Bio-CNG: Should you consider entering this business?

Though Biogas has been around for nearly three decades, it has been a small business, dominated by family size plants used for providing cooking fuel and power. Prospects of Biogas sector are improving slowly but significantly, largely driven by the government policies that have allowed use of Bio-CNG (purified Biogas, also known as Compressed Bio Gas or CBG) in commercial vehicles and availability of subsidy for large scale plants. Recently in September 2018, government of India (GOI) announced a policy on Sustainable Alternative towards Affordable Transportation (SATAT), which proposes to set up 5000 new Bio-CNG units across the country by 2025 and generate 15 million tonnes of Bio-CNG.

India is the third largest energy consumer in the world with fossil fuels accounting for over 90 per cent of the energy mix. Renewable fuels such as Bio-CNG present a huge opportunity as they not only reduce our dependence on imports but also offer a solution to tackle the growing amount of organic waste and pollution arising out of crop burning.

This blog takes a close look at the viability metrics of the Bio-CNG industry.

What is Bio-CNG?

Bio-CNG is purified form of Biogas, obtained after removing Carbon di oxide and Hydrogen sulphide. As compared to Biogas which has up to 60% Methane, Bio-CNG has methane content of over 90%. Bio-CNG can produced from various bio-mass / waste sources including agricultural residue, municipal solid waste, sugarcane press mud, distillery spent wash, cattle dung and sewage treatment plant waste.
Bio-CNG compares favourably (See Table 1) with CNG (compressed natural gas, used in vehicles) as well as LPG (household fuel) in terms of technical specifications and calorific value. Further, it comes with the added advantage of being a more environment friendly fuel.

Table 1: Bio-CNG versus other fuels
Calories per kgPrice (Rs per kg)
CNG10,95044-57
LPG (non-Subsidized, domestic)11,20047-51
LPG (commercial)11,200upwards of 68
Bio-CNG11,200upwards of 52
Notes
• CNG price in Delhi is Rs. 44.70 per kg and in Dadra & Nagar Haveli is Rs. 57.73/kg
• LPG prices have been sourced from IOCL website
• Bio-CNG price has been calculated assuming a purchase price of Rs. 48 /kg for the OMC

What are key policy measures supporting the industry?

Key policy initiatives include subsidy for setting up large scale Biogas/Bio-CNG units and assured offtake of Bio-CNG by oil marketing companies as part of SATAT (See figure 1 and box 1). Additionally, the industry would also benefit from investment in the infrastructure creation towards nationwide city gas distribution network and CNG dispensing stations.

Figure 1: Policy measures for largescale Bio-CNG plants

Box1. SATAT: key features
1.The applications for Compressed Bio Gas (CBG) units are invited through websites of oil marketing companies (OMCs). Applications were open from September 2018 to March 2019 and around 100 expression of interest (EOI) received. Overall 5000 plants are to be set up by 2025
2.OMC would select the location of the retail outlet through which CBG will be sold and finalise offtake agreement, price has been fixed at Rs. 46 per kg (plus taxes) for a period of three years from 1ST October 2018
3.Entrepreneur will be responsible for land procurement, plant construction and operations. OMCs will only purchase the gas
4.Minimum size of the plants would be around 2000 kgs of CBG per day (or 50 tonnes of waste per day), CBG shall meet IS 16087:2016 specifications of BIS.

What is the current scenario of Bio-CNG Industry?

Bio-CNG industry is in a nascent stage, with only a few large scale plants (see Table 2) that supply their CNG to industries where it is used as a fuel for boilers or for as a cooking fuel in hotels. There is no commercial scale plant that produces Bio-CNG for vehicles.

Table 2. Bio-CNG plants
CompanyLocationCapacity (kg/day)Remarks
Spectrum Renewable EnergyKolhapur, Maharashtra8000Feedstock Press mud, output is sold to commercial institutions
Green Elephants IndiaSatara, Maharashtra7290Feedstock distillery spent wash, output used in industries
Bharat Biogas Energy LimitedAhmedabad, Gujarat6500Feedstock urban and industrial waste, more focused on sale of fertilizers
Amul DairyVadodara, Gujarat6000Dairy waste, output used for power production
Primove EnergyPune, MaharashtraPilot plant for vehicle fuelAgro waste
Mahindra Waste to Energy SolutionsMalur, Karnataka1000Food waste, CNG is sold to commercial institutions
Spectrum Renewable EnergyRohtak, HaryanaN.AUpcoming, likely to commission by end of 2019
Mahindra Waste to Energy SolutionsDera Bassi, PunjabN.AUpcoming, feedstock paddy straw/wheat straw, CNG to be used for tractors

Source: MNRE publications and FineTrain research

In addition to the above plants, a number of new units are likely to come up as part of SATAT programme. For example, National Agricultural Cooperative Marketing Federation of India (NAFED) alone has proposed to set up more than 100 units that would use the waste in its agri mandis to produce Bio-CNG. In addition, a number of players including biogas plant fabricators, sugar mills, paper mills, LPG distributors could be interested in entering the Bio-CNG business.

