/93 2608 1918 - 1823 480 5
1993/94 2608 1560 - 1875 540 -
1994/95 2908 2133 2038 1970 537 8
1995/96 2908 2105 2220 2087 545 1
1996/97 2908 2148 2419 2114 674 2
1997/98 3118 2320 2638 2136 711 9
1998/99 3611 2850 2882 2449 774 16
1999/00 3716 2665 3149 2665 536 -
2000/01 4005 3033 3394 3033 663 -
2001/02 4230 4055 - - - -
Source: BPDB (2001/2002)

• Power sector has always been dependent on foreign aid/loan. However, there has been no
foreign lending from donors including World Bank, Asian development Bank (ADB) in
this sector during 1990/91 – 1995/96. As a result, no major investment work could be
undertaken for power generation, transmission and distribution system. BPDB/DESA
were unable to meet World Bank and ADB requirements/ conditionalities on system loss,
accounts receivable etc.

Table 4: System Loss of Electricity Organizations

Year BPDB DESA REB DESCO Combined

(% of Net (% of (% of (% of %
Generation) Import) Import) import)
1995/96 17.0 29.5 15.2 31.3
1996/97 16.00 27.3 15.8 30.3
1997/98 16.5 27.8 16.8 31.3
1998/99 16.8 24.9 18.6 30.9
1999/00 15.5 - 20.1 32.73 37.1
2000/01 14.6 26.03 17.9 30.55 -
Source: Ministry of Finance and Planning (MOEF, 2002).

• Power transmission system became inadequate because of lack of investments in

construction of transmission network for the last few years.
• Power generation is far below the installed capacity due to inadequate supply of gas to
gas-based generation plants.
• Power generation declined due to derating of many power plants

13
 Table 5: Accounts Receivable of BPDB and DESA (in billion Tk)

Fiscal year BPDB DESA

1997/98 17.29 9.98
1998/99 24.64 12.44
2000/01 27.89 13.96
2001/02 33.99 14.8
Source: Ministry of Finance and Planning (MOEF, 2002)

3.4 Government Policy and Strategy

In 1994, the GOB adopted Power Sector Reforms in Bangladesh (PSRB), which was formulated
in consultation with the major development partners (DPs) in the power sector. The PSRB
outlined the reform process proposed to be followed by the Government to gradually remove the
constraints in the sector through improvements in sector and corporate governance, introduction
of competition, and public-private partnerships. Reforms of the external environment were to be
done through targeted interventions in the power sector.

In accordance with the PSRB, the power sector in Bangladesh has gradually been undergoing
structural changes through technical assistance for planning and institutional strengthening as well as
capital for system expansion, in line with the principle of reforms-linked assistance. ADB has
focused on the greater Dhaka area, given its commercial and political importance to Bangladesh

As a direct result of assistance by ADB and KfW, three new companies have been established–
PGCB, Dhaka Electric Supply Company (DESCO) and Rural Power Company (RPC). While
RPC was a new start-up generation company, PGCB took over assets and liabilities of the
existing transmission operations of BPDB, and DESCO, the Mirpur (later expanded to cover the
erstwhile Gulshan circle also) distribution operations of Dhaka Electric Supply Authority
(DESA). Although both companies have improved their operations and have broken even on
current operations, their past liabilities create an accumulated problem which prevents their
transformation into profitable companies.

In line with the reform measures, a number of activities have already been undertaken for the
desired development of power sector.

Government has approved, “Private Sector Power Generation Policy of Bangladesh” in October
1996 to promote private sector investment in power generation. Under this policy, the private
power companies (domestic, foreign or joint ventures) would be exempted from corporate
income tax for a period of 15 years and will be allowed to import plants and equipment without
payment of custom duty and VAT.

In the public sector, a wide range of reforms and programmes for the generation, transmission
and distribution system of the power sectors has been undertaken. In this respect, RPC has set up
initially a 60-MW power plant at Mymensingh, which would supply power exclusively to the
rural areas.

14
“Power Grid Company of Bangladesh (PGCB)” has been created to separate the distribution
system. The company at the initial stage has started implementing its programmme for
construction of transmission lines and national load dispatch center for transmission of power
that would be generated from Meghnaghat power plant. PGCB will eventually, acquire the entire
power transmission network of the country and be responsible for its management, maintenance
and expansion.

The area under DESA has been rationalized and re-demarcated in order to increase the efficiency
of the management of the power distribution and improve the quality of the services. In order to
reduce the system loss and give quality of service, a company named DESCO, as stated above,
has been created to manage the power distribution system of Mirpur of Dhaka Metropolitan City
since September 1998. This will eventually take over the entire distribution responsibility of
DESA.

Captive Power generation is being encouraged through reduction of import duty. As a result,
generation capacity has increased significantly. This has contributed to meeting demand during
peak period.

BPDB has created 8 new distribution zones for bringing about distribution efficiency. In line
with modern management concept, distribution areas have been established as Strategic Business
Units (SBU) with greater autonomy.

Power Cell has been created within Power Division in the Ministry Energy, Power and Mineral
Resources for purpose of carrying forward various reforms in a coordinated and concerted
manner. Among the important activities currently pursued by the Power Cell include formulation
of Power Act, establishment of an independent Power Regulatory Authority, Vision and Policy
Statement of Government, etc.

Ashuganj Power plant has been transformed into a Public Company and Haripur Power plant has
been transformed into a cost /profit center. Creation of a West Region Integrated Power
Distribution Company is in its final stage.

3.5 Government Policy on Renewable Energy

Bangladesh’s fossil energy resources consist primarily of natural gas. Domestic oil supply is
considered negligible. Several small deposits of peat exist in the southwestern region of the
country. However, Bangladesh has substantial bituminous coal deposits in the northwestern
region, but mining of all of them is quite expensive because of their depth (see Country Study
Report).

Around 30% of the total population has got access to electricity. Vast majority of the rural
population that comprises 76% of the total population is deprived of energy resources. Larger
energy supplies and greater efficiency of energy use are thus of paramount importance to meet
the basic needs of a growing population

15
It is therefore considered necessary to exploit all sources of renewable energy and to use these in
an efficient form for the benefit of the people. GOB has accordingly formulated a renewable
energy policy for the country. The policy mentions necessity of taking up renewable energy
development programs in the areas where potential renewable energy resources are available,
considering economical and technical performance with minimum environmental effects. Plant
site, size and design are to be considered on the basis of available energy resources of the area
and efficient conversion of energy will be given preference. Policy envisages accomplishment of
its objectives by mobilizing a concerted national effort with the continued cooperation and
commitment of GOB, international organizations, bilateral and multilateral funding institutions,
non-government organizations, the private sector, research organizations and universities, etc.
Policy also realizes that innovative new financing opportunities including micro-financing will
be needed to attract private capital to supplement the energy deficiencies in the rural areas and
thus to fulfill the aspiration of the poor people. In case of renewable energy, technology is
advancing fast and many governments have formulated innovative policy formulations for
renewable energy development.

3.6 Market for Electricity

Given that about 30 percent of households in Bangladesh are connected to the electricity system,
there is a huge potential demand for electricity compared to the current amount that is now being
served. Also among the connected consumers, there are unserved demands. The market cannot
be served now because of generation and infrastructure constraints. BPDB has limited capacity
of financing new generation or transmission lines. Complicating the supply side even further is
the availability of foreign exchange to pay for electricity supplied by present and future IPPs,
PSCs and other energy related capital investments. Examination of the existing committed and
planned generation plants reveals that generation would lag behind potential demand. The United
Nations Commissions on Human Settlements forecast that the population of Dhaka would
increase by almost 50 percent to become the sixth largest city in the world by 2010. With this
increase, power generation would be insufficient to meet the demand

4. Availability of Sugarcane

4.1 Sugar and Bagasse in Sugar Sector

Present position of Sugarcane production:

Bangladesh is dependent on many cash crops of which sugarcane is one. The area cultivated and
sugarcane produced for some past years are shown below. The Government has placed the sugar
industries sector under the administration of the Sugar and Food Industries Corporation (BSFIC)
under the Ministry of Industries and attaches high priority to the sugar mills to the extent that
GOB forces farmers in the vicinity of sugar mills to sell sugarcanes to the mills at controlled
prices which are typically low.

