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India is knocking at the doors of a biofuel gold rush

Sohini Mitter
23 reads

Sohini Mitter
23 reads
India’s target is to reach net zero by 2070. But before that, it aims to reduce its CO2 emissions by 1 billion tonnes in five years. With solar energy and EVs finally going mainstream, the next big billion‐dollar opportunity lies in biofuels.
February 19, 2024
10 MINS READ

Key Takeaways

• Biofuels are witnessing rising demand from PSUs and private players as India looks to cut its fossil fuel usage to 40% by 2030

The government wants to cut down oil imports significantly through its 'waste-to-energy' mission, which includes increased domestic production of biofuels from
•
agri-waste

• The National Policy on Biofuels is a shot in the arm for biofuels startups, with large enterprises knocking at their doors to tap into the farm-to-fuel ecosystem

• As India Inc rushes to meet its own sustainability goals, investments in this sector are estimated to grow 83% to $16.5 billion this year

‘Energy security’ and ‘energy transition’ might have been two of the most‐used phrases at the just‐concluded India Energy Week 2024. Even though the annual energy conference drew
global oil giants—from Saudi Aramco to Russia’s Rosneft to Malaysia’s Petronas—to the city of Goa, alternate fuels and sustainability dominated India’s discourse.

While outlining the government’s commitment towards India’s net zero targets, PM Modi revealed that the country’s domestic energy requirement is slated to double from its current levels
﴾19 million barrels﴿ by 2045. This makes it imperative for all stakeholders to explore alternative energy resources to meet the demand.

Rising demand aside, the benefits of biofuels are multifold:

It reduces CO2 emissions, mitigates environmental pollution, and takes India closer to its net zero goal
It reduces India Inc’s reliance on fossil fuels and saves input costs for large industries
More importantly, it brings down high import bills, given 85% of our current energy demands are met by crude imports—something the government wants to reverse quickly
It also builds higher energy security domestically and reduces India's energy dependence on foreign nations, especially in times of geopolitical strife

It creates economic opportunities, improves farmer incomes, and augments the rural economy

The big picture

India is committed to reducing its carbon emissions by 1 billion tonnes before 2030. Among the many levers the government is pulling to meet this target is a wider regulatory push for
alternate fuels ﴾or biofuels﴿. There’s the National Policy on Biofuels, of course, which was rolled out by the Ministry of Petroleum and Natural Gas in 2018, and further amended in 2022. It
mandates the utilisation and development of domestic feedstock for biofuel production and the eventual reduction of fossil fuel usage to just 40% by 2030.

The government wants to make biofuels a critical component in India’s energy basket, build special economic zones for their production, and also promote domestic exports. This has
opened up a sea of opportunities for young startups and is also attracting investors and global climate‐focused funds to the sector.
THE UPSHOT
VCs are optimistic that India’s biofuels sector could replicate the trajectory of solar and EV adoption by the end of this decade. There are 175+ biofuels startups today that are working
towards realising the government’s ‘waste‐to‐energy’ mission.
These companies are directly sourcing agricultural residue ﴾which serves as raw materials﴿ from farmers, and are building tech stacks to organise the fragmented supply chain, forecast
demand, and improve inventory. They are also facilitating transactions between farm waste aggregators and large enterprises, which in turn, are looking to meet their own sustainability
goals.

It’s a win‐win all around. In short, India's long bio‐energy value chain is ripe for tech disruption. “But it all starts with a policy push,” Swapna Gupta, Partner at Avaana Capital ﴾a climate and
sustainability fund﴿ tells The CapTable.

"If you look at the National Solar Mission, which got us to where we are today ﴾solar capacity is up 20X in a decade﴿, or the first wave of EVs when everyone said ICE engines can never be
phased out, and today, EVs are mainstream. Nobody saw it coming. So, the push from the government is a directionally concrete step for biofuels as a sector. But while demand is there, the
supply is super fragmented and other forms of fuel are cheaper,” she explains.

The big positive, though, is that “sustainability has moved out of the CSR budget and into the P&L”, she says. “But the challenge with sustainability is that it comes with a price.”

