India’s ethanol story is entering a new phase. For more than a decade, the focus was on blending ethanol with petrol and reducing dependence on imported crude oil. Today, policymakers are thinking beyond the fuel tank. According to the ET report, the government is working on a roadmap to introduce ethanol as a primary cooking fuel and is also considering a retail model where consumers can buy ethanol in canisters from special “Ethanol ATMs” for use on cookstoves. This proposal may seem futuristic, but it points to a major change taking place in India’s biofuel strategy.
India has implemented E20 across the country ahead of schedule. Yet, rather than slowing down, the search for new uses for ethanol is accelerating. Cooking fuel, flex-fuel vehicles, sustainable aviation fuel and exports – these are all coming up the agenda. The driving force behind all these initiatives is the fact that India has created an ecosystem of ethanol production that is becoming larger than the current demand for its consumption, even though demand is expected to grow rapidly in the near future.
A success that created a new challenge
The ethanol blending program has been one of the most ambitious energy initiatives of the Narendra Modi government. Ethanol blending in petrol has increased from barely 1.5 per cent a decade ago to 20 per cent, which has helped in reducing crude oil imports, increasing farmers’ income and creating a large biofuel industry in the country.
India has achieved the E20 target several years ahead of schedule and is now discussing the next phase of biofuel adoption. Since 2014-15, ethanol blending has helped save more than Rs 1.4 lakh crore in foreign exchange, while also generating additional income for farmers and distilleries.
Industry responded to these policy signals with huge investments. Sugar mills expanded distillation capacity. Crop-based ethanol producers rapidly entered the market. New projects started in Uttar Pradesh, Bihar, Maharashtra and many other states. The result is that India may now have to face a situation of excess ethanol capacity (capacity overhang).
What are the statistics saying?
The emphasis on ethanol as a cooking fuel makes more sense when viewed from the perspective of efficiency. According to a May report by CareAge Ratings, India’s ethanol production capacity has already crossed 20 billion liters annually. Another 4 billion liters of capacity is expected to be commissioned during the current financial year, taking the total installed capacity to about 24 billion litres.
In contrast, the government’s E20 blending program consumes about 11 billion liters per year. Demand from liquor manufacturers, pharmaceutical companies and chemical producers is another 3-3.5 billion litres. This still leaves about 7 billion liters of unused capacity. Industry officials have started exploring export opportunities in countries like Nepal, Bangladesh and Indonesia, which have mixed targets but inadequate domestic production capacity.
To be sure, India is not slacking off on its abundant quantities of ethanol. It is sitting on a distillery and investments capable of producing much more ethanol than the current markets require.
This is why the conversation has shifted from blending target to consumption target. Earlier this year, media reports said that distillery capacity was increasing much faster than the increasing demand under the E20 programme. With discussions slowly progressing on increasing the blending limit beyond 20 per cent, producers and policy makers have been forced to think beyond petrol.
Why has kitchen suddenly become important?
The proposal to use it as cooking fuel can become a huge new source of demand for ethanol. There is a lot of dependence on LPG for cooking in homes in India. Although domestic production has increased, a large part of the demand is still met by imports. Every surge in global energy prices impacts both the country’s import bill and the government’s subsidy calculations.
From the perspective of policy makers, ethanol is an attractive option. It is produced in the country itself and helps farmers and rural industries. This reduces dependence on imported fuel. It can also be distributed through a decentralized retail model, instead of relying solely on LPG cylinders.
According to the ET report, policy makers are considering special dispensing points or ethanol ATMs to refill canisters used for specially made cooking stoves. Such a system will create an entirely new retail ecosystem for ethanol. Even though its use may be less in the beginning, its importance lies elsewhere. This proposal shows that ethanol is no longer seen merely as a blending agent for petrol. It is being presented as an independent energy source.