16
 Table 6: Area Cultivated and sugarcane produced over the period

Year Acreage ‘000’ acres Production ‘000’ M. tons

1991-92 463 7446
1992-93 456 7507
1993-94 447 7111
1994-95 445 7446
1995-96 431 7165
1996-97 434 7521
1997-98 433 7371
1998-99 430 6951
1999-2000 421 6910
2000-2001 217 6742

The trend of production of sugarcane now a days is the same as in the past. The production is
affected by long-term flood and fog. For good production financial help and agri inputs are
provided by the mills to the farmers.

4.2 Future trend of Production

Sugarcane production can be increased. Bangladesh sugar industries development forum (a

platform of retired executives of sugar mills) suggested that Taka fifty should be the price of a
maund (37,5 kg) of sugarcane for capacity utilization of all sugar mills, which come to 3.2
million tonnes. Also a new technique of space-transplanted sugarcane (STP) should be
introduced. This may double the production/acre. Also the HYV of sugarcane seed as developed
by local scientists should be introduced for higher production. So, overall position of production
in future is promising.

4.3 Utilization of Sugarcane

Sugarcane is utilized in 3 (Three) ways.

(A) Chewing, (B) Gur making, (C) Cane sugar production.

(A) Chewing: Sugarcane used for this purpose is soft, with long spaced knot. These are very
specialized sugarcane and grown almost allover the country in very small quantity. The
quantity of sugarcane used for this purpose is not significant.

(B) Gur making: Gur is somewhat refined molasses. Here sugarcane is crushed in local
crushers in places outside restricted areas near the mills. Generally gur making is
prohibited in mill areas by mechanical crushers. Around 0.4 million tonnes of gur is
produced every year. Here sugarcane is crushed and the liquor is concentrated in pans

17
 heated by the bagasse coming from the crusher. Around 1.89 kg of bagasse is needed for
1 kg gur.

(C) Cane sugar: For production of cane sugar, sugarcane is carried by mills’ own transport
to the mill site from mills’ own area. This is weighed, transported to conveyors and
crushed. A term called TCD, tonnes of cane crushed per day, is a common term in sugar
mills.

4.4 The Sugar Mills

There are 15 sugar mills now. The location of the mills is shown in Table 7. TCD and annual
production capacity of individual mills are also given below (Table 7). Some mills were installed
in 1930’s.

Table 7: Location and capacity of sugar mills

Name of the Sugar Installed capacity
Mills TCD Annual Sugar Production
Capacity (Tonnes)
Panchagarh 1016 10,160
Thakurgaon 1524 15,240
Setabganj 1250 12,500
Shampur 1016 10,160
Rangpur 1500 15,000
Joypurhat 2032 20,320
Rajshahi 2000 20,000
Natore 1500 15,000
North Bengal 1500 15,000
Kushtia 1524 15,240
Carew & Co 1150 11,500
Mobarakganj 1500 15,000
Faridpur 1016 10,160
Zill Bangla 1016 10,160
Pabna 1500 15,000
Total 21,044 210,440

18
 LOCATION MAP OF SUGAR MILLS

19
4.5 The Sugar Juice and Sugar Production

The juice after crusher is processed in all the mills in the conventional way. Sugar produced is
almost near the capacity though varying from year to year depending on various factors.

4.6 Demand of Sugar

Based on consumption of 3 kg/capita Sugar Corporation thinks that country’s overall demand is
0.5 million tones. However, based on per capita consumption of 8 kg sugar and 4 kg gur, as
thought by the Nutrition Council, the demand will be not less than 1 million tonnes.

4.7 Sugar Sale

On the average around 0.2 million tonnes of sugar is produced by the local mills and, rest
procured through import and other means in a year. The import price (unit) is less than locally
produced sugar.

4.8 Profitability of Sugar Mills

All the mills in this sector are running at a loss and total loss per year is around 1,000 million
Taka.

4.9 Reasons for loss

• Poor recovery rate

• High production cost
• Excess manpower
• Poor yield of cane
• Delay in payment to farmers
• Lack of working capital

4.10 Suggestion for improvement (by Development Forum)

• 600 million Taka for BMRE of each mill.

• 9000 million Taka for 15 mills in the sector
• By installing auxiliary units for by-products, and
• By running the sugar mills throughout the year by refining imported raw sugar during the
non-crushing season. Duty on raw sugar has been reduced from 90% to 40%.

4.11 Bagasse Management

Sugarcane on crushing and extraction leaves a residue called bagasse. This is 30-35% of the cane
crushed. This contains 50% moisture. The calorific value as such is 2300 kcal/kg or 3200
BTU/lb. The bagasse is burnt in the boilers for steam production.

20
This steam goes to some units of the process and rest goes to turbine for power generation. In
year 1993-94 there was a production of 0.22 million tonnes. The performance of bagasse buring
is given in Table 8 for that year.

Table 8: Performance data of sugar mills in 1993-1994

Sugar Mill Bagasse Steam Power Bagasse to

consumption Production Generation NBPM
(Tonnes) (Tonnes) (KWh) (Tonnes)
1 Panchagarh 49445 99879 2967410 2684
2 Thakurgaon 64552 138286 3878446 8847
3 Setabganj 46289 100731 3838230 1024
4 Shampur 40281 89031 2897463 2235
5 Rangpur 52074 104669 3878516 2632
6 Joypurhat 47699 150145 3586303 3622
7 Rajshahi 81444 157210 5518750 2088
8 Natore 89818 179330 5972280 5308
9 North Bengal 93774 206429 4158770 2167
10 Kushtia 55343 102292 3104262 1247
11 Carew & Co 68080 136841 3445652 -
12 Mobarakganj 75661 162913 1887810 3112
13 Faridpur 55663 155075 298589 5124
14 Zill Bangla 44830 99570 3137760 2435
Total 891953 1882401 45974270 42525
* North Bengal Paper Mill.
In Table 8 supply of bagasse to North Bengal Paper Mills (NBPM) has been shown in the last
column. The price/tonne of such sale was Taka 220/tonne at sugar mill sites.

4.12 Advantage of bagasse burning for cogeneration.

The cane sugar factory has unique characteristics for the application of cogeneration technology. The
principal advantages lie in the good fuel characteristics of bagasse and in the high uses of low-
pressure steam within the plant. In conventional power plants, most of the heat that is obtained by
burning fuel is thrown away in the form of low-pressure steam as the steam condenses and heats
cooling water. In the sugar factory, the heat in low-pressure steam is used to perform such work as
juice heating, evaporation and sugar boiling. During the process steam condenses.

A well-known option for sugar mills to increase their profitability is bagasse cogeneration. At
present, bagasse is burnt inefficiently in low-pressure boilers to raise steam. Cogeneration has
long been a standard practice in the cane sugar industry. With the application of efficient
processing and energy management systems, energy from the bagasse, well above the factory
needs, is available and can be exported conveniently in the form of electric power. Application
of sugar cogeneration will displace a part of fossil-based electricity generation leading to a more
sustainable mix in power generation.

21
5. Cogeneration Technology

5.1 Technology options and choice of technology for improved cogeneration in sugar
mills
Cogeneration is simply the simultaneous production of electrical and thermal energy from a
single source of fuel. Two basic operating cycles depending on whether mechanical / electrical
power is produced before or after heat is extracted for thermal application. Some illustrations are
given below in brief.

Figures 1, 2, 3: Topping Cycle: Power is produced first followed by extraction of heat. This is
most common type of cogeneration system. Prime movers in topping cycle are reciprocating
engine (gas and diesel) and gas turbine.

Figure 4: Shows a backpressure steam turbine topping cycle, which is self-explanatory.

Figure 5: Steam turbine bottoming cycle. Here high temperature steam or hot water is first
produced in a boiler primarily for thermal application. The residual steam or hot water is then
used to drive a steam turbine to generate electricity. It is called combined cycle system and is a
highly efficient method of producing mechanical/ electrical energy. This is only for large
industrial application.

More specialized cogeneration system can be built using rankine cycle engines, sterling engines,
fluidized bed combustion systems, etc.

