By Lt Col Monish Ahuja (Retd), Managing Director, and Colonel Pronob Roy (Retd), Senior Vice-President (East Zone), Punjab Renewable Energy Systems Private Limited (PRESPL)
As the world seeks to decarbonise its power and energy systems and combat climate change, biomass (bioenergy) is gaining popularity as a renewable energy source. It offers numerous benefits, including low carbon emissions, decentralised local availability and versatility. However, biomass utilisation comes with its own set of challenges. The primary issues include sustainable supply chain management, process efficiency, cost-effectiveness, health and environmental impacts, and sustainability. To fully harness the potential of biomass as a renewable energy resource, effective interventions are needed to address these issues and ensure that its deployment supports the transition to a low-carbon and sustainable energy future. Let’s begin by examining some statistics from the World Energy Outlook 2022.
Global coal demand, production and trade, and solid bioenergy across different scenarios
As shown in the table, recent developments have dealt a blow to the idea that global coal demand might soon subside. The decline in coal demand in 2020 was surpassed by a strong rebound in 2021, taking it very close to an all-time high. In advanced economies where coal use had been declining, demand increased by approximately 10 per cent. In emerging markets and developing economies, which currently account for slightly over 80 per cent of global coal use, there was a 5 per cent increase in demand. As a result of the conflict between Russia and Ukraine, global coal prices reached historic highs in the first half of 2022.
As per the report, solid bioenergy presently accounts for 10 per cent of the global energy supply. Of this, approximately 40 per cent (25 EJ) is traditional biomass used for cooking and heating by approximately 2.4 billion people worldwide who lack access to clean cooking facilities. The remainder, around 35 EJ, is modern solid bioenergy, predominantly used for electricity generation, industry and buildings’ heat supply, and as feedstock for biofuels. Coal consumption declines in each scenario – it decreases by around 10 per cent by 2030 in the Stated Policies Scenario, by 20 per cent in the Announced Pledges Scenario, and by 45 per cent in the Net Zero Emissions Scenario by 2050.
In essence, the wider international canvas demonstrates a drop in the use of traditional biomass and an increase in the use of modern biomass bioenergy. The primary differences between traditional biomass and modern bioenergy lie in their efficiency, scalability, and environmental impacts. Traditional biomass is often inefficient for energy production, emits harmful pollutants, and can lead to deforestation and soil erosion. Modern bioenergy, meanwhile more efficient and scalable, and produces less harmful emissions and wastes. While modern bioenergy can still have environmental impacts, the use of sustainable organic sources and waste materials can minimise them. Overall, modern bioenergy is a more sustainable and efficient alternative to traditional biomass, with the potential to play a significant role in the transition to a low-carbon and sustainable energy system.
According to the Ministry of New and Renewable Energy (MNRE), India has an estimated potential of 18,000 MW for power generation from biomass sources, which can address the country’s ever-growing electrical energy demands. However, until now, the potential of biomass has remained largely untapped. The biomass sector contributes only 5-6 per cent to India’s total energy production, which is far below its potential. Nevertheless, the country has shown substantial growth in biomass power generation, with installed capacity reaching 10.22 GW in March 2020, from just 2.5 GW in 2010. The biomass energy sector in India is primarily focused on three sectors: industrial biomass residues, farm agricultural residues, and forest and urban wastes. Agri-based residues are the most dominant source of biomass energy, contributing to approximately 80 per cent of the total biomass used for energy production.
While significant efforts have been made to organise this sector, the future presents a plethora of cyclical plays with competing sectoral decarbonisation initiatives across major hard-to-abate industries such as steel, cement and power. Meanwhile, a similar play is occurring among 2G ethanol production, renewable natural gas/bio-CNG/compressed biogas (CBG) projects and green hydrogen initiatives. The sectoral disruption will have a layered play with the mission-oriented playouts. The major challenges faced by the biomass energy sector in the past few years include:
A lack of coordination among stakeholders
Due to the absence of a centralised agency, the efforts of different stakeholders involved in biomass energy production remain fragmented. Moreover, there is limited communication and cooperation among biomass suppliers, policymakers and regulators, and investors, leading to reduced efficiency and loss of potential benefits. To address these issues, the government can establish a centralised agency to overlook the coordination of all stakeholders in the biomass sector. This will enable better collaboration and synchronisation of efforts and lead to greater efficiency and effectiveness.
At present, the biomass sector in India caters to demand from stakeholders across various areas such as electricity generation, heating and cooling solutions, CBG, and green hydrogen – all falling under the MNRE; co-firing of biomass in coal-independent power producers (IPPs)/captive power plants (SAMARTH scheme) under the Ministry of Power; the biofuels programme with CBG (SATAT scheme); the ethanol blending programme, sustainable aviation fuels and biodiesel under the Ministry of Petroleum and Natural Gas; and farm agriculture residues under the Ministry of Agricultural and Farmer Welfare, with involvement from the Ministry of Rural Development, and the Ministry of Environment, Forest and Climate Change. The implementation narrative often gets lost amidst the tussle among stakeholders in achieving coordinated efforts for sustainable biomass-bioenergy development, evidenced by the speed of development of projects.
