Ethanol blending programme to get policy boost as crude oil prices soar

As crude oil prices soar, the new biofuels policy might prove a timely impetus to boost ethanol production and blending, ease financial woes and attract private investment is a sector dominated so far by state-run oil marketing companies (OMCs).

It also comes when experimental projects planned for ethanol production are picking up pace and are at various stages of contracting and awarding. In 2016, the three state OMCs entered into 10 memoranda of understanding (MoU) for ethanol refinery projects and related initiatives. Some of these would have the three set up second generation (2G) ethanol units.

Pune-based Praj Industries is one company which has partnered the OMCs for bio-energy solutions. 

“Both the planned 2G ethanol plants for BPC (Bharat Petroleum) and IOC (Indian Oil) are on schedule and should be ready for commissioning by 2020. Awarding activity is underway for both,” said Atul Mulay, its president for biofuels. BPC is setting up this plant in Odisha and IOC plans a similar one in Panipat, Haryana.

“In the MoU with Praj Industries, two ligno-cellulosic ethanol plants will be set up at Panipat and Dahej (Gujarat). We have awarded the licensor job to Praj for a plant at Panipat; the Dahej project is under review,” a spokesperson for IOC said.

Under the new National Policy on Biofuels, the central government has expanded the scope of raw material for ethanol production by allowing use of various agro-waste products. “Molasses-based ethanol has other user industries and, hence, that source will be able to meet only partial requirements of our ethanol blending. Opening up agro waste as a source, helps meet the 10 per cent ethanol blending target,” Mulay explained.

Industry experts agree it is a step in the right direction. “Avoiding burning of agro waste after harvests avoids pollution. In times of higher crude oil prices, renewable technology projects turn feasible. If the government provides viability gap funding, the projects see the light of day. It is the need of the hour,” said Deepak Mahurkar, partner at consultants PwC India.

The policy allows for a viability gap funding scheme for 2G ethanol bio-refineries, of Rs 50 billion in six years, in addition to additional tax incentives. 

“The challenges were on capital cost but with this policy for developing 2G ethanol, there is also talk of differential pricing and tax incentives to OMCs for blending,” Mulay added.

Mahurkar from PwC expects this to attract private sector investment. “India has been finding it hard to meet the ethanol blending programme. The policy will help establish the technology,” he said. There has, say industry officials, not been much of private investment till date in this segment.

India is expected to need 10 billion litres of ethanol annually to meet the 20 per cent blending target in 2030 if petrol consumption continues to grow at the current pace. At present, the capacity stands at 1.55 billion litres a year. According to the policy statement, this year is likely to see supply of around 1.5 billion litres of ethanol, saving at least Rs 40 billion in foreign exchange.