The potential for co-generation lies in industries which have a requirement of both heat and electricity, primarily sugar and rice mills, distilleries, petrochemical, chemical, pulp and paper, aluminum, etc. Since India is the second largest producer of sugar in the world, bagasse-based co-generation is being promoted. Since co-generation can meet both power and heat needs, it has advantages in the form of significant cost savings for the plant and reduction in emissions of pollutants.

With a small beginning by 8 sugar mills generating 50 MW power in 1993-94, today, 48 units have set up their co-generation plants generating 680.0 MW power. According to information currently available, an equal number are in the process of putting up power plants to produce another 700 MW, taking the total generation to about 1400.0 MW. The assessed potential for power by sugar co-generation is more than 5000 MW for India (Source: The Energy Research Institute).