Biodiesel Promotion in India Through Partnerships Across Value Chain: Beckoning of Energy Security in India

Transcription

1 Biodiesel Promotion in India Through Partnerships Across Value Chain: Beckoning of Energy Security in India Thilotham R. Kolanu 1,*, Puneet K. Goel 2, Sreenivasa S. Murthy 3 and Jitendra Swami 4 1 Environment Division, Administrative Staff College of India, Hyderabad, India 2 Ministry of Power, Govt. of India, Room, New Delhi, India 3 Indian Institute of Technology, Delhi, India 4 Alumni, Administrative Staff College of India, Hyderabad, India Abstract: Meeting the energy requirements in a sustainable manner continues to be a major challenge for most of the countries across the world. Technological advancements, increasing global crude prices, opportunities to reduce local and global environmental emissions and achieving targets have been the major drivers for promotion of biodiesel as an energy sources in both developed and developing countries. While these are generic drivers for adoption of biodiesel as alternative energy source the specific contextual drivers differ wide across countries. For developing countries like India specific drivers include diversifying energy sources as well as augmenting domestic supply sources from the energy security point of view, reducing local emissions such as SOx, contributions towards reduction of foreign exchange outflow, improving the livelihood and income generation opportunities in rural areas especially the semi-arid regions of the country. Decreasing dependence on imported oil through inter-fuel substitution as been stated as one of the objectives of the draft energy policy of the Planning Commission of India (Planning Commission, 2005). The paper uses both qualitative and quantitative methods of inquiry to understand the perspectives of different players across the value chain of biodiesel production, distribution and consumption in India. It uses tools such as value chain analysis, technology mapping and institutional analysis to evaluate the critical gaps that impede sustainable progression in adoption of biodiesel as alternative energy source. It showcases some critical interventions required on technology front, policy and institutional front as well as fiscal instruments front so as to deepen the biodiesel adoption program in India. It concludes that plugging information, knowledge and technology gaps are essential for translating the keen interest of multiple stakeholders into a reality. This requires alignment of business goals with that of societal sustainable developmental objectives in energy sector. It showcases the need for developing partnerships at various levels i.e., federal, state and local levels so as to achieve win win- win situation from economic, social and environmental perspective in the energy sector using biodiesel promotion as an immediate goal. Keywords: Self Help Groups (SHGs) Autonomous society that is formed to manage the entire operation, Panchayats - a local government body elected by local people for village administration, Jatropha/ Pongamia/ Mahua local plant species used as feedstock for biodiesel production, Joint Forest Management Programs (JFMCs) government initiatives for economic progress of local communities using forest resources, Integrated Tribal Development Agency (ITDA) - a government body to support tribal communities in their economic progress 1. INTRODUCTION Globally bio-diesel is emerging as an environment-friendly alternative fuel for meeting the energy requirement in a sustainable manner. In line with many developed and developing countries, India too has put in an initiative to boost the production and promotion of biodiesel. The potential benefits associated with biodiesel have driven national, state, and local governments to adopt programs that enable production and utilization of biodiesel. India is not only heavily dependent on imported oil for meeting its transportation fuel requirements but also has large number of villages (i.e., around 80,000 villages & hamlets), which are yet to be electrified. Hence both from point of additive to transportation fuel as well as a sustainable source to generate electricity in remote and inaccessible areas biodiesel proves to be an attractive proposition in India. There has been considerable attention to bio-fuels in India from multiple stakeholder institutions such as Governments at federal and state level, NGOs, transport organizations, vehicle manufacturers, farming community, research and academic institutions especially in the last five years. Unlike other developed and developing countries that are focusing on biodiesel production with edible oil as the feedstock, thrust of strategic attention on biodiesel has been on non -edible oils seeds such as Jatropha, Pongamia, Mahua etc. Appreciating the fact that India is net importer of edible oils, it has been a conscious choice of Indian society to focus attention on non-edible oil seeds that can be grown in different agro climatic zones that are prevalent in India. Given this context, this paper attempts to analyze various Indian initiatives for promotion of biodiesel as an alternative energy source from the point of view of electricity generation for remote and inaccessible regions as well as an additive to the conventional diesel. Assessing opportunities and constraints for adoption of biodiesel by distilling learning from the successful initiatives both within and outside India. 2. METHODOLOGY The paper uses both qualitative and quantitative methods of inquiry to understand the perspectives of different players across the different component of value chain i.e. cultivation, biodiesel production, distribution and consumption. It uses tools such as value chain analysis, technology mapping and institutional analysis to evaluate the critical gaps that impede sustainable progression in adoption of biodiesel as alternative energy source. It showcases some critical interventions required on technology front, policy and institutional front as well as fiscal instrument front so as to deepen the biodiesel adoption program in India. Corresponding author: trkolanu@yahoo.com 1

