Highlights

India in 2016 achieved its highest ever ethanol market penetration, a gasoline blend rate of 3.3 percent on average across the country. Nevertheless, tight ethanol supplies through 2018 will limit further gains or even shrink that percentage of penetration. As a result, the ethanol blending program (EBP) is likely to expand but at a slower pace as demand from industry is partly met by imports, which are projected to grow from 500 million liters in 2017 to 600 million liters in 2018. For biodiesel, though the market penetration rate remains minimal, it will continue to grow if supported by a commercially viable strategy for building a sustainable biodiesel industry.

Executive Summary

By 2022, the Government of India (GOI) proposes to reduce its dependence on crude oil imports by ten percentage points in several ways: increasing domestic output; promoting energy efficiency and conservation; and encouraging greater use of alternative fuels. Growth in the biofuel market will partly reduce import dependence on crude oils and encourage optimal use of other renewable energy resources, particularly when strong economic growth prospects drive higher demand for gasoline and petroleum products.

India in 2016 achieved its highest ever ethanol market penetration, a gasoline blend rate of 3.3 percent on average across the country. Nevertheless, tight ethanol supplies through 2018 will limit further gains or even shrink that percentage of penetration. As a result, the ethanol blending program (EBP) is likely to expand but at a slower pace as demand from industry is partly met by imports. The small trade deficit that emerged in 2015 is expected to grow rapidly through 2018.

Assuming normal market conditions, ethanol imports will rise from 400 million liters in 2016 to 600 million liters through 2018. Almost 80 percent of imported ethanol (worth $173 million) in 2016 was sourced from the United States and was mostly classified as Undenatured, Fuel Use (at port of origin). Incidentally, 2016 import volume was the largest since 2009 (278 million liters) and almost double the import volume of 2015.

Through September 2016, strong retail gas prices, fixed prices for fuel ethanol, excise duty exemptions, and surplus ethanol availability, all pushed higher market penetration for ethanol. By some estimates, this higher penetration saved upwards of $350 million in foreign exchange. However, soft current retail gasoline prices have pushed ethanol prices down to INR 39 per liter (Prices are ex-factory and are valid from Dec 1, 2016 to Nov 30, 2017). Any additional charges in form of Value Added Tax (VAT)/Goods and Service Tax and transportation will be paid to the ethanol suppliers and administered ethanol price will be subject to revision per prevailing economic conditions.

Meanwhile, the National Biodiesel Mission (NBM) identified jatropha (jatropha curcas) as the most suitable inedible oilseed for biodiesel production to help achieve a proposed biodiesel blend of 20 percent with conventional diesel by 2017. That target was unmet due to a host of agronomical and economic constraints. To help fill the gap, several existing biodiesel units shifted operations to adopt multiple feedstock technology, which utilizes ‘used cooking oils’ (UCO), other unusable oil fractions, animal fats, and inedible oils; this achieved a minimal (0.001) blend rate. The market for biodiesel (B100) is nascent and will continue to grow if there is a strong commercially viable strategy for building a sustainable biodiesel industry. That growth is encouraged by deregulated diesel prices, bulk sale of biodiesel (B100) by authorized dealers, and authorization of joint ventures of parastatal oil marketing companies (OMCs) and private manufacturers to supply to bulk consumers only. At this point, however, advanced biofuel development remains at the experimental stage with no viable plans for scaling it up. Notably, both the private and public sectors claim to be successful in developing and customizing technology for converting ligno-cellulosic materials into advanced biofuels. Also, trials are still underway to process municipal solid waste, micro-algae and photosynthetic organisms into advanced biofuels. The suitability of these second-generation biofuels for respective needs has to be evaluated against a country’s other bio-energy options to achieve the best possible social, environmental and economic benefits.

POLICY AND PROGRAMS

INDIA’S BIOFUEL POLICY

The Goal of the National Policy on Biofuels (approved on December 24, 2009) is to ensure that a minimum level of biofuels become readily available in the market to meet demand at any given time. An aspirational target of 20 percent blending of biofuels by 2017 was proposed, both for bio-diesel and bio-ethanol. The policy aims to push biofuels into the mainstream to supplement gasoline and diesel in transportation, as well as in stationary applications. Such a push helps to ensure energy security, address climate change mitigation, creates new employment opportunities, and eventually leads to environmentally sustainable development.

