- India has set a 20% blending target for 2025 but there is a growing rift in the ethanol economy.
In July 2019, TVS Motor Company, India’s third largest two-wheeler maker, unveiled a radical version of its best-selling performance motorcycle, Apache. It could run entirely on ethanol, a renewable fuel made by fermenting plant materials such as sugarcane juice.
Back then, TVS billed it as the first ever ethanol powered motorcycle in the country. “Today, the two-wheeler industry is looking at green and sustainable future mobility solutions spanning across electric, hybrid and alternate fuels. We believe that ethanol-based products are an important option for our customers,” Venu Srinivasan, chairman of TVS Motor Company, had then said.
TVS even announced the price— ₹1.2 lakh—10% more than the comparable petrol version. The company had hoped to sell it in the sugar producing states of Uttar Pradesh, Karnataka and Maharashtra.
It was, however, a false start.
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The bike needed to run on 100% ethanol and India, even today, has only achieved a 10% blend—10% of ethanol blended with 90% of petrol. While India has ample sugarcane, the country doesn’t yet have enough fermentation capacity required to make ethanol.
TVS’ plans, therefore, made little headway.
Nonetheless, in the following years, the business and economic rationale for India to adopt ethanol gained momentum. On paper, it solves a number of problems. As a replacement for imported crude, it helps save foreign exchange—India spent $119.2 billion in 2021-22 to buy oil. It is also cleaner with lower carbon monoxide and hydrocarbon tailpipe emission. Further, as ethanol is produced by fermenting sugarcane juice, it has also been touted as the panacea for the glut in India’s sugar sector.
The country is stepping on the gas and has advanced its target to achieve 20% blending by five years to 2025. There is also a lot of talk of going beyond, all the way up to even 100%. That would require a major overhaul of not only vehicles that would need flex fuel engines but also the infrastructure to support various fuel types.
The rise in blending percentage of ethanol in petrol would make fuel distribution more complex. Compared to just E10 petrol (10% ethanol blend) that is available today, at least two more types of fuel, E20 and E20+, may come about in the future. This would mean separate fuel pumps, tanks to store the fuels, and tankers to transport them. This sort of a supply chain will come at a significant cost for oil marketing firms.
Such firms, therefore, have a vested interested in the issue of ethanol and the path India must take. So do car and bike companies as well as sugar mills. There is diplomatic pressure, too—Brazil is an interested party. All of this has made ethanol a hot subject within the corridors of power.
The Rio factor
The biggest success story for ethanol in the world right now is Brazil. The country started blending ethanol with gasoline for transport in the mid-1970s and claims to have substituted 3.45 million barrels of gasoline between 1975 and 2021. The estimated saving is to the tune of $275.42 billion. Every year, it substitutes about 164 million barrels of oil with ethanol.
A vast majority of vehicles on the road in Brazil—about 86%—are powered by flex fuel technology that gives consumers the flexibility to use ethanol blends between 20% and 85%. The country has achieved an average blend of 48%, by far the highest in the world.
“We have successfully demonstrated that it works and want to share our experience with others. The advantage with flex fuel engine is it takes care of any inconsistency in the supply of ethanol while also giving consumers the choice on which blend they wish to use,” said Andre Aranha Correa Do Lago, the Brazilian ambassador in India.
Do Lago has become very active in India’s business circles. He can be regularly seen at automotive industry events, trying to sell Brazil’s ethanol story.
Unlike in Brazil, ethanol has had little success globally, especially in continental Europe that represents the heart of the global automotive industry. Brazil is one of the top 10 markets for automobiles in the world but lacks homegrown automotive companies with scale unlike India. For Brazil, it is important that India join forces for the ethanol economy to gain enough heft.
Do Lago is aware of the commonalties between the two nations. Both the countries are large producers of sugarcane but it is not a blessing. Excess production of sugar has been a perennial problem. In sugar season 2020-21, for example, India produced 60 lakh tonnes of excess sugar and only 24 lakh tonnes could be diverted to produce 332 crore litres of ethanol.
Little surprise, ethanol has received fulsome support from the suppliers, the domestic sugar industry, which is more than eager to play ball.
‘Time has come’
“India needs 1,500 crore litres of ethanol to achieve 20% blending. Out of this, by the end of 2021-22, 1,000 crore litres of capacity is in place. The remaining capacity needs to be set up to reach EBP 20 (short for ethanol blending programme upto 20%),” said Sachin Raole, CFO and director, Praj Industries, a Pune-based engineering company that specializes in ethanol production.
“Sugar mills are encouraged to produce more ethanol instead of producing excess sugar. This capacity creation will happen via greenfield as well as brownfield expansion projects based on sugary and starchy feedstock,” he added. “We are also seeing an increase in activity for ethanol production from the grain-based feedstock. 2G (second generation) ethanol plants will be able to address this additional quantum of ethanol. As cellulosic biomass is available in abundance, there will not be any constraint on the feedstock availability.”
While 1G plants use crops like sugarcane, rice and corn, 2G factories use agri waste such as rice and wheat straw, cane trash, and corn cobs among others.
