Bio Diesel. An Insight into the Green Gold

Transcription

1 Bio Diesel An Insight into the Green Gold

2 Bio Diesel An Insight into the Green Gold

3 Title Biodiesel - An Insight into the Green Gold Author Pallavi Tandon - Manager- Food & Agribusiness Strategic Advisory & Research, Development & Knowledge Banking Kalyan Chakravarthy G.K.D - Country Head- Food & Agribusiness Strategic Advisory & Research, Development & Knowledge Banking Date June 2006 Copyright No part of this publication may be reproduced in any form by photo, photoprint, microfilm or any other means without the written permission of YES BANK Ltd. Disclaimer The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representation or warranty expressed is made to their accuracy, completeness or correctness. This document is for information purposes only. The information contained in this document is published for the assistance of the recipient but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. This document is not intended to be a substitute for professional, technical or legal advice. All opinions expressed in this document are subject to change without notice. YES BANK Ltd., nor any other legal entities in the group to which it belongs, accept any liability whatsoever for any direct or consequential loss howsoever arising from any use of this document or its contents or otherwise arising in connection herewith. Contact Address YES BANK Ltd Northern Regional Office 48, Nyaya Marg, Chanakyapuri, New Delhi , INDIA Tel: Fax: YES BANK Ltd Registered and Head Office 9th Floor, Nehru Centre, Dr. Annie Besant Road, Worli, Mumbai , INDIA Tel: Fax:

4 FOREWORD Dear Friend Sustainable agribusiness ventures can promote job-led economic growth in rural areas by harnessing science and technology for environmentally sustainable and socially equitable development. Entrepreneurship in sustainable agriculture is a key factor and has the potential to transform the face of rural India, the prime driver of our economy. While entrepreneurship has widely been viewed by both policy makers and academicians as the creative act of independent businesspersons, it is now being realized that the roots of entrepreneurship extend deep into a community's civic structure. A holistic approach for cultivating entrepreneurship amongst the rural communities at large is therefore imperative. However, narrowing down on the right business idea (backed by a profound understanding and knowledge of the market requirement) is the most critical element for realizing successful and sustainable enterprises. Often, these enterprises are non-conventional and though traditional, require special knowhow for successful implementation in the present context. As a bank we are committed to the upliftment and transformation of Rural India through a knowledge based approach by sharing business ideas and providing solutions particularly in the agriculture sector. 3 This report on "Biodiesel An Insight into the Green Gold" examines the huge untapped potential which exists for Biodiesel production in our country. Sincerely, Rana Kapoor (Managing Director & CEO) Somak Ghosh (President, Development & Knowledge Banking)

5 TABLE OF CONTENTS 1.0 BIOFUELS WORLD SITUATION AND IMPORTANCE 1.1 ETHANOL BIODIESEL IMPORTANCE AND ADVANTAGES JATROPHA CURCAS A CASE STUDY 2.1 JATROPHA CURCAS THE CROP TECHNOLOGY COMPONENTS PRESENT SCENARIO STRATEGY FOR DEVELOPMENT ENHANCEMENT IN CROP YIELD IMPROVEMENTS IN THE PRODUCTION PROCESS INTERVENTION MECHANISMS EXTENSION EFFORTS CONCLUSION 13 ANNEXURE I R &D PROJECTS AND TRAINING PROGRAMMES 14 ANNEXURE II JATROPHA CURCAS THE CROP 15 ANNEXURE III TAX BREAKS PROVIDED FOR BIODIESEL 16 ANNEXURE IV FINANCIAL ASSISTANCE PROVIDED TO INDIAN BIODIESEL PRODUCERS 17 ANNEXURE V COST OF JATROPHA PLANTATION 18 ANNEXURE VI COMBUSTIBILITY OF BIODIESEL 19

6 J J J J J 1.0 BIOFUELS WORLD - SITUATION & IMPORTANCE Catering to almost 80% of the world's energy requirements, fossil fuels significantly influence the global economy. Such is the impact of their availability and price that countries' GDPs can trough or peak under its influence. The four "oil price shocks" experienced by the world since 1970 are evidence to this phenomenon. B i ll i o n B a rrels Figure 1 - World Proved Crude Oil Reserves World Proved Crude Oil Reserves Source: US Government Energy Statistics Though the world-proved-oilreserves have been rising over the years (Figure 1) supplies are likely to fall short due to the increasing demand. Depleting oil reserves, soaring prices (Figure 2) and increased world dependency on a 1 few OPEC nations have led the world to explore alternative renewable energy sources, the most promising amongst which are biofuels. Price (Dollars per Barrel) Figure 2 - All Countries Spot Price FOB Weighted by Estimated Export Volume J an-00 J r-00 Ap ul-00 t-00 Oc n-01 r-01 J a Ap ul-01 t-01 Oc J a Series1 Source: US Government Energy Statistics n-02 r-02 Ap ul-02 t-02 Oc n-03 J a r-03 Ap ul-03 t-03 Oc n-04 J a r-04 Ap ul-04 t-04 Oc n-05 J a r-05 Ap ul-05 Linear (Series1) t-05 Oc n-06 r-06 J a Ap 7 Biofuels- An alternative energy source Biofuels can be broadly defined as fuels derived from biomass such as agricultural crops, municipal wastes, agricultural and forestry by-products. In the recent past, Ethanol and Biodiesel have caught the world's imagination. While the former is produced by the fermentation of starch-rich grains or 2 sugar crops, the latter comprises of fuels obtained by trans- esterification of oil (such as vegetable oil or oil derived from oil- bearing seeds). Each of these fuels can be used either in their pure form or 3 blended with conventional fossil fuels to yield a more environment friendly energy source. 1.1 ETHANOL Global Scenario 4 Brazil is the world's largest ethanol producer followed by US and EU. Brazil is also the world's leading ethanol consumer with an annual consumption of 14 billion litres. Ethanol production in the US is carried out in nearly 88 operating plants (mostly using corn as feedstock) that are capable of producing nearly 16 billion litres of ethanol per annum. While in Brazil the usage of 100% ethanol is significant 1 OPEC countries of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE and Venezuela, hold almost 79% of the world oil reserves 2 Trans-esterification is a chemical process which reacts an alcohol with the triglycerides contained in vegetable oils and animal fats to produce biodiesel and glycerine 3 Biofuel blends are referred to as Exx or Bxx, wherein xx denotes the percentage of ethanol or biodiesel, respectively, blended with the mineral fuel. For instance, B20 refers to a 20% blend of biodiesel with 80% petroleum diesel. 4 The countries produce approximately 15, 13 and 1.5 billion litres of ethanol per annum

