Ambitious biofuel push hits roadblock as flex-fuel engines lag

The ethanol conundrum — Part 2

In just five years, grain-based ethanol availability rises to over 10.28 billion litres; policy incentives spur production, but industry walks a tightrope

Kolhapur: When the Narendra Modi-led NDA government assumed office in 2014, ethanol blending in petrol stood at a modest 1.5 per cent. By December 2025, that figure had climbed to 20 per cent — a steep rise over 11 years that has helped the country save an estimated Rs 1.4 lakh crore in foreign exchange on fuel imports.

Buoyed by the early achievement of its initial targets, the Centre had first set its sights on raising ethanol blending to 30 per cent by 2030. With the 10 per cent and 20 per cent milestones achieved ahead of schedule, the timeline was advanced to December 2027. That, in turn, required a sharp expansion in ethanol production capacity.

The government rolled out what it described as a financially viable and investor-friendly framework for ethanol manufacturing, triggering a rapid build-up of capacity. But as blending levels approach 20 per cent, the limits of conventional vehicle engines have begun to show. Unless multi-fuel or flex-fuel engines become widely available, industry stakeholders warn, uncertainty will continue to loom over the ethanol sector.

For biofuels to be deployed at scale, availability alone is not enough; vehicle engines must also be compatible. Recognising this, the Centre worked on two fronts — announcing the National Bio-Energy Policy while, in parallel, Union Road Transport Minister Nitin Gadkari publicly nudged the automobile industry to roll out flex-fuel vehicles within a defined timeframe. However, while ethanol production gathered pace, the vehicle manufacturing ecosystem failed to keep up.

As ethanol blending crossed 15 per cent, and with the 30 per cent target in view, the government announced an interest subvention scheme to support capital investment in ethanol projects. The scheme, which ran until 2024, attracted 196 promoters, all of whom set up grain-based ethanol plants. These projects together account for an installed capacity of 8.59 billion litres.

In addition, 38 more distilleries, with a combined capacity of 1.69 billion litres, are nearing completion. The scale and speed of expansion are evident from projects such as the Grainspan facility in Ahmedabad, which alone has a capacity of 350 kilolitres per day. Much of this capacity has been added over the past four years.

These ethanol plants are spread across Maharashtra, Uttar Pradesh, Chhattisgarh, Bihar, Odisha and West Bengal. Notably, many of the promoters are first-time entrants to the sector, coming from unrelated industries. Financial institutions provided capital, the government offered interest support and assured procurement, and projects were commissioned at breakneck speed. As a result, ethanol production capacity surged by 87 per cent — a surge that has now become a source of strain.

Grain-based ethanol today accounts for a larger share of incremental capacity than ethanol produced by the sugar industry. To support these projects, the Centre supplied grain at subsidised rates through the Food Corporation of India. Maize has emerged as a key feedstock, with the government incentivising its cultivation by fixing a minimum support price of Rs 2,300 per quintal. This led to a rise in maize acreage across the country.

However, with ethanol procurement orders drying up, maize purchases have slowed, pushing market prices down to around Rs 16 per kg. Farmers and processors alike are feeling the impact.

To deal with surplus ethanol, the Centre has permitted exports. But global prices for maize-based ethanol are significantly lower — about Rs 58 per litre — compared with the domestic assured price of Rs 71.80 per litre. Exporting ethanol at current rates would mean a loss of roughly Rs 13 per litre.

Some large manufacturers have chosen to absorb these losses to keep plants running at full capacity, but industry executives concede that this is not a sustainable solution. Overall, India’s ethanol sector finds itself walking a tightrope, caught between policy ambition, technological constraints and market realities.

(To be continued…)