A Study on the Biodiesel Market

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Biodiesel is produced from waste vegetable oil, soybean oil or animal fat sourced from restaurants, industrial food producers. It is carbon neutral, rapidly biodegradable & non-toxic. By applications, the biodiesel market can be classified into two sections, mainly power generation and transportation. This study will focus on both separately in terms of market research. For the purpose of this study, biodiesel will be covered in relation to transportation-related applications and biofuels will be covered in relation to power generation related applications. 

Comparison with other energy sources:

In the transportation segment, the primary competitors are diesel and petrol. In practice, biodiesel can also be used in combination with petrol and diesel. 

Advantages of Petrol & Diesel over Biodiesel Advantages of Biodiesel over Petrol & Diesel
Petrol & Diesel have a slightly higher peak engine power Higher lubricity and hence expected to reduce engine wear
Biodiesel tends to thicken & “gel up” at lower temperatures Contains no sulfur which reduces pollution
Biodiesel has storage concerns as it tends to oxidize semi-solid gel-like mass Higher oxygen content & lower pollution emissions
Quality of petroleum diesel fuel tends to be more uniform and reliable Less toxic which can be a real benefit for spill cleanups

In general, the properties of a blend will lie somewhere between the properties of the biodiesel and the petroleum diesel.  Blends are often designed to use the best features of both.  

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In the power generation segment, biofuels are yet to be as influential as other sources of renewable energy. 

Adv. of Biofuels over others renewables Adv of other renewables over biofuels
Less infrastructure as compared to wind, solar & water Cost of harvesting, transporting, and handling biomass can be expensive
Much higher energy density than other renewable sources of energy. Those energy sources might be free but this means they need more infrastructure and hence more cost In specific cases, biofuel production can compete with food production
The third-generation biofuel, can produce lots of value added chemicals Unlike wind, solar and hydro biomass electricity generation requires a feedstock that must be produced, collected, transported and stored

Global Biodiesel Market

There is a huge need for pollution free sources of energy in the world today. China, US & India are responsible for 86% of the greenhouse emissions. Rising energy costs, fears about the declining condition of the environment and the onset of new “green” initiatives will drive change in the way people use and conserve energy. The global market value of biodiesel is projected to surpass USD 47.90 billion in 2025. The growing prominence of biofuels as an alternative source in place of conventional fossil fuels is the key factor to supplement market growth. Over the last decades, energy consumption from renewable resources has increased 1.6 times. This has been further fuelled by the desire of energy-importing countries to reduce dependence on exporting countries. 

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o Production sites close to ports to enable smooth distribution of fuel

The business requires significant capital investment & technical knowhow. Most of the production sites close to ports to enable smooth distribution of fuel. Globally, production isn’t able to cope up with the demand. 

Biodiesel: Indian Market, Large Players & Competitive Analysis

Power Generation:

Source Installed Capacity (in MW) Share
Coal 205134.50 55.43%
Hydro Power 50382.38 13.61%
Gas 24955.36 6.74%
Diesel 509.71 0.14%
Nuclear 6780 1.83%
Solar 34627.82 9.35%
Wind  37693.75 10.18%
Bio Energy 10022.95 2.7%
Total 370106.46

As can be seen, power generated through biofuels contribute to only 2.7% of the energy. It is extremely low even in comparison to other renewable sources. Some of the reasons are:

  • Biomass from agriculture is only available for a short period of time after harvesting
  • Transportation cost constitutes a significant portion of the costs associated with the establishment and running of biomass power plants
  • There is a need for processing in the form of shredding the biomass onsite before transportation to increase its density when procurement is done from more than a particular distance. While transportation in any kind or form for more than 50 Km becomes unviable for a power plant of size 10-15MW

Most of the big players in India concentrate on wind & solar as can be seen below:

Very few companies in India use biofuels as a source of power because of the reasons mentioned earlier. If they exist, they are extremely small with a maximum output of 70-100 MW. 

Transportation:

Most companies in India are involved in biodiesel production so that it can be blended with petrol/diesel. However these companies are small and are fairly niche at the moment. Some of the biggest among them are:

  • Indizel
  • Emami Agrotech
  • Universal Biofuels
  • Adi-biotech private limited

Apart from this, due to the Government’s mandate that a certain percentage of biodiesel should be blended with petroleum/diesel many oil marketing companies have entered this space as they witness a surge in the requirement of biodiesel. 4 years ago India’s first 49,000 tonne biofuel refinery project was undertaken by Numaligarh Refinery Limited in partnership with Chempolis Oy, a finland based company. 

The government had mandated in 2009 that by 2020, 20% of petrol and diesel will be blended with biodiesel. In 2017, the government had achieved only a 2% blend with petrol and 0.1% blend with diesel. The mandate has been pushed to 2030 for now. But this begs the question as to why very few big players or any are in this space considering the huge demand. It’s a potential gold mine. 

 Bioethanol and biodiesel in India can be produced from various sources. Depending on the raw material, a biofuel is called 1G, 2G and 3G, where ‘G’ stands for ‘generation’.

The source of 1G – the first generation of biofuels – include edible sources like molasses, sugar-containing materials like sugarcane, sugar beet and sorghum, starch-containing materials like corn, cassava and rotten potatoes, and edible oil seeds. 2G biofuels use non-edible sources like non-edible oilseeds (e.g. Jatropha curcas), used cooking oil, agriculture residue such as rice straw, cotton stalk, corn cobs, saw dust, bagasse, etc. 3G biofuels are drawn from industrial waste, municipal solid waste, etc. 2G and 3G biofuels are recognised as being more advanced. To ensure food security, 2G & 3G sources are championed. Second, to address the issue of limited land, the policy discourages agricultural land from being converted to cultivate non-edible crops, and instead pitches the use of wasteland. Thus with significant constraints on 1G and 2G, 3G remains the elusive source of biodiesel. India lacks the technology to extract biodiesel from industrial waste or even agricultural waste.

Biodiesel: Investment Opportunities in India

Cons

Biofuels have limited scope as far as power generation is concerned. India has significant solar, wind and hydropower opportunities and most companies have focused their attention to these areas. Coal isn’t going away anytime soon either. Given all this, it doesn’t make sense to incur significant transportation & extraction costs associated with biofuels. In terms of biodiesel for transportation applications, this requires significant investment in technology and research. With the government prioritising food security over ethanol production, only agricultural and industrial waste provide significant opportunities to grow. 

Pros

As mentioned earlier, there is potential for huge gains as an investor in the application of biodiesel in the transportation space in India. There is considerable demand, given the government mandate of 20% of petrol/diesel blended with biodiesel. While  opportunities in 1G sources are limited, there is an opportunity in using agricultural and industrial waste to produce ethanol. If domestic players can partner with companies abroad who have developed patented technologies for processing non-food raw materials & waste to produce biodiesel, then there are huge gains to be realized for investors. The industry involves significant investment which means that once a company achieves scale, it will be very difficult to compete with.  



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Himanshu Sinha
Himanshu is hugely into Value Investing, Complex Adaptive Systems, Business Analysis, Behavioral Finance, and Spotting Market inefficiency.
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