Strong appetite for Biochar carbon projects in India, offtakes essential: CDR Summit

Interest from financial investors in Biochar carbon credit projects in India remains robust, however, the market is not mature enough to warrant spot liquidity yet and an offtake is almost a certainty with most projects, market participants told Platts, part of S&P Global Energy, at the AltFutures Carbon Dioxide Removals Summit Oct. 6 in Bengaluru.

"The investors are ready to put substantial amounts of money into the projects, but the first thing they ask is if offtakes will be signed or not. If not, they move ahead no matter how good the project is," a Bengaluru-based investor and developer intermediary said.

Carbon credits generated from Carbon Dioxide Removal projects are valued at a premium over other methodologies because of the capital-intensive tech. Despite that, the market has seen improved demand for these credits as buyers look for more credible, high-integrity credits with a long permanence period and less risk of reversal.

The source added that investors maintain a checklist when evaluating projects, prioritizing those that can secure long-term offtake agreements, deliver credible and high-quality credits with scope of expansion.

Biochar is a carbon-rich material produced from an extensive industrial process called pyrolysis, which aids in combating climate change by removing excess traces of carbon dioxide from the atmosphere.

Platts India Biochar price rangebound

Platts, part of S&P Global Energy, assessed the Biochar India current-year price at $140/mtCO2e on Oct. 6, up $5/mtCO2e day over day.

Platts Biochar India assessment has shown that the prices for industrial Biochar credits in the segment have been rangebound for the past few months amid a lack of activity in the spot market, but several participants at the event attributed the stagnation to the cut-off price for Biochar credits suppliers.

An India-based developer showed concern over a lack of spot trades and noted that for the Biochar market to mature, an active spot market is necessary.

"We will need to see how the spot will move in the next two years, because currently most credits to be issued won't make it to the market."

Offtakes a win-win: Access to low rates, seed capital

Biochar production involves an expensive tech-based process, making the need for seed capital crucial for developers.

"They (buyers) want to get the credits at lower rates. And the in-hand money at the start of the project for the developer is the best as it gives both security and capital to work with and ensure the credits are of high quality," a different India-based Biochar project developer said.

The developer explained that in the current market, if the spot prices for Biochar India are at $140-$150/mtCO2e, then an investor will easily get a long-term deal at around $110/mtCO2e, or even lower at around $80/mtCO2e, based on various factors including permanence period, quality of tech and feedstock, scale of the project, etc.

Another Biochar developer with a presence in South Asian countries shared that they currently have five Biochar projects in development in India, with the first project going live later in October. They noted that almost all the credits from this project are already sold through offtakes, leaving them with a minimal quantity to offer in the spot market.

The broker highlighted that offtake agreements not only ensure the acquisition of credits but also serve as a financial strategy to procure credits at lower rates, allowing for resale at higher prices later.

More supply expected in 2026

Platts Biochar India Yr01 was assessed at a discount of $10/ mtCO2e to the spot, with market players anticipating more supply to come in by next year and expecting prices to be lower.

Some market participants at the event noted that this approach of entering an offtake agreement could also benefit small developers, as investors may find more room for negotiations in these projects. Small developers often require an initial capex, and investors recognize the potential for future expansion with such initiatives, they explained.

Market participants on the sidelines of the event told Platts that investors have asked for as little as 10%-20% of total credits as offtakes, but the offtake in the agreement is apparently a new normal.

Platts further reported a wide range of offtake price indications during the event, from $80/mtCO2e to $120/mtCO2e for Industrial biochar credits certified by either Puro Earth or Isometric.