From Waste to Wealth: The Economics of Agricultural Residue in India’s Biofuel Industry
Transforming agricultural waste, such as paddy straw, into valuable biofuels, can not only reduce pollution but also boost rural economies.
May 22, 2025. By News Bureau
Biofuels, a potential replacement of fossil fuels for various applications, are fuels derived directly or indirectly from organic material such as agriculture residues, organic fractions of MSW, animal waste, and industrial waste and effluents. India’s biofuel industry is characterised by feedstock, application and technology and can be further segmented into ethanol, biodiesel, biogas and others, primarily based on the variety and suitability of feedstock.
Globally, the biofuel market was estimated at about USD 100 billion in 2023 with an expected CAGR of 11.3 percent until 2030 to reach the size of USD 210 billion. The biofuels market in India held a significant share of over 13.35 percent in 2023 with USD 13 billion. However, market size estimates vary widely. While one source values it at USD 2.56 billion in 2023, expecting it to reach USD 10.31 billion by 2030 at a CAGR of 22 percent, industry growth will be fuelled by favourable policies, blending targets, capital support, pricing standardisation, and ambitious renewable energy targets, including green hydrogen production.
Biofuel Market Segmentation in India
India’s biofuel market is dominated by ethanol (57 percent), followed by biogas (36 percent) and biodiesel (7 percent). Ethanol production primarily relies on sugarcane, with marginal contributions from maize and surplus rice stocks. To diversify, India has introduced separate pricing for maize-based ethanol and other sources, including agricultural residues like cotton stalks, wheat straw, and rice straw.
Paddy straw, a significant agricultural residue, presents a strong opportunity for biogas production, later upgraded into compressed biogas (CBG) or Bio-CNG, a clean fuel for transportation and cooking.
REnergy Dynamics’ Unique Approach
REnergy Dynamics, with its unique approach and innovative product and service offerings, is capitalising on compressed biogas (CBG) by integrating innovative technologies and leveraging paddy straw as a primary feedstock. By supporting India’s 15 MMT per annum CBG production target, the company aims to reduce import dependency on natural gas (that accounts for about 43 percent of total consumption in FY 2022-23, according to Energy Statistics India 2025), mitigate environmental concerns from stubble burning, and create rural economic opportunities through a structured supply chain.
Potential Contribution of Agriculture Residues in India’s Bioenergy Targets
Paddy straw and other agricultural residues are expected to contribute nearly 60 percent of India’s future biogas production. While wheat straw has competing uses as fodder, paddy straw is more readily available. About 25 percent of India’s paddy straw is surplus and can be utilised for biogas production or industrial fuel.
Agricultural residues, along with dedicated energy crops like Napier grass, are projected to constitute approximately 75 percent of India’s total bioenergy production capacity. Other sources such as animal waste, MSW, and industrial by-products (e.g., press mud, spent wash) contribute only about 25 percent.
Currently, there are about 120 functional plants and about 800 plants at various stages of development based on various feedstock including CBG plants based on agri-residue. However, the number of projects based on agriculture residues is not available to corroborate the critical role agri-residue is playing in the Indian biofuel sector. India’s GOBARdhan Bio-CNG portal provides insights into plant locations, capacities, and status but lacks data on specific feedstocks used despite capturing information during the registration process. Greater transparency in feedstock information would benefit bioenergy entrepreneurs in planning future projects.
Market and Economics of Paddy Straw Collection and Utilisation
Effective and economical utilisation of paddy straw can play a pivotal role in achieving energy independence. Total annual paddy straw production is estimated at around 125 MMT as per the information available in the public domain which is consistent with our own analysis as below:
Globally, the biofuel market was estimated at about USD 100 billion in 2023 with an expected CAGR of 11.3 percent until 2030 to reach the size of USD 210 billion. The biofuels market in India held a significant share of over 13.35 percent in 2023 with USD 13 billion. However, market size estimates vary widely. While one source values it at USD 2.56 billion in 2023, expecting it to reach USD 10.31 billion by 2030 at a CAGR of 22 percent, industry growth will be fuelled by favourable policies, blending targets, capital support, pricing standardisation, and ambitious renewable energy targets, including green hydrogen production.
Biofuel Market Segmentation in India
India’s biofuel market is dominated by ethanol (57 percent), followed by biogas (36 percent) and biodiesel (7 percent). Ethanol production primarily relies on sugarcane, with marginal contributions from maize and surplus rice stocks. To diversify, India has introduced separate pricing for maize-based ethanol and other sources, including agricultural residues like cotton stalks, wheat straw, and rice straw.
Paddy straw, a significant agricultural residue, presents a strong opportunity for biogas production, later upgraded into compressed biogas (CBG) or Bio-CNG, a clean fuel for transportation and cooking.
REnergy Dynamics’ Unique Approach
REnergy Dynamics, with its unique approach and innovative product and service offerings, is capitalising on compressed biogas (CBG) by integrating innovative technologies and leveraging paddy straw as a primary feedstock. By supporting India’s 15 MMT per annum CBG production target, the company aims to reduce import dependency on natural gas (that accounts for about 43 percent of total consumption in FY 2022-23, according to Energy Statistics India 2025), mitigate environmental concerns from stubble burning, and create rural economic opportunities through a structured supply chain.
Potential Contribution of Agriculture Residues in India’s Bioenergy Targets
Paddy straw and other agricultural residues are expected to contribute nearly 60 percent of India’s future biogas production. While wheat straw has competing uses as fodder, paddy straw is more readily available. About 25 percent of India’s paddy straw is surplus and can be utilised for biogas production or industrial fuel.
