India's Ethanol Capacity Hits 2,000 Crore Litres, Exceeds Demand

The report from CareEdge Ratings said that the demand under E20 blending is only roughly 1,100 crore litres, with nonfuel demand of around 300-350 crore litres.

Only around 60 per cent of offered ethanol is being absorbed, leaving utilisation pressures across the sector. The surplus has led to the sector transitioning into a consolidation phase with utilisation likely to remain in the 65-75 per cent range for the next three years.

Capacity addition is concentrated in select states such as UP, Maharashtra, Karnataka, leading to regional surpluses ranging from 277 crore litres surplus in Maharashtra to 77 crore litres deficit in Tamil Nadu.

Correspondingly, Engineering, Procurement, and Construction (EPC) activity has begun to moderate, with industry focus shifting toward brownfield capex, debottlenecking, and operational efficiencies.

The report highlighted that roughly 700 crore litres of excess supply relative to absorption have kept margins under pressure.

"The transition toward higher ethanol blending presents a complex mix of operational, consumer, and infrastructure challenges, even as demand is expected to rise to roughly 1200 crore litres by ESY 2026‑27 and roughly 1,600 crore litres by ESY 2029‑30," said Niraj Thorat, Assistant Director, CareEdge Ratings.

"Achieving this will depend on FFV penetration increasing from roughly 5 per cent of new vehicle sales in FY28 to roughly 20 per cent by FY30, alongside coordinated investments in logistics, storage, and distribution to avoid supply bottlenecks and ensure smooth adoption," he noted.

Meaningful demand expansion depends on scaling up higher ethanol blends (E85/E100) and Flex Fuel Vehicle (FFV) adoption. In the absence of these demand side triggers, incremental capacity additions are unlikely to be absorbed in the near term, the report forecasted.

In the Ethanol Blended Petrol (EBP) Program, India reached an average 20 per cent ethanol blending level in December 2025, five years ahead of schedule.

The Ministry of Road Transport and Highways (MoRTH) then came out with draft amendments to create grounds for increasing the EBP to E85 or exclusive ethanol fuel.

Ethanol has emerged as a globally preferred sustainable fuel, offering significant benefits in reducing greenhouse gas emissions, enhancing energy security, promoting agricultural demand, and supporting cleaner, renewable energy transitions across major economies worldwide.

- IANS