India's compressed biogas scheme: what a financier checks first

India's policy for compressed biogas creates demand for the gas. A lender still has to be satisfied that one specific plant will produce it, sell it and service its loan.

Compressed biogas, or CBG, is biogas that has been purified to a high methane content and compressed. It can be used like compressed natural gas in vehicles and in city gas networks. Plants make it from crop residue, cattle dung, sugarcane press mud, municipal waste and similar feedstock.

The scheme in brief

The Ministry of Petroleum and Natural Gas launched the SATAT initiative in 2018. Under it, public sector oil and gas marketing companies invite entrepreneurs to set up CBG plants and offer to buy the gas. In 2023 the government announced a blending obligation that requires city gas distributors to blend CBG into the gas they sell, phased in over several years. Other central programmes offer capital support for plants and support for selling the organic manure they produce. Rates, dates and eligibility rules change, so read the current notifications before relying on any of them.

1. Feedstock

Where does the feedstock come from, at what price, and under what contract? Crop residue is harvested in a short window and must be collected, stored and paid for to last the year. A financier asks for the supply area, the collection plan, the storage and the price terms, and tests what happens if the delivered cost rises.

2. Offtake

A letter of intent from a buyer is a starting point. The financier reads the signed commercial agreement: the price formula, the term, the volume commitment and who bears the cost of moving the gas. A plant that injects into a pipeline carries a different risk from one that sends gas by road in cylinder cascades.

3. Technology and yield

The model depends on how much gas each tonne of feedstock yields and how many days a year the plant runs. The financier looks for reference plants on the same feedstock, performance guarantees from the technology supplier and a realistic ramp-up period.

4. By-product revenue

Fermented organic manure can add revenue. The market for it is still developing, so lenders often give it limited credit until there are sales contracts.

5. Approvals, land and subsidy timing

Land title, consents and safety approvals must be in place or on a clear path. Capital subsidy usually arrives after commissioning, so the funding plan has to work without it during construction.

6. Sponsor support

The financier checks how much equity is in, where it came from and who pays if costs overrun.

A proposal that answers these six points with documents gives a credit team what it needs to start work.

This article is general information from RupyAI. It is not investment, legal or tax advice, and it does not describe any specific project. Questions and corrections: manish@rupy.ai