By Ashish Kumar, Managing Director, VERBIO India Private Limited
We need clean air and cleaner cities, we need jobs, we need to boost the rural economy, we need to adopt sustainable farming practices, we need to reduce import dependence on fossil fuels and import bills of fertilisers, and we need prosperous farmers. In this context, compressed biogas (CBG) is possibly the most unique sector, as it reduces air pollution from stubble burning, consumes all kinds of urban/rural organic waste, substitutes the import of fossil gas with the use of cleaner fuel for automotive/industrial applications, creates rural jobs/entrepreneurial opportunities, and improves soil health to optimise fertiliser consumption – and all of this does not come at the cost of fossil gas/compressed natural gas (CNG).
Discounted indexation of a green fuel with a fossil fuel as the only revenue stream is where we started on the wrong foot in 2018. Unfortunately, all policy development efforts since have been made on the same foundation. Even after acknowledging the mistake, the boldness required to make a radical shift is still missing.
The first three years after the launch of the Sustainable Alternative Towards Affordable Transportation initiative in 2018 were focused on getting letters of intent (LoIs) signed. To this end, immense success was achieved with more than 3,500 LoIs signed, but only a fraction of these have been realised – less than 5 per cent till date.
There is absolutely no denying that since 2022, with the commissioning of the first few projects, including ours, the extent of policy support from the central government (the Ministry of Petroleum and Natural Gas [MoPNG], the Ministry of New and Renewable Energy, the Ministry of Agriculture and Farmers Welfare, the Department of Fertilisers, and the Department of Drinking Water and Sanitation) has been extremely encouraging and probably the only reason why the sector has survived so far.
I have been told that CBG is a significant potential threat to the existing well-established beneficiary frameworks of various lobbies of producers, marketeers and distributors of fossil fuels, as well as to chemical fertiliser companies. It has always been very difficult for me to understand this rationale, but after being a direct witness to some incidents, I have had no choice but to believe it, though with the necessary benefit of doubt for defending one’s own territory.
On the other side, I have been told by highly respected senior bureaucrats and industry leaders that the growth of this sector is one of key focus areas of the Government of India as well as of our prime minister.
And this is where I get completely confused – when the government is focused, with all positive intentions, on driving the growth of CBG, how can it not be a resounding success, along with its inherent socio-economic and environmental advantages?
I could reason that the following factors are collectively responsible amongst all stakeholders – policymakers, industry, academicians and society:
There is a lack of accountability and ownership with respect to making decisions rather than a focus on making the right ones; this is compounded by low risk appetite and domain knowledge, and the limited openness of decision-makers towards new sectors.
Policymaker intentions have not yet been institutionalised and are dependent on the mercy of strong leadership for implementation; support from the government is still half-hearted, and the best is yet to come.
Across the value chain, industry is lagging in the adoption of proven technologies and professional supply chain practices; there is thus a lack of clarity with respect to guidance or a clear definition of what it expects from the government.
Certain stakeholders have an opportunistic attitude, including the fossil fuel industry, academics and knowledge establishments, who are possibly threatened by the growth of CBG.
There is a significant lag between policymaking at the centre and implementation in the states. How can states not support implementation if the centre is absolutely clear in its policy objectives? This lag is not restricted to states with a different political establishment from the centre.
A limited “push” role is being played by society in terms of demanding a healthier, cleaner and greener environment as bare minimum living standards; society has become too forgetful and resilient.
It is indeed a collective lag. But the good news is that the situation has been slowly evolving over the last three years, and we are aware of how the problem can be solved.
How can we make CBG an even greater success than ethanol?
The fundamental flaw with the CBG business case is that it has significantly discounted the revenue collectively for CBG and its byproducts. CBG pricing is discounted at 85 per cent of fossil gas for the CBG producer, whereas ethanol is priced at a premium of 115 per cent of fossil gasoline (including transportation and GST), and that too for less than 60 per cent of the equivalent energy content – CBG at 11,838 kcal per kg with 95 per cent methane, and ethanol at 6,668 kcal per kg with 97 per cent purity.