5.2 Present Generation System in Sugar Mills

Bagasse with calorific value of 2300 Kcal/kg is burnt in boilers, which are very old now (life 40
yrs). In the sugar mills the steam pressure vary from 10.54 kg/ cm2 to 29.38 kg/ cm2 and the
temperature from 222ºC to 341ºC. Electricity is generated with this steam in back pressure
turbines where capacity vary widely. The demand ranges from 1.2 to 1.9 MW. Generators have
the capacity from 0.9 to 1.5 MW.

5.3 System in the Project

It will be almost the same as in Figure 4. Only difference is that extraction will be more as per
demand in the mill. The proposed units are:

22
 Figure 1: Gas Turbine topping Cycle

Figure 2: Steam turbine

Figure 2: Steam Turbine

23
 Figure 3: Gas Engine Topping Cycle

Figure 4. Steam Turbine Topping Cycle

24
 Figure 5. Steam Turbine Bottoming Cycle

• Two bagasse fired boilers rated at 55 tonnes/hr, HP steam conditions 45.3 kg/cm2 at
400ºC and auxiliaries.
• One controlled – extraction/condensing steam turbine generator rated at 11-MW, HP
steam conditions being above 45 kg/cm2g and 400ºC.
• One set condensate extraction pumps, deaerator and cooling tower and auxiliaries.

The sizing of the steam turbine will be dependent on the sugar mill maximum demand steam
flow, the limiting flow in the LP steam path being 12% of design exhaust flow at maximum
extraction conditions. The limiting exhaust flow is to ensure no windage at the last stage blade.

• During the crushing season one unit would be required to be in service to supply the
sugar mill steam demand. A second boiler would be available as stand-by to meet steam
host requirements.

6. Project Description

6.1 Project Goal

Project has the goal of self-sustained development of the electricity sector, improved quality and
increased coverage of economic development of the sugar sector. It is expected that the project
would contribute to improvement of the living standard of the people of Bangladesh through
provision of a vital energy source sugar at affordable prices, higher price of sugarcane provided
to farmers, more electricity in the electricity starved areas and abatement of GHG.

6.2 Project Objectives

The project has the objectives of improved co-generation in sugar sector by improved utilization
of a renewable energy source by which reduction of greenhouse gas under CDM will be possible.

25
Saving of natural gas would also allow utilization of this scarce resource for other development
purposes.

6.3 Poverty reduction Through Project

In Bangladesh, poverty is widespread and acute by any indicator of measurement and the role of
electricity in addressing the challenge of poverty reduction is crucial. Contemporary research on
poverty alleviation has observed that electrification can significantly reduce the incidence of
poverty. Also the constitution of Bangladesh stipulates electrification as one of the obligations of
the state. With this constitutional mandate in mind, successive governments with assistance and
support from donors have placed electrification high on the agenda of reforms.

6.4 Technology Transfer

Although electricity is being generated in the country since the later half of nineteenth century,
this has always been either liquid, hydro or gas sources. Use of solar energy has only been
recently started. In the sugar sector, generation of electricity is a very old practice. This
generation is from steam, which results from combustion of bagasse, a residue of sugar cane
crushing. The old practice used low-pressure boilers and present practice is to produce steam at
high pressures so that more power can be generated. From this generation, part will go to sugar
mill for the process and excess will be supplied to the national grid. This high-pressure
technology will be a new one in the sugar sector.

6.5 Project Location

Most of the sugar mills are located in the northwestern part of Bangladesh; so the present project
will be located in one of the sugar mills. Rajshahi sugar mill or Joypurhat sugar mill can be the
first choice depending on the size of the plant.

6.6 Project Partners

Under the “Private Sector Power Generation Policy” of Bangladesh announced in 1996, several
Independent Power Producers (IPPs) have started producing power since 1998/99. These IPPs
are 100% foreign financed established on Built-Owned-Operated (BOO) system or (Built-
Owned-Operated and Transferred (BOOT) basis or any of its combinations. Under mixed sector,
there is a Rural Power Company Ltd. (RPC) established under the ownership of a parastatal
called Rural Electrification Board (REB) and private Pally Biddut Samities (Rural Electricity
Associations) in 1999-2000. The project could be established in BOO or BOOT system as in the
case of IPPs. Moreover, the combination of CDM in the project is likely to encourage foreign
investment as per the provisions of “Kyoto Protocol”. Financial commitment is likely to be
finalized at the time of soliciting bids from interested parties. Generation will be carried out
under the overall supervision of the concerned sugar mill.

26
6.7 Project Outputs

The project is likely to produce 39.6 GWh only during the crushing season of one of the sugar
mills with 2000 TCD. The net reduction of CO2 will be 18,696 tonnes in the crushing season.

6.8 Project Implementation Plan

After completion of all formalities, the project will start and run for 14 years. Possibly 1– 2 years
will be required for start up. During the period, MOUs, Electricity Purchase Agreement by
PGCB, Guarantee from Government /International Guarantee Agency etc. need to be finalized.
The concerned sugar mill will be the main coordinating agency and will be responsible for
providing reports to the GOB and donor agencies. The implementation plan would include
specific datelines for consulting services, design-supply-erection-testing and commissioning of
the power plant. There will be also training period for the local staff.

6.9 Project vis-à-vis Organization Structure of Bangladesh Electricity Industry

Originally, the state owned organization Bangladesh Power Development Board used to
generate, transmit and distribute all electricity in the country. Later, the Dhaka Electric Supply
Authority (DESA) and now also the Dhaka Electricity Supply Company (DESCO) distributes
and sells electricity in metropolitan Dhaka. During the 1970’s the Rural Electrification Board
(REB) was established to promote the development of electricity supply in the rural areas of the
country. The REB established Palli Bidyut Samities (Rural Electricity Association) or PBSs,
modeled after rural electricity cooperatives in the United States of America. The PBSs supply
electricity in the rural areas. The REB has a goal of electrifying all the rural villages of the
country by the year 2020. Under the REB programme, which started in 1978, 40%, or over
34,000 villages, have received electricity. The country is divided into five electricity zones,
Northern, Central, Dhaka, Southern and Western. In addition, there are two main zones, called
Eastern (including the Central, Dhaka and Southern Zones) and Western (including the Northern
and Western Zones), which are on the eastern and western sides of the Jamuna River,
respectively. Currently, the BPDB purchases electricity from the IPPs and sells electricity to
DESA and DESCO for distribution in the Dhaka area, the REB, and to final users in the
remaining Central, Northern, Southern and Western Zones. In turn, DESA sells electricity to
REB and DESCO (for the Dhaka area) and to end users in the Dhaka area. And finally, the REB
sells electricity, through the PBSs, to rural users throughout the country. In FY 2000, there was
about 594 kms of 230 kV transmission lines; over 2,795 kms of 132 kV lines, all operated
through the central load dispatch centre. In addition, there are 8 substations for 230 kV to 132
kV reduction and 75 substations for 132 kV to 33 kV reduction. There is a substantial network of
33 kV and 11 kV secondary transmission lines. The eastern and western grids are interconnected
by 10 spans over the Jamuna River. Distribution voltage is 415 volts at 50 Hz. The Central Load
Dispatch Center (CLDC) administers the transmission grid, which is equipped with PLC
communication and a mimic board. This allows monitoring of selected stations only. There is a
project to modernize the dispatch center to set up a National Load Dispatch Center (NLDC) to
include EMS and SCADA with fiber optic communications.

27
As currently practiced, BPDB/DESA would have to purchase the electricity either directly from
the project or through the Power Grid Company of Bangladesh. The developer needs to enter
into a Power Purchase Agreement (PPA) with BPDB or PGCB. BPDB or PGCB in turn would
sell the electricity to one of the distribution agencies like REB. The economics of marketing
would depend on:
• The purchase price of electricity
• Presence or absence of satisfactory distribution systems
• The spread between the purchase price and the sales price

6.10 Possible Institutional Ways to Cover Project Risks

For covering risk, the developer might arrange guarantees from an Export Credit Agency or an
International Financing Institutions or arrange partial risk guarantee from an international
agency. In order to qualify for either export credit financing, or any other form of IFI financing,
following conditions would need to be satisfied.
• Internal rate of return should be at least 14% or greater;
• Long-term (at least 20-25 years) bagasse supply contract with pricing formulas that
guarantee that the spread between electricity and bagasse will remain essentially
unchanged
• Long term electricity purchase agreements with settlements in US Dollars or in a
currency which is guaranteed convertible at a specified dollar yield;
• At least 30% of the capital requirement in cash equity
• Political risk insurance
• Firm fixed price competitively bid engineering. Procurement and construction contracts.

