The future of sugar-based ethanol in India
The Diminishing Role of Sugar-Based Ethanol in India’s Biofuel Future: A Case for Multi-Feedstock Adaptation and Inclusive Policy Support
The future of sugar-based ethanol in India, a cornerstone of the Ethanol Blended Petrol (EBP) program, is at a pivotal juncture. While it was instrumental in launching the EBP initiative in 2003, its growth is increasingly limited by raw material constraints, competing demands for sugar, and a deliberate policy shift toward grain-based ethanol and other alternatives. Recent data for Ethanol Supply Year (ESY) 2024-25 underscores this transition, with sugar-based ethanol contributing just 33.87% of the allocated 996.69 crore liters for blending. This post explores the evolving landscape, the challenges facing sugar-based ethanol, and the need for multi-feedstock adaptation and inclusive policy support to ensure a sustainable biofuel future.
The Current State and Limitations
Sugar-based ethanol, derived from sugarcane juice, B-heavy molasses, and C-heavy molasses, leveraged India’s position as the world’s second-largest sugarcane producer to anchor the EBP program. The program aims to reduce oil imports, lower emissions, and support farmers by utilizing surplus sugar stocks. However, achieving the ambitious 20% blending target—met in 2024 with a mix of 33.87% sugar-based (337.49 crore liters) and 66.14% grain-based (659.20 crore Liters) ethanol—has exposed sugar-based ethanol’s limitations. The ESY 2024-25 allocation data highlights this shift:
Sugar-Based Feedstock: 337.49 crore Liters
• Sugarcane Juice: 192.94 crore liters (19.36%)
• B Heavy Molasses: 131.77 crore liters (13.22%)
• C Heavy Molasses: 12.78 crore liters (1.28%)
Grain-Based Feedstock: 659.20 crore liters
• Maize: 484.35 crore liters (48.59%)
• Damaged Food Grains: 107.46 crore liters (10.78%)
• FCI Rice: 67.39 crore liters (6.76%)
Total Allocation: 996.69 crore liters
Last year’s sugar shortage, triggered by erratic monsoons in Maharashtra and Karnataka, reduced cane yields, prompting the government to prioritize domestic sugar consumption over ethanol production. Policies such as static ethanol prices for sugarcane juice and B-heavy molasses signal an intent to cap sugar-based ethanol’s growth, favouring grain-based alternatives like maize and surplus rice.
The raw material bottleneck is a key constraint. Sugarcane, a water-intensive crop requiring 1,600–2,000 liters of water per kilogram of sugar (approximately 2,860 liters per liter of ethanol), faces scalability challenges.
India’s molasses-based ethanol capacity is around 875 crore liters (out of a total 1,685 crore liters as of 2024), but scaling sugar-based ethanol to meet rising demand would require an estimated 1,320 million tons of cane by 2025 for a 20% blend. This would demand an additional 19 million hectares of land and 348 billion cubic meters of water, conflicting with food security and sustainable water use priorities.
With domestic sugar demand at 27.5–28 million tonnes annually and a projected 8% production drop to 33.7 million tonnes in 2023–24, diverting cane to ethanol is increasingly untenable, as evidenced by last year’s export ban.
Impact on Sugar Millers and Investments
Sugar millers, incentivized by schemes like interest subvention for distillery expansion since 2018, invested heavily in ethanol infrastructure, boosting molasses-based capacity from 426 crore liters in 2022 to 875 crore liters by 2024.
However, the policy shift—capping sugar-based ethanol’s role and maintaining static procurement prices—has strained these investments. The ESY 2024-25 allocation of 337.49 crore liters for sugar-based ethanol (33.87% of the total) falls short of expectations for mills that anticipated a larger role in the 20% blend. Grain-based distilleries, with a capacity of 810 crore liters and a 66.14% share (659.20 crore liters), have taken the lead, leaving sugar mills with underutilized infrastructure and financial pressures from fixed costs.
The lack of long-term price stability or assured off-take for sugar-based ethanol dims the outlook for these investments, particularly as competing demands for cane limit feedstock availability.