7 (approx. 40% cars run on 100% ethanol), gasohol which is a blend of grain-sourced ethanol and gasoline is commonly used in US. Like other countries, Government policy initiatives have played an important role in increased gasohol consumption in the US. For instance, the Clean Air Act, the ban on 5 the use of MTBE (in a few states) and the creation of renewable fuel standards (RFS) have paved the way for increased gasohol usage. Further, realizing the importance of introducing an efficient price discovery mechanism for the fuel, the Chicago Board of Trade launched ethanol futures contract in March Recently, countries such as China, Thailand, Australia and Canada have shown keen interest in biofuels and are actively investing in production facilities. In fact, China is now home to the world's largest fuel ethanol plant with a capacity of 0.6 million tonnes (MT) per year. In the EU, almost 50% of the total energy needs and 80% of the transport energy needs are met by imports. This high dependence on imports has led it to turn to ethanol and biodiesel. In fact, the European Commission (EC) has set a target wherein biofuels should constitute 2 percent and 5.75 percent of the total energy used in transportation, by the end of 2005 and 2010 respectively. While, Spain with an annual production capacity of 500 million litres accounts for over half the ethanol production in Europe, Pakistan, Brazil and Guatemala are the main exporters of ethanol to the EU. Domestic Scenario 8 Like the EU, India is largely dependant on imports to meet its energy requirements. India produces only 30% of its annual crude oil requirement which is around 105 million tonnes and 70% of the need is met by imports. In , India's net import oil bill was a staggering INR 835 billion. In an attempt to curb the towering import bills, the Ministry of Petroleum and Natural Gas decided to explore alternative fuels such as ethanol. In 2000, three pilot projects for the production of ethanol were taken up in major sugar-producing states of Maharashtra and Uttar Pradesh. Additionally, a 5% ethanol blend in petrol was made mandatory in 9 states and 4 Union Territories with effect from January, However, lack of linkages in the supply chain and the absence of a holistic framework for implementation hindered further progress. Table 1 Biodiesel Production in 2004 EU Member State Yearly Capacity in 2004 (RME*) ('000 tonnes) Germany 1,088 Italy 419 France 321 Austria 100 Czech Republic 100 Spain 70 Denmark 44 United Kingdom 15 Sweden 8 Hungary** 2 Poland 1.2 Source : USDA Foreign Agricultural Service, Gain Report * Rapeseed Methyl Ester **No biofuel used in Hungary yet 1.2 BIODIESEL Global Scenario Germany accounts for almost half of the total biodiesel produced in the EU (Table 1). Moreover, the country is also the largest market in the world for biodiesel. In the United Kingdom, biodiesel is available not only through filling stations but is also 6 being made available at a number of supermarkets. Among other nations, US is a fast growing entrant followed by Japan and the palm-oil producing countries of Malaysia, Indonesia and Thailand. Table 2 highlights the different feedstock used by a few countries for biodiesel production. 5 Methyl tertiary-butyl ether 6 In 2004, TESCO became the first major retailer to introduce biodiesel to the British consumer. GlobalDiesel, supplied to TESCO by Greenergy, is a blend of 95% Ultra Low Sulphur Diesel and 5% biodiesel made from rapeseed