Also risks may be shared as follows:

Owner/Operator
• Construction and operation cost overruns
• Delay in completion -- and so penalty
• Performance guarantees -- fuel utilization (efficiency), capacity availability
• Statutory regulations -- environmental limits
Utility
• Force Majure due to Utility/ Government
• Inflation
• Market down trend
• Foreign exchange risk

Government
• Foreign exchange remittance
• Convertibility of foreign exchange
• Utility obligation
• Tax incentives
• Damage for non-performance

28
6.11 Likely Fiscal Incentives for the Project

Different fiscal incentives currently allowable to foreign investors in accordance with the
country’s industrial policy and foreign investment policy would also be available to the sponsors
for the proposed project. The private investors would generally expect the following incentives
(see Country Study report):
• Guaranteed rate of return on equity
• Reduction/waiver of customs duty on import of machinery
• Tax holiday
• Guarantee of payment for power purchased by utility
• Guarantee of foreign exchange remittance
• Guarantee of convertibility of foreign exchange

6.12 Possible Financing Arrangements of the Project

Bagasse to Electricity Project as a renewable project is likely to receive following assistance:

ƒ The GOB is a signatory to the Climate Change Convention. The GOB may establish a
Global Environmental Facility (GEF) grant fund to support renewable energy projects in
Bangladesh
ƒ GOB may allocate fund to few local Banks for project as well as micro financing part of
the capital cost of Renewable Energy Project.
ƒ GOB may facilitate the creation and encouragement of corporate debt securities market
for local financing of renewable energy project development.
ƒ If CDM-able, funds may be arranged through CERs.

6.13 Facilitating Agencies of the Project

Power Cell of the Ministry of Power, Energy and Mineral Resources is assigned the
responsibility of articulating, co-ordination, promoting renewable energy projects. In this
connection, the responsibility of the Power Cell include:

• Financial and Technical analysis of Project.

• Identifying and assessing the potential of establishment of renewable energy projects
which could make a significant contribution to Bangladesh’s energy needs both in near
term and long term
• Recommending financing and delivery mechanisms to increase the affordability of
renewable energy systems for the rural poor
• Promoting NGO and private sectors in development of renewable energy and suggesting
strengthening the institutional requirements for successful implementation of projects
• Recommending research and development and required training facilities for technology
transfer needed to support commercialization of renewable Energy technology
• Representing GOB in international institutions and implementing all policy and
recommending measures to be adopted
• Identifying the type and extent of support needed from international sources

29
• Considering existing network and planned infrastructure of different utilities before
issuance of consents/licensees for establishment of renewable Energy projects
• Resolving issues pertaining to the jurisdiction of geographical area of different utilities
should there arise any, upon approval of the Ministry of Power, Energy and Mineral
Resources.

6.14 Likely Basis of Tariff Structure Determination

In line with other Private Sector Power Projects (like IPPs), the tariff structure for the Project in
line with similar electricity generating units would consist of the following:

ƒ Debt service, return on equity, fixed and variable operation and maintenance cost,
insurance costs, money escalation costs, exchange fluctuations etc.
ƒ Payment will be linked to a certain level of availability of power which will be made
available at the time of PPA signing
ƒ Tariff payment will be made in local currency, but PPA may be made in US cents/kWh
ƒ Renewable energy private sponsors will provide year-wise tariff profile over the contract
period in a manner that will match their annual debt service requirements
ƒ Usually two-part tariff are proposed, comprising of a capacity charge, which is designed
to recover the capital or fixed costs of the plant and an energy charge, which would vary
with the net amount of energy in kWh actually delivered by the power producer to the
purchasing utility.

6.15 Possible Ways to Selection of Firm in the Project

Current Government policy on selection of firms allows two approaches -- Unsolicited Proposals
and Solicited Proposals. Under Unsolicited Proposals, Developers approach Government/ Utility
with a proposal to build a power plant and proposes the location, size, fuel types etc. Under
Solicited Proposals, Government/Utility calls for competitive bid for specific technology, size,
location and fuel for plant. Both the options have advantages and disadvantages. The main
advantage of the option of unsolicited proposals would typically be quicker bidding process
while the disadvantages would be more complicated evaluation process and validity. Also
seriousness of bids could be more often difficult to determine. The main advantages of solicited
bids would be the possibility of least cost supply which is essential to ensure that scarce and
costly capital that are raised through private sources are utilized in an optimal manner. Solicited
proposals can be obtained by calling for competitive bids for development of projects for specific
and proven technology, size and location. The structured Requests for Proposals (RFPs) should
contain the following:
• Invitations of applicants
• Information for applicants
• Instruction to applicants
• Security/package and financial structure
• Tariff structure
• Applicants’ proposals and supportive data
• Performance specifications and drawings
• Draft Implementation Agreement

30
• Draft Power Purchase Agreement (PPA)
• Draft Fuel Supply Agreement
• Draft Land Conveyance Agreement
• Site soils investigation data

Project structures whether BOO or BOOT or its variations would affect Power Purchase
Agreement (PPA). PPA would also depend on technical aspects like system load demand pattern,
project type, project efficiency, transmission arrangements and environmental aspects. Finally,
PPA would depend on financing aspects including type and quantum of financing to be attracted,
creditworthiness of the country and the sector.

7. Emission Reduction and Monitoring and Verification

7.1 Emission Reduction

7.1.1 Baseline of Electricity Generation

The baseline is the most probable future development in the absence of the project activity. The
proposed project comprises installation of improved co-generation system in a sugar mill generating
greater amount of electricity burning the same amount of bagasse as done currently and thus the
additional electricity from this project will displace the electricity generator of the equal capacity
based on gas or oil. The progress of power plant installation in Bangladesh from 1991-92 to 2001-
2002 is given in Table 9 and the trend up to 2019 shown in Figure 6. The average yearly increase
over the period is 7.6% (based on 2400 MW in 1991-92). This the baseline of electricity generation,
Of the projected generation, only 300 MW (Barapukuria) will be based on coal and the rest on
natural gas i.e. during the project period only 11.7% will come from non-natural gas and the rest
(88.3%) from natural gas. In the year 2000-01, 84% of generation was based on natural gas. Baseline
for power is there fore natural gas with small contribution from coal and oil.

Table 9. Progress of installed capacity of power plant in Bangladesh

over the period 1991/92 – 2001/02
Year Installed Capacity (MW)
1991-92 2398
1992-93 2608
1993-94 2608
1994-95 2908
1995-96 2908
1996-97 2908
1997-98 3091
1998-99 3611
1999-00 3716
2000-01 4005
2001-02 4230
Source: PDB Annual Report, 2003

31
 Figure 6: Progress of power plant installation in Bangladesh over 91/92-2001/02 and
projection up to 2019
8000

y = 178.74x + 2108.6
7000 R2 = 0.9366

6000

5000
Megawatt

Series1
4000 Linear (Series1)
Linear (Series1)
3000

2000

1000

0
19 -92
19 -93
19 -94
19 -95
19 -96
19 -97
19 -98
99 99

20 -01
20 -02
20 -03
20 -04
20 -05
20 -06
20 -07
20 -08
20 -09
20 -10
20 -11
20 -12
20 -13
20 -14
20 -15
20 -16
20 -17
20 -18

9
20 00

-1
19 98-

0
91
92
93
94
95
96
97

00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
-2
19

Year

7.1.2 Baseline for GHG Emission Connected with the Project

The proposed project envisages utilization of bagasse (700 tonnes per day) in a sugar mill of
capacity crushing 2000 tonnes of sugarcane per day for generation of electricity (11 MW)
through the improved cogeneration technology. This will reduce CO2 emission by avoiding
combustion of natural gas already planned by the Bangladesh Power Development Board
(BPDB). Quantification of CO2 avoided is fairly straight forward assuming that each kWh
delivered to the grid leads to an equivalent reduction of power production by other grid
connected power plants.

