Sugar producers bank on co-generation

Co-generation and distilleries are emerging as the growth drivers for sugar producers across the country, offsetting the negative trend in revenues from their core sugar production activity.

Sugar producers incurred heavy losses (roughly Rs 4 per kg of sugar produced) in October 2006-September 2007, as against the 20 per cent revenue from sugar sales earned in the previous year.

"The scenario will get worse next year because of excess sugarcane production," said B J Maheshwari, company secretary, Dwarikesh Sugar Industries Ltd.

Maheshwari believes that about 60 per cent of revenue of sugar companies came from co-generation and 40 per cent through distilleries.

Co-generation is the use of a heat engine or a power station to simultaneously generate both electricity and useful heat.

Dwarikesh Sugar Industries will have a co-generation capacity of 86 MW by the next sugar season, up from 26 MW now, of which it will contribute 56 MW to the state grid, a substantial increase from the current 8 MW.

Some 100 sugar units across the country generate about 1700 MW per annum, of which 925 MW is supplied to state electricity boards (SEBs).

"This is the topmost co-generation capacity in the world, the result of low sugar prices and assured purchase agreement with SEBs," said S L Jain, director general, Indian Sugar Mills Association (ISMA).

Uttar Pradesh tops in electricity generation by sugar plants. They produce about 450 mw and about 400 mw of capacity is under various stages of implementation. According ISMA sources, sugar units in Tamil Nadu produce 285 mw, Karnataka 271 mw, Andhra Pradesh 171 mw and Punjab 6 mw.

Sugar units in Maharashtra, however, barely produce 1-2 MW more than their captive consumption.

"Co-generation and distilleries have to be in the forefront of business if sugar units have to survive," said Anis Khan, managing director, Dollex Industries, which is installing a co-generation facility for 15 mw at a sugar unit in Maharashtra.

He said that the scenario had changed dramatically with co-generation and distilleries assuming maximum importance.

S L Jain, however, did not expect an exponential growth in the contribution from distilleries as the response from oil marketing companies was very slow.

Oil marketing companies had signed an agreement with ethanol producers to procure 1061 million litres for the next three years.

Total distillation capacity amounts to 3,100 million litres, of which ethanol is 1500 million litres. About 900 million litres is for liquor sector and the remaining 700 million litres for the chemicals sector.

The ethanol capacity today is several times higher than the demand of 550 million litres per annum. A further 230 million litres capacity is still idle as it has been kept outside the tendering process, Jain said.

India, it is estimated, will produce about 28.5 million tonnes of sugar in 2006-07, as against the installed capacity of 23 million tonnes.

The next season is going to be more difficult for companies depending on sugar with the addition of new installed capacity of 2 million tonnes. The production could be still higher at 31 million tonnes, Jain said.