India’s biofuel industry is gradually transitioning from a phase of promise to one of partial implementation, driven by robust government policies, growing pressure to decarbonize, and a push for rural economic development, according to a recent report by YES Securities.
The report emphasizes that while government initiatives such as SAMARTH (focused on biomass), E20 (ethanol blending), and SATAT (compressed biogas or CBG) provide strong policy support, infrastructure development across various segments remains uneven.
“India’s biofuel sector is transitioning from promise to partial implementation, driven by policy tailwinds,” the report states.
Among the different biofuel categories, ethanol blending has seen the most tangible progress, achieving a blending rate of approximately 18%. This has led to visible improvements in return on capital employed (RoCE) for ethanol producers. Additionally, solid biofuels are increasingly being used in industrial applications as substitutes for coal and furnace oil, supported by both favorable economics and pressure to meet environmental, social, and governance (ESG) targets.
However, the compressed biogas (CBG) segment continues to face notable hurdles. These include inefficiencies in feedstock logistics, underutilised plant capacity, and a lack of infrastructure to monetise by-products—factors essential to ensuring the financial viability of CBG plants.
The report advises investors to focus on segments that are demonstrating operational traction, backed by clear policy-linked offtake arrangements and a realistic roadmap for scaling up.
In terms of policy mechanisms, the report highlights co-firing, the practice of blending solid biofuels with coal in thermal power plants. A Ministry of Power (MoP) directive from 2021 mandates that all thermal plants with a capacity above 200 MW blend at least 5% biomass starting in FY22. In stubble-burning hotspots like Punjab, Haryana, and Uttar Pradesh, the mandated blend increases to 7%, under the SAMARTH Mission, which promotes sustainable fuel alternatives.
India’s total coal-fired power generation capacity stands at around 210 GW. A 5% biomass blend would require roughly 10.5 GW of that to be generated from biofuels, translating to an annual demand of 15–20 million metric tonnes (MMT) of biomass. This opens up a potential market exceeding ₹500 billion.
NTPC, the country’s leading public sector power utility, has emerged as a front-runner in co-firing efforts. As of early 2025, NTPC had co-fired more than 2.5 lakh tonnes of biomass at several plants, including those in Dadri and Jhajjar, with some achieving 7–10% blending levels.
Despite the policy momentum, the report flags persistent challenges. These include inconsistencies in biomass calorific value, the perishable nature of feedstock complicating logistics and storage, and the need for plant-specific modifications to ensure efficient co-firing.
The report concludes that while India’s biofuel sector holds considerable potential, its success will hinge on overcoming these operational barriers and ensuring steady, segment-wide progress.