Taking cues from previous bioethanol and biodiesel blending programs, the GOI proposes to reduce its dependence on crude oil purchase by ten percentage points by 2022 through increased domestic production and greater use of alternative fuels. Growth in the biofuel market will partly reduce import dependence on crude oils and encourage optimal use of other renewable energy resources.

ETHANOL POLICY

India achieved its highest ever ethanol market penetration at 3.3 percent in 2016 but will eventually settle below last year’s level given tight supply through 2017. The blend targets were partially successful in years of surplus sugar production but unfulfilled when sugar production declines. Since sugarcane production in India is cyclical, ethanol production also varies accordingly and therefore does not assure optimum supply levels needed to meet the demand at any given time. Ethanol is produced in India from sugarcane molasses and partly from grains. In past, to renew its focus on implementing the EBP, GOI recommended 10 percent mandatory blending of ethanol with gasoline across all (cane-growing) states. The intent was that states producing a surplus of ethanol could supply it to states having a supply deficit, with the stated goal being to achieve a national-level blend rate of five percent.

Notably, certain policy decisions such as fixed pricing mechanism for fuel ethanol procurement for OMCs, excise duty exemptions (until last September), and surplus ethanol availability helped achieve the highest blend rate of 3.3 percent last year, which saved upwards of $350 million in foreign exchange. The Government also allowed procurement of ethanol produced from other non-food feed stocks, like cellulosic and lingo-cellulosic materials, including petrochemical route (first-generation ethanol). Last, a Steering Committee and a Working Group on biofuels both have been established in the Ministry of Petroleum and Natural Gas (MoPNG).

However, given 2017’s lowest ethanol production in the last five years and modest recovery in ethanol production forecast for 2018, supplies are expected to be limited for potable use, industrial use, and for blending with gasoline. As a result, the EBP is likely to expand but at a slower pace; and, given current exchange rates, demand from industry will be met partly through increased imports.

Soft current crude oil prices and firm sugar prices have pushed ethanol prices down to INR 39 per liter. (Prices are ex-factory and are valid from Dec 1, 2016 to Nov 30, 2017). Any additional charges in the form of VAT/GST and transportation will be paid to the ethanol suppliers.

BIODIESEL POLICY

The NBM identified jatropha (jatropha curcas) as the most suitable inedible oilseed for biodiesel production to help achieve a proposed biodiesel blend of 20 percent with conventional diesel by 2017. That target was unmet due to a host of agronomical and economic constraints. To help fill the gap, several existing biodiesel units shifted operations to adopt multiple feedstock technology, which utilizes UCO, other unusable oil fractions, animal fats, and inedible oils; this achieved a minimal (0.001) blend rate.

The central government proposed that it and several state governments will promote planting of jatropha and other inedible oilseeds by providing fiscal incentives to various public, private, and cooperative sectors. The former Planning Commission of India (now National Institution for Transforming India (NITI) Commission) had even set an ambitious target of planting 11.2 to 13.4 million hectares of jatropha by the end of April 2012, but fell short due to reasons mentioned above. The market for biodiesel (B 100) is nascent and will continue to grow if there is a strong commercially viable strategy for building a sustainable biodiesel industry. Growth is encouraged by deregulating diesel prices, bulk sale of biodiesel (B100) by authorized dealers, and authorization of joint ventures of OMCs and private manufacturers to supply to bulk consumers.

A nationwide five-percent biodiesel blending target would require a dedicated plantation of energy crops or a probable switch to developing a committed and efficient supply network of UCO, tree-borne oilseeds, or imported biodiesel (if viable or if there is import parity). It would also require deregulated diesel prices, and, assuming the product meets prescribed Bureau of Indian Standards standards, permission for sale of biodiesel (B 100) by authorized dealers and joint ventures of OMCs and private manufacturers to bulk consumers. Due to various constraints such as very poor jatropha seed yield, limited availability of wasteland, and high plantation maintenance cost, the biodiesel project became unviable and on March 22, 2017. Jatropha plantation activities were discontinued. (The Cabinet Committee on Economic Affairs (CCEA) has since approved dissolution of CREDA HPCL Biofuel Ltd (CHBL) and Indian Oil - Chhattisgarh Renewable Energy Development Agency (CREDA) Biofuels Limited (ICBL).

