Gateway to the Biofuel Industry in India

The Indian economy is growing fast and it is expected that by the year 2030, India will become the third largest economy in the world and have the fastest growth rate. The gross domestic product (GDP) of India was US $0.6 trillion in 2005 and is expected to reach US $6.1 trillion by the year 2030 reflecting a compound annual growth rate of 9.0%, which incidentally would be the fastest among all countries. In line with the growth of the economy it is expected that the country will become the world’s fourth largest consumer of energy by the year 2020.

India currently ranks as the world’s seventh largest energy producer, accounting for about 2.49% of the world’s total annual energy production. It is also the world’s fifth largest energy consumer, accounting for about 3.45% of the world’s total annual energy consumption in 2004. With a GDP growth rate of 9% as set out in the Eleventh Five-Year Plan (2007-12), the energy demand is expected to grow at 6.5 percent.

India’s incremental energy demand for the next decade is projected to be among the highest in the world, spurred by sustained economic growth, rise in income levels and increased availability of goods and services. The projected requirement of commercial energy is estimated at about 665 million tons of oil equivalent (MTOE) in 2017 up from 389 MTOE in 2007 an 8% growth rate. The commercial energy demand is estimated to grow at an average rate of 7.1% from 2007-12 over the previous 5 years (from 2002-2007). The import of oil is also expected to increase to 90-93% by 2030 from the current level of 73%. Thus there is a need to look at various options available to reduce the dependency on foreign supplies of crude oil. One of such options is use of biodiesel.

Biodiesel is an environmental friendly alternative to fossil fuel and holds reasonable potential to mitigate the future energy needs of the country and to impart economic prosperity. Given its environmental and economic benefits, biodiesel is poised to become one of the most favored alternatives to fossil fuel.

The Indian government recently approved a National Biofuel Policy that predominantly aims at promoting private investments in the biofuel sector for achieving set targets. Salient features of the National Biofuel Policy are briefly discussed below:

The Targets

The policy aims at mainstreaming biofuels in the energy vision of India. It sets a target of achieving at least 20% blending of biofuels, both biodiesel and bioethanol, by 2017. Prior to the announcement of the policy, 5% blending of bioethanol with gasoline was mandatory, but this is now increased to 10% with effective date of October 2008. The policy recommends 5% blending targets for biodiesel that will be made mandatory in due course.

How the Policy Defines Biofuels

Biofuels, as defined in the policy document, refer to all liquid and/or gaseous fuel produced from biomass resources that can be blended with or replace diesel, petrol or other fossil fuels for transportation, stationery, portable and other applications. The term includes biodiesel, bioethanol and other biofuels like bio-methanol, biosynthetic, etc.

Land-use Policy

The focus of the policy is to promote plantation only over waste and degraded forest and non-forest land avoiding the emerging global conflict on food security vs. energy security. Plantation of non-edible oilseed bearing shrubs and trees will be discouraged on agricultural land. For the purpose of identification of land use, a decision will be taken in consultation with Gram Panchayat through Gram Sabha and intermediate and District Panchayats.

Minimum Support Price: The policy also envisages supporting cultivation by way of fixing Minimum Support Price (MSP). This MSP will be announced after due stakeholder consultation involving state governments in coming future.

Convergence: Plantation work will be considered for providing employment under NREGP (National Rural Employment Guarantee Plan)

Bioethanol Feedstocks

In India, a major source of bioethanol production is molasses, which is a by-product of the sugar industry. The policy permits the use of sugarcane juice for production of bioethanol keeping in view the current over-supply of sugar in the country. Bioethanol production from sugarcane juice has been permitted.

Marketing Linkages and Purchase Price

The OMCs (Oil Manufacturing Companies) are entrusted with the responsibility of storage, distribution and marketing of biofuels. To promote investment in the biofuel sector, a Minimum Purchase Price (MPP) for procuring biodiesel and bioethanol will be fixed linked with the prevailing retail diesel/petrol prices. In case the MPP is more than the retail price of diesel/petrol, then the OMCs will be duly compensated by the Government.

Financial Incentives that Encourage Biofuel Development

The entire biofuel value chain will be considered as a primary sector activity that is eligible for priority lending by all financial institution/banks. Further biofuel projects can have 100% foreign direct investment (FDI) in the form of equity through an automatic approval route for processing. The policy encourages the sale of biofuel in indigenous markets and prohibits exports.

The policy recommends inclusion of biofuels in the ambit of “declared goods” allowing free movement of biofuels within and outside the state. Biodiesel is exempt from levy of all duties and taxes at central level whereas bioethanol attracts a cut-rate excise duty of 16%.

To encourage investments in this sector, the policy also favors discounted excise and custom duties on plant and machinery for the production of biodiesel/bioethanol and for engines running on biofuels.

Biofuel projects will also be entitled to all fiscal incentives and concessions available through the New and Renewable Energy Sector from states as will as the central government.

R&D in Biofuel Sector

Besides encouraging private investments, a lot of emphasis is given on R&D work for the entire biofuel value chain. Demonstration projects will be entitled to grants, subsidies and fiscal incentives and will be encouraged through public private partnership (PPP).

Quality Control and Evaluation

The Bureau of Indian Standards (BIS) has been entrusted with the responsibility of quality control and monitoring. Currently the BIS has already set standards (IS15607) for B100 and IS-2796:2008 for 5% and 10% blending of bioethanol with gasoline.

Research and consulting firm, Wood Mackenzie projects India’s crude oil requirement at 182 million tonnes per year by 2015 and 225 million tonnes per year by 2020. The targeted 20% biofuel blending is expected to reduce imports by 10% by 2020. On the climate front, petrol-driven vehicles are the major source of CO2 emissions, contributing over 85% of total emissions, while diesel-driven vehicles are the major source of NOx, contributing over 90% of total emissions in India. The set target is expected to reduce the current vehicular emission by at least 20%. (IEP 2006)

Ritu S. Jain is the Managing Director of S.R. Corporate Consultant (P) Ltd., India, a company engaged in rendering management consultancy services in renewable energy, climate change and financial sectors for last five years. Her focus is on sustainable development through renewable energy and climate change mitigation. She holds a master degree in accountancy & finance (FCA) and a bachelor degree in science & mathematics.

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