India achieves 10% ethanol blending 5 months ahead of schedule

Renewable energy has always been a subject close to the prime minister’s heart and it is not surprising that the announcement was made by the prime minister. India had sharply brought back its ethanol blending targets last year to achieve 10% by November 2022.

According to the latest announcement made by the prime minister, the government has achieved that target a full five months early i.e. in June 2022 itself. The journey is a lot more interesting.

Back in 2014, when the current government took over, the total ethanol blending in petrol was just about 1.5%. Now it has gone up to 10% and is poised to touch 20% over the next 3 years. The only constraint to the achievement of 20% ethanol blending is the available capacity as most of the ethanol capacities are being built by the sugar companies and these are likely to go on stream in the next couple of years.

The prime minister highlighted 3 very important economic and social advantages of higher ethanol blending. Firstly, the 10% ethanol blending has resulted in the saving of Rs41,000 crore or $5.4 billion per year in the form of foreign exchange.

Currently, India relies on imports to meet 85% of its crude requirements. Secondly, this blending will be instrumental in the reduction of almost 27 lakh tonnes of carbon emissions. Above all, it has reduced the dues to farmers by helping them earn Rs40,000 crore of additional income.

More importantly, this is in tune with the broader intent of the Indian economy to cut down on the fossil footprint. The government plans to achieve 20% ethanol blending soon, which would mean big savings of over $10 billion annually and reduce pressure on the forex chest.

This also syncs with the target of achieving 40% installed power generation capacity from non-fossil fuels. Remember, India has already boosted its solar capacity by 18 times. 

More than anything else, this has emerged as the big opportunity for the sugar companies. Just about a few years back, sugar companies were saddled on multiple fronts. Firstly, there was no clarity on sugar pricing and sugar exports.

In the last few years, the freeing up of sugar exports, combined with export subsidies to manufacturers, has helped the sugar companies to sell sugar at remunerative global prices. In the process, they have also reduced the dues to the farmers and also reduced the strain on sugar company finances. 

However, the bigger impact has been on the ethanol production capacity of sugar companies. Ethanol is a by product of sugar and most of the Indian sugar companies have been earning a lot more margins on ethanol in the last few quarters than from the direct sale of sugar.

This has ensured that the sugar companies with the quickest to bring ethanol capacity on board and boost ethanol production stand to gain. That explains why a clutch of companies like Balrampur and Dalmia Bharat Sugars gained most from the ethanol story.