INDIA’S BIOFUEL POLICY: SALIENT FEATURES AND RECENT DEVELOPMENTS

On October 13, 2016, CCEA announced that the new administered prices of ethanol for the EBP will be INR 39/liter (ex-factory) and will be applicable for the period Dec 2016 to Nov 2017. Additional charges will be paid to the ethanol suppliers as per actual in case of the excise duty and VAT/GST, and transportation charges as decided by OMCs. Ethanol prices may be reviewed and revised by the GOI at any time depending upon the prevailing economic situation and other relevant factors.

On August 1, 2016, MoPNG, GOI, announced initiatives to advance the biodiesel program.

  • A newly formed Steering Committee in the Ministry led the national bio-fuel program.
  • A separate Biofuel Cell has been constituted in MoPNG for dedicated focus on biofuels. The Cell, besides being a technical repository on biofuels, also monitors biodiesel procurement and blending by OMCs.
  • BIS has revised the standalone Biodiesel (B100) specification and has developed specifications for biodiesel blends from B6- B20.

On August 10, 2015, the MoPNG, GOI, notified Amended Order 2015, Motor Spirit and High Speed Diesel) which included a clause directing limited purpose sale of bio-diesel blending with High Speed Diesel, or HSD:

  • The Federal government may permit the bulk sale of biodiesel (B-100) for blending with HSD per prescribed BIS standards to bulk consumers having a minimum requirement of biodiesel for their own consumption by a tank truck load supply which shall not be less than twelve thousand liters.
  • Here oil companies includes the OMCs, any private bio-diesel manufacturer, the authorized dealer of such oil companies, and joint ventures of Public Sector OMCs authorized by the Federal government.

On June 5, 2015, the GOI Union Cabinet approved the following decisions:

    • Sugarcane or sugarcane juice may not be used for production of ethanol and it be only produced only from molasses.
    • Ethanol produced from non-food feedstock besides molasses like cellulosic and ligno cellulosic materials and including petro-chemical route, may be allowed to be processed subject to meeting the relevant BIS standard.
    • Sugarcane juice may not be used for production of ethanol.
    • The MS and HSD Control Order may be amended to acknowledge private biodiesel manufacturers, their authorized dealers, and JVs of OMCs authorized by MoPNG as dealers, each of which may have marketing and distribution functions for supply of biodiesel to consumers.

    Relaxation of marketing resolution No. 23015/1/20001 dated March 8, 2002 and a new clause giving marketing rights for B-100 to the private bio-diesel manufacturers and authorized dealers.

    • On December 10, 2014, the GOI announced a price control schedule for fuel ethanol procurement for multi-state OMCs. The program fixes landed ethanol prices at OMC depots from INR 48.50 to INR 49.50 per liter, a three to five percent increase over the previous price.

    Biofuel will be derived from non-feed stock that would be grown on degraded soils or wastelands not otherwise suited to agriculture, thus avoiding a possible conflict of fuel versus food security.

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

    Minimum Support Price (MSP) mechanism for inedible oilseeds to provide fair price to oilseed growers, subject to periodic revision. GOI may consider creating a National Biofuel Fund to provide financial incentives, including subsidies and grants, for new and second-generation feedstocks, advanced technologies and conversion processes, and production facilities based on new and second-generation feedstocks.

    Support for research and development on biofuel feedstock 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 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.India’s energy security would remain vulnerable until alternative fuels to substitute or supplement petro-based fuels are developed based on indigenously produced renewable feed-stocks. Biofuels are environment friendly fuels and their utilization would address global concerns about containment of carbon emissions.

    The transportation sector is a major polluting sector. Use of biofuels will help to meet tightening automotive vehicle emission standards. Carbon financing opportunities may offer a way to reduce CO2 emissions through plantations and use of biofuels for various applications.

    Biofuel technologies and projects would be allowed 100 percent foreign direct investment (FDI), provided the biofuel is for domestic use only. Plantations of inedible oil bearing plants would not be open for FDI participation.

    Establishment of the National Biofuel Steering Committee (NBSC) under policy guidelines provided by the Prime Minister.

    The biofuel program will support R&D and demonstration projects which lead to commercial development of second generation biofuels.

