Private sugar mills in Uttar Pradesh have urged the state government to have a policy framework that ensures consistency in pricing of co-generated power, an industry source said.

Some sugar mills use bagasse–the dry residue that remains after sugarcane is crushed to extract their juice–to produce heat and electricity for themselves. In the country's largest producing state, mills co-generate electricity for their captive use and sell the extra to Uttar Pradesh Power Corp at fixed tariffs.

"…a policy which is consistent and which takes into account the prevailing market price of bagasse. Draw a policy framework such that there is consistency in policies," the official told Cogencis.

In April 2019, the rate at which Uttar Pradesh Power Corp Ltd bought power from sugar mills was reduced by 40%, leading to direct losses of nearly 10 bln rupees to mills. This had followed the price of bagasse being slashed to 1,010 rupees per tn from actual market price of 1,800-1,900 rupees. Currently, its market price is around 2,200-2,300 rupees per tn.

Last year, the Uttar Pradesh Sugar Mills Association had taken the matter of "unilateral and unreasonable" downward revision of prices for co-generation of power from bagasse to Allahabad High Court, where the matter is pending adjudication.

In its final report on Sugarcane and Sugar Industry, NITI Aayog task force has also said that in order to tackle falling prices, co-generation pricing needs to be rethought completely to incentivise the use of bagasse and other biomass.

The task force also recommended incentivising sugar mills to recycle bagasse, the funding of which should be procured through soft loans from the Sugar Development Fund.

Uttar Pradesh is the country's largest producer of sugar, molasses and ethanol.