Why Bihar Is Bullish On Ethanol And How This Alternative Fuel Fits In India's Energy Jigsaw

Bihar Chief Minister Nitish Kumar, on Saturday (30 April) opened the country’s first Greenfield grain-based ethanol plant in Purnea.

The plant, situated at Ganeshpur Parora, about 12 km from Purnea town, has been set up by Eastern India Biofuels Pvt Ltd. at the cost of Rs 105 crore and is the first one developed since the centre gave the go-ahead to Bihar’s ethanol production and promotion policy-2021.

The Purnea plant, set up on Zero Liquid Discharge (ZLD) basis, has been built upon about 15 acres of land and is expected to produce 65,000 litres of ethanol per day using 150 tonnes of maize and rice every day.

The ethanol will be exclusively sold to three state-run Oil Marketing Companies (OMCs), viz., Indian Oil, Bharat Petroleum and Hindustan Petroleum, in the state and in neighbouring West Bengal and Jharkhand, for which a 10 year purchase agreement has been inked with the OMCs.

What is Ethanol?

Ethanol is a clear, colourless organic liquid, also known as ethyl alcohol, grain alcohol, and EtOH. It has medical applications as an antiseptic and disinfectant. It is used as a chemical solvent and in the synthesis of organic compounds, apart from being an alternative fuel source.

Ethanol produced from biomass is also called Bioethanol and is one of the principal biofuel. It can be produced from starch- or sugar-based feedstocks, such as corn grain (as it primarily is in the USA), sugarcane (as it primarily is in Brazil), or from cellulosic feedstocks (such as wood chips or crop residues).

Why Ethanol is essential for India

India is the third largest energy consumer in the world after China and USA and also one of the fastest growing energy consumers. In the year 2019, the primary energy consumption in the country was about 813 million tonnes of oil equivalent (Mtoe). According to a report titled “India Energy Outlook 2021” released by the International Energy Agency (IEA), over 80 per cent of India’s energy needs are met by three fuels: coal, oil and solid biomass.

Coal has strengthened its role as the dominant energy source, maintaining its strong position in power generation as well as being the fuel of choice for many industries (especially heavy industries such as iron and steel). Oil consumption has grown rapidly on account of rising vehicle ownership and road transport use. Biomass, primarily fuelwood, makes up a declining share of the energy mix, but is still widely used as a cooking fuel.

Petroleum-based oil meets about 98 per cent of the requirement for transportation fuels, and the demand has been steadily rising. According to the data provided by Petroleum Planning and Analysis Cell (PPAC), India’s dependence on imported crude oil has been rising and currently stands at around 85 per cent (see the table below).

The crude oil consumption in 2020-21 was about 194 million metric tonnes (MT). The domestic crude oil is able to meet only about 15 per cent of the demand, while the rest is met from imported crude.

The energy demand in our country is further rising due to an expanding economy, growing population, increasing urbanisation, evolving lifestyles and rising spending power. Despite temporary setbacks due to the COVID-19 pandemic, the Indian economy is set to grow steadily, which would result in a further increase of vehicular population which in turn will increase the demand for transportation fuels.

Rising energy demand and high reliance on imports pose significant energy security challenges. It also leads to massive foreign currency outflow. To put things in perspective, India’s net import of petroleum was 185 MT at a cost of $551 billion in 2020-21. Further, excessive use of fossil fuels leads to higher carbon emissions and associated health concerns.

India’s energy security would remain vulnerable until alternative fuels to substitute/supplement petro-fuels are developed. Domestically produced ethanol is a potential opportunity to reduce reliance on oil imports by blending it with conventional fossil fuels for consumption. In addition, it can also help generate employment, promote Make in India, doubling of farmers’ incomes and promote Waste to Wealth generation.

Why is Ethanol gaining traction as an alternative fuel?

Ethanol is considered to be one of most suitable alternative blending, transportation fuel due to its better fuel quality and environmental benefits.

Ethanol is a less polluting fuel, and offers equivalent efficiency at lower cost than petrol. As the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions and thereby reducing environmental pollution.

Availability of large arable land, rising production of foodgrains and sugarcane leading to surpluses, availability of technology to produce ethanol from plant based sources, and feasibility of making vehicles compliant to ethanol blended fuel makes it a lucrative proposition.

