Introduction > Develop Project Plan > Assess Feasibility > Identify and Select Finance Source/Instrument > Mitigate Risks > Secure Permits and Approvals > Seek Project Funding/Finance > Structure and Close Financing > Case Studies > India > Acknowledgements
Offtake Agreement Guarantees in India
The Sustainable Alternative Towards Affordable Transportation (SATAT) initiative, launched in October 2018, aims to reduce India’s dependence on oil and gas imports by producing biomethane compressed natural gas (bio-CNG) from agricultural residues, cattle dung, and other organic wastes. As part of the initiative, the Ministry of Petroleum and Natural Gas guarantees the purchase of biogas by publicly owned oil and gas companies.
The SATAT initiative is implemented in coordination with government-owned oil and gas enterprises (i.e., public sector undertakings (PSUs), including the Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum). These PSUs request letters of intent from applicants (e.g., entrepreneurs, sole proprietorships, partnerships, limited liability partnerships, companies, cooperative societies, technology providers) to supply bio-CNG. If approved, the PSUs ensure a fixed price for bio-CNG. The offtake guarantees ensure a steady price for production of bio-CNG, even if the market price falls. However, the guaranteed offtake purchase price for bio-CNG must be high enough to incentivize developers to construct and operate plants.
The requirement for the high purchase price of bio-CNG is crucial to incentivize developers to invest in building and operating the biogas plants. Inadequate pricing may lead to underinvestment, potentially impeding the adoption and expansion of bio-CNG production. To mitigate pricing risks, the SATAT initiative has engaged the government-owned oil and gas companies to establish fixed pricing for bio-CNG and offer a guaranteed price at pre-determined rates. This approach aims to reduce market risks for developers and maintain the economic attractiveness for bio-CNG projects irrespective of market price fluctuation. There is no reported concern at present with the guaranteed price. However, if the guaranteed price does not cover the costs and offer a reasonable profit margin, the momentum of new projects could stall. To maintain the growth trajectory of bio-CNG production, it’s crucial to regularly review and potentially adjust the purchase price, ensuring it remains attractive to developers while supporting the long-term goals of the SATAT initiative.
As of November 11, 2023, 50 bio-CNG projects have been commissioned under the SATAT initiative. This is a notable achievement in India’s renewable energy sector and efforts to reduce fossil fuel dependence. These projects significantly mitigate greenhouse gas emissions by converting methane from agricultural and organic waste to bio-CNG, a clean energy alternative, and simultaneously improving air quality. Despite this achievement, continued investment and policy support are needed to achieve a broader transformation in India’s energy landscape.
Source
The Global Methane Initiative, 2020, Market Opportunities for Anaerobic Digestion of Livestock and Agro-Industrial Waste in India.
Relevant Steps
- Step 4, Mitigate Risks