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The Ethanol Industry is growing at a rapid rate

Chintu Das
Chintu Das
Ethanol

Despite the fact that the ethanol blending scheme began in 2003, it has only picked up steam since 2018. The goal of 10% ethanol blending has been postponed by a decade due to a shortage of feed-stock, lower ethanol processing capability, and uncertainty about ethanol prices. However, starting in 2018, the government has taken a variety of measures to encourage ethanol blending. 

  • The government has approved the processing of ethanol using the B-heavy and sugarcane juice routes.

  • Separate prices for C-heavy, B-heavy, and Sugar Juice ethanol was announced in order to stimulate higher ethanol output by partially or completely sacrificing sugar.

  • Interest subsidy of up to 50% for any ethanol production expansion or capital expenditures related to insinuation boilers.

In 2019-20, the industry was able to reach 5% average blending, and OMCs have agreed to supply 289 crore litres of ethanol in 2020-21. In the present year, this will result in a 7% ethanol blend with gasoline.

The ethanol economy is worth rupees 17000 crores, based on ethanol output of 289 crores. By 2022, the government intends to mix 10% ethanol into gasoline and 20% ethanol into gasoline by 2025. By 2025, 1000 crore litres of ethanol will be needed. By 2025, we estimate that the ethanol economy will be worth rupees 60,000 crore. Furthermore, by 2025, gross distillery sales (ethanol, ENA, rectified spirit) will total rupees 90,000 crore.

Ethanol from fresh juice is profitable

In October 2021, the government boosted ethanol prices largely to promote expanded ethanol production. It has increased the price of C-Heavy ethanol by 4.4 percent to rupees 45.7 per litre. Furthermore, the prices of B-heavy ethanol and sugarcane juice ethanol have risen by 6.2 percent to rupees 57.6 per litre and 5.3 percent to rupees 62.7 per litre, respectively. With this boost, sugarcane juice ethanol is more profitable than B-heavy or C-heavy ethanol, assuming sugar prices of rupees 32 per kilo.

The industry is investing heavily in capital expenditures:

Interest subsidy on distillery capacity growth has pushed the industry to rapidly expand distillery capacity, which would be used to produce B-heavy, sugarcane juice, and grain-based ethanol.

The government expects 40,000 crore worth of distillery projects to be completed in the next four to five years, bringing the country's distillery capacity to about 1600 crore litres. OMCs will need 1000 crore litres for ethanol, while the remainder will be used to make extra neutral alcohol (ENA) and rectified spirit for the liquor and chemicals industries.

As a result, several sugar mills have announced capacity expansions in the distillery sector. Every year, India produces approximately 6 MT more sugar than it consumes. This surplus is now exported with the assistance of government subsidies. To retain the demand-supply equation, the industry would have to sacrifice 6 MT of sugar for ethanol processing. We estimate that most millers will add capacity aggressively, resulting in 3.5 MT of sugar diversion in 2021-22 and 5.5 MT of sugar diversion in 2022-23.

Ethanol blends of 20% by 2025 are probable:

The government intends to blend 10% ethanol into gasoline by 2022 and 20% ethanol into gasoline by 2025. (advanced from 2030). To meet these goals, OMCs will need 430 crore litres of ethanol by 2022 and 1000 crore litres of ethanol by 2030. Despite the significant rise in B-heavy and sugarcane juice ethanol prices this year, we think this target can be met. In addition, the industry is investing heavily in capacity expansion in order to meet this target.

The state of the industry:

Sugar inventories are being reduced, the demand-supply balance is evening out, and ethanol sales are increasing significantly, the sugar industry will see high earnings growth in the next three to four years. We estimate that distillery revenues could account for up to 25% of sugar corporations' overall sales. Sugar prices will also rise due to lower sugar inventories. Any of these things will help to boost profits.

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