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India’s Energy Challenges

  1. Coal production remains key

India produced 557 million tonnes (metric tons) of coal in 2012-13, and its rapidly growing power industry consumed the majority of it. Coal production has steadily increased since the industry was nationalized in the 1970s. The trend is likely to continue, with production goals aiming for an increase to 795 million tonnes by 2016-2017.

Owing to summer heat, frequent labor strikes, and natural disasters, India has had a harder time meeting growing market demands and faces the likelihood of growing coal imports. Coal remains an essential staple to India’s energy needs and will remain so for the foreseeable future.

  1. Fourth largest consumer of oil and petroleum in the world

A trend almost certain to accelerate as the country faces growing urbanization and an expanding middle class, India has a high dependence on imports for its petroleum needs and is the world’s fourth largest importer of crude oil. Most imports come from the Middle East, but growing investments in South America, the Caspian Sea, and elsewhere look to diversify and potentially increase oil to India.

The oil industry has slowly but steadily opened up since major reforms were enacted in 1991. Subsequent reforms are ongoing. Two state-owned companies, Oil India Limited (OIL) and Oil and Natural Gas Corporation (ONGC), have long dominated the production and refining in the sector. However, reforms in the last decade have increased competition and exhibit potential signs of growing foreign investment in a sector long dominated by domestic players.

  1. Relying on imports to meet growing demand for gas

Attempts to meet demand with gas have been greatly influenced by geopolitical issues. Various plans for pipelines with Myanmar, Iran and Pakistan, and Turkmenistan and Afghanistan have fallen apart over border disputes and other issues.

Domestic natural gas production has fallen in recent years, with further drop-offs expected in 2014-15. Given the growing demand and reliance on natural gas for power, issues with obtaining natural gas from other countries, and its own falling production, satisfying natural gas needs is one of India’s the most urgent challenges.

  1. Electricity shortages hurt industrial output

India meets its electricity demands with 65 percent use of non-renewables, 19 percent of that demand is met with hydropower, 12 percent from renewables, and 2 percent from nuclear power.

Demand is far outpacing supply in meeting the rapidly growing electricity needs of the country. Electricity shortages have resulted in loss of profits for many companies, loss in productivity as plants and businesses have been forced to shut down for a few days a month or slow down manufacturing, and added operational costs as some businesses have been forced to pay for power back up units.

While growing demand is part of the problem, poor infrastructure equally contributes to electricity shortfalls that have hindered recovery in India’s industrial sector and hurt its overall economic growth.

  1. Energy poverty and inequality spreads

Access to energy is a tremendous problem in India and major inequalities of access plague the subcontinent. According to one census, 77 million households in India still use kerosene for lighting. The problem is even more acute in rural India where up to 44 percent of households lack access to electricity.

While India has undertaken various programs and initiatives to address energy poverty, they have been faced with logistical problems and inadequate implementation locally. In the case of rural villages, access issues and geographical hindrances make addressing the issue extremely costly and difficult. India faces exploding demand and insufficient supply. As the country’s population and needs continue to grow rapidly, it will also need major reforms in infrastructure and efficiency.

Energy Policy

There are four key objectives of our energy policy: Access at affordable prices, Improved security and Independence, Greater Sustainability and Economic Growth.

Considering poverty and deprivation in India, access to energy for all at affordable prices is of utmost importance. We are yet to provide electricity to nearly 304 million people, and clean cooking fuel to nearly 500 million people, which still depend on Biomass. The policy aims to ensure that electricity reaches every household by 2022 as promised in the Budget 2015-16 and proposes to provide clean cooking fuel to all within a reasonable time. While it is envisaged that financial support will be extended to ensure merit consumption to the vulnerable sections, competitive prices will drive affordability to meet the above aims.

Improved energy security, normally associated with reduced import dependence, is also an important goal of the policy. Today, India is heavily dependent on oil and gas imports while also importing coal. In so far as imports may be disrupted, they undermine energy security of the country. Energy security may be enhanced through both diversification of the sources of imports and increased domestic production and reduced requirement of energy. Given the availability of domestic reserves of oil, coal and gas and the prospects of their exploitation at competitive prices, there is a strong case for reduced dependence on imports. In due course, we may also consider building strategic reserves as insurance against imported supplies.

The goal of sustainability acquires added importance and urgency in view of the threat of catastrophic effects of climate change as well as the detrimental effects of fossil fuel usage on local air quality. In India, sustainability is also closely linked with energy security. Our fossil fuel requirements, which comprise nearly 90% of our commercial primary energy supply, are increasingly being met by imports. This means that cutting fossil fuel consumption would promote the twin goals of sustainability and security. Hence the policy lays heavy emphasis on de-carbonisation through the twin interventions of energy efficiency and renewable energy.

Finally, the energy policy must also support the goal of rapid economic growth. Efficient energy supplies promote growth in two ways. First, energy is the lifeblood of the economy. It is an important enabling factor of growth and its availability at competitive prices is critical to the competitiveness of energy-intensive sectors.

Short Term

The government’s new National Energy Policy, currently in draft stages, will work on two-time horizons with focus on achieving some goals and fine-tuning others by 2022 so that all Indians have access to energy at any given point of time by 2040.

One will be a short-term horizon going up to 2022 and the other will be a medium-term horizon targeting an ‘energy-ready’ India by 2040.

The primary focus of the policy will be on the short-term. There are five years to go to get there, so the government has time to discuss and make changes right away. This way, the government will be in a position to make ambitious and bolder changes, if needed, to achieve the 2040 objective.

The policy will have four broad objectives: access at affordable prices, improved fuel security and independence, greater sustainability and economic growth.

The policy will aim to balance India’s energy demand on one hand and supply of various sources of energy on the other — be it the conventional sources like crude, coal and gas or the renewable sources like nuclear, solar, hydro and wind. Fixing 2012 as the base year to calculate its estimates, the draft paper pegs the rise in energy demand to be of 3.0-3.7 times magnitude by 2040 with the electricity component itself rising up to five-fold. It recognises that there are still 304 million people without electricity and nearly 500 million without clean cooking fuel.

Long Term

The Government has prepared an Integrated Energy Policy (IEP), to address the issue of long-term energy policy in the country. As per the IEP, India’s primary energy use is projected to expand to deliver a sustained growth rate of 9% through 2031-32 even after allowing for substantial reduction in energy intensity.

Medium Term

The NEP proposes actions to meet the objectives in such a way that India’s economy is ‘energy ready’ in the year 2040. Technological advancements and global energy markets are rapidly changing. Our own bold economic reforms, which are likely to lead to robust economic growth at double-digit annual rates over the next decade, promise to transform the way energy is consumed and supplied.

All four major energy-consuming sectors—industry, household, transport, and agriculture—will undergo dramatic changes in the coming decades. On the energy front, they should be able to internalise volatility in energy prices, which is often the case when markets get integrated globally. Urbanization is expected to go up to 47%, while current share of manufacturing in the GDP will double to 30% by the year 2040.

The population of India is predicted to go up to 1.6 billion by 2040. All these developments will result in the energy demand increasing by 2.7-3.2 times between years 2012 and 2040. The NEP must deliver the energy demanded at all times to support the desired economic outcomes.

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