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Monday, January 16, 2012

The triple returns magic of biomass power and other l

Ms Mahua Acharya(just Google her for details) heads the strategy division of a clean energy consulting firm. While giving a guest lecture for the students of the elective Carbon Finance in Sep-11, she recounted some interesting experiences and points, which I thought was worth sharing. The advantage of industry professionals like her, is that they bring a much required practical perspective, which was evident in her talk about the economics of biomass plants.
  • Investors routinely demand 20%+ IRRs and hence it is difficult to attract investments in even conventional power without subsidies and incentives. However, biomass is an exception.
  • Biomass revenue streams:-It can get an assured feed in tariff, revenue from selling slurry to fertilizer plants and also CER credits. Of course, it also has an option between higher feed in traiff and CER credits, but most companies opt for the latter
  • Design in the benefits: She noted that most companies are now seeking expert advice at the design stage itself to maximize their benefits
  • True strategy is about building entry barriers for others. The example of biomass plants in  Bihar where they got contiguous licenses for ensuring raw material supply, was given. That barrier was needed, and they created other barriers like using hard to use rice husk fuel and areas where others would fear to step in(setting up in Bihar unlike Gujarat). That all worked in their favour.
  • Ideal projects solve a pressing problem profitably. Using chicken shit(sorry..poultry litter) to  generate power is on in Haryana, with the same triple benefit. That solves pressing environmental issues of smells and land pollution, which makes farmers happy, and they should rationally be willing to supply it for free or even pay tipping fee! Still, to ensure their cooperation,farmers supplying litter get a share of the profits above threshold limit. 
Very interesting points, and if/when I consider investing in physical assets, this is certainly an option!

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