With the demand for alternative energy sources increasing, the biofuels business is opening new doors for entrepreneurs

On December 15, anxious eyes across the globe were fixed on Barack Obama as he nominated the next US Secretary of Energy.

Their anxiousness was not without base, because Obama’s decision would have been an important one, given the backdrop of growing concern over energy security and global warming. Obama finally nominated Steven Chu, a Nobel Laureate, to the key post.

Of late, these issues have been drawing a lot of attention from governments, experts, entrepreneurs, and researches alike. As a result, the alternative energy segment is witnessing a lot of activity, with the list of options expanding rapidly, from solar energy and wind power to biofuels and more.

Biofuels technologies are far more complex, and hence focus on viable and innovative technology becomes imperative for any entrepreneur. The key will lie in the structuring of the business model to integrate the supply chain — right from feedstock to contracts for end-products. -- Shashank Inamdar MD & CEO, Praj Industries

Many countries are now focusing on biofuels to counter pollution, address global warming, and reduce their dependence on fossil fuels. In the US itself, experts predict that the year 2009 will witness a lot of interest and investments for efforts to develop next-generation biofuels and expand renewable energy sources. Is there an opportunity for Indian entrepreneurs to enter this sector?

The business potential of biofuels in India is huge, and can be expected to grow at a faster pace in the years to come. According to Dr Alok Adholeya, Director, Biotechnology & Management of Bioresources, TERI, “Currently almost 70% of India’s crude oil requirement is imported, which is expected to increase to 90% by 2030.” This, coupled with the price volatility of oil, which has been fluctuating from the current $40 a barrel to $147 a barrel in the recent past, may lead to biofuels playing an important role in reducing our dependence on imports in future.

The National Biofuels Policy mandates 20% of all diesel and petrol demand to be met by using plant-based rather than fossil-based diesel by 2017. At present India’s biofuel production is not even enough to cater to 5% of the demand. Says Deepak Desai of Business Brains Consultants, “Currently, the government has mandated 5% ethanol-doping in nine states, which has not been met due to supply shortage.”

The Bioethanol Industry
Ethanol has been produced in India for ages. Molasses, a by-product in sugar manufacturing, is the major feedstock used as raw material. Possibilities are also being explored to use other feedstocks such as sweet sorghum, sugar beet, and maize.

In 2006, India was the fourth largest producer of ethanol, after the US, Brazil, and China. Though India has been producing bio-ethanol in significant quantities, it is being used for the manufacture of beverage and industrial alcohol because of higher returns. This has been a major roadblock in producing fuel-grade ethanol. However, keeping in mind the government mandate and the demand it will create, there is an opportunity for entrepreneurs in entering this sector.

We should focus on producing ingenious strains of algae that are multiple-use strains, rather than the hardware portion of the technology, which is already being developed elsewhere. -- Dr Alok Adholeya Director, Biotechnology & Management of Bioresources, TERI

The cost of production of ethanol from molasses hovers around Rs 17 per liter. According to a report by the United Nations Conference on Trade and Development (UNCTAD), the yield of sugarcane in India varies from an average of 77 tons/ha in tropical states to about 52 tons/ha in subtropical ones. About 40 kg of molasses is produced per ton of cane, from which about 10 liters of ethanol can be obtained. If the sugarcane is directly and fully used in ethanol manufacture, the yield is 70 liters per ton. “For a small-scale industry producing 10,000 liters through the molasses route, investment would be around Rs 3 to 4 crore; for a 30,000 liter plant, it would be around Rs 15 crore,” says Desai.

Other possibilities that are emerging include the use of residual biomass for producing ethanol — for example, straws and weeds. However, the technology is still in developmental stages.

The Biodiesel Industry
While the Indian ethanol industry is mature, the biodiesel industry is still in its infancy. Biodiesel can be produced from both oilseed crops, such as sunflower and soybeans, and animal fat. However, Jatropha is the preferred feedstock for production of biodiesel in India. This is because it is non-edible and has a smaller gestation period of two to three years, compared to other plants. “Biodiesel is not available in large quantities because the plantation and the feedstock production has only recently been undertaken. The largest of plantations have happened only in the last two to three years. So you can expect sizable yields by 2010-11,” says Dr Adholeya.

Besides the transportation industry, an advantage with biodiesel is that it can be used in stationary engines directly. According to Dr Adholeya, “Biodiesel can cater to decentralized energy needs of our villages, where the power grid is not available. It can also prove to be very useful for agricultural purposes, where a lot of stationary engines are used for producing energy.”

Therefore, there might also be an opportunity in producing biodiesel in small scale for local energy needs. “For a small biodiesel plant, producing 500 liters, the investment could be as little as Rs 50 lakh,” says Desai. The cost of production per liter is somewhere around Rs 24 to 30, depending on the plantation density and logistics.

Besides Jatropha, many other seeds, such as sal, neem, and rubber, which are also non-edible, can be used to produce biodiesel. “There is a large potential in our forest activities, where long-time gestation period would be okay. Those are the areas where we can get more sustainable yields from,” says Dr Adholeya.

Biofuels from Algae
Algae as a source of biodiesel looks promising. Experts believe that the use of oilseeds is a temporary phase that will be good for over a decade or two. After this, land availability will become a serious concern. “Then you can get into the production of second- and third-generation biofuels, which includes algae. We at TERI also believe that algae will have a very strong future,” says Dr Adholeya. There are several reasons behind this.

Firstly, one of the nutrients for algal production is carbon dioxide. Therefore, producing biofuel from algae will help reduce carbon emission. Secondly, India has a very long coast line, which can be beneficial is growing marine algae on a large scale. Some countries like Holland, US and Australia, have already started pilot projects.

Technology: A Major Entry Barrier
Technology is one barrier that an entrepreneur is likely to face while entering this segment. “Although seemingly very simple, the biofuels technology area is far more complex, and hence focus on viable and innovative technology becomes imperative for any entrepreneur. The key lies in structuring the business model to integrate the supply chain — right from feedstock to securing contract for end-products and adoption of futuristic technologies,” says Shashank Inamdar, Managing Director & CEO, Praj Industries.

Another entry barrier is proof of performance. According to Inamdar, most biofuel plants have many variables in their performance and need to be customized. Hence, it is essential that the entrepreneur has vast experience, data bank and references.

Comments (4)

Subscribe to this comment's feed

JATROPHA
written by rahul, July 22, 2009

Jatropha as said --a wasteland crop...but if we need bussiness from it,it no longer remains a wasteland crop but will need proper care as if any other crop requires.It might not give economic yields as far as bussiness is concerned,so we need to have some policies regarding this rather then on sticking and considering it as wasteland crop

report abuse

vote down

vote up

Votes: +1

Good opportunities ..
written by Nishant Kumar, April 15, 2009

.. but if we produce this as on today, who will be consumer .. as of now I think it's not mandatory anywhere in India .. so from where we can find our consumer and on what basis .. measn Business and Cost Adv over current energy option except Clean Earth. ?

Rgds. Nishant

report abuse

vote down

vote up

Votes: +4

Bio-fuels
written by Heartland Energy Development Corporation , March 05, 2009

There is a great need for alternate energy resources, as the demand for oil and other energy resources is increasing. An informative article on bio fuels.

Thanks
Jane

report abuse

vote down

vote up

Votes: +2

Excellent Oppotunity
written by Jeganath, February 07, 2009

This is really a very useful article.Thanks to DARE. i am also looking for
investment opportunities in "Bio-diesel from Algae" . IF anyone know more about this please let me know. Thanks in advance.

report abuse

vote down

vote up

Votes: +1