Banking Article, Banking Finance 2023, Banking Finance January 2023

Compressed Biogas (CBG) Scheme: A step towards sustainable future

Introduction:

India is among the fastest growing economy in the world and its energy consumption is slated to increase rapidly. According to the Ministry of Petroleum and Natural Gas (MoP&NG) estimates, India has a total reserve of 763 Million Metric Ton (MMT) of crude oil and 1,488 Billion Cubic Meter (BCM) of natural gas. The country currently imports nearly 77% of its crude oil requirements and about 50% of natural gas requirement, leading the Government of India to set a target of reducing this import by at least 10% by 2022. Further, it has set a target of increasing the contribution of gas in India’s energy mix from existing 6.5% (global average is 23.5%) to 15% by 2022.

Hon’ble Prime Minister has given the following four pillars of our vision of India’s energy future – energy access, energy efficiency, energy sustainability and energy security. The Government of India has also set a target of – ‘Doubling Farmers Income by 2022’.

Waste / Bio-mass sources like agricultural residue, cattle dung, sugarcane press mud, municipal solid waste and sewage treatment plant waste, etc. produce biogas through the process of anaerobic decomposition. The biogas is purified to remove hydrogen sulfide (H2S), carbon dioxide (CO2), water vapor and compressed as Compressed Biogas (CBG), which has methane (CH4) content of more than 90%.

CBG has calorific value and other properties similar to CNG and hence can be utilized as green renewable automotive fuel. Thus, it can replace CNG in automotive, industrial and commercial areas, given the abundance biomass availability within the country.

Biogas:

Biogas is an energy-rich gas produced by anaerobic decomposition of biomass. It is produced from waste / bio-mass sources like agriculture residue, cattle dung, sugarcane press mud, municipal solid waste, sewage treatment plant waste, etc.

Biogas, a renewable fuel, constitutes mainly of methane (60%), carbon dioxide (40%), and traces of hydrogen sulfide. It can be burned directly as a fuel or purified & upgraded by removing carbon dioxide (CO2), hydrogen sulfide (H2S) and compressed to make Compressed Biogas (CBG). The CBG has methane content of more than 90%, which is similar to the commercially available natural gas in composition and energy potential.

Compressed Biogas (CBG):

CBG or Compressed Biogas consists of mainly methane (more than 90%) and other gases like carbon dioxide (less than 4%), etc. CBG is produced by anaerobic digestion of biomass and waste sources like agricultural residue, cattle dung, sugarcane press mud, municipal solid waste, sewage treatment plant waste, etc. This Biogas can be purified to remove hydrogen sulphide (H2S), carbon dioxide (CO2), water vapor and when this purified biogas (methane content more than 90%) is compressed to maximum 250 bar and filled up in cascades (group of high pressure cylindrical vessels), it is called Compressed Bio Gas or CBG.

Ministry of Road Transport and Highways, Government of India had permitted usage of bio-compressed natural gas (bio- CNG) for motor vehicles as an alternate composition of the compressed natural gas (CNG).

Compressed Biogas (CBG) produced from the CBG plant will be retailed through the CBG dispensing unit set-up by the Oil Marketing Companies within the radius of 25 kms. CBG supplied under SATAT scheme shall meet IS 16087:2016 specifications.

Sustainable Alternative Towards Affordable Transportation (SATAT) Scheme:

‘SATAT’ scheme on Compressed Biogas (CBG) encourages entrepreneurs to set up CBG plants, produce & supply CBG to Oil Marketing Companies (OMCs) for sale as automotive & industrial fuels.

India is among the fastest growing economy in the world and its energy consumption is slated to increase rapidly. India’s dependence on fossil fuels for its energy needs has two major concerns i.e. a growing import bill and the carbon emission. The country now imports close to 85 per cent of crude which roughly translates to 45% of primary energy demand and this is only going to go up in the near future. This trend has huge implications for energy security of the country. Government of India has set a target of reduction in import dependence by 10% from 2015 to 2022.

