A government decision to bring forward the ethanol blending target of 20% to 2025-26 from 2030 has brought additional cheer to sugar producers, already heartened by rising demand.
Ethanol is made from sugar, molasses or grain and like much else, the target of increasing ethanol blending with petrol had to be postponed during the pandemic. Now, under the renewed target, 10% blending of fuel-grade ethanol with petrol should happen this year, increasing gradually each year thereafter and reaching 20% by 2025-26.
India’s sugar industry had been experiencing tepid growth for years. Between FY14 and FY21, growth was just 3.6%. This situation worsened during the pandemic as demand suffered and inventory levels with sugar producers reached record highs.
As the economy has opened up, however, increasing demand for sugar has helped matters. And the government’s decision to bring forward the ethanol blending target provided the icing.
To achieve this 20% blending target, India needs an ethanol production capacity of over 10 billion litres. This is an opportunity for sugar producers to step in. An industry representative said the government fixes the price at which it will purchase ethanol once every year and has offered a guarantee that all ethanol produced will be purchased at this price, removing uncertainties and making it easier for sugar companies to plan capital expenditure.
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Year of all-time highs
According to an analysis by Centrum Broking, in the sugar season of 2022 (October 1, 2021 to September 30, 2022): “India is expected to record an year of all-time highs with respect to sugar production (nearly 35 million tonnes), exports (10 million tonnes) and diversion to ethanol at nearly 3.4 million tonnes.”
It pointed out that the revision in the National Policy on Biofuels, 2018, with the revised ethanol blending target, has already begun bearing fruit. This is evident from the fact that even after the sugar season of 2020-21 saw an all-time high production of 31.2 million tonnes, inventory levels actually declined to 113 days, leading to an increase in domestic realisations.
Centrum Broking said that in the ongoing sugar season, inventory levels are expected to be just 83 days despite another round of record sugar production. This, again, will raise realisation for sugar companies.
Meanwhile, taking a cue from the government’s roadmap for ethanol blending, many sugar manufacturers have already lined up a significant expansion of ethanol production.
Tarun Sawhney, vice chairman and managing director of Triveni Engineering & Industries, told Moneycontrol that the company had lined up a capital expenditure of Rs 350 crore for nearly doubling distillery capacity to make ethanol.
“At Triveni, we have been focused on enhancing the capacities and efficiencies of our distilleries effectively to build a sustainable bio-fuel economy. We have been further incentivised by the government’s Ethanol Blended Petrol Programme (EBP), which has advanced the deadline for blending 20% ethanol with petrol to 2025 from 2030. Last year, the company announced more than doubling of its distillery capacity from 320 KLPD (kilo litres per day) to 660 KLPD by July 2022 through greenfield and brownfield projects.”
As on date, Triveni has already achieved 520 KLPD and is at an advanced stage of commissioning a 60 KLPD grain distillery. Sawhney said that “overall, the capex for increasing the capacity to 660 KLPD is envisaged in the vicinity of Rs 350 crore.”
He added that Triveni’s newer distilleries had the flexibility of operating with dual feedstock including grain.
“We believe this (ethanol production) is one of the fastest expansions at the most optimal capital expenditure among the industry. We remain committed to supporting measures towards the country’s energy transformation to be more energy self-sufficient, to meet our climate change goals," Sawhney added.
Balrampur Chini Mills, which had a nearly 5% share of the overall ethanol supply market last fiscal, is expected to expand its distillery capacity from 560 KLPD (which is already 15 times the capacity in FY20) to 1,050 KLPD in FY23.
According to Centrum, with an aggressive ethanol target, the total addressable market for integrated sugar manufacturers should increase from Rs 0.95 trillion in FY21 to Rs1.4 trillion by FY24, “posting an unprecedented healthy CAGR of 14%”.Between FY21 and FY26, demand for ethanol is estimated to reach 10.16 billion litres. And in FY21, India’s total ethanol production capacity was 4.5 billion litres derived from molasses-based distilleries and 2.6 billion litres from grain-based distilleries. This will be expanded to 7.6 billion litres and 7.4 billion litres, respectively.