Plan To Blend 20% Ethanol in Petrol Requires More Sugarcane, Says Crisil Ratings

The government's aim to blend 20% ethanol in petrol by Ethanol Supply Year 2025 will require more sugarcane utilisation, a report said on Monday.

This is also likely to improve sugar inventory level and cash flows of millers, it added.

An ESY runs from November to October.

India's aim to blend 20% ethanol in petrol by ESY 2025—or 990 crore litres annually—will require effective utilisation of both grain and sugarcane feedstock to increase its supply, Crisil Ratings said in a report.

The annual ethanol production from grains is expected to see a significant increase to 600 crore litre by the next season (this season's production estimate is 380 crore litre), it stated.

The balance will have to be produced by processing ethanol from sugarcane, which is viable given the substantial capacity in place, it said.

This, in turn, can help optimise the sugar inventory, particularly considering the high carry-over stock expected at the end of the current season owing to the government restriction on diversion for ethanol production and exports, Crisil Ratings said.

Blending ethanol will help reduce India's dependence on crude oil imports. The ethanol blending rate has steadily risen 200-300 basis points each season since ESY 2021, said the report.

While, the grain utilisation for producing ethanol is not controlled, the government determines the quantum of sugarcane utilisation based on its estimation of demand-supply balance of sugar for the year ahead, it said.

Crisil Ratings report said last year's erratic rainfall is expected to have impacted sugarcane production this year.

Consequently, ethanol production from the sugarcane route is expected to be restricted to 250 crore litres (equivalent to 2.5 million tonnes of sugar) this season, it added.

"Ethanol blending could still improve to 14% in ESY 2024 as extraction from grains has significantly risen due to 40% capacity expansion. That will compensate for the reduced output from sugarcane,' it said.

"However, to reach the 20% blending target by ESY 2025, allocating sugarcane required to produce 4 million tonnes of sugar can be considered for ethanol production, similar to the season 2023," Crisil Ratings Director Poonam Upadhyay noted.

According to the report, in season 2025, gross sugar production is expected to be 33.5 million tonnes, with sugar consumption at 29.5 million tonnes.

Moreover, sugar inventories are projected to be healthy by the end of this season, it added.

Hence, allowing sugarcane -- equivalent to the quantity required to produce 4 million tonnes of sugar -- for ethanol supply (390 crore litres) can be considered, while the larger remaining share will be sourced from grain-based routes.

"Higher sugarcane usage for ethanol production will also help optimise sugar inventory, which is estimated to rise to about four months of consumption (8 million tonne) by the end of this season. Besides, it can positively impact the cash flows of sugar mills and help them pay cane dues to farmers on time," Crisil Ratings Associate Director Anil More stated.

However, the policy on the quantity of sugarcane allowed next season and availability and prices of grain-based feedstock needs to be monitored, the report added.