2 3. RESULT & DISCUSSION 3.1 Opportunity to the fore/ current scenario of Indian biodiesel industry Increasing import burden of conventional fuels, tight foreign exchange position, alarming environment emissions, are some of the global drivers, that, biodiesel is being given serious consideration as potential alternative source of energy across the world. Besides this, the availability of wastelands, presence of a variety of non-edible oil seeds and plants, opportunity to reduce the oil import burden, prospects of development of rural economy, biodegradability and emission benefits are some of the regional & supplementary drivers that qualify bio-diesel for substituting conventional diesel in India. In view of such facts, India s potential for production of bio-diesel from non-edible oil seeds and the prospects of meeting its future energy needs have been highlighted for promotion of biodiesel. In India, from about 100 varieties of oil seeds, only varieties have been tapped so far, amongst Jatropha and Pongamia are the key wild plant species identified as the potential feedstock for biodiesel production. Their cultivability in wasteland and relatively adverse climatic conditions are the key attribute for their promotion as a feedstock material. According to the Economic Survey of Government of India, out of the total cultivated land area, about 175 million hectares of land is classified as waste and degraded land. It is perceived at various levels of government that encouraging sustainable cultivation of Pongamia and Jatropha trees on these lands can meet part of the countries energy requirements. With this background, the Planning Commission of India, along with the Ministries of Petroleum, Rural Development, Poverty Alleviation and Environment, has conceptualized a national mission that recommends a major multi-dimensional program to commercialize the biodiesel industry in India. One prime objective is the progressive replacement of petro-diesel by blending in 5%, 10%, and, eventually, 20% of biodiesel. Following is the projected biodiesel demand in India: Year Table 1 Demand projection of biodiesel in India Diesel Demand (million Tons) Biodiesel demand (Million 10% 15% (Estimated) Source: Planning commission Report on Bio-fuels 3.2 Key Challenges / market barriers for the biodiesel promotion in India Oil seed cultivation Land identification and ownership is the key challenge for the cultivators. Across the country, wasteland has been targeted for the Jatropha cultivation and a significant portion of it is under ownership of state governments. Government has not yet arrived to the clear and easy policy framework for offering land on lease. Information regarding the agro economic practices is limited, which often discourages the risk-averse small and marginal farmers from growing non-edible oil seeds. Still there is uncertainty about the potential yields and reliability of seeds. Owing limited cultivation experience and lending experience of financial institutions ensuring adequate financing to this emerging area is a major constrain; especially for the cultivation of such crops having relatively longer gestation period such as Jatropha (3 years) & Pongamia (5 Years). Lack of supply chain linkages between the potential cultivators and biodiesel manufacturing, causes trade uncertainty at both sides Oil extraction & refinement The country is relying on imported technology, which is extremely expensive and is also proven for edible oil as feedstock. There are risks associated with the technology for its costs and compatibility. Though indigenous technologies are available at low costs and in smaller plant sizes (batch process unlike continuous process of imported technology) with lower levels of performance regarding conversion of oil to diesel. Finance of biodiesel projects is a major constraint but few venture capital firms and banking institutions are coming forward to finance biodiesel-manufacturing plants. Pricing of biodiesel is a major concern. By-products such as Glycerin & Oil cake are economical value but the uncertainty of their prices in global and local markets respectively is a major challenge. As the industry is nascent and demand of by-products is more than supply, the sustenance of prices with increased outputs of biodiesel is debatable. Once the production gets commercialized it would be difficult to realize the current value of by-product. Estimates from different agencies ranging from Government, private sector, research agencies etc indicate the price of the seed to be Rs.3.50 to Rs.6 /kg and the price of biodiesel ranges between Rs. 17 to Rs.42.The production costs of bio-diesel is currently higher than conventional fuels, so it will be very difficult to gain market share without Government intervention in terms of favorable duty and taxation levels. Lack of transparent long-term government policy, which includes tax incentives, relaxation in government duties, investment climate for entrepreneurs etc. There is no comprehensive biodiesel standards notification and industry classification 2

