Report Highlights:

Indian ethanol production in calendar year (CY) 2015 will increase to 2.1 billion liters due to higher sugarcane production in marketing year (MY) 2014/15 (October-September). Ethanol will make up 2.1 percent of India’s fuel supply in CY 2014 and 2.5 percent CY 2015. Biodiesel production from multiple feedstocks a variety of feedstocks, to include crude oil, used cooking oils, and animal fats looks promising, but continues to struggle to achieve real economic viability.

Executive Summary: 

Domestic Indian ethanol production in CY 2015 will approach 2.1 billion liters, three quarters of which is for the potable spirits industry, a moderate increase over 2 billion liters produced in CY 2014. The upward forecast is due to higher sugarcane production in MY 2014/15 (October-September). The new Indian administration is considering an increase in Government of India’s (GOI) ethanol blending mandate from the current level of five percent to 10 percent in CY 2015. Government-owned petroleum companies (known colloquially as oil marketing companies (OMCs)) are expected to procure 550 million liters of ethanol in CY 2014, indicating that ethanol would make up about 2.1 percent of India’s fuel market. Post expects that if the mandate is increased next year, OMCs will procure upwards of 700 million liters of ethanol, which will lead to a 0.4-percent increase in ethanol’s total penetration in India’s fuel market. 

Biodiesel production from multiple feedstocks, to include crude vegetable oil, used cooking oils, animal fats, and others shows signs of life, but more groundwork needs to be done before biodiesel is economically viable. India’s earlier emphasis on jatropha-derived (Jatropha curcus) biodiesel has not fared well, as the production and commercial viability of jatropha have proven to be dubious. While India does not currently maintain a specific mandate for biodiesel usage, any future mandates will require a more dedicated effort to plant energy crops and/or switch to alternate sources of biodiesel to include locally available tree-borne oilseeds and a variety of other feedstocks. 

prices led to demand contraction. Based on Ministry of Petroleum data, that during the last three fiscal years, the value of petroleum imports was relatively stagnant and volumes of imports grew only marginally. Post expects this was most likely due to the 35-percent depreciation of the rupee against the dollar during the corresponding period.

Energy Consumption Basket and End Usage 

Currently, coal and oil constitute 66 percent of India’s total primary energy consumption basket. Natural gas maintains a seven-percent share of the basket, and renewables such as wind, geothermal, solar, hydroelectricity, and waste account for 25 percent of India’s total energy. Nuclear accounts for a one-percent share. 

Vehicular transportation accounts for most of India’s energy usage. The total number of registered motor vehicles in India as of March 31, 2011, was 142 million, with motorbikes and scooters accounting for 72 percent, personal vehicles and taxis accounting for 14 percent, and buses and trucks making up the final14 percent.2 Continued economic growth, increased urbanization, rising consumer spending, and improving road infrastructure should push new vehicle registration to 190 million vehicles by the end of IFY 2014/15. 

According to the Ministry of Road Transport and Highways, the transportation sector accounts for 6.4 percent of India’s gross domestic product (GDP), with road transportation accounting for 4.5 percent. 

Road infrastructure is used to transport over 60 percent of goods and upwards of 88 percent of total passenger traffic. Ease of availability, adaptability to individual needs, and economic efficiencies are the main factors favoring road transportation. Road transportation also acts as a feeder service to rail, ship, and air transportation. The number of motor vehicles on Indian roads is growing at a rate of about nine percent annually. Ninety percent of Indian freight and 60 percent of Indian passenger traffic were transported by road at the beginning of IFY 2010/11. 

As vehicle ownership expands, the demand for gasoline and petroleum products will concurrently rise. Currently, diesel accounts for an estimated 73 percent of fuel demand, followed by gasoline at 20 percent, and aviation fuel at seven percent. The combined demand for diesel and gasoline is expected to grow by more than five percent annually over coming years. Further, Post estimates that by end of this decade, the average demand for transport fuels will rise from an estimated 117 billion liters, from 167 billion liters in CY 2013 to195 million liters and would grow reach by CY 2023. 

The Ministry of Environment and Forestry notes that transportation growth and increasing consumption of petroleum has a negative effect on India’s air quality. Because India is the fourth (energy data) largest global contributor to carbon emissions, the GOI is targeting Euro 3 and Euro 4 vehicle emission standards.3 In its effort to achieve Euro 3 and Euro 4 standards, the Union Cabinet approved the National Biofuel Policy on December 24, 2009 (PIB press release). 