Capital cost and project economics

The capital cost depends on the plant capacity and cost of the land. However, as a thumb rule cost of a project that handles around 100 tonnes of waste per day (produces 12,000 cubic feet of biogas or 4,800 tonnes of Bio-CNG) is likely to be around Rs. 20-25 crores. The project would be eligible for a credit linked subsidy of Rs. 4 crore, to be reimbursed after the plant is commissioned.
The project economics will depend on a host of factors such as market acceptability of the product, land cost, feedstock availability, cost and yield and biogas purification technology.

    • Market: While the offtake for Bio CNG from OMC is assured to an extent, it would be important to develop alternate set of customers such as industries/hotels, who can perhaps provide better pricing/payment terms and provide cushion when the demand from OMC declines.Also, the potential for sale of organic fertiliser would need to be assessed. Fertilisers/compost are typically sold through dealer network and require large sales force that can educate farmers on benefits of organic fertilisers. Alternatively, the option of bulk sale to fertiliser companies needs to be explored.
    • Land cost: Around 4 acres of land is required to set up a plant that can handle 100 tonnes of waste per day. The land cost can vary hugely depending on the location and whether the land is agricultural or industrial.
    • Feedstock: Factors such as availability of the feedstock through the year, feedstock yield in terms of biogas, cost including the transport cost, play a critical role in the viability of Bio-CNG unit. For example, feedstocks such as poultry litter/press mud already have a market and may be relatively more expensive to procure, whereas rice straw/wheat straw doesn’t have many other buyers, but are not available throughout the year. Also, the cost of feedstock tends to increase significantly over a period of time as its demand increases correspondingly due to the commissioning of biomass based projects.
      Therefore, it is critical to examine the price revision /escalation clause/agreement with the OMC so as to ensure that any increase in the feedstock price can be passed on.
    • Timely receipt of regulatory approvals: A Bio-CNG unit requires a number of permissions including a license from Petroleum and Explosives Safety Organisation (PESO), fire safety certifications and a certification from MNRE (Ministry of Renewable resources). Ability of the company to secure these licenses on time can prevent the delay in commissioning of the plant and result in cost savings.
    • Availability of supporting infrastructure for CNG dispensing: Currently the infrastructure related to supply and distribution of CNG is limited, with only about 1424 dispensing stations, 82% of which are located in Maharashtra and Gujarat . Similarly, gas distribution network pipelines are available only in Northern and Western part of country. The Bio-CNG projects are likely to be more successful in states, where the supply network is already available or is being developed.
    • Favourable govt policies: Lastly, favourable govt policies are a must, not just for Bio-CNG, but for the entire waste to energy industry. Therefore, initiatives such as SATAT must be allowed to continue by the successive governments.

Our view

The need for cleaner fuels like Bio-CNG is evident given that by 2030, under the Paris Climate Agreement, India has committed to meeting 40% of its energy consumption from renewable energy sources. While macro environment remains positive, the key risk to a Bio-CNG plant viability is lack of any linkage between the feedstock and final product price and lack of clarity on the price revision mechanism under SATAT. Since Bio-CNG would compete with fossil fuels, its pricing would depend on the price of CNG/LPG, whereas the price of its feedstocks may move very differently. This is already the case with the biogas based power plants/waste to energy plants that are not able to compete with decreasing tariffs of solar/wind power plants.
Therefore, feedstock analysis, availability and long term agreements for purchase of feedstock are critical to the viability. Industries such as sugar mills, paper mills poultry farms that have captive access to feedstock would be most favourably disposed to take advantage of this opportunity.

How can we help?

We can help you assess viability of your proposed Bio-CNG venture and support you in raising capital for the same. If you are looking to purchase/sell an existing Biogas/waste management company, we can identify prospective buyer/ seller and support you throughout the transaction.

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Write to us: bchhatre@finetrain.com , admin@finetrain.com
Call us: 800 888 4932

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