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Analysis of declining role of sugar-based ethanol in India’s EBP program, shifting towards grain-based and 2G biofuels for growth.
Sugar-based ethanol, once central to India’s Ethanol Blended Petrol (EBP) programme, faces a declining role due to raw material constraints, competing sugar demands, and a strategic shift towards grain-based and other ethanol sources. While foundational to the EBP’s launch in 2003, its progress is now limited. This analysis details the current situation and implications for sugar-based ethanol production.
Current limitations: Initially leveraging India’s sugarcane dominance, sugar-based ethanol struggled to meet the 20 per cent blending target (achieved with a 30 per cent sugar-based and 70 per cent grain-based mix). Last year’s sugar shortage, caused by monsoon failures, prioritised domestic sugar consumption, leading to stagnant ethanol prices from sugarcane juice and B-heavy molasses, effectively capping its growth in favour of grain-based alternatives.
The core issue is raw material availability. Sugarcane’s high water consumption (around 2,860 litres of water per litres of ethanol) and limited molasses-based ethanol capacity (875 crore litres of 1,380 crore total in late 2023) make significant scaling unsustainable, requiring vast land and water resources that conflict with food security and water conservation. With annual domestic sugar demand at 28-29 million tonnes and a projected production drop, large-scale diversion of cane to ethanol is unlikely.
Policy shift impact
Impact on sugar millers: Encouraged by past incentives, sugar millers invested heavily in ethanol distilleries. However, the policy shift limiting sugar-based ethanol and stagnant procurement prices has led to underutilised capacity and financial strain. Initial economic projections, based on a steady increase in sugar-based ethanol demand, are now disrupted by the prioritisation of grain-based ethanol (505 crore litres capacity and growing) and the lack of price stability for sugar-based ethanol.
The grain-based shift and beyond: The government favours grain-based ethanol (now 70 per cent of the 20 per cent blend) for its scalability and reduced food security concerns when using surplus grains such as maize. Price signals favouring maize and policies allowing FCI rice for ethanol have boosted grain-based capacity. However, even this faces limitations due to competing demands for maize and potential rice shortages.
Future exploration of ethanol blending in diesel, a much larger fuel market, further highlights the inadequacy of relying solely on sugar-based ethanol. Grain-based and emerging 2G biofuels from crop residues are more likely solutions, though 2G technology is still developing in India.
Incentives for adopting multi-feedstock production
Multi-feedstock adaptation: To optimise existing infrastructure, the government should incentivise sugar mills to adopt multi-feedstock ethanol production, enabling them to process grains and residues alongside sugarcane. While a recent interest subvention scheme for cooperative mills is a positive step, extending this to private mills (60 per cent per cent of the sector) is crucial for maximising national ethanol capacity and ensuring equitable growth. Support for retrofitting and assured pricing for multi-feed ethanol would further drive this transition.
Future of sugar-based ethanol: Sugar-based ethanol’s future appears stable rather than expansive, potentially settling at 30–40 per cent of the EBP blend, contingent on stable cane production. Its role will be shaped by: government prioritisation of sugar security, competing ethanol demands (including diesel and industrial uses), sugarcane’s sustainability concerns, and the economic viability for millers without price increases. The 30 per cent share in the current blend may represent a practical limit.
Conclusion
Sugar-based ethanol will remain a contributor to India’s biofuel mix, but its dominance is over. The government’s shift to grains signifies a diversification strategy. Encouraging multi-feedstock projects in sugar mills is vital to leverage existing investments and optimize capacity. Future ethanol growth will primarily come from grains and 2G biofuels, limiting sugar-based ethanol’s potential due to resource constraints and the rise of more flexible alternatives.
(The author is Managing Director of Samarth SSK Ltd and Co-Chairperson of the Sugar Bioenergy Forum (SBF) under the Indian Federation of Green Energy.)
Published on April 26, 2025
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