8 Table 2 Country Australia Brazil EU India Madagascar Thailand, Malaysia, Indonesia United States Source : Industry Feedstock used by various countries Feedstock for production of biodiesel Rapeseed and Animal Fat Soybean Rapeseed Jatropha, Karanj, Neem, Mahua Jatropha Palm oil Soybean Domestic Scenario In India, High Speed Diesel (HSD) accounts for almost 80% of the total transport fuel demand (Figure 3). The HSD demand is expected to grow at 5.6% per annum with demand projected at 52.3 MT by from MT in This highly skewed consumption pattern forms the rationale for focussing on the development and propagation of biodiesel as an alternative fuel. Figure 3 - Domestic Demand for Transport Fuel While most countries use edible oil for the production of biodiesel, India's position as a net 0.3% importer of vegetable oils makes it impractical to Motor Spirit utilise them as feedstock. However, the Aviation Turbine Fuel availability of vast arid, non-arable lands, allows for High Speed Diesel the production of non- edible oil crops such as Jatropha, Neem, Mahua, Karanj and Linseed for Natural Gas biodiesel production. Large areas of degraded forest land, unutilised public land, fallow lands of Source: Planning Commission, Government of India farmers, wastelands under Integrated Watershed Development Programme and other poverty alleviation programmes can also provide potential plantation land for these crops (Table 3). Studies have evidenced that of the above-mentioned crops, Jatropha curcas is one of the most suitable for the production of biodiesel (refer Section 2.0). A number of research initiatives have been taken by public and private bodies to test the viability of the Jatropha crop for production and utilisation of biodiesel. For instance, Indian Oil Corporation (IOC) has undertaken research on the process of trans-esterification of vegetable oils. Also, the Indian Railways, Haryana Roadways and Mumbai's BEST buses have conducted trial runs using a biodiesel blend in their super fast trains and buses, respectively (Annexure 1). While so far research has found it safe to use a 20% biodiesel blend in vehicular applications, further trials are being conducted to test higher blends. Additionally, the use of 100% biodiesel in stationary applications has been found to be safe and non-damaging to equipment. 14.3% 4.7% 9 As a major step forward, the Government has announced a National Biodiesel Mission, comprising of six micro missions covering all aspects of plantation (on forest and non-forest lands), procurement of seed, extraction of oil, trans-esterification, blending, trade and research and development. The mission would be undertaken in 2 phases, namely, Phase I - consisting of a Table 3 Land available for Crop Plantation demonstration project to be Area (in million hectares) implemented by and Phase II 10% of culturable fallow land 2.4 A self sustaining expansion of the Forest Land 3 existing programme so that biodiesel Wastelands under Integrated production in is enough to meet the requirement for blending with HSD to the extent of 20%. Also, the Government is considering shifting the Watershed Development and other poverty alleviation Programmes Total available land 2 7.4

9 biodiesel mission from the Ministry of Rural Development to the Ministry of Agriculture in order to provide a boost to the project. 1.3 IMPORTANCE & ADVANTAGES The keen interest evinced by the world in biodiesel is evidence to its growing importance. Production and use of this environment friendly source of energy generates social, economic positive externalities (rural employment, reduced dependence on crude oil imports, soil and moisture conservation etc). The need to develop and promote biodiesel assumes greater significance in the Indian context in light of the following facts: Energy Security Increased urbanisation, standard of living and an expanding population have meant an augmented energy 7 demand (Table 4). The increasing gap between demand and domestic crude oil supply has led to increased dependence on imports. This dependency can be reduced by the production and usage of biodiesel blended fuel. Table 4 Expected demand for diesel and biodiesel Year Diesel Demand Biodiesel requirement (Million Tonne) (Million Tonne) Source: Planning Commission, Government of India 10 Moreover, the low per capita energy consumption in India is indicative of the untapped rural energy market. Thus, a two-pronged programme that fuels not only the urban lamp but also sparks the rural lantern is necessary. Biodiesel then would not just be a source of energy but an indigenous solution to rural India's lack of it. Carbon trading Table 5 Potential Biodiesel Production India is the world's sixth largest producer of greenhouse gases (GHGs), contributing almost 3% of the world's total emissions. Fossil fuels are chief contributors to urban air pollution and a major source of GHGs which are considered to be the main cause of climate change phenomena. The climate change effects have evinced world interest in mitigation methodologies, the most significant being carbon trading. The beginnings of carbon trading are founded in the Kyoto Protocol which requires most industrialized countries to reduce their carbon emissions by 5 percent below Land Under Jatropha cultivation Production of oilseeds (estimated yield 3750 kg/ hectare) 7.4 mn hectares MMT Production of Jatropha Oil ( assuming 30% seed oil content ) 8.33 MMT Production of Biodiesel (Assuming 90% conversion rate) Source : Planning Commission, YES BANK Analysis Table MMT Carbon Trading Benefits 1 tonne of biodiesel used implies a 3 tonne reduction in carbon-dioxide production 1 unit of CER equals 1 tonne of carbon-di-oxide 1 tonne of biodiesel used results in 3 units of CER 7.49 MMT of biodiesel generates mn units of CER If, production of biodiesel is 7.49 MMT and 1 unit of CER trades at USD10 (Rs. 450 approx.), then: Total income generated through carbon trading would be approx. Rs billion 7 Energy demand in India is expected to grow at 4.8% per annum