    Impediments

    • Under the new GST regime (except potable alcohol), biodiesel, industrial alcohol, and bioethanol/fuel ethanol will all be taxed at 18 percent, starting July 1, 2017. For states in which the new GST rate is higher than the current VAT rate, the cost of production inputs to produce biofuel will increase. Note that for an unspecified time crude oil, natural gas, HSD, MS and Aviation turbine fuel have been exempted from GST.
    • Procedural formalities restrict movement of ethanol and its general availability for EBP. Examples include delays in issuance of import/export permits, renewable storage licenses, or no-objection certificates (NOC). When ethanol prices are right such delays also could encourage suppliers to divert ethanol to chemical and potable industries; and sugar mills and distilleries could export molasses as cattle feed if their prices are competitive.
    • Smaller land holdings and ownership issues with government- or community-owned wastelands have resulted in very little progress made by state governments to create large jatropha or pongamia plantations. Except for a few pilot projects, lack of raw materials has stymied efforts and investments by both private and public-sector companies to produce biodiesel commercially from jatropha seeds.

    Institutional Mechanism

    The National Biofuel Policy proposes to set up a National Biofuel Coordination Committee (NBCC) headed by the Prime Minister. Given the role of different agencies and ministries in the biofuel program, the role of NBCC is to provide high level coordination, policy guidance and review on different aspects of biofuel development, promotion and utilization. The policy also provides for development of a Biofuel Steering Committee headed by Cabinet Secretary to oversee implementation of its policies. Various state governments will work closely with respective research institutions, forestry departments, and universities for development and promotion of biofuel programs in respective states, but few states have drafted policies and set up institutions for promoting biofuel in their states. To deal with different aspects of biofuel development and promotion in the country, several ministries have been allocated specific roles and responsibilities.

    Gasoline and Diesel Pools

    General Economy

    India will be the fastest growing economy in the world in Indian Fiscal Year (IFY) 2017-18 (Apr-Mar). India’s growth rate was estimated at 7.1 percent in 2016-17 and is likely to grow at 7.2 to 7.3 percent in IFY 2017/18 before springing further to 7.6 to 7.7 percent in IFY 2018/19 (Source: ADB, IMF and World Bank). Increases in public spending, private investment, liberalization of FDI regime, and expectation of the landmark GST rollout on July 1, 2017 will improve business confidence and promote growth. Stronger consumption and fiscal reforms are also expected to improve business confidence and investment prospects in the country. However, large non-performing loans and high leverage of some companies are holding back investment.

    India is Increasingly Dependent on Energy Imports

    Strong growth prospects for the Indian economy will drive demand for energy across different sectors although the energy consumption per capita (per industry estimates) is one-third of the global average. Hence, access to adequate and reliable sources of energy becomes vital, particularly when one-quarter of the population lacks access to electricity and dependence on fossil fuels (imported and local) continues to grow. The latter meets about three-quarters of India’s energy demand. India is the third-largest importer of crude oil after the United States and China and continues to rely largely on imports. In recent years lower crude oil prices have spurred increased demand for gasoline and petroleum products, which did not nearly offset foreign exchange savings resulting from lower import prices. Over the last four years, import volumes grew modestly from 240 billion liters to 278 billion liters while associated cost dropped more than 50 percent to $74 billion.

    Additionally, India is the fourth largest consumer of primary energy at 24.9 quadrillion British thermal unit (BTU)’s following China, United States and Russia. It is also the eighth largest energy producer at 14.18 quadrillion BTUs. As a result, despite notable fossil fuel resources, India is increasingly dependent on energy imports. Also, India’s total installed power capacity is just under 327,000 megawatts, of which the largest energy source comes from coal (59%), followed by renewable such as traditional biomass and waste (18%), hydro-electricity (14%), gas (8%), nuclear (2%) and diesel (0.25%). Among renewable fuel sources, an estimated 56% is contributed by wind energy, 22 % by solar, 15% by bio-power and the remainder is from small hydropower.

    Industry and Transport Sectors are the Largest End-Users of Energy

    The industry and transport sectors are the largest end-users of energy in India and account for half of the total energy consumed. The main fuels supplied to this demand are coal (in industry), petroleum (in transport), and electricity (in buildings, industry, and agriculture). Growth in the transport sector will continue to fuel petroleum consumption. Transportation consumes close to 70 percent of total diesel supply, 66 percent of which is used by passenger and commercial vehicles. Almost 99 percent of total gasoline consumption is used for transportation, 60 percent of which is for two-wheelers such as motorcycles and scooters. The share of road traffic as a percent of freight and passenger traffic is estimated at upwards of 60 percent and 90 percent. Currently, diesel alone meets an estimated 46 percent of transportation fuel demand, followed by gasoline at 24 percent. Further, it is estimated that in the next ten years, demand for transport fuels will rise from an estimated 134 billion liters in CY 2015 to 225 billion liters in CY 2026.