3 3.2.3 Sales & distribution Wide and uncertain price band ranging from Rs per liter of biodiesel discourage the seller & distributor to set up separate distribution channels. Lack of mandate to blend biodiesel at certain % of fossil diesel does not encourage oil-marketing firms to get sufficiently encouraged for involving in its promotion. Further more, lack of adequate consumer awareness regarding its reliability and performance also discourages the end users to use it in their vehicles voluntarily. 3.3 Alternative business models for biodiesel production Different business models are being explored for promotion of biodiesel production and usage. Policy and institutional focus is required for developing partnership among the different stakeholders and that needs to be evaluated across the value chain of biodiesel production, designed for meeting the specific requirements of different end-usage At the raw material production stage There is ample scope and even necessity for involving diverse institutional options in cultivation, promotion and rural livelihood development. Mentioned below are 5 different models that are being identified as key institutional set up that can be involved in cultivation: 1. Self-initiated and self promoted: Farmers cultivate on their own field at their own costs or financed by financial institutions. Here the entire risk is borne by the farmers and they can decide to sell seeds (Pongamia/Jatropha) to either biodiesel manufacturer directly or to an intermediary processor/trader. For such options government needs to create awareness of the importance of microcredits within the community and local processing groups and also government should function as a financial intermediary to make low-cost loans available by leveraging bank-ngo-client credit lines. 2. Contract framing: Farmers undertaking biodiesel cultivation in their respective fields, for which all the inputs would be provided by a corporate with a commitment to buy back the raw material at a prior agreed rate. The leading benefits due to this option are; ease of access to scientific harvest/better agronomic practices and market related information to farmers. 3. Leasing of public lands to corporate: Government should lease wastelands under its control to industrial entrepreneurs at a nominal rate so that corporate can either cultivate the same or enter into contract farming by engaging local farming as discussed in earlier section. 4. Community-level Institutions: Cultivation of biodiesel in public lands by state and its agencies using employment generation schemes or natural resource management schemes such as joint forest management programs (JFMCs). Presently there are more than 65,000 JMFCs in over 40,000 villages of the country, protecting over 15 million hectare of Government owned forests (Bhattacharya and Prasad 2001). Apart from these, there are several instances of self-initiated forest protection groups (SIFPGs) and conservation efforts by local communities in different parts of the country, viz. Orissa, Jharkhand, Andhra Pradesh and from the Northeast. The JFMCs and the SIFPGs are supported, trained and promoted for taking up the following activities: A. Development of Jatropha planting stock in decentralized nurseries B. Plantation of Jatropha on private and common lands C. Scientific harvest of Jatropha seeds D. Local processing of Jatropha. 5. Panchayats, a local (Village) government institution : to enter into a tripartite agreement with buyers and farmers for ensuring adequate feedstock development in the farmers field. This is an improved version of contract farming where-in transaction cost of farmers and corporate will be minimized and there will be greater accountability. The potential benefit of this is to mobilize funding and logistic for establishment of decentralized Jatropha nurseries. Side by side it can also be a centre for marketing and distribution of unrefined biodiesel At the expelling and production stage There are 3 different models that are being considered which are described briefly in the following: 1. Small expellers pool seeds from a cluster of near-by villages and produce oil and supply it to a major production facility or the decentralized biodiesel producers wherein oil gets trans-esterified for meeting biodiesel quality standards. They produce biodiesel with glycerin as by-product and supply it to the depot and pump station for distribution to the end users. Apart from socio economic developmental benefits in terms of income and employment generation, this model is considered to be effective as it reduces the operational and transaction cost and time. The oil cake produced after oil extraction can also be utilized as a fertilizer in villages surrounding this small oil extraction unit and the extracted oil can also be used as a fuel for local transportation (E.g. tractor, power generators etc.), which does not require trans-estrified oil. 2. Major production facility or the decentralized producers procuring seed directly from the villages and producing biodiesel and supplying it to the oil depot or pump station for further distribution to the end users. Since the seeds have to be procured all the way directly from the villages and the oil cake, as an organic fertilize has to be transported back to the village, operational and transaction cost and time would be very high but it enhances the control of biodiesel manufacturer on the supply chain. 