As India’s compressed biogas (CBG) sector scales up commercial deployment, project financing and revenue realisation have become important points of discussion. While government initiatives have created momentum, developers continue to grapple with rising feedstock costs, evolving project economics, limited lender appetite and uncertainty around carbon credit revenues. At Renewable Watch’s third edition of the Compressed Biogas in India conference, panellists discussed how project costs, financing structures and carbon markets are evolving, while outlining the measures needed to improve project viability and bankability. Edited excerpts…
Ashish Agrawal, Director, Resurgent India
For any CBG project, funding remains the foundation of execution. While technology, engineering and policy are important, projects cannot move forward unless developers are able to secure debt and equity on favourable terms. In most projects, debt accounts for nearly 75 per cent of the total project cost, making lender confidence critical to project development. However, financing conditions have become significantly stricter than they were a few years ago.
Developers should therefore focus on strengthening their own credentials before approaching lenders. Banks evaluate not only the technology and project economics, but also the capability of the promoter, availability of land, feedstock arrangements, offtake agreements and third-party due diligence reports.
Another challenge is identifying the right financing institution. Only a limited number of banks actively finance CBG projects because many lenders have previously experienced the challenges in the sector, such as project delays, feedstock shortages and execution risks. Banks are increasingly seeking promoter contribution, stronger collateral support and detailed project validation before extending loans.
Refinancing presents an opportunity once projects become operational and demonstrate stable cash flows. After one or two years of successful operations, developers can refinance their projects at lower borrowing costs, improving overall project economics. On the equity side, private investors are generally interested in developers with multiple projects rather than standalone plants. Platform-based investment models, backed by strategic partners and larger development pipelines, are therefore becoming increasingly attractive for institutional investors.
Samir Athalye, Deputy General Manager (Operations), NABARD
The CBG sector is an important component of the renewable energy ecosystem and has already financed several projects across the country. However, from a lender’s perspective, project viability begins with securing reliable feedstock supply. Since most projects depend on agricultural biomass, partnerships with farmer producer organisations (FPOs) can significantly strengthen long-term feedstock availability. Stable procurement mechanisms reduce one of the largest operational risks associated with CBG projects. We are also actively supporting larger projects, particularly those of around 20 tonnes per day (tpd), with a significant proportion based on agricultural feedstocks.
Ultimately, lenders continue to prioritise predictable cash flows over projected returns. Any tie-ups with the feedstock providers or with the oil marketing companies will play a great role in sanctioning the project. Long-term agreements for both feedstock procurement and gas offtake significantly improve project bankability by reducing uncertainties around revenue generation.
Shailender Kumar, Manager, Intellecap Advisory Services
The long-term success of the CBG sector depends not only on increasing gas production but also on improving the economics of the entire value chain. While policy support and investor interest have grown considerably, important structural gaps continue to limit project viability.
One of the biggest challenges lies in the sector in the limited monetisation of by-products, particularly biodigestate. If biodigestate can be properly monetised, it can substantially strengthen project revenues and improve lender confidence. This is particularly evident in cow dung-based CBG projects. Although these projects generate valuable organic fertiliser, existing policy frameworks do not adequately differentiate biodigestate from conventional fertilisers, resulting in limited price realisation. Developers are therefore forced to sell a premium product at lower prices.
Looking ahead, CBG projects should be viewed as part of a broader circular rural economy rather than standalone gas production facilities. Integrating biochar, reducing chemical fertiliser consumption and creating community-based carbon projects could generate additional revenue streams while strengthening rural livelihoods.
Dr Anjan Katna, Director – Carbon Markets, PwC India
Carbon credits have existed for more than 20-25 years, yet they remain one of the least understood components of project financing. For CBG developers, however, they represent an important supplementary revenue stream rather than the primary driver of project economics. CBG projects generate carbon credits through multiple pathways. Methane avoidance from waste management creates the largest emission reductions because methane has nearly 29 times the global warming potential of carbon dioxide. Additional credits are generated through fossil fuel substitution and improvements in soil carbon resulting from organic fertiliser application. However, developers must recognise that generating carbon credits requires robust monitoring, verification and documentation throughout the project lifecycle.
