The government's goal to blend 20 per cent ethanol in petrol by Ethanol Supply Year (ESY) 2025 will require increased utilisation of sugarcane, according to a report released on Monday.
The report from Crisil Ratings notes that achieving this target, which equates to blending 990 crore litres of ethanol annually, will necessitate effective use of both grain and sugarcane feedstock. This shift is expected to enhance sugar inventory levels and improve the cash flows of sugar millers.
ESY runs from November to October. The report highlights that annual ethanol production from grains is projected to rise significantly to 600 crore litres by the next season, up from an estimated 380 crore litres this season. The remainder will need to be sourced from sugarcane, given the substantial processing capacity available.
The increased ethanol production from sugarcane is anticipated to help manage sugar inventory, especially with high carry-over stocks expected due to government restrictions on ethanol production and exports. Ethanol blending has been steadily increasing by 200-300 basis points each season since ESY 2021.
While grain utilisation for ethanol production is not regulated, the government controls the amount of sugarcane used based on the anticipated demand and supply balance for sugar. Last year's erratic rainfall is expected to have impacted this year's sugarcane production, potentially limiting ethanol output from this source to 250 crore litres, equivalent to 2.5 million tonnes of sugar.
The report suggests that ethanol blending could reach 14 per cent in ESY 2024 due to a 40 per cent increase in capacity for grain-based ethanol. However, to achieve the 20 per cent blending target by ESY 2025, it recommends allocating sugarcane sufficient to produce 4 million tonnes of sugar for ethanol production, similar to the 2023 season.
For season 2025, gross sugar production is forecasted at 33.5 million tonnes, with consumption at 29.5 million tonnes. The report anticipates healthy sugar inventories by the end of the current season and suggests that using sugarcane for ethanol could help optimise these inventories and enhance the financial stability of sugar mills.
Crisil Ratings Associate Director Anil More emphasised that higher sugarcane use for ethanol production could positively impact cash flows for sugar mills, aiding timely payments to farmers. The report also notes the need to monitor policies regarding sugarcane allocation and the availability and cost of grain-based feedstock for future seasons.
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