High cost of biomass energy production
One of the primary reasons for the low development of biomass energy in India is the high cost of production. The low cost of electricity from coal-fired power plants and other renewable energy sources has made it challenging for biomass energy to compete in the market. Moreover, the high capital cost of biomass power plants makes investment in the sector challenging. To mitigate the high cost of biomass energy production, the government can provide incentives and subsidies for biomass power production as well as tax incentives for the capital cost of the plants. This will reduce the initial investment required by investors, making the sector more attractive. Additionally, the government can introduce price regulations to ensure that the cost of electricity generated from coal and biomass is competitive.
A cost breakdown of biomass energy production shows that there are three components to it. The first component is the supply chain cost of agri/forest/industrial residue. This is cost intensive due to the low bulk density of agricultural residues, leading to increased transportation. Furthermore, the working capital adds to the complexity, as well as the limited availability of corridors to aggregate such materials. The second component is the densification of the aggregated material, which entails a manufacturing element. The final component is transportation of the finished densified products and their utilisation in the industry.
Government interventions are needed to provide GST relief for agri-residue densification and production, improve village road networks to increase the capacity of transportation, ensure the availability of low-cost non-arable land for large-scale aggregation, offer electricity subsidies for running densification plants, and facilitate low-cost financing for aggregation-based transportation, and plant and machinery.
This support can be provided for a time-bound period of approximately 10 years, thereby ensuring the stability of the regulatory regime and fiscal support for the sustainable development of the biomass-bioenergy industry.
Limited access to finance
Lack of access to finance is another significant challenge hindering the growth of the biomass energy sector in India. Financing biomass projects is challenging due to high capital costs, lack of adequate collateral, and high risks associated with biomass projects. This results in the slow adoption of biomass projects and reduced investments in the sector.
To address this issue, the government can establish a dedicated fund to provide long-term concessional financing for biomass projects. The government can also encourage the participation of private sector entities in the biomass sector by providing tax incentives and subsidies for projects. Encouraging foreign direct investments can also help in increasing the availability of finance for biomass projects, wherein structured finance instruments can be made available for this sector. Measures such as credit risk guarantee schemes, risk mitigation, firm purchase of biomass-bioenergy in take-or-pay structures, a market development and support mechanism with policy and regulatory support can bolster the segment’s growth. Support from bilateral and multilateral development financial institutions towards the biomass-bioenergy sector focusing on energy security, increasing farmer income, waste-to-wealth initiatives, commitments to create decentralised renewable energy markets and facilitating the transition to a non-fossil-fuel-based energy economy, alongside adequate budget-outlay credit support, will significantly provide financial support to the sector. Green bonds for the development of the biomass-bioenergy sector, carbon markets with specific renewable energy certificates or carbon pricing for circular economy carbon atoms will contribute to the sector’s financial stability and growth. Financial engineering, financial management and long-term rural bioenergy infrastructure development are key factors in mobilising financial support for the sector.
Lack of infrastructure for equitable power parity
There is a substantial demand for biomass in the power, cement and steel sectors. For instance, to aggregate 1,500 MT of biomass, approximately one acre of land is required. To illustrate the requirements, here is an example of the funding required for independent power plants:
Construction
- Capex: Rs 90 million-Rs 95 million per MW
- Optimised size of the plant: 15 MW (environmental impact assessment not required for up to 15 MW)
- Capex requirement for 150,000 mt collection: Rs 3.5 million x Rs 75 million + Rs 45 million = Rs 307.5 million ($3.85 million)
- Gross working capital required at Rs 3,000 per mt: Rs 450 million ($ 5.63 million)
- Total capex per project: Rs 2,182.5 million ($27.3 million)
For biomass consumption
- 15 MW plant requires 150,000 mt per year
- 100 x 15 MW = 100 x 0.15 million mt per year
- 1,500 MW: 15 million tonnes per year
Government support required
- Free open access to interstate transmission systems for power produced by biomass IPPs.
- Government participation is necessary for biomass aggregation.
- Government should support studies to enable special financing mechanisms or hybrid financing structures that can help reduce project capex.
- Government support for financial innovation studies will result in tariff reduction to affordable levels for state electricity boards.
- Exemption on GST/customs duty for plant equipment and farm equipment and income tax exemption for biomass-related businesses from a certain base date.
- Allowing forex indexation of tariffs for IPPs to enable large-scale foreign direct investment to come in when rupee-related forex risk is mitigated.
Environmental concerns
Biomass energy production in India has raised environmental concerns, primarily due to the use of agricultural waste as feedstock for power plants. Burning of agricultural waste contributes to air pollution, with significant implications for human health and the environment. To address this issue, the government can encourage the use of cleaner and more efficient technologies for the combustion of biomass. This could include the use of biomass gasification-based cogeneration technology that can produce electricity from paddy straw by a densification-gasification process. Additionally, the government can provide incentives to farmers to adopt sustainable agricultural practices that reduce waste production. Co-firing biomass is not an ideal solution, as the carbon-positive actions of collecting, transporting, densifying, re-transporting and crushing will not get neutralised by the utilisation of carbon-neutral fuel. Developing microgrids with the available biomass is a more viable solution and can build a synergetic circular economy.
Conclusion
The biomass sector in India has immense potential, and through the implementation of appropriate interventions, the country can make significant progress in realising its potential. The government and stakeholders must prioritise the biomass sector to create favourable incentives and an enabling environment to attract investment. Increased investment in the sector can result in economic growth, job creation and energy diversification, contributing to sustainable development and a resilient energy system.
