Ethanol blending on track but grain-based distillation could be a challenge

Less than 15% of total ethanol supply in the market is currently from grain-based distilleries

India’s ambitious target of blending 20 per cent of petrol with ethanol will be on track if the promised capacities come on stream and prices remain lucrative in the long run.

However, putting up grain-based distilleries could be a challenge due to differential pricing as compared to sugarcane-based ethanol, high power and steam prices, problems in getting regular supply of raw material--primarily corn in this case--and sustainability of conversion margins. 

Still, many are hopeful that with Centre keen to push the programme, the rough edges will be smoothened.

But the existing situation possibly explains why less than 15 per cent of the total ethanol supply in the market is currently from grain-based distilleries.

Data shows that by 2025 about six million tonnes of surplus sugar will be diverted towards ethanol production.

This is the same sugar which otherwise would have had to be exported without any subsidy, as under WTO rules, India will not be able to subsidise its sugar exports beyond December 2023.

The plan

To achieve the 20 per cent blending target by 2025, India will need to produce 10-11 billion litres of ethanol, of which 6-6.5 billion litres will come from sugarcane, while the rest will have to be contributed by corn- and grain based sources.

To produce this quantity, a capacity of 12 billion litres of ethanol will have to be installed of which 6.5-7.0 billion litres would be from sugarcane and the rest from corn based distilleries. 

At present, the total ethanol production capacity is just about six  billion litres of which that produced from sugarcane sources is 5.25 billion litres while that from corn-based distilleries is just 0.75 billion litres. (see table)

Therefore, to achieve the 20 per cent blending target, grain-based distillation must pick up more pace than sugarcane based ethanol. (see table)

But the industry believes that this is achievable, given that nearly 800 companies have put applied for setting up sugarcane and grain-based distilleries in India to capitalise on the government support programme.

That apart, sugar companies are also setting up dual feed ethanol plants, where corn and grain can be used in addition to sugarcane and molasses.

The supply schedule

According to the Indian Sugar Mills Association (ISMA), as far as diversion of sugar towards ethanol is concerned, current supplies of 3 billion litres of ethanol include diversion of 2 million tonnes of sugar to ethanol. 

If the industry manages to divert another 5 million tonnes of the surplus sugar produced each year, another three billion litres of ethanol will be produced, making available 6-6.5 billion litres.

In the case of grain-based distilleries, ISMA estimates show that to produce 4-4.5 billion litres of ethanol from corn and grains, around 16-17 million tonnes of the crops will be required each year.

At present, India has a per-hectare yield of three tonnes, which translates into 28 million tonnes of corn a year.

If India manages to bring its per-hectare corn yield to the world level of 5 tonnes, it will give another 18.5 million tonnes of corn annually, which should be good to meet all the feedstock demand of grains-based distillers.

If there is any shortage then, surplus grain from Centre’s granaries can be used, provisioning of which has already been made.

The Gadkari formula

Transport Minister Nitin Gadkari, a strong advocate of ethanol blending with petrol, in a recent webinar floated the idea of adding 15-20 percent of already produced sugar back into B-Heavy molasses.

According to Gadkari, this will have multiple benefits.

“Firstly, it will utilise excess stock of 4.5-6.0 million tonnes of sugar and will improve ethanol recovery by 30 per cent due to better raw material quality. For 15 per cent addition of sugar into B-Heavy Molasses, an additional recovery of 3.35 billion litres per tonne can be achieved. And for 20 per cent addition, an additional recovery of 3.5 billion litres per tonne can be achieved,” Gadkari said.

According to Gadkari, the production of ethanol from sugarcane juice or syrup has been facing some problems on the pricing front.

“The same pricing of around Rs 62 per litre can be considered an incentive for sugar millers to divert their excess sugar stocks into B-Heavy Molasses (or intermediary molasses),” Gadkari said.

He added the industry can also think of completely discouraging production of C-Heavy Molasses (final molasses) from sugar, which will standardise the production of B-Heavy Molasses and permanently lead to lower production of sugar by 1.5 per cent per tonne of sugarcane.

Industry benefits

The ethanol programme has no doubt gladdened the hearts of sugar companies.

Rating agency Icra said in a recent report that that riding on tailwinds from favourable pricing environment domestically and globally, as well as increased share of ethanol in the revenue mix, the revenues of sample of sugar companies are expected to grow by 5-7 per cemt in FY2022 year-on-year, and report a stable operating margin profile.

“Increased sucrose diversion towards ethanol in light of Government’s complementing policies is likely to ramp up ethanol supplies while limiting sugar production. This, coupled with healthy sugar export prospects in the current fiscal, would aid moderation in inventory position and lower borrowing levels of the ICRA sample at the end of the fiscal, notwithstanding ongoing debt-funded capex plans (for distillery and crushing capacities) for various players. With improved operating profits and reduced debt levels, the coverage metrics and capital structure would emerge stronger by end of fiscal year,” Sabyasachi Majumdar, Senior Vice President and Group Head of Icra said.