10 1990 levels in the period The agreement allows countries and companies to purchase carbon credits from emission reduction projects in developing countries. Research has evidenced that each tonne of biodiesel produced or consumed leads to a reduction of GHGs by about three times, i.e. it reduces 3 tonnes of carbon dioxide (CO2). These reductions can be accumulated and traded as carbon credits. The Clean Development Mechanism of the Kyoto Protocol facilitates the sale of these reductions as Certified Emission Reductions (CERs), a unit of which equals to one tonne of CO2. Thus, production and use of biodiesel provides an opportunity to exploit the fast expanding global carbon market (Table 5 & 6). Tighter vehicular emission norms The Auto Fuel Policy Report (2002) has recommended the adoption of Bharat Standards (the Indian equivalent of the Euro Emission norms). Although, the new vehicles were to conform to Bharat Stage II emission norms by April 2005 and Bharat Stage III norms by April 2010, oil companies have requested for more time to meet the guidelines. This, however, is expected to be only a temporary delay in implementation and not a permanent abandonment of the intent. ADVANTAGES OF BIODIESEL Environmental Renewable energy source Presence of about 10% oxygen means almost complete exhaustion of hydrocarbons Contains almost no sulphur, low particulate emissions Higher cetane number increases ignition quality ensuring better combustion Decreased level of Polycyclic Aromatic Hydrocarbons (PAH) & nitrated PAH which are potential carcinogenic Its production and use entails no net addition of carbon di-oxide to the atmosphere It is less toxic than diesel fuel Crop plantation means drought proofing, greening of wastelands, soil & moisture conservation Addresses the issue of Global warming Operational Enhances lubricity of diesel Higher cetane number ensures smooth running of engine No separate infrastructure is required for storage, handling and dispensing Higher flash point makes it safer to store, handle and use Social Source of employment and income in rural areas 11 In the present scenario, Biodiesel gains importance from the fact that it is a cleaner fuel that on usage releases lesser carbon monoxide, unburnt hydrocarbons and particulate matter (compared with conventional fuels). Thus, its introduction will help achieve the prescribed standards within the proposed time-frame, making its usage both advisable and necessary. 2.0 JATROPHA CURCAS - A CASE STUDY 2.1 JATROPHA CURCAS Jatropha is multi-purpose non-edible oil yielding perennial shrub belonging to Euphorbiaceae family. Many factors make Jatropha curcas a feasible crop for production of biodiesel. While suitability for cultivation in semi-arid and arid soils, low moisture demand and minimal input and management needs makes it a viable feedstock option, high oil content ( %) makes it suitable for oil extraction. Yield is obtained within 3-5 years and the plant has a long productive period of around 50 years (details in Annexure 2). Advantages of Jatropha at a glance High sead oil content Short gestation period Growth in wide range of agroclimatic regions Shrub structure makes harvesting of oilseeds easier

11 By-products The two by-products of biodiesel are Oil cake and Glycerine, both of which have a huge market potential. Jatropha Oil cake is rich in nitrogen and forms an excellent source of plant nutrients and a rich raw material for 8 composting. The toxins present in the cakes can be denatured or de-activated by heat. Glycerine is a by-product of the trans-esterification process and can be used to either produce soap or make ethanol through fermentation. Glycerine finds application in the personal care, cosmetics and pharmaceuticals industry. Other uses of the Jatropha plant: Jatropha roots are used as a medicine for snakebite Pre-matured stems are good for brushing teeth Leaves are used as food for Tassar Silk worms Leaves can be used as vermicompost Burning dry leaves can control insects and flies Provides material for Ayurvedic Medicine Positive social repercussions Jatropha plantation has the potential to generate rural employment by providing crop cultivation and processing opportunities. Soap and candle- making activities, supported by glycerine produced from biodiesel plants can create income earning avenues for the rural population. The integrated nature of all these processing activities permits their undertaking within the rural area, thus providing employment and reducing the need for local villagers to migrate to cities in search of work PRODUCTION OF BIODIESEL The production process is a relatively simple process that involves three main stages (Figure 4) : Figure 4 Production process of Biodiesel Jatropha Plantation Oilseed Collection Oil Expelling Oil Cake Jatropha Oil Alcohol Catalyst Glycerine Biodiesel Oil expelling / Extraction - Oilseeds are collected and crushed for the extraction of Jatropha oil. The oil is extractable by solvent extraction method or mechanically by the use of a hydraulic press or simple screw press. The expelling unit can be set up either on a small-scale or a larger scale within the biodiesel manufacturing plant. Trans-esterification- In this process the triglyceride fatty acid in Jatropha oil, in the presence of a catalyst, reacts with the alcohol to produce a fatty acid ester referred to as biodiesel and by-product glycerine. The technology used is relatively simple and the machinery can be fabricated locally. Methanol and potassium hydroxide (KOH) or sodium hydroxide (NaOH) are introduced in the process as the alcohol and the catalyst, respectively. After the trans-esterification process, the processes of settling, washing, purification, evaporation and distillation are undertaken to yield biodiesel and glycerine. While biodiesel so obtained can be sold to distribution companies for blending, glycerine can find institutional buyers in the pharmaceutical or cosmetic industry. 8 Jatropha curcas oil-cake contains 4.44%, 2.09%, 1.68% of Nitrogen, Phosphorus and Potassium, respectively.