7.1.3 CO2 Emission from Natural Gas-based 11-MW Plant

In the absence of the project, yearly production of CO2 by BPDB through an 11-MW power
plant is as follows:
Gross yearly electricity production
= 11 × 106W × 24 hrs/day × 150 days/year
= 39.6 GWh/year

Energy consumed for 39.6 GWh by burning natural gas with an average conversion efficiency of
35% = 39.6 × 109 Wh × × 3600 sec 1
hr 0.35
= 407.3 TJ

Attendant CO2 Production

= 407.3 TJ × 56.1 tonnes/TJ = 22,850 tonnes (A)
Although current conversion efficiency is 30.88% (BPDB, 2002-03), 35% efficiency is used in
the above estimate, because higher efficiency combined cycle plants are expected to be added in
future.

32
7.1.4 CO2 Emission from the Present Inefficient Co-generation System.
There are 15 sugar mills in Bangladesh with a capacity of daily sugarcane crushing ranging from 300
tonnes to 2000 tonnes. These mills are scattered throughout the country, but the main concentration is
in the northwestern part of the country. Generally, a 1500-tonne per day crushing mill requires from
50 to 70 MT/hour of steam and the power demand ranges from 1.2 to 1.9 MW. Each mill has several
boilers which use bagasse as the main fuel. The age of these boilers varies from 16 to 68 years (one
is 2 years old). The average age of the boilers is 39 years. This implies that several boilers should be
replaced in the very near future.

Each of the mills has several electrical generators and this range in size from 0.9 to 1.9 MW. The
average age of these are 25 years and this also indicates that some of the generators should be
replaced in the near future. Usually during the crushing season, the mills produce steam that is
used to make the electrical generators run and supply process steam. During off crushing season,
the mills import their minimal power requirements from the grid. Steam produced by sugar mill
boilers goes to generate power by mills own turbo-generators whose capacity varies from mill to
mill. Heat efficiency of such generation is low and on the average takes 40 kg/steam to generate
1 kWh electricity. During crushing season, this is the picture and during off-season, the mills
purchase power from national grid.

The current situations, which will continue in future without the project activity, are:
i) Old boilers
ii) Old steam turbines
iii) No export of electricity to the grid
iv) High maintenance and operating costs
v) High pollution in the surrounding areas due to inefficient burning

With bagasse containing 50-60% moisture, an average value of 20% carbon is used in this
calculation (woodgas website).
Carbon content in 700 × 150 i.e.105,000 tonnes of bagasse
= 105,000 × 0 .2 = 21,000 tonnes.
Assuming complete combustion (actually combustion is incomplete as shown by the survey
result – see Chapter 10)
CO2 emission = 21000 × = 77.000 tonnes (B)
44
In the absence of the project
12 activity the total yearly CO2 emission = A + B
= 22,850 + 77,000 = 99,850 tonnes (Table 10)

33
 Table 10: Yearly total production of CO2 from the sugar-mill and the
11-MW power plant based on natural gas

Yearly production of CO2 from 11-MW power plant 22,850 tonnes

Yearly production of CO2 from 2000 TCD sugar mill over 150 days 77,000 tonnes
Total 99,850 tonnes
The estimated cumulative production of CO2 over the project period is shown in Table 11 and
Figure 7 (upper curve).

Table 11: The estimated cumulative production of CO2

over the project period (2007-2020) in the absence of the project activity.

Financial year Yearly production (tonnes) Cumulative production (tonnes)

2007 99,850 99,850
2008 99,850 199,700
2009 99,850 299,550
2010 99,850 399,400
2011 99,850 499,250
2012 99,850 599,100
2013 99,850 698,950
2014 99,850 798,800
2015 99,850 898,650
2016 99,850 998,500
2017 99,850 1,098,350
2018 99,850 1,198,200
2019 99,850 1,298,050
2020 99,850 1,397,900

34
 Figure 7: CO2 production without (series 1) and with (series 2) the project activity
over the project period
1,600,000

1,400,000
Cumulative CO2(tonnes)

1,200,000

1,000,000

Series1
800,000
Series2
600,000

400,000

200,000

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Financial year

7.2 The Proposed Project

Co-generation, combined heat and power (CHP), is the simultaneous production of electricity
and heat from one fuel input. Because of the low efficiency of the existing low-pressure boilers,
they will be replaced with high-pressure boilers to derive the benefit of CO2 reduction. A sugar
mill of 2000 tonnes per day crushing capacity will produce 2000 × 0.35 = 700 tonnes of bagasse
containing 50% moisture with a calorific value of 9,660 kJ/kg. The electricity generation
efficiency of high temperature-/ high pressure-based cogeneration plants varies from 14 – 19%.
With 14% efficiency, the capacity of the plant is estimated at
700 tonnes 1000 kg 9.66x106
day × tonne × kg × 0.14 = 10.95 MW(say, 11 MW)

For the improved co-generation, the suggested technology is the following:

(a) Two bagasse-fired boilers rated at 55 tonnes / hr, (high-pressure) HP steam conditions
being above 45 kg/cm2 and 400°C with auxiliaries.

(b) One controlled extraction / condensing steam turbine rated at 11 MW under conditions at
(a) above and controlled extraction of above 39 tonnes / hr at 146°C

The proposed technology with higher efficiency steam turbine to generate extra electricity
for export and with the low temperature steam to process sugar production is a well-
known technology being used in other countries.

35
With the project activity, the total yearly CO2 production will be 77,000 tonnes as calculated in
Sec 7.1.4 above, because the same amount of bagasse will be burnt with and without the project
activity.

The cumulative production of CO2 over the project period with the project activity is given in
Table 12 and shown graphically in Figure 7 (lower curve).

Table 12: Cumulative production of CO2 over the project period

with the project activity

Financial year Yearly production (tonnes) Cumulative production (tonnes)

2007 77,000 77,000
2008 77,000 154,000
2009 77,000 231,000
2010 77,000 308,000
2011 77,000 385,000
2012 77,000 462,000
2013 77,000 539,000
2014 77,000 616,000
2015 77,000 693,000
2016 77,000 770,000
2017 77,000 847,000
2018 77,000 924,000
2019 77,000 1,001,000
2020 77,000 1,078,000

36
 Flowchart – 1
Flowchart with Calculation for Yearly GHG (CO2) Production From 11 - MW
Power Plant Based on Natural Gas without the Project Activity

11–MW power plant based on natural gas

Gross yearly electricity production = 11 × 106 W × 24

hrs/day × 150 days /year = 39.6 GWh/year

Energy consumed for production of 39.6 GWh by

burning natural gas with conversion efficiency of 35%
= 39.6 × 10 9 Wh × 3600 secs / hr × 1/0.35= 407.3 TJ

CO2 production attendant on generation of 407.3 TJ

= 56.1 tonnes of CO2 / T J × 407.3 TJ=22,850 tonnes
of CO2

37
 Flowchart – 2
Flowchart with Calculation for the present Yearly Production of GHG (CO2)
from the Sugar mill of daily crushing capacity of 2000 tonnes of sugarcanes
for 150 days.

2–MW power plant based on bagasse + combustion of

unused bagasse for heat generation

Bagasse produced over 150 days @ 2000 tonnes per day with
35% yield = 150 × 2000 tonnes × 0.35 = 105,000 tonnes

CO2 produced from burning of 105,000 tonnes of

bagasse containing 20% carbon
= 105,000 × 0.2 × 3.66 = 77,000 tonnes

Yearly abatement of CO2 due to the project activities is given in Table 13.

Table 13: Yearly abatement of CO2 due to the project activities

Yearly total production of CO2 in the absence of the project activities 99,850 tonnes
Yearly total production of CO2 with the project activity 77,000 tonnes
Yearly abatement of CO2 22,850 tonnes

A project is considered environmentally additional if it reduced emission against the baseline

emission. Since the mill will consume 2 MW of electricity, the remaining 9 MW will be
delivered to the grid. Emission additionally is therefore calculated as under.