The Shift to Grain-Based Ethanol and Beyond
The government’s preference for grain-based ethanol, now 66.14% of the 20% EBP blend, is driven by its scalability and reduced conflict with food security when using surplus or damaged grains. Maize, with an annual production of 34–36 million tonnes and a lower water footprint than sugarcane, is a favoured feedstock.
The ESY 2024-25 allocation assigns 484.35 crore liters to maize (48.59%), supported by price hikes for maize-based ethanol and damaged food grains, while sugar-based ethanol prices remain unchanged. Policies allowing surplus FCI rice (67.39 crore liters allocated) for ethanol further bolster grain-based capacity. However, challenges remain—maize demand from poultry (47%) and livestock feed (13%) could inflate prices, and rice diversion raises food security concerns during poor harvests.
Looking ahead, experimental ethanol blending in diesel, which accounts for 40% of India’s fuel consumption, adds complexity. A proposed 5% diesel blend would require an additional 200–250 crore liters annually, based on 4,500 crore liters of diesel demand.
Sugar-based ethanol, limited to 337.49 crore Liters in ESY 2024-25, cannot meet this demand without unsustainable cane expansion. Grain-based ethanol and second-generation (2G) biofuels from crop residues (e.g., bagasse, rice straw) are better positioned, though 2G technology in India is still nascent, with high costs and limited commercial scalability.
Adapting Through Multi-Feedstock Projects
To maximize ethanol infrastructure, the government should encourage sugar mills to convert their distilleries into multi-feedstock facilities capable of processing maize, rice, or bagasse alongside sugarcane derivatives. Modern distilleries are often designed for flexibility, and retrofitting existing sugar-based units could optimize capacity utilization.
The ESY 2024-25 data, with 66.14% grain-based ethanol, underscores the need for this adaptability—mills could use cane when sugar stocks are high and switch to grains during shortages, stabilizing returns. The interest subvention scheme for cooperative sugar mills, offering subsidized loans for distillery upgrades, is a positive step, but it excludes private mills, which account for ~60% of India’s ethanol production. Extending this scheme to private mills, alongside subsidies for retrofitting or assured pricing for multi-feed ethanol, would broaden its impact, ensuring investments in ethanol infrastructure remain viable and align with the EBP program’s diversification.
Future Prospects for Sugar-Based Ethanol
Sugar-based ethanol’s future in India appears plateaued, with its EBP share likely stabilizing at 30–40% (currently 33.87%, or 337.49 crore liters). Several factors will shape its role:
1. Policy Prioritization: Static ethanol pricing and sugar export bans prioritize domestic sugar supply, relegating sugar-based ethanol to a secondary role. Surplus cane will likely favor sugar unless global prices collapse, making ethanol more attractive.
2. Competing Demand: Rising ethanol needs for diesel blending or industrial uses (e.g., 310 crore liters annually for liquor) will strain capacity. Sugar-based ethanol’s 337.49 crore liters allocation cannot grow significantly without risking sugar shortages or necessitating imports, undermining energy security goals.
3. Sustainability Concerns: Sugarcane’s water intensity (2,860 liters per liter of ethanol) and vulnerability to climate-driven yield fluctuations make it less sustainable than maize or 2G feedstocks.
4. Economic Viability: Without price hikes or extended subsidies, mills with multi-feedstock distilleries (common in Uttar Pradesh) may prioritize grains, capping sugar-based ethanol at ~300–350 crore liters annually.
Conclusion
Sugar-based ethanol will maintain a supporting role in India’s biofuel mix, contributing 337.49 crore liters (33.87%) to the ESY 2024-25 allocation of 996.69 crore liters, but its dominance has waned. The government’s shift to grain-based ethanol (66.14%), driven by sugar shortages and scalability, signals a diversified EBP strategy. Encouraging multi-feedstock distilleries could revitalize sugar mills’ investments, allowing them to process grains or residues alongside cane, optimizing capacity amid policy shifts. Extending the interest subvention scheme to private mills is critical to fully leverage India’s ethanol potential and ensure equitable growth. As grain-based ethanol and 2G biofuels drive future supply—especially if diesel blending advances—sugar-based ethanol’s role, constrained by its resource demands, will remain limited, overshadowed by more flexible, sustainable alternatives.
