TURNING TRASH TO TREASURE IN TAMIL NADU

UNCLAS CHENNAI 000706 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ENRG EINV SENV ECON IN SUBJECT: TURNING TRASH TO TREASURE IN TAMIL NADU ¶1. (SBU) Summary: Rapid urban growth has spawned several challenges for the South Indian state of Tamil Nadu, including managing the disposal of an increasing amount of solid waste. A variety of projects are on the drawing board or already in practice to convert this mountain of waste into something with economic value, from fertilizer to electricity. Yet, none of these projects appear to be economically viable at present. Reform of the regulatory environment, however, may allow at least some of these ideas to be sustainable, offering potential investment opportunities in the process. End Summary From waste to fertilizer? -------------- ¶2. (SBU) Tamil Nadu's (TN) urban population increased by nearly 50 percent from 1991 to 2001 -- more than any other state in India during this timeframe -- a trend that continues. This increase has left municipal authorities grappling with a mounting solid waste management problem. TN's Commissioner for Municipal Administration told us that not-in-my-backyard (NIMBY) objections from homeowners and environmentalists have limited the number of landfill sites that authorities can use for disposal and that many of these sites are reaching capacity. ¶3. (SBU) Looking for a creative solution, the Commissioner said that one possibility was utilizing commercial-scale compost pits to convert solid waste into fertilizer. He also explained that his department had invited tenders from private entrepreneurs to establish these composting facilities. He added that the TN government, hoping to establish a public-private partnership, would provide the land and the solid waste while the contractors would establish the necessary facilities and manage the sale of the fertilizer. ¶4. (SBU) The private sector, however, tends to view such projects skeptically. The Chief Financial Officer (CFO) of a Hyderabad-based company specializing in handling hazardous waste told us that the financial viability of the composting scheme was doubtful. Not only would farmers need to be convinced of the quality of the compost, he said, they would also need to have some economic incentive to choose compost over chemical fertilizer. The ease-of-use of bagged commercial fertilizer and the fact that it already has a functioning distribution network, he emphasized, means that composted fertilizer -- which is more difficult to use and currently lacks a distribution system -- would need to be significantly cheaper than its chemical competitor to be economically viable. He doubted that a composting scheme would achieve this. From waste to electricity? -------------- ¶5. (U) Another option for waste disposal is to use it as fuel to generate electricity. There are several methods for accomplishing this, including burning it directly; compacting it into pellets that are then burned; and capturing the methane produced when waste is composted, and using that to power a generator. ¶6. (SBU) The CFO of the Indian branch of Covanta Energy, a New Jersey-based waste and energy company, told us that all of these processes face problems in India. One key issue with using incineration to generate electricity, he said, is that urban trash tends to have a low calorific value because it is generally picked clean of recyclables and high-calorie waste as it passes through the collection system. Getting enough energy to generate electricity effectively, he explained, therefore requires adding fuel like coal, which quickly decreases the economic rationale for the project. Tamil Nadu's Municipal Commissioner also recognized this problem, explaining that this is why he supported composting vice incineration. ¶7. (SBU) Covanta's CFO also complained that the Tamil Nadu government wants to treat electricity-producing incinerators as power plants, rather than as waste-management facilities. He said that these kinds of projects need income from a tipping fee (for managing the waste) as well as a competitive fee for the electricity produced. Tamil Nadu, he maintained, is not prepared to view (and pay for) this kind of project in this way. ¶8. (SBU) Another problem with incineration is that some environmental groups oppose it on environmental grounds. A lawyer for one such group told us that incineration was simply "inappropriate" for the environment. He also said that India's legal system makes it relatively easy to file public interest litigation to stop such projects. Covanta's CFO told us that this kind of uninformed, instinctive "environmentalism" tends to overlook the fact that some 40 percent of the capital cost of a modern waste-to-energy facility is devoted to technology that mitigates environmental impact of burning waste. This technology, he asserted, means that modern incineration techniques should not be confused with the noxious fume-belching machines of earlier generations. Biomethanation holds potential, maybe -------------- 9 (U) The environmental lawyer told us that one waste-to-energy technique he supports is biomethanation. This is a process that turns waste to a gas that can be used for running generators. We visited one such 250-KW facility in Chennai, located adjacent to one of Asia's largest fruit and vegetable markets. The facility's Chief Executive Officer (CEO) explained that it is the first project of its kind in India, and said that the project, which began operating in 2005, was built mainly to demonstrate the concept. The plant, which relies mainly on Austrian- and German-manufactured equipment, receives vegetable waste from the market, slices it into small pieces, and composts it, capturing the methane produced in the composting process. Any solid materials left over after the methanation process are suitable for use as fertilizer, the CEO said. More fruit, please -------------- ¶10. (SBU) While stressing that the facility was a success as a demonstration for the concept, the CEO lamented that the state-sponsored project is not financially viable under current conditions, for two main reasons. The first is that the facility receives mainly fibrous vegetable waste, like leaves, which produce little methane when decaying. Items that produce more methane, like old fruit and potatoes, tend to be picked out and fed to animals before the waste reaches the biomethanation facility, he said. (The load of waste we saw contained mainly lettuce, with a few pumpkins.) Because of the low quality of the waste, he explained, the 30 tons of vegetable matter delivered per day is only enough to operate the generator for approximately 13 hours daily, instead of the 20 hours it can operate at full capacity. This translates to an average daily production of about 150 KW, or about 100 KW short of the facility's 250-KW capacity. The facility itself, he said, consumes a full 40 percent of this electricity to process the incoming waste. ¶11. (SBU) This productivity shortfall leads to a second reason for the project's inability to turn a profit: electricity costs. Processing the daily intake of vegetable matter takes longer than the 13 hours per day that the generator can run on the methane produced, so not only is the facility underproductive, it actually has to import electricity when the generator is not operating. Adding to this cruel irony, the facility pays nearly twice as much for the electricity it imports as it gets when it sells its electricity to the grid. Comment -------------- ¶12. (SBU) Theoretically, modern waste management and alternative energy projects in South India hold promise for potential U.S. investors, particular in mid-sized cities, some of which do not have modern waste management systems in place. In practice, however, investors would need to plot their strategies very carefully. For waste-to-energy projects, they will need to be able to utilize lower quality waste than similar projects use in Western countries. They will also want to ensure that they will be able to get both the quantity and quality of waste required, which may be more difficult than one might expect. Composting projects may become more sustainable if India had a developed market for organic foods, as suppliers would then demand organic fertilizer. In short, waste management may offer opportunities for investors in India, but investors need to be prepared to work in a market and a regulatory environment largely unfamiliar with these kinds of projects. HOPPER