At present, developers also need to carefully evaluate which carbon market mechanism best aligns with their project characteristics. Traditionally, Indian projects have participated in voluntary international markets through standards such as Verra and Gold Standard. More recently, bilateral arrangements under Article 6 of the Paris Agreement have begun creating additional opportunities, with India already entering into agreements with countries such as Japan. These mechanisms are expected to offer better price realisation than conventional voluntary markets once transactions become operational.
Despite these opportunities, significant uncertainty remains around pricing. Since very few CBG transactions have been completed, there is limited historical pricing data available. Developers therefore rely heavily on financial modelling and assumptions, making lenders cautious while evaluating projected carbon credit revenues. Carbon credits should therefore be viewed as an upside rather than a core financing instrument. While they can improve long-term project returns and operational cash flows, they are unlikely to bridge upfront capital expenditure requirements in most cases.
Vipin Malhotra, Senior General Manager (Sales and Marketing), Green Power International
Project economics vary considerably depending upon feedstock characteristics, plant configuration and operating efficiency. For a 20 tpd CBG plant, project costs are around Rs 110 million for press mud, poultry litter and cattle dung-based plants, approximately Rs 120 million for Napier grass-based facilities, around Rs 140 million for paddy straw projects, and nearly Rs 280 million for segregated municipal solid waste plants. Internal rates of return similarly vary from around 7-12 per cent for paddy straw, cattle dung and municipal solid waste projects to 12-20 per cent for Napier grass, press mud and poultry litter, while certain feedstocks such as spent wash and maize can deliver returns of 20-30 per cent under favourable operating conditions.
Plant sizing continues to depend on the developer profile. For new entrepreneurs and retail developers, facilities of around 3-5 tpd remain commercially viable and operationally manageable. Larger industrial players, particularly sugar mills and integrated businesses, are increasingly evaluating projects in the 10-20 tpd range as feedstock availability and project scale improve. Feedstock economics have changed even more dramatically. When policy discussions first began around 2018, many agricultural residues and industrial wastes were available at little or no cost. Today, these materials have become valuable commodities, with suppliers charging for feedstock while also requiring developers to bear transportation expenses. Simultaneously, land prices have increased sharply, rising from around Rs 1 million per acre a few years ago to nearly Rs 2.5 million-Rs 3 million per acre in many locations. As a result, feedstock alone now accounts for nearly 40-50 per cent of project costs, while electricity contributes another 20-25 per cent. Improving operational efficiency and optimising feedstock procurement will therefore remain central to strengthening project economics.
Dr Pawan Singh, Chairman, Amphi Green Solutions
Although policy support for CBG has expanded considerably, lender confidence continues to lag behind. Banks continue to focus primarily on promoter strength, collateral availability and financial security rather than project fundamentals alone. Large corporate groups naturally enjoy easier access to financing, whereas smaller developers often struggle despite having technically sound projects. Moreover, one of the recurring challenges across the industry is the tendency to prepare financial projections using ideal operating assumptions. In reality, feedstock quality fluctuates, logistics costs change over time, and plant performance varies during different seasons. These factors directly influence gas yields and project revenues.
Carbon credits, meanwhile, are unlikely to influence lending decisions in the near term. Most lenders continue to exclude them from debt assessments because future revenues remain uncertain. Rather than expanding subsidy programmes, policy should instead focus on improving pricing mechanisms. Allowing oil marketing companies to procure CBG at commercially viable prices would provide greater revenue certainty and improve project bankability. Just as coordinated policy interventions accelerated the growth of India’s solar and wind sectors, a similar approach will be necessary for CBG to attract greater institutional financing and achieve commercial scale.