We need to gradually establish revenue parity based on energy equivalence for ethanol and CBG. The progressive mindset of ethanol needs to be replicated for CBG. Ethanol’s economic framework is so successful that only a negative social media campaign could slow it down.
The target revenue for CBG is Rs 3,220 per mmBtu (excluding taxes), irrespective of the plurality of revenue streams – whether it is CBG alone or in combination with market development assistance (MDA) for fermented organic manure (FOM)/liquid FOM (LFOM). The following are the fundamental corrections required to push/evolve the CBG sector from survival to stability and eventually growth…
Survival mode: This is the most urgent requirement, with immediate implementation needed. It involves zero to low growth but is a must-have for existing plants to avoid shutdown; in all likelihood, the CBG blending obligation (CBO) of 5 per cent until 2028-29 will not be met. Hence, it is important that CBG producers receive the full Rs 1,500 per tonne FOM and LFOM monetisation every month, based on their actual CBG production, through a smooth and transparent process, with no financial uncertainty or risk. Currently, there is a Rs 1,092 per mmBtu deviation from the target revenue of Rs 3,220 per mmBtu, as only 50 per cent of the eligible MDA has been released. With 100 per cent MDA release, the deviation will be reduced to Rs 901 per mmBtu. Additionally, offtake of 100 per cent of the produced CBG volume for all plants irrespective of capacity, on ex-works basis, is a must as CBG producers are not suited for gas distribution and logistics.
Stability mode: The intended structural correction with the planned formation of the National Integrated CBG Promotion Scheme (NICPS), led by the MoPNG, should address the industry concern of there being a single point of accountability and ownership. Revenue parity should be implemented based on energy equivalence for CBG and ethanol at Rs 3,220 per mmBtu. There are four different ways of achieving this:
Option 1: Retain the aforementioned discounted factor of 85 per cent for CBG pricing and bridge the gap via an increased MDA of around Rs 3,500 per tonne for FOM/LFOM; implement seamless and clean 100 per cent monthly monetisation of production-linked MDA. This option is strongly discouraged, as it requires a near 50 per cent dependence on the FOM/LFOM revenue stream.
Option 2: Implement premium pricing for CBG at 115 per cent of the CNG price for the producer and increase the MDA to around Rs 3,000 per tonne for FOM and LFOM. This is strongly recommended as the most pragmatic solution, with a greater focus on CBG revenue share.
Option 3: Retain MDA on FOM/LFOM at Rs 1,500 per tonne and implement premium pricing for CBG at 144 per cent of the CNG price for the producer.
Option 4: Implement a 100 per cent CBG-based revenue stream on an energy parity basis at Rs 3,320 per mmBtu, and no MDA for FOM/LFOM.
Aligning production factors for FOM and LFOM is critical, and the target is to achieve a collective revenue realisation of Rs 3,220 per mmBtu, excluding taxes. The CBO needs to be strengthened to 10 per cent by 2030 and extended across all natural gas applications. Domestic trading for CBO certificates should be established. Such revenue parity will attract significant investments and could be the basis for setting up 500 industrial scale (at least 20 tonnes per day each) waste-to-energy CBG projects up to 2030.
Growth mode: CBO should be implemented with a stringent penalty mechanism, so as to establish a fair market-based price discovery mechanism for CBO certificates based on CBG demand and supply. A domestic trading market for CBO or carbon emission reduction certificates needs to be established. Bilateral agreements will need to be established on Article 6.2 of the Paris agreement with regions that have established and attractive markets such as the European Union, Japan, Singapore and South Korea, and trading of carbon emission reduction certificates should be implemented. An implementation provision should be established for the export of carbon emission reduction certificates or proof of sustainability certificates, which could be traded in international compliance-based carbon markets.
With the ongoing journey of accomplishing revenue parity based on energy equivalence for ethanol and CBG under an integrated NICPS structure, the industry is optimistic that CBG will become another success.
