India should target a 10 per cent blend of CBG in natural gas by 2030, notes Energy Transition Advisory Committee
A recent report by the Ministry of Petroleum and Natural Gas (MoP&NG) emphasised the need for India’s energy transition and highlighted various pathways to achieve a low-carbon future.
Climate change poses a significant disruption to the oil and gas sector, necessitating a reorientation of the industry’s business model to capitalise on emerging opportunities and align with the net zero emission goals, noted the report released in May 2023.
The document titled The Green Shift: The Low Carbon Transition of India’s Oil and Gas Sector was released by the Energy Transition Advisory Committee (ETAC), established by MoP&NG.
India’s natural gas production stands at 34,000 million standard cubic metres of gas (MMSCM), while its consumption is at 64,000 MMSCM, resulting in a significant deficit of 30,000 MMSCM. This deficit, accounting for 47 per cent of the total consumption, is met through imports.
Compressed biogas (CBG) can help plug this gap. Over the past few years, CBG has emerged as a viable alternative to imported fossil natural gas, offering nearly net-zero emissions and enhancing energy security. Various waste and biomass sources, such as cattle dung, agricultural waste, distillery spent wash, press mud, organic fraction of municipal solid waste and sewage treatment plant sludge, undergo anaerobic decomposition to produce biogas.
The biogas is then turned into a gas that is primarily methane (more than 90 per cent) through purification, which involves removing carbon dioxide, hydrogen sulphide and moisture. This gas is further compressed to high pressure (250 bar) to produce CBG.
Currently, most CBG production occurs in European and North American markets. In countries like Denmark and Sweden, bio-methane constitutes over 10 per cent of their total gas sales.
However, only 46 CBG plants have been commissioned in India as of March 2023, out of the planned 5,000 plants expected to be operational by the end of 2023 under the Sustainable Alternative Towards Affordable Transportation (SATAT) scheme. Nevertheless, the industry is gaining momentum, as evidenced by the issuance of 4,090 letters of intent to various stakeholders.
The Union government has set a goal to increase the proportion of gas in the energy mix to 15 per cent by 2030 from the current 6.5 per cent in order to establish India as a gas-based economy. CBG can play a crucial role in achieving this objective by serving as a significant domestic source of energy supply. Moreover, in her budget speech, Union finance minister Nirmala Sitharaman stated that a 5 per cent CBG mandate will be implemented for all organisations involved in natural gas marketing.
India should target a 10 per cent blend of CBG in natural gas by 2030, according to the ETAC report. To incentivise the sector, the transportation of CBG through pipelines that were originally built for natural gas should be exempted from charges for a period of 10 years. Additionally, until petroleum-based fuel products are included in the Goods and Services Tax regime, an accounting framework should be established to mitigate the impact of stranded credit or dual taxation for CBG.
In 2015, the Ministry of Road Transport and Highways authorised the use of CBG as a viable alternative to CNG for motor vehicles. CBG can be seamlessly utilised in CNG-powered vehicles without requiring any modifications. However, the demand for CBG is mainly concentrated in urban regions. The introduction or adaptation of CBG-powered tractors and other agricultural equipment can address this concern by promoting the use of biogas in rural areas.
One of the primary challenges in establishing CBG plants is the lack of a reliable and consistent supply of feedstock, which renders the projects financially unviable. The report suggested that the Ministry of Agriculture should take responsibility for biomass management, supported by state-level policies.
State governments can offer an additional subsidy of at least 30 per cent to enhance the feasibility of procuring equipment. This subsidy can be provided upfront during equipment procurement and may also be extended to corporate entities setting up CBG plants. State governments can undertake various initiatives, such as identifying biomass clusters, deploying biomass aggregation equipment (such as cutters, rakers and balers) and allocating panchayat or revenue land for decentralised storage facilities to establish biomass depots.
Sugar mills can play a significant role in ensuring a sustainable pricing mechanism for feedstock in press mud-based CBG plants. With a price escalation clause, sugar mills should enter into agreements for a minimum of 20-25 years to supply press mud. There shall be a control mechanism for setting up CBG plants defining a catchment area — as too many plants in a given geography may lead to feedstock price escalation, rendering the overall plant profitability unviable.
Currently, biomass aggregation and storage equipment are eligible for a subsidy of up to 50 per cent under the Sub-Mission on Agricultural Mechanization (SMAM) scheme.
The production of fermented organic manure (FOM) is approximately three times higher than CBG production and can serve as a significant source of revenue. However, no established mechanism exists for selling FOM or low-grade fermented organic manure through major fertiliser companies or relevant agencies. To address this challenge, the ETAC report proposed that the Department of Fertilizers offer market development assistance by setting a price of Rs 1,500 per tonne for the sale of FOM.
Furthermore, a mandatory arrangement could be implemented, where chemical fertiliser companies commit to purchasing bio manure from CBG plants at a price range of Rs 5,000 to Rs 6,000 per tonne using a ‘basket approach.
Exempting FOM from retail license requirements can facilitate the sale of FOM in smaller quantities, including packages weighing less than 5 kg and stocks totalling less than 10 metric tonnes at any given time. Additionally, a national brand and certification system should be established to promote organic and natural food produced using FOM.
A huge financial investment is required to install 5,000 CBG plants nationwide. Various financial incentives such as improved access to credit, accelerated depreciation, long-term land leases and tax holidays can attract private investment to the CBG sector.
Implementing a Production Linked Incentive scheme specifically targeting the CBG sector could serve as a significant catalyst for boosting the industry. The capacity building of financial institution personnel is very much required to enable decision-making regarding lending procedures as it is considered a high-risk business.
India should also focus on establishing a coordinated institutional framework to facilitate research and development (R&D) in the CBG sector. This framework should leverage all domestic R&D institutions to transfer successful technologies from the laboratory to practical implementation swiftly. The creation of model CBG plants, with support from technical universities throughout the country, can serve as innovative success stories and provide valuable guidance.
In addition, introducing courses on CBG technology, feedstock management, manure enrichment, marketing, and operations and maintenance in state universities, technical institutes and agricultural institutes would greatly benefit the industry and its workforce.
The challenges and recommendations pitched in the report align with Delhi-based non-profit Centre for Science and Environment’s latest report titled Greening India’s Energy Mix with CBG. The CSE report offers a comprehensive overview of India’s current CBG strategy and provides insights into its future trajectory.
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