India’s dependence on crude oil has prompted the government to explore a holy grail solution to the problem. To reduce the fiscal deficit, promote sustainable solutions and leverage contemporary technology, the industry is promoting ethanol blending up to 20% in petrol. The automobile industry has also embraced this change with most combustion engines now being E20 compatible. India has set an impressive target to achieve a 20% ethanol blending target by 2025, which will require 1000 crore litres of ethanol. This article explores the ethanol blending industry of India in excruciating details. Take a read through this article to understand the trends, challenges, pricing of ethanol, and the opportunities that the industry presents and most importantly to understand whether ethanol is really a holy grail?
The Ethanol Roadmap
The "Roadmap for Ethanol Blending in India 2020-25" lays out an annual plan to increase domestic ethanol production in line with the target of the amended National Policy on Biofuels (2018) as well as with its Ethanol Blended Petrol (EBP) Programme to reach a blending of 20% of ethanol in petrol (E20) by 2025/26.
In June 2022, India achieved an average blending rate of 10% ethanol in petrol. The roadmap proposes milestones such as raising pan-India ethanol production capacity from the current 700 to 1500 crore litres, phased rollout of E10 fuel by April 2022, phased rollout of E20 from April 2023, and its availability by April 2025.
Ethanol Production, Co-Products and Applications
Ethanol is primarily produced in India as a by-product of the sugar industry and is used in various applications such as plastics, polishes, plasticisers, medications, cosmetics, and alcoholic beverages. The major sugar producers in India rank among the top ethanol producers, and the country is expected to surpass the United States and Brazil as the third-largest economy for ethanol globally by 2026.
The government’s aim to incorporate 20% ethanol is expected to save about USD 4 billion annually in crude oil imports. The demand for ethanol in India is rising due to the government's significant interest in blending ethanol with diesel and petrol. The target set by the government will require a substantial increase in ethanol production capacity to meet the growing demand. Hefty investments in the expansion of the Indian ethanol industry can potentially make India one of the largest ethanol producers in the world
Ethanol production has several co-products that can be used in various industries. Some of the key co-products include:
Distillers Grains: These are co-products of the dry mill ethanol process and are used as animal feed. They contain high energy, mid-protein, and high digestible phosphorus content, making them an attractive replacement for traditional animal feed made from corn or soybean.
Carbon Dioxide (CO2): CO2 is a co-product from the ethanol production process and is used to carbonate beverages and make dry ice. It is also used in the production of biodiesel, as it can be combined with methanol to create butanol, which is a biofuel additive.
Corn Oil: Corn oil is a co-product of ethanol production and is used in the biodiesel production process. It can be produced from ethanol plants through various extraction technologies.
Gluten Feed and Gluten Meal: These are co-products from wet-milling ethanol production processes and are valuable corn and soybean meal substitutes in rations used around the world to feed various animals.
Condensed Corn Fermented Extractives (Corn Steep Liquor): This high-energy liquid feed ingredient is a by-product of the ethanol production process and is sometimes combined with corn gluten feed or sold as a pellet binder. It is a source of B-vitamins and minerals.
These co-products contribute to the efficiency of ethanol production processes and provide valuable feed and food ingredients for the agriculture industry.
Role of Sugar Industry
The sugar industry plays a significant role in ethanol production in India, as ethanol is primarily produced as a by-product of the sugar industry. On average, 10.8 litres of ethanol can be produced from 1 tonne of sugar. India produces conventional bio-ethanol mostly from sugar molasses and partly from grains. The major sugar producers in India rank among the top ethanol producers, and the country is expected to surpass the United States and Brazil as the third-largest economy for ethanol globally by 2026.
Challenges of the Ethanol Blending Industry
The Indian ethanol production industry faces challenges like:
Disruptions in rice supply: The ethanol sector has experienced disruptions in rice supply, affecting ethanol manufacturers when rice prices surged.
Cost fluctuations: The cost of ethanol production varies depending on the raw materials used, such as sugarcane juice, sugar, and syrup. The government has increased the price of ethanol produced from sugarcane juice, sugar, and syrup, leading to an increase in the cost of ethanol produced using heavy molasses from INR 46.66 to INR 49.41 per litre, and from INR 59.08 to INR 60.73 per litre using heavy molasses.
Environmental and food security concerns: India's push for sugar-derived ethanol production may lead to hidden emissions and food security issues, as more land is dedicated to sugarcane cultivation.
