Has Biofuels Policy Underestimated the Technical Challenges? - Ravi Raghavan

The National Biofuels Policy recently announced by the Ministry of New and Renewable Energy has set ambitious targets for blending of bioethanol and biodiesel into petrol and diesel respectively, in a bid to make India a bit less reliant on imports of energy. It permits the production of biofuels from a more diverse range of agri-inputs and wastes, and is an attempt to move to second-generation fuels that do not compete with the food chain. The policy also outlines fiscal support to new projects that will undertake manufacture of these renewable fuels, to catalyse the first phase of risky investments. But the policy underestimates the technical and the commercial challenges that biofuels face, especially in a low oil price scenario as prevalent for the past few years.

Current status

India’s biofuel industry is currently centred mainly around bioethanol, which is produced more or less entirely by the fermentation of molasses – a waste product of the sugar industry. This is now blended into gasoline at a national level of between 2-3%, despite a mandate to use up 10%. Actual blend levels have stayed low, despite the mandate, both due to limited availability of bioethanol from sugar mills, and due its high price. There is a plan to take the blend level up to 20%, but most experts agree that production from sugarcane molasses will simply not be enough for that to happen. There is, of course, the option to import bioethanol, but that puts paid to the argument that its use is a foreign exchange saver for the country.

The impact of biodiesel has been even less, again due to availability issues and pricing. Most of the biodiesel currently produced in the country comes from imported vegetable oils and waste cooking oils. The mechanisms to aggregate the latter are still underdeveloped and the industry is floundering. Ambitious schemes to cultivate jatropha in vast areas of degraded land have come a cropper and very little of non-traditional seeds are now being processed for biodiesel production. There is a late realisation in planners that the situation in India is very different from that in South East Asia (which has abundant palm oil locally available) and in Europe (where rapeseed is converted into biodiesel). It is clear now that a vegetable oil deficient country as India cannot afford the luxury of diverting this important food resource to energy use.

Widening the options for bioethanol

The new policy does attempt to set things right. It focuses on the use of non-food crops for biofuel production; using agricultural wastes for bioethanol production; and waste and degraded forest and non-forest lands for cultivation of shrubs and trees bearing non-edible oilseeds for biodiesel.

It expands the scope of raw materials that can be used for ethanol production by allowing use of sugarcane juice directly (as is done in Brazil), and also permits the use of alternative sugar- and starch-bearing crops such as sweet sorghum, corn, cassava and damaged food grains and crops. The permission to sugar mills to directly convert sugarcane juice (and not just the residual sugars in molasses) to ethanol will give them the flexibility to optimise production of sugar and ethanol in response to market signals. In years when sugar is in surplus (as now) and prices have crashed, this permission could provide sugar mills an option to improve earnings by diverting more of the sugarcane juice to ethanol production.

While experiments to exclusively use sweet sorghum in distilleries have not been a success, it has been shown to be a viable option as a co-feed to existing sugar mills. In fact, the International Crop Research Institute for the Semi-Arid Tropics (ICRISAT) has led an initiative to use this crop as a feedstock in seven sugar mills in the states of Maharashtra, Tamil Nadu and Gujarat, and the results have been positive.

2G ethanol emphasis

More importantly, the policy emphasises the importance of second-generation (2G) ethanol as the way to significantly scale-up bioethanol availability and usage in the country. The bio-refineries to produce them are to primarily use agricultural and forest wastes to produce bioethanol through a series of chemical and biological transformations. There have been some significant investments in indigenous technology development in this area, funded mainly by the Department of Biotechnology, and a handful of pilot and demonstration scale plants have been built.

The crude oil refining companies in the public sector – Indian Oil Corporation, Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. – have signed up for establishing 12 2G ethanol plants based on these technologies at an investment of about Rs. 12,000-crore, and they will welcome the policy’s announcement to provide Rs. 5,000-crore as viability gap funding over six years, in addition to additional tax incentives and higher purchase price for the 2G bioethanol (compared to 1G bioethanol).

Technical and commercial challenges

But the policy underestimates the technical and commercial challenges that 2G refineries have faced nearly everywhere they have been built. The engineering challenges are immense, and get magnified at scale-up – what seems to work in a pilot or demonstration plant, takes on a whole new level of complexity at commercial scale. Plants have also been challenged when it comes to handling variations in feedstock quality, and have been prone to interruptions in continuous operations. The costs of production of bioethanol have been significantly higher than that produced from 1G bioethanol plants, partly because of the high costs of enzymes and the high capital expenditure that these projects entail. As a result, almost everywhere, commercial success hinges on policy support in the form of offtake mandates, direct subsidies, tax breaks and the like. The commercial challenges get further magnified in an era of low oil prices.

One way to mitigate some of the risks associated with 2G ethanol projects is to diversify the product slate and co-produce value-added chemicals. The strategy here is that while volumes will come from bioethanol, profits will come from a range of chemicals that can be offered to the market with a ‘green’ and renewable tag, hopefully at a better price than their petro-derived equivalents fetch. In short, the best option for these plants to survive is to operate as diversified bio-refineries – the renewables-based counterparts of the modern crude oil processing refinery that optimises every fraction of the crude oil that it takes in. Even petroleum refineries are now stressing the need to focus beyond fuels, by going downstream and investing in value-added petrochemicals.

Twin gains from MSW utilisation

The policy also refers to the utilisation of municipal solid wastes (MSW) as a feedstock for biofuels. India is estimated to generate a staggering 62-mt of the stuff annually, and effective conversion of even a fraction to something useful will significantly mitigate an urban crisis that is fast assuming unmanageable proportions. The good news here is that thermochemical and biological techniques now available enable conversion of MSW to produce ‘oils’ that can then be upgraded in conventional refineries to produce drop-in petroleum fractions that find ready use. Again, the commercial risks that these projects represent are sizeable and will need to be addressed.

MSP for oilseeds

In so far as biodiesel is concerned, there is talk of supporting non-traditional oilseed cultivation efforts through a Minimum Support Price, but this has proved to be a minefield for other crops, notably sugarcane, which the policy touts as a model. The policy also rightly stresses the importance of developing and replicating quality seedlings that can then be released for cultivation, and the involvement of local communities as stakeholders.

Aiding rural revival

Biofuels will not be the panacea that will provide complete energy security to the country, but it can make an important contribution to the goal. A successful roll out of the strategy will have the potential to revive rural landscapes by bringing them into economic value-chains, and by significant job creation. The policy calculates that a 100-klpd (kilolitres per day) bio-refinery can contribute 1,200 jobs in plant operations, village level entrepreneurs and in supply chain management. When operational, they can offer farmers an additional outlet not just for their grains, seeds and crops, but also their wastes and residues, and so provide an additional mechanism for income and price stabilisation.

The biofuels policy as announced ticks all the right boxes, but it underestimates the technological and commercial challenges that the business faces.