The future of India’s ethanol industry: Opportunities and challenges in achieving 20% blending by 2025
India’s ethanol industry is driving energy security, environmental sustainability, and rural growth. Ethanol blending, increasing from 1.5% in 2014 to 15% in 2024, has saved ₹1.06 lakh crore in forex and reduced CO₂ emissions. Achieving E20 by 2025 demands addressing rising feedstock costs, falling byproduct prices, and logistical challenges. Dynamic pricing and infrastructure investments are critical for sustainable growth.
India’s energy landscape is undergoing a significant transformation, with ethanol emerging as a pivotal solution to address the country’s energy security, environmental concerns, and rural economic growth. The government’s decision to advance the target for 20% ethanol blending (E20) in petrol by 2025 demonstrates the country’s commitment to cleaner energy alternatives. While this transition brings immense opportunities, it also poses several challenges that require strategic interventions to ensure long-term viability.
Ethanol plays a critical role in reducing India’s dependency on imported crude oil, which currently meets 85% of the country’s petroleum needs. By blending ethanol with petrol, India not only reduces its foreign exchange outflow but also cuts down on vehicular emissions, supporting the broader goal of achieving net-zero emissions by 2070. The Ethanol Blended Petrol (EBP) program has already shown encouraging progress, with blending increasing from 1.5% in 2014 to 15% in 2024, saving over Rs 1,06,072 crore in foreign exchange and reducing 544 lakh tonnes of CO₂ emissions.
The National Policy on Biofuels (2018), along with subsequent amendments, has opened new avenues for ethanol production from diverse feedstocks, including sugarcane juice, surplus grains, damaged food grains, and agricultural residues. Interest subvention schemes for grain-based distilleries and long-term offtake agreements (LTOAs) by Oil Marketing Companies (OMCs) have created a stable market for ethanol producers. These measures have led to a rapid increase in ethanol production capacity.
To achieve the target of 20% blending by 2025, about 1016 Cr liters of ethanol is required. India needs an aggregate capacity of about 1700 Cr liters to meet EBP as well as other requirements. Against this, the current production capacity is 1180 Cr litres. This gives a strong opportunity for growth.
Despite these gains, the ethanol industry faces several challenges that threaten its momentum.
One of the primary concerns is the fixed ethanol procurement price, which, while providing stability, does not align with the rising costs of feedstocks like rice and maize. Over the last year, the price of broken rice has increased to Rs 28/kg from a projected Rs 22.5/kg, while maize prices have surged to Rs 26/kg against an expectation of Rs 21/kg. This mismatch has placed significant pressure on distillery margins, particularly for those heavily reliant on grain-based ethanol production.
Additionally, falling prices of byproducts like Dried Distillers Grains with Soluble (DDGS) have impacted the profitability of the distilleries. Without timely price revisions and process optimizations, many distilleries risk becoming financially unviable.
Addressing these challenges requires a multi-pronged approach. A dynamic pricing mechanism for ethanol procurement, which factors in fluctuating raw material costs, is essential to ensure sustainable margins for producers. Simultaneously, investments in storage infrastructure, multimodal transportation, and blending facilities are critical to overcoming logistical bottlenecks and ensuring smooth supply chain operations.
The success of India’s ethanol industry hinges on a collaborative effort between the government, ethanol producers, OMCs, and other stakeholders. The government must continue to prioritize policy interventions that balance market dynamics with producer viability. At the same time, industry players need to focus on innovation, operational excellence, and diversification to overcome challenges.
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Source : The Financial Express
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