IEA predicts ethanol demand growth in India on 20% blending target

Representative Image, Photo by Matthew Henry on Unsplash

India, Brazil and Indonesia will account for almost two-thirds of biofuel demand growth in 2023-24, the International Energy Agency (IEA) said.

“All three countries have ample domestic feedstocks, additional production capacity, relatively low production costs and a package of policies they can leverage to increase demand,” the IEA said in its Renewable Energy Market update for June 2023.

Energy security considerations helped drive biofuel production to offset the consumption of over 2 million barrels of oil a day in 2022, the IEA said. This was equivalent to 4 percent of the global transport sector oil demand.

The IEA report is aligned with India’s National Policy on Biofuels, which was amended last year to advance the target year for 20 percent blending of ethanol (E20) in petrol to FY26 from 2030.

The IEA said that while biofuels offered energy security benefits, their prices climbed more quickly than those of gasoline and diesel in many countries. Biofuel prices peaked in 2022 and have since declined, it said.

In India, raw materials such as sugarcane and food grains are priced to benefit farmers. Sugarcane-based ethanol in India is priced at $0.865 (Rs 62.65) per litre, while ethanol costs $0.606 per litre in Brazil, according to Niti Aayog and the oil ministry.

Despite initial challenges, a successful E20 programme can save India $4 billion (Rs 30,000 crore) annually, Niti Aayog said. That was about 35 percent of India’s net oil and gas import bill of $11.2 billion in December, as per oil ministry data.

The NITI Aayog’s E20 roadmap includes production of E20-tuned engine vehicles from April 2025. It recommended gradual diversification into water-efficient maize and non-sugar food grains to produce ethanol.

Recent interest subsidy incentives for grain-based distilleries should aid E20 targets. Additionally, blending of biodiesel in diesel and direct sale of biodiesel are proposed by 2030.

Furthermore, ethanol can be commercially used in the chemical and pharmaceutical industry and as an effective solvent. With increasing government mandates and rising energy security concerns, the IEA prediction greenlights the biofuel industry in India.