Ethanol producers face overcapacity as blending program hits roadblock

For ethanol supply year (ESY) 2025-26, several ethanol producers have procurement orders below capacity, forcing some to pause expansion plans as policy uncertainty grows around the blending roadmap

The government is reassessing its ethanol blending programme after reports claimed that a vehicle’s efficiency and mileage is affected due to the presence of ethanol, an agricultural by-product obtained from the processing of sugar and other sources like rice or maize, in fuel. Ironically, besides vehicle owners, ethanol producers are now feeling the pain from the blending controversy.

 

For ethanol supply year (ESY) 2025-26, several ethanol producers have procurement orders less than their capacities. Meanwhile, some producers have dropped plans of increasing production capacity due to policy uncertainty. The Ethanol Supply Year (ESY) in India runs from November 1 to October 31.

 

Grain Ethanol Manufacturers Association (GEMA) said the current situation of oversupply was not the result of speculative investment by producers, but a direct outcome of strong policy signals and a future-oriented programme led by the government.

 

“The Ethanol Blending Programme (EBP) was never intended to stop at 20% blending, which was envisaged only as a checkpoint to assess feedstock availability, investor capability, rural impact and system readiness. In line with consistent policy signals, industry invested ahead of demand to build long-term capacity,” the industry body said.

 

The Indian government had introduced the ethanol blending programme with the aim of reducing reliance on fossil fuels, reducing imports of crude oil while also empowering Indian farmers. Ethanol blended fuel is also a greener alternative with 65 per cent lesser emission, the government has claimed.

 

Before the controversy, there was speculation that the government was planning to introduce 27 per cent ethanol blending with petrol after it met the 20 per cent target earlier than expected. Union Minister of Petroleum and Natural Gas Hardeep Singh Puri had earlier in the year said that a government committee was working on a roadmap for increasing ethanol blending beyond 20 per cent.

 

An industry executive told Business Standard that the sector was now urging the government to increase blending to at least 21-22 per cent as it would provide partial relief to producers whose plants might be shut for as long as three months in a year.

 

“In ESY 2025-26, many producers got orders for only 30-40 per cent of their capacities. This means plants will be shut for more than 45 days or three months as they don’t have orders. This is a very big jerk to the ethanol industry, discouraging people to increase capacities any further. We were also planning to increase production capacity by 10-15 per cent but the plan has been put on a hold for now,” said Aditi Pasari, joint managing director at Gulshan Polyols Ltd.

 

For ESY 2025-26, the Indian oil marketing companies (OMCs) allocated only around 1,050 crore litres of ethanol, against offers of 1,776 crore litres submitted by manufacturers across the country.

 

To withstand such policy uncertainties, some ethanol producers are also planning to diversify the use of ethanol and venture into sustainable aviation fuel (SAF) and specialty chemicals.

 

“Instead of additional capacity built up for ethanol blending, we are now trying to add value to the ethanol we are producing. We are diverting at least 30 per cent of our total production capacity for SAF and we also have plans to venture into bio-rubber. Our focus is to be less dependent on the blending program alone and diversify ethanol into specialty chemicals and aviation fuel,” said Vijay Nirani, founder and managing director, TruAlt Bioenergy.

 

TruAlt Bioenergy, for example, has dropped its plans to increase gross capacity from 2,000 kilo litres (kL) to 2,700 kL by July.

 

However, all ethanol producers in India cannot follow the same path. Dedicated ethanol plants (DEPs), which only produce ethanol for the EBP, would lose central and state subsidies and long-term offtake agreement if they shift to any other product, pointed out Pasari.

 

Despite the controversy around E20 fuel, the Indian government has denied allegations of reduced fuel efficiency because of the blend, and has instead highlighted the scheme's benefits. On December 11, Puri said in Lok Sabha that the country has been able to save about Rs 1.4 trillion in import bills while strengthening the agricultural economy by giving Rs 40,000 crore annually to the Indian farmers growing the stock crops for ethanol extraction.

 

“Ethanol capacity was created in response to a clear national mandate. The need of the hour is to expand demand, not contract capacity, so that the full economic, rural and environmental benefits of the programme can be realised,” said C K Jain, president of GEMA.