Experts: 10% ethanol blending with petrol can lower fuel price by Rs. 3/litre

Petrol prices can come down by Rs. 2.60-2.90 a litre if even 10 percent ethanol blending with fuel is achieved, according to a Hindu Business Line report quoting leading industry experts. Under the Ethanol Blending Programme, the government has asked oil marketing companies (OMCs) to target 10 per cent blending of ethanol with petrol by 2022. According to data compiled by the Indian Sugar Manufacturers Association (ISMA), the nationwide average for ethanol blending stands at 4.02 percent as on October 1.

Octane number

“Blending ethanol with fuel raises the octane number of petrol. Petrol prices can be lowered if OMCs pass on the gains,” Mr. Amit Sachdev, South Asia (India, Bangladesh, and Sri Lanka) Representative for the US Grains Council (USGC), said. A higher octane number means engines can burn the same amount of petrol to extract more energy.

“The standardised octane number for petrol in India is 91. The cost of additives required to achieve this rating is built into the price of petrol. At present, splash blending of ethanol without changing the octane level at the refinery increases the octane rating by 2 excessive points, costing an additional Rs. 1.60 per litre of petrol,” Mr. Sachdev said. Splash blending is done when ethanol is directly poured into petrol. According to Mr. Sachdev, the octane rating of petrol goes up when ethanol is splash blended.

“Implementing the E10 blend mandate will translate into savings of Rs. 2.60-2.90 a litre of petrol,” Mr. Sachdev said.

Ethanol availability issues

However, 10 percent blending is unrealistic based on current ethanol availability. According to ISMA, OMCs raised a demand for 313.5-crore litres of ethanol during the sugar season 2017-2018. But the domestic industry could offer only 176.3-crore litres of ethanol for the programme, and agreements for 161.06-crore litres of ethanol were signed by PSU oil marketing companies. This resulted in 4.02 percent ethanol blending.

Ethanol availability is constrained by procurement price variation and the lack of distilleries, according to the domestic industry. The procurement price of ethanol is fixed by the Centre before every sugar season during ethanol supply year from December 1 to November 30.

Ethanol production from B-molasses

Meanwhile, sugar mills, currently producing little or no bio-ethanol from B-class molasses, are planning to ramp up production. They may constitute 10 per cent of total ethanol produced in the sugar season 2018-19, according to industry analysts.

“Tenders for ethanol supplies for 2018-19 have been invited with the new rates. The bids have been submitted by distilleries and we will know in a few days how much of B heavy molasses will be committed for ethanol,” said Mr. Abinash Verma, Director General, ISMA. Most mills in the country, barring a few in Maharashtra, produce ethanol from C heavy molasses only. To promote bio-ethanol production available for fuel-blending programme, the Government recently announced incentives for sugar mills producing ethanol from the intermediary B heavy molasses and cane juice. Besides, the diversion of B heavy molasses and cane juice into ethanol production would have helped to maintain sugar production at manageable levels during years when sugarcane yields were high. While one litre of ethanol produced from B heavy molasses or partial sugarcane juice will command a premium ex-mill price of Rs. 52.43/litre (as against the prevailing Rs. 47.13), that from cane juice will fetch Rs. 59.13.

Government incentives

“The recent government announcement on ethanol incentives were made close to the crushing season, giving less time for the upgradation. Still, we expect nearly 5-10 per cent of total ethanol production to be from B heavy molasses by the end of the current season,” said Ms. Hetal Gandhi, Director of Crisil Research. However, she said the mills will complete their capacity additions by the next sugar season and as result, a significant amount of molasses is expected to be produced from B molasses from the next season onwards.

Mr. Verma said the Government is encouraging capacity addition, including setting up new distillation capacities. “Sugar companies are excited about building up capacities for more ethanol production as subsidised loans at around 6 per cent interest rate are available as well as premium rates are paid for ethanol made from B heavy molasses and cane juice,” he said. “For the first time, it is being seen as an alternative to sugar production and a solution to reduce surplus sugar,” the ISMA Director General said.