‘SATAT’ (Sustainable Alternative Towards Affordable Transportation) scheme on Compressed Biogas (CBG) was launched by Hon’ble Minister, Petroleum & Natural Gas on 1.10.2018. The scheme envisages to target production of 15 MMT (million tons) of CBG by 2023, from 5000 Plants. Under SATAT scheme, entrepreneurs shall set up CBG plants, produce & supply CBG to OMCs for sale as automotive & industrial fuels. The initiative aims to produce compressed biogas (CBG) from Waste and Bio-mass sources like agricultural residue, cattle dung, sugarcane press mud, Municipal Solid Waste (MSW) and sewage treatment plant waste. PSU Oil Marketing Companies (OMCs) is inviting Expression of Interest (EoI) from potential entrepreneurs to set up CBG plants under SATAT scheme, and supply CBG to OMCs for sale as automotive & industrial fuel. The CBG Plant Owner shall be responsible for planning, preparation, engineering and execution of the project, including storage of raw material, operation and maintenance of the plant, maintaining final product output quantity and quality and managing the by-products & wastes from the plant as per existing central / state norms.”

As a developing country, India requires more energy to progress as a nation and hence, it is important to meet the growing energy demand in a responsible manner. SATAT, by producing CBG from wastes, would not only meet the growing energy demand in a responsible and eco-friendly manner, but also contribute to India’s commitment to GHG emission reduction.

It will also help to bring down nation’s dependency on natural gas and crude oil imports and act as a buffer against crude oil and gas price fluctuations. The decentralized system also provides a huge opportunity to supply CBG in remote locations where the affordability and access to modern energy is still a major challenge. CBG produced can be integrated with existing Gas networks such as city gas distribution (CGD) networks to boost supplies to domestic and retail users in existing and upcoming markets. Integrating with existing Gas network would further ensure efficient distribution and optimised access to cleaner and more affordable fuel.

Benefits of the scheme:

Conversion of agricultural residue, cattle dung and municipal solid waste (MSW) into CBG in a commercial scale is expected to have the following benefits:

  • Import reduction of natural gas and crude.
  • Utilization of agricultural residue, cattle dung and MSW for the production of CBG and thus to achieve reduction in emissions and pollution.
  • A boost towards fulfillment of National commitments in achieving climate change goals.
  • Providing a buffer against energy security concerns and crude/gas price fluctuations.
  • Contribution towards Swachh Bharat Mission through responsible waste management
  • Lowering pollution and carbon emission.
  • Providing additional source of revenue to the farmers, rural employment and amelioration of the rural economy

 Enablers of the scheme:

Assured Long term Pricing:

Ministry of Petroleum and Natural Gas provides support for CBG projects under Sustainable Alternative Towards Affordable Transportation (SATAT) in the form of assured offtake of CBG @Rs. 46/ Kg by Oil Marketing Companies.

An Expression of Interest (EOI) to procure CBG by IndianOil was released under the SATAT scheme on 1st October 2018. As per the EOI, the price offered for CBG by Oil & gas companies is as follows:

Price of CBG meeting IS 16087: 2016 standards, compressed at 250 bar and delivered at Indian Oil Retail Outlets in cascades: Rs.46/- + GST/kg.

Facilitation by OMCs through Letter of Intent (LOI):

  • Oil & gas companies shall facilitate Plant owners in design, erecting, construction, commissioning of the CBG Plants.
  • Oil & gas companies will off-take and market the CBG produced.
  • Oil & gas companies will also facilitate marketing of Bio-manure produced from the CBG Plants. For facilitating the same, IndianOil has entered into MoU with National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED).
  • Oil & gas companies are entering into MoU with State Governments for facilitating CBG plants. IndianOil has entered into MoU with Government of Punjab and Government of Haryana for facilitating setting up of CBG Plants. Execution of similar MoU also being explored with State Governments of Chhattisgarh, Uttar Pradesh and Andhra Pradesh.

