In recent times, meeting carbon neutrality targets has become a priority for many countries. This holds true for InÂdia as well, with the country committing to achieving net zero emissions by 2070. Bioenergy can play a significant role in this endeavour, given its vast unÂtapped poÂtential in the country at preseÂnt. The segment broadly comprises biofuels such as ethanol, compressed bioÂgas (CBG), bio-LNG, biodiesel, bioÂhyÂdÂroÂgen and briquettes/pellets. BiofuÂeÂls such as ethanol and CBG possess a high caÂpability to green not only the power sector, but also other integral sectors such as transport and manufacturing. HowÂever, compared to the solar and wind energy segments, theÂre has beÂen only modest growth in bioenergy deployment, until now.
The bioenergy sector in India is now raÂpidly evolving and the government has been taking proactive steps in this reÂgard. Over the past year, the GovernÂmeÂnt of India has rolled out several policies and financial/non-financial incentives to catalyse growth in the sector. In NovÂember 2022, the National Bioenergy ProÂgramme was notified by the Ministry of New and Renewable Energy. The prograÂmÂme comprises two phases, and Rs 8,580 million has been allocated as capital under the first phase. Central financial assistance (CFA) has also been offerÂed for various subsegments of bioenergy. For briqueÂtte/pellet manufacturing plants, CFA of Rs 0.9 million per MTPH has been designated, with a maximum CFA cap of Rs 4.5 million per plant; wheÂreas for biomass (non-bagasse generation) cogeneration projects, CFA of Rs 4 million per MW of installed capacity has been provided. Meanwhile, a new pricing formula for CBG, at 80 per cent of the gas station sale price, has been approved by the MiÂnistry of Petroleum and NatuÂral Gas (MoPNG). The new price is higher than the previous one, making it a welcome step for potential inÂveÂstors in CBG. The MoPNG’s SustainÂable AlterÂnative TowarÂds Affordable TransÂporÂtaÂtion initiative is also a promising move to boost bioenergy and make the transportation sector more sustainable.
As of October 2022, 38 plants have been commissioned under the initiative, and over 3,600 letters of intent have been isÂsued. Moreover, to further streamline the sector and enable global integration, the idea of establishing a Global Biofuels AlliÂanÂce, in line with the International Solar AlliÂÂance, has also been making the rounÂds in recent months. Due to the proactive approach taken by the government as well as other stakeholders in the bioenergy supply chain, India achieved its target of deploying 10 GW of bioenergy by 2022. Yet, the current pace of groÂwth in the sector may not be sufficient to truly capitalise on India’s total bioenergy potential to deÂcarbonise the power, commercial and transportation sectors. FinÂancing measuÂrÂes and streamlined funding arrangements can go a long way in boosting the sector.
Financing bioenergy projects
Broadly, there may be three ways of fiÂnanÂcing bioenergy projects – equity inÂvestmeÂnts, debt financing and viability gap funding (VGF). Bioenergy projects deÂmaÂnd large capital expenditure funding, whiÂch is not always accessible to small- and medium-sized developers. Funding a project wholly through equity might be a challenge for many, thereby diverting them to the debt route or the VGF route.
Debt financing is often contingent on the strengths and weaknesses of the given project, with a lack of debt guarantees at present. While banks and finanÂciÂers are now showing eagerness to fund bioenergy projects, they continue to have conceÂrns regarding various factors that may play key roles in determining the viability and bankability of bioenergy projecÂts. FeÂedstock arrangement is one of the most crucial. Loans for these projects are typically disbursed for a period of 10-15 years. EnsuÂring sustainable and quality supply of feedstock on a continual basis is a key challenge for maÂny developers, theÂreby creating hurdles in raising sufficient funds. MoreÂover, in the long run, commercial viability for bioenergy projects can only be achieved by establishing econoÂmies of scale. At present, however, most projects run at a scale too small for them to be abÂle to achieve such economies.
Pricing is another aspect that lenders coÂnsider when evaluating a project. In the case of bioenergy projects, the pricing of both the end product and the by-products is crucial. To improve lender confidence, price fixation is important. Furthermore, the price must also be adÂjusted as per the demand-supply moÂveÂment in the market.
The credit ratings of small- and medium-sized enterprises constitute another area of concern for financiers. Moreover, inÂvesÂting in a particular technology is considered risky by lenders at this stage, as most technologies have been adopted on a small scale and are at a nascent staÂge of commercial utilisation. These prÂoÂjects also typically haÂve long gestatiÂon periods, not in terms of construction, but of return to service.
Key challenges and solutions
Going forward, to catalyse investments in the sector, it would be crucial to enÂsure that feedstock is sourced from sustainable streams. A collective feedstock collection project can be undertaken, incorporating agri-waste collection by farmers and municipal solid waste collection by civic bodies, and be integrated with a long-term offtake agreement with project developers who can ensure the supply of feedstock in this manner, and continue to operate smoothly. Ensuring the quality of feedstock is also critical, as the quality may be dependent on seasons, which in turn affects the end product.
Identifying the correct technology in the Indian scenario is also important, as most technologies that exist in India today have been adopted by small-scale projects, theÂreby providing no evidence of large-scale viability.
Another crucial way of generating greater confidence among potential financiers is by using data. At present, data related to biÂoenergy projects is highly limited and diÂsorganised. A systematic and centraÂlised data portal that underlines and regularly updates all key developments in diÂfferent types of bioenergy projects could enable both investors and policymakers to evaluate the sector more comprehensively. This is likely to create a more soÂund ecosystem for funding upcoming bioenergy projects.
Land aggregation and procurement chÂallenges also exist. Many bioenergy proÂjeÂcts require timely procurement of large areas of land, which in turn need finanÂcing support.
Currently, a lot of funding arrangements and CFA are contingent upon the comÂmiÂssioning of a project. The project cost is borne directly by the developers thÂroughout the project implementation cycle. Thus, long-term financial support through innovative instruments would be crucial in maintaining sustainable cash flows for developers and encouraging them to take up bioenergy projects. Additional funding avenues such as interest-free loans and credit enhancement measures such as guarantees can be provided by state and central governments, as is being done in several other sectors already.
Bioenergy projects also produce large quantities of by-products. Timely evacuation of and price fixation for these by-proÂducts would also streamline the inÂcome strÂeams for developers till the very end of the project cycle. AddiÂtionally, in the inÂitial phÂaÂse of development, an inteÂgÂraÂted appÂroach may be undertaken, wheÂrein small- and medium-sized enterÂpriÂses would function under the umbrella of oil marketing companies and government bodies. Moreover, research and plÂanning on business models and the opÂtimum size of projects across various subÂsegments in the bioenergy sector would be key to improving the efficacy of these projects. Most ethanol and CBG projects in India run at small-scale capaÂcities today. Therefore, in the long run, achieving economies of scaÂle would be critical in ensuring that India utilises its bioenergy capacity effectively.
Finally, bioenergy must not be looked at in isolation during the planning and deÂvelopment stage. Policies and financial assistance, covering everything from raw materials to end products and utilisation of by-products, would go a long way in increasing the viability and bankability of bioenergy projects in India.
Kasvi Singh
