White paper

Techno-economic analysis of cellulosic ethanol in India using agricultural residues

Alternative fuels
Clean air Fuels

The Government of India has supported the use of ethanol in transportation fuels for nearly 20 years. As imported ethanol is not allowed for fuel use, India must scale up its domestic ethanol production if it is to meet increasing blend targets amidst increasing demand for gasoline. At the same time, concerns over food security have prompted interest in second-generation (2G) biofuels sourced from cellulosic biomass such as agricultural residues and municipal solid wastes. The government seeks to diversify ethanol feedstocks by supporting 2G feedstocks and is trying to scale up the industry by providing Viability Gap Funding (VGF), which improves the financial returns of a given project. There is a proposed cap of INR 1.5 billion (US$20 million) per project for a total of 12 projects at commercial scale, and this paper evaluates the impact of the proposed VGF on the cost viability of cellulosic ethanol by developing a discounted cashflow model to assess the levelized production cost of cellulosic ethanol in India.

The table below is an overview of the estimated levelized costs for cellulosic ethanol across the project configurations and feedstock choices assessed in this study. Results show that feedstock type has only a minor effect on the production cost. Additionally, estimates for facilities with capacity to produce 36.5 million liters annually and those with 70 million liters capacity suggest that doubling the capacity size could lower the production cost by approximately 10%, due to economies of scale. If 2G ethanol were to be sold at the highest current price for 1G ethanol of INR 62.65 (US$0.85) per liter, the analysis finds that producers would not be able to generate a financial return that is likely to attract private investment, even with the VGF support. Additionally, the amount of cellulosic ethanol under the VGF support, as currently proposed, would only replace around 1% of India’s gasoline demand in 2030.

As the results suggest that establishing a cellulosic ethanol industry in India will likely require additional policy support beyond the VGF program, the paper also outlines several supporting measures, both fiscal and non-fiscal, that policymakers might choose to employ. Such measures would help India reap the many environmental and socio-economic benefits of 2G ethanol, which include less crop burning and enhanced energy independence.