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.
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