Scope 

The GOI seeks to use biofuels as a means to provide a higher degree of national energy security by supplementing conventional energy resources, reducing dependence on imported fossil fuels, and meeting the energy needs of India’s vast (and growing) population. The GOI promotes production and blending of ethanol derived from sugar molasses, and biodiesel derived from inedible and waste oils for blending with diesel. 

India’s production of biodiesel from jatropha seeds is commercially negligible and economically unviable. Farmers have not planted jatropha because it is difficult to market, yields are poor, and seed quality is inconsistent. As a result, most of the biodiesel units operating in India have turned to alternative feedstocks such as edible oil waste (unusable oil fractions), animal fats, and other inedible oils. This hodgepodge of oils accounts for about 28 percent of biodiesel producers’ existing capacity and enables them to continue operations throughout the year. In the last few years, stakeholders from the private sector and the government have identified tree-borne oilseeds such as pongamia (Pongamia pinnata), neem (Azadirachta indica), kusum (Achleichera oleosa), and mahua (Madhuca longifolia) as alternatives to jatropha for biodiesel production, although thus far only experimentally. Long-term availability, feasibility, and sustainability of tree-borne oilseeds remain to be determined. Additionally, biomass plays an increasingly important role as an energy source for sugar mills (captive use), textiles mills, and pulp and paper mills. Biomass also has potential for other significant industries, to include breweries, fertilizer plants, solvent extraction units, rice mills, and petrochemical plants. The total estimated biomass power potential in India is estimated at 31,000 megawatts (MW) of which the surplus power generation through bagasse cogeneration is estimated at 7,500-10,000 MW. 

POLICY AND PROGRAM: INDIA’S BIOFUEL POLICY 

The GOI approved India’s National Biofuel Policy on December 24, 2009. The policy encourages use of renewable fuel as an alternative to petroleum and proposes to supplement India’s fuel supply with a 20 percent biofuel (bioethanol and biodiesel) mandate by end of 12th Five-Year Plan (2017). In a bid to renew its focus and implement the Ethanol Blending Program (EBP), on November 22, 2012, the Cabinet Committee of Economic Affairs (CCEA) recommended a five-percent ethanol blending mandate (CCEA had previously set the blending target). It also recommended that the procurement price of ethanol would be decided by between the OMCs and private sector suppliers of ethanol. The GOI’s current target of five-percent blending of ethanol in gasoline has been partially successful in years of surplus sugar production and unfilled when sugar production declines. Presently, the contracted ethanol supply for calendar year 2014 is sufficient to meet 2.7-percent blending target. 

Salient Features of India’s Biofuel Policy 

• Derive biofuels from non-food feedstocks grown on degraded soils or wastelands which are not otherwise suited to agriculture, thus avoiding a possible conflict of fuel versus food. 

• Strengthen India’s energy security by encouraging use of renewable energy resources to supplement motor transport fuels. An indicative 20-percent target for blending of biofuel for both biodiesel and bioethanol is proposed by end of 12th Five-Year Plan (IFY 2012/13 through fiscal 2016/17). 

• Minimum support price (MSP) mechanisms for inedible oilseeds to provide fair prices to oilseed growers (subject to periodic revision). 

• OMCs should purchase ethanol at a minimum purchase price (MPP) based on the actual cost of production and import price of ethanol. In the case of biodiesel, the MPP should be linked to the prevailing retail diesel price. 

• If necessary, GOI proposes to consider creating a National Biofuel Fund for providing financial incentives, including subsidies and grants, for new and second generation feed stocks, advanced technologies and conversion processes, and production units based on new and second generation feedstock. 

• Thrust for innovation, (multi-institutional, indigenous and time bound) research and development on biofuel feedstock (utilization of indigenous biomass feedstock included) production including second generation biofuels. 

• Meet the energy needs of India’s vast rural population by stimulating rural development and creating employment opportunities and addressing global concerns about containment of carbon emissions through use of environment friendly biofuels. 

• Bring biofuels under the ambit of “Declared Goods” by the GOI so as to ensure their unrestricted 

interstate and intrastate movement. Except for a concessional excise duty of 16 percent on bioethanol, no other central taxes and duties are proposed to be levied on biodiesel and bioethanol. 

