India has ended up with 700 crore litres of extra ethanol capacity. What now?
As India raced to produce more ethanol to meet the 20% ethanol-blending (E20) target, the government encouraged distilleries, banks financed new plants, oil marketing companies
As India raced to produce more ethanol to meet the 20% ethanol-blending (E20) target, the government encouraged distilleries, banks financed new plants, oil marketing companies signed long-term purchase agreements, and investors poured thousands of crores into expanding capacity to manufacture ethanol. The strategy helped the Centre achieve its E20 target five years ahead of the 2030 deadline. That might have sparked a new problem. It's not the one to do with vehicular wear and tear, mileage drops, environmental concerns or related to food security. It has to do with the problem of plenty. Read Full Story While the government has mandated the sale of petrol blended with 20% ethanol, there seems to be a demand-supply mismatch. Industry bodies are talking about surplus capacity and India is looking at exporting ethanol. According to the All India Distillers' Association (AIDA), India currently has around 370 operational distilleries, with another 40 distilleries in the pipeline. The industry has nearly 2,000 crore litres of installed ethanol capacity, and against the current procurement requirement for the Ethanol Blended Petrol (EBP) Programme and other industrial uses, it has a "notional surplus capacity of approximately 700 crore litres", AIDA told India Today Digital. For blending with petrol, India uses 1,200 crore litres of ethanol a year, according to a report in The Economic Times. Does that mean India is producing or going to produce more ethanol than it needs, and if so, what happens next? And if ethanol plants don't produce at their installed capacity, can they repay the capital invested? The answer is more nuanced than it appears. India does not have tanks overflowing with unsold ethanol. But, it has sprinted to build manufacturing capacity that is now larger than today's demand. The key question is how will India utilise the ethanol-manufacturing capacity it has created? Certainly not by just forcing E20 or even higher ethanol blends. That's because you need vehicles compatible with higher ethanol blends to switch to those fuels. Brazil, whose example Union ministers often cite, took decades to implement its fle fuel programme. Remember there are bank loans involved. Even if the factories don't produce anything, the repayment clock would be ticking. According to the Ministry of Petroleum and Natural Gas, reverting to E10 would jeopardise investments of nearly Rs 1 lakh crore per year in ethanol production and allied infrastructure financed by public sector banks. This raises several questions. Some basic. Some complex. Let's start with what's ethanol? Why did India push so aggressively for blending? Has the country really achieved its targets? Where is the surplus coming from? Is the problem one of production or demand? Could higher ethanol blends become the next policy push? And what does all this mean for motorists, farmers and the biofuel industry of India? Operational distilleries are also spread across states such as Telangana, Rajasthan, Chhattisgarh, Odisha, Uttarakhand, Assam, Jharkhand and West Bengal, while several northeastern states and Union Territories do not have ethanol production facilities. (Image: Authors) 1. WHAT IS ETHANOL, AND WHY IS IT MIXED WITH PETROL? Ethanol is an alcohol produced by fermenting agricultural feedstocks such as sugarcane molasses (sheera), maize, rice, wheat, damaged food grains and other biomass. After fermentation and distillation, it is processed into fuel-grade ethanol that meets strict quality specifications before being blended with petrol. India uses ethanol under its Ethanol Blended Petrol (EBP) Programme, where petrol sold at fuel stations contains a fixed percentage of ethanol by volume.
The BriefWire