    Why Road Transport:Convenience, flexibility, and cost saving are certainly some of the factorswhich favor automotive transport. Road transport also acts as a feeder service to railway, shipping and air traffic. Per the latest available statistics, the number of registered vehicles in India as of March 31, 2015 was 210 million, of which the two-wheeler share was 73.4 percent while car, jeep, and taxis constituted 13.62 percent. Buses and transport vehicles constitute just 13%. In pace with economic growth, expanding urbanization (e.g., smart city initiative), increasing rise in consumer spending levels, and improving road infrastructure, new vehicle registration is expected to push the total number of registered motor vehicles past 230 million by the end of the current fiscal.

    To effectively increase security of India's energy supply and to create more efficiency in energy consumption, GOI plans to reduce import dependence on ‘oil and natural gas’ to two-thirds within the next five years and to half by 2030. India has already begun implementing oil and natural gas pricing reforms since 2013 to foster sustainable investment and help lower subsidy costs.

    BS-IV emission norms in-force since April 1, 2017, BS-VI by 2020

    Bharat Stage-IV (BS-IV) emission norms for two-wheeled, three-wheeled and four-wheeled vehicles have come into force since April 1, 2017. Hence, there will be no sale and registration of vehicles that don’t comply with new norms. Earlier, BS-IV auto fuels were introduced in 13 identified major cities including Delhi and the National Capital Region since April 1, 2010. Fifty additional cities were included through March 15, 2015. Last year, GOI announced that it would skip BS-V norms and advance to BS-VI norms (reference EURO-VI) in 2020.

    Media reports and industry sources highlight the need for an integrated holistic approach to control vehicular emissions. More importantly, the auto and oil industries need consensus to establish fuel quality standards and vehicular technology to meet the air quality targets (SIAM India). Experts believe that availability of vehicular technology is unlikely to be a constraint if BS-VI-compliant fuel is available nationwide. However, execution in the next three years will be a challenge. The focus will be on vehicles with cleaner and greener options, including electric vehicles.

    India ratifies the Paris Agreement on Climate Change

    The “Paris Climate Agreement”, took effect on November 4, 2016. On October 2, 2016, India ratified the Paris agreement on climate change to become the 62nd nation to join. As part of the initial commitments to the agreement, over the next 15 years India plans to reduce its carbon emission per unit of GDP by 33% from 2005 levels, and it aims to use non-fossil fuels to produce 40 percent of its installed electricity capacity by 2030. This would mean India will have to shift significantly from coal-based power generation to renewable energy sources. It will have to produce 100 gigawatts from solar, 60 gigawatts from wind, 10 gigawatts from biomass, and 5 gigawatts from small hydropower by 2022. Another commitment of the agreement requires India to increase its forest cover by five million hectares along with an improvement in the quality of green cover of an equal measure by 2030.

    ETHANOL

    India has around 330 distilleries which can produce over 4.5 billion liters of rectified spirit (alcohol) per year. Of this total, about 162 distilleries have the capacity to distill over 2.2 billion liters of conventional ethanol. India’s ethanol program is based on sugar molasses, a by-product of the sugar industry, and not directly from sugarcane or corn.

    Production

    An estimated 1.65 billion liters of ethanol will be produced in 2017, almost 20 percent less than last year. Limited availability of molasses due to short sugarcane production, particularly in Southern and Western states, will keep the supply tight. Theoretically, the ethanol available is sufficient to meet the 5 percent blend target, but demand rationing, particularly from potable and industrial sectors, will limit ethanol market penetration close to 2 percent. Industry sources indicated that the OMCs may procure upwards of 700 million liters in 2017.

    Assuming a normal 2017 monsoon, ethanol production in 2018 will improve to 1.9 billion liters on anticipated rise in sugarcane production, the result of farmers planting more canes to recover area lost to adverse weather conditions. In turn, OMCs should be able to procure an estimated 850 million liters of ethanol for blending with gasoline in 2018, which will raise the national blend average slightly to 2.2 percent.