How it started

In order to encourage sustainable and alternate fuels and also to cut India's dependence on imports of fossil fuel oils, Government of India has taken multiple interventions including administered price mechanism, opening alternate route for Ethanol production, amendment to Industries (Development & Regulation) Act, 1951 which legislates exclusive control of denatured Ethanol by the Government of India, reduction in applicable GST from 18 per cent to 5 per cent.

Further, the central government notified the National Policy on Biofuels - 2018, on 04 June 2018 to promote the use of biofuels including bio-ethanol in the country. The Policy is aimed at achieving multiple outcomes such as; addressing environmental concerns, reducing import dependency and providing a boost to the agriculture sector.

The National Policy on Biofuels, 2018 allowed production of Ethanol from B-heavy Molasses, Sugarcane Juice, and damaged food grains like wheat, broken rice etc. which are unfit for human consumption.

Regarding food-grains, the National Biofuel Coordination Committee (NBCC) was empowered to allow specific raw materials based on the projected supply for the forthcoming year. The NBCC has subsequently allowed production of Ethanol from surplus rice with Food Corporation of India (FCI) and Maize.

The government has advanced the target of achieving 20 per cent ethanol blending in petrol (called E20 fuel) from 2030 to 2025 under EBP (ethanol blending policy). This was announced by Prime Minister Narendra Modi on 5 June 2021 i.e. on World Environment Day while releasing the Report of Expert Committee on “Roadmap for Ethanol Blending in India 2020-25”.

Bihar is the first state in the country to implement an ethanol promotion policy under the National Policy of Biofuels, 2018. The Policy was approved by the state cabinet in March 2021 and was subsequently tabled in the state legislature.

The state had been seeking the permission to make ethanol directly from maize and sugarcane juice since 2007. The central government gave permission for direct production of ethanol last December in consonance with National Policy of Biofuels, 2018.

The most important part of the policy is that every unit selected for financial assistance must have a tripartite agreement with their bankers and OMCs, which would act as collateral for secured loans for establishing such units.

Under the policy, financial assistance is provided to all such Green-field standalone Ethanol manufacturing units which produce fuel-grade Ethanol and supply 100 per cent of their Ethanol to OMCs under Ethanol Blending Programme (EBP) of Government of India.

An investor is eligible to get an additional government subsidy of 15 per cent of the cost of plant and machinery up to a maximum of Rs 5 crore, in addition to the existing incentives under the Bihar Industrial Investment Promotion Policy, 2016.

In case of special class investors, viz; Scheduled Castes (SC), Scheduled Tribes (ST), Extremely Backward Castes (EBC), women, differently-abled, war-widows, acid attack victims and third gender entrepreneurs, the quantum of capital subsidy has been fixed at 15.75 per cent of the cost of plant and machinery or Rs 5.25 crore, whichever is lower.

Why the State is bullish on Ethanol

Traditionally, Bihar has been a leader in the sugarcane production in India and is also home to large number of molasses based distillery units. Ethanol manufacturing in the state using sugarcane Juice, maize and broken rice as feed-stock has significant potential for growth.

With 18 of 38 Bihar’s districts falling in what is known as the Corn Belt, Bihar is the third largest maize producing state contributing around 14 per cent to national production. Purnea, Katihar, Araria and Kishanganj districts, known as Seemanchal region, account for 80 per cent of the total maize produced in Bihar and together produce 30-35 lakh MT from April to August.

The National Policy on Biofuels, 2018 and subsequent pronouncements by the Government of India offer a very conducive regulatory and institutional eco-system for sustainable growth of Ethanol manufacturing in states such as Bihar which is endowed with large number of feed-stocks such as sugarcane, maize, rice, etc.

Bihar produces around 12 crore litres of ethanol and is in the fifth position in ethanol production in the country. With the implementation of the policy, the state aims to be the ethanol hub of the country and generate 50 crore litres of ethanol every year.

Keeping in line with this, 17 ethanol production plants are being set up, which is likely to produce 35 crore litres of the fuel every year. Ethanol plants are being set up in Muzaffarpur, Bhojpur, Nalanda, Buxar, Madhubani, Begusarai, Gopalganj, East Champaran, Bhagalpur, besides Purnia. Two such units are ready to be inaugurated soon in Gopalganj and one in Bhojpur district, respectively.

Also Read: Water Guzzlers: Why Sugar-Based Ethanol Blending Might Not Be A Good Idea