• Biofuel technologies and projects would be allowed 100-percent foreign ownership through automatic approval to attract foreign direct investment (FDI), provided the biofuel is for domestic use only, and not for export. Plantations of inedible oil bearing plants would not be open for FDI participation. 

• Setting up of National Biofuel Steering Committee (NBSC) under Prime Minister to provide policy guidelines. 

Institutional Mechanism 

The National Biofuel Policy proposed to set up a National Biofuel Coordination Committee (NBCC) headed by the Prime Minister. The NBCC provides policy guidance on the different aspects of biofuel development, promotion, and utilization. It also serves as the principle GOI coordinator for the array of different GOI agencies and ministries with more minor roles in determining India’s biofuel policy. The committee meets periodically to review the progress and monitor the biofuel program. NBSC mandates that various state governments must work closely with respective research institutions, forestry departments, and universities for developing and promoting biofuel programs in their respective states. However, to date, few states have actually drafted any policies and/or set up institutions for promoting biofuel in their states. 4 Several ministries have been allocated specific roles and responsibilities as to deal with different aspects of biofuel development and promotion.

ETHANOL POLICY 

Most Indian ethanol is produced from sugarcane molasses (although a minor amount is processed from grain) for blending with gasoline. Ethanol and alcohol production in India depends largely on availability of sugar molasses (a byproduct of sugar production). Since sugarcane production in India is cyclical, ethanol production also varies accordingly and optimum sugar supply levels do not always correspond with demand. At times, lower availability of sugar molasses, and subsequent higher molasses prices, affect production costs of ethanol, thereby disrupting ethanol supplies for the blending at pre-negotiated, fixed ethanol prices. 

Means to expand domestic ethanol supply 

• If mills are given the flexibility to market cane juice, whether to crystallize most of it into sugar or ferment it into alcohol, they will produce more of whichever fetches higher revenues.5 Coupled with a robust EBP, the cyclical swings in sugar production could also be addressed. Additionally, diverting B-Heavy molasses could produce additional ethanol when required. 

• Current research and development activities are focused more on second-generation bio-diesel production from locally available ligno-cellulosic material or agricultural and forest residues; which has its own set of challenges and opportunities. Both the private and public sectors claim to be successful in customizing technology (low-cost) to generate power (on pilot scale) from bio-mass resources, particularly ligno-cellulosic material. Scaling up of such projects is yet to be seen, while industry observers are optimistic. 

• Public and private institutions can also promote use of alternate crops such as sweet sorghum, sugar beet, sweet potatoes, pearl millet and broken rice to supplement domestic ethanol production, though the efforts to produce ethanol from these feed stocks are only experimental or at pilot stage. 

• The GOI is offering subsidized loans through sugarcane development funds to sugar mills for setting up of ethanol production units. The loan would cover a maximum of 40 percent of the project cost. 

Impediments 

Procedural hurdles such as non-issuance of export permits for interstate transport of ethanol, delay in issuing no-objection certificates (NOC), plus higher taxes and levies across different state lines have impeded the EBP. Rules and regulations, including the high excise duty (central excise duty of INR 772.50 per ton on molasses versus 12.36% ad valorem on industrial alcohol), interstate charges, and so on applicable to control alcohol for potable industry use are equally applicable for ethanol blending with gasoline, thereby severely constraining its availability and utilization for EBP. 

BIODIESEL POLICY 

The GOI had launched the National Biodiesel Mission (NBM) identifying jatropha as the most suitable inedible oilseed for biodiesel production. The Planning Commission of India had set an ambitious target of planting 11.2 to 13.4 million hectares to jatropha by the end of 11th Five Year Plan (2011/12). The central government and several state governments provide fiscal incentives for supporting planting of jatropha and other inedible oilseeds. Several public institutions, government departments, state biofuel boards, state agricultural universities and cooperative sectors are also supporting the biofuel mission in various capacities. 

The GOI’s earlier plan of producing a 20-percent mandate of biodiesel by MY 2011/12 (October/September) was based on assumptions that significant quantities of jatropha would be available. While India does not currently maintain a specific mandate for biodiesel usage, any future mandates would require a more dedicated effort to plant commercially viable energy crops and/or switch to alternate sources of biodiesel to include locally available tree-borne oilseeds and a variety of other feedstocks. 

