June 16, 2024
India Ethanol

India Ethanol Market: India’s Ambitious Plan to Boost Ethanol Production and Consumption

Introduction to India Ethanol Market

The Government of India has set ambitious targets to expand the production and usage of ethanol in the country. Ethanol is seen as a promising renewable and cleaner alternative to gasoline. India wants to reduce its oil import dependence and lower emissions from the transport sector. The focus is on promoting ethanol blended petrol and boosting indigenous ethanol supply. Various policy initiatives and schemes have been rolled out to achieve this.

India Ethanol Market Ethanol Blending Targets

India started a program to blend ethanol with gasoline in 2003 initially at 5%. The target has since been raised steadily. For 2020-21, the target is to achieve 10% ethanol blending across the country. Plans are there to take it up to 20% by 2025. This would require consumption of around 10 billion litres of ethanol annually for blending. Currently, the domestic production is around 3 billion litres and the rest needs to be imported. The government has introduced financial incentives for oil marketing companies and ethanol suppliers to achieve blending targets. India Ethanol procurement prices are fixed above market rates to encourage production.

Promoting Sugarcane Juice Ethanol

India has abundant sugarcane production and around 35-40 sugar mills in operation annually. These sugar mills currently operate only for 4-5 months during the sugarcane crushing season. For utilizing their distillation infrastructure throughout the year, sugar mills are being encouraged to set up separate distillation units to produce ethanol from sugarcane juice. Almost 200 such standalone molasses based distilleries already exist. Now more than 50 projects have been approved to install sugarcane juice based distilleries with a total capacity of over 800 crore litres per annum. This would generate additional rural employment and income. Many states are providing capital subsidies to facilitate these units coming up faster.

Second-Generation Ethanol Sources

To meet the targets, India needs to look beyond sugarcane molasses and juice. Work is ongoing to develop technologies for producing ethanol from agricultural residues and energy crops. Some state governments are sponsoring projects to produce ethanol from rice straw, wheat straw, biomass pellets etc. The Centre is working with public and private institutions to fast track commercialisation processes. While these advanced technologies require higher investments, the output potential is also high given India’s massive agricultural waste generation. Integrated biorefineries which can produce multiple products like ethanol, biogas, seed oil etc. from single feedstock hold promise. If viable processes emerge, it could help manage farm stubble burning issues as well.

Policy Support for Private Investments

To attract private investments in ethanol production projects beyond the sugar industry, the government recently exempt goods and services used in ethanol production from GST. It now plans to introduce a production linked incentive scheme in 2021 for mega distilleries with capacity over 100 crore litres per year. Under this, distilleries would be provided production incentives for incremental output over baseline production levels going up to Rs. 3 per litre. These initiatives are expected to have multiplier effect in boosting ethanol demand and indigenous manufacturing capacity. Many industry players have evinced interest in entering this growth sector.

Targeting Sustainable Feedstock Supplies

While scaling up rapidly, ensuring sustainable feedstock supply over the longer term remains a challenge. Unplanned diversion of sugarcane or paddy production for fuel use could distort food markets and exacerbate farmer distress. The government is promoting dedicated energy plantations for ethanol production on wastelands. It has launched schemes to incentivize cultivation of specialty high-yielding energy crops like sweet sorghum which require less water and fertilizer. If successful, such efforts could stabilize ethanol supplies independent of seasonal food prices. Research is also ongoing to improve yields and disease resistance of potential feedstock crops through biotechnology solutions.

Infrastructure Bottlenecks Being Addressed

Ability to transport and distribute large volumes of ethanol will be critical for achieving blending targets. However, the existing infrastructure predominantly caters to fossil fuels. Oil companies have started setting up pipeline networks and terminals dedicated for ethanol handling. Railways are allowing movement of ethanol tankers in containers. Port capacities are being scaled up to handle expected imports. Standards are being formulated for material compatibility in the supply chain. The government is investing in infrastructure upgradation projects across key clusters. Attempts are on to frame policies that balance responsibilities of all stakeholders in infrastructure development and operations.

In Summary, India’s thrust on ethanolization of its fuel economy aligns well with global decarbonization imperatives. Timely resolutions of various challenges around feedstock supply, investments and logistics hold the key to accelerated progress on this front. With the support of comprehensive policy interventions and collaborative efforts of public and private entities, India seems determined to achieve its aggressive ethanol blending roadmap which can make a meaningful difference.

1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it