Biofuel Energy

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India: Bio fuel Energy Sector

Prepared by Trade Commission of Denmark, Bangalore

Keywords:India, Bio fuel Energy Sector, Key drivers, Government Regulations& Initiatives, Opportunities for Danish companies, Challenges fordanish companies, Conclusion & Recommendations

(Dansk: Indien, Biobrændsel sektoren, key drivers, regerings initiativer& reguleringer, muligheder for danske virksomheder, udfordringer fordanske virksomheder, konklusion & anbefallinger)

Abstract: This report provides a short overview of the Indian Bio fuel Energy Sector. It describes the industry and its potential, with focus onopportunies for Danish companies. Growing population and rapidsocio-economic development has spurred an increase in energy consumption across all major sectors of the Indian economy,especially in the transport sector which emphazise the need foralternative sources like bio fuel. This spurres opportunities for Danishbio fuel companies.

SECTOR ANALYSIS

Date 19-01-2011File No. MH/CM



The Trade Council, Embassy of Denmark, Bangalore of 8 The Trade Council

Table of contents

1 Introduction ................................................................................................................ 3 2 Industry ........................................................................................................................ 3 3 Key drivers .................................................................................................................. 4 4 Opportunities for Danish companies ...................................................................... 5 5 Challenges for Danish companies............................................................................ 6 6 Conclusion and recommendations .......................................................................... 7




1 IntroductionIndia’s energy consumption is increasing at one of the fastest rates in the world due

to population growth and economic development.

The demand for energy has been increasing in India because of resource

constraints on one hand and increased economic activities on the other hand. As

the ever-increasing demand for energy continues to squeeze fossil fuel reserves,

India is looking at fossil fuel-rich countries around the world.

Consequently, India has emerged as a major importer of energy and this has

seriously sensitised the Government of India to look at meeting the energy

requirements by reducing the demand-supply gap and strategically developing

energy security of the country.

In light of this concern, renewable energy and hence the Bio fuel sector is getting

increasingly lots of attention from the Government which creates opportunities for

Danish suppliers in the Bio fuel Energy sector.

2 IndustryIndia is the fifth largest primary energy consumer and fourth largest petroleum

consumer in the world. Growing population and rapid socio-economic

development has spurred an increase in energy consumption across all major

sectors of the Indian economy. Approximately 50% of the consumption of

petroleum products comes from transport. This percentage is likely to be higher

given double digit growth in the Indian economy, rise in domestic spending levels,and improving road infrastructures which have led to an increase in new vehicle

registrations and ownership. India´s on-road vehicle population has increased from

49 million to more than 65 million vehicles over the last five years and is expected

to grow annually by 8% to 10%. Diesel and gasoline-based oils meet more than

95% of the requirement for transportation fuel, and demand has been expected to

grow by 6% to 8% per year during the 11th Plan (2007-2012).

Indian bio fuel sector covers both bio-ethanol and bio-diesel. The former is in the

growing stage (with India as the fourth largest producer of ethanol in the world)

and the latter is still in its nascent stage. The demand for ethanol in India is far from being met. The existing production is

184 million litres with a demand of 500 million litres which illustrates a shortfall of

approximately 60%.

Bio-ethanol (in million litres per annum)

Demand Supply Shortfall

500 184 316

Source: Ethanol India: www.ethanolindia.net




Presently, the government is unable to implement compulsory blending of 5

percent ethanol in petrol (gasoline) due to the short supply of sugar molasses in the

last couple of years because of overall low sugarcane crop production in India.

Consequently, India imported about 280 million liters of ethanol in 2009 to meet

the demand for industrial and potable liquor production, of which none of theimported ethanol was for fuel purposes.

In order to produce sufficient bio-diesel to blend at 20 percent with petro-diesel, a

target of 11.2 to 13.4 million hectares are set to be planted with Jatropha by 2012,

according to the Planning Commisison.

An estimated 55.3 million hectares are considered wasteland in India, which could

be brought into productive use by raising bio-diesel crops1.

The price to buy bio-diesel for blending is set by the government and is currently

USD 48 cents (Rs.21.50) per litre. However, bio-diesel production costs are muchabove the government advised purchase price.

Although the bio-diesel sector is lobbying the government to allow duty

concessions on imports of vegetable oils and their derivatives for captive

consumption for bio fuel production, there are no positive indications for approval

of such proposals. However, a few local and foreign collaborative projects for

production of bio-diesel for exports are being set up as export oriented units which

could boost the country´s bio-diesel production. Though, no reliable data of bio-

diesel production is available at this stage2.

3 Key drivers As bio fuels are derived from renewable biomass resources it is eligible for various

fiscal incentives and concessions available to the New and Renewable Energy

Sector from the Central and State governments. Financial incentives, including

subsidies and grants, for new and second generation feed stocks are provided. The

Government of India (GOI) also offers subsidized loans (2% below market rate)

and the Sugarcane Development Fund for up to a maximum of 40% of the project

cost to sugar mills for setting up an ethanol production unit.

Recently, the Indian government approved the National Bio fuel Policy that

predominantly aims at promoting private investments in the bio fuel sector for

achieving set targets.