Biofuels aren’t cost‐effective. At least, not yet. But neither were EVs nor rooftop solar panels five years ago. “And this is why a push from the top is critical. If there is a gold rush, you will
have all stakeholders building towards that economy, and over time, it will become cost‐effective,” Gupta says.

Barring a handful of startups such as Biofuels Junction and GPS Renewables, most venture‐funded companies in this sector are yet to break even. Even though their toplines have grown
with market expansion, the high costs involved in producing solid biofuels from agri‐waste have stressed their bottomlines.

Sector experts believe that India’s large industries will make the ‘energy transition’ from fossil fuels to biofuels only when the supply chain is organised, the quality of raw materials has
improved, and proper cost benefits have been established.
"But some form of demand‐supply matching is starting to show now. The first layer of adoption will come from large enterprises because they have the ability to absorb the cost shocks,"
Gupta of Avaana Capital said.
Key players: big and small
Take Biofuels Junction, for instance. The Mumbai‐based startup collects large volumes of agricultural residue ﴾mainly cotton stalks, paddy stubble, and soya husk﴿ from farmers. It uses these
inputs to manufacture as much as 9,000 tonnes of briquettes and pellets per month, selling this to enterprises.

Since its inception in 2019, it has procured 2,60,000 tonnes of agri‐waste, prevented 3,00,000 tonnes of carbon emissions, and enabled India Inc to save over Rs 100 crore by replacing
furnace oil with biofuel in industrial boilers. The startup has seen its revenues jump 10X to ~Rs 67 crore between FY19 and FY23, per regulatory filings. It also turned a small profit ﴾Rs 0.7
crore﴿ in FY23.

Biofuels Junction Co‐founder and CEO Ashvin Patil tells The CapTable, “Back in 2018 when we started, raw material was a constraint, there weren't any economies of scale in the
procurement process, and consistency of supply was also a concern. We did demand sampling with a large family‐owned business, and we knew there was a huge market here.”

If you consider the National Policy on Biofuels, its singular agenda is to reduce the import of petroleum products and increase the domestic production of biofuels so that India can
become ‘energy independent’ by 2047. Additionally, the government now mandates that all power companies replace 5% of coal or fossil fuels with green energy in their plants.

“The power‐related biofuels demand has been one of the key tailwinds in the sector. All PSUs and private players now want biomass in their plants. This alone is worth a Rs 50,000‐crore
market,” Ashvin confirms.

Then there are the Reliances, HULs, Godrejs, ITCs, Maricos, Mondelezes, and CEATs of the world that are triggering demand for biofuels to fulfil their own sustainability targets. Biofuel
startups claim that these big corporations can bring down their input costs by 40‐60% if they replace coal/furnace oil with alternate fuels in their boilers and reactors.

The entry of Reliance New Energy, meanwhile, is being seen as a transformational demand driver in the sector. Reliance aims to achieve net‐zero carbon status by 2035. Over the next five
years, it has committed to procuring 5.5 million metric tonnes of agri‐waste from India’s sugar mills. This will be turned into compressed biogas ﴾CBG﴿ in the company's 100 plants across
the country. “The entry of a big player like Reliance is always beneficial for the sector, and we’re ready,” Ashvin says.

There’s Adani Green Energy, too, which is laying the groundwork for future expansion in the renewables sector. It’s not just the big daddies of India Inc, though. There’s “widespread
adoption” of biofuels taking place among SMEs too, according to Ashvin. “European enterprises that have India operations are now ensuring that their local vendors become net‐zero
compliant and start looking at energy transition,” he reveals.
However, the key challenge for startups servicing the growing corporate demand is to ensure the year‐round availability of raw materials.

Vikram Raman, senior impact investment manager at Schneider Electric Energy Access Asia Fund ﴾SEEAA﴿, tells The CapTable, “Biofuels Junction has a clear understanding of biomass
availability in various regions across India, and has brought several rural manufacturers and suppliers onto a single platform. It makes it easier to procure from them, control the supply
chain, and deliver quality products without having to invest significantly in capex.”