    India: Ethanol Used as Fuel and Other Industrial Chemicals (Million Liters)

    Calendar Year

    2009

    2010

    2011

    2012

    2013

    2014

    2015

    2016

    2017

    2018

    Beginning Stocks

    453

    100

    113

    31

    58

    58

    74

    59

    94

    65

    Production

    1,073

    1,522

    1,681

    2,154

    2,057

    2,002

    2,292

    2,061

    1,651

    1,894

    Imports

    278

    144

    61

    5

    108

    194

    203

    400

    500

    600

    Exports

    14

    53

    119

    177

    233

    180

    165

    136

    100

    120

    Consumption

    1,690

    1,600

    1,705

    1,955

    1,932

    2,000

    2,345

    2,290

    2,080

    2,420

    Fuel Consumption

    100

    50

    365

    305

    382

    350

    685

    1,110

    700

    850

    Ending Stocks

    100

    113

    31

    58

    58

    74

    59

    94

    65

    19

    Production Capacity

    Number of Refineries

    115

    115

    115

    115

    115

    115

    160

    161

    161

    162

    Nameplate Capacity

    1,500

    1,500

    1,500

    2,000

    2,000

    2,000

    2,100

    2,210

    2,215

    2,300

    Capacity Use (%)

    0.72

    1.01

    1.12

    1.08

    1.03

    1.00

    1.09

    0.93

    0.75

    0.82

    Co-product Production (1,000 MT)

    Bagasse

    85,509

    87,690

    102,714

    108,309

    102,360

    105,642

    108,699

    104,535

    86,400

    97,500

    Press Mud

    11,401

    11,692

    13,695

    14,441

    13,648

    14,086

    14,493

    13,938

    11,520

    13,000

    Feedstock Use for Fuel (1,000 MT)

    Molasses

    417

    208

    1,521

    1,271

    1,592

    1,458

    2,854

    4,625

    2,917

    3,542

    Market Penetration (Liters - specify unit)

    Fuel Ethanol

    100

    50

    365

    305

    382

    350

    685

    1,110

    700

    850

    Gasoline

    17,606

    19,563

    20,716

    21,842

    23,749

    25,848

    29,651

    33,265

    35,838

    38,610

    Blend Rate (%)

    0.6

    0.3

    1.8

    1.4

    1.6

    1.4

    2.3

    3.3

    2.0

    2.2

    In 2016, India achieved its highest ethanol market penetration at 3.3 percent (national-level blend). Contributing factors included a contracted ethanol supply at attractive prices, and relatively high prices for gasoline. In December 2014, the GOI announced price controls for OMCs to procure ethanol. The program fixed landed-ethanol prices at OMC depots from INR 48.50 to INR 49.50/liter. Additionally, on October 13, 2016, the CCEA revised ethanol prices for supply to OMCs to carry out the EBP in the following manner.

    • Administered prices of ethanol for the EBP will be INR 39/liter from December 1, 2016 to November 30, 2017.
    • Charges will be paid to the ethanol suppliers as per actuals in case of the excise duty and VAT/GST, and transportation charges as decided by OMCs. (Post comment: with the new 18 percent GST on ethanol, OMCs will now have to pay 3-4 percent more than prevailing prices. In many states, such as Punjab, Tamil Nadu, and Uttar Pradesh, where VAT is lower than the proposed GST, ethanol supplies will turn costlier unless individual states decide to make tax concessions or provide similar incentives to encourage ethanol blending.)
    • If the need arises to increase or reduce the retail prices of gasoline by public sector OMCs, then such a change would affect the cost of holding constant the purchase price of ethanol during the supply year.
    • Ethanol prices may be reviewed and revised by the GOI at any time depending upon the prevailing economic situation and other relevant factors.

    Consumption

    India’s ethanol consumption will outgrow production for the fourth consecutive year due to an uptick in fuel ethanol purchases and steady demand from the industrial and potable sectors. As a result, consumption will grow from 2 billion liters in 2017 to 2.4 billion liters in 2018. Since the GOI mandates the use of ‘indigenous ethanol only’ for EBP, fuel ethanol supply will rise to a modest 850 million liters, 20 percent over the current year’s estimate. The chemical and industrial sector will have to rely more on imported ethanol (or import finished products) to augment the expected supply deficit. The consumption basket (excluding fuel ethanol) will include 1.6 billion liters for the industrial and potable alcohol sectors (which are exempted from GST). Since the quantity of ethanol demanded at higher prices may be less, the industrial uses and the potable sector will need to augment some of its supply from grain-based distilleries.