12 Blending- The existing infrastructure for distribution and storage of petroleum diesel is adequate for 9 biodiesel as well. Splash blending is possible as it is slightly heavier than petroleum diesel. However, since, no separate dispensing facilities are required, the existing network of stations can be utilised without having to incur any additional costs. 2.3 PRESENT SCENARIO Biodiesel production holds tremendous income generating potential both in the agriculture (farming) as well as the small and medium scale industrial sector. However, production would be financially viable only if the Jatropha oilseed prices stabilise at realistic levels. Profitable cultivation and production of both Jatropha oilseeds and ultimately biodiesel will depend on this. Presently, only a few production units exist and these are faced with irregular and insufficient oilseed supply, disallowing regular operation of the plant. The plantations are scattered and production units are based away from the farms. This not only results in high logistic costs but also renders it impossible to form a long-term agreement between farmers and biodiesel manufacturers. Most biodiesel producers depend on traders instead of farmers for oilseed purchase. Traders typically buy from farmers at a price of Rs. 5-6 per kg and sell to producers with an unrealistic price margin of over 100 percent at Rs per kg. The high cost of oilseed translates into higher biodiesel cost of Rs per litre (Table 7). However, this cost can be substantially reduced to almost Rs per litre by undertaking production on a larger more efficient scale (Table 8). Table 7 Cost of Production of biodiesel (Rs. per litre) for Small scale unit Quantity (in kg) Rate Total Cost (in Rs) Cost of Oilseed 3.70 Rs. 11/kg of oilseed 40.7 Cost of Extraction of Jatropha Oil* 1.11 Rs. 4/kg of oil 4.4 Cost of Trans-esterification** 1.11 Rs. 10/kg of oil 11.1 Less income from sale of Oilcake 2.59 Rs. 2/kg -5.2 Less income from sale of Glycerine 0.10 Rs. 15/kg -1.5 Less income from sale of Soapstock 0.07 Rs. 2/kg Cost of biodiesel per kg Cost of biodiesel per litre * Seed Oil Content 30% ** Conversion rate of Jatropha oil into biodiesel 90% Source: Industry estimate, YES BANK Analysis 13 Table 8 Cost of Production of biodiesel (Rs. per litre) for Large scale unit Quantity (in kg) Rate Total Cost (in Rs) Cost of Oilseed 3.62 Rs. 11/kg of oilseed 39.8 Cost of Extraction of Jatropha Oil* 1.09 Rs. 3.33/kg of oil 3.6 Cost of Trans-esterification** 1.09 Rs. 6/kg of oil 6.5 Less income from sale of Oilcake 2.53 Rs. 2/kg -5.1 Less income from sale of Glycerine 0.10 Rs. 15/kg -1.5 Less income from sale of Soapstock 0.07 Rs. 2/kg Cost of biodiesel per kg Cost of biodiesel per litre * Seed Oil Content 30% ** Conversion rate of Jatropha oil into biodiesel 92% Source: Industry estimate, YES BANK Analysis 9 A process of blending based on the gravimetric measurement of the blend constituents. Since, the specific gravity of biodiesel is greater than that of diesel, it can be poured over diesel in the tank and would blend automatically

13 Also, in the absence of any formal linkages between the farmer and producer, the quality requirement of the processors is rarely met. Thus, the absence of a clearly identified marketing channel for Jatropha oilseeds has resulted in inefficiencies in production and high biodiesel prices. The biodiesel manufacturing community, till recently had been unaware as to the marketing mechanism available for the sale of biodiesel. The recent announcement of the Petroleum Ministry that beginning January 2006, the public sector Oil Marketing Companies will have to purchase biodiesel extracted from plant sources at a uniform price of Rs. 25 per litre has helped the industry get rid of this ambiguity. Additionally, the identification of nineteen purchase centres around the country for off take of biodiesel from manufacturers has been welcomed. While, the present market situation makes the supply of biodiesel at the announced price extremely difficult for the manufacturers, the announcement of procurement centres has enabled the establishment of an integral link in the value chain. Thus, the industry is in dire need of an integrated approach that would enable efficient flow of material, information and technology through farmer processor linkages that would permit biodiesel production at efficient cost levels. 3.0 STRATEGY FOR DEVELOPMENT 14 The present high cost of biodiesel vis-à-vis conventional fuels makes it an unviable proposition. A three pronged approach encompassing the entire supply chain and appropriate extension efforts would be necessary for lending feasibility to the project. 3.1 ENHANCEMENT IN CROP YIELD The feedstock (Jatropha oilseeds) accounts for over Table 9 Cost of biodiesel production for different crop yield levels 50% of the total production cost of biodiesel. Oilseed prices are largely influenced by crop yields. Hence, increases in productivity would help reduce oilseed costs. Indicative price of Yield (kg/hectare) Source: YES BANK analysis Price of biodiesel (Rs./litre)* biodiesel for differing levels of crop yield have been presented in Table 9. Thus, making biodiesel production a commercially viable project requires investments in breeding programs focussed on evolving improved varieties of Jatropha with traits such as increased yield, oil content, reduced toxicity, resistance to pests and diseases etc. Simultaneously, varietal development must be undertaken keeping specific agro-climatic zones in mind. Further, a study on agronomic package of practices, such as the appropriate plant population per unit area, is needed. For instance, while a row spacing of 2m x 2m accommodating 2500 plants per hectare was considered appropriate for plantations, recent studies have indicated that from the fourth year onwards, this spacing leads to crowded plant stand and adversely affects yields. 10 Ex-factory price excluding sales tax, excise duty etc. 11 Assuming, production has been undertaken on a large scale unit i.e. oil content of seeds is 30%, rate of conversion of Jatropha oil into biodiesel is 92%, cost of extraction of oil and transesterification is Rs. 3/kg and Rs. 6/kg, respectively. A detailed discussion on cost of Jatropha cultivation is presented in Annexure 5

