"The government should take the initiative to design a prototype photo-bioreactor within the precincts of a coal-fired generating station to produce bio-diesel," National Council of Applied Economic Research (NCAER) said in its report.
High crude oil prices in the international market has forced NCAER to look at alternative fuels such as bio-diesel to be "highly promising".
"India may have to (be) contend with limited crude oil supplies over the medium-to-long run due to a peak oil problem," it said.
"Algae is the most promising feedstock for bio-diesel and ethanol production because the yield of oil from algae is many times higher than that from traditional oilseeds."
"Algae could be grown on sewages next to power plants and in wastelands," NCAER said.
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Nuclear energy from fission is another form of fuel that NCAER believes on.
"With internationally sponsored monitoring mechanisms in place and enhanced safety measures, nuclear energy could become a mainstay and a viable fuel," it said.