India's Flex-Fuel Rollout Lags Centre's Target Of 500 Stations By December

India's flex-fuel ambitions are running into a familiar roadblock — a lack of demand. With just over two months left in the year, the Centre's target of 500 E85 fuel stations by December is looking difficult.

As of October, Indian Oil Corp. accounts for 110 outlets, while Hindustan Petroleum Corp. and Bharat Petroleum Corp. have just 15 each. That takes the total to 140 stations, less than a third of the target and leaves the industry with roughly 360 stations still to add in the remaining weeks of the year. 

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The problem is not just infrastructure. It is the absence of a ready market. E85 is ethanol blended with petrol, but it also needs flex-fuel engines. 

"We're ready, but where is the demand?" asks a senior official of a state-run oil marketing company. The OMCs are reluctant to expand the network until flex-fuel vehicles gain traction, wary of investing in specialised infrastructure without enough customers to use it.

The monthly registrations for E85-compatible vehicles rose sharply from just three in June to 231 in July, before surging to 2,617 in October, shows data from Vahaan portal. However, two-wheelers accounted for over 99% of total registrations, while demand for passenger cars has been subdued.

But that creates a classic chicken-and-egg problem: consumers need access to fuel before flex-fuel vehicles become attractive, while oil companies want more vehicles on the road before investing in more pumps, according to Umud Shokri, a Washington-based energy strategist and senior visiting fellow at George Maosj University.

The government sees ethanol blending as a way to cut oil import costs and reduce dependence on fossil fuels. Yet, the latest figures point to a widening gap between policy ambition and market readiness. 

In Delhi, E85 is priced at Rs 82.12 a litre, Rs 20 below petrol at Rs 102.12. But the lower pump price alone may not be enough to generate demand, considering ethanol's potential impact on mileage.

A report by the think tank Council on Energy, Environment and Water, suggests that ethanol also carries less energy than petrol, so vehicles running on it burn more fuel to cover the same distance, which pushes ethanol's real cost 15-25% higher than petrol.

Therefore, for ethanol to truly beat petrol on price, it would need to be sold at about Rs 52-63 a litre, far below current levels. This is well below the production cost of any commercially viable feedstock assessed. Until that happens, there is little incentive for fuel companies to push ethanol fuel more aggressively, according to the report.

An IIT Delhi-AIDA analysis estimated that E85 may need to be about 25% cheaper than petrol to reach cost parity under a 25% efficiency penalty. So the Rs 20 discount may not produce meaningful savings for every driver.

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