The sugar industry is investing in ramping up capacity to meet the E20 target and is ready to invest more for even higher blending rates, said Aditya Jhunjhunwala, president, Indian Sugar Mills Association (ISMA). “The time has come for us to start looking at that. Supply will not be a constraint but a proper roadmap will help in planning,” he added.
Beyond advancing the timeline for achieving 20% blending target by five years, the government is yet to stipulate a roadmap for flex fuel technologies. But there is enough to suggest it is being actively considered.
A needless distraction?
On a chilly December evening, in Delhi’s India Habitat Centre, top executives from the automobile industry came together under the aegis of the Society of Indian Automobile Manufacturers (SIAM) to impress upon Nitin Gadkari, the minister of road transport & highways, their earnestness to walk the talk on ethanol. Gadkari has been championing the cause of ethanol blending for over a decade.
“India is the largest user of fossil fuels in the world. So, it is our responsibility to spread awareness and provide education about ethanol blended with petrol and its benefits as compared to conventional fuel,” Gadkari said at the event. “Flex-fuel vehicles can help reduce India’s fuel import bill by a huge margin.”
During the course of the nearly two-hour long event, the executives then waxed lyrical on the benefits of ethanol and their readiness to embrace it.
“Our research shows ethanol fuel-based Wagon R flex fuel prototype, operating on E85 fuel (85% ethanol, 15% petrol), will help reduce tailpipe GHG (greenhouse gas) emissions by 79% in comparison to a conventional gasoline Wagon R model while ensuring the same power performance,” said Hisashi Takeuchi, managing director and CEO, Maruti Suzuki India Ltd. “WagonR being a mass-segment model would help in much faster adoption of this technology, achieve economies of scale and catalyse faster developments,” he added.
What was left unsaid? Well, the industry has major misgivings with the government’s enthusiasm with flex fuel technologies. Flex engines are a significant step-up involving sizeable investments in the supply chain. At a time when the industry is already preparing for the electric future, some see ethanol as a needless distraction.
“It just makes things more complicated as we are already investing in the big transition towards electrification, which itself is very capital intensive,” said a top executive from one of the prominent car manufacturers who didn’t want to be identified. “Ideally, the government should set targets for emissions and leave it to us on how we plan to achieve that instead of forcing us into ethanol or flex fuel engines. Blending will help sugar companies but is not really the best solution for the automotive industry.”
Another worry is the impact on the price of the vehicles and whether consumers would be put off by it. According to Niti Aayog, India’s federal think tank, the price of flex fuel four-wheelers could shoot up in the range of ₹17,000-25,000. In the case of two-wheelers, consumers may have to pay up to ₹5,000-12,000 more. These are only preliminary estimates and the actual figures could be higher.
Worse, ethanol has 27% less energy than petrol. So, with higher levels of blending, the fuel economy of the vehicle will diminish by 4-8%. In effect, it may not directly benefit the consumer at all who may end up paying more for a less fuel-efficient vehicle.
“The price of automobiles has gone up significantly in the last few years due to multiple regulatory changes and it has affected demand in the price sensitive entry level car and two-wheeler segments,” said an official with Hero MotoCorp who didn’t want to be identified. “This will only add to the burden and there is no proper discussion on the pros and cons. It is almost being rammed down our throats.”
To make it more lucrative for consumers in Brazil, pure ethanol has been incentivized by lower taxation—it is approximately 30% cheaper than E27 fuel. Consumers were also directly incentivized through tax exemptions for buying flex fuel vehicles. For ethanol to succeed in India, something similar might be needed.
A logistical challenge
Another major stakeholder, the oil companies, has its own set of apprehensions. The three biggest oil marketing companies—IOCL, HPCL and BPCL—are all owned by the government and none of them wished to talk on record. On conditions of anonymity, however, some executives told Mint how ethanol will complicate their business.
“It will not be a seamless transition. In India, older vehicles don’t get phased out automatically. So, we would need to keep the supply of E10 fuel besides operating additional pumps with higher blends,” said an IOCL official. “It is a logistical challenge. One needs to ask to what end? Ethanol doesn’t even solve the entire problem as diesel is the majority transport fuel in the country (petrol accounts for 31% of transport fuel consumption),” the executive added.
Then, there are agriculture experts who caution against going overboard on ethanol. Sugarcane is a water guzzling crop and there is a need to restrict, if not discourage, farmers from growing more of it. Widespread use of ethanol by the transport sector might create another stream of revenue for cane growers egging them to produce more. Diversion of other crops for ethanol production also has its own set of problems.
As of now, automakers don’t seem too worried about the impact downstream. The showcase of new technology has taken precedence.
At the SIAM event in December, TVS was at it again. And CEO KN Radhakrishnan spoke on behalf of every two-wheeler manufacturer.
“We are all working with a roadmap for introducing flex fuel vehicles. By October-December 2023, we will showcase tooled-up pilot of flex fuel two-wheelers. And by September-October 2024, we will work towards mass production of at least one model per manufacturer,” he said.
The lingering question: will history repeat itself?
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