Recent supply chain disruptions and geographical tensions reaffirms the benefits of self reliance when it comes to core sectors such as energy. India’s reliance on imports for its energy requirements has always been its vulnerability which it is addressing by diversifying its energy mix in recent years. India’s focus on policy level & ambitions for biofuels underlines this growing trend. The country has significant incentives such as improving self reliance, inching closer to its environmental commitments and boosting income of the sector which employs a significant portion of its population to pursue its biofuels targets. The National Biofuel Policy (2018) puts forward ambitious targets regarding ethanol blending, biodiesel blending and jet fuel blending out of which ethanol blending has shown significant progress in recent years. The policy involves guaranteed pricing, long-term ethanol contracts, & financial support for new infrastructure.
Multifold growth in ethanol consumption
The ethanol consumption has risen from 1.9 bn liter per annum to 5.4 bn liter per annum post announcement of policy in 2018. This has increased % share of ethanol blending from mere 2% to 12%. Although these numbers are encouraging, it's important to note that the majority of the ethanol is coming from first generation feedstock such as sugarcane. Industry has already observed uncertainty in its supply and shortages. It would be difficult to meet E20 (20% blending) target without incorporating second generation feedstock such as agricultural, municipal and animal waste. The ethanol production from 2nd generation feedstock is technologically intense compared to first generation and to promote this, the government has allocated significant funding of INR 5000 crores spread across 6 years with multiple tax incentives. IndianOil has already inaugurated its 2nd Gen biofuel plant with production capacity 100kl/day while other PSUs such as HPCL and BPCL are in process of setting up the plant.
It's important to also understand the implications for the auto industry when we transition from E10 to E20. The automobiles produced in the country post 2008 are compatible with E10 but E20 transition will require modifications from OEMs as well as revision of pricing for such fuels. E20 fuel typically shows lower fuel efficiency compared to non blended and E10 fuels. In addition, OEMs need to consider material compatibility for E20 fuels because of its corrosive nature. Their engines need tuning and calibration to reduce impact of efficiency loss and obtain best possible performance from the vehicle. Although India’s auto industry is capable of carrying out these changes, the increased manufacturing cost and reduced fuel efficiency puts forward hindrance for adoption by consumers.
Increased support require for Biodiesel and SAF
India is targeting a 5% biodiesel blending in diesel by 2030. But the progress so far has remained underwhelming. Used cooking oil is primary feedstock for biodiesel and its diversion to edible streams through small eateries pose a major challenge to feedstock availability. India’s biodiesel production currently stands less than 1% of diesel consumption. Considering India will need around 4.5 bn liters by end of 2030 to achieve its target, significant policy initiatives are necessary to strengthen the biodiesel ecosystem.
Sustainable aviation fluids is also a critical segment in biofuel. India plans to blend 1% of sustainable aviation fuel with jet fuel in 2027 and 2% in 2028. Due to the high cost of SAF the demand from low cost carriers is expected to be limited. But due to cheaper feedstock and availability of technology, India has potential to export SAF to the Middle East and Asia market.