India Needs ₹25 Bn to Achieve 5% Biodiesel Blending by 2030: India Ratings

India Ratings and Research (Ind-Ra) opines that the achievement of 5% biodiesel blending target by 2030 would necessitate investments of INR25 billion. The economic viability of these however would be contingent on developing a supply chain and government incentives in the form of tax subsidies to improve the offtake by oil marketing companies (OMCs). The progress till date has been slow with a blending rate of 0.6% so far in FY25 on account of low investments in bio diesel, and supply chain issues in the reverse logistics of collecting used oil. Integrated players with edible oil refineries thus would be best positioned to add capacities over the next few years.

"To meet the 5% 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," says Abhash Sharma, Senior Director, Mid Corporates, Ind-Ra.

Ambitious Target of Bio-diesel Blending: The government has set ambitious ethanol blending targets under the National Policy on Bio-Fuels including a target of 20% ethanol blending in petrol and a target of 5% ethanol blending in biodiesel. These targets are part of India's broader efforts to reduce the dependency on fossil fuels, promote renewable energy sources, and achieve energy security.

India's consumption of high-speed diesel (HSD) grew 4.3% yoy in 2024 and at a CAGR of 2.7% over the past decade and is expected to increase by a modest 1.7% in 2025, driven by commercial vehicles and buses. Over the next five years ending 2030, the year by when the government plans to achieve the blending norms, Ind-Ra expects the total diesel consumption to reach 104,000 thousand metric tons (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% blending ratio in 2024. and Ind-Ra expects the ratio to rise to 0.6% in 2025, based on the 10MFY25 procurement data of OMCs. Indian OMCs have been actively procuring biodiesel, with a significant increase in recent years. OMCs procured around 366.8 million liters of biodiesel during 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).

Raw Material Sufficiency to Drive Capacity Additions and Viability: Sufficiency and diversity of available feedstock will play a significant role in achieving the government targets. The progress on biodiesel blending has been slow, in part attributed to the following factors influencing feedstock availability:

Lack of Organised Supply Chain for Collection of Raw Materials: The collection of used cooking oil and other feedstocks is fragmented, leading to inefficiencies and higher production costs. Establishing a robust supply chain thus is crucial for scaling up production.

Alternative Feedstock for Biodiesel Production Essential: Exploring alternative feedstock is essential for increasing the biodiesel production, such as non-edible oils, waste cooking oils, and animal fats. Diversifying feedstock sources can help reduce the 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. This includes incentivising the collection process to ensure a steady and reliable supply of raw materials. The Repurpose Used Cooking Oil (RUCO) initiative aims to enable the collection and conversion of UCO to biodiesel.

Unsuccessful Use of Jatropha: The use of Jatropha for biodiesel production has largely been unsuccessful in India due to low yields and other agronomic challenges. Despite the initial enthusiasm, the cultivation of Jatropha has not met expectations, leading to the search for viable alternatives.

Large Capex Needed to Fund Blending Targets: Ind-Ra projects that the retail sales of diesel will reach 92,700TMT by 2030. Although, the growth rate is expected to slow down slightly after 2025, due to the increasing adoption of cleaner energy sources and more fuel-efficient technologies. To achieve the 5% biodiesel blending target, India requires a production capacity of 5.50 billion liters per annum. This necessitates substantial investments and strategic efforts over the next five years.

OMCs have floated expression of interest tenders for the procurement of 3.7 billion liters of biodiesel (B100) between 2022 to 2025. The most recent tender floated was for the supply of 0.86 billion liters of biodiesel between October 2024–September 2025 with the base price for the procurement period October 2024- January 2025 being INR91.20/litre and that for the procurement period February-September 2025 being INR100.12/litre (excluding GST and transportation) (source: EOI no. – OMC/EOI/NUCO/BD/OCT24 dated 17 October 2024).

In conclusion, robust government support, combined with strategic utilisation of feedstocks, ongoing R&D, and public education, will accelerate the progress and widespread adoption of biodiesel.