14 3.2 IMPROVEMENTS IN PRODUCTION PROCESS Presently, the production units suffer from inefficiencies due to a fragmented supply chain. Adoption of the contract farming model wherein the production unit is located close to the Jatropha plantation areas would allow procurement of oilseeds directly from the farmer or farmer associations, thus ensuring regular input supply. Introduction of organised oilseed collection and processing through professionally managed cooperatives would help forge the vital link between farmers and the manufacturer. The adoption of corporate and/or contract farming models would not only result in reduced input costs to Rs. per litre Rs. per litre Figure 5 - Cost of biodiesel for different levels of efficiency (Conversion rate of Jatropha Oil into biodiesel is 92%) % 31% 32% 33% Seed Oil Content Seed Oil Content Cost of trans-esterification (Rs./kg of Jatropha oil) Figure 6 - Cost of biodiesel for different levels of efficiency (Conversion rate of Jatropha Oil into biodiesel is 95%) % 31% 32% 33% Seed Oil Content Seed Oil Content Cost of trans-esterification (Rs./kg of Jatropha oil) 34% 35% % 35% manufacturers but also ensure cultivation of seed varieties with desired qualities (such as high oil content). The farmer would also benefit on account of a higher assured income. Additionally, incidental costs can be minimised by strategically locating the production unit Further, it is necessary to extensively study the trans-esterification of non-edible oils with a focus on developing an efficient conversion process. For instance, at present only 90-92% of the Jatropha oil is converted into biodiesel. Also, given the limited seasonal availability of Jatropha oil seeds, other feedstock options may have to be explored. Based on improved production processes and increased seed oil content indicative biodiesel prices for varying efficiency levels have been presented in Figure 5 and INTERVENTION MECHANISMS As estimated in the previous sections, there exists a wide difference in the costs of biodiesel and HSD. This cost differential however, is not intrinsic to India alone. Even in the US, the biodiesel blend costs cents more per gallon than diesel. In light of the higher costs most countries have provided fiscal incentives to promote biodiesel usage. Additionally, financial support in the form of subsidies and tax benefits are also being offered by many countries (Annexure 3). In India, similar support structure is currently being provided at both the Central and the State level (Annexure 4). These efforts, however, have been largely scattered and hence have not been able to draw the expected response from the farming community. Organised fiscal and financial support is necessary to attract higher investment and increase consumer offtake.

15 Additionally, a clearly defined fiscal structure is necessary in order to bring clarity to producers and allow realistic evaluation. For instance, the ambiguity with respect to excise duty covering Jatropha Oil has resulted in producers facing difficulties while transporting it between states. Often, the oil is not recognized by border officials, further adding to the confusion. Thus, commercially viable production and consumption of biodiesel would require both the provision of fiscal benefits by the Government and increased investments in improving farm and factory practices. 3.4 EXTENSION EFFORTS 16 The concept of biodiesel is relatively new and hence requires considerable effort at the grass-root level to involve and educate growers, entrepreneurs and women. Provision of training on good plantation management techniques (planting practices, spacing, etc.) is necessary. For instance, the Manipur Small Farmers' Agri-Business Consortium has not only made arrangements for selling the Jatropha seeds but also intends to organise seminars, workshops, farmers' training and awareness programmes. Interestingly, a Biotech Park at Lucknow, has already organised six "Kisan Goshthis" to acquaint farmers, producers and the general public with the concept of biodiesel. Greater efforts in this direction would lead to increased farmer participation in Jatropha cultivation. A Biotechnology Park at Lucknow is being set up on 8 acres of land, provided by the Department of Science and Technology, Government of Uttar Pradesh. In collaboration with National Botanical Research Institute (NBRI), Lucknow, the park is raising elite quality of Jatropha curcas plants. Under an agreement with NOVOB, it has agreed to supply 3,00,000 plants to State Farm Corporation India Ltd., of which 1,50,000 have already been delivered. Apart from the producers and consumers, the automobile service industry should also be adequately equipped to support the biofuels revolution. For instance, a willingness on the part of informed insurance companies to extend policy cover and automobile manufacturers to extend guarantees to vehicles using biofuels would enable greater consumer offtake. 3.5 CONCLUSION Strong political and industry resolve backed by an implementation oriented strategy with interventions at each stage of the value chain will be the key for success. As a first step, formulation of a National Biofuels Policy will help rid the industry of the uncertainty that presently clouds it and pave the way for increased participation by stakeholders. Greater clarity on the future prospects of the industry would go a long way in steering the stakeholders' efforts in the right direction. 12 Ex-factory price excluding sales tax, excise duty etc.