Additional power given to the grid = 11 – 2 = 9 MW

Gross yearly electricity production = 9 × 106W × 24 hrs/day × 150 days/year = 32.4 GWh

38
Energy consumed for 32.6 GWh by burning natural gas with an average conversion efficiency of
35%
= 32.4 × 109Wh × × 1
= 333.3 TJ
3600 sec
hr 0.35

Attendant CO2 production = 333.2 TJ × 56.1 tonnes/TJ = 18,696 tonnes

Cumulative emission additionality over the project period is shown in Table 14 and Figure 8.

Table 14: Cumulative emission (CO2) additionality over the project period.

Financial year Yearly emission Cumulative emission

additionality (tones) additionality (tonnes)
2007 18,696 18,696
2008 18,696 37,392
2009 18,696 56,088
2010 18,696 74,784
2011 18,696 93,480
2012 18,696 112,176
2013 18,696 130,872
2014 18,696 149,568
2015 18,696 168,264
2016 18,696 186,960
2017 18,696 205,656
2018 18,696 224,352
2019 18,696 243,048
2020 18,696 261,744

Figure 8: Cumulative emission (CO2) additionality over the project period

300,000
Emission additionality(tonnes CO2)

250,000

200,000

150,000 Series1

100,000

50,000

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Financial year

39
7.3 Crediting Period

Because of the renewable nature of input fuel the project is expected to continue with
replacement of parts at intervals. However considering the lifetime of the combustion engines
first installed the project is opting for a crediting period of 14 years (2 seven year term).

7.4 Project Boundaries and system boundaries

The project boundaries are limited to the geographic boundaries of the sugarcane area of the mill.
The following project activities and emissions are within the project boundaries.

(1) Collection of bagasse in the concerned mill area.

(2) Combustion and generation of power.
(3) Distribution of power
System boundaries include national grid because in the project activity emission reduction occurs
through displaced grid electricity.

7.5 Indirect Emission Effects

If the emissions are caused by the project outside the baseline and project boundaries these are
indirect emissions. Here in case of sugar mill cogeneration, the emission is within boundaries.

7.6 Additional Environmental and Social Benefits

The Kyoto Protocol requires that a CDM project activity contribute to the sustainable
development to the host country. In the monitoring plan necessary arrangement will be made to
maximize local benefits. The project will improve the local environment by by eliminating
smoke and harmful gases through complete combustion of bagasse.

The project will also increase local employment for maintenance and operation of the plants.
Table 15 summarizes the environmental, social and other benefits.

Table 15: Project Benefits

Issues Explanation
Local Environmental Benefits Improve the working conditions.
Local air quality will be improved.
The project will deliver more electricity to the grid reducing load
shedding.
Socio-Economic It will benefit the sugar growing farmers by increasing the liquidity
position
The project will lead to solvency and improve the quality of life of
people living in areas adjacent to the mill.
Capacity Building The project will be one of the CDM projects in the country and thus
help capacity building related to CDM projects.
Technology transfer This will be a new technology transfer (improved cogeneration) in

40

Host country criteria
Government priority
EIA
the country and as such successful implementation will result in
replication leading to further emission reduction from other mills.
GOB is still in the process of defining requirements for CDM projects.
To make the sugar sector a profitable concern is a great concern of
GOB.
EIA will be carried out as per law.

7.7 Monitoring and Verification Plan of Project Performance

Monitoring involves continuous or periodic measurement of specific parameters for assessing project
performance over the project period. CDM projects require that emissions reduction be proved through
the development and implementation of a monitoring plan that provides objective evidence that
emissions have been avoided. It is equally important that the emission reductions are demonstrated in a
transparent, complete, consistent, comparable and accurate manner. It is the responsibility of the project
participant to maintain appropriate records and documents to generate the relevant data/information
required for calculation of GHG emission reductions. Baseline emission of the proposed co-generation
project comprises emission from am 11-MW plant to be installed based on natural gas plus emission
from the existing 2-MW power plant that uses bagasse as fuel. The former is obtained from the
emission co-efficient of natural gas based national power generation system and the latter is calculated
from the carbon content and emission co-efficient of bagasse burnt for the 2-MW power plant.
Emissions from both the sources have been described under the baseline emission scenario. Monitoring
of the project performance will involve direct measurements of bagasse burnt, carbon content of
bagasse, and electricity produced and supplied to the grid. In addition to energy and GHG, socio-
economic variables will also come under the purview of the monitoring.

Verification of Performance

Verification is the periodic review and ex-post determination of the monitored greenhouse gas
emission reductions that have occurred as a result of the CDM project. The designated
operational entity (DoE) verifies the data collected by the project developer according to the
monitoring plan. The verification process confirms the total number of CERs (Certified Emission
Reduction) resulting from the project during a specific period of time. The frequency of
verification may be every year or every two years as agreed upon by the project participants and
the DoE. Based on verification, the DoE will issue CERs that during the specified period the
project has achieved the reduction of greenhouse gas emissions in compliance with all relevant
criteria. The DoE at the outset of the project will validate the project design document, the key
document for the project. The validation process confirms that all the information furnished and
assumptions made in the project design document are accurate/ or reasonable. The validation of
the project design document would lead to its acceptance by CDM Executive Board, which is a
precondition for CERs.

Data to be Monitored

In order to measure the quantity of GHG reduction through the project and assess the impact in
terms of sustainable socio-economic development of the country, a set of variables / indicators

41
will be regularly monitored, recorded and documented by the project participant. The monitored
data/information will be verified by DoE, contracted by the project participant. The DoE would
issue CERs based on thorough scrutiny of the relevant data/information maintained by the
project participant.

It is suggested that the project operator will collect the following data/ indicators for monitoring
emission reductions under the project.

Sl Data type Data Unit Measured or Recording Proportion of How will data For how long will
No. calculated frequency data to be be archived the archived data be
monitored (electronic/pape kept.
r)
1. Flow of bagasse Tonne Measured Continuous 100% Spreadsheet/ Two years after
to boiler paper completion of project.
2. Carbon content - Measured Once a week 100% , ,,
of bagasse
3. Carbon dioxide t CO2/ t From the data From the 100% , ,,
intensity bagasse in Sl. Nos. 1 recorded
&2 data
4. Electricity MWh Metered Continuous 100% ,, ,,
production (gross)
5. Electricity (net) MWh Metered Continuous 100% ,, ,,
distribution to
national grid and
mill
6. Emission 56.1 Calculated Annually - Spreadsheet/ ,,
intensity of tonne paper
Bangladesh NG CO2/TJ

In addition to energy and emission data, other socio-economic and environmental indicators
pertaining to sustainable development that would be monitored and as follows:
Performance area Data requirement Monitoring Procedure
Revenue generation Annual revenue issue through Energy sales record
sale of electricity
Workers’ health No. of workers affected with Interview of workers
disease like headache, migraine,
cough etc.
Health of villagers living around No. of villagers affected with Interview of villagers
the sugar mill. disease like headache, migraine,
cough etc.
Clean environment Reduction of smokes to leading to Interview
clean environment

Quality Assurance / Quality Control

The monitoring system will ensure strict quality standards and quality control of data to be
generated and monitored. The measurement equipment to be used for assessing bagasse quality
and quantity (measurement of mass and ultimate & proximate analysis of bagasse) and flue-gas
quality analyzer (Gas Chromatograph) and other connected apparatus will be regularly calibrated

42
as per international standards. The amount of electricity generated and transferred to the grid will
also be metered for the sake of good monitoring and verification of the emission data.

Project Approval by Designated National Authority (DNA)

It is a requirement that the relevant authority in the host country approves CDM project
document. In Bangladesh, National Designated Authority (DNA) has been constituted for
clearing and endorsement of CDM project. The DNA is a three-tier body comprising National
CDM Board, National CDM Committee and CDM Clearing house/ secretariat. The CDM project
document is submitted to CDM clearing house/secretariat which scrutinizes and assesses the
document and if necessary asks for its revision. If the clearing house/secretariat is satisfied with
the content of document, it is forwarded to CDM committee for approval and finally to CDM
Board for endorsement. The structure of DNA in Bangladesh is as follows.