Infrastructure and machinery requirements: Establishing an ethanol production plant requires significant investments in infrastructure and machinery as we have seen and this can be a barrier for smaller players in the market.
Raw materials availability: The availability of raw materials, such as sugarcane and other feedstocks, can be a challenge in certain regions, especially during periods of scarcity or high prices. For example, in a latest development, sugarcane scarcity and higher sugar prices may divert 40 lakh tonnes of sugar to ethanol production, falling short of the initial 43-45 lakh tonnes estimate. The lower availability of sugarcane in major states like Maharashtra and Karnataka, coupled with more profitable sugar production, poses a hurdle to achieving the 20% blending target by 2025. Millers are inclined to produce ethanol from B-heavy or C molasses instead of sugarcane juice due to better profits from sugar. The current sugar prices make ethanol production economically unviable, impacting the government's blending goals.
Cost of Setting Up a Ethanol Plant - A Major Hurdle
The cost of establishing an ethanol plant in India can vary depending on the capacity, location, and other factors. The cost of an ethanol plant in India ranges approximately from USD 1.6 million to USD 134 million, with minimum order requirements ranging from 1 to 28 plants. The cost of establishing an ethanol plant with a capacity of 10 KLPD (kilolitres per day) can start from INR 20 crore (approximately USD 2.7 million) and can vary depending on the machinery and infrastructure required.
Despite these challenges, the Indian ethanol production industry is growing rapidly, driven by government support, increasing demand for renewable energy sources, and the need to reduce dependence on imported crude oil.
Industry Outlook
The ethanol industry outlook is positive, with growing demand for renewable energy sources and the increasing adoption of alcohol-based hand sanitisers, ethanol blending in petrol and Alcobev industry driving market growth.
Key market insights include:
Emerging applications of ethanol: The aviation industry is focusing on the research and development of ethanol blended fuels for cost reduction and carbon emission reduction. Recent applications of ethanol in ignition systems and emission control in the transportation sector are expected to generate better opportunities over the coming years.
Growing consumption of alcoholic beverages: Ethanol is a prominent alcoholic beverage, mainly found in beer, cider, wine, and spirits. Changing lifestyles and the growing adoption of Western culture are likely to drive the demand for ethanol in these countries.
Increasing production of alcoholic beverages: The increasing production of wine and other alcoholic beverages would contribute to the growth of the ethyl alcohol market during the forecast period.
Global ethanol market growth: The global ethanol market is expected to grow due to factors such as favourable government policies, growing awareness regarding environmental pollution control, and the increasing adoption of alcohol-based hand sanitisers.
Here are some of the major players in the ethanol market of India:
Company Name | Market Cap | P/E Ratio | Last Traded Price |
Shree Renuka Sugars Ltd | ₹ 10,617 Cr. | - | ₹ 49.8 |
Bajaj Hindusthan Sugar Ltd | ₹ 4,011 Cr. | - | ₹ 31.4 |
EID Parry (India) Ltd | ₹ 9,405 Cr. | 9.49 | ₹ 530 |
Dhampur Sugar Mills Ltd | ₹ 1,797 Cr. | 11.4 | ₹ 271 |
Dwarikesh Sugar Industries Ltd | ₹ 1,700 Cr. | 15.7 | ₹ 90.3 |
Dalmia Bharat Sugar & Industries Ltd | ₹ 3,710 Cr. | 12.1 | ₹ 459 |
Globus Spirits Ltd | ₹ 2,415 Cr. | 21.1 | ₹ 839 |
Triveni Engineering and Industries Ltd | ₹ 8,291 Cr. | 19.1 | ₹ 379 |
The Gist
The National Institution for Transforming India (NITI Aayog) states that, in order to achieve the 20% target, India must increase its ethanol production to 10.2 billion litres. This figure comprises 5.5 billion litres from sugarcane and 4.7 billion litres from grains. As of the 2021-22 period, India had achieved ethanol blending of up to 10%. Despite the supply constraints, the consistent FDI inflows in the sector, the optimistic growth of Alcobev industry and the support for E20 engines proves to be an impetus for the industry. The current status of ethanol blending also proves that in spite of small setbacks, the industry is set for growth with enough potential, infrastructure, policy support and investments. Investors looking towards sustainable investments, with a forward looking horizon can consider the ethanol blending industry to diversify their portfolio.
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