The policy aims at mainstreaming bio fuels in the energy vision of India. It sets a

target of achieving at least 20% blending of bio fuels, both bio diesel and bio

ethanol, by 2017. Prior to the announcement of the policy, 5% blending of bio

ethanol with gasoline was mandatory, but this is now increased to 10% with

1 Global Agriculture Information Network Report: India Bio-Fuels Annual 2008, June 20082 India Bio-Fuels Annual 2008




effective date of October 2008. The policy recommends 5% blending targets for

bio diesel that will be made mandatory in due course3.

By blending petrol with 10% bio fuel, 80 million litres of petrol could be saved

annually in India4.

The GOI is promoting and encouraging production and use of:

1. Ethanol derived from sugar molasses/ juice for blending with gasoline

2. Bio-diesel derived from non-edible oils and oil waste for blending with

diesel

Bio-ethanol already enjoys concessional excise duty of 16% and bio-diesel is

exempted from excise duty. Although the central government has exempted bio-

diesel from the central excise tax, most state governments do not provide any

excise or sales tax exemptions.

Ethanol production in India has a market advantage as its production of ethanol isfrom molasses. Molasses (or bagasse) is the waste of product after extraction and

refining of sugar from sugar cane which potentially leave sugar prices unaffected

and furthermore does not intervene with food security issues.

Bio fuel technologies and projects will be allowed 100% foreign equity through

automatic approval routes to attract FDIs, provided Bio fuel is for domestic use

only, and not for export. Plantations of non-edible oil bearing plants would not be

open for FDI participation.

Other key drivers promoting the Bio energy technologies are:

Accelerated depreciation under the Income Tax Act

Preferential tariffs and Renewable Purchase Standards (RPS) wherein a

certain percentage of states electricity demand has to be met from

renewables

Financial assistance from IREDA of up to 70% of the project cost with 10

years repayment

10 year tax holiday

Concessional customs and excise duty exemption for machinery and

components for initial setting up of projects

100% FDI is allowed in the power sector

4 Opportunities for Danish companiesBio-diesel production from non-edible oilseeds is still a nascent industry in the

research and development stage in India which leaves opportunities for Danish

companies in areas of R&D of the biodiesel crops in general.

According to the Planning Commission other areas that need emphasis are:

3 National Bio fuel Policy, 25th December 2009 4 Institute for Defence Studies & Analyses (IDSA): Ethanol and India´s Energy Security




Develop technology for production of ethanol from sweet sorghum and

sugar beet.

Develop technology for production of ethanol from ligno-cellulosic

materials such as rice straw and other agricultural and forestry residues

Engine design optimization for petrol with more than 10% blend of ethanol

Physico-chemical properties of potential non-edible oils to be aligned with

those of diesel for application in transport, stationary and portable

applications

Development of efficient chemical/catalyst conversion processes

Development of bio-catalyst and heterogeneous catalyst for production of

bio-diesel

Production of bio-diesel from all possible feed-stocks

Response of different available additives and their dosages on the bio-diesel Optimizing engine design for different feed-stock based bio-diesels/and

verifying blends thereof for transport, portable and stationary applications

5 Challenges for Danish companies The emerging industry is facing a lack of feedstock supplies and needs initiatives in

crop cultivation technologies and competitive sourcing of appropriate feedstock –

all of which can alter the bio fuel economics. As such the greatest challenge to the

widespread deployment and use of bio fuels is developing dedicated energy crops

that are cost-effective, easy to sustain and can produce greater yields.

The GOI does not want to target bio fuel feedstock crops to compete with food

crops for scarce agricultural land. Therefore currently the challenge is to make it far

more sustainable so that the food security does not become an issue.

The production costs of bio-diesel are above the government advised purchase

price. Consequently, there has been no commercial sale of bio-diesel at GOI’s bio-

diesel purchase centres. The purchase price of bio-diesel fixed by the GOI is so

low that no one can supply bio-diesel at that price, which is a barrier for Danish

companies at this stage.Other problems regarding India´s non-edible oilseed Jatropha based bio-diesel

production are5:

Lack of good quality planting material and management practices

Lack of bank financing for Jatropha plantations, which is discouraging

gowers since the crop has a long gestation period compared to annual

crops

Ownership issues with community or government-owned wastelands

5 India Bio-Fuels Annual 2008




Further barriers for Danish bio fuel companies are the high taxes and levies, which

is making ethanol blending commercially unviable in several states, particularly

sugar/alcohol deficit states. Most states have a labyrinth of rules and regulations

(high excise duties, storage charges, etc.) to control alcohol for the potable liquor

industry, and these regulations are equally applicable to ethanol for blending

purposes6.

6 Conclusion and recommendationsIndia´s bio fuel sector is in its nascent stage and evolving. The government´s policy

is focused on promoting the use of non-food sources (also known as second

generation bio fuels) for production of bio fuels: sugar molasses for production of

ethanol for blending with gasoline, and non-edible oilseeds (i.e. Jatropha seeds) for

production of bio-diesel for blending with petro-diesel.

While the government´s current policy target of five percent blending of ethanol

with petrol has been partially achieved, five percent blending of bio-diesel with

petro-diesel has not started as production of bio-diesel is not significant due to lack

of sufficient i.e. Jatropha seeds.

Although the bio fuel sector is still to set off in India many opportunities exists for

Danish companies.

The Indian Government has taken several steps to promote the sector and Danish

companies with experience and know-how within the bio fuel sector are strongly

needed; especially within R&D major efforts are required.

6 India Bio-Fuels Annual 2008



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Ministry of Foreign Affairs of Denmark

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