Impediments 

The combination of small land holdings and ownership issues with public and/or community-owned wastelands resulted in little progress made by state governments to create large jatropha plantations. Additionally, jatropha seeds were not readily available (due to poor productivity), lack of promising varieties/cultivars, rising wage rates, and inefficient marketing channels increased the costs of production, making it economically unviable. As a result, jatropha production never achieved any level of commercial scalability and production of jatropha-based biodiesel failed. While India does not currently maintain a specific mandate for biodiesel usage, any future mandates would require a more dedicated effort to plant energy crops and/or switching to alternate sources of biodiesel to include locally available tree-borne oilseeds and a variety of other feedstocks. 

ETHANOL 

There upwards of 330 ethanol distilleries in India with a total combined annual production capacity of over 4 billion liters of rectified spirit (alcohol) and 1.5 billion liters of fuel ethanol. About 143 distilleries have the capacity to distill over 2 billion liters of conventional ethanol which includes an additional annual ethanol production capacity of over 400 million liters that was built up in last five years after government provided funds to sugar mills. Theoretically, the installed capacity is sufficient to meet around seven percent of blending with gasoline. India produces conventional bioethanol mostly from sugar molasses and partly from grains. Production of advanced bioethanol remains in the research and development phase. 

Production 

Domestic ethanol production in CY 2015 will inch closer to 2.1 billion liters compared to 2 billion liters in CY 2014, due to an incremental rise in sugarcane production. In CY 2014, the sugar mills (ethanol manufacturers) offered 671 million liters of ethanol and OMCs have committed to procure 305 million liters. Including carry forward of 200 million liters from previous year and adding another 50 million liters likely to be supplied in December 2014 (from a possible new tender seeking ethanol supply for blending in CY 2015), the cumulative procurement by OMCs is estimated at 555 million liters indicating the total market penetration of fuel ethanol at 2.5 percent. Likewise a blend target of 2.5 percent looks achievable in CY 2015. Technically, given the installed capacity of ethanol for fuel production and market penetration for gasoline, a target of 7.5-percent blend is theoretically feasible. 

Currently, the OMC are offering a ceiling price of INR 44 per liter ($0.74), delivered at various depots.  Given the current ex-mill prices of molasses-based products (rectified spirit, extra neutral alcohol and fuel ethanol ($0.67 per liter)) that range from INR 33-46 per liter, the offered price by OMC is still attractive for some sugar mills, although average retail price of gasoline is still on a higher side. A benchmark price somewhere in the middle could still be negotiated between buyers and sellers and may be a possibility going forward. Any procedural delay in EBP particularly when profit margins of sugar mills are thin, may encourage sugar mills to divert molasses to cattle feed while diverting excess ethanol to other potential end users (e.g., potable alcohol production units) or even exports if prices are competitive. In the past, tight supply condition of sugar molasses either due to downswing in sugar production cycle or strong demand from chemical and potable businesses have not only raised ethanol’s cost of production but made supply of ethanol unviable to petroleum companies at the pre-negotiated price. 

Consumption 

Given steady rise in supply of molasses coupled with strong and growing demand of ethanol from the chemical and potable liquor industries in conjunction with an expected rise in blending for EBP will push total ethanol consumption in CY 2014 and CY 2015 to 2.2 billion liters and 2.3 billion liters, respectively. 

Trade 

When the GOI started its EBP in 2003, the trade balance for ethanol was generally negative. However, by 2009, the trade balance flipped and India became a net exporter of ethanol, partly due to consistent supply of molasses for ethanol production, and rising overseas demand, particularly from African countries (Note: In India, biofuel exports are only permitted after the domestic requirement are met and approval is given by the NBCC). Exports 

Ghana, South Korea, Nigeria, Singapore, Cameroon are among major importers of Indian ethanol. Conversely, the United States, Brazil, South Africa, Bhutan, and Pakistan are major exporters of ethanol to India. Over the last four years, ethanol exports grew by $40 million to $183 million in CY 2013. However, during corresponding period, imports dropped from $68 million to $44 million. Although the GOI provides no financial assistance for exports of biofuels, current trade regulations allow for duty-free imports of feedstocks for re-export by certified export oriented units. 

Imports 

Lower import tariffs make imports more attractive and economically viable. Per Customs Notification No. 12/2012, the GOI on March 17, 2012, lowered the import tariff on ethanol from all countries to 7.55 percent except for imports from Brazil, which enjoy a preferential rate of six percent because of a 20-percent rebate per Customs vide notification No. 57/2009. Traditionally, India imports ethanol to meet shortfalls in demand during years of lower sugar production. Demand is mostly for consumption across the potable and chemical industries and not for fuel. There are no quantitative restrictions on biofuel imports. 

