Bagasse and black-liquor cogeneration: Economics and contracts

Free fuel, costly kit: the tariff decides the return

What this tab covers Economics and commercial structures: levelised cost of the recovered energy against the fuel it avoids, host-site risk, and service models such as heat-as-a-service.

The fuel is nearly free, but boilers and turbines are capital-heavy; returns depend on the export tariff and on the mill's financial health.

Levelised cost of heat or avoided cost

Mixed

In India, CERC's 2024 tariff regulations assume Rs 5.62 crore per MW capex for bagasse cogeneration, and Gujarat's regulator fixed Rs 5.22 crore in its March 2025 order, with O&M of 3% of capex in year one, bagasse valued at Rs 2,780 per tonne and 8.5% auxiliary use. Those Gujarat norms imply a year-one fuel charge alone of about Rs 4.86 per kWh sent out (calculated). Trade press reports existing state tariffs for 2023-25 from about Rs 3.8 per kWh (Andhra Pradesh) to Rs 6.11 (Tamil Nadu, fixed plus variable), with Maharashtra proposing Rs 4.80; CERC's August 2026 proposal for projects commissioned in 2026-27 puts levelised generic tariffs at about Rs 7.5-9.4 per kWh depending on state bagasse prices. Internationally, IRENA put biomass CHP at USD 3,550-6,820 per kW (2010 dollars); a standalone steam turbine costs USD 650-2,700 per kW (DOE). At 60% load factor, 1 MW makes about 5,260 MWh a year gross, roughly 1,000 MWh per Rs 1 crore of capex at the Gujarat norm (calculated).¹²⁹¹¹²³

Bagasse cogeneration capex (CERC 2024) Rs 5.62 crore/MW¹¹ Gujarat capex norm (GERC 2025 order) Rs 5.22 crore/MW¹¹ Year-one fuel charge at Gujarat norms about Rs 4.86/kWh (calculated)¹¹ State tariffs reported 2023-25 about Rs 3.8-6.1/kWh⁹ CERC generic tariff proposal, 2026-27 projects about Rs 7.5-9.4/kWh²³ Biomass CHP capex (IRENA, 2010 USD) USD 3,550-6,820/kW²

Host factory credit risk

Mixed

The cogeneration plant cannot outlive the mill. Sugar mills face cane supply swings, regulated cane prices and sugar price cycles; graphic paper mills face structural decline in demand. Lenders should assess the mill, not the power plant. Mills that also produce ethanol or packaging grades have more diversified cash flow. Indian capacity is concentrated in Maharashtra (2,907 MW), Uttar Pradesh (1,986 MW) and Karnataka (1,869 MW), so state tariff orders and cane policy in those states drive most of the risk.¹⁹

Bagasse cogeneration by state (Dec 2024) Maharashtra 2,907.3 MW; UP 1,985.5 MW; Karnataka 1,868.91 MW⁹

Heat-as-a-service and ESCO models

Mixed

Mills nearly always own these plants because the boiler is part of the process. The commercial lever is power export. Indian mills sell surplus power to state utilities at regulated tariffs and could earn renewable energy certificates (allowed since 2010). Suzano, the Brazilian pulp producer, reports average power exports of about 235-255 MW in 2025 (company figures; its page gives 255 MW in the text and 234.5 MW in the KPI table, unreconciled) and targets 322 MW by 2030 against a 2018 baseline of 214 MW. Third-party models appear mainly in co-located biomass CHP rather than in recovery boilers.⁹¹⁵

Suzano average power export, 2025 (company) 234.5-255 MW (sources within the page differ)¹⁵ Suzano 2030 export target (company) 322 MW average, from 214 MW in 2018¹⁵

Sources

Steam Turbines, CHP Technology Fact Sheet Series (DOE/EE-2976) US Department of Energy, 2025
Biomass for Heat and Power, Technology Brief E05 IRENA and IEA-ETSAP, 2015
High efficiency levels: tapping bagasse-based cogeneration plants to add to India's renewable power (MNRE data) (trade press) Power Line, 2025
Order No. 02 of 2025: determination of tariff for procurement of power from biomass and bagasse based cogeneration projects (control period 2023-27) Gujarat Electricity Regulatory Commission, 2025
Generate clean energy: commitment and KPIs (company figures) Suzano, 2026
Pricing update: CERC proposes generic tariffs for select renewable technologies (CERC 2026-27 proposal) Power Line (trade press), 2026