Industry
Mint Explainer: How existing curbs may impact India's 20% ethanol blending goals
Summary
- The latest directive could test India's ambitious ethanol blending goals
The Indian government earlier this month directed sugar mills to cease using cane juice for ethanol production and instead increase sugar output. This directive is aimed at addressing domestic supply concerns amid a smaller sugarcane crop due to poor rainfall. Already, the likely fall in production has driven domestic sugar prices to their highest levels in nearly 14 years, exacerbating the government's fight against food inflation. The development, which follows the Centre's restrictions on sugar exports, can impact India's ambitious goal to achieve a 20% ethanol blend in fuel by 2025-26.
Mint delves into the situation.
How does the directive impact the industry?
The government's directive presents a major challenge for the industry, notably impacting companies like Balrampur Chini Mills and Shree Renuka Sugars, which have invested in ethanol production from cane juice, or syrup. Oil marketing companies (OMCs) have sought approximately 8.25 billion litres of ethanol for the 2023-24 ethanol supply year (ESY), targeting a 15% blending ratio. Yet, the latest decision risks a significant part of this goal and could underutilize current production capacities.
The government has said, “The supply of ethanol from B-heavy molasses against existing offers received by OMCs will continue." However, it is yet to announce prices of ethanol from various feedstocks payable to mills in 2023-24 despite the ESY being moved to November-October from December-November.
What role does sugarcane juice play in ethanol production?
Ethanol is 99.9% pure alcohol that can be blended with petrol.
In India, ethanol is produced largely through sugarcane-based molasses and grain-based sources as feedstock. And in the case of sugarcane, ethanol is produced through cane juice, or syrup, or B-heavy molasses and C-heavy molasses. Sugarcane juice, contributing 20% of ethanol production, is crucial for achieving the highest price per litre for sugar mills at ₹65.61. B-heavy molasses contributes 60%, while the share of C-heavy molasses is negligible.
With the average ethanol blend in petrol rising from 1.6% in 2013-14 to 11.8% in 2022-23, the role of sugarcane juice and syrup has been pivotal. The government's recent decision could necessitate a greater reliance on alternative sources like grains to meet the ethanol blending goals.
What is the government’s take?
The food ministry's ban on using sugarcane juice for ethanol production in the 2023-24 ESY comes amid a likely fall in crop output a probable fall in crop yields. The agriculture ministry, in its initial estimates, has sugarcane output at 434.8 million tonnes for the 2023-24 crop year (July-June), down from 494.2 million tonnes in the previous year. Sugar output in the 2023-24 (October-September) is estimated to decline to 32.3-33 million tonnes from 37.3 million tonnes in the previous season.
The government, however, remains committed to the 20% ethanol blending target by 2025-26 and considers the ban a temporary measure. It plans to encourage ethanol production from various sources, including B and C-heavy molasses and damaged grains, to achieve this objective without resorting to ethanol imports.