    Trade

    Given its widening supply deficit resulting from strong demand growth, India will continue to be a net importer of ethanol. The small trade deficit that emerged in 2015 is expected to grow rapidly through 2018, given the forecast of tight production this year and next. Assuming normal market conditions, ethanol imports are forecast to rise from 400 million liters in 2016 to 600 million liters through 2018.

    Imports

    Currently biofuel imports have no quantity restrictions, but traditionally India imports ethanol only to meet shortfalls in demand during years of lower sugar production. Low import duties on ethanol make imports attractive and economically viable, especially when crude oil prices strengthen. Demand is mostly for consumption across the potable liquor and chemical industries and not for fuel.

    In 2016, India imported 400 million liters of ethanol (non-beverage), the largest quantity since 2009 (278 million liters) and almost double that of 2015. Almost 80 percent of imported ethanol (worth $173 million) was sourced from the United States and was mostly classified as Undenatured, Fuel Use. The remaining 18 percent was from Brazil and 2 percent from Bhutan and Pakistan. In general, imported ethanol is competitively priced against local supplies. Usually, when local ethanol prices are strong, industry users prefer to buy imported ethanol and sugar distilleries benefit from selling it to OMCs.

    Exports

    Assuming normal market conditions, India is likely to export 120 million liters of ethanol (mostly Undenatured) in 2018, 100 million liters in 2017, and already sold 136 million liters (worth $95 million) in 2016. Since peak export sales in 2013 (233 million liters), India exports of ethanol have declined by an average of 15 percent per year on tighter supply and strong local demand. Ghana, Nigeria, Cameroon, Nepal, Sierra Leone, Tanzania, Jordan, Uganda, Rwanda, and Jamaica were the main export destinations for Indian ethanol in the last 5 years, but market share was lost to competition from United States, South Africa, United Kingdom, and Canada. Biofuel exports are only permitted after domestic requirements are met and the final decision is taken by the NBCC. The GOI provides no financial assistance for exports of biofuels. However, current trade regulations allow duty-free import of feed stocks for re-export by certified export-oriented processors.

    Duties

    Currently, the basic Customs duty on denatured ethanol is 2.5 percent. It was reduced last (Indian) fiscal year from five to 2.5 percent for manufacture of excisable goods, subject to actual user conditions.

    Steady rise in consumption demand will deplete stocks from an estimated 94 million liters in 2016 to 65 million liters in 2017. Stocks will decline further to 20 million liters in 2018 given tighter supplies; local ethanol prices likely will spike as a result.

    Biodiesel/Renewable Diesel

    The market for biodiesel is nascent and will continue to grow if there is a strong commercially viable strategy for building a sustainable biodiesel industry. Presently, India has five to six plants with capacity to produce 10,000 metric ton to 250,000 metric tons (MT) of biodiesel per year. Biodiesel is produced through multiple feedstock technology. Unfortunately, research trials have failed to build a commercially viable biodiesel industry based on ‘jatropha’ (Jatropha curcus), and there is little indication that it can eventually succeed.

    Production

    India will produce upwards of 150 million liters of biodiesel in 2017 and will add another 10 million liters through 2018. Biodiesel producers utilize multiple feed-stocks such as ‘UCO, animal fats, tallow’s and ‘other oils’ (palm stearin, sludge, acidic oils, and tree oils etc.) to produce biodiesel, thereby utilizing close to 30 percent of the installed capacity. While the use of animal fats and tallow’s has remained constant, remaining feedstock use has shown steady growth, namely UCO and ‘other oils’.

    Although there is no official regulation on supply of UCO or ‘other oils’ for biodiesel production, biodiesel sales have shown just incremental growth in recent years, with most of it coming from food processing industries and restaurants. Some firms claim to import smaller quantities of biodiesel and sell it locally after meeting prescribed BIS standards.

    Consumption

    Until recently, there was no excise duty on biodiesel, but with proposed GST of 18 percent, it may become costlier than conventional diesel; bulk buyers or end users may find it not to be competitive. Additionally, the excise duty concession on inputs such as palm stearin will also get replaced with a new 18 percent GST rate. Presently, no excise duty is levied on palm stearin supplied to bio-diesel producers, or for use in high speed diesel, which has 20 percent blends by volume of bio-diesel.

