By Sarthak Takyar
India has set a target to increase the share of gas in energy consumption from the current 7 per cent to 15 per cent by 2030. According to the Petroleum Planning and Analysis Cell, the country’s gas production stands at 29,769 million metric standard cubic metres (mmscm), while consumption is 55,256 mmscm, indicating a significant shortfall of 25,488 mmscm. This constitutes 46.12 per cent of the total consumption, which is met through imports. Compressed biogas (CBG), as a domestic renewable energy resource, holds substantial promise to bridge this gap and achieve the country’s clean energy objectives. According to the Institute for Energy Economics and Financial Analysis, if India gradually replaces its natural gas consumption with biogas and biomethane by up to 20 per cent, it could potentially reduce liquefied natural gas import expenses by around $29 billion from 2025 to 2030.
It is estimated that residue from agricultural and agro-industrial activities could potentially generate around 18 GW of electricity, although the total biomass power potential is estimated to be approximately 28 GW, according to research by the Administrative Staff College of India in Hyderabad. Meanwhile, the estimated potential for CBG from different sources is about 62 million metric tonnes (mmt), sufficient to fulfil over 9 per cent of the country’s current energy requirements.
A positive for India is the significant availability of biomass. According to the Sardar Swaran Singh National Institute of Bio-Energy, the current annual biomass availability in the country is approximately 750 mmt, with a surplus biomass availability of about 230 mmt per year. Uttar Pradesh has the highest total biomass availability, followed by Madhya Pradesh and Maharashtra. Uttar Pradesh also leads in the potential for producing CBG from agricultural waste, followed by Punjab and Madhya Pradesh. Maharashtra has the highest potential for producing CBG from municipal solid waste (MSW), followed by Tamil Nadu. Maharashtra has the highest CBG generation potential from sewage waste, followed by Uttar Pradesh. In terms of CBG potential from sugarcane and distillery waste, Maharashtra leads, followed by Uttar Pradesh and Karnataka, according to the Centre for Science and Environment (CSE).
Cost economics
A key hindrance in the setting up of CBG projects has been the high cost. In addition to the high initial capex, there is an opex that needs to be incurred. The capex part constitutes approximately 90 per cent of the total project cost, including capex for biomass collection, while the remaining is opex. The capex depends on the size of the plant and the offtake model, as well as the feedstock used. For instance, Verbio India estimates that the cost of a small CBG plant (less than 5 tonnes per day [tpd]) under the retail outlet model is almost double the cost under decompression injection and direct injection in the pipeline model. Meanwhile, for a medium CBG plant of 5-15 tpd capacity, the cost in the retail outlet model is almost triple that of decompression injection in the pipeline model and five times that of direct injection in the pipeline model. Further, the cost of a large CBG plant (over 15 tpd) in the retail outlet model goes up to 3.5 times for decompression injection and almost seven times for direct injection in the pipeline model.
Meanwhile, according to the Confederation of Biomass Energy Industry of India, the total capex for 10 mt per day of paddy straw in a CBG project is around Rs 1,000 million. The cost breakup is as follows: project capex (76 per cent), capex for 50,000 mt of biomass collection (9.7 per cent) and the remaining gross working capital required at Rs 3,000 per mt. Further, the Standing Committee on Petroleum and Natural Gas (2022-23) reports that the cost of a 100 tpd plant using paddy straw, press mud and cow dung/chicken litter with a CBG output of 5-12 tpd would range from Rs 250 million to Rs 800 million.
According to the CSE, projects based on different feedstock have different opex costs, with annual opex costs varying from Rs 5 million to Rs 8 million for a 1 tpd bio-compressed natural gas (CNG) plant. In certain business models, CBG producers pay an annual royalty to the urban local body (ULB) to arrange raw material for the plant site. For instance, for Indore’s CBG project, EverEnviro pays Rs 25 million per year to the ULB.
The cost of supply chain management is another key aspect. According to Verbio India, aggregation is a significant cost for agricultural waste, with the capex accounting for 30 per cent of the project cost, with re-investment every five to six years. Comparatively very low capex is needed for aggregating other types of waste. Meanwhile, the biogas yield from agricultural or primarily agricultural waste is higher as compared to MSW, industrial waste and animal waste. Overall, agricultural and primarily agriculture-based feedstock have higher costs and risks. However, this feedstock has the benefit of higher biogas yields.
Policy impetus
The CBG segment in India has received significant policy impetus. In 2018, the Ministry of Petroleum and Natural Gas (MoPNG) launched the Sustainable Alternative Towards Affordable Transportation (SATAT) scheme to promote the production and utilisation of CBG as an alternative green fuel for the transport segment. It aims to reduce India’s dependence on oil and gas imports by producing CBG using agricultural residue, cattle dung, sugarcane press mud, MSW and waste from sewage treatment plants. The MoPNG set a target of establishing 5,000 CBG plants with a capacity of 15 mmt per annum by 2024. As of March 2024, 53 CBG projects have been commissioned under the SATAT initiative.
The Galvanising Organic Bio-Agro Resources Dhan initiative, launched in April 2018 as a part of the Swachh Bharat Mission (Grameen), aims to enhance village cleanliness and generate wealth and energy from cattle and organic waste. In November 2022, the Ministry of New and Renewable Energy notified the National Bioenergy Programme. It was recommended for implementation in two phases, with a total budget outlay of Rs 17.15 billion, of which Rs 8.58 billion was allocated for Phase I. The programme offers central financial assistance (CFA) for various components relating to power generation, biogas/bio-CNG generation and briquette/pellet manufacturing, with biomass as one of the major feedstock sources, which would be primarily sourced from rural areas. For bio-CNG/enriched biogas/CBG generation, the incentive is Rs 40 million per 4,800 kg per day of CBG for generation from new biogas plants and Rs 30 million per 4,800 kg per day (with a maximum CFA of Rs 100 million per project) for CBG generation from existing biogas plants.