16 ANNEXURE I R & D PROJECTS AND TRAINING PROGRAMMES Some R&D projects and Training programmes undertaken in India: Punjab Agricultural University is involved in R&D work on oils of plant origin and their esters (biodiesel) as alternate fuel for diesel engines since early eighties. Indian Institute of Petroleum (IIP) is actively pursuing the utilization of non-edible oils for the production of biodiesel, additives for lubricating oils, saturated and unsaturated alcohols and fatty acids and many other value added products. Indian Institute of Chemical Technology has extracted oil from Jatropha curcas. A catalystfree process (Indian patent filed, US Patent being filed) that is insensitive to moisture or high Free Fatty Acid (FFA) content has been developed at IICT, and an oil of any FFA content can be converted to the alkyl ester. Preliminary studies on the utilization of non-edible oils such as Neem, Mahua, Linseed etc. as fuel are being carried out at IIT, Delhi and IIT, Chennai. SRIPHL, Rajasthan, has undertaken myriad activities for the popularisation of Jatropha. Their activities include promotion of plantation, supply of plant/seeds, oil extraction and other value added services, nursery raising among other promotional endeavors. "VRIKSH SE DIESEL TAK"-a Self Help Group at every village has also been proposed to create awareness about Jatropha. The Tamil Nadu Government along with the Forest Department have planned a project for cultivation of Jatropha in 150,000 hectares in Tamil Nadu. Any farmer can make his land available for the Jatropha project and the seedlings as well as technical assistance for cultivation will be provided by the Forest Department. Indian Oil Corporation (IOC) R&D has undertaken research on the trans-esterification of vegetable oils. IOC (R&D) has already set up a biodiesel production facility of 60 kg/day at Faridabad. Mahindra & Mahindra Ltd. has a pilot plant utilizing Karanj for biodiesel production and has carried out successful trials on tractors using this fuel. Daimler-Chrysler, University of Hohenheim, Germany and Council for Scientific and Industrial Research (CSIR) have started a PPP (Euro 600) to test the feasibility of Jatropha biodiesel on internal combustion engines. Daimler-Chrysler has two plantations in Orissa and Gujarat. Harbinsons Biotech Pvt. Ltd., has set up a batch process pilot plant of 1 ton per day capacity at Gurgaon, Haryana, based on Jatropha curcas. Bharat Petroleum Corporation Limited (BPCL) has proposed a tie-up with Nandan Biomatrix for the cultivation of Jatropha on the former's surplus land near Mumbai. Nandan would provide all the technical assistance in the proposed project. They are also in collaboration with UK-based D1 Oil to setting up an R&D centre for Jatropha seedlings and also to set up a seed bank for biodiesel plantations. Gujarat State Transport Corporation has incorporated 5% biodiesel blend in four buses running between Ahmedabad and Gandhinagar. IOC is running 20 buses of the Haryana Roadways fleet on biodiesel. The Indian Railways have conducted trial runs using biodiesel in the Shatabdi Express. 17

17 Climate : Subtropical and tropical Can tolerate extremes of temperature Cannot tolerate frost Soil: Moderate fertility preferred Variety: Existing species: 476 Existing species in India: 12 ANNEXURE II JATROPHA CURCAS - THE CROP Propagation: Propagation through seeds Sown in raised nursery beds Germinated seeds are sown in poly bags 10x20 cm size filled with red soil, sand and organic in the ratio 1:1:1, respectively 18 Planting: Plant to plant spacing of 2mx2m in pits of 30cmx30cmx30cm, filled with soil and organic (500gm FYM + 100g Neem cake g super) Preferred months are June- July, October- November Manures and fertilizers: From second year onwards fertilizers in the ratio 20:120:60 kg of NPK per acre is applied during September- October From fourth year onwards, in addition to the above, 150g is recommended Irrigation: Should be given fortnightly to ensure year round production of flowers and harvest of seeds Inter cropping: Can be done for first two years. Crops include- tomato, bittergourd, pumpkin, cucumber, blackgram etc. Pests and Diseases: Normally no disease or insect are noticed to be harmful to the plant. Neem oil may be applied in March-April. A paste of neem leaves, datura and aak can also be applied as a prophylactic measure. Bark eater and capsule borer can be controlled by spraying 3ml/litre of water

18 Tax breaks for biodiesel production: ANNEXURE III TAX BREAKS PROVIDED FOR BIODIESEL Germany - Total tax exemption of 0.88/litre, until France - Partial exemption of 330m, with a quota of t. Only for blends up to 0.5%, pure diesel not covered 3 Italy - Full exemption of 403m up to a quota of 300,000t. Pure diesel used for only for heating can avail of this 19 Austria - Full exemption of U.K. - Exemption of 0.20 per litre on biodiesel 3 310m, for pure biodiesel and blends upto 2 percent U.S. - Federal tax credit amounting to a penny per percentage point of biodiesel blended with petroleum diesel

19 ANNEXURE IV FINANCIAL ASSISTANCE PROVIDED TO INDIAN BIODIESEL PRODUCERS Examples of Financial assistance provided to Indian Biodiesel producers: In Manipur, the National Oilseeds and Vegetable Oil Development Board (NOVOB) and commercial banks intend to provide 30% of the total Jatropha plantation project cost as subsidy and 50% as loan, respectively. The remaining 20% would have to be contributed by the interested farmer or an NGO. The maximum project size is Rs. 6.5 lakhs and it has be completed within 2 years from obtaining the bank loan. NOVOB also intends to extend financial assistance to those who want to set up Jatropha nursery units, mills for oil extractions, pre-processing and processing units and stockists of Jatropha seeds. 20 The Government of Andhra Pradesh as part of its Rain Shadow Areas Development Plan, has proposed to guarantee an income of Rs per annum to a farmer taking up bio diesel plantations of maximum 5 acres. Co-operative Land Development Bank of Maharashtra and Co-operative Agricultural Development Bank, Hyderabad, have come forward to finance Jatropha plantations for greening of wastelands. NABARD has also agreed to refinance such projects. The Haryana Government provides a 25% subsidy per acre of Jatropha plantation grown The Government of Chattisgarh has constituted the "Chhattisgarh Bio-fuel Development Authority" to promote and support Jatropha plantation and Biodiesel production in the State. Further, the Government will provide 500 jatropha saplings free of cost to farmer interested in cultivating it and would charge 50 paise per sapling thereafter. In addition, Government waste lands have been made available on nominal lease for 30 years to the entrepreneurs for Jatropha plantation, a minimum support price for procurement of Jatropha / Pongamia seeds and Jatropha oil has been declared, trans-esterification plant has been given the status of "Special Thrust Industry" for govt. incentives and comprehensive extension support being provided by Forest and Agriculture Department.

