Insight Conversation: Kishan Karunakaran, Buyofuel

This seven-part Insight Conversation series examines the opportunities and challenges in Asia's biofuels sector. In this sixth part, we speak to Kishan Karunakaran, CEO of Buyofuel, an India-based manufacturer and aggregator of biofuels and feedstocks.The next edition features Wataru Ikushima, general manager, New Energy Business Development Department of Japanese conglomerate Marubeni Corp.

Kishan Karunakaran set up his first biodiesel manufacturing plant in 2008 and has nearly two-decade of experience in the sector. He is the CEO of Buyofuel, an India-based manufacturer and aggregator of biofuels and feedstocks. Karunakaran spoke with S&P Global Commodity Insights Senior Editor Aditya Kondalamahanty on the potential of India's biofuels market.

What main challenges do you experience when adopting biofuels in India?

In my extensive experience in the biofuels industry, I've encountered several significant challenges that impede the widespread adoption of biofuels. Producing biofuels remains an expensive endeavor. The costs associated with growing, harvesting, transporting and processing biomass are substantial. Advanced biofuels involve sophisticated technologies that are not yet cost-competitive with traditional fossil fuels.

The supply chain for biofuels is often fragmented and unorganized. This lack of coordination among suppliers can lead to inconsistencies in feedstock availability and quality, driving up production costs and complicating logistics.

Biofuels face stiff competition from the well-established fossil fuel industry. Fossil fuels benefit from a mature infrastructure, economies of scale and, in many cases, government subsidies.

Biofuels must overcome these entrenched advantages to gain a foothold in the market. Addressing these challenges requires concerted efforts from all stakeholders in the biofuel industry, including advances in technology, supportive policies and improved supply chain management.

How can Indian biofuel players create economies of scale outside of government incentives?

Creating economies of scale in the Indian biofuels industry requires strategic actions that go beyond relying solely on government incentives.

Integrating the supply chain from feedstock production to biofuel distribution can help reduce costs and improve efficiency. Forming partnerships with farmers and agricultural cooperatives can ensure a steady and reliable supply of feedstock.

Implementing advanced logistics and supply chain management practices can improve the efficiency of feedstock transportation and biofuel distribution, reducing costs and enhancing reliability.

Creating awareness and promoting the benefits of biofuels to increase demand can help achieve economies of scale.

By adopting these strategies, Indian biofuel players can enhance their operational efficiency, reduce costs and achieve the economies of scale necessary to compete effectively in the energy market.

What questions and metrics does the biofuel industry face from investors when securing funding?

Since the biofuels breakout after COVID-19, due to government schemes like 10% cofiring mandates for large coal consumers, ethanol and biodiesel blending and financial assistance for biofuel manufacturing setup, investors have been closely watching this sector.

Many are genuinely interested in investing due to the growing focus on sustainability and net-zero goals, which promise both profitability and sustainability benefits.

In terms of questions and metrics, banks and venture capitalists in this industry typically inquire about the problem the company is solving, the unique selling proposition of its products or services, the potential of the biofuels sector, including its competitive landscape, addressable market and operational functioning, among others.

Regarding financing metrics, they assess revenue and growth models, past and ongoing transactional records, practical future growth projections, company valuation, burn rate and a clear path to profitability or the next funding round.

Buyofuel has successfully secured funding through seed and pre-Series A rounds from leading venture capital firms such as Inflection Point Ventures, Gruhas, Venture Catalysts, Let's Venture, and Lead Angels. Furthermore, we have received grants from HDFC Bank under HDFC Parivartan to support and implement sustainability initiatives.

What are the main factors that drive unit economics of biodiesel and ethanol production in India?

The unit economics of biodiesel and ethanol production in India are influenced by raw material costs, production processes, capital expenditures and logistics. While biodiesel pricing is often debated, production costs depend on feedstock type, availability, prices, operational costs and logistics, with major expenses being feedstock prices, transportation and collection, especially for used cooking oil.

Feedstock costs vary based on geography, crop yields and season. Non-edible oilseeds like jatropha, which can grow on wastelands with minimal water, reduce input costs, whereas UCO and animal tallow are cheaper but incur high collection costs due to unorganized sector procurement.

Currently, biodiesel prices range from Rupees 80-85/liter, fluctuating with raw material supply and demand. Ethanol, primarily produced from sugarcane molasses and supplied to government-aggregated oil companies to meet E20 blending targets, is not yet widely commercialized. Ethanol production requires substantial plant investments, which vary based on raw materials and operational capacity.

What is the outlook on India's potential capacity for biomass-based fuels, advanced fuels and prices?

India is the third-largest consumer of fuels in the world. Considering the government's targets of replacing at least 10% of its fossil fuel use with biomass-based fuels, India's biofuels demand will be around 130 million mt by 2025. India also produces a large amount of agricultural residues such as rice husk, sugarcane bagasse and wheat straw. These residues can be effectively utilized for biomass-based fuel production.

With growing urbanization, the potential for converting municipal solid waste to biofuels is substantial. The biomass-based fuel sector is expected to grow as technologies for efficient conversion become more widespread and economically viable.

India has a robust potential to expand its capacity for biomass-based and advanced biofuels, leveraging its agricultural and waste resources. The outlook is positive, with expected growth in capacity and potential reductions in costs driven by technological advancements, policy support and strategic investments.

Also in this series:

Insight Conversation: Alexander Kueper, Neste

Insight Conversation: Pinaki Mukherjee, Zuari Envien Bioenergy

Insight Conversation: Ed Mason, Jet Zero Australia

Insight Conversation: Clarence Woo, Asian Clean Fuels Association

Insight Conversation: Suhas Baxi, BiofuelCircle