Ending Stocks 

Rising demand and steady consumption over in last 5-6 years had led to steep decline in stocks from over 1 million liters in CY 2010 and years since. End stocks will further decline from 380 million liters in CY 2014 to 250 million liters in CY 2015. 

BIODIESEL 

As noted above jatropha production has not been successful in India. Consequently, there are no commercial sales of biodiesel across the biodiesel purchase centers set up by the GOI. As a result, researchers are gradually shifted their focus and resources to study feasibility of producing bio-diesel from tree-borne oilseeds such as pongamia (Pongamia pinnata), neem (Azadirachta indica), kusum (Schleichera oleosa), mahua (Madhuca longifolia), as well as waste edible oils and multiple feedstocks. 

Currently, India has 5-6 large capacity production plants (10,000 to 250,000 MT per year) with the installed capacity to produce 115-130 million liters of biodiesel from multiple feedstocks such to include crude vegetable oil, used cooking oils, animal fats, and others. The biodiesel produced is sold to automobiles companies for research and development, and public entities which run buses on blended fuels. Small amounts of biodiesel is also sold to unorganized consumers such as cellular communication companies, brick kilns producers, progressive farmers, and to other institutions that run diesel generators as source of power back-up.

ADVANCED BIOFUELS 

The Indian biofuel industry, both private and public sector, claim to be successful in developing and customizing technology for converting ligno-cellulosic materials in form of wood biomass, agricultural (corn cob, bagasse, straw and stover) waste and forest waste. Trials are underway to process municipal solid waste, micro-algae and photosynthetic organisms into advanced biofuels. However, given the technological challenges, commercial production and economic viability remains unclear. 

Biomass for Heat and Power Scope 

Biomass, non-fossilized and biodegradable organic material originating from plants, animals and micro-organisms, has the potential to produce grid-quality power through various conversion techniques. Benefits include renewability, adaptability, carbon neutrality, and the potential to generate employment in rural areas. According to the Ministry of New and Renewable Energy, the potential could be further enhanced if dedicated plantation in forest and degraded land are linked to biomass power. Additionally, biomass has been playing an important role as fuel for sugar mills, rice mills, textiles mills, pulp and paper mills, and other small and medium enterprises. 

Biomass Material 

Bagasse, rice husks, straw, cotton stalks, coconut shells, soy husks, de-oiled cakes, coffee waste, jute waste, peanut shells, and sawdust are used as raw material for power generation.7 The crop residues from non-fodder crops, e.g., cotton, oilseeds, chilies and bamboo residues may also be considered as good alternatives for biomass power production. s 

Availability 

Biomass availability in India is estimated at about 500 million tons per year covering residues from agriculture, processing industries, and forestry (however, some research studies estimate biomass availability to be higher than 500 million tons). This estimate is based on a survey by the Indian Ministry of New and Renewable Energy, which indicates that 15 to 20 percent of total crop residues could be used for power generation, without altering the primary crops’ present uses. Concurrently, between 120 and 150 million tons of surplus agro industrial and agricultural residues per year could be made available with potential to generate 18,000 MW. 

Bagasse Power Cogeneration 

With modernization of new and existing sugar mills, surplus power generation through bagasse cogeneration in India’s 550 sugar mills is estimated at 10,000 MW (target for 12th Five-year plan is to achieve 32 percent of total potential) if these mills were to adopt technically and economically optimal levels of cogeneration for extracting power from the bagasse they produce. The optimum cogeneration capacity installed in Indian sugar mills is one of the highest among major sugar producing countries. The total estimated biomass power potential (biomass power) is about 31,000 MW. (Note: Some think tank organizations estimate that bagasse-based power generation could be 7,000 MW. Considering the preceding estimate, total biomass power potential scales down to 27,000 to 28,000 MW.) The GOI has initiated several programs and schemes for promoting renewable energy sources. Seventeen Indian states have policies for development of biomass power. Biomass power projects attract fiscal incentives such as accelerated depreciation, concessional customs duties, and income tax exemptions. An emphasis will be put on development of fuel value-chain business models while encouraging the operating period of bagasse cogeneration projects from 180-220 to 300-plus days