The power produced by co-generation is used in internal industry processes, and excess power is sold to State Utilities/ Distribution Companies. Long-term Power Purchase Agreements (PPAs) are signed with these buyers based on terms and conditions as decided by the State Electricity Regulatory Commissions (SERCs).

Co-generation of power by sugar mills in India began in the year 1993-1994 with the Ministry of Non-conventional Energy Sources (MNES) formulating its guidelines for fixation of the rate of power produced from non-conventional sources including by the sugar mills and supplied to the Electricity Boards. With a small beginning by 8 sugar mills generating 50 MW power, 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 (Source: ISMA Website accessed on May 16, 2005). The assessed potential for power by sugar co-generation is more than 5000 MW for India (Source: The Energy Research Institute).

One of the objectives of the National Electricity Policy issued by the Government is to promote co-generation and generation from renewable sources of energy. The urgent need to promote generation of power from such sources of energy, and the significant potential for co-generation in the sugar industry is well observed. There has been appreciable growth in this segment and this trend can be expected to continue in future as well because of growing demand for power in the country.