Bio-CNG Business - Economic Challenges and Avenues to overcome them - India Renewable Energy Consulting – Solar, Biomass, Wind, Cleantech
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evnext-logo-v-smallThis post is a part of BioBiz’s Bio-CNG Perspectives.

BioBiza division of EAI, is a leading market intelligence & strategic consulting firm for the Indian bio-based sectors.

This blog post uses the terms bio-CNG and renewable natural gas (RNG) interchangeably.

Bio-CNG or bio-compressed natural gas, also known as sustainable natural gas or biomethane, is a biogas which has been upgraded to a quality similar to fossil natural gas and having a methane concentration of 90% or greater. As the gas is derived from natural and renewable sources, it is also termed renewable natural gas (RNG).


Economics plays a major role in determining the viability of a project. In the case of RNG, economics is critical as the sector is just emerging. Economics for bio-CNG project depends on the land cost, logistics cost, feedstock cost, capital and operational costs, and product costs. Considering the nascency of the sector, it is critical for a potential investor to have extensive knowledge about the economics of the project and factors which could have a negative impact on the same. 

This blog post highlights some of the challenges involved in the economics of RNG project and avenues to overcome them.

Challenges in RNG Economics

In theory, producing bio-CNG from waste biomass could be as low as Rs 35/unit or even lower. But there are some aspects of costs that can increase this significantly.

1. Land cost

Consider for instance, land. Most bio-CNG project estimates allot only a nominal amount to land cost. But, large scale plants of capacity 100 TPD using wet waste (required to generate about 5 T of bio-CNG per day) could require up to 3 acres of land, and hence the location of this land determines the extent to which land costs could affect the overall project economics. An acre of land in a rural area could cost less than Rs 10 lakhs. The same area in the outskirts of a large city could cost twenty times that much, making it almost economically infeasible.

2. Feedstock cost 

Volatility in the feedstock prices can be a significant challenge. For example, a kg of poultry litter costs about Rs 600 per ton currently (at 60 paise per kg wet waste). At a yield of about 8% of bio-CNG (by weight), the actual price of the feedstock is about Rs 7.5/kg of CNG. That looks quite all right, but what if the price were to increase to Rs 1000/ton? This increases the actual price of the feedstock to Rs 12.5/kg – considerably harming the economics. Such increases in feedstock are not just hypothetical – these have been observed many times earlier in the Indian biomass sector for diverse feedstock.

3. Realizable revenues

Bio-CNG can be sold to two main types of end users: Government (through the oil marketing companies) and private users (hotels, industries etc.). The current official price for OMC offtake is Rs 46/kg. The actual price that bio-CNG can fetch when sold directly to the private sector is not yet clear – our researches have thrown up numbers in the range Rs 50 – Rs 55/kg of CNG. Challenges remain in the context of both these prices. The government has committed to the price for only three years and the offtake contract beyond this period is not clear. Prices that bio-CNG can fetch in the private end user sector are also not fully certain.

Avenues to overcome economic challenges

1. Right location

Cost of land can be a significant addition to project cost if the location is not chosen optimally; situating such plants within the city is infeasible unless operated under a PPP model where the city municipality provides the land. Alternatively, locating it in an inexpensive rural location might work if the feedstock is from rural regions (paddy straw, press mud, poultry waste…). Evaluating all available options before selecting the right location can significantly enhance the viability of the project.

2. Right business model

What could also make a difference to the project viability is an optimal business model. Some examples of different business models are:

  • Centralized vs. distributed biogas generation
  • Project fully owned by developer vs. co-owned between developer and feedstock provider
  • Outsourced feedstock collection vs. in-house team for collection
  • Fully privately-owned project vs. a PPP (Private Public Partnership) model
  • End user market: OMCs vs. private sector vs. a mix of both

3. Optimal logistics choice

If not designed well, logistics could end up comprising as much as 15-20% of the total cost. Optimizing design components such as average distance for feedstock transport, types of vehicles used, and ownership of logistics etc., can make a significant difference to the economic success of bio-CNG plants.


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