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The Narendra Modi government recently announced the blueprint of a new bio-ethanol policy that aims to spur investments of the tune of Rs 5,000 crore for setting up projects with a total production capacity of 1 billion litre of ethanol every year. The policy is aimed at cutting down the country’s huge energy import dependence.

Union oil minister Dharmendra Pradhan launched the draft of the new policy that will promote production of bio-ethanol — from ligno-cellulosic biomass as against the conventional approach of molasses based ethanol production — for Ethanol Blending Programme (EBP) which aims at 20 percent ethanol blending in petrol by 2030.

“The target of generating cumulative 2G (second generation) ethanol production capacity of 1 billion liter per annum will be achieved within a budget of Rs 5,000 crore. The capacity of installation may go higher if there is saving in budget amount of financial support,” the oil ministry said in a draft of the scheme for providing financial support for Setting up Integrated Bio-ethanol Projects using Lignocellulosic Biomass & other Renewable Feedstock.

The scheme provides for financial support in order to incentivise investment in the initial few commercial scale 2G ethanol bio-refineries. Under the scheme, Viability Gap Funding (VGF) subject to a maximum of 20 per cent of the project cost or Rs 5 crore for every 10 lakh litre summed to bio-refinery name-plate capacity will be provided to make the projects commercially viable. The maximum Viability Gap Finding (VGF) disbursement of Rs 150 crore will be made for every project.

“For example, for a project cost of Rs 800 crore for generating 3.20 crore litre of 2G ethanol per annum, financial assistance of Rs 150 crore will be provided. If the project cost for an annual 2G ethanol capacity of 2 crore litres is Rs 600 crore, grant to the tune of Rs 100 crore will be provided,” the draft scheme said. It added that the financial assistance will be limited to Rs 15 crore per technology for demonstration projects.

According to the draft policy, 2G Bio-ethanol project developers can also obtain grant from state government or Public Sector Undertakings (PSUs) or other agencies up to 20 per cent of the total project cost. However, the total grant taken from central and state government or other agencies should not exceed 40 per cent of the total project cost.

The government plans to allocate Rs 4,800 crore from the scheme for commercial projects, Rs 150 crore for demonstration projects and Rs 50 crore as administrative charges for Centre for High Technology.

The National Policy on Bio-fuels announced in 2009 was aimed at accelerating promotion of Bio-fuels such as Bio-ethanol and Bio-diesel, with indicative targets of 20 percent blending by 2017.

Under the policy, Oil Marketing Companies (OMCs) had been directed to sell Ethanol Blended Petrol with percentage of ethanol up to 10 per cent. However, due to insufficient supply the OMCs could only manage a national average of less than 3 per cent ethanol blending.

The new Bio-fuel policy to be launched within two months aims at the supply-demand gap by incentivizing investments in new green-field projects.