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Wednesday, September 30, 2020

Explained: What does the govt’s move to increase bioethanol in petrol mean?

We examine key challenges to raising the ethanol blending level for petrol from around 5 per cent currently to the targets set by the central government.

Written by Karunjit Singh , Edited by Explained Desk | New Delhi | Updated: August 18, 2020 9:40:56 am
At a sugar processing unit in Uttar Pradesh. (Express Photo: Gajendra Yadav)

The government has set targets of 10 per cent bioethanol blending of petrol by 2022 and to raise it to 20 per cent by 2030 under the ethanol blending programme to curb carbon emissions and reduce India’s dependence on imported crude oil. 1G and 2G bioethanol plants are set to play a key role in making bio-ethanol available for blending but face challenges in attracting investments from the private sector.

We examine key challenges to raising the ethanol blending level for petrol from around 5 per cent currently to the targets set by the central government.

What are 1G and 2G biofuel plants?

1G bioethanol plants utilise sugarcane juice and molasses, byproducts in the production of sugar, as raw material, while 2G plants utilise surplus biomass and agricultural waste to produce bioethanol. Currently, domestic production of bioethanol is not sufficient to meet the demand for bio-ethanol for blending with petrol at Indian Oil Marketing Companies (OMCs). Sugar mills, which are the key domestic suppliers of bio-ethanol to OMCs, were only able to supply 1.9 billion litres of bio-ethanol to OMCs equating to 57.6 per cent of the total demand of 3.3 billion litres.

Why are Indian plants not able to meet the demand for bio-ethanol?

Experts point out that many sugar mills which are best placed to produce bioethanol do not have the financial stability to invest in biofuel plants and there and there are also concerns among investors on the uncertainty o the price of bio-ethanol in the future. “In general, the sugar sector has its own balance sheet issues,” said Shishir Joshipura, CEO and MD of domestic biofuel technology provider Praj Industries, noting that sugar mills have had to pay high prices for sugarcane set by the government even when there have been supply gluts.

The prices of both sugarcane and bio-ethanol are set by the central government.

An expert at a leading OMC, said the price of obtaining agricultural waste required for the production of bio-ethanol at 2G plants was currently too high for it to be viable for private investors in the country. The expert noted that state governments needed to set up depots where farmers could drop their agricultural waste and that the central government should fix a price for agricultural waste to make investments in 2G bioethanol production an attractive proposition.

The three state-run OMCs Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. are currently in the process of setting up 2G bio-ethanol plants.

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What can be done to boost investment in bioethanol production?

Experts say the government could provide greater visibility on the price of bioethanol that sugar mills can expect by announcing a mechanism by which the price of bio-ethanol would be decided. The impetus for bioethanol uptake was driven by government worldwide, and a target that a certain percentage of ethanol blending be done using ethanol generated from 2G plants would help boost investment in the area.

Joshipura said 2G bioethanol not only provided a clean source of energy, but also helped to provide greater income to farmers and prevent them from having to burn agricultural waste which can be a major source of air pollution.

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