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Chapter # 12. Energy

Objectives

The government’s on-going energy sector policies aim “to provide access to affordable, reliable, sustainable and modern energy”. At the convergence of its domestic goals and the global development agenda, it also intends to hit the following milestones on the way –

  • Make available 24×7 power to all by 2019.
  • Achieve 175 GW of renewable energy generation capacity by 2022.
  • Reduce imports of oil and gas by 10 per cent by 2022-23.
  • Continue to reduce emission intensity of GDP in a manner that will help India achieve the intended nationally determined contribution (INDC) target of 2030.

Current Situation

India’s energy mix is dominated by coal with a 49.6 per cent share, followed by oil (28 per cent), biomass (11.6 per cent), gas (7.3 per cent), renewable and clean energy (2.2 per cent) and nuclear energy (1.2 per cent). India is the world’s third largest energy consumer.

  • However, in 2017, its per capita energy consumption was about 625.6 kilogram of oil equivalent (kgoe) against the world average of 1860 kgoe. The US and China’s per capita energy consumption in 2015 was 6800 kgoe and 2170 kgoe, respectively.
  • In the power sector, the all-India installed power capacity is about 334 GW, including 62 GW of renewable energy. The energy sub-sectors continue to face challenges.
  • On energy supply, India is still heavily dependent on petroleum imports to meet its requirements – we imported approximately 82 per cent of crude oil and 45 per cent of natural gas requirements during 2017. Also, at present, about 16000 km of gas pipeline networks exist.
  • The progress of 10,000 Km of pipeline bid out by Petroleum and Natural Gas Regulatory Board (PNGRB), which was to be completed by 2016-17, is behind schedule.
  • In the coal sector, the government has recently in 2018 allowed commercial mining. Furthermore, power sector companies, especially state government utilities, continue to deal with difficult financial positions.
  • Due to energy efficiency (EE) measures, demand side management (DSM) and advanced technology in the energy value chain, India’s energy intensity declined from 0.158 koe/$ in 2005 to 0.122 koe/$ in 2016 at 2005 prices, indicating an efficiency increase of 22.8 per cent.
  • The energy intensity of the UK and Germany in the year 2016 were 0.074 koe/$ and 0.101 koe/$ at 2005 prices, respectively. This indicates that India still has the potential to improve energy efficiency.

Constraints

The constraints on achieving the milestones set for 2022-23 can be divided into two broad categories – overall energy sector and sub-sector specific.

  1. Overall energy

Subsidies and taxes:

  • A variety of subsidies and taxes distort the energy market and promote the use of inefficient over efficient fuels.
  • They also make Indian exports and domestic production uncompetitive as energy taxes are not under GST and hence, no input credit is given. This is a serious lacuna.
  1. Power
  • Old inefficient plants continue to operate whereas more efficient plants are underutilized.
  • As the gap between the average cost of supply (ACS) and average revenue realized (ARR) persists due to high aggregate technical and commercial (AT&C) losses, distribution companies (discoms) use load shedding to minimize losses.
  • Although legally independent, Regulatory Commissions are unable to fully regulate discoms and fix rational tariffs.
  • Unmetered power supply to agriculture provides no incentive to farmers to use electricity efficiently.
  • There is a lot of hidden demand because of unreliable supply and load shedding.
  • State power utilities are not able to invest in system improvements due to their poor financial health.
  • High industrial/commercial tariff and the cross-subsidy regime have affected the competitiveness of the industrial and commercial sectors.
  1. Oil & gas
  • Non-discriminatory access for private and public sector companies to the gas pipeline network does not exist.
  • Lack of market-driven gas prices for old fields disincentivizes further production.
  • The gas pipeline infrastructure is also inadequate.
  1. Coal
  • Land for coal mining is becoming a major issue.
  • There is a tendency to expand opencast mining and discourage underground operation even for better quality coal reserves. This aggravates the land availability problem.
  • There is no competitive coal market.
  1. Renewable energy  
  • High energy costs result in reneging on old power purchase agreements (PPAs) and erode their sanctity. This leads to uncertainty regarding power offtake and consequently endangers further investments.
  • Flexibility in generation and balance requirements for the integration of renewable energy are emerging as major issues.
  • There are supply chain issues in biomass power generation.
  1. Energy efficiency  
  • Limited technical capabilities, high initial capital expenditure, limited market and policy issues have adversely affected efforts to achieve energy efficiency.
  • High transaction costs (which involves appointing suitable consultants and vendors for execution) relative to project size, especially in the micro, small-scale and medium enterprises (MSME) sector, makes energy efficiency investments unattractive for investors.
  • The non-availability of sufficient credit facilities and difficulties in obtaining required finances for energy saving projects are strong deterrents to investments in energy efficiency in India.