20 ANNEXURE V COST OF JATROPHA CULTIVATION (PER HECTARE) FOR YEAR 1 Operation Unit/ nos./ kg. Rate (in Rs.) Amount (in Rs.) Land Preparation Ploughing / ha 2500 Harrowing / ha 1500 Clod Crushing & Leveling 1 500/ ha 500 Digging Pits / pit 5500 F.Y.M. with application 5 C.L. 350/ C.L Fertilizer with application 225 kg (4 bags) 378/ bag 1512 Planting Cost of seed 2 kg Interculturing Harrowing of Open space / harrowing 4500 Irrigation 3 450/ irrigation 1350 Cut back operation of plant / plant 550 Per hectare working capital requirement Interest on working capital at a rate of 7% per annum 1684 Rental value of land (1/6th of Gross Produce) 4166 Cost of cultivation for first year when seed is used COST OF JATROPHA CULTIVATION (PER HECTARE) FOR YEAR 2 Operation Unit/ nos./ kg. Rate (in Rs.) Amount (in Rs.) Land Preparation Harrowing / ha 4500 Fertilizer with application 225 kg (4 bags) 378/ bag 1512 Irrigation 3 450/ irrigation 1350 Pruning operation charges / plant 550 Per hectare working capital requirement 7912 Interest on working capital at a rate of 7% per annum 553 Rental value of land 4166 Cost of cultivation for second year 12631

21 COST OF JATROPHA CULTIVATION (PER HECTARE) FOR YEAR 3 Operation Unit/ nos./ kg. Rate (in Rs.) Amount (in Rs.) Land Preparation Harrowing / ha 4500 Fertilizer with application 225 kg (4 bags) 378/ bag 1512 Irrigation 3 450/ irrigation 1350 Pruning / plant 1100 Per hectare working capital requirement 8462 Interest on working capital at a rate of 7% per annum 592 Rental value of land 4166 Cost of cultivation for third year COST OF JATROPHA CULTIVATION (PER HECTARE) YEAR 4 ONWARDS Operation Unit/ nos./ kg. Rate (in Rs.) Amount (in Rs.) Land Preparation Harrowing / ha 4500 Fertilizer with application 280 kg (5 bags) 378/ bag 1890 Irrigation 3 450/irrigation 1350 Picking of fruits / plant 2200 Deshelling, Drying & Packing of seed 2/ plant 2200 Pruning Operation / plant 2200 Per hectare working capital requirement Interest on working capital at a rate of 7% per annum 1003 Rental value of land 4166 Cost of cultivation fourth year onwards 19509

22 ANNEXURE VI COMBUSTIBILITY OF BIODIESEL Combustibility A detailed study on the suitability of biodiesel for existing engines is important. Research would help identify necessary modifications and facilitate future engine development. Although a number of apprehensions have been expressed on the utilisation of biodiesel in existing engines, test results have proved them as unfounded. For instance, a common apprehension is that biodiesel is a strong solvent and may damage rubber parts or the fuel delivery system. Research, however, has found no resultant engine damage even on using 100% biodiesel. 23 Availability of cheaper Biofuels in times to come would necessitate the development of procedures to check adulteration. Methods to check percentage of biodiesel blend and adulteration of edible oils also needs to be given considerable attention.

23 YES BANK Ltd. YES BANK, India's new age private sector Bank, is the outcome of the professional commitment of its Indian promoters, Rana Kapoor and Ashok Kapur, to establish a high quality, customer centric, service driven, private Indian Bank catering to "Emerging India". YES BANK has adopted international best practices, the highest standards of service quality and operational excellence, and offers comprehensive banking and financial solutions to all its valued customers. A key strength and differentiating feature of YES BANK is its knowledge driven approach to banking. The Bank has formed a specialized 'Development and Knowledge Banking Division' focusing on key sunrise growth sectors. YES BANK is steadily building corporate and institutional banking, financial markets, investment banking, business and transactional banking, retail and private banking business lines across the country. The Bank's constant endeavour is to provide a delightful banking experience expressed with simplicity, empathy and totality. 2 Queries to YES BANK may be directed to: Pallavi Tandon Manager - Food & Agribusiness Strategic Advisory & Research, Development & Knowledge Banking Kalyan Chakravarthy G.K.D Country Head- Food & Agribusiness Strategic Advisory & Research, Development & Knowledge Banking YES BANK Ltd. 48, Nyaya Marg, Chanakyapuri, New Delhi , INDIA Tel: Fax: The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representation or warranty expressed is made to their accuracy, completeness or correctness. This document is for information purposes only. The information contained in this document is published for the assistance of the recipient but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. This document is not intended to be a substitute for professional, technical or legal advice. All opinions expressed in this document are subject to change without notice.

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