3. Decentralized approach to biodiesel production would be another suitable model for generating rural employment by promoting small oil extraction units on a distributed small-scale basis. Apart from generating employment the transportation cost of oil from the oil mill to the trans-esterification unit would be lesser as compared to the transportation of seeds, which would be much higher in weight and volume. Moreover, the by-product of oil-extraction i.e. the de-oiled cake of Jatropha can be better utilized at the village level as fertilizer. The need is to evaluate above-mentioned practices in different regions so that region specific solutions are promoted across India. 3

4 3.3.3 At distribution and sales stage The biodiesel purchase policy declared by Government of India with identification of select oil distribution depots across the country for receiving and blending the biodiesel in the conventional diesel has not received any response from the biodiesel manufacturers partly because of the existing haziness in interpretation of the taxation approach of Union and state governments towards biodiesel and mostly because of limited opportunity to produce biodiesel due to lack of feedstock and the declared minimum support price of Rs. 5-6 per kg of Jatropha and Pongamia seeds announced by various state governments. As an alternative distribution mechanism some of the biodiesel producers are directly supplying their produce to bulk consumers like Road transport corporations and transporters. While others are selling directly to consumers at their outlets and few others are exploring the options of selling their produce in the European market because of the higher price that it commands in those markets. The government needs to encourage cultivators to grow appropriate non-edible oils used as an alternative fuels and side by side promotion of use of biodiesel. This needs a huge amount of fund to be mobilized to organizing and build up different component of value chain i.e. cultivation, extraction, refining, sales and distribution etc, at a time. At present, availability of feedstock is inadequate and it is difficult to systematize the entire supply chain to produce biodiesel as an alternative fuel for the transport sector. The Government should take up the operation of cultivation, processing and make use of biodiesel in phased manner. All across the phases, it is needed to exploit the alternative use of alternative fuels to achieve the efforts can be optimized and synchronize towards the sustainable approach. Unless the feedstock production gets commercialized and refining technologies are assured, we have to identify the alternative use unrefined biodiesel. One good choice for the use of biodiesel is to generate electricity. For the purpose of electricity generation (including domestic purposes and agricultural purpose such as pumping of water from wells), extracted oil can be used without any process of refining. For instance, there are a few on hand project for electricity generation a feasible source of power generation. For the further learning, a case study is presented here on rural electricity generation, while using biodiesel as a fuel. Access to the electricity in remote and inaccessible rural areas of India is still a challenge for India, that is to say only 37% of the total number of rural households has access to electricity. Given the need of rural electrification, non-edible oils (unrefined biodiesel) would be a feasible source of power generation. Innovative community application of bio-fuels for Rural Electrification: Integrated tribal development agency (ITDA) has conceived the very similar idea of bio-diesel for power generation in a few small hamlets of Utnoor Mandal in Adilabad district of Andhra Pradesh state. Since 2000, four hamlets in this region have been generating electricity for their lighting requirements using non edible oil as a feed stock by simple available indigenous technology for electricity generation, which is also cost effective. Each hamlet has about families mostly marginally tribals. These hamlets have formed self -help groups accountable for collection of feedstock from the nearby forest area and are trained to operate and maintain expeller for oil and generators for electricity generation. These generators are operated for about two hours in the evening (from 6 pm to 8 pm) for lighting the homes and streets of the hamlet. In addition, excess collection of seeds is traded off with nearby hamlets/ villages. Apart from the primary benefit, de-oiled cake, which is a by-product and can be used as a organic fertilizers. The entire model exemplify the decentralize business model for the rural electricity generation. There is huge demand of diesel other than transport sector. Following are the key consumption sectors of the petroleum products. Side by side, the capability and competency can be improved on other