Annual ethanol production from grains is expected to see a significant increase by the next season: CRISIL Ratings
India aims to achieve 20% ethanol blending in petrol by 2025, requiring nearly 990 crore litres annually. Ethanol production from grains is projected to increase significantly, reaching around 600 crore litres by the next season, while the remaining will come from sugarcane. The government regulates sugarcane usage for ethanol based on sugar supply-demand estimates. Achieving the target may require diverting sugarcane equivalent to 4 million tonnes of sugar for ethanol, optimizing sugar inventory and improving sugar mills’ cash flows.
India’s aim to blend 20% ethanol in petrol by ESY1 2025 — or ~990 crore litre annually — will require effective utilisation of both grain and sugarcane feedstock to increase its supply.
According to the press release by CRISIL Ratings, annual ethanol production from grains is expected to see a significant increase to ~600 crore litre by the next season (this season’s production estimate is ~380 crore litre). The balance will have to be produced by processing ethanol from sugarcane, which is viable given the substantial capacity in place.
This can help optimize sugar inventory, especially given the anticipated high carry-over stock at the end of the current season due to government restrictions on diverting sugar for ethanol production and exports.
As per press release, a CRISIL Ratings analysis of 17 integrated sugar mills, accounting for about one-third of sugar-based ethanol supply, indicates as much.
Blending ethanol helps reduce India’s dependence on crude oil imports. The ethanol blending rate has steadily risen 200-300 basis points each season since ESY 2021.
The press release further adds that while grain utilisation for producing ethanol is not controlled, the government determines the quantum of sugarcane utilisation based on its estimation of demand-supply balance of sugar for the year ahead.
Last year’s erratic rainfall is expected to have impacted sugarcane production this year. Consequently, ethanol production from the sugarcane route is expected to be restricted to 2.5 million tonne of sugar diversion this season.
Poonam Upadhyay, Director, CRISIL Ratings said, “Ethanol blending could still improve to 14% in ESY 2024 as extraction from grains has significantly risen due to 40% capacity expansion. That will compensate for the reduced output from sugarcane. However, to reach the 20% blending target by ESY 2025, allocating sugarcane required to produce ~4 million tonne of sugar can be considered for ethanol production, similar to the season 2023.”
In the upcoming season 2025, gross sugar production is expected to be ~33.5 million tonne, with consumption at ~29.5 million tonne. Additionally, sugar inventories are projected to be healthy by the end of this season.
Hence, allowing sugarcane — equivalent to the quantity required to produce 4 million tonne of sugar — for ethanol supply (~390 crore litre) can be considered, while the larger remaining share will be sourced from grain-based route.
Anil More, Associate Director, CRISIL Ratings stated that higher sugarcane usage for ethanol production will also help optimise sugar inventory, which is estimated to rise to about 4 months of consumption (~8 million tonne) by the end of this season. Besides, it can positively impact the cash flows of sugar mills and help them pay cane dues to farmers on time.
In the road ahead, the policy on quantum of sugarcane allowed next season and availability and prices of grain-based feedstock will bear watching.
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