Agricultural residues, along with dedicated energy crops like Napier grass, are projected to constitute approximately 75 percent of India’s total bioenergy production capacity. Other sources such as animal waste, MSW, and industrial by-products (e.g., press mud, spent wash) contribute only about 25 percent.
Currently, there are about 120 functional plants and about 800 plants at various stages of development based on various feedstock including CBG plants based on agri-residue. However, the number of projects based on agriculture residues is not available to corroborate the critical role agri-residue is playing in the Indian biofuel sector. India’s GOBARdhan Bio-CNG portal provides insights into plant locations, capacities, and status but lacks data on specific feedstocks used despite capturing information during the registration process. Greater transparency in feedstock information would benefit bioenergy entrepreneurs in planning future projects.
Market and Economics of Paddy Straw Collection and Utilisation
Effective and economical utilisation of paddy straw can play a pivotal role in achieving energy independence. Total annual paddy straw production is estimated at around 125 MMT as per the information available in the public domain which is consistent with our own analysis as below:
| Area under paddy crop (As per MoAFW Annual Report for 2023-24) | 471 Lakh Hectare (in FY 2022-23) |
| Average national paddy yield | 2.8 T/Ha (As per Agriculture Statistics at a Glance 2023’ of DA&FW, GoI |
| Paddy grain to straw ratio | 1.3 Conservative (ranges between 1-2) |
| Average quantity of straw available for collection | 2.6 Tons/Hectare (30 percent remaining on the ground) |
| Total paddy straw generated annually | 122.46 Million Tonnes |
| Domestic and other use | 75 Percent |
| Surplus availability | 30.6 Million Metric Tonnes Annually |
With paddy straw market prices ranging between INR 2,000-3,000 per ton, aggregation and utilisation of surplus paddy straw presents a total CBG potential of 2.7 MMTPA and a market size of about INR 6,000-9,000 crore annually.
However, the high cost of paddy straw collection affects the viability of CBG plants. Unlike ethanol, whose pricing is linked to feedstock, CBG prices remain fixed. To ensure financial sustainability, paddy straw costs should be integrated into the minimum support price (MSP) for crops, with binding agreements for supply to industries.
Paddy straw aggregation creates significant employment and entrepreneurial opportunities. REnergy Dynamics’ aggregation model has generated approximately 400 man-days of jobs per 1,500-acre crop area, with 1,500 tons of paddy straw collected per season (30-40 days).
Despite its potential, paddy straw collection poses challenges due to small farm sizes, limited farmer awareness, labour shortages, and inadequate access to specialised machinery such as balers, rakers, and high-powered tractors. Addressing these issues requires targeted support.
The Indian Government is supporting and promoting the initiative through various schemes providing financial support of up to 50 percent capital subsidy on machinery to farmers, aggregators, FPOs and industries under the umbrella schemes of Crop Residue Management administered by DA&FW and Biomass Aggregation Machinery scheme administered by MoPNG along with state-level schemes providing additional support of upto 30 percent of the machinery and equipment cost.
While these initiatives are promising, their effectiveness is yet to be fully realised. Challenges include cumbersome subsidy application processes, lack of access to equipment financing, high transportation costs, and the need for extensive pre-treatment of paddy straw due to its high lignin content.
REnergy Dynamics’ Machinery Leasing Model
To promote feedstock aggregation and address equipment accessibility challenges, REnergy Dynamics has introduced an innovative rental model for balers and aggregation machinery. This allows farmers and aggregators to lease equipment on a daily rental basis with an assured buy-back arrangement of feedstock, eliminating capital expenditure burdens. The model has been well-received but requires scaling up to maximise impact.
Further solutions include:
- Developing long-term supply contracts between farmers and industries to ensure stable feedstock availability.
- Providing fuel subsidies for biomass aggregation to lower aggregation costs. Alternatively, electricity-powered tractors can be promoted for feedstock aggregation.
- Introducing feedstock-based pricing for CBG, similar to ethanol pricing mechanisms.
- Regularly and dynamically evaluating CRM and BAM schemes to improve their reach and efficiency.
The Way Forward
The biofuel industry stands to gain immensely from agricultural residue utilisation. With an estimated surplus of 150 MMTPA, including 30.6 MMTPA of paddy straw, effective collection and conversion into biofuels can significantly contribute to India’s energy security. However, several challenges, including high aggregation costs, lack of skilled labour, and limited access to machinery, are hindering large-scale adoption. Addressing these issues requires an integrated approach, including price controls, machinery leasing ecosystems, and policy support. By aligning government incentives with industry needs, India can unlock the full potential of agricultural residues, reducing dependence on fossil fuels, creating employment, and fostering a sustainable bioenergy future.
The biofuel industry stands to gain immensely from agricultural residue utilisation. With an estimated surplus of 150 MMTPA, including 30.6 MMTPA of paddy straw, effective collection and conversion into biofuels can significantly contribute to India’s energy security. However, several challenges, including high aggregation costs, lack of skilled labour, and limited access to machinery, are hindering large-scale adoption. Addressing these issues requires an integrated approach, including price controls, machinery leasing ecosystems, and policy support. By aligning government incentives with industry needs, India can unlock the full potential of agricultural residues, reducing dependence on fossil fuels, creating employment, and fostering a sustainable bioenergy future.
- Kushagra Nandan, Co-Founder, Chairman & MD, REnergy Dynamics
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