The gas powering your stove could soon have a tiny bit of biogas in it.

Yup, the government just announced that from 2025 onwards, it will be mandatory to blend compressed biogas (CBG) with piped natural gas (PNG) and compressed natural gas (CNG). So in today’s Finshots, we explain why the government is so hyped about biogas.

Before we begin, if you're someone who loves to keep tabs on what's happening in the world of business and finance, then hit subscribe if you haven't already. We strip stories off the jargon and deliver crisp financial insights straight to your inbox. Just one mail every morning. Promise!

If you’re already a subscriber or you’re reading this on the app, you can just go ahead and read the story.

The Story

Making biogas is quite straightforward. For starters, the raw material you need to create it is available in abundance. We’re talking about things like food waste that goes into landfills, sewage waste and even gobar (cow dung). And if you put this together you’ll find that in India, we generate 500 million tonnes of farm waste and 70 million tonnes of food waste every year. So there’s a lot of it. And all you have to do is dump all this into a machine or plant and let it work its magic. Microorganisms break down the waste through a process called anaerobic digestion. This releases methane and carbon dioxide. The plant will simply take this and convert it into power that can run our homes.

Now if you think about it, Biogas can be quite the miracle fuel.

For starters, at a micro level, it could help increase farmer income.

See, for one 1 kg of manure, farmers get paid ₹1 at least. Sure, it might not seem like much. But it’s not like the manure would’ve earned them any money otherwise. And if we go by estimates that one animal produces 15 kg of dung a day, that could amount to a decent sum of money.

Also, biogas production yields leftovers. For every tonne of biogas, we’re left with 3 tonnes of waste. But, it’s actually not a useless waste. The leftover actually contains microorganisms that can be quite helpful to crops. Basically, it’s organic fertilizer. That means farmers won’t need to spend as much money to buy chemical fertilizers.

So you see how this can be a boon for farmers.

Even at a macro level, the use of biogas can help India save a fair bit of money.

India meanwhile has been using quite a bit of natural gas. We use it for the gas cylinders at home. And as part of our energy grid too. It helps power factories. Also, we have millions of CNG-powered cars plying the roads these days. But to meet this demand, we don’t have enough viable natural gas deposits in the country. So we end up relying on imports for 50% of our needs. And this way, a big chunk of dollars gets used up from our coffers. The latest estimates suggest that if we replace 20% of our natural gas consumption with biogas by 2030, we can shave off a whopping $29 billion from our import bill.

Also, if we can wean our farmers away from chemical fertilizers, it could even reduce our fertilizer import cost. We currently import around $12 billion worth of it and it’s only going higher.

So yeah, there’s quite a bit of cost-savings involved.

And not to forget that using biogas is a service to the world. You see, if we simply let all that food waste remain in landfills it can be quite hazardous. The waste releases methane and carbon dioxide out into the world. And let’s just say these two gases are quite toxic. They get trapped in the atmosphere and cause global warming. So by reducing the waste in landfills and converting this potential toxicity into useful gas, we’re actually making an impact.

To sum up, using biogas can kill multiple birds with one stone — we reduce the waste piling up, we help our farmer community out a bit, we stop using fossil fuels and become greener, and we even manage to save money by reducing import bills.

So yeah, you can see why the government is hell-bent on increasing the uptake of biogas in the country.

But there’s a problem.

See, back in 2018, we’d gotten quite excited about biogas. The government launched a special scheme called Sustainable Alternative Towards Affordable Transportation (SATAT). And they said the goal was to have 5,000 operational biogas plants by 2023. But as of now, only 48 plants have been commissioned.

Now we dug around and found a few hiccups with the biogas dream.

Firstly, there’s a financing problem. Typically, when a sector is given the ‘priority’ tag by the RBI, banks rush to lend money. Because they have to meet certain targets. But here, banks have been hesitant. They’re not lending money to biogas entrepreneurs quite freely. They don’t seem quite convinced about the potential profitability as yet. And you know that access to capital is the lifeblood of any business enterprise.

Secondly, there is a problem with the “offtake” for biogas producers. What’s that, you ask? Think of it as a long-term agreement where a buyer promises to pay a certain sum of money for a certain quantity of gas. These agreements are quite common in the oil and gas industry. But for biogas, a Parliamentary Committee report from December 2022 says the offtake price determined by the government might have been too low. And that means there wasn’t enough incentive for entrepreneurs to set up costly plants. Also, in the case of leftover bio manure, there's not been any offtake at all. Entrepreneurs might be left holding the bag.

And thirdly, an article in The Morning Context recently suggested that there might be a demand and supply issue. See, 70% of the raw material for biogas plants in India comes from two sources — There are agricultural leftovers (such as paddy after harvest) and there’s animal waste. Since this can be costly to transport, biogas plants pop up in rural areas. This way, they’re as close to the source as possible.

On the other hand, the demand for gas is in the urban areas. However, transporting the compressed gas from the villages to the cities in specialized containers is costly. So the only way out is to expand the gas distribution pipelines. Make sure it reaches biogas plants. And then, the plants can feed the gas directly into the energy grid. It reduces costs for everyone.

So yeah, there’s definitely a few things to fix. Maybe that’s why the government isn’t rushing with the timeline this time. We’ve got 1.5 years to sort things and we’ll just have to wait and see how it plays out now.

Until then…

Fun Fact: The first proper biogas plant (a digester) in the world was actually set up in Bombay in 1859.

Don't forget to share this article on WhatsApp, LinkedIn, and X (formerly Twitter).

📢Finshots is now on WhatsApp Channels. Click here to follow us and get your daily financial fix in just 3 minutes.

How to become an 'Emotionally Intelligent Investor'

We, at Finshots, are extending an EXCLUSIVE, LIMITED-SLOTS ONLY webinar on how to be an ‘Emotionally Intelligent Investor’. In this webinar, you will —

🎯 Learn how to tailor strategies for successful financial goal planning

💰Get insights into elevating your wealth intelligently

🧠 Discover tips to overcome behavioural flaws while investing

🛡️ Understand how to safeguard your financial future

🗣️ Participate in a live Q&A session

Oh, and did we mention it’s completely FREE! Yep, that’s right.

So, register now by clicking here (it’ll only take 20 seconds, we promise!)