Way Forward

  1. Overall energy
  • Oil, natural gas, electricity and coal may be brought under GST to enable input tax credit.
  • Have the same GST rate for all forms of energy to enable a level playing field.
  • All form of subsidies should be provided as functional subsidies to end-consumers to empower them to choose the energy form most suitable and economical to them.
  1. Power
  • Promote smart grid and smart meters.
  • All PPAs including those with state generation companies (gencos) should be based on competitive bidding.
  • Introduce a capacity market to encourage flexible capacity for peak demand and intermittency.
  • Privatizing state distribution utilities and/or the use of a franchisee model will reduce AT&C losses.
  • Discoms may adopt a franchisee model for its retail business in rural areas and stipulate a minimum level of performance parameters, including the use of decentralized generation sources and storage systems for local reliability and resilience.
  • Regulatory bodies need to be further strengthened and made truly independent.
  • For agriculture, an upfront subsidy per acre of land through Direct Benefit Transfer (DBT) may be considered instead of providing separate subsidies for fertilizers, electricity, crop insurance etc.
  • Promote the use of solar pumps for agriculture. Local discoms should buy surplus power from the farmer.
  • Discoms may be fined for load shedding.
  • Ensure effective enforcement of a cap on cross-subsidy and open access. It is also necessary to remove high open access charges.
  • Actively promote cross-border electricity trade to utilize existing/upcoming generation assets.
  • Introduce time-of-day tariff to promote the use of renewable energy.
  • Introduce performance-based incentives in the tariff structure.
  • To manage the demand for power, it is necessary to introduce 100 per cent metering, net metering, smart meters, and metering of electricity supplied to agriculture.
  1. Oil & gas  
  • Provide for a common carrier and open access to gas pipelines.
  • Separate the developmental and regulatory functions of the PNGRB.
  • Expedite establishing the National Gas Grid.
  • Promote city gas distribution to provide piped natural gas (PNG).
  • Review and provide the required flexibility in contract terms to make stranded oil and gas assets functional.
  • Enhance production from the existing fields of ONGC and OIL using cutting-edge technology through a framework of production enhancement contracts.
  • Consider market pricing for blocks that are not viable because of low gas pricing.
  • Provide for shared infrastructure for evacuation of oil and gas from small and scattered on-shore and offshore fields.
  • Provide “priority sector” status for 2G bio-ethanol projects. The concept of ‘solar parks’ can be applied to bio-fuels; land can be leased by the government to oil marketing companies (OMCs) for energy crops.
  • The government should provide viability gap funding/financial assistance for 2G ethanol project developers/technology partners.
  • Declare regasified liquefied natural gas (R-LNG) as transportation fuel and promote PNG in rural areas.
  • Create strategic reserves through various policy options.
  1. Coal  
  • Expeditiously complete detailed exploration through exploration-cum-mining leases based on production/revenue sharing model.
  • Put the onus on concerned state governments to make the land required for mining available.
  • Expeditiously operationalize commercial coal mining.
  1. Renewable energy
  • Provide a mechanism for cost-effective power grid balancing (gas-based, hydro or storage).
  • Renewable purchase obligations (RPO) should be strictly enforced and inter-state sale of renewable energy should be facilitated.
  • It is necessary to have national level markets and regulations for balancing of power. Central level agencies like Central Electricity Regulatory Commission or National Load Despatch Centre should socialize the costs of balancing inter-state transmission systems (ISTS) connected power plants, over the entire system, on the lines of the point of connection (PoC) or a similar mechanism.
  • Decentralized renewable energy in rural areas in conjunction with the discoms’ grid can offer reliability.
  • Hybrid renewable energy systems such as solar PV + biomass should be explored.
  • Commercial biogas needs to be promoted by providing subsidy to consumers.
  1. Energy efficiency
  • The Bureau of Energy Efficiency (BEE) should come out with a white paper on its 5-year strategy on energy efficiency in various sectors and specify energy consumption norms.
  • State designated agencies (SDAs) need to be more empowered and provided with adequate resources to implement EE related programmes. There is a need to ensure greater participation of energy service companies (ESCOs) using appropriate financing models with a risk sharing mechanism, particularly by public sector banks.
  • States should adopt the second version of the Energy Conservation Building Code (ECBC) in their building by-laws and ensure faster implementation.
  • Promote the mandatory use of LED and the replacement of old appliances in government buildings with five-star appliances. Focus the UJALA (Unnat Jyoti by Affordable LEDs for All) programme on lower-income households and small commercial establishments. The number of appliances covered under the Standards and Labelling (S&L) programme should be increased.
  • Widen and deepen the perform, achieve and trade (PAT) programme; make Energy Saving Certificate (ESCert) trading under the PAT scheme effective by ensuring strict penalties against defaulters.
  • For the MSME sector, BEE should develop cluster-specific programmes for energy intensive industries to introduce energy efficient technologies.
  • The Forum of Regulators and State Electricity Regulatory Commissions (SERCs) should provide for lower heat rate requirements for new power stations. Old and inefficient plants consuming more than the threshold energy should be retired in a phased manner.
  • Promote the use of the public transport system. Public transport systems may be converted to electric in a time bound manner. Expand the corporate average fuel efficiency standards (CAFE) beyond passenger cars to other vehicle segments.

 

NITI AYOG - New India @ 75

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