To boost the utilisation and adoption of CBG and improve the SATAT scheme, in November 2021, the National Biofuel Coordination Committee announced phase-wise compulsory integration of CBG into both CNG for transportation and piped natural gas (PNG) for the domestic segment within the city gas distribution (CGD) sector. This compressed biogas obligation (CBO) will remain optional until 2024–25 and blending obligations will become mandatory beginning 2025-26. For financial years 2026, 2027 and 2028, the CBO will be set at 1 per cent, 3 per cent and 4 per cent of the overall consumption of CNG or PNG respectively. The CBO will increase to 5 per cent starting from 2028-29. This initiative is expected to attract investments totalling Rs 375 billion and pave the way for the development of 750 CBG projects by 2028-29.
The government has put in place several other financial incentives as well. It has allocated a budget of Rs 5.64 billion for the period 2023-24 to 2026-27 to facilitate the acquisition of biomass aggregation machinery (BAM). The scheme will aid the collection of biomass for the first 100 biomass-dependent CBG plants. The government will provide a maximum financial aid equivalent to 50 per cent of the BAM’s procurement cost or Rs 9 million per set, whichever is lower.
Further, the government has issued guidelines for the co-mingling of domestic gas for supply to both the CNG (transport) and PNG (domestic) segments of the CGD network, facilitating the synchronisation of CBG with CNG in the CGD network. It has also sanctioned a scheme for the development of pipeline infrastructure for the injection of CBG into the CGD network. The allocated budget for this initiative is Rs 9.95 billion for the period 2023-24 to 2025-26. The scheme will create CBG-CGD grid connectivity for 100 CBG projects with reduced logistics costs.
Other incentives for the CBG sector include CFA for setting up plants for the generation of biogas/CBG from urban, industrial and agricultural waste; additional CFA for MSW-based CBG plants under the Swachh Bharat Mission Urban 2.0; customs duty concession on the import of machinery and components needed for the initial setting up of biopower generation and CBG projects; excise duty exemption on the amount of GST paid on CBG contained in blended CNG; inclusion of CBG projects under priority sector lending and under the “White Category” by the Central Pollution Control Board on a case-by-case basis; and market development assistance of Rs 1,500 per mt on fermented organic manure produced from CBG projects.
Future outlook
The CBG sector in India did not take off as anticipated due to several challenges, especially at the feedstock stage. One, there are issues of inconsistent quantity and quality of raw material, which often lead to increased prices when demand is high. Two, substantial investments are needed for the proper storage of feedstock and to prevent the seepage of leachate. Three, proper segregation is difficult and expensive, and non-segregated waste leads to lower gas yields. In addition, the lack of monetisation for fermented organic manure (a key revenue source of CBG producers) remains a key risk. CBG producers face several challenges in marketing organic manure for several reasons. One, the current subsidy regime on fertilisers (di-ammonium phosphate and urea) and the variable quality of existing organic manures (city composts) act as barriers for farmers to transition to organic manure made from biogas plants. Two, for many farmers, current agricultural practices such as the overuse of chemicals, monocropping and tilling supersedes the need to replenish soil carbon with bio-manure. Three, dealers lack awareness and motivation to sell organic fertilisers to farmers. Instead, they primarily focus on providing credit at very variable and high interest rates.
A key challenge that needs to be addressed going forward is the high capex and opex costs of CBG projects. Therefore, low-cost funding at lower collateral is needed to reduce the cost of projects. In addition, risk-sharing facilities, along with credit guarantee schemes, should be introduced to improve the availability of finance at lower interest rates and lower collateral. The availability of feedstock at an assured price on a long-term basis is key to ensuring that project costs do not escalate. To this end, subsidies on biomass aggregation equipment will be beneficial. 
In addition, notifying biomass clusters for CBG plants and engaging farmer producer organisations for the aggregation and storage of biomass in catchment areas will assist in reducing project costs. Exemption from central excise duty and value added tax or bringing natural gas/CNG under the ambit of GST, is needed to solve the problem of double taxation when CBG is blended and sold in the CNG (transport) and PNG (domestic) sectors.
A key parameter for reducing project costs is the location of the plant. Plants should be located close to the feedstock to avoid high transportation costs. In addition, it is important to ensure that no other large CBG projects are in the vicinity so that the cost of raw material does not rise and the raw material is available for use.
Despite several challenges in the CBG space, the future outlook for the sector is positive, given the high interest shown by private and public players to set up these projects as well as the recent policy impetus and financial incentives for this sector. Provisions for ensuring offtake by oil marketing companies under SATAT have given a major boost to India’s CBG market. According to Renewable Watch Research, the total CBG production capacity and feedstock capacity of under-construction projects across key states (Maharashtra, Punjab, Uttar Pradesh, Haryana, Andhra Pradesh, Madhya Pradesh, Gujarat, Bihar, Odisha, Rajasthan, Delhi, Jharkhand and Karnataka) is 1,776 tpd and 48,825 tpd respectively. Over 168 tpd of CBG capacity is under the bidding and planning stages across states. These projects will involve a feedstock capacity of 280 tpd.
Despite the impressive pipeline, it remains to be seen how many of these projects are actually implemented, and, if implemented, how many are financially viable. Nevertheless, CBG is sure to revive the struggling bioenergy sector in India.
