Ethanol blending may face headwinds from distillers and automakers

India’s upcoming ethanol policy is buffeted by several headwinds, leading to delays.

 

Distillers, farmers, and vehicle manufacturers are refusing to come to an understanding with the government to enhance ethanol-blending ratios by 7-11 percentage points from the existing 19 per cent now, industry sources and government officials told Business Standard.

 

India is working on a draft to increase ethanol blending beyond 20 per cent to between 27 and 100 per cent.

 

The new elephant in the room is a demand by Washington that India allow importing ethanol for use as fuel under the trade deal being negotiated between the two countries.

 

Cheap import of corn-based ethanol from the United States will flood India’s market and it will be a disaster, a senior government official said, questioning the need to again rely on another country for fuel import.

 

Even otherwise, the government’s plan to expand ethanol use faces hurdles on both supply and demand.

 

When Triveni Engineering & Industries, one of India’s biggest sugar and ethanol producers, conceived plans for a multifeed distillery in Nangal a few years ago, the margins on converting molasses into ethanol were 12-13 per cent. Today, when the project is ready, the margins have shrunk by over 10 percentage points to 1-2 per cent, said Tarun Sawhney, vice-chairman and managing director, in an interview to Business Standard. He cancelled a distillery project last year and has no plans to build new ones. 

 

While Sawhney represents the supply end of the ethanol-blending spectrum, Toyota’s country head, Vikram Gulati, represents the consuming end. If Toyota and others do not make flex-fuel vehicles, the government cannot enhance the blending ratio. Gulati must incur an additional cost of ₹50,000-1 lakh for cars and up to ₹25,000 for two-wheelers to improve material compatibility to handle the higher corrosive nature of ethanol and install new sensors in flex-fuel vehicles. But these vehicles are taxed as highly as petrol cars. An oil-ministry official said lack of flex-fuel vehicles is a big hurdle in increasing the share of ethanol in petrol.

 

The final cog is the consumer, who incurs higher operating costs on ethanol blending because of the low burning value of ethanol. The E-20 blend results in a 7 per cent reduction in mileage while for E100 it will be 30 per cent, Gulati said.

 

Additionally, ethanol can lead to a higher carbon buildup and faster degradation of rubber components, said Deepankar Sadekar, a bike enthusiast, on motoring site BHP.

 

The oil ministry official said the latest Bharat Stage VI-compatible vehicles could absorb E-27 blends after incurring higher maintenance costs but older BS-IV vehicles could not tolerate high ethanol blends.

 

A decade ago, ethanol blending evolved as the cornerstone of India’s energy policy and security and helped consolidate the farmers’ vote bank. But, today, those like Sawhney, Gulati and Sadekar hold the key to India’s ethanol future. The programme has facilitated payments amounting to around ₹1 trillion to cane farmers in 10 years, the government said, while saving ₹1.13 trillion in foreign exchange. 

 

Distillers and automakers

 

India’s capacity of 17 billion litres will run out next year after accounting for other uses of ethanol in various industries and potable alcohol, according to estimates by the Indian Sugar Manufacturers Association (Isma). To sustain EBP20 (Ethanol Blending Programme20) , the sugar industry will require an additional production capacity of 4.75 billion litres up to 2030-31, which calls for an estimated investment of ₹22,000 crore, after accounting for 6-7 per cent annual growth in petrol use, said Deepak Ballani, director general, Isma. 

 

By FY35, for a 30 per cent EBP, as in the case of Brazil, India will need around 44 billion litres at 80 per cent utilisation. The transport component accounts for 85 per cent of ethanol demand.

 

A senior government official attributed shrinking margins to an increase in competition.  The oil ministry did not reply to an email sent a few days ago.

 

“In an increasing cost environment when you don’t have your sale price increasing, that, of course, contracts your margins,” Sawhney said. 

 

Poor margins stem from New Delhi’s refusal to increase ethanol prices, the rate at which state oil-marketing companies buy from distillers.

 

“Not revising ethanol prices since 2022-23 has been a setback for the industry,” Ballani said.

 

The fair & remunerative price for 2025-26 has been further increased by ₹15 per quintal to ₹355. Rates for maize-based ethanol were increased but that does not compensate for rising feedstock costs, Sawhney said. 

 

But the government official said that maize prices had declined and that distillers earned from selling byproducts like DDLS, a popular feedstock for the poultry industry.