Structure of DNA of Bangladesh

National Designated Authority

.
CDM Board

For endorsement

National CDM
Committee

For approval
Project
Project
Project
Concept Endorsement
Concept submitted
Concept paper/ CDM Clearing Letter for
paper
paper
Full Project House/Secretariat Validation
Full Project
Document
Full Project

Develop

Project Comments and

Developer/Owner Request for
Revision

43
8 Financial Analysis of the Project

Financial analysis was done in accordance with the ADB’s guideline for preparation and
presentation of Financial Analysis. The financial analysis was carried out to examine the
financial viability of the project through calculation of the financial rate of return (FIRR). All
constituent costs and benefits of the project are included in the analysis. The FIRR is based on
the investment costs and stream of cost and benefits spread over the life of the project (14 years).

8.1 Project Cost (Estimated)

The 11-MW steam-turbine generator based on bagasse will need the following machineries:

1. Two high-pressure, high-temperature boilers rated above 55 tonnes of steam per hour.
Although old boilers will be available, they may not be suitable for this purpose.
2. One controlled extractor/condensing steam turbine rated 11-MW, steam conditions being
above 45 Kg/cm2 and 400°C.
3. One set of condensate extractor pumps, deaerator and cooling tower.
4. Auxiliaries

Costs are adapted from the information provided by BPDB and sugar mill personnel and from
website.

A. Investment Cost (million Taka)

i) 11-MW steam-turbine plant (including two boilers) ....................... 330 million Taka
ii) Storage facility for dry bagasse .......................................................... 15 ,, ,,
iii) Land and development ....................................................................... 10 ,, ,,
iv) Other equipment.................................................................................... 5 ,, ,,
v) Physical contingency ......................................................................... 18 ,, ,,
__________________________________________________________________________
Total investment cost ........................................................................ 378 ,, ,,

B. Operation and Maintenance

i) Bagasse (10,500 tonnes @ Tk. 220 per tonne) .............................. 23.10 million
ii) O & M Cost (10% of bagasse price) ............................................... 2.31 ,,
iii) Repair and maintenance ................................................................. 1.00 ,,
iv) Fixed cost (salaries, wages for 50 personnel @ Tk. 7000 per month)...4.200 ,,
(for extra personnel needed for a higher capacity plant)
___________________________________________________________________

Total operation and maintenance cost ...............................30.61 million

Fixing a purchase price to bagasse will help increase the purchase price of sugar cane and thus
act as an incentive to the farmers. Moreover, bagasse has a market price as cooking fuel. Since,

44
in the project activity, all the bagasse generated in a sugar mill will be utilized for electricity
generation, no surplus bagasse will be available for sale or other uses.

C. Revenue

Generation of electricity ................................................................ 39.60 GWh

Sale (95%) ..................................................................................... 37.62 GWh
Revenue (@ Tk. 2 million / GWh ) .............................................. 75.24 million Taka

MEMR, GOB regulates the price of electricity and it does not reflect the cost of production.
Since operating cost including the price of bagasse has been included in the financial and
economic analyses, price of providing 2 MW electricity is charged to the mill @ Tk. 2.00/kWh.

D. Gross profit per year

Revenue – Total Cost

= 75.24 – 30.61 = 44.63 million Taka.

The benefits of the project are estimated in terms of gross margin e.g. by subtracting variable
cost like bagasse and other material cost, salaries and wage cost, other cost etc. from gross
revenue. Some of the data were calculated based on discussion with relevant organizations

8.2 Financial Analysis.

In the analysis of costs and benefits, an exchange rate of 58.5 taka = 1 US$ has been taken. A
fourteen-year financial life has been used though actual life could be in the range between 20-25
years. The loan term is also assumed 14 years excluding the construction period with 10%
nominal rate of interest. Working capital is equity financed. Among the tangible output of the
project, electricity is the only saleable product. Bagasse is the major input.

An 11-MW generator will be coupled with turbine run by steam from HP, boilers. The boilers
will be run by bagasse. In a mill of 2000 TCD, bagasse will be around 700 tonnes/day. Revenue
estimate is based on Taka 2/kWh or Taka 2 million/GWh.

Financial results show that the FIRR to 5.59%, NPV is – 22.5 million Taka and B/C ratio is 0.77.
Therefore, the project in the base case is not financially viable and could not be developed under
the given scenario (Annex 3a).

Sensitivity analysis scenarios have been depicted on two risks that might face the project (Annex
3b and 3c).
1) 15% decrease in revenue
2) 15% increase in the project cost.

Results of sensitivity tests are:

45
(1) For a decrease in revenue by 15%, FIRR reduces to – 32.61 %, NPV (@ 10% interest) to
–98.10 million Taka and B/C to 0.01 (Annex 3b).

(2) For an increase in project cost by 15%, FIRR reduces to – 4.01%, NPV to – 70.78 million
Taka and B/C to 0.38 (Annex 3c).
Financial analysis was recast incorporating carbon dioxide credit price. With CO2 credit price of
US$ 10.00 i.e. Tk. 585.00 per tonne of CO2, IRR, NPV and B/C are as under (Annex 4a):
IRR = 18.66 %
NPV = 50.75 million Taka
B/C = 1.51

Results of sensitivity analysis are shown below:

(i) IRR drops to 5.11%, NPV to –24.83 million Taka and B/C to 0.75 for a 15% fall in
revenue (Annex 4b)
(ii) IRR becomes 10.40%, NPV 2.49 million Taka and B/C 1.20 for a 15% increase in
investment cost (Annex 4c).

With a CO2 credit price of US$ 5.00

FIRR becomes 12.54%. NPV 14.12 million Taka and B/C 1.14

NPV becomes close to zero with a CO2 credit price of US$ 3.10 per tonne - Breakeven price
(Annex 4a(2)).

The project becomes financially viable if the CO2 credit price above US$ 5.00 per tonne is
incorporated. Sensitivity analysis shows that decrease in revenue has more damaging effect than
the increase in investment cost.

9. Economic Analysis of the Project

Economic analysis was done in accordance with the ADB guidelines for the economic analysis
of projects. The economic analysis was carried out to reassess the economic viability of the
project through calculation of economic rate of return (EIRR). All constituent costs and benefits
of the projects are included in the analysis. The EIRR is based on the investment cost and the
stream of costs and benefits spread over the life of the project.

The quantifiable benefits of the project are estimated in terms of gross margin e.g. by subtracting
variable cost like bagasse and other materials, salaries and wages cost, other cost etc. from gross
revenue. Some of the data were calculated based on discussion with relevant organizations. In
the analysis, all costs and benefits are expressed at 2003 domestic price numeraire. A shadow
exchange rate factor (SERF) of 1.11 has been used to convert non-tradeable values to this
numeraire. A conversion factor (CF) of 0.88 has been used to adjust salaries and wages to
economic value. A zero residual value has been assumed for project machinery and equipment.

46
An exchange rate of Taka 58.5 = 1 US $ has been used to convert constant dollar values to their
local currency equivalent. A fourteen-year economic life has used, though actual life could be in
the range between 20-25 years. The loan term is assumed 14 years excluding the construction
period with 10% nominal rate of interest. Working capital is equity financed.

Among the tangible output of the project, electricity is the only saleable product. Bagasse is the
major input. This is non-tradable in the context of Bangladesh. As such its financial price is
multiplied by the SERF. Other cost like bagasse, salaries etc. are also multiplied by the SERF.

Description of machineries and equipment, procedure for bagasse collection and basis of cost has
been given earlier (Chapters – 4, 6, 8). Revenue estimates from electricity sales are calculated on
the basis of recent figures related to bulk purchase of electricity by DESA and REB from BPDB.
Bagasse price is the current bulk sale price -

Economic results show that EIRR is 9.58%, NPV is – 2.46 million Tk. and B/C ratio is 0.98
(Annex 5a). Therefore the project in the base case, through looks better than the financial
scenario, is not economically viable and could not be developed under the given scenario.

Sensitivity analysis has been given in Annex-5b and Annex.-5c.:

(1) EIRR drops to – 11.67%, NPV to – 88.98 million Tk. and B/C to 0.18 for a decline in
project revenue by 15% (Annex 5b).
(2) EIRR drops to 0.82%, NPV to – 55.56 million Tk. and B/C to 0.56 for an increase in
project cost by 15% (Annex 5c).

The above sensitivity tests indicate that the economic viability of the project is affected by
change in the risk factors that have been tested. As in the case of financial analysis here also
lowering of project benefits has the more damaging effect than investment cost enhancement.

