In today’s Finshots, we talk about India’s ambitious ethanol project and all the challenges that we might face in the near future.


The Story

India has been working hard to reduce its dependency on foreign oil. The conventional solution would probably entail seeking resources internally to ween off these interdependencies. But considering the precarious nature of fossil fuels, that probably won’t happen. Instead, India is looking at an alternative — Ethanol.

It burns clean, it burns well and in theory, we could produce enough ethanol to meet our needs. Because unlike petrol, ethanol isn’t a byproduct of crude oil. It’s a complex derivative you extract while processing sugarcane.

You could extract it from sugarcane juice. You could extract it from molasses — the black viscous product you derive from refining sugarcane. Or you could extract it from the likes of corn, bamboo, and rotten potatoes.

Needless to say, we grow this stuff in abundance. Therefore, the government has made a concerted effort to promote ethanol as an alternative fuel option and all of this culminated in the final unveiling of the ambitious National Policy on Biofuels (2018).

The plan is simple — Ramp up ethanol production, slowly start blending it with petrol and get to a point where we could reduce oil imports by a rather substantial amount.

The government wants to achieve a target blend rate of 10% by 2022. By 2030, they want to push it to 20%. So, technically by the end of this decade, we should see ethanol replace roughly 20% of all incumbent fuel we consume. In most cases, consumers will probably be using a blended fuel mixture of petrol and ethanol. However, it’s quite possible that we might also see the production of ethanol-only vehicles in the near future.

And while all of this should ideally reduce our dependency on foreign oil, there are some obvious challenges in adopting ethanol.

For starters, there’s a capacity issue. Although India produces a lot of ethanol, we can’t use them all in the pursuit of optimizing blend rates. For instance, back in 2016, we produced around 300 crore litres of ethanol. But almost half of this supply was diverted to distilleries. After all, liquor is a major revenue source for most states and they won’t compromise on this bit.

And then, a good 60–80 crore litres from the supply pool was used to produce chemicals. That left us with about 100–120 crore litres and we barely managed to hit blend rates of about 3.5%.

Now although we’ve improved considerably since then and even managed to hit blend rates of 6% last year, we imported roughly 20% of our Ethanol from the US. Not necessarily the kind of progress you like to see.

Then there’s seasonality. We still grow sugarcane in drought-prone areas like Maharashtra and when the monsoons aren’t kind, supply problems can hit us bad. For instance, this year the average blend rate is hovering at about 5%. While you could attribute some of the problems to the nationwide lockdown, droughts in parts of Karnataka and Maharashtra also played a massive role in scuttling supply.

Also, even if we somehow did improve blend rates, we need to look at another major variable in the equation — the vehicles.

Usually, with low blend rates, a mixture of ethanol and petrol works just fine. However, as the concentration of ethanol in the fuel mixture starts increasing, interesting problems begin to crop up.

Consider Brazil.

Back in the late ’70s, the Brazilian government began promoting the use of neat-ethanol vehicles to reduce the country’s dependency on oil. These new variants were built to run on just ethanol. The scheme worked perfectly well so long as ethanol prices traded at a steep discount to oil. However, when oil prices crashed during the ’90s, consumers turned away from these vehicles entirely and switched back to oil guzzling motorcars.

The Brazilian government had to respond once again. In the early 2000s, they started laying the groundwork to promote flex-fuel vehicles (FFV). These vehicles could run on both ethanol and petrol — offering consumers the flexibility to switch between multiple fuels depending on price and convenience. These vehicles can also withstand the corrosive nature of ethanol-blended fuels and offer some protection against engine stalling. By 2018, 38% of all vehicles sold in Brazil had flexible fuel engines.

India has also taken a cue from this little initiative and policymakers have been vocal about promoting FFVs to boost ethanol adoption in the country. But they have also been vocal about promoting electric engines and ushering in the EV revolution. Oh, and we all know how they only recently mandated automakers to produce the more environmentally friendly BS-VI compliant engines from here on in. So it seems the government has been keen on getting automakers to do all sorts of things at once.

However, this approach might not necessarily be prudent.

After all, upgrading manufacturing facilities take years. Recouping that investment might take a few more years. In the end, if there’s no real clarity on what path we are likely to pursue, we won’t see a lot of progress.

Anyway, the bottom line here is simple. Ethanol adoption, in all likelihood, will reduce our import bill and aid farm income in a massive way. But it’s safe to say that there’s still a lot of work to be done before we get to meet our lofty target blend rates.

Until then…

Share this Finshot on WhatsApp, Twitter, or LinkedIn.