A roadmap towards self-reliance in the energy space

Sanjay Sah/Payal Goel | Updated on June 08, 2021

Promoting alternative fuels is critical in helping India meet its ever-increasing energy demand in an environmentally sustainable way. Impetus in the form of mandating adoption, regulatory support and financial incentives is needed

As India imports more than 85 per cent of its crude requirements, promoting alternative fuels such as bioethanol, biodiesel, compressed bio gas (CBG), compressed natural gas (CNG) and piped natural gas (PNG) is a critical mission. Earlier this year, the Cabinet approved a policy related to ethanol production from sugarcane juice and syrup to accelerate the ethanol-blended petrol programme.

For the second time this year, the Central Government advanced its target to achieve 20 per cent ethanol blending to 2023 from 2025 as compared to 2030 originally. The Union Minister for Petroleum and Natural Gas, Dharmendra Pradhan, approved the supply of used cooking oil-based blended biodiesel. Last year, the Reserve Bank of India supported such initiatives and included installation of CBG plants under priority-sector lending.

The city gas distribution (CGD) network uses cleaner alternative fuels, such as CNG in the transport segment and PNG in the domestic, industrial, and commercial segments. The number of geographical areas (GAs) of CGD increased from about 35 in 2007 to about 228 in 2019; with about 60 per cent being awarded in the last two rounds of 2018 and 2019. Another round of more than 50 GAs will be launched in the next 2-3 months.

These steps have the potential to herald emerging India’s energy mix in a new direction, helping the country meet its ever-increasing energy demand in an environmentally sustainable way. The following considerations can augment government efforts:

Biodiesel segment

Ethanol blending in petrol reached 5 per cent in 2020 and further increased to more than 7 per cent between December 2020 and April 2021, compared with biodiesel blending in diesel at 0.16 per cent. Bioethanol is expected to achieve blending targets due to availability of adequate feedstock, off-take guarantee, fixed ethanol prices, and enhanced project bankability, including interest subvention.

Similar demand and supply side interventions would be required to promote the biodiesel segment. The key issues facing the segment are higher feedstock prices and inadequate availability, affecting existing plant utilisation and future investments. Palm stearin and used cooking oil (UCO) are the key feedstock for biodiesel. Domestic supply of these two has been a constraint.

Per capita UCO collection is negligible because of lack of a streamlined collection mechanism, awareness about recycling, and punitive measures for usage beyond stipulated limits of more than three times of same batch. We can learn from other nations that have developed UCO collection mechanisms. For example, Belgium had a nationwide campaign to firm-up the concept of ‘Oil Ghost’ wherein UCO was considered a ‘threat’ for the pipelines and, therefore, should be collected in UCO containers.

It had lottery participation for individuals who contributed one-litre UCO. Italy runs competitive events such as UCO collection per student to motivate the younger generation. The Food Safety and Standards Authority of India (FSSAI) can secure kits that can rapidly evaluate degradation in frying oil and impose spot penalties.

City gas distribution

The CGD space is the most promising in the alternative fuel segment. The CGD segment’s volumes have increased four-fold — from 7 mmscmd to around 30 mmscmd — in the past decade. The key issues hindering demand are pipeline connectivity and delays due to the Right of Way (RoW) acquisition and conversions by vehicle owners.

The Petroleum and Natural Gas Regulatory Board (PNGRB) can be strengthened to monitor and assist players in enabling pipeline connectivity. This is important as only about 45 per cent gas in Rounds 9 and 10 had connection to the transmission pipeline compared with more than 85 per cent in Rounds 1 to 8.

During bidding rounds, PNGRB can sensitise local authorities to build adequate local understanding of the criticality to grant approvals for RoW by the time an entity is awarded the GA. A ban on older vehicles in key cities can provide a fillip for CNG conversion. A clear roadmap on EVs can expedite CNG conversions as buyers are not clear on benefits to switch to gas engines. For industrial conversion to natural gas, consideration around disincentivising the use of polluting fuel with stringent monitoring, is needed.

Compressed bio gas

The government has taken steps to promote CBG that includes offtake guarantee, technology neutrality, and floating expression of interest to set up CBG plants. The key issue has been securing biomass and waste feedstock. Mature CGD networks consuming more than predetermined volumes of gas could be mandated to use their CSR fund to set up CBG plants at scale using municipal waste or any other easily available waste.

Moreover, a nodal agency needs to maintain a database of potential feedstock suppliers (municipal bodies, distilleries, etc). Thereafter, a few rounds of CBG plants at scale can be launched on the public-private partnership mode based on a pre-feasibility report, a standardised contracting model, feedstock availability, and offtake guarantee.

Alternative fuels are expected to play a crucial role in creating a self-sustainable ecosystem. These would need a sustained impetus in the form of focussed awareness programmes for conversions, mandating adoption, institutional strengthening, regulatory support, financial incentives, and enhancing bankability.

Sanjay Sah is Partner, and Payal Goel is Associate Director, Deloitte India

Published on June 08, 2021

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