India’s push towards ethanol blending has gained significant traction over the past few years with the country targeting 20% ethanol blending by 2025. The Narendra Modi government has unveiled several policy initiatives to boost the production and usage of ethanol in the country. This article analyzes India’s ethanol policy landscape and highlights key market developments.
History of Ethanol Policy in India
India’s ethanol policy dates back to early 2003 when the government permitted 5% blending of ethanol with petrol across 9 states. However, the progress was slow initially. It was in 2018 that India doubled down on its ethanol blending programme and announced an ambitious target of 20% blending by 2030. Since then, the government has rolled out several new policy measures to incentivize stakeholders across the ethanol value chain.
In 2018, the government allowed oil marketing companies to offer extra premium for higher ethanol-blending like E10 and E12. It also enhanced the price of ethanol supplied to OMCs. The same year, the GST rate on ethanol was reduced to 18% from 28%. To boost cane farmers’ income, the government also increased the ex-mill price of ethanol derived from B-heavy molasses and sugarcane juice.
In 2019, the government made supplying of ethanol mandatory for oil companies. It also allowed the installation of 2G ethanol plants in unused sugar mills and stipulated that funds can be raised by sugar mills through external commercial borrowings. The Centre also approved additional mill exit price of ethanol derived from sugarcane for blending with petrol.
Key Developments in India’s Ethanol Sector
CoherentMI highlights several key factors and recent new developments in India Ethanol Market.
- Ethanol Tender Process: To achieve blending targets, oil marketing firms floated their maiden tender in 2019 seeking bids from suppliers to meet 10% blending levels for 2020. Since then, multiple tenders have been issued to meet annual blending targets. The bidding process has helped establish a credible supply chain for ethanol producers.
- Rising Ethanol Production: Driven by policy boosts, India’s ethanol production capacity has increased significantly over the past few years. As of 2020, India had a production capacity of over 800 crore litres. According to targets, it is expected to reach 1100+ crore litres by 2025 to meet 20% blending goals.
- Feedstock Diversification: Earlier, ethanol production in India was dependent primarily on B-heavy molasses. However, increasing blending targets have necessitated developing alternate feedstocks like sugarcane juice, damaged food grains and cellulosic biomass. Pilot projects are ongoing to assess viability of new feedstocks.
- Expansion in 2G Ethanol Capacity: With surplus sugarcane availability, India is focusing on setting up 2G ethanol plants that convert agricultural waste into ethanol. Over a dozen such plants have come up in the past 2 years with combined capacity of over 150 crore litres. The government is providing financial support to expand 2G capacity.
- Rising Investments: Bolstered by the policy push, investments into India’s ethanol sector have risen manifold over the past 4-5 years. Both public and private players are investing billions of dollars to set up new distilleries as well as expand existing units. Global technology providers are also eyeing opportunities.
Headed towards E20 Blending
Globalization of India’s Ethanol Industry
With the progress achieved in blending until now, the Indian government has revised its target further upwards to E20 blending by 2025. Multiple factors point towards India achieving this enhanced target in the stipulated timeframe:
- Growing domestic production: As existing plants ramp up output and many new projects get commissioned over the next 3 years, India is on track to produce over 1100 crore litres of ethanol annually by 2025. This volume will be sufficient to achieve E20 blending.
- Import opportunities: India is also exploring imports to meet any shortfall in local production. Recently its tender process allowed global suppliers to participate, showcasing India is open to becoming a key importer of ethanol. Major producers like Brazil are eyeing the Indian market.
- Expansion to all states: Currently 21 states have notified 20% ethanol blending. However only a handful have started implementation. With a push from Centre, remaining states will start blending in 2023-24 period, bolstering volumes.
- Focus on new feedstocks: 2G ethanol projects and use of different grains/damaged food for production are scaling up rapidly. This will diversify feedstock sources beyond sugar and sugarcane.
- Technology improvements: Advanced technologies like cellulosic ethanol are being tested. Successful commercialization of such technologies will provide further ethanol supply boost.
For more details on India’s ethanol policy landscape and market outlook, refer to CoherentMI’ extensive research report on the topic. The report provides a comprehensive analysis of the industry including key drivers and roadblocks for achieving E20 goals.
Globally, the ethanol market has been witnessing steady growth driven by its increasing usage as a biofuel and chemical intermediate. Asia Pacific currently dominates global ethanol demand led by countries like China, India and Thailand. However, key developments indicate India will play a leading role in shaping the ethanol market dynamics in coming years:
India is emerging as the hotspot for ethanol capacity additions. Aggressive production targets have galvanized investments into grassroot plants as well as expansion of existing units. Successful achievement of E20 targets will elevate India as one of the top ethanol consuming nations globally.
As domestic demand rises, India may also emerge as a key export market for ethanol surplus nations. Recent moves like allowing global supplier participation in domestic tenders signals India is open to imports. Trade agreements can boost two-way ethanol trade flows.
Policy thrust on multiple feedstocks and technologies will make India an innovation leader. Large-scale commercialization of advanced pathways like cellulosic ethanol may happen first in India given conducive ecosystem. This will accelerate India’s positioning as a technology leader.
Strong government backing through incentives and political will puts India in a sweet spot to lead ethanol sector growth. Timely implementation of infrastructure and corridor projects will integrate demand centers with producing regions.
With nascent domestic market and supportive conditions, India is well-placed to lead global ethanol market evolution over the medium term. Robust annual capacity additions will catapult India to the top rank, displacing traditional leaders. The country’s ambitious vision and proactive measures are laying the foundation for it to emerge as the dominant force in the expanding world ethanol landscape.