January 27, 2026

Why Biomass Pellet Manufacturers in India Are Shutting Down – Ground Reality & Policy Gaps

📄 Policy Suggestions to Government of India & State Authorities

To Prevent Collapse of the Biomass Pellet Manufacturing Industry

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1️⃣ Current Ground Reality – Key Issues (Industry Truth)

Despite policies and mandates, most biomass pellet units in India are under-utilised or shut down voluntarily. The reasons are structural, not technical.

🔴 Key Pain Points Faced by Pellet Manufacturers

Unviable Pricing
- Pellet selling price often does not cover:
  - Raw material cost
  - Power & diesel
  - Labour & maintenance
  - Logistics
- Net margins fall below ₹300–₹800/MT, making operations unsustainable.
Delayed Payments (60–120 Days)
- Payments from thermal power plants and large buyers are delayed.
- MSME cash flow collapses due to:
  - EMI pressure
  - Working capital blockage
  - No interest compensation
No Assured Offtake
- Biomass co-firing mandate exists on paper.
- Actual procurement is:
  - Irregular
  - Seasonal
  - Cancelled or reduced without notice
High Operational Risks
- Frequent wear & tear (dies, hammers, dryers)
- Labour dependency
- Fire & dust hazards
- Pollution compliance pressure
Logistics Cost Burden
- Transportation beyond 200–250 km makes pellets uneconomical.
- No rail priority or freight subsidy for pellets.
Policy–Execution Gap
- Policy intent is positive, but:
  - Risk is entirely on pellet manufacturer
  - No price protection
  - No payment security mechanism

2️⃣ Warning: If Not Addressed, Industry Will Collapse

If current conditions continue:

Many MSME pellet plants will permanently shut down
Investment confidence will vanish
Co-firing targets will fail
Crop burning & pollution problems will return
Import dependency or monopolies may emerge

👉 Pellet industry collapse = policy failure, not market failure

3️⃣ Immediate Survival Measures for Pellet Industries

🛟 Short-Term Relief (Urgent)

Mandatory Payment Timeline
- Pellet buyers (power plants, PSUs) must pay within 30 days
- Delay beyond 30 days → interest payable automatically
Price Floor Mechanism
- Introduce minimum pellet price linked to:
  - Raw material index
  - Power tariff index
- Prevents distress selling
Working Capital Support
- Interest subvention on pellet plant working capital loans
- Credit guarantee for MSME pellet manufacturers
Transport Support
- Freight subsidy or reimbursement for:
  - Road transport up to 300 km
  - Rail movement where applicable

4️⃣ Policy Improvements for Long-Term Sustainability

🟢 Structural Policy Reforms Needed

1️⃣ Assured Offtake Contracts

Power plants must sign long-term pellet supply agreements (3–5 years)
Fixed minimum monthly quantity commitment

2️⃣ Decentralised Procurement Model

Each thermal plant should:
- Source pellets within 300 km radius
- Develop local pellet clusters
Reduces logistics cost & ensures rural employment

3️⃣ Risk-Sharing Framework

Govt to share risks related to:
- Raw material price volatility
- Offtake fluctuation
Similar to renewable PPAs

4️⃣ Incentives for Consistent Operators

Benefits only for plants that:
- Operate minimum % of capacity annually
- Supply pellets continuously
Discourage subsidy-only projects

5️⃣ Technology & Raw Material Diversification Support

🔧 To Improve Viability

Encourage:
- Multi-biomass plants (Napier Grass, wood waste, agro residue)
- Industrial biomass (sawdust, process waste)
Support:
- Pre-processing (drying, baling, shredding)
- Quality standardisation at source

6️⃣ Recommended Role of State Governments

Land allotment near thermal plants
Power tariff subsidy for pellet plants
Single-window clearance
Local biomass aggregation centres

7️⃣ Final Recommendation to Authorities

Biomass pellet manufacturing should be treated as critical environmental infrastructure, not a speculative MSME activity.

Without:

Price protection
Payment security
Assured demand

👉 Pellet plants will not run, even if policies exist.

📌 Conclusion (Strong Policy Message)

✔️ Industry exists
✔️ Technology exists
✔️ Biomass availability exists

❌ What is missing is confidence, protection, and predictable execution

⚠️ Disclaimer

This analysis is based on our own operational experience and extensive industry network. It reflects real challenges faced by biomass pellet manufacturers across India and is shared in good faith to encourage constructive policy improvements.