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October 11, 2016

Towards a new power system in India

India is leading in clean energy by signing the International Solar Alliance at CoP21 climate Conference at Paris. Two years ago, the result of general elections 2014 in India revived hope in industrialists and global business market. Once again the share market shows the increase in stock exchange and able to attract the Wall Street attention. Then Bharatiya Janata Party Prime Ministerial candidate Shri Narendra Modi pitched for inclusive development with concern over the environment. While at the inauguration of a solar power project in Neemuch in Madhya Pradesh, he said, “With the country having so much natural resources, India hasn’t progressed much in the 21st century”. India’s development was compromised by mismanagement of the country’s natural resources as a result of Energy Security. Working on his strategy for the energy sector, Modi government is working on clean energy focusing on harnessing coal, gas, hydropower, solar energy, biomass, nuclear, and wind power to bring about an “energy revolution” in the country.

India’s national action plan on climate change recommends that the country generates 10 percent of its power produced from alternative sources of energy like solar, wind, hydropower, and other renewable sources by 2015, and 15 percent by 2020 through energy project studies. India has an installed power generation capacity of 2,27,356.73 megawatt (MW), of which 12.4 percent, or 28,184.35MW, is renewable energy. There is a big gap between service and production, drawing comparisons between different regions of the country and the energy shortage. Modi said that while there was darkness on one side, 20,000MW of capacity was lying idle on the other.

Previous governments failed to fulfil the demand for power generation that is the non-availability of sufficient coal and gas in the country as a reason behind power capacity lying idle. Gas-fuelled power projects with an aggregate capacity of 8,000MW that are close to commissioning and another 1,500MW that have been already commissioned have been stranded in the absence of gas. Lack of governance and mismanagement become the main reason for the government’s inability to utilise existing resources. In addition, another 18,000MW capacity is operating at a plant load factor (PLF) of 20 percent. PLF is a measure of average capacity utilisation. The power projects require 102.61 million standard cubic meters per day (mscmd) of gas. “If we want to industrialise, electricity is the first necessity,” said Modi.

India needs a vision for the grid base power production, need to identify the location to optimise the power production with location specification. With the eastern part of the country rich in water resources, it is a heaven for hydropower generation; also our coasts are fit for wind energy. Similarly, the plains of Gujarat and Rajasthan are fit for solar energy generation, which have sufficient heat influx. If the policy planners had thought about these factors and formed a policy, then India wouldn’t be so dependent on energy imports. As per recent studies, India’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) today, to around 1,500 mtoe. According to the oil ministry’s estimate, India, which is highly dependent on imports to meet its energy demand, has an energy import bill of $150 billion. This is expected to reach $300 billion by 2030, requiring a $3.6 trillion payout by 2030.

India’s current account deficit (CAD) has increased because of coal imports. The then Finance Minister P. Chidambaram had earlier said India plans to restrict its CAD to $50 billion in the year ending 31 March. For the last fiscal, CAD was at $88 billion, with total imports worth $491 billion and oil imports ballooning to $164 billion. But the major issue was proper management and a new policy framework to manage resources to harness it. If India needs to become self-sufficient we will have to become energy independent. Electricity is an important factor. India is the world’s fourth-largest energy consuming nation and imports 80 percent of its crude oil and 18 percent of its natural gas requirements. The country trails the US, China, and Russia, accounting for 4.4 percent of global energy consumption.

Emerging Energy Landscape Politics

The world has witnessed many wars over natural resources. Geopolitics over resources was always centric to foreign policy of any country. Famous Gulf War is one of such example where war waged by coalition forces from 34 nations led by the United States against Iraq in response to Iraq’s invasion and annexation of Kuwait. The recent Russian incursion into Ukraine is another example of the changing landscape of energy security across the world.

Recently, China and Russia signed a natural gas deal under which the Russian oil giant Gazprom will supply China’s largest oil company—China National Petroleum Corp.—38 billion cubic metres of gas every year for the next 30 years, beginning 2018. The deal is worth $400 billion and is the largest contract of its kind in Russia’s history. The importance of the deal transcends its monetary terms and the volume of the commodity sought to be exchanged under it. It not only points towards the tectonic shifts taking place in the global energy landscape but also brings into sharp focus India’s continuing ineptitude at securing its energy future. It is instructive to note how the deal came about to understand where India falls short. The deal was stuck in the past decade, largely on the issue of pricing. Russia was used to getting paid better, by its steady European customers, than what China was willing to shell out.

When it comes to securing such international deals, it is never as simple as paying for the gas. Indeed, it is the whole bouquet of services that a customer can provide. As a result, China has been able to develop a well-diversified energy sourcing portfolio. Compare that to India’s embarrassing past at sewing up deals and our growing dependence on imports. Myanmar is perhaps the most outstanding example. For years, India helped Myanmar to explore its gas reserves. This was the costly bit. Obviously, the idea was to get the gas, through a pipeline, to India. From the very beginning, it was a matter of energy security, not financial gain. As things turned out, India’s foreign policy was not in sync with its energy interests. India dropped the ball and as a result, China, the late entrant, now has cornered the gas through a pipeline, which became operational in 2013.

To add insult to injury, Indian Navratna company—Oil and Natural Gas Corp. (ONGC)—is actually involved in building the pipeline to China. Another, more recent example of such slippages is Kazakhstan, where India lost out energy contracts despite bidding higher than China. The story is the same when one looks at the India-China race for resources in Africa as well. So what should India do? There are two ways to look at the Russia-China deal. One way would be to say that in any case, this gas could not have come to India through a pipeline. Our western border is too troubled and unstable and the Himalayan range makes it impossible in the north and east. While this is true, it would be missing the larger lesson. The right way to look at it is to realise that India urgently needs an energy security doctrine. India is the fourth largest energy consumer in the world and its import dependence is expected to grow to 50 percent of its total demand by 2030. India’s foreign policy must aggressively push to secure long-term and stable supply of energy.

Thankfully, the global geopolitics rearrangement also gives India some hope. With the US and Europe growing more capable of supplying their own fuel, India can turn to the Middle East and African countries, as they look for newer customers. However, we should reframe our energy security policy in accordance with the changing geopolitical energy landscape.

India is trying to emerge as self-sufficient in the Power sector to boost its economy. Economists across the world are looking at India as a big market, but only available resources and power production can’t bring India’s economy on track. We have to also look towards securing our future demand to meet with economic development, but the same time environmental concerns and sustaining our environment for future generation also a big concern.

There is debate over environment versus development, and Prime Minister Narendra Modi asserts his promise for Bharatiya Chintan of Samagra Vikas and said, “If we don’t protect the environment then development will be in danger. Environment-friendly development desires a non-renewable form of energy generation.” India urgently needs an energy security doctrine. Its foreign policy must aggressively push to secure long-term and stable supply of energy.

Reports in the recent past examine the transformation underway in the global energy system, and highlight that substantial new approaches are needed to decarbonise the global economy as the electricity sector accounts for more than 40 percent of man-made (combustion related) CO2 emissions today. The renewable energy technology is sufficiently mature, and the economics favourable to offer a viable climate change solution. Can this new energy system be a win-win situation?

This article first appeared in the editorial of The Millennium Post.

The writer is Senior Research Fellow at India Foundation, an independent think tank. Views are strictly personal.

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