components of value chain to promote biodiesel as an alternative fuel for transport sector. Table 2 Sector wise Consumption of Petroleum products (2004, in MMT) Sector Petroleum consumption (in MMT) Transport 61 Domestic 21 Industrial 17 Agriculture 5 Others 16 Total 120 Source: Petroleum Conservation Research Association 3.4 Value chain upgradation strategies for promoting biodiesel There are a large number of opportunities across value chain to enhance value to different stakeholders whereby increasing the viability of biodiesel production and ensuring sustainable energy options. For meeting the rural energy requirements of remote and inaccessible villages as shown in Box I there is need for developing community partnership so as to ensure low cost sustainable solutions to meet minimum power needs of the community. This requires right kind of interface between technological and social interventions with required developmental communication and awareness local community needs to be empowered for owning and operating rural electrification facility using Jatropha or Pongamia oil. Similarly efforts are required in villages wherein water extracting units, tractors and tillers can use this oil directly instead of fossil diesel. Indian farm holding are small and the options for contract farming while holding immense potentials is fraught with huge transaction costs for ensure appropriate cultivation and supply of feedstock. There is scope for intermediaries that can reduce the transaction costs of corporates by involving small entrepreneurs, Community Organizations, NGOs and village local self-government bodies such as Panchayats to become these intermediaries and ensure least cost option of tightening supply chain. 4

5 For upgrading across the value chain R&D efforts in biodiesel manufacturing are required in three broad areas viz. feedstock development, reducing cost of production technology and increasing the value of by products. From feedstock development angle there is need to identify quality germplasm and develop genetically modified (GM) crops to augment yield levels so as to enhance farm incomes and attract large number of small cultivators towards cultivation of biodiesel crops. From the biodiesel manufacturers perspective increasing the oil content in the seeds from the current averages of around 20-25% any increase in oil content would increase their profits margins and their ability to pay higher price for feedstock. Similarly experience shows that oil content reduces with increased storage time as well as storage of extracted /refined oil starts getting sedimented beyond certain time limits. At present, the indigenous oil extraction machine processes close to 85 to 90%, an elevation of 7-8% can be attained through R&D. As Indian biodiesel industry relies on imported technology designed for refining vegetable oil, it enhancing the processing costs of biodiesel. An important initiative required for increasing competitiveness of biodiesel is to upgrade the value of the by products such as glycerin and oil cake etc. Hence, R&D efforts are required through multi institutional partnerships at various levels. 4. CONCLUSION Multiple public and private agencies are actively involved in different aspects of biodiesel promotion in India but there are limited avenues to build stakeholder partnerships at various levels so as to evolve comprehensive policy and strategy at national level and region specific plans and programs at state level. It is critical to develop platforms at national, state and local levels wherein stakeholders share views and concerns but also develop concrete action plan with targets and timeframes for addressing technological, financial and institutional aspects. Experiences across the world demonstrate that partnerships are one of the concrete means to enhance penetration of alternative fuels and fuel technologies. This will ensure translation of intent of biodiesel promotion as espoused by central and various state governments into reality by meeting livelihood generation, environmental conservation and economic growth goals in a medium to long-term period. 5. REFERENCES [1] Austrian Biofuels Institute, Biodiesel a Success Story-The Development of Biodiesel in Germany, Report for the International Energy Agency, Vienna, June 2001 update: February [2] GAIN Report, Germany Oilseeds and Products Biodiesel in Germany - an Overview, Global Agricultural Information Network, Berlin, [3] European Environmental Agency, Renewable Energies: Success Stories, Issue No. 27, European Environment Agency, Copenhagen, [4] Planning Commission, Report of the committee on Development of BIO-FUEL, Planning Commission, Government of India, [5] TERI, Report for the National Mission on biodiesel, Department of Land Resources, Ministry of Rural Development, Government of India, The Energy and Resources Institute (TERI), New Delhi, [6] NABARD, Jatropha (Ratanjot)- A source of biodiesel, Development Policy Department-Farm Sector, National Bank for Agriculture and Rural Development (NABARD), (2005). [7] Government of India, Biodiesel Purchase Policy, Ministry of Petroleum and natural Gas, Government of India, October [8] Prakash. B. Chandra, A Critical Review of Biodiesel as a Transportation Fuel in Canada, GCSI Global Strategies International Inc., Transportation Systems Branch, Air Pollution Prevention Directorate, Environment Canada,