Priority Sector lending:

As per the revised Priority Sector Lending (PSL) guidelines issued by Reserve Bank of India (RBI) dated 04thSeptember 2020, Loans for setting up Compressed Biogas (CBG) plants have been included as fresh categories eligible for finance under priority sector, which would enable better credit penetration for setting-up CBG plants.

Fertilizer control order:

To promote the manure produced from CBG plants, Fermented Organic manure (FOM) and Digested Biogas Slurry have been included under Fertilizer Control Order (FCO) 1985.

Opportunities to finance under the scheme:

  • As per information provided by Ministry of Petroleum and Natural Gas, Govt of India, it is planned to roll out 5000 CBG plants across India in phased manner by 2025. The Oil and Gas Marketing companies are issuing Letter of Intent (LOIs) to entrepreneurs for setting up CBG Plants.
  • Reserve Bank of India in its master directions on Priority Sector lending has classified CBG projects under Agriculture (Infrastructure Activities).
  • Looking in to emerging opportunities for the banks to finance CBG projects over the next few years, Bank have designed new product to establish CBG units.
  • The scheme is promoted by the Government and backed by Capital subsidy and it is the responsibility of the Bank to mobilise the scheme towards successful implementation to reach the Governments’ goal.

 

Sources of funding for Compressed Biogas plants:

Bank loans under Priority Sector Lending:

Loans to entrepreneurs for setting up Compressed Bio Gas (CBG) plants have been included under Priority Sector Lending (PSL) under Agriculture Infrastructure.Loans for agriculture infrastructure will be subject to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system. Assessment of the credit facilities will be done as per Banks’ extant guidelines.

Central Financial Assistance (CFA) provided by MNRE:

Ministry of New and Renewable Energy provides capital subsidy for Compressed Biogas (CBG) projects under “Programme on Energy from Urban, Industrial, Agricultural Wastes/Residues and Municipal Solid Waste”.

As per the revised guideline dated 28th February 2020, the scheme is extended till 31st March 2021 or till the date the recommendations of 15th FC come into effect.

Details of MNRE subsidy for CBG projects (as per the latest guidelines) are as follows:

Product CFA Description
BioCNG / Enriched Biogas / Compressed Bio Gas Rs 4.0 Crore per 4800 kgs of BioCNG/day generated from 12000 m3 Biogas/day (Mweq) with a maximum CFA – Rs 10 Crore/project

 

·         Upcoming Biogas plants, which produce BioCNG / Enriched Biogas Produced from Biogas generated through biomethanation of Urban waste including segregated MSW/ Agricultural Waste / Industrial wastes / Effluents or mix of these wastes, are eligible for this financial assistance.

·         In case developer wants to set up BioCNG/Enriched Biogas generating unit at already existing Biogas plant or at distillery effluent-basedBiogas plant, applicable CFA will be Rs 3.0 Crore/MWeq

Convergence with Agriculture Infrastructure Fund Scheme:

CBG plant is included as eligible project of Agriculture Infrastructure Fund (AIF) under building community farming assets subject to condition that CBG plants may be established by eligible beneficiaries of AIF like PACS, Marketing Co-operative Societies, FPOs, SHGs, Multipurpose Cooperative Societies, Agri-Entrepreneurs, Startups and projects promoted by Central/ State/ Local governments or their agencies under PPP and can avail the benefits under AIF scheme.

Interest Subvention under AIF scheme:

Loans under AIF financing facility will have interest subvention of 3% per annum up to a limit of Rs. 2 crores. This subvention will be available for a maximum period of 7 years. In case of loans beyond Rs.2 crores, then interest subvention will be limited up to Rs. 2 crores.

Credit Guarantee under AIF scheme:

Credit guarantee coverage will be available for eligible borrowers from this financing facility under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme for a loan up to Rs. 2 crores. The fee for this coverage will be paid by the Government. In case of FPOs the credit guarantee may be availed from the facility created under FPO promotion scheme of DACFW.

