Wine consultant Leon Deans said distillation could be a viable option to remove the oversupply, but may require government support because the cost of distilling the wine could be higher than the revenue from the ethanol.

If you consider that:

• cost of distilling bakes in the thermodynamic and energy costs of raising the temperatures of the wine to separate the alcohol
• the price for the pure alcohol is fungible with the market price of any other liquid fuel or alcohol on a per-energy equivalence

This seems like it's a net energy negative process where the total amount of energy available to the society drops where you do this. This is exactly why it loses money.

Basically:

• you buy some energy some place
• wine producers take product they already made that has no market value and use the energy input to make something they can sell, using up that original energy
• the energy coming out is lower than what you started with in step 1, but you sell the energy for less money
• this loses energy AND money, but the government subsidies make the money side not a problem

This cuts wine makers in on the deal in a way where the market makes this feasible despite the underlying thermodynamic losses.

NOTE: the grapes and wine that were originally grown, the harvesting, bottling etc also have thermodynamic and material costs that are totally external to this analysis. The farm itself bought fuel when it made the wine, that's all not ibcluddd into the ethanol calculus. When you consider the total investment with a wider boundary you can start to cost many additional resources like time, water, wages, insurance, financial interest and on and on.