Export option also
Domestic consumption is not the only solution being considered. India is increasingly focusing on exporting ethanol to neighboring countries, where blending regulations are in place but adequate feedstock or distillation capacity is lacking. Nepal, Bangladesh and Indonesia have emerged as potential markets. For a country which was worried about ethanol shortage till some time ago, the idea of becoming a regional ethanol supplier is a big change.
The export option is also becoming important because huge investments have already been made in the ethanol value chain. Distilleries built for rapidly expanding blending programs now need assurance that demand will continue to grow.
Aviation sector also in sight
Cooking fuel may be a new idea, but aviation could become one of the most important new markets for Indian ethanol in the future. In April this year, the government changed aviation fuel rules to allow sustainable aviation fuel (SAF) to be blended with conventional aviation turbine fuel. The government has also approved a roadmap, under which the target is to add 1% SAF to international flights by 2027. This will increase to 2 percent in 2028 and 5 percent by 2030. This move is part of India’s efforts to reduce emissions from aviation and create a SAF industry in the country.
This is important for the ethanol industry because many companies are adopting a special method of its production. One of the recognized ways to produce sustainable aviation fuel is the ‘alcohol-to-jet’ process, which converts ethanol into jet fuel. In other words, ethanol is no longer seen merely as an additive to transport fuel. It is increasingly being introduced as a raw material (feedstock) for a completely new category of fuel.
The industry has also started investing with this thinking. NTPC Green Energy and GPS Renewables are jointly building India’s first ethanol-to-jet fuel plant near Visakhapatnam. It is expected that this plant will produce about 1,800 tonnes of sustainable aviation fuel every year using ethanol-based technology.
For policymakers, SAF offers something that mixing ethanol with petrol or cooking fuel does not. Airlines around the world are under increasing pressure to reduce emissions and are willing to pay higher prices for sustainable aviation fuel. If ethanol finds its way into the aviation sector on a large scale, it could create a high-value market for producers—especially at a time when production capacity in the country exceeds demand.
CAFE-III will initiate the next phase
The government’s recently released draft ‘Corporate Average Fuel Efficiency’ (CAFE)-III rules provide another indication of the policy direction. For the first time, incentives related to ethanol and other biofuels have been proposed in this framework. Generally, the discussion on fuel-efficiency regulations has revolved around electric vehicles. The new proposals show that policymakers are more interested in creating a larger ecosystem in which ethanol, flex-fuel vehicles and other biofuels play a larger role.
The importance of this change should not be underestimated. Once E20 became a reality, the next challenge was always going to be demand generation. CAFE-III appears to be designed, at least in part, to allow future vehicle technologies to use more ethanol.
From sugar policy to energy strategy
Perhaps most importantly, ethanol is no longer just a by-product of the sugar industry. Ethanol production from grain has expanded rapidly and corn has emerged as a major feedstock. According to industry data, most of the ethanol supply now comes from grain-based sources. Along with traditional sugar mills, grain processors, distilleries, technology providers and fuel retailers are now joining the ethanol ecosystem. Moving away from sugarcane to other alternatives can also reduce environmental concerns because sugarcane is a crop that requires a lot of water.
Ethanol was once a part of sugar policy and now it has become a part of energy policy. This change is clearly visible in the different sectors which are now being discussed. Ethanol is being considered for use in transportation, cooking, export and as aviation fuel. Every new use serves the same purpose – to create demand for the production ecosystem that is already in place.
The real story after E20
The proposed ethanol ATM network may or may not become common across India. Ethanol stoves may or may not challenge LPG on a large scale. Widespread adoption of sustainable aviation fuel may take years. But all these initiatives point in the same direction. India’s ethanol program has reached a stage where the challenge is no longer to produce enough fuel.
Despite capacity at more than 20 billion liters a year and on track for 24 billion litres, current domestic consumption uses only a fraction of that potential production, so policymakers are now looking everywhere for the next customer. Ethanol ATMs, exports, flex-fuel vehicles and sustainable aviation fuel – these are all pieces of the same puzzle. The country’s distilleries were built for a future bigger than E20, and policymakers are now trying to create that future.
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