Assured offtake of CBG:

Ministry of Petroleum and Natural Gas provides support for CBG projects under Sustainable Alternative Towards Affordable Transportation (SATAT) in the form of assured offtake of CBG @Rs. 46/ Kg by Oil Marketing Companies.

Major Steps Involved:

Expression Of Interest:

An Expression of Interest is floated by Oil & Gas Companies every month. Each EOI is open for a stipulated time period of 30 days. Once an EOI is closed, another EOI is floated in the next month. In the application, applicant shall put location of the proposed/existing plant’s location as well as expected CBG Production Capacity. Applicants are free to propose more than one CBG Plant under one application.

The minimum designed capacity of a single CBG Plant to participate in SATAT programme is 2.0 Tonnes Per Day (TPD) of CBG. The application shall be submitted through e-tendering portal and hence, the applicant shall have a valid Digital Certificate for entering details in the e- tendering portal.

Letter of Intent:

EOI Submission is followed by evaluation of EOI on a predefined set of parameters, upon qualification of which applicants are issued Letter of Intent by respective Oil & Gas Company.

Retail Outlet selection and readiness:

After acceptance of LOI, the applicant shall submit a bank guarantee, to safeguard investment of OMCs towards retailing of CBG.

  • For Parties having existing Plant producing Biogas / CBG (as on date of application), who have applied for the LOI, a bank guarantee amount of Rs. 1 lakh per CBG Plant, to be obtained within one month after issuance of LOI
  • For new Parties, who are to set up Plants, a bank guarantee amount of Rs. 5 lakhs per CBG Plant, to be obtained within one month after issuance of LOI
  • Upon successful submission of Bank Guarantee, depending upon the CBG Plant location, the respective state office is intimated about the LOI Holder, and with mutual consent between the LOI Holder and the concerned Office, Retail Outlets are finalised. The number of ROs allocated depends upon the proposed CBG Production capacity and the location of ROs allocated depends upon the location of proposed CBG plant.

Signing of Commercial Agreement:

Upon successful allocation of RO, a commercial agreement is executed between Oil & Gas Company and LOI Holder. The Commercial Agreement includes plant location, initial production capacity, RO allocated as well as details of the pricing model to be followed.

Sale of CBG through RO:

The RO infrastructure development is planned according to the estimated date of commissioning of CBG Plant. Once the CBG Plant is commissioned, CBG is supplied by the LOI Holder to the Allocated ROs via cascades and sale of CBG is commenced.

A Step Towards a Sustainable Future:

  • Developmental effort to benefit vehicle-users as well as farmers and entrepreneurs.
  • Efficient tackling of urban air pollution due to farm stubble-burning and carbon emissions.
  • Reduce dependency on crude oil imports and realise PM’s vision of enhancing farmers’ income, rural employment and entrepreneurship
  • Efficient treatment and disposal of municipal solid waste
  • Promotion of organic farming by using Fermented Organic Manure (FOM) produced from CBG plants

 

Conclusion:

The scheme enables better use of agricultural residue, cattle dung and municipal solid waste. Considering the amount of biomass generated in the country, CBG has the potential to replace Compressed Natural Gas (CNG) in automotive, industrial and commercial uses in the coming years.

SATAT initiative offers an efficient solution for treatment and disposal of municipal solid waste management and help in tackling problem urban air pollution due to farm stubble-burning. It will boost entrepreneurship, rural economy and employment and provide additional source of revenue to farmers.

Contributing to the cause of environmental protection and national energy security through substitution of fossil fuels, while simultaneously creating new employment opportunities through CBG. CBG will facilitate India’s pursuit of energy security and is also a definitive step towards Atmanirbhar Bharat (self-sufficient India) through sustainable energy. Undoubtedly, the Government’s timely and pivotal initiative on CBG has given the much needed push towards clean and green energy shift and with invigorated efforts, CBG can definitely become the protagonist in India’s step towards sustainable future and clean energy journey.

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