Spotlight on India’s Biofuel Market: It’s All about the Sugar

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December 20, 2024

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by James Primrose (Stillwater Associates) India’s is the world’s fifth largest biofuels market. After a period of lackluster growth in the late 2000s and early 2010s and failure to achieve mandated targets, political interest in biofuels has significantly increased, driven by a confluence of agricultural, social and environmental drivers. In this article, we characterize the market, the key biofuel policies and regulations, and attempt to draw a conclusion on the likely way forward and the implications for the U.S. market.

Market Overview

India’s biofuel market consists of two large sectors (bioethanol and biogas) with a small fledging biodiesel sector. Overall demand stands at around 3.3 billion gallons (gasoline equivalent) per year (bgy) of which 1.7 bgy is used for transport and is overwhelmingly comprised of bioethanol. Note that, as shown in the figure below, biogas is primarily used for heat and power in India as opposed to transport.

Figure1: Indian Biofuel Demand 2015 – 2024 forecast

Bioethanol’s dominance of the liquid biofuel space in India should come as no surprise as India is the world’s second largest sugarcane producer after Brazil. However, India’s sugarcane mills are typically significantly smaller than their Brazilian counterparts and, in contrast to Brazil’s large-scale industrial farming practices, India’s mills are supplied with cane from small scale farmers with each farmer manually farming no more than a couple of acres. There are some 40 million cane farmers overall in India, and even a modest-sized sugarcane mill may be reliant on many tens of thousands of farmers for feedstock.

Price regulation is another key difference between India and Brazil. In India, the government regulates the prices for both the sugarcane that farmers sell to the mills, and the sugar and ethanol that the mills produce and sell.1 A mismatch in pricing has sometimes led to depressed or negative margins for the mills with consequent implications for production.

Lastly, because of improvements in varieties and agronomic practices India sugarcane yields have improved to be on par with best-in-class yields in Brazil.

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To further increase ethanol production, the plan sets out four key action areas:

Increasing domestic production from first generation (1G), second generation (2G), and third generation (3G) biofuels: This includes financial assistance for sugarcane mills to install or increase ethanol production capacity, as well as funding to support 2G (cellulosic) ethanol projects.
Feedstock diversification: Sugarcane mills are now permitted to produce ethanol directly from sugarcane, where previously only production from molasses was allowed. In addition, production from broken rice, damaged food grains, and corn are encouraged.
Regulated supply chains with effective tender pricing: This enables mills to secure long-term pricing agreements with the public sector oil marketing companies (OMC), improving their financial stability. In addition, the government has increased ethanol’s procurement price over the last three years.
Expansion into other sectors, encouraging the use of ethanol in stationary and mobile power applications and in other machinery to help increase demand.

The Indian government has also recently started actively promoting the domestic manufacturing of Flex Fuel Vehicles (FFVs)3 and E20-compatible vehicles.

Additionally, in 2023 India and Brazil entered into international collaboration in the form of the Center of Excellence on Ethanol, with a focus on encouraging FFVs, sustainable aviation fuel (SAF), and 2G ethanol.

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(T)here remain doubts that the E20 mandate will be achieved in 2025/2026 or possibly even in the medium–term. The additional ~1 bgy of ethanol required, would necessitate further diversion of ethanol away from industrial uses, backfilled by additional imports (India effectively prohibits the import of ethanol for fuel use), coupled with continued diversion of sugarcane away from sugar production, and/or a significant expansion in sugarcane cultivation (10-15%), which would typically come at the expense of wheat and rice cropping.

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Biodiesel

India has attempted to introduce a B5 mandate at least four times over the last two decades without success, as well as attempting to stimulate non-food domestic feedstocks such as Jatropha. The current target is for B5 by 2030; with the current blending rate at paltry 0.16%, no incentives, and lacking a strong domestic supply base, however, the prospects of achieving this mandate appear remote.

Sustainable Aviation Fuel (SAF)

India has set targets of SAF use in domestic flights of 1% in 2025 and 5% by 2030. However, while the 2018 National Biofuel Policy called for tax incentives to enable SAF production, these are yet to transpire.While there are several SAF pilot projects being developed, and test commercial flights using imported SAF have occurred, there are as yet no commercial SAF production facilities in India. However, the Indian Oil Corporation (IOC), and Bharat Petroleum Corporation (BPCL) have both announced early-stage plans to build SAF plants using agricultural and municipal solid wastes. Praj, a leading biofuels process technology developer, has likewise indicated its intention to enter the Indian SAF market.

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Biogas

India has a large and vibrant biogas sector, but only a small proportion is currently used as a transport fuel. Biogas for use in transport is called Compressed Bio Gas (CBG) in India, and it does benefit from India’s Compressed Natural Gas (CNG) sector, namely:

India has one of the largest Compressed Natural Gas (CNG) vehicle fleets in the world, ranging from three wheelers, taxis, cars, buses, and commercial vehicles. Such vehicles are promoted both at a federal and state level to reduce air pollution, dependence on fossil fuel imports, and costs, with original equipment manufacturers (OEMs) incentivized to produce CNG variants of their vehicles.
CNG benefits from preferential tax treatment vs gasoline and diesel that lowers pump prices by 30-50% vs gasoline and 20-30% vs diesel.
The government is expanding the City Gas Distribution (CGD) network across the country. This includes a requirement for Fuel Suppliers to install CNG refueling stations at their sites if they are located in a CGD sector. Likewise, some states also require the installation of CNG refueling stations in areas with poor air quality (e.g. Delhi, Maharashtra, and Gujarat).

In addition to this “enabling” support, CBG receives the following specific support:

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India has significant biofuel (liquid and gaseous) potential both currently and into the future using advanced biofuel technologies.5 This is reinforced by strong political interest and ambition in the biofuel space driven by the policies concerning de-carbonization, energy security, and agricultural and rural community support. READ MORE

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Investing Fleets Compressed Natural Gas (CNG/R-CNG/bioCNG) Jetfuel (Sustainable Aviation Fuel (SAF)) Aviation Fuel/Sustainable Aviation Fuel (SAF) CBG (compressed biogas) E15 mandates E20 E10 palm oil used cooking oil (UCO) Jatropha oil seed crops import/export Trade Policy World Trade Organization (WTO) trade dispute/discrimination market forces markets/sales farmers ethanol prices sugarcane prices sugarcane BioRefineries/Renewable Fuel Production biodiesel Biogas ethanol/bioethanol Transportation Fuels Policy environmental policy Agricultural Policy Brazil India Sustainability

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