Govt's ethanol blending programme faces supply and pricing problem

The government's ambitious aim to double the blending target could face challenges from two of the three sources: Grain-based and biomass-based

India’s ambitious plan to blend 20 per cent ethanol with petrol rests on two sources of supply: Sugarcane-based and grain-based sources.

Between the two, the first one is well on track because ethanol production from molasses derived from sugarcane has been a long-standing and fairly established process.

But the second component, which had started picking up from January 2021 after a series of favourable policy announcements, is facing multiple headwinds.

Though both the government and the industry are confident that India will achieve its target of sourcing a big portion of ethanol from grain-based sources by 2025, industry and market players said the road is riddled with difficulties.

In 2021-22, for the ethanol supply year that will end in November, India has achieved a blending of over 10 per cent till September 2022. To achieve 20 per cent blending by 2025, the country needs 10.2-11 billion litres of ethanol.

This would require a production capacity of around 14.5 billion litres because some production has to be kept aside for starch and chemical industry.

Of this, around 7.6 billion litres of ethanol will have to be produced from sugarcane while another 7.2 billion litres will have to come from grain- and non-grain-based sources such as rice stubble and so on.

In the current ethanol supply year (December 2021-November 2022), according to industry sources, till September 4, around 3.33 billion litres of ethanol has been supplied, of which the sugar industry has contributed 2.87 billion litres (almost 86 per cent) and grain-based distilleries the rest (see chart).

In other words, ethanol produced from grain needs to be scaled up significantly to meet targets.

One big challenge that grain-based ethanol industries are facing of late is sourcing rice husk to run their boilers.

Unlike sugarcane-based ethanol where bagasse (sugarcane stalks after they are crushed) is used to fire up the boilers, in standalone grain-based distilleries rice husk is the main component that goes into firing up of the boilers.

But rising demand is putting pressure on prices: Rice husk prices have almost trebled in the past year, according to industry players, from around Rs 3.5 to almost Rs 10.5 a kg.

“The problem is these rates will go up further when more players come into the market because unlike sugarcane where mills have a dedicated area from where they can source the cane, grain-based ones don’t have any such restriction,” a senior industry player said.

The price of broken rice, which too is a critical component for standalone grain-based distilleries alongside maize, has also shot up over the past year from Rs 15,000 to almost Rs 22,000 per tonne.

Though the Centre’s decision to ban broken rice exports — one of the stated objectives of which was to make this available for ethanol — has cooled prices a bit, they remain higher than last year. The industry has pinned its hopes on the coming kharif rice harvest.

The price of maize, another alternative raw material for ethanol production, has also jumped from Rs 15,000 to around Rs 22,000 a tonne.

“Unlike sugarcane where the raw material price is fixed, an average grain-based distillery does not have that luxury,” the industry official said.

Beyond price, there is a moral hazard involved in diverting too much rice and maize for ethanol production in a country where access to affordable food remains an issue.

A third supply source that is emerging for ethanol is from biomass. Ethanol produced from this source is called 2G ethanol because it entails production from second-generation sources that include biomass residue such as paddy stubble and so on.

But industry sources said nearly four years after the government announced an ambitious plan to set up 12 integrated 2G ethanol plants, only one has been constructed so far.

State-owned oil marketing companies (OMCs) hope to produce ethanol from bio-residue and agri-waste from mega projects, but the prohibitive cost of the technology and convincing farmers are major challenges.

Termed “bio refineries” by the government, these 12 plants are aimed at providing financial support to integrated bio-ethanol projects, using lignocellulose biomass and other renewable feedstock.

Back in 2018-19, an investment of Rs 1,969.5 crore had been earmarked for OMCs for this purpose for a five-year period until 2023-24.

However, the ambitious plan, and the scheme under which it is envisaged, the Pradhan Mantri JI-VAN (Jaiv Indhan-Vatavaran Anukool Fasal Awashesh Nivaran Yojana), is now being re-evaluated in the light of severe cost overruns.

In August this year, Prime Minister Narendra Modi launched the first 2G ethanol plant built by Indian Oil Corporation (IOC) at an estimated cost of Rs 900 crore in Haryana’s Panipat.

Officials said the high cost of technology was singularly responsible for the overrun in initial cost estimation.

“The plants are built from indigenous technology, in a sector that is still at a nascent stage in India. The costs therefore have risen. They will come down slowly over time. But for the time being, given the kind of volumes each plant is mandated to achieve, costs would remain high,” an IOC official said.

Expected to produce around 30 million litres of ethanol using 200,000 tonnes of paddy straw as feedstock per year, the plant is set to face its first test in the oncoming winter, when stubble production, and subsequently its burning, peaks in the area.

“Going forward, the absence of suitable supply chains for bio-ethanol will also throw up challenges for transporting it to the utilisation points,” he added.

The official stressed that OMCs are waiting to monitor the performance of the Panipat plant, so that operational processes can be tweaked or technology upgraded before the next ones go live.

HPCL is expected to set up four 2G ethanol plants, IOC and BPCL will set up three plants each, and MRPL and Numaligarh Refinery in Assam will set up one each.

Sources said storing the raw biomass at 2G ethanol plants without degradation is a challenge, and given that large land parcels are necessary for the plants, the entire project has also faced challenges with securing land, too

Blender’s plight

• (Blending so far in the 2021-22 — December to November — Supply Year)
• Total quantity required for 10% blending: 4.59
• Total quantity contracted: 4.50
• Total quantity supplied: 3.33
• Blending % achieved: 10.03
• Quantity supplied from sugarcane-based distilleries: 2.87
• Quantity supplied by grain-based distilleries: 0.46
   

Figures in billion litres

Note: The information is as on September 4, 2022

Source: Trade and industry