The burgeoning biofuel industry in India

Currently, global economic growth, population increase and the rapid development of countries like India and China have created an all-time high in energy demand. Traditional fuel prices are on the rise, and it is estimated they may be depleted by 2040. Given the importance of the topic, the Commercial Office of Spain in New Delhi recently published the report entitled The Biofuel Market in India. The report is the result of an investigation conducted throughout the first half of 2008 in India. Its main points are listed below.

India and China: the urgent need for new forms of energy

The economic explosion in the emerging industrial powers such as China and India, has led to forecasts of energy consumption. Historically, energy consumption has been concentrated in the industrialized areas of developed countries. But now these new superpowers, which totalling third of the world's population and whose consumption has thus far been proportionally low, are leading worldwide energy consumption towards an increased of 30% by 2020. Both nations would share in the 55% hike.

Thus, the world is facing a situation of unprecedented uncertainty. Global energy demand, historically covered by non-renewable oil and coal, would be overwhelmed in less than three decades. This, combined with environmental problems and the increasing price of oil, makes the need for the creation of new energy alternatives more urgent than ever.

This is why the so-called renewable options appear to be the best wildcards in the new energy horizon. The biofuel industry is booming due to an increased international awareness of climate change issues, the necessity of reducing emissions and rising prices of fossil fuel. Several countries have begun to develop policies to support the introduction of biofuels, especially India.

What is biofuel?

Biofuel is defined as solid, liquid or gas fuel derived from recently dead biological material (manure, waste, vegetation, wood, etc.) and which contains carbon or hydrogen.

At present the more important biofuels are of the liquid variety, especially bioethanol. It is dehydrated alcohol which is produced through the fermentation of grains rich in sugars or starches such as corn. It is used in motors as a gasoline additive (5 to 10%). A modified engine can run on ethanol blends of 85%, as well as with conventional gasoline or even pure bioethanol. Bioethanol, versus conventional gasoline, improves combustion, emitting a lower amount of pollutants and increasing the octane of the final mix. It is also easy to produce and store.

Another current global biofuel of considerable relevance is biodiesel. It is very similar to regular diesel, derived from plant oils such as sunflower and soybeans. It can also be produced from recycled fry oil or animal fats. These oils are then mixed with alcohol, ethanol or methanol. The mixture forms a substance that can be used as an additive to gasoline of up to 30% in conventional engines. It is biodegradable, non-toxic, and does not release sulphur compounds.

Food or energy?

The main complication in the biofuels sector is associated with the decision to use said resources for food production or fuels. The second option could lead to increased food prices or shortages in the supply of basic sources such as corn, sugar or vegetable oils. In a country like India, with serious problems of poverty and hunger, the decision to produce fuel often seems like a real sin.

As such, India chose to address the development of the sector based on two premises: the use of non-edible biomass for the production of biodiesel and the prohibition of food crops for biomass production. Given these conditions, the production of biofuels in India will use sugar cane (ethanol) and jatropha curcas. This leads to an interesting question of "wealth creation" via resources that until now have been unexploited.

Report's conclusions: slow, careful progress

The biofuel industry in India is just beginning to take shape. The production of ethanol, however, is at an advanced stage, due to alliances between the chemical and food sectors.   Biodiesel trails behind this sector and the first planting of jatropha as raw material has only just begun.

Unlike other sectors, the government of India allows 100% direct foreign investment in renewables. This facilitates market penetration, since foreign companies do not require a domestic partner for setting up operations in the country.

Difficulty in securing a steady supply of raw material, seeds or jatropha oil are current issues in the nascent industry.   The fragility of the rural Indian economy is another problem, and makes it difficult for farmers to opt away from traditional crops towards the cultivation of biofuel raw material.   The scenario is further compounded by the fact that the jatropha does not begin to produce until three or four years after planting. Thus, there is no income for the farmer for many years.

These issues must be addressed in order to supply the raw material needed for the production of biodiesel. Recruiting farmers and the acquisition of land for cultivation are other central issues. In fact, industrial production of biofuels will require the construction of an entire production infrastructure. In the case of ethanol this is not an issue, thanks to its use by food and chemical companies. 

Accordingly, India has developed special tax measures to encourage the construction of infrastructure for the production of biodiesel. These include a decline in machinery tariffs for foreign projects of less than $1.1 billion.

Overcoming these obstacles will provide a much brighter energy future in a country with the second largest population in the world. India has many automobiles and a commensurate demand for fuel. But unlike the rest of the pioneering countries in biofuel production, it has enough arable land to alleviate much of the energy crisis to come. This serves as an incentive for other nations such as China to seek a path towards cleaner energy.