India aims to incorporate 20% ethanol in petrol by ESY 2025, equivalent to approximately 990 crore litres annually. Achieving this target will require the effective use of both grain and sugarcane feedstocks to boost supply.
According to a press release from CRISIL Ratings, ethanol production from grains is projected to rise significantly to around 600 crore litres by the next season, up from an estimated 380 crore litres this season. The remaining ethanol needed will be produced from sugarcane, which is feasible given the existing substantial processing capacity.
This approach will help manage sugar inventory, particularly since there is expected to be a high carry-over stock at the end of the current season due to government restrictions on diverting sugar for ethanol production and exports.
The CRISIL Ratings press release notes that an analysis of 17 integrated sugar mills, representing about one-third of the ethanol derived from sugarcane, supports this strategy.
Blending ethanol reduces India’s reliance on crude oil imports, with the ethanol blending rate having steadily increased by 200-300 basis points each season since ESY 2021.
The press release also highlights that while grain-based ethanol production is not regulated, the government controls the amount of sugarcane used for ethanol based on projected demand and supply of sugar for the coming year.
Due to erratic rainfall last year, sugarcane production is expected to be impacted this season. Consequently, the amount of ethanol produced from sugarcane is anticipated to be limited to 2.5 million tonnes of sugar diversion.
Poonam Upadhyay, Director at CRISIL Ratings, stated that ethanol blending could still reach 14% in ESY 2024 due to a significant 40% increase in grain processing capacity, which will offset the reduced sugarcane output. However, to meet the 20% blending target by ESY 2025, it will be necessary to allocate sugarcane for producing approximately 4 million tonnes of sugar for ethanol, similar to the 2023 season.
For the upcoming season in 2025, gross sugar production is expected to be around 33.5 million tonnes, with consumption at approximately 29.5 million tonnes. Sugar inventories are projected to remain robust by the end of this season.
Thus, allocating sugarcane to produce about 4 million tonnes of sugar for ethanol (approximately 390 crore litres) can be considered, with the majority of the remaining ethanol being sourced from grain-based production.
Anil More, Associate Director at CRISIL Ratings, noted that increased sugarcane use for ethanol production would help manage sugar inventory, which is anticipated to reach about 4 months of consumption (around 8 million tonnes) by season’s end. Additionally, this will positively impact the cash flow of sugar mills, aiding in timely payment of cane dues to farmers.
Moving forward, monitoring the policy on the amount of sugarcane permitted for ethanol production next season and the availability and prices of grain-based feedstocks will be crucial.
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