SEEAA is a cleantech‐focused fund which invests in APAC startups. It made an undisclosed equity investment in Biofuels Junction in September 2023. The VC is bullish about the growing

biofuel opportunity in India even though fossil fuel continues to be the dominant energy resource in this market—much like it is in most parts of Southeast Asia.

“Governments are now coming up with policies that encourage increased adoption of renewable energy such as solar rooftops [for electricity] or solar pumps for irrigation or the more
recent Global Biofuels Alliance announced in India. These are all positive enablers for the ecosystem,” Raman explains. “But to attract more investors, it’s important for startups to
demonstrate scale plus differentiation ﴾USP, innovation, business model uniqueness, etc.﴿,” he adds.

Buyofuel, a Coimbatore‐based startup, is emerging as another key player in this sector. The B2B online marketplace matches agri‐waste and raw material providers with pellet manufacturers
and enterprise buyers. It primarily caters to large steel and chemical corporations but is also seeing growing demand from the government, which remains one of the largest buyers of

green fuels.

Funded by Inflection Point Ventures, Venture Catalysts, Dream Green Capital, among others, Buyofuels facilitates monthly sales of 10,000 metric tonnes of biofuels, servicing the likes of
Thermax, JSW Steel, Ultratech Cement, and Dalmia Group, among others. It aims to reduce CO2 emissions by 3,00,000 metric tonnes in FY25.

“The turning point in India’s biofuel journey came in September 2023 when PM Modi, alongside leaders from countries including Singapore, Bangladesh, Italy, the USA, Brazil, Argentina,
etc. launched the Global Biofuel Alliance…,” according to Kishan Karunakaran, CEO of Buyofuel. “The Indian Biogas Association ﴾IBA﴿ believes that such an alliance could generate

opportunities worth $500 billion in the next three years,” he was quoted as saying.

Earlier this week, IBA Chairman Gaurav Kedia also shared that India is in talks with Germany ﴾which leads the world in biogas production﴿ to source advanced technologies to process

feedstock and non‐food waste.

 Pune‐based Greenjoules, which operates in a similar sub‐segment, is also witnessing an uptick in demand. It processes non‐food agri waste into high‐density biofuels that can be used in
industrial boilers and diesel vehicles. The startup is backed by Blue Ashva Capital, a new climate‐centric fund that began investing in 2020. So far, it has made 16‐odd startup investments in

India and Southeast Asia.

Surely, the investors’ willingness to pay for climate solutions has gone up in the last few years. “VCs typically seek firms that address large opportunities that can grow multifold in 6‐7 years.
Some climate sub‐sectors have started to present such opportunities, where technology and market acceptance risks have already been addressed,” according to FineTrain, a green energy

consultancy.
Green fuels: a global game
Both VCs and founders concur that geopolitical initiatives like the Global Biofuel Alliance are significant strides towards popularising biofuels, green hydrogen, and other forms of

renewables in India. They believe that it would prompt further collaboration between private and public players in the farm‐to‐fuel ecosystem. But, cost‐effectiveness remains an Achilles’
heel for the sector.

Avaana Capital’s Gupta weighs in, “The question large enterprises need to ask themselves is: Can they use their existing systems for energy transition? These industries have built reactors,

melters, and equipment for traditional fuels. Can those be re‐engineered without too much hassle ﴾and cost﴿ to accommodate new forms of fuels? What are the tech innovations required in
that direction?”

While investments in solar energy and EVs have gone up significantly in the last few years, biofuels is still a sunrise sector, albeit with enormous growth potential. In the Interim Budget

2024‐25, the government pledged Rs 11,00,000 crore towards infrastructure development, a significant chunk of which would be directed towards green fuels.

Overall investments in the sector, too, are estimated to rise 83% to $16.5 billion this year, according to the Ministry of Power. With India already the world’s third‐largest consumer of oil—
and expected to surpass China by 2027—the biofuel potential is only getting unlocked.

More the oil, more the opportunity ﴾to go green﴿!

Edited by Ranjan Crasta

Renewable Energy
Biofuels
clean tech
Avaana Capital
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