Raw Material, Subsidy Key For 5% Biodiesel Blend By 2030: Report
13/03/2025 (Business World) - India Ratings and Research (Ind-Ra) opines that achieving the 5 per cent biodiesel blending target by 2030 would necessitate investments of Rs 25 billion. The economic viability of this, however, would be contingent on developing a robust supply chain and government incentives in the form of tax subsidies to improve the offtake by oil marketing companies (OMCs).
Progress so far has been slow, with a blending rate of 0.6 per cent in FY25 due to low investments in biodiesel and supply chain issues in the reverse logistics of collecting used oil. Integrated players with edible oil refineries would thus be best positioned to add capacities over the next few years.
"To meet the 5 per cent biodiesel blending target by 2030, India must invest in a strong supply chain and leverage government subsidies. This ambitious goal is crucial for reducing fossil fuel reliance and promoting renewable energy," said Abhash Sharma, Senior Director, Mid Corporates, Ind-Ra.
Ambitious Target Of Biodiesel Blending
The government has set ambitious ethanol blending targets under the National Policy on Biofuels, including a target of 20 per cent ethanol blending in petrol and 5 per cent ethanol blending in biodiesel. These targets are part of India's broader efforts to reduce dependency on fossil fuels, promote renewable energy sources, and achieve energy security.
India's consumption of high-speed diesel (HSD) grew by 4.3 per cent year-on-year in 2024 and at a compound annual growth rate (CAGR) of 2.7 per cent over the past decade. It is expected to increase by a modest 1.7 per cent in 2025, driven by commercial vehicles and buses. Over the next five years, leading to 2030—the year by which the government plans to achieve the blending norms—Ind-Ra expects total diesel consumption to reach 104,000 thousand metric tonnes (TMT).
Low Blending Ratio Expected to Grow Modestly
Over the past five years, India's biodiesel blending ratio has remained low relative to the blending target. The Ministry of Petroleum and Gas reported a 0.5 per cent blending ratio in 2024, and Ind-Ra expects the ratio to rise to 0.6 per cent in 2025, based on the first ten months of FY25 procurement data from OMCs. Indian OMCs have been actively procuring biodiesel, with a significant increase in recent years. OMCs procured around 366.8 million litres of biodiesel from April to November 2024. The number of registered suppliers has also increased to 69 in 2024 from 51 in 2023 (source: tenders allocated by OMCs in FY25).
Capacity Additions And Viability
The availability and diversity of feedstock will play a significant role in achieving government targets. Progress on biodiesel blending has been slow, partly due to the following factors affecting feedstock availability:
The agency stated that the collection of used cooking oil and other feedstocks is fragmented, leading to inefficiencies and higher production costs. Establishing a robust supply chain is crucial for scaling up production.
Iit added that exploring alternative feedstocks, such as non-edible oils, waste cooking oils, and animal fats, is essential for increasing biodiesel production. Diversifying feedstock sources can help reduce dependency on any single raw material type and ensure a more stable supply.
The National Policy on Biofuels-2018 identifies used cooking oil (UCO) as a potential raw material for biodiesel production. The government is promoting the establishment of collection centres for UCO and other feedstocks, including incentives for collection processes to ensure a steady and reliable raw material supply. The Repurpose Used Cooking Oil (RUCO) initiative aims to enable the collection and conversion of UCO into biodiesel.
“The use of Jatropha for biodiesel production has largely been unsuccessful in India due to low yields and other agronomic challenges. Despite initial enthusiasm, Jatropha cultivation has not met expectations, leading to the search for viable alternatives,” Ind-Ra noted.
Large Capital Expenditure Needed
Ind-Ra projects that retail diesel sales will reach 92,700 TMT by 2030. Although the growth rate is expected to slow slightly after 2025 due to increasing adoption of cleaner energy sources and more fuel-efficient technologies, achieving the 5 per cent biodiesel blending target will require a production capacity of 5.50 billion litres per annum. This necessitates substantial investments and strategic efforts over the next five years.
OMCs have floated expressions of interest for the procurement of 3.7 billion litres of biodiesel (B100) between 2022 and 2025. The most recent tender floated was for the supply of 0.86 billion litres of biodiesel between October 2024 and September 2025, with the base price for the procurement period of October 2024 to January 2025 set at Rs 91.20 per litre and that for the procurement period of February to September 2025 set at Rs 100.12 per litre (excluding GST and transportation) (source: EOI no. – OMC/EOI/NUCO/BD/OCT24 dated 17 October 2024).
Based on Ind-Ra’s estimates, the gap in production capacity to reach the 5 per cent target is 4.95 billion litres, which would require an investment of Rs 24.77 billion over five years. The agency opines that the Indian government's plan to achieve a 5 per cent biodiesel blend by 2030 is ambitious, given the significant investments and strategic efforts required over the next five years.