In view of the results above, the proposed project could be established if this could be combined
with CDM project as per the provisions of the “Kyoto Protocol”.

10. Stakeholders’ View

A survey has been carried out in the mill premises of Natore Sugar Mill and its surrounding
areas during 9-12 June 2004 to determine the views of the local stakeholders about the current
situation and the proposed project.

Methodology in case of surrounding areas involved interviewing a sample of 50 households

randomly selected from 5,600 households living within 2 kms of the mill. The interview results
show that about 72% of the households would be willing to pay a fee of Taka 10 per month for
access to the better service promised by the project. On the other extreme, 100 percent of the
households would use the service at a zero charge. The slope of the demand curve is – 10/(100-
72) or – 0.36. The demand curve becomes D = a – 0.36P. Therefore by extrapolation, all
households would cease to use the service at a charge of Taka 278 per month. The project’s
health and environment service can then be valued through the average demand price 278/2

47
using the domestic price numeraire. Benefit of the health and environment service in the
surrounding area of the mill becomes Taka 3.11 million.

The methodology in the case of workers and staff within the mill involved interviewing a
random sample of 50 workers and staff out of a total of around 1200 workers. The interview
results show that about 91% of the households would be willing to pay Taka 10 per month for
access to the better service promised by the project. On the other extreme, 100 percent of the
households would use the service at a zero charge. The slope of the demand curve is – 10/(100-
91) or – 1.11. The demand curve becomes D = a – 1.11P. Therefore by extrapolation, all
households would cease to use the service at a charge of Taka 90 per month. The project’s health
and environment service can then be valued through the average demand price 90/2 using the
domestic price numeraire. Benefit of the health and environment services at the mill premise
becomes Taka 0.22 million. Sum total of health and environment benefit is therefore (3.11 +
.022)= Taka 3.33 million.

The project will have the following health and environment benefits:

Around the surrounding area of the sugar mill

• Improved co-generation in sugar mill would reduce smoke-flow to the neighbouring

villages and reduce incidence of diseases like headache, migraine, cough, bronchitis, skin
disease, etc.
• Project would improve cleanliness of the surrounding area including clothing, households
and backyards.
• Project would stop spillage of bagasse in the surrounding area and reduce ugly smoke –
flow and air pollution.
• Project would check destruction of greenery of the plants and vegetation.

Within the premise of sugar mill

• Improved co-generation would check smoke and heat flow to the workplace and reduce
incidence of diseases like headache, migraine, cough, bronchitis, skin diseases, etc.
affecting workers and staff.

• Project would improve work-environment by reducing smoke, dust and elimination of

ugly site, smell.
• Project would stop over-spilling of bagasse and reduce congestion in the mill premise.
• Project would contribute to cleanliness of the workers physique, office and open spaces.

Discussion was held with Mr. M. Serajul Huq, Director (Production Engineering & Planning)
and his associates of BSFIC on the possibility of introduction of cogeneration in sugar mills.
They are eager to introduce the project provided the requisite fund is made available.

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11. Major Findings and Recommendations
The report attempted a study on the feasibility of improved co-generation in sugar sector
utilizing bagasse and attempted integration of the project with “Clean Development Mechanism
– CDM”. The major findings and recommendations are as follows:

Given that Bangladesh’s per capita electricity consumption of 129 kWh in 2001 – 2002 was one
of the lowest in Asia, exploration of all energy source including renewable energy sources like
bagasse a residue in sugar sector, is of paramount importance.

In Bangladesh there are 15 sugar mills, which consume around 2.5 million tonnes of sugar cane
to produce 0.21 million tonnes of sugar. Around 0.875 million tonnes of bagasse is produced in
the process which is bunt in low pressure boilers to generate steam which is fed to steam turbines
for power generation to meet the requirement of the mills. This generation is small. Bagasse with
a calorific value of 2300 kcal/kg should produce more power.

Sugar Industries of the world, particularly the neighboring countries, utilize bagasse for high-
pressure steam and then for higher power generation and supply excess power to the national
grid. It is expected that with such high-pressure technique more power can be generated in sugar
mills of Bangladesh and excess can be fed to the national grid.

For a 2000 TCD, an 11-MW generation is possible with 700 tonnes of bagasse / day. The total
investment will be 378 million Taka with generation of 39.6 GWh of electricity. From such a
mill, 9 MW power can be fed to the national grid with 18,696 tonnes of CO2 abatement per year.

Financial results show that FIRR 5.59%, NPV is – 22.51 million Tk. and B/C ratio is 0.77.

Sensitivity analysis scenario is like this:

FIRR drops to –32.61% for a decline in project benefits by 15% and FIRR drops to – 4.01 for an
increase in project cost by 15%.

Economic results show that EIRR is 9.58%, NPV is –2.46 million Tk. and B/C ratio is 0.98.
Therefore the project in the base case is not economically viable. Sensitivity analysis scenario
also shows that EIRR drops to –11.67% for a decline in project benefit by 15% and EIRR drops
to 0.82% for an increase in project cost by 15%

Thus both in the case of FIRR and EIRR analysis, the project is not viable. Risk factors depict
the same scenarios.

However, the project turns viable once CO2 credit as per CDM project guidelines is incorporated
in the analysis. The results show that FIRR increases compared to base conditions in the
following manners.

49
(1) FIRR increases to 18.66% form base condition 5.59%

(2) FIRR drops only to 5.11% as compared to – 32.61%(base case) for a decrease in revenue
by 15% and

(3) FIRR drop to 10.40% as compared to –4.01%(base case) for a sensitivity analysis of
increase in the project cost by 15%

In view of the results above the proposed project could be established if this could be combined
with CDM project as per provisions of “Kyoto Protocol”

The project will have the following health and environment benefits:

Around the surrounding area of the sugar mill

• Improved co-generation in sugar mill would reduce smoke-flow to the neighbouring

villages and reduce incidence of diseases like headache, migraine, cough, bronchitis, skin
disease, etc.
• Project would improve cleanliness of the surrounding area including clothing, households
and backyards.
• Project would stop spillage of bagasse in the surrounding area and reduce ugly smoke –
flow and air pollution.
• Project would check destruction of greenery of the plants and vegetation.

Within the premise of sugar mill

• Improved co-generation would check smoke and heat flow to the workplace and reduce
incidence of diseases like headache, migraine, cough, bronchitis, skin diseases, etc.
affecting workers and staff.
• Project would improve work-environment by reducing smoke, dust and elimination of
ugly site, small.
• Project would stop over-spilling of bagasse and reduce congestion in the mill premise.
• Project would contribute to cleanliness of the workers physique, office and open spaces.

Director (Production Engineering & Planning) and his colleagues of BSFIC are eager to
introduce improved cogeneration in sugar mills provided the requisite fund is made available.

50
References:

1. ADB, 1996. Energy Conservation in the Industrial Sector, Bangladesh (Final Report, Vol.
1). TA No. 1973-Ban, Asian Development Bank. Prepared by Technoconsult International
Ltd., Bangladesh, Acres International Ltd., Canada and S.N. Corporation, USA.

2. BCAS, 1997. Bangladesh Centre for Advanced Studies. Report on Cogeneration in Sugar
Industries.

3. BUET, 1998. A Study Report on “Pre-feasibility of Cogeneration in Industrial and

Commercial Sectors of Bangladesh” by Centre for Energy Studies & Mechanical
Engineering Department of BUET in association with EMCC, Bangladesh and UN-
ESCAP, Bangkok, November 1998.

4. BUET, 2001. BUET, TERI and Pembina Institute. Clean Development Mechanism
Project Opportunities in Bangladesh.

5 EAC, 1986. Energy Audit Cell, National Industrial Energy Conservation/Substitution

Program Project: Bangladesh Efficiency & Refinery Rehabilitation Project, Energy
Efficiency Component, IDA Credit No. 1357-Bangladesh

6. MOEF, 2002. Ministry of Finance and Planning, Bangladesh Economic Review

7. PSMP, 1995. Power System Master Plan

8. BPDB, 2001-02. Bangladesh Power Development Board, Annual Report.

9. BPDB, 2002-03 Bangladesh Power Development Board, Annual Report.

10. Wood gas website. www.woodgas.com/proximat.htm

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