    Industry experts claim that without suitable incentives, growth of the biodiesel sector will remain flat. Biodiesel is bought by small and medium enterprises, sold to individual consumers and progressive farmers to supply energy for brick kilns, irrigation pumps, cellular communication towers, and back-up power diesel generators. Biodiesel is also sold to bulk users such as Indian Railways, State transport corporations (e.g., Karnataka State Road Transport Corporation), automobiles and transport companies (state sponsored or private trial runs); it reportedly is also retailed at select government owned outlets.

    India: Biodiesel Production from Multiple Feedstock (Million Liters)

    Calendar Year

    2009

    2010

    2011

    2012

    2013

    2014

    2015

    2016

    2017

    2018

    Beginning Stocks

    0

    45

    36

    29

    30

    23

    14

    11

    11

    12

    Production

    75

    99

    111

    121

    128

    132

    142

    148

    153

    161

    Imports

    0

    0

    0

    0

    0

    2

    1

    3

    2

    3

    Exports

    0

    0

    0

    0

    8

    64

    44

    53

    51

    60

    Consumption

    30

    108

    118

    120

    128

    79

    101

    98

    104

    104

    Ending Stocks

    45

    36

    29

    30

    23

    14

    11

    11

    12

    12

    Production Capacity (Million Liters)

    Biorefineries

    5

    5

    5

    5

    6

    6

    6

    6

    6

    6

    Nameplate Capacity

    450

    450

    450

    460

    465

    480

    480

    500

    500

    500

    Capacity Use (%)

    16.7%

    21.9%

    24.7%

    26.3%

    27.5%

    27.6%

    29.5%

    29.6%

    30.7%

    32.1%

    Feedstock Use for Fuel (1,000 MT)

    Used Cooking Oil

    35

    38

    42

    48

    50

    55

    60

    65

    70

    75

    Animal Fats & Tallow’

    3

    6

    6

    7

    7

    6

    5

    6

    6

    8

    Other Oils

    30

    50

    58

    60

    65

    65

    70

    70

    70

    70

    Market Penetration (Million Liters)

    Biodiesel, on-road use

    15

    36

    28

    44

    44

    26

    42

    40

    44

    48

    Diesel, on-road use

    39,834

    42,625

    45,520

    49,343

    49,354

    49,605

    52,239

    55,179

    57,452

    59,819

    Blend Rate (%)

    0.000

    0.001

    0.001

    0.001

    0.001

    0.001

    0.001

    0.001

    0.001

    0.001

    Diesel, total use

    66,390

    71,041

    75,866

    82,238

    82,256

    82,674

    87,064

    91,965

    95,754

    99,699

    Trade

    Four years ago, India had negligible trade in biodiesel. A year later, however, a small quantity of biodiesel (mostly 3826) was bought from Germany, UAE, France, China, Indonesia, Japan, and Netherlands. By 2016 the import value was $2.6 million, up from$350,000 in 2013. By contrast, India exported 53 million liters of B-100 in 2016 at an estimated value greater than $27 million. The main (re-)export destinations were Philippines, China, Malaysia, Spain, Netherlands, UAE, Nepal, and Kenya. Post anticipates the export sales to grow to 60 million liters in the forecast year. Given the poor results from attempts to use jatropha as an input, researchers in private and public sectors have gradually shifted their focus and resources to study feasibility of producing biodiesel from tree-borne oilseeds (TBOs) such as pongamia (Pongamia pinnata), neem (Azadirachta indica), kusum (Schleichera oleosa), mahua (Madhuca longifolia), and waste or used edible and non-edible oils.

    Stock

    Stocks likely will remain tight as production gains are not commensurate with increases in consumption.

    ADVANCED BIOFUELS

    The Indian biofuel industry, both private and public sector, claim some success in developing the technology needed to convert biomass from wood and agricultural wastes (corn cob, bagasse, stalk of forage crops). Trials are still underway to process municipal solid waste, micro-algae, and photosynthetic organisms into advanced biofuels. However, given the technological challenges, commercial production and economic viability remain to be demonstrated. The suitability of second-generation biofuels for countries respective needs must be